<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
(mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
- --- EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S employer
incorporation or organization) identification number)
100 CROSBY DRIVE, BEDFORD, MASSACHUSETTS 01730
(Address of principal executive offices, including zip code)
(formerly at 20 University Road
Cambridge, MA. 02138)
(781) 280-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 10,025,823 shares of common stock, $.01 par value per share,
as of January 31, 1999.
<PAGE> 2
PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
<TABLE>
<CAPTION>
<S> <C>
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) as 3
of December 31, 1998 and September 30, 1998.
Consolidated Statements of Operations (unaudited) 4
for the three months ended December 31, 1998 and 1997.
Consolidated Statements of Cash Flows (unaudited) 5
for the three months ended December 31, 1998 and 1997.
Notes to Consolidated Financial Statements (unaudited). 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSES ABOUT MARKET RISK 28
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURE 31
</TABLE>
2
<PAGE> 3
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
(IN THOUSANDS,EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents $ 28,876 $ 28,454
Marketable securities 39,412 38,922
Accounts receivable, trade, less allowance
for doubtful accounts of $2,769 at December 31,
1998 and $2,614 at September 30, 1998, respectively 34,712 30,658
Prepaid expenses 3,174 2,799
Other assets 1,483 1,128
Deferred income taxes 1,596 1,697
-------- --------
Total current assets 109,253 103,658
-------- --------
Property and equipment, net 9,912 8,823
Computer software costs, net 119 248
Goodwill, net 1,398 1,082
Deferred income taxes 699 671
Other assets 38 38
-------- --------
Total assets $121,419 $114,520
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,309 $ 8,189
Accrued compensation 4,690 5,800
Income taxes payable 5,449 4,063
Deferred revenue 12,289 12,651
Deferred income taxes 187 287
-------- --------
Total current liabilities 32,924 30,990
-------- --------
Deferred income taxes 97 103
Deferred rent 169 144
Deferred revenue 525 615
Equity in minority interest 44 44
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value;
1,000,000 authorized, none issued and outstanding
Common stock, $.01 par value;15,350,000 authorized;
10,024,998 and 9,982,230 issued for December 31,
1998 and September 30, 1998, respectively 100 100
Additional paid-in capital 51,100 50,410
Retained earnings 36,616 32,330
Accumulated other comprehensive income (156) (216)
-------- --------
Total stockholders' equity 87,660 82,624
-------- --------
Total liabilities and stockholders' equity $121,419 $114,520
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------- ------------
1998 1997
----------- ------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revenues:
Software $ 14,406 $ 11,143
Support and services 19,511 13,967
----------- -----------
Total revenues 33,917 25,110
----------- -----------
Cost of revenues:
Software 1,144 604
Support and services 9,583 6,586
----------- -----------
Total cost of revenues 10,727 7,190
----------- -----------
Gross margin 23,190 17,920
Operating expenses:
Sales and marketing 10,955 8,081
Product development 3,476 2,684
General and administrative 2,867 2,340
----------- -----------
Total operating expenses 17,298 13,105
----------- -----------
Income from operations 5,892 4,815
Interest income 648 736
Interest expense (17) (2)
Other income (expense), net 72 15
----------- -----------
Income before income taxes 6,595 5,564
Provision for income taxes 2,309 2,059
----------- -----------
Net income $ 4,286 $ 3,505
=========== ===========
Net income per share, basic $ 0.43 $ 0.36
----------- -----------
Net income per share, diluted $ 0.42 $ 0.35
----------- -----------
Shares used to calculate net income per share
Basic 10,002,183 9,864,535
Diluted 10,202,463 10,042,325
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
PROJECT SOFTWARE & DEVELOPMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,286 $ 3,505
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,097 849
Loss on sale and disposal of property
and equipment 12 29
Amortization of discount on marketable securities 51 --
Deferred rent 25 9
Deferred taxes (37) 190
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable (3,635) 299
Prepaid expenses (381) (1,182)
Other assets (771) (211)
Accounts payable 1,485 (1,256)
Accrued compensation (1,103) (1,349)
Income taxes payable 1,466 1,245
Deferred revenue (441) (246)
-------- --------
Net cash provided by operating activities 2,054 1,882
-------- --------
Cash flows from investing activities:
Acquisitions of business, net of cash 141 --
Acquisitions of property and equipment (1,856) (2,381)
Additions to computer software costs -- (679)
Purchase of marketable securities (12,604) (36,164)
Sale of marketable securities 12,087 35,673
-------- --------
Net cash used in investing activities (2,232) (3,551)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options
including related tax benefit 690 370
-------- --------
Net cash provided by financing activities 690 370
-------- --------
Effect of exchange rate changes on cash (90) 111
-------- --------
Net increase/(decrease) in cash and cash equivalents 422 (1,188)
Cash and cash equivalents, beginning of period 28,454 25,964
-------- --------
Cash and cash equivalents, end of period $ 28,876 $ 24,776
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Project Software & Development, Inc. (PSDI) and its majority-owned
subsidiaries (collectively, the "Company"), as of December 31, 1998 and have
been prepared by the Company in accordance with generally accepted accounting
principles for interim reporting and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All intercompany accounts and transactions have
been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. The results of operations for the periods
presented herein are not necessarily indicative of the results of operations to
be expected for the entire fiscal year, which ends on September 30, 1999, or for
any other future period.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended September
30, 1998 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on December 29, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. INCOME PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing income available to common
shareholders by the weighted average common shares outstanding plus additional
common shares that would have been outstanding if dilutive potential common
shares had been issued. For purposes of this calculation, stock options are
considered common stock equivalents in periods in which they have a dilutive
effect.
6
<PAGE> 7
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
BASIC EPS 12/30/98 12/30/97
- ---------------------------------------------------------------------------
<S> <C> <C>
Net income $ 4,286,249 $ 3,504,810
Weighted average common shares outstanding 10,002,183 9,864,535
Basic income per share $ 0.43 $ 0.36
DILUTED EPS
- ---------------------------------------------------------------------------
Net income $ 4,286,249 $ 3,504,810
Weighted average common shares outstanding 10,002,183 9,864,535
Common stock equivalents 200,280 177,790
-----------------------------
Total diluted shares 10,202,463 10,042,325
Diluted income per share $ 0.42 $ 0.35
</TABLE>
C. ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131) is effective for financial
statements for periods beginning after December 15, 1997. This statement will
change the way companies report annual financial statements and requires them to
report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues, and its major customers. The Company will adopt SFAS 131 for
the current fiscal year ended September 30, 1999. The Company has not yet
completed its analysis of the operating segments it will report on.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits" (SFAS 132) is effective for
financial statements for fiscal years beginning after December 15, 1997. SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
The Company will adopt SFAS 132 in the fiscal year ended September 30, 1999. The
Company believes that the provisions of SFAS 132 will not, when adopted, have a
material impact on the Company's consolidated financial statements.
Statement of Financial Accounting Standards No. 133 on accounting for derivative
instruments and hedging activities was issued in
7
<PAGE> 8
June 1998. It is effective for fiscal years beginning after June 15, 1999, with
earlier adoption encouraged. The new standard requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivatives and whether they
qualify for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes in
fair value or cash flows. The Company will adopt SFAS 133 in the fiscal year
ended September 30, 2000. The Company believes that the provisions of SFAS 133
will not, when adopted, have a material impact on the Company's consolidated
financial statements.
Statement of Position 98-9 ("SOP 98-9") was issued in December 1998. SOP 98-9
amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition, to
require recognition of revenue using the residual method when (1) there is
vendor-specific objective evidence of the fair values of all undelivered
elements in a multiple-element arrangement that is not accounted for using
long-term contract accounting (2) vendor-specific objective evidence of fair
value does not exist for one or more of the delivered elements in the
arrangement, and (3) all revenue-recognition criteria in SOP 97-2 other than
the requirement for vendor-specific objective evidence of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
the arrangement fee is recognized as follows: (1) the total fair value of the
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP 97-2 and (2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to the
delivered elements.
Effective December 15, 1998, SOP 98-9 amends SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition, to extend the
deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. Earlier adoption is permitted as of
the beginning of fiscal years or interim periods for which financial statements
or information have not been issued. Retroactive application of the provisions
of SOP 98-9 is prohibited. Based upon its reading and interpretations of SOP
98-9, the Company believes its current revenue recognition policies and
procedures are materially consistent with SOP 98-9.
8
<PAGE> 9
D. COMPUTER SOFTWARE COSTS
Internally developed software costs capitalized were $0 and $675,000 for the
three months ended December 31, 1998 and 1997,respectively. Amortization expense
was $129,000 and $22,000 for the three months ended December 31, 1998 and 1997,
respectively. Software costs are amortized on a straight-line basis over the
estimated useful or market life of the software (generally, one to two years).
E. ACQUISITIONS
On December 10, 1998, the Company acquired the shares and assumed net
liabilities of its Italian distributor, Work Management Consulting, s.r.l, for
the sum of $411,000. The transaction was accounted for using the purchase method
of accounting. The resulting goodwill is being amortized on a straight-line
basis over five years. This acquisition was deemed to be immaterial for
presentation of pro forma information purposes.
F. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and taxes were as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Interest ........................... $ 17 $ 3
Income taxes ....................... 721 553
</TABLE>
Acquisitions of businesses were as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Fair value of assets acquired ...... $592 $---
Fair value of liabilities assumed .. 729 ---
Net cash payments .................. 180 ---
</TABLE>
9
<PAGE> 10
G. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
following is presented in accordance with this statement:
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------
Net Income $4,286 $3,505
- -----------------------------------------------------------------------
Other comprehensive
income, net of tax:
- -----------------------------------------------------------------------
Unrealized holding
gain (loss) on 24 (210)
securities arising
during period
- -----------------------------------------------------------------------
Foreign currency
translation 36 (56)
adjustments
- -----------------------------------------------------------------------
Comprehensive income $4,346 $3,239
- -----------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information this Quarterly Report contains
forward-looking statements. The forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in the section entitled "Factors Affecting Future Performance". Readers should
carefully review the risk factors described in other documents that the Company
files from time to time with the Securities and Exchange Commission, including
the Annual Report on Form 10-K filed by the Company on December 29, 1998.
OVERVIEW
The Company develops, markets and supports enterprise asset maintenance software
used by businesses, governments and other organizations to improve the
productivity of facilities, plants and production equipment. The Company
complements its asset maintenance software with an Internet-based
business-to-business e-commerce network. The Company's revenues are derived
primarily from two sources: (i) software licenses and (ii) fees for services,
including support contracts, training and consulting services and connect fees
for on-line charges to engage in electronic commerce for Maintenance Repair
Operations ("MRO") supplies.
ACQUISITIONS
On December 10, 1998, the Company acquired the shares and assumed net
liabilities of its Italian distributor, Work Management Consulting, s.r.l, for
the sum of $411,000. The transaction was accounted for using the purchase method
of accounting. The resulting goodwill is being amortized on a straight-line
basis over five years. This acquisition was deemed to be immaterial for
presentation of pro forma information purposes.
11
<PAGE> 12
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997
REVENUES
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
(in thousands) 12/31/98 CHANGE % 12/31/97
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $14,406 29.3% $11,143
Percentage of total revenues 42.5% 44.4%
Support and services $19,511 39.7% $13,967
Percentage of total revenues 57.5% 55.6%
Total revenues $33,917 35.1% $25,110
</TABLE>
The growth in revenues is generated from the Company's MAXIMO software and
related support and services. A significant portion of the Company's revenues
are derived from operations outside of the United States. Revenues from sales
outside the United States increased 51.8% to $16.7 million or 49.2% of revenues
for the three months ended December 31, 1998, compared to $11.0 million or 43.8%
of revenues for the three months ended December 31, 1997. The increase in the
percentage of revenues generated outside the U.S. for the three months ended
December 31, 1998 can be attributed to the Company's continued global expansion,
which for the first quarter of fiscal 1999 included the acquisition of its
Italian distributor, the incorporation of a wholly-owned subsidiary in the
People's Republic of China and the opening of a regional headquarters in Hong
Kong.
Software licenses for the three months ended December 31, 1998 increased 29.3%
to $14.4 million from $11.1 million. Contributing to this increase was a
significant e-commerce software license of approximately $2.5 million. There can
be no assurance of recurring licenses of this size in e-commerce owing to the
emerging nature of this market. (1) Also, contributing to the growth is the
recognition of MAXIMO software licenses, which grew 8.4% primarily attributable
to the release of the Company's pre-configured industry applications, MAXIMO for
Facilities and
- -----------------------------
(1) Forward looking statement
12
<PAGE> 13
MAXIMO for Industry, released in fiscal 1998. Software licenses as a percentage
of revenues have decreased to 42.5% in the three months ended December 31, 1998
from 44.4% in the three months ended December 31, 1997. While the Company did
not experience a slow down in the sale of MAXIMO software licenses, the Company
cautions that there may be a future slow down in the enterprise software
application market due to cautious information technology spending due to the
year 2000 issues. (1)
The increase in support and services revenues is attributable to increases in
both MAXIMO support contracts and consulting services. Consulting services have
grown 49.5% for the three months ended December 31, 1998 compared to the three
months ended December 31, 1997 and continue to be a large percentage of total
revenues due to additional service demands in connection with large scale
implementations of the Company's MAXIMO product. Support services have grown
23.5% for the three months ended December 31, 1998 compared to the three months
ended December 31, 1997. The increase in the percentage of support revenues is
in direct relation to the increase in software license revenues. Currently,
approximately 90% of all domestic MAXIMO customers renew their maintenance
contracts.
COST OF REVENUES
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
(in thousands) 12/31/98 CHANGE % 12/31/97
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $ 1,144 89.4% $ 604
Percentage of software licenses 7.9% 5.4%
Support and services $ 9,583 45.5% $6,586
Percentage of support and services 49.1% 47.2%
Total cost of revenues $10,727 49.2% $7,190
Percentage of total revenues 31.6% 28.6%
</TABLE>
Cost of software revenues consists of royalties paid to vendors of third party
software, the amortization of capitalized software, the cost of software product
packaging and media, and certain employee costs related to software duplication,
packaging and shipping. The increase in the cost of software revenues is due
primarily to royalties paid to third party vendors for software and costs for
third party software products and amortization of capitalized software.
- -----------------------------
(1) Forward looking statement
13
<PAGE> 14
Cost of support and services consists primarily of personnel costs for employees
and the related costs of benefits and facilities. The increase in the cost of
support and services is attributable to the hiring of employees and the
extensive use of third-party consultants contracted to perform services for the
Company. The Company utilizes the services of these higher cost third-party
consultants in order to meet the heavy services demand and backlog. The cost of
the services component as a percentage of services revenues increased to 66.9%
from 64.1% for the three months ended December 31, 1998 and 1997, respectively.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
(in thousands) 12/31/98 CHANGE % 12/31/97
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Sales and marketing $10,955 35.6% $8,081
Percentage of total revenues 32.3% 32.2%
Product development $ 3,476 29.5% $2,684
Percentage of total revenues 10.2% 10.7%
General and administrative $ 2,867 22.5% $2,340
Percentage of total revenues 8.5% 9.3%
</TABLE>
The increase in sales and marketing expenses for the three months ended
December 31, 1998 is primarily due to increases in sales and marketing
personnel, costs for global expansion and sales commissions based on revenue
growth. Also, contributing to this increase is higher costs for travel and
lodging due partially to price increases imposed by the airline and travel
industries.
The increase in product development expenses for the three months ended December
31, 1998 is attributable to an increase in salary related expenses due to the
hiring of additional personnel and no capitalization of software costs for the
three months ended December 31, 1998. Capitalization of software costs were $0
and $675 thousand for the three months ended December 31, 1998 and 1997,
respectively. The decrease as a percentage of revenues for the three months
ended December 31, 1998 is primarily attributable to increases in revenue growth
without a commensurate increase in product development expenses.
The Company will continue to make investments in a new MAXIMO Java-based
component architecture including a mobile application suite of products. (1) The
Company will also expend development dollars on its M|net electronic commerce
product for MRO supply chain management. (1) The Company will continue to invest
in
- -----------------------------
(1) Forward looking statement
14
<PAGE> 15
client/server MAXIMO including application programming interfaces to enterprise
resource planning application software products developed by Oracle, PeopleSoft
and SAP. (1)
The increase in general and administrative expenses for the three months ended
December 31, 1998 is primarily due to the hiring of additional general and
administrative personnel and related benefits to support the revenue growth of
the Company. The decrease as a percentage of revenues for the three months ended
December 31, 1998 is primarily attributable to increases in revenue growth at a
faster pace than increases in general and administrative expenses.
NON-OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
(in thousands) 12/31/98 CHANGE % 12/31/97
- --------------------------------------------------------------
<S> <C> <C> <C>
Interest income $648 (12.0%) $736
Interest (expense) $(17) 7.5% $ (2)
Other income (expense) $ 72 3.8% $ 15
</TABLE>
Interest income for the period ended December 31, 1998 is attributable to
interest earned on cash equivalents from cash flow generated from operations
including accounts receivable collections. The days sales outstanding was 92
days for the quarter ended December 31, 1998 compared to 84 days for the quarter
ended December 31, 1997. The Company has established a target of 90 to 95 days
for its quarterly days sales outstanding.(1)
The increase in other income (expense) is primarily attributable to foreign
currency translation gains for the quarter ended December 31, 1998.
PROVISION FOR INCOME TAXES
The Company's effective tax rates were 35.0% and 37.0% for the three months
ended December 31, 1998 and 1997, respectively. The Company anticipates that its
fiscal 1999 effective tax rate will not exceed 36%. (1)
- -----------------------------
(1) Forward looking statement
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash and cash equivalents and
marketable securities of approximately $68.3 million and working capital of
$76.3 million. Cash generated by operations for the three months ended
December 31, 1998 was $2.1 million, primarily attributable to net income and an
increase in accounts payable, offset by an increase in receivables as a result
of the increase in revenues.
Cash used in investing activities totaled $2.2 million, primarily for the
purchase of marketable securities and the purchase of property and equipment.
Cash generated by financing activities was $690 thousand, primarily from
proceeds received from exercises of employee stock options.
As of December 31, 1998, the Company's principal commitment consisted primarily
of an office lease for its headquarters. Under the terms of the lease agreement,
upon termination of the lease the Company has the right to extend the lease for
an additional six year term for an agreed upon fixed cost. The Company leases
its facilities and certain equipment under non-cancelable operating lease
agreements that expire at various dates through November 2003. The Company
relocated its corporate headquarters in December 1997.
The Company may use a portion of its cash to acquire businesses, products and
technologies complementary to its business. (1)
The Company believes that its current cash balances combined with cash flow from
operations will be sufficient to meet its working capital and capital
expenditure requirements through at least September 30, 1999. (1)
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain computer programs
that have date sensitive software and use two digits only may recognize a date
using "00" as the year 1900 rather than the year 2000. Management has initiated
a program to prepare the Company's financial, manufacturing and other critical
systems and applications for the year 2000. The focus of the program is to
identify affected software and hardware, develop a plan to correct that software
or hardware in the most cost efficient and effective manner and implement and
monitor that plan. The Company will also assess the readiness of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own
- -----------------------------
(1) Forward looking statement
16
<PAGE> 17
Year 2000 issues. The Company utilizes other third party software products,
network equipment and telecommunications products. Failure of any critical
technology components to operate properly in the Year 2000 may have an adverse
impact on business operations or require the Company to incur unanticipated
expenses to remedy any problems. There can be no guarantee that the systems of
other companies will be timely converted, or that a failure to convert by
another company would not have a material adverse effect on the Company. The
Company currently estimates that the costs associated with preparing internal
systems for the Year 2000 should not exceed $100,000. (1) There can be no
assurances that as the Company continues its program of reviewing internal
systems that the costs will not exceed $100,000.
The Company has evaluated its software products and determined that the current
versions of MAXIMO Release 4.0.0 and 4.0.1 and 3.0.3 will continue to operate
properly into the year 2000. Earlier versions of MAXIMO may be modified by the
customer to operate properly into the year 2000 pursuant to instructions which
are furnished to the customer by the Company. The Company's product PROJECT/2
is no longer sold but the Company does offer support for this product. The
Company will release an upgrade of this product that will enable this product to
recognize date data. The Company's other products, MAXIMO Scheduler 4.0 and 3.0
and P/X are currently being tested for compliancy. The Company estimates that
the cost to upgrade these products and any other older versions of its products
will be approximately $500,000.(1) (For further discussion on the Year 2000,
please see Year 2000 under Factors Affecting Future Performance.)
EURO COMPLIANCE
On January 1, 1999, eleven European Union member states adopted the euro as
their common national currency. Thereafter, until January 1, 2002, the
transition period, either the euro or a participating country's present currency
will be accepted as legal tender. Beginning on January 1, 2002, euro-denominated
bills and coins will be issued, and by July 1, 2002, only the euro will be used.
A significant number of the Company's customers are located, or transact
business with, or have operations in participating European Union countries. As
a result, the computer systems or software used by these companies may need to
be upgraded to comply with data storage and computational euro requirements. In
the first fiscal quarter of 1999, the Company released a new English language
client/server version of MAXIMO (MAXIMO 4.0.1) that accepts, stores, calculates,
converts and reports euro currency. Other primary languages will be made
generally available in the second fiscal quarter of 1999. The amount of
development dollars spent on the euro release will not have a material adverse
effect on the Company's results of operations or financial condition. (1) The
- -----------------------------
(1) Forward looking statement
17
<PAGE> 18
Company has initiated a program to determine what, if any, internal systems need
to be replaced to comply with the requirements for the adoption of the euro.
FACTORS AFFECTING FUTURE PERFORMANCE
The nature of forward-looking information is that such information involves
assumptions, risks and uncertainties. Certain public documents of the Company
and oral statements made by authorized officers, directors, employees, agents
and representatives of the Company, acting on its behalf, may include
forward-looking information which will be influenced by the following and other
assumptions, risks and uncertainties. Forward-looking information requires
management of the Company to make assumptions, estimates, forecasts and
projections regarding the Company's future results as well as the future
effectiveness of the Company's strategic plans and future operational decisions.
Forward-looking statements made by or on behalf of the Company are subject to
the risk that the forecasts, projections, and expectations of management, or
assumptions underlying such forecasts, projections and expectations, may become
inaccurate. Accordingly, actual results and the Company's implementation of its
plans and operations may differ materially from forward-looking statements made
by or on behalf of the Company. The following discussion identifies certain
important factors that could affect the Company's actual results and actions and
could cause such results and actions to differ materially from any
forward-looking statements made by or on behalf of the Company that related to
such results and actions.
Other factors, which are not identified herein, could also have such an effect.
RAPID TECHNOLOGICAL CHANGE
The computer software industry is characterized by rapid technological advances,
changes in customer requirements and frequent product introductions and
enhancements. The Company's success depends upon its ability to continue to
enhance its current products and to develop and introduce new products that keep
pace with technological developments, respond to evolving customer requirements
and achieve market acceptance. In particular, the Company believes that it must
continue to respond quickly to users' needs for broad functionality and to
advances in hardware and operating systems. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness and revenues. There can be no
assurance that the Company will be successful in developing and marketing new
products or product enhancements, or that the Company will not experience
significant delays in developing such new products or product enhancements. Such
delays could have a material adverse
18
<PAGE> 19
effect on the Company's results of operations. In addition, there can be no
assurance that new products and product enhancements developed by the Company
will achieve market acceptance.
DEPENDENCE ON MAXIMO
The Company's revenues are primarily attributable to the licensing of its MAXIMO
client/server product, introduced in 1991, and to related services and support.
Revenues from licenses of MAXIMO and related services and support accounted for
approximately 93.8% of the Company's total revenues in fiscal 1998. The
Company's financial performance in fiscal 1999 will depend on continued market
acceptance of MAXIMO. The Company believes that continued market acceptance of
MAXIMO will largely depend on its ability to enhance and broaden the
capabilities of MAXIMO, by, among other things, developing additional
application modules for MAXIMO, versions of MAXIMO and by developing and
incorporating into the MAXIMO product technologies that are emerging in
connection with the Internet. Any factor adversely affecting sales of MAXIMO,
such as delays in development, significant software flaws, incompatibility with
significant hardware platforms, operating systems or databases, increased
competition or negative evaluations of the products, would have a material
adverse effect on the Company's business and financial results.
The Company made the English language version of MAXIMO Release 4.0 generally
available in March 1998 for new clients. In the fourth quarter of the fiscal
year ended 1998, the Company released primary language versions of MAXIMO 4.0 in
Brazilian Portuguese, Dutch, French, German, Japanese, Latin American Spanish,
and Swedish. The failure of MAXIMO 4.0 to achieve market acceptance would have a
material adverse effect on the Company's business and financial results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has experienced, and may in the future experience, significant
period-to-period fluctuations in revenues and operating results. The Company's
revenues and income from operations typically grow at a lower rate or decline in
the first quarter of each fiscal year, compared to the fourth quarter of the
preceding fiscal year. In addition, revenues are typically higher in the fourth
quarter than in other quarters of the year. The Company believes that these
quarterly patterns are partly attributable to the Company's sales commission
policies, which compensate members of the Company's direct sales force for
meeting or exceeding annual quotas. In addition, the Company's quarterly
revenues and operating results have fluctuated historically, due to the number
and timing of product introductions and enhancements, the budgeting and
purchasing cycles of customers, the timing of product shipments and the timing
of marketing and product development expenditures. The
19
<PAGE> 20
Company typically realizes a significant portion of its revenue from sales of
software licenses in the last two weeks of a quarter, frequently even in the
last days of a quarter. Large software license contracts may have a significant
impact on revenues for any quarter and could, therefore, result in significant
fluctuations in quarterly revenues and operating results. Accordingly, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance.
The Company generally ships its products upon receipt of orders and maintains no
significant product backlog. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. A delay in or loss of orders can cause significant variations in
operating results. A significant portion of the Company's operating expenses are
fixed in the short term, and planned expenditures are based primarily on sales
forecasts. Accordingly, if revenues do not meet the Company's expectations in
any given quarter, operating results may be materially adversely affected.
COMPETITION
The market for applications software is intensely competitive and rapidly
changing. While the Company believes that it has competed effectively to date,
competition in its industry is likely to intensify as current competitors expand
their product lines and new companies enter the market. To remain successful in
the future, the Company must respond promptly and effectively to the challenges
of technological change, evolving standards and its competitors' innovations by
continually enhancing its own products, services and support offerings, as well
as its marketing programs. There can be no assurance that the Company will
continue to be able to compete successfully in the future.
The market for asset maintenance software is fragmented by geography, by
hardware platform and by industry orientation, and is characterized by a large
number of competitors. Currently, the Company's client/server versions of MAXIMO
compete with products of a number of large vendors some of which have
traditionally provided maintenance software running on mainframes and
minicomputers and are now offering systems for use in the client/server
environment. MAXIMO also competes with integrated enterprise resource planning
systems which are provided by several large vendors and which include
maintenance modules. MAXIMO also encounters competition from vendors of low cost
maintenance management systems designed initially for use by a single user or
limited number of users as vendors of these products upgrade their functionality
to enter the client/server market.
20
<PAGE> 21
The MRO supply chain management business using electronic commerce has many
diverse competitors offering a wide range of differing products, services and
technologies. While the Company believes that electronic commerce products and
technologies complement the Company's existing products, there can be no
assurance that the Company will be able to compete successfully in this market.
Certain of the Company's competitors have greater financial, marketing, service
and support and technological resources than the Company. To the extent that
such competitors increase their focus on the asset maintenance or planning and
cost systems markets, the Company could be at a competitive disadvantage.
INTERNATIONAL OPERATIONS
A significant portion of the Company's total revenues are derived from
operations outside the United States. The Company derived 45.7%, 43.8%, and
40.5% of its total revenue from sales outside the United States in fiscal years
1998, 1997, and 1996, respectively. The Company expects that international
revenues will continue to be a significant percentage of total revenues. The
Company expects international revenues to continue to grow in absolute dollars
during 1999, and accordingly, continues to invest heavily in international
infrastructure, global product functionality and translated versions of
financial and other software products. In the event international expansion
and/or product globalization efforts are not successful, the Company's business
operating results and financial condition may be adversely affected. This
international business is subject to various risks common to international
activities, including exposure to currency fluctuations, greater difficulty in
collecting accounts receivable, political and economic instability, the greater
difficulty of administering business abroad and the need to comply with a wide
variety of foreign import and United States export laws and regulatory
requirements. A significant portion of the Company's total revenue is derived
from international operations that are conducted in foreign currencies. Changes
in the values of these foreign currencies relative to the United States dollar
have in the past adversely affected, and may in the future affect, the Company's
results of operations and financial position. Gains and losses on translation to
United States dollars and settlement of receivables from international
subsidiaries may contribute to fluctuations in the Company's results of
operations. To date, the Company has not engaged in currency hedging
transactions. The Company may in the future undertake currency hedging, although
there can be no assurance that hedging transactions, if entered into, would
materially reduce the effects of fluctuations in foreign currency exchange rates
on the Company's results of operations. The Company experienced lower than
anticipated revenue growth rates in the Asia Pacific region during 1998 in part
due to the economic difficulties that have occurred
21
<PAGE> 22
throughout this region. There can be no assurances that the economy of this
region will recover in the near future or that the Company's growth rates in
this geographic region will return to the previous levels if the recovery
occurs.
DEPENDENCE ON THIRD PARTIES
The client/server versions of MAXIMO operate with the Oracle, SQLServer, and
SQLBase database management systems. MAXIMO ADvantage runs on the Microsoft
Access database. Introduction and increased market acceptance of database
management systems with which the Company's products do not operate could
adversely affect the market for the Company's products.
The Company has entered into nonexclusive license agreements with Centura
Software Corporation, Scribe Technologies, Incorporated, Cognos Corporation,
Netronic Software GmbH, HSB Reliability Technologies Corporation, Intelligent
Labeling Technologies, Incorporated, WebLogic, Incorporated, Marimba, Inc., and
Intermat, Inc. pursuant to which the Company incorporates into its products
software providing certain application development, user interface, business
intelligence, content and graphics capabilities developed by these companies. If
the Company were unable to renew these licenses, or if any of such vendors were
to become unable to support and enhance its products, the Company could be
required to devote additional resources to the enhancement and support of these
products or to acquire or develop software providing equivalent capabilities,
which could cause delays in the development and introduction of products
incorporating such capabilities.
PRODUCT DEVELOPMENT: INTERNET
The Company is currently developing a Java-based component architect software
application to incorporate into the MAXIMO product technologies emerging in
conjunction with the Internet. Internet technologies and applications generally
are developing and gaining acceptance rapidly in the market. MRO supply chain
management using electronic commerce is a nascent market with many standards and
technologies remaining to be developed. Accordingly, developing technologies
pose risks to the Company. The Company believes that electronic commerce
products and technologies complement the Company's existing products. There can
be no assurance that the Company will successfully anticipate trends in this
market, that the Company will be successful in Internet technology development
or acquisition efforts or that the Company's Internet applications, if
developed, will achieve market acceptance.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is dependent upon proprietary technology. The Company
currently has no patents and protects its technology primarily through
copyrights, trademarks, trade secrets and
22
<PAGE> 23
employee and third party nondisclosure agreements. The Company's software
products are sometimes licensed to customers under "shrink wrap" licenses
included as part of the product packaging. Although, in larger sales, the
Company's shrink-wrap licenses may be accompanied by specifically negotiated
agreements signed by the licensee, in many cases its shrink-wrap licenses are
not negotiated with or signed by individual licensees. Certain provisions of the
Company's shrink-wrap licenses, including provisions protecting against
unauthorized use, copying, transfer and disclosure of the licensed program, may
be unenforceable under the laws of certain jurisdictions. In addition, the laws
of some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology or development by others
of similar technology. Although the Company believes that its products and
technology do not infringe on any existing proprietary rights of others, there
can be no assurance that third parties will not assert infringement claims in
the future.
GENERAL ECONOMIC RISK FACTORS
To date, inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation will not adversely
affect the Company's financial results in the future.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on certain key executive officers and technical
employees, the loss of one or more of who could have an adverse impact on the
future operations of the Company. The Company continues to hire a significant
number of additional sales, services and technical personnel. Competition for
hiring of such personnel in the software industry is intense, and the Company
from time to time experiences difficulty in locating candidates with the
appropriate qualifications within the desired geographic locations, or with
certain industry specific domain expertise. It is widely believed that the
technology industry is at or beyond a condition of full employment. The Company
does not have employment contracts with, and does not maintain key person life
insurance policies on, any personnel. In addition, the Company may need to hire
additional skilled personnel to support the continued growth of its business.
There can be no assurance that the Company will be able to retain its existing
personnel or attract additional qualified employees.
CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS
As part of its overall strategy, the Company plans to continue to acquire or
invest in complementary companies, products, or technologies and to enter into
joint ventures and strategic
23
<PAGE> 24
alliances with other companies. There can be no assurance that the Company would
be successful in overcoming the risks associated or problems encountered in
connection with such business combinations, investments, or joint ventures, or
that such transactions will not materially adversely affect the Company's
business, financial condition, or operating results.
POSSIBLE CONTINUED VOLATILITY OF STOCK PRICE
Fiscal 1998 was marked by significant fluctuations in the market price of the
common stock, par value $.01 per share, of the Company (the "Common Stock").
Factors such as announcements of technological innovations or new products by
the Company, its competitors and other third parties, as well as quarterly
variations in the Company's results of operations and market conditions in the
industry, may cause the market price of the Common Stock to continue to
fluctuate significantly. In addition, the stock market in general has recently
experienced substantial price and volume fluctuations, which have particularly
affected the market prices of many software companies and which have often been
unrelated to the operating performance of such companies. These broad market
fluctuations also may adversely affect the market price of the Common Stock.
LITIGATION RISKS
The Company is subject to the normal risks of litigation with respect to its
business operation.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain computer programs
that have date sensitive software and use two digits only may recognize a date
using "00" as the year 1900 rather than the year 2000.
Management has initiated a program to prepare the Company's financial,
manufacturing and other critical systems and applications for the year 2000. The
focus of the program is to identify affected software and hardware, develop a
plan to correct that software or hardware in the most effective manner and
implement and monitor that plan. The Company has begun to assess the readiness
of its significant suppliers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company utilizes other third party software products, network
equipment and telecommunications products. Failure of any critical technology
components to operate properly in the Year 2000 may have an adverse impact on
business operations or require the Company to incur unanticipated expenses to
remedy any problems. There can be no guarantee that the systems of other
companies will be timely converted, or that a failure to convert
24
<PAGE> 25
by another company would not have a material adverse effect on the Company. The
Company currently estimates that the costs associated with preparing internal
systems for the Year 2000 should not exceed $100,000. There can be no assurances
that as the Company continues its program of reviewing internal systems that the
costs will not exceed $100,000. The Company has begun to develop a contingency
plan based on the final results gathered from its suppliers and third parties.
The Company plans to finalize this plan by end of September 1999.
The Company has evaluated its software products and determined that the current
versions of MAXIMO Release 4.0.0 and 4.0.1 and 3.0.3 will continue to operate
properly into the year 2000. MAXIMO version 3.0.2 is not fully compliant.
Customers must upgrade to Release 3.0.3 or Release 4.0.1 and allow adequate time
for conversion of data. MAXIMO releases prior to MAXIMO Release 3.0.2 must be
upgraded from the user's existing version to MAXIMO 3.0.3 in order to be year
2000 compliant. Upgrades will be provided free of charge. MAXIMO ADvantage 4.0
is intended to be year 2000 compliant. The production release for ADvantage 4.0
is scheduled for the end of March 1999. Customers using prior versions of
ADvantage must be upgraded to ADvantage 4.0 to be year 2000 compliant. Upgrades
will be provided free of charge. The Company's electronic commerce product,
M|net, is currently being tested for year 2000 compliance. Testing is scheduled
to be completed by the end of June 1999. The Company's product PROJECT/2 is no
longer sold but the Company does offer support for this product. The Company
will release an upgrade of this product targeted for the fourth quarter of
fiscal 1999 that will enable this product to recognize date data after January
1, 2000 and handle leap year calculations. MAXIMO Scheduler 4.0 and 3.0 and P/X
are currently being tested for compliancy. The Company estimates that the cost
to upgrade all of its products to be year 2000 enabled will be approximately
$500,000.
The Company does not believe that the advent of the Millennium has caused any
positive or negative impact on revenues from the Company's software products
during fiscal 1998. While the Company has experienced customer requests to
replace non-compliant Year 2000 applications, it also believes that certain
market segments have deferred procuring asset maintenance systems while they
complete the implementation of ERP systems. The Company cautions that there may
be a slow down in the future in the enterprise application market due to
cautious information technology spending due to the year 2000 issues. The
Company will continue to monitor the potential impact of the arrival of the
Millennium on its software revenues.
EURO COMPLIANCE
On January 1, 1999, eleven European Union member states adopted the euro as
their common national currency. Thereafter, until January 1, 2002, the
transition period, either the euro or a participating country's present currency
will be accepted as
25
<PAGE> 26
legal tender. Beginning on January 1, 2002, euro-denominated bills and coins
will be issued, and by July 1, 2002, only the euro will be used. A significant
number of the Company's customers are located, or transact business with, or
have operations in participating European Union countries. As a result, the
computer systems or software used by these companies may need to be upgraded to
comply with data storage and computational euro requirements. In the first
fiscal quarter of 1999, the Company released a new English language
client/server version of MAXIMO (MAXIMO 4.0.1) that accepts, stores, calculates,
converts and reports euro currency. Other primary languages will be made
generally available in the second fiscal quarter of 1999. The amount of
development dollars spent on the euro release will not have a material adverse
effect on the Company's results of operations or financial condition. The
Company has initiated a program to determine what, if any, internal systems need
to be replaced to comply with the requirements for the adoption of the euro.
ACCOUNTING POLICIES THAT MAY HAVE AN ADVERSE EFFECT
Statement of Position 98-9 ("SOP 98-9") was issued in December 1998. SOP 98-9
amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition, to
require recognition of revenue using the residual method when (1) there is
vendor-specific objective evidence of the fair values of all undelivered
elements in a multiple-element arrangement that is not accounted for using
long-term contract accounting (2) vendor-specific objective evidence of fair
value does not exist for one or more of the delivered elements in the
arrangement, and (3) all revenue-recognition criteria in SOP 97-2 other than the
requirement for vendor-specific objective evidence of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
the arrangement fee is recognized as follows: (1) the total fair value of the
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP 97-2 and (2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to the
delivered elements.
Effective December 15, 1998, SOP 98-9 amends SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition, to extend the
deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. Earlier adoption is permitted as of
the beginning of fiscal years or interim periods for which financial statements
or information have not been issued. Retroactive application of the provisions
of SOP 98-9 is prohibited. Based upon its reading and interpretations of SOP
98-9, the Company believes its current
26
<PAGE> 27
revenue recognition policies and procedures are materially consistent with SOP
98-9.
NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS
The Company will have no obligation to release publicly any revision or update
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.
27
<PAGE> 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NOT APPLICABLE
28
<PAGE> 29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Organization of the Company (included
as Exhibit 3.3 to the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1996, File No. 0-23852 and incorporated herein by reference)
3.3 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (which is attached
as Exhibit A to the Rights Agreement included as Exhibit 4 (b) to the
Company's Current Report on Form 8-K dated February 2, 1998, File No.
0-23852, and incorporated herein by reference)
4. Instruments defining the Rights of Security Holders, Including
Indentures
4.1 Specimen certificate for the Common Stock of the Company (included as
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of Organization of the
Company (included as Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-76420, and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between Project Software
& Development, Inc. and BankBoston, N.A. as Rights Agent (included as
Exhibit 4 (a) to the Company's Current Report on Form 8-K dated February 2,
1998, File No. 0-23852, and incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (included as Exhibit
29
<PAGE> 30
4 (b) to the Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852, and incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and
incorporated herein by reference)
27. Financial Data Schedule
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the three months ended December 31, 1998, the Company filed a
current report on Form 8-K related to the naming of Stephen B. Sayre to the
Company's Board of Directors.
30
<PAGE> 31
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.
PROJECT SOFTWARE & DEVELOPMENT, INC.
Date: February 12, 1999 By: /s/ Paul D. Birch
----------------- ----------------------------------
Paul D. Birch
Authorized Officer
Executive Vice President Finance &
Administration, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
3.1 Amended and Restated Articles of Organization of the Company (included as
Exhibit 3.3 to the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 File No. 0-23852 and incorporated herein by reference)
3.3 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (which is attached
as Exhibit A to the Rights Agreement included as Exhibit 4 (b) to the
Company's Current Report on Form 8-K dated February 2, 1998, File No.
0-23852, and incorporated herein by reference)
4.1 Specimen certificate for the Common Stock of the Company (included as
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of Organization of the
Company (included as Exhibit 4.1 to the Company's Registration Statement
on Form S-1, Registration No. 33-76420, and incorporated herein by
reference)
4.3 Rights Agreement dated as of January 27, 1998, between Project Software &
Development, Inc. and BankBoston, N.A. as Rights Agent (included as
Exhibit 4 (a) to the Company's Current Report on Form 8-K dated February
2, 1998, File No. 0-23852, and incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (included as
Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February
2, 1998, File No. 0-23852, and incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and
incorporated herein by reference)
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000920354
<NAME> PROJECT SOFTWARE & DEVELOPMENT, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 28,876
<SECURITIES> 39,412
<RECEIVABLES> 37,481
<ALLOWANCES> 2,769
<INVENTORY> 0
<CURRENT-ASSETS> 109,253
<PP&E> 20,885
<DEPRECIATION> 10,973
<TOTAL-ASSETS> 121,419
<CURRENT-LIABILITIES> 32,924
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 87,560
<TOTAL-LIABILITY-AND-EQUITY> 121,419
<SALES> 14,406
<TOTAL-REVENUES> 33,917
<CGS> 1,144
<TOTAL-COSTS> 10,727
<OTHER-EXPENSES> 17,298
<LOSS-PROVISION> 123
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 6,595
<INCOME-TAX> 2,309
<INCOME-CONTINUING> 5,892
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,286
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.42
</TABLE>
