<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
(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)
(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: 21,805,570 shares of common stock, $.01 par value per share,
as of April 30, 2000.
<PAGE> 2
PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Balance Sheets (unaudited) as of March 31, 2000 and 3
September 30, 1999.
Consolidated Statements of Operations (unaudited) for the three and six 4
months ended March 31, 2000 and 1999.
Consolidated Statements of Cash Flows (unaudited) for the three and six 5
months ended March 31, 2000 and 1999.
Notes to Consolidated Financial Statements (unaudited). 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 13
OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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>
ASSETS MARCH 31, SEPTEMBER 30,
2000 1999
-------- ---------
(IN THOUSANDS,EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,928 $ 59,903
Marketable securities 8,709 30,920
Accounts receivable, trade, less allowance
for doubtful accounts of $2,907 at March 31, 2000
and $2,867 at September 30, 1999, respectively 47,712 38,736
Prepaid expenses 7,215 3,919
Other current assets 1,131 1,171
Deferred income taxes 2,228 2,017
--------- ---------
Total current assets 97,923 136,666
--------- ---------
Marketable securities 2,161 7,413
Property and equipment, net 14,675 12,055
Intangible assets, net 54,508 1,509
Other assets 383 406
Deferred income taxes 1,327 984
--------- ---------
Total assets $ 170,977 $ 159,033
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,393 $ 12,172
Accrued compensation 6,077 8,429
Income taxes payable 3,517 4,227
Deferred revenue 18,116 16,580
Deferred income taxes 94 187
--------- ---------
Total current liabilities 43,197 41,595
--------- ---------
Deferred rent 130 146
Deferred revenue 143 92
Commitments and contingencies
Equity in minority interest -- 44
Stockholders' equity
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding
Common stock, $.01 par value;50,000,000 authorized;
21,804,570 and 21,301,674 issued at March 31, 2000
and September 30, 1999, respectively 218 213
Additional paid-in capital 73,162 67,418
Retained earnings 55,169 50,210
Accumulated other comprehensive income (1,042) (685)
--------- ---------
Total stockholders' equity 127,507 117,156
--------- ---------
Total liabilities and stockholders' equity $ 170,977 $ 159,033
========= =========
</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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Software $ 18,644 $ 13,470 $ 34,381 $ 27,876
Support and services 22,977 19,440 45,226 38,951
-------- -------- -------- --------
Total revenues 41,621 32,910 79,607 66,827
-------- -------- -------- --------
Cost of revenues:
Software 845 1,516 1,504 2,660
Support and services 12,172 9,700 24,700 19,283
-------- -------- -------- --------
Total cost of revenues 13,017 11,216 26,204 21,943
-------- -------- -------- --------
Gross margin 28,604 21,694 53,403 44,884
Operating expenses:
Sales and marketing 15,824 9,339 29,688 20,198
Product development 5,522 3,628 10,017 7,104
General and administrative 3,517 2,515 6,569 5,382
Goodwill amortization 1,132 121 1,301 217
-------- -------- -------- --------
Total operating expenses 25,995 15,603 47,575 32,901
-------- -------- -------- --------
Income from operations 2,609 6,091 5,828 11,983
Interest income 1,382 679 2,319 1,327
Interest expense (100) (7) (101) (24)
Other income (expense), net (183) (323) (377) (251)
-------- -------- -------- --------
Income before income taxes 3,708 6,440 7,669 13,035
Provision for income taxes 1,345 2,146 2,710 4,455
-------- -------- -------- --------
Net income $ 2,363 $ 4,294 $ 4,959 $ 8,580
======== ======== ======== ========
Net income per share, basic $ 0.11 $ 0.21 $ 0.23 $ 0.43
-------- -------- -------- --------
Net income per share, diluted $ 0.10 $ 0.21 $ 0.22 $ 0.42
-------- -------- -------- --------
Shares used to calculate net income per share
Basic 21,671 20,067 21,543 20,036
Diluted 23,276 20,652 22,991 20,529
</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>
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,959 $ 8,580
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,540 2,234
Gain/(loss) on sale and disposal of property
and equipment 15 23
Amortization of discount on marketable securities 100 94
Deferred rent (16) 18
Deferred income taxes (715) 54
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable (8,129) (5,020)
Prepaid expenses (3,189) (609)
Other assets (945) (774)
Accounts payable 4,388 1,830
Accrued compensation (2,709) (1,922)
Income taxes payable (619) (56)
Deferred revenue 2,230 1,322
-------- --------
Net cash (used in)/ provided by operating activities (2,090) 5,774
-------- --------
Cash flows from investing activities:
Acquisitions of business, net of cash (55,558) 141
Acquisitions of property and equipment (4,143) (2,825)
Purchase of marketable securities (51,879) (23,553)
Sale of marketable securities 79,249 22,517
-------- --------
Net cash used in investing activities (32,331) (3,720)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options
including related tax benefit 5,750 877
-------- --------
Net cash provided by financing activities 5,750 877
-------- --------
Effect of exchange rate changes on cash (304) (273)
-------- --------
Net increase in cash and cash equivalents (28,975) 2,658
Cash and cash equivalents, beginning of period 59,903 28,454
-------- --------
Cash and cash equivalents, end of period $ 30,928 $ 31,112
======== ========
</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 March 31, 2000 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, 2000, 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, 1999 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 29, 1999.
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 dilutive
potential common shares. For purposes of this calculation, stock options are
considered dilutive potential common shares in periods in which they have a
dilutive effect.
6
<PAGE> 7
Basic and diluted earnings per share are calculated as follows:
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
BASIC EPS 03/31/00 03/31/99
- --------------------------------------------------------------------
<S> <C> <C>
Net income $ 2,363 $ 4,294
Weighted average common
Shares outstanding 21,671 20,067
Basic income per share $ 0.11 $ 0.21
DILUTED EPS
- -------------------------------------------------------------------
Net income $ 2,363 $ 4,294
Weighted average common
shares outstanding 21,671 20,067
Dilutive potential
common shares 1,605 585
--------------------
Total diluted shares 23,276 20,652
Diluted income per share $ 0.10 $ 0.21
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
BASIC EPS 03/31/00 03/31/99
- --------------------------------------------------------------------
<S> <C> <C>
Net income $ 4,959 $ 8,580
Weighted average common
shares outstanding 21,543 20,036
Basic income per share $ 0.23 $ 0.43
DILUTED EPS
- -------------------------------------------------------------------
Net income $ 4,959 $ 8,580
Weighted average common
shares outstanding 21,543 20,036
Dilutive potential
Common shares 1,448 493
--------------------
Total diluted shares 22,991 20,529
Diluted income per share $ 0.22 $ 0.42
</TABLE>
C. ACQUISITIONS
On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a
leading provider of MRO ("Maintenance, Repair and Operations") content
management tools and cataloging services. The acquisition, recorded under the
purchase method of accounting, included the purchase of the outstanding shares
of common stock of INTERMAT, Inc. for $55.1 million in cash plus acquisition
costs of $1.3 million. A portion of the purchase price has been allocated to
assets acquired and liabilities assumed based on the estimated fair market value
at the date of acquisition while the remaining balance of $53.1 million was
recorded as goodwill and other intangible
7
<PAGE> 8
assets. Goodwill of $46.6 million is being amortized over a period of 5 years on
a straight-line basis. Other intangible assets of $6.5 million is being
amortized over a period of 3 to 5 years on a straight-line basis. Other
intangible assets consist primarily of workforce in place of $1.5 million which
is being amortized over 5 years; completed technology of $4.5 million being
amortized over 4 years, and the balance of $500 thousand being amortized over 3
years.
The following is certain unaudited financial information for PSDI and INTERMAT,
Inc. for the period before the combination was consummated that are included in
the current combined net income:
(in thousands)
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
03/31/00 03/31/99 03/31/00 03/31/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
PSDI $ 41,621 $ 32,910 $ 79,607 $ 66,827
INTERMAT $ 1,532 $ 2,124 $ 3,629 $ 5,317
-------- -------- -------- --------
Combined $ 43,153 $ 35,034 $ 83,236 $ 72,144
-------- -------- -------- --------
NET INCOME:
PSDI $ 2,363 $ 4,294 $ 4,959 $ 8,580
INTERMAT $ 16 $ (7) $ (204) $ 758
Amortization of
goodwill and
intangible assets $ (2,653) $ (2,653) $ (5,306) $ (5,306)
-------- -------- -------- --------
Combined $ (274) $ 1,634 $ (551) $ 4,032
-------- -------- -------- --------
Basic (loss) income $ (0.01) $ 0.08 $ (0.03) $ (0.20)
per share
Diluted (loss) $ (0.01) $ 0.08 $ (0.03) $ (0.20)
income per share
</TABLE>
D. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
(in thousands) 2000 1999
---- ----
<S> <C> <C>
Goodwill ........................ $ 49,049 $ 2,711
Other intangible assets ......... 8,269 --
-------- --------
$ 57,318 $ 2,711
Less accumulated amortization ... (2,810) (1,430)
-------- --------
$ 54,508 $ 1,281
======== ========
</TABLE>
Amortization expense was $1.3 million and $216 thousand for March 31, 2000 and
March 31, 1999, respectively.
8
<PAGE> 9
E. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and taxes were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
(in thousands) 2000 1999
------ ------
<S> <C> <C>
Interest ........................ $ 1 $ 25
Income taxes .................... 3,124 4,559
</TABLE>
Acquisitions of businesses were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
(in thousands) 2000 1999
------- -------
<S> <C> <C>
Fair value of assets acquired .... $56,953 $ 592
Fair value of liabilities assumed 753 729
Net cash payments ................ $55,100 180
</TABLE>
F. COMPREHENSIVE INCOME
The following table reflects the components of comprehensive income:
<TABLE>
<CAPTION>
(in thousands)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
- ---------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 2,363 $ 4,294
- ---------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized gain/(loss) on
Securities arising during
Period 34 (41)
Foreign currency translation
Adjustment (198) (412)
- ---------------------------------------------------------------------------------
Comprehensive income $ 2,199 $ 3,841
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 4,959 $ 8,580
- --------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized gain/(loss) on
Securities arising during
Period 6 (17)
Foreign currency translation
Adjustment (363) (376)
- --------------------------------------------------------------------------------
Comprehensive income $ 4,602 $ 8,187
- --------------------------------------------------------------------------------
</TABLE>
G. SEGMENT INFORMATION, GEOGRAPHIC DATA AND MAJOR CUSTOMERS:
The following is presented in accordance with SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company has identified
two reportable industry segments: the development, marketing and support of
asset maintenance management software (MAXIMO) and internet e-Commerce software
products and network services (MRO.com(TM)). Asset information by reportable
segment is not reported, since the Company does not produce such information
internally. The Company also manages these segments across geographic reportable
segments: United States, Other Americas (Canada and Latin America),
Europe/Middle East and Africa, and Asia Pacific. All segments are managed by the
same board of directors and executive officers.
A summary of the Company's operations by segment was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Revenues:
Asset maintenance software and
services .............................. $ 32,886 $ 32,594
Internet e-Commerce software and
services .............................. 8,735 316
-------- --------
$ 41,621 $ 32,910
======== ========
Income from operations:
Asset maintenance software and
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C>
services .............................. $ 5,845 $ 7,716
Internet e-Commerce software and
services .............................. (3,236) (1,625)
-------- --------
$ 2,609 $ 6,091
-------- --------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Revenues:
Asset maintenance software and
services .............................. $ 67,776 $ 63,601
Internet e-Commerce software and
services .............................. 11,831 3,226
-------- --------
$ 79,607 $ 66,827
======== ========
Income from operations:
Asset maintenance software and
Services .............................. $ 13,217 $ 12,954
Internet e-Commerce software and
services .............................. (7,389) (971)
-------- --------
$ 5,828 $ 11,983
-------- --------
</TABLE>
A summary of the Company's operations by geographical area was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Revenues:
United States ......................... $ 27,169 $ 16,641
Other Americas ........................ 2,587 2,160
Intercompany revenues ................. 81 3,943
-------- --------
$ 29,837 $ 22,744
Europe/Middle East and Africa ......... $ 10,396 $ 11,619
Asia/Pacific .......................... 1,469 2,490
Consolidating eliminations ............ (81) (3,943)
-------- --------
$ 41,621 $ 32,910
-------- --------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Revenues:
United States ......................... $ 48,188 $ 33,874
Other Americas ........................ 5,361 4,612
Intercompany revenues ................. 2,102 8,558
-------- --------
$ 55,651 $ 47,044
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C>
Europe/Middle East and Africa ......... $ 21,676 $ 22,872
Asia/Pacific .......................... 4,382 5,469
Consolidating eliminations ............ (2,102) (8,558)
-------- --------
$ 79,607 $ 66,827
-------- --------
</TABLE>
The Company has subsidiaries in foreign countries, which sell the Company's
products and services in their respective geographic areas. Intercompany
revenues primarily represent shipments of software to international subsidiaries
and are eliminated from consolidated revenues. Income (loss) from operations
excludes interest income, interest expense, provision for income taxes and
transaction gains and losses.
H. ACCOUNTING STANDARDS
On December 3, 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes some of the staff's interpretations of
the application of generally accepted accounting principles to revenue
recognition. All registrants are expected to apply the accounting and disclosure
requirements that are described in SAB 101. Any changes in accounting and
disclosures related to SAB 101 must be reported no later than the first quarter
of the fiscal quarter of the fiscal year beginning after December 15, 1999. The
Company is in the process of evaluating the impact of this interpretation on its
future financial statements.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 to certain issues including:
the definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for the exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions in FIN 44 are applicable retroactively to
specific events occurring after either December 15, 1998 or January 12, 2000.
The Company does not expect the application of FIN 44 to have a material impact
on the Company's financial position or results of operations.
12
<PAGE> 13
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 identified by footnotes in the text. 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, 1999.
OVERVIEW
The Company develops, markets and supports business-to-business MRO
("Maintenance, Repair, and Operations") e-commerce systems and enterprise asset
maintenance software. Through its subsidiary MRO.com, Inc., the Company
complements its MAXIMO work and materials management software with an
Internet-based business-to-business marketplace for MRO buyers and suppliers, a
suite of online procurement software products that improve purchasing
efficiency, and Internet-based content management tools and cataloging services.
Businesses, government agencies, and other organizations use the Company's
products across their enterprise to assist in the management of their high-value
capital assets, such as plants, facilities, and production equipment, to cut
inventories and supply chain costs, control maintenance expenses, reduce
downtime, and more effectively deploy productive assets, personnel and other
resources. 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 commerce fees for on-line charges to engage
in electronic commerce for Maintenance, Repair and Operations.
ACQUISITIONS
On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a
leading provider of MRO content management tools and cataloging services. The
acquisition, recorded under the purchase method of accounting, included the
purchase of the outstanding shares of common stock of INTERMAT, Inc. for $55.1
million in cash plus acquisition costs of $1.3 million. A portion of the
purchase price has been allocated to assets acquired and liabilities assumed
based on the estimated fair market value at the date of acquisition while the
remaining balance of $53.1
13
<PAGE> 14
million was recorded as goodwill and other intangible assets. Goodwill of $46.6
million is being amortized over a period of 5 years on a straight-line basis.
Other intangible assets of $6.5 million is being amortized over a period of 3 to
5 years on a straight-line basis. Other intangible assets consist primarily of
workforce in place of $1.5 million which is being amortized over 5 years,
completed technology of $4.5 million being amortized over 4 years, and the
balance of $500 thousand being amortized over 3 years.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Software licenses $18,644 38% $13,470 $34,381 23% $27,876
Percentage of total revenues 45% 41% 43% 42%
Support and services $22,977 18% $19,440 $45,226 16% $38,951
Percentage of total of revenues 55% 59% 57% 58%
Total revenues $41,621 26% $32,910 $79,607 19% $66,827
</TABLE>
MAXIMO client/server revenues for the current quarter increased by 2% to $32.4
million compared to $31.9 million for the same period in the prior year. Year to
date MAXIMO client/server revenues increased by 8% to $66.8 million compared to
$61.9 million for the same period in the prior year.
MRO.COM, Inc. revenues for the current quarter increased by 2,600% to $8.7
million compared to $316 thousand for the same period in the prior year. Year to
date MRO.COM, Inc. revenues increased by 2,700% to $11.8 million compared to
$3.2 million for the same period in the prior year. During the quarter, the
Company concluded a significant license agreement for MRO supplier content
management tools for approximately $4.4 million with a digital marketplace
provider.
Revenues from sales outside the United States decreased by 11% to $14.5 million
or 35% of total revenues for the current quarter compared to $16.2 million or
49% of total revenues for the same period in the prior year. Year to date
revenues from sales outside the United States decreased by 5% to $31.4 million
or 40% of total revenues compared to $32.9 million or 49% of total revenues for
the same period in the prior year. The decrease period over period occurred in
the European and Asia Pacific regions and is due to seemingly stagnant asset
maintenance market conditions in these regions.
14
<PAGE> 15
Total software licenses increased for the current quarter compared to the same
period in the prior year, as well as, year to date compared to the same period
in the prior year.
MAXIMO client/server software license revenue for the current quarter decreased
by 16% to $11 million compared to $13.2 million for same period in the prior
year. Year to date MAXIMO client/server software license revenues decreased by
2% to $24.0 million compared to $24.6 million for the same period in the prior
year. The decreases are attributable to the seemingly stagnant asset maintenance
market conditions in Europe and Asia Pacific.
MRO.COM(TM) software license revenue for the current quarter increased to $7.6
million compared to $83 thousand for the same period in the prior year. Year to
date MRO.COM(TM) software license revenue increased to $10.2 million compared to
$2.7 million for the corresponding period in 1999. The increases are
attributable to a significant license agreement for MRO supplier content
management tools for approximately $4.4 million with a digital marketplace
provider during the current quarter and an increase in the number of licenses
sold.
Support and services revenues increased for the current quarter compared to the
same period in the prior year, as well as, year to date compared to the same
period in the prior year. Consulting services grew by 14% over the same period
in the prior year's quarter and by 13% year to date and continues 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. MRO.COM(TM)
services were not a significant portion of revenues and represented only 7% and
1% of service revenues for the current quarter compared to the same period in
the prior year. Year to date MRO.COM(TM) services were also not a significant
portion of revenues and represented only 4% and 1% of services revenues for the
current year compared to the same period in the prior year.
Support services grew to 23% over the same period in the prior year's quarter as
a percentage of revenues and 21% year to date. The increase in the percentage of
support revenues is related to the sequential increases in software license
revenues and the high renewal rate for MAXIMO maintenance contracts.
15
<PAGE> 16
COST OF REVENUES
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Software licenses $ 845 (44%) $ 1,516 $ 1,504 (43%) $ 2,660
Percentage of software licenses 5% 11% 4% 10%
Support and services $12,172 25% $ 9,700 $24,700 28% $19,283
Percentage of support and services 53% 50% 55% 50%
Total cost of revenues $13,017 16% $11,216 $26,204 19% $21,943
Percentage of total revenues 31% 34% 33% 33%
</TABLE>
Cost of software licenses revenues consists of software purchased for resale,
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 decrease in the cost of software licenses revenues was due primarily to a
decrease in the amount of software purchased for resale and production materials
and no amortization of capitalized software in the current year to date. The
decrease as a percentage of software licenses period over period was due to the
decrease in royalties paid to third-party vendors as a result of a decrease in
the amount of third-party software sold.
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 for the three months ended March 31, 2000 over the prior
year's period was attributable to the hiring of employees for the Company's
support and services organization. The increase in the cost of support and
services for the six months ended March 31, 2000 over the prior year's period
was attributable to the hiring of employees for the Company's support and
services organization and the 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 demand for its services and
backlog. The increase as a percentage of revenues for the three months ended
March 31, 2000 over the prior year's period is attributable to expenses incurred
to hire and train new personnel. The increase as a years percentage of revenues
for the six months ended March 31, 2000 over the prior year's period is
attributable to low utilization of services personnel during the first quarter
of the fiscal year related to year 2000 factors, a European services meeting
held in the first quarter of fiscal
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<PAGE> 17
2000 and expenses related to the costs incurred to grow the MRO.com, Inc.
consulting services organization.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $15,824 69% $ 9,339 $29,688 47% $20,198
Percentage of total revenues 38% 28% 37% 30%
Product development $ 5,522 52% $ 3,628 $10,017 41% $ 7,104
Percentage of total revenues 13% 11% 13% 11%
General and administrative $ 3,517 40% $ 2,515 $ 6,569 22% $ 5,382
Percentage of total revenues 8% 8% 8% 8%
Goodwill amortization $ 1,132 836% $ 121 $ 1,301 500% $ 217
Percentage of total revenues 3% -- 2% --
</TABLE>
The increase in sales and marketing expenses was due to increases in sales,
sales support and marketing personnel for the MRO.com, Inc. organization, sales
commissions, marketing research and telemarketing expenses and higher travel
costs. The Company has been and will continue to make significant investments
in the MRO.COM(TM) sales and marking organzations. (1)
The increase in product development expenses was primarily due to the hiring of
additional employees to further enhance and develop MRO.COM(TM) products. There
were no internally developed software costs capitalized in fiscal year 1999 or
fiscal 2000.
The Company intends to continue to make investments in electronic commerce
products for MRO supply chain management. (1) The Company will also continue to
invest in client/server MAXIMO and Java applications. (1)
The increase in general and administrative expenses was primarily due to the
hiring of additional personnel and related benefits, as well as, other expenses
to support the global expansion of the Company. The current quarter also
included a provision for bad debt. The days sales outstanding were 103 days for
the quarter ended March 31, 2000 compared to 98 days for the quarter ended March
31, 1999.
- -----------------------------
(1) Forward looking statement
17
<PAGE> 18
NON-OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $1,382 104% $ 679 $2,319 75% $1,327
Interest (expense) $ (100) 1,329% $ (7) $ (101) 321% $ (24)
Other income (expense) $ (183) (43)% $ (323) $ (377) 50% $ (251)
</TABLE>
Interest income is attributable to interest earned on marketable securities and
cash equivalents. The Company liquidated a portion of its marketable securities
in order to complete the purchase of INTERMAT, Inc. Therefore, the Company may
experience a decrease in interest income earned in future periods. (1)
The decrease in other expense for the current quarter compared to the same
period in the prior year was primarily attributable to foreign currency
translation gains. The increase in other expense year to date compared to the
same period in the prior year is due to foreign currency translation losses. To
date, the Company has not engaged in currency hedging transactions.
PROVISION FOR INCOME TAXES
The Company's effective tax rates were 36% and 33% for the three months ended
March 31, 2000 and 1999, respectively, and 35% and 34% for the six months ended
March 31, 2000 and 1999, respectively. The increase in the effective tax rate is
attributable to lower than expected international sales resulting in a lower
foreign sales corporation benefit. The Company anticipates that its fiscal 2000
effective tax rate will not exceed 36%. (1)
- -----------------------------
(1) Forward looking statement
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<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and cash equivalents and marketable
securities of approximately $41.8 million and working capital of $54.7 million.
The days sales outstanding were 103 days for the quarter ended March 31, 2000
compared to 98 days for the quarter ended March 31, 1999. Cash used in
operations for the six months ended March 31, 2000 was $2.1 million, primarily
attributable to an increase in receivables and prepaid expenses and payment of
employee bonuses offset by income generated for the year, increases in deferred
revenues and increases in accounts payable.
Cash used in investing activities totaled $32.3 million, primarily for the sales
of marketable securities offset by purchases of marketable securities. The
Company liquidated a portion of its marketable securities in order to complete
the purchase of INTERMAT, Inc. Therefore, the Company may experience a decrease
in interest income earned in the future periods.(1)
Cash provided by financing activities was $5.8 million, resulting from proceeds
received from exercises of employee stock options.
As of March 31, 2000, 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 September 2006.
The Company may use a portion of its cash to acquire additional businesses,
products and technologies complementary to its business. (1) The Company also
plans to make investments over the next year in its new MRO.COM(TM) web-based
products and to develop content and add suppliers to www.mro.com, MRO.com,
Inc.'s e-Commerce hub.
The Company believes that its current cash balances and marketable securities
combined with cash flow from operations will be sufficient to meet its working
capital and capital expenditure requirements through at least March 31, 2001 (1)
- -----------------------------
(1) Forward looking statement
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<PAGE> 20
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 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.
20
<PAGE> 21
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 94% of the Company's total revenues in 1999. The Company's
financial performance in 2000 depends largely 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 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 MAXIMO, would have a
material adverse effect on the Company's business and financial results.
NEW PRODUCTS; NEW MARKETS
In the second quarter of fiscal 1999, the Company formed a new wholly-owned
subsidiary, MRO.com, Inc. MRO.com, Inc. links an on-line community of
MRO.COM(TM) suppliers and buyers to a group of Internet-based procurement
products. There can be no assurance that the Company's MRO.COM(TM) products will
be sold successfully in the business-to-business electronic commerce market or
that the Company's MRO.COM(TM) products will achieve market acceptance. There is
also no assurance that the Company can create a large enough community of
sellers and buyers.
The Company's future success in the electronic commerce market may depend on its
ability to accurately determine the functionality and features required by its
customers, as well as the ability to enhance its MRO.COM(TM) products and
deliver them in a timely manner.
The Internet procurement market is a nascent market that may undergo rapid
technological change. The Company cannot predict the present and future size of
the potential market for its MRO.COM(TM) products and services. The Company may
incur substantial costs to enhance and modify its MRO.COM(TM) products and
services in order to meet the demands of this growing and changing market. The
Company's MRO.COM(TM) product segment is not yet profitable and may not be
profitable for sometime, if ever.
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
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<PAGE> 22
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 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 including both independent software vendors and certain
enterprise resource planning vendors. Independent software vendors include
22
<PAGE> 23
Datastream, Inc. and Indus Group. MAXIMO also competes with integrated
enterprise resource planning systems which are provided by several large
vendors, such as SAP and JD Edwards and others, and which include maintenance
modules. 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
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.
The Company's MRO supply chain management business using the Internet has many
diverse competitors offering a wide range of differing products, services and
technologies. The Company expects competition to intensify as current
competitors expand their product offerings and new competitors enter the market.
In addition, the market for electronic procurement solutions is relatively new
and underdeveloped. 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.
Many of the Company's enterprise asset management competitors are also entering
the MRO e-commerce market. The current potential competitors in the MRO
e-commerce market include Ariba, Clarus, Commerce One, Concur, Connect,
Harbinger, IBM, Intellisys, Microsoft, Netscape, Oracle, PeopleSoft, SAP and
others.
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, or on the supply chain management business, 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 46.4%, 45.7%, and
43.8% of its total revenue from sales outside the United States in fiscal years
1999, 1998, and 1997, respectively. The Company continues to invest 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
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<PAGE> 24
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.
DEPENDENCE ON THIRD PARTIES
The client/server versions of MAXIMO operate with the Oracle, SQLServer, and
SQLBase database management systems. 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, among others,
Broadvision Incorporated, Centura Software Corporation, Scribe Technologies,
Incorporated, Cognos Corporation, Netronic Software GmbH, Intelligent Labeling
Technologies, Incorporated, Verity Software, and webMethods, 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.
The MRO.com, Inc's business operations are dependent on third party data
centers, which could be destroyed or damaged. MRO.com, Inc's operations are
dependent upon the ability to protect computer equipment and the information
stored in these third party data centers against damage that may be caused by
natural disasters, fire, power loss, telecommunication or Internet failures,
unauthorized intrusions, computer viruses and other similar damaging events. The
Company cannot assure that any of these damaging events would not result in a
prolonged outage of the Company's network services or that the Company would not
experience a reduction of revenues, which
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<PAGE> 25
could have a material adverse effect on our business and financial results.
PRODUCT DEVELOPMENT: INTERNET
The Company has developed 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 enterprise asset management 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.
INTERNET
If Internet usage continues to grow rapidly, its infrastructure may not be able
to support customer and user demands and its performance and reliability may
decline. If outages, delays, or viruses on the Internet occur frequently or
increase in frequency, overall Internet usage including usage of the Company's
products and services could grow more slowly or decline. The Company is
dependent upon improvements being made to the entire Internet as well as to
particular customers' networking infrastructures to alleviate overloading and
congestion. If these improvements are not made, the ability of the Company's
customers to utilize the Company's solution will be hindered, and the Company's
business, operating results and financial condition may suffer.
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 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
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<PAGE> 26
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 valid claim of
any patent or any other proprietary rights of others, there can be no assurance
that third parties will not assert infringement claims in the future. Litigation
may be necessary to enforce the Company's intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could potentially have a material adverse result on our operating
results and financial condition.
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 whom could have an adverse impact on the
future operations of the Company. The Company does not have employment contracts
with, and does not maintain key person life insurance policies on, any
personnel. 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. 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 alliances with other companies. There can be no
assurance that the Company will 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.
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POSSIBLE CONTINUED VOLATILITY OF STOCK PRICE
Fiscal 1999 and 2000 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 and e-commerce
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.
ACCOUNTING POLICIES THAT MAY HAVE AN ADVERSE EFFECT
On December 3, 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes some of the staff's interpretations of
the application of generally accepted accounting principles to revenue
recognition. All registrants are expected to apply the accounting and disclosure
requirements that are described in SAB 101. Any changes in accounting and
disclosures related to SAB 101 must be reported no later than the first quarter
of the fiscal quarter of the fiscal year beginning after December 15, 1999. The
Company is in the process of evaluating the impact of this interpretation on its
future financial statements.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 to certain issues including:
the definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for the exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions in FIN 44 are applicable retroactively to
specific events occurring after either December 15, 1998 or January 12, 2000.
The Company does not expect the application of FIN 44 to have a material impact
on the Company's financial position or results of operations.
NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS
The Company has 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposures to market risk are the effect of fluctuations in
interest rates earned on its cash equivalents and marketable securities.
At March 31, 2000, the Company held $41.8 million in cash equivalents and
marketable securities consisting of taxable and tax exempt municipal securities.
Cash equivalents are classified as available for sale and valued at amortized
cost, which approximates fair market value. A hypothetical 10 percent increase
in interest rates would not have a material impact on the fair market value of
these instruments due to their short maturity.
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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.376420, 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)
3.4 Amendment to Articles of Organization adopted on December 15,
1999 (included as Exhibit 3.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999, 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)
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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)
4.6 Stock Purchase Agreement dated as of January 11, 2000, between
Project Software & Development, Inc. and Strategic Distribution, Inc.
(included as Exhibit 2.1 to the Company's Current Report on Form 8-K
dated March 15, 2000, File No. 0-23852, and incorporated herein by
reference)
4.7 Amendment No. 1 to Stock Purchase Agreement dated February 29,
2000 (included as Exhibit 2.2 to the Company's Current Report on Form
8-K dated March 15, 2000, File No. 0-23852, and incorporated herein by
reference)
27. Financial Data Schedule
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K during the quarter ended
March 31, 2000. On February 24, 2000, the Company filed a Form 8-K
related to the resignation of Paul D. Birch as executive vice
president, finance & administration and chief financial officer of the
Company. On March 16, 2000, the Company filed a Form 8-K related to its
acquisition of all of the outstanding capital stock of INTERMAT, Inc.
from Strategic Distribution, Inc.
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: May 15, 2000 By: /s/ Carole A. Tyner
------------ -------------------
Carole A. Tyner
Authorized Officer
Vice President Finance,
Treasurer and Clerk
(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)
3.4 Amendment to Articles of Organization adopted on December 15, 1999
(included as Exhibit 3.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999, 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)
4.6 Stock Purchase Agreement dated as of January 11,2000, between
Project Software & Development, Inc. and Strategic Distribution,
Inc. (included as Exhibit 2.1
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
to the Company's Current Report on Form 8-K dated March 15, 2000,
File No. 0-23852, and incorporated herein by reference)
4.7 Amendment No. 1 to Stock Purchase Agreement dated February 29, 2000
(included as Exhibit 2.2 to the Company's Current Report on Form 8-K
dated March 15, 2000, File No. 0-23852, and incorporated herein by
reference)
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 30,928
<SECURITIES> 8,709
<RECEIVABLES> 50,619
<ALLOWANCES> 2,907
<INVENTORY> 0
<CURRENT-ASSETS> 97,923
<PP&E> 29,107
<DEPRECIATION> 14,432
<TOTAL-ASSETS> 170,977
<CURRENT-LIABILITIES> 43,197
<BONDS> 0
0
0
<COMMON> 218
<OTHER-SE> 127,289
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 18,644
<TOTAL-REVENUES> 41,621
<CGS> 845
<TOTAL-COSTS> 13,017
<OTHER-EXPENSES> 25,995
<LOSS-PROVISION> 418
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 3,708
<INCOME-TAX> 1,345
<INCOME-CONTINUING> 2,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,363
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
