SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File Number 0-25472
VIASOFT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-2892506
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3033 North 44th Street, Phoenix, Arizona 85018
(Address of principal executive offices) (Zip Code)
(602) 952-0050
(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 [ ]
As of April 30, 1999, there were 17,885,028 outstanding shares of Common Stock,
par value $.001 per share, of Viasoft, Inc.
<PAGE>
VIASOFT, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and June 30, 1998 3
Consolidated Statements of Operations for the three
and nine months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1999 and 1998 5
Consolidated Statements of Comprehensive Income
for the three and nine months ended March 31, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
2
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VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
MARCH 31, JUNE 30,
1999 1998
--------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 29,545 $ 37,809
Investments, at amortized cost 54,180 63,294
Accounts receivable (less allowance
for doubtful accounts of $784 and
$815, respectively) 25,600 33,227
Prepaid expenses and other 4,450 7,774
--------- ---------
Total current assets 113,775 142,104
--------- ---------
Furniture and equipment, net 9,205 7,609
--------- ---------
Other assets:
Investments, at amortized cost 3,198 2,502
Intangible assets, net 7,626 6,751
Other 5,701 3,411
--------- ---------
Total other assets 16,525 12,664
--------- ---------
Total assets $ 139,505 $ 162,377
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,255 $ 1,733
Accrued compensation 2,653 4,390
Accrued income taxes payable 1,578 5,113
Other accrued expenses 13,673 13,768
Deferred revenue 20,760 20,843
--------- ---------
Total current liabilities 40,919 45,847
--------- ---------
Deferred revenue, recognized after one year 297 542
--------- ---------
Other long term liabilities 112 130
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $.001 par value, 24,000,000 shares
authorized, 19,456,133 shares issued at both
March 31, 1999 and June 30, 1998, respectively 19 19
Capital in excess of par value 123,578 125,626
Common stock subscriptions receivable (31) (31)
Accumulated deficit (12,129) (6,995)
Cumulative translation adjustment (604) (580)
Treasury stock, at cost, 1,558,558 and 135,000
shares at March 31, 1999 and June 30, 1998,
respectively (12,656) (2,181)
--------- ---------
Total stockholders' equity 98,177 115,858
--------- ---------
Total liabilities and stockholders' equity $ 139,505 $ 162,377
========= =========
The accompanying notes are an integral part of these consolidated statements.
3
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VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software license fees $ 10,693 $ 14,720 $ 34,166 $ 44,928
Maintenance fees 8,407 7,216 25,549 21,203
Professional services fees 6,693 4,865 21,072 14,827
Other 15 4 31 83
-------- -------- -------- --------
Total revenue 25,808 26,805 80,818 81,041
-------- -------- -------- --------
Operating expenses:
Cost of software license and
maintenance fees 3,785 3,509 12,140 8,031
Cost of professional services fees 5,965 4,203 18,064 13,295
Sales and marketing 9,987 10,989 32,331 30,176
Write-off of purchased in-process
research and development -- 7,240 5,013 7,240
Research and development 2,933 6,600 11,155 12,703
General and administrative 2,823 1,892 7,962 5,794
Restructuring charge -- -- 4,790 --
-------- -------- -------- --------
Total operating expenses 25,493 34,433 91,455 77,239
-------- -------- -------- --------
Income (loss) from operations 315 (7,628) (10,637) 3,802
-------- -------- -------- --------
Other income (expense):
Interest income 987 1,443 3,405 3,494
Interest expense -- -- (2) (1)
Other income (expense), net (555) (79) (658) (159)
-------- -------- -------- --------
Total other income (expense) 432 1,364 2,745 3,334
-------- -------- -------- --------
Income (loss) before income taxes 747 (6,264) (7,892) 7,136
Income tax (benefit)/provision 260 (2,128) (2,759) 2,471
-------- -------- -------- --------
Net income (loss) $ 487 $ (4,136) $ (5,133) $ 4,665
======== ======== ======== ========
Basic earnings (loss) per common share $ 0.03 $ (0.21) $ (0.28) $ 0.25
======== ======== ======== ========
Weighted average number of common shares
outstanding 18,054 19,371 18,443 18,875
======== ======== ======== ========
Diluted earnings (loss) per common and
common share equivalent $ 0.03 $ (0.21) $ (0.28) $ 0.24
======== ======== ======== ========
Weighted average number of common and
common share equivalents outstanding 18,195 19,371 18,443 19,747
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
Operating activities:
Net income (loss) $ (5,133) $ 4,665
-------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Write-off of purchased in-process research
and development 5,013 7,240
Restructuring charge 4,780 --
Depreciation and amortization 4,123 2,468
Changes in operating assets and liabilities net of
effect of business acquired:
(Increase) decrease in accounts receivable 7,627 (4,377)
(Increase) decrease in prepaid expenses and other 3,572 (3,504)
(Increase) decrease in other assets (3,190) 540
Decrease in accrued income taxes (3,535) (1,343)
Increase (decrease) in accounts payable and other
accrued expenses (4,136) 1,673
Increase (decrease) in accrued compensation (1,737) 308
Increase (decrease) in deferred revenue (345) 1,345
-------- --------
Total adjustments 12,172 4,350
-------- --------
Net cash provided by operating activities 7,039 9,015
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (4,300) (4,219)
Cash paid for business, net of cash acquired (6,625) (7,314)
Cash paid for customer list -- (530)
Purchase of investments (65,206) (98,549)
Investment maturities 73,375 42,169
-------- --------
Net cash used in investing activities (2,756) (68,443)
-------- --------
FINANCING ACTIVITIES:
Purchase of treasury stock (13,359) --
Sale of treasury stock 836 --
Payments received on common stock subscriptions
receivable -- 24
Proceeds from issuance of common stock -- 80,648
Payments for offering costs -- (747)
-------- --------
Net cash (used in) provided by financing
activities (12,523) 79,925
-------- --------
Effect of exchange rate changes on cash (24) (160)
-------- --------
Net increase (decrease) in cash and cash equivalents (8,264) 20,337
Cash and cash equivalents, beginning period 37,809 8,501
-------- --------
Cash and cash equivalents, end of period $ 29,545 $ 28,838
======== ========
Supplemental cash flow information:
Income taxes paid $ 3,755 $ 2,375
Disqualifying dispositions -- 2,696
The accompanying notes are an integral part of these consolidated statements.
5
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VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1999
------------------ -----------------
Net income (loss) $ 487 $(5,133)
Other comprehensive income, net of tax
Foreign currency translation adjustments (276) (16)
----- -------
Comprehensive income (loss) $ 211 $(5,149)
===== =======
The accompanying notes are an integral part of these consolidated statements.
6
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VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Viasoft, Inc.
and its wholly-owned subsidiaries ("Viasoft" or the "Company") after elimination
of all significant intercompany balances and transactions. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
("GAAP") for complete financial statements. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the results for the interim periods presented have been
made. The results for the three and nine month periods ended March 31, 1999 may
not necessarily be indicative of the results for the entire year. These
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended June 30, 1998.
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT
In February 1998, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which supersedes Accounting Principles Board Opinion
No. 15, the existing authoritative guidance. SFAS No. 128 is effective for
financial statements for periods ending after December 15, 1997 and requires
restatement of all prior-period earnings per share data presented. The new
statement modifies the calculations of primary and fully diluted earnings per
share and replaces them with basic and diluted earnings per share. Shares
issuable upon the exercise of employee stock options that are considered
anti-dilutive are not included in the weighted average number of common and
common share equivalents outstanding.
2. ACQUISITIONS AND LICENSING AGREEMENTS
SHL SYSTEMHOUSE CO. ("SYSTEMHOUSE")
In July 1998, the Company acquired exclusive worldwide marketing and
development rights to SHL TRANSFORM, a knowledge-driven process management and
productivity software toolset and its integrated process management
methodologies, from the Online Knowledge Group (OKG) of Canadian-based SHL
Systemhouse Co. As part of the agreement, the Company had the option to hire
certain employees of Systemhouse in October 1998, had the option to purchase
certain furniture and equipment used by the Systemhouse development employees
and has the exclusive right to remarket the licensed software to Systemhouse's
existing customers. As a result, the agreement was accounted for as a purchase
in accordance with Accounting Principles Board Opinion Nos. 16 and 17.
The transaction was structured as a worldwide perpetual source code license
and is exclusive, subject to Systemhouse's retained right to use the technology
for its own internal use and in its consulting business. Viasoft will also pay
certain royalties to Systemhouse based on sales of methodology and training
components.
In connection with the acquisition of SHL, the Company allocated $5.0
million of the purchase price to in-process research and development projects,
$1.2 million to developed technology and $700,000 to other intangible assets.
7
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This allocation to in-process research and development represents the estimated
fair value based on risk-adjusted cash flows related to incomplete projects. A
discount range of 37.5% to 42.5% was used for valuing the in-process research
and development projects. Other intangible assets consisted of assembled
workforce and cost in excess of net assets acquired. The purchased software,
assembled workforce and cost in excess of net assets acquired are being
amortized on a straight-line basis over five, six and five years, respectively.
The Company originally planned to integrate the technology and methodology
into its entire product and service lines to deliver repeatable, defined
business solutions to its customers. The first of two projects was to migrate
all of the Company's existing business solution processes to the process
management toolset. This project was estimated to cost $500,000. The integration
of the Company's existing business solution processes was substantially complete
as of December 31, 1998 and did cost approximately $500,000. The second project
was the re-design, development and testing necessary to migrate the underlying
process management tool from 16-bit architecture to 32-bit architecture in order
to integrate the tool with the Company's existing and planned products. This
project was estimated to cost approximately $2.6 million and to be complete at
the end of calendar 1999.
In connection with the Company's reorganization and change in business
model, the plans for this product, Visual Process, are currently being
reevaluated. During the fourth quarter of fiscal 1999, the Company will finalize
future plans for the product and will determine the value of the assets, if any,
based on the new plan for the product. There is risk associated with the
completion of any research and development project. The Company cannot be
assured that either of the in-process projects will meet with technological or
commercial success. If the research and development projects are not completed,
the sales and profitability of the Company may be adversely affected in future
periods. The failure of any particular individual in-process project would not
materially impact the Company's financial condition, results of operations or
cash flows.
ERASOFT TECHNOLOGIES, INC. ("ERASOFT")
On January 12, 1998, the Company acquired all of the outstanding shares of
capital stock of EraSoft for cash and certain contingent payments pursuant to a
stock purchase agreement with the stockholders of EraSoft. EraSoft developed,
marketed and supported year 2000 assessment and analysis software tools for
desktop computing. EraSoft was founded in 1996 and was headquartered in Calgary,
Alberta, Canada.
The terms of the agreement with EraSoft provide for additional
consideration to be paid if the revenue from licenses of EraSoft's products
exceeds certain targeted levels between the date of the acquisition and June 30,
2000. In addition, the former stockholders of EraSoft will also receive
additional consideration based on revenue from EraSoft products licensed during
the period from the acquisition date to June 30, 2000. Additional consideration
will be paid in cash and recorded as an adjustment to cost in excess of net
assets acquired when earned and will be amortized either using the revenue ratio
or straight-line method through June 30, 2000, whichever results in the greater
amount of amortization during the period. In the third quarter of fiscal 1999,
the first of targeted license revenue levels was achieved and additional
consideration of $625,000 was paid to the former stockholders.
LICENSING AGREEMENTS
As part of the Company's strategy to enter into the desktop and
client/server arena, the Company entered into license agreements with several
software companies in the second quarter of fiscal 1998 and January, 1998 for
the rights to distribute additional desktop software tools. The Company made
payments to these companies for development of the software tools in accordance
with the Company's requirements as set out in the agreements. Payments were made
based on the effective date of each agreement and delivery and acceptance of the
different versions of the products, all of which occurred during the Company's
fiscal third quarter ended March 31, 1998. The Company expensed these payments,
approximately $3.2 million, as research and development during the quarter ended
March 31, 1998. In addition, the Company pays royalties to each software vendor
based upon sales activity as set out in the agreements.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The Company derives its revenues primarily from software license fees,
software maintenance fees and professional services fees. The Company's software
is licensed primarily to Global 5000 companies and similarly-sized business and
governmental organizations worldwide. Professional services are provided in
conjunction with software products and are also provided separately to similar
large organizations. The Company's products and services are marketed through
its domestic and international direct sales organizations, through a number of
foreign independent distributors located in Europe, the Far East, South Africa
and Latin America, and through a reseller channel established during the third
quarter of fiscal 1998 primarily to sell the OnMark 2000 product line.
Revenue is recognized in accordance with Statement of Position 97-2 and SOP
98-9, "Software Revenue Recognition." Accordingly, revenue from software
licenses is recognized when delivery of the software has occurred, a signed
non-cancelable license agreement has been received from the customer or an
executed purchase order from a reseller after receipt of an signed reseller
agreement and any remaining obligations under the license agreement are
determined to be insignificant. Revenue from software license fees related to
the Company's obligation to provide certain post-contract customer support
without charge for the first year of the license is unbundled from the license
fee at its fair value and is deferred and recognized straight-line over the
contract support period. Revenue from annual or other renewals of maintenance
contracts (including long-term contracts) is deferred and recognized
straight-line over the term of the contracts. Revenues from professional
services fees are recognized generally as related services are provided.
Professional services do not involve significant customization, modification or
production of the licensed software.
RESTRUCTURING
In the first quarter of fiscal 1999, the Company established and began the
implementation of a cost reduction and restructuring plan for the purpose of
aligning expenses with a decrease in forecasted revenues and to allow the
business to invest in its non-year 2000 solutions. In April 1999, the Company
announced a reorganization of its operations to transition the business to a
solutions-driven model focused on e-business enablement. The Company also
announced further cost reductions in connection with its ongoing restructuring
plan, including an additional reduction in force of approximately 20%.
As part of the reorganization, the Company has increased its investment in
its professional services organization by creating a dedicated sales force and
regionalizing delivery. The domestic sales organization was reorganized to
better support sales of e-business solutions and enhance support of existing
customers. The development organization was realigned to focus on two areas:
developing technology to support e-business enablement services and enhancing
the value of Viasoft core products for existing customers.
In the first quarter, the pre-tax restructuring charge taken was $4.8
million. This restructuring charge covered $3.1 million for severance and
related costs for a reduction in workforce of approximately 10% of the Company's
550 employees worldwide; $800,000 for office consolidation costs including
leasehold termination payments and other facility exit costs for certain offices
worldwide which were unrelated to the Company's core business; and $900,000 for
the write down of intangible assets which had become impaired as determined by a
net realizable value test based on future forecasted revenues. As of March 31,
1999, approximately 74 employees were separated from the Company and $1,631,000
in severance and related costs had been paid out or incurred related to the
first quarter charge. Approximately $27,000 had been used for office
consolidation costs as of March 31, 1999.
9
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The Company anticipates taking a charge of approximately $9.0 to $9.5
million in the fourth quarter of fiscal 1999 in connection with its April
reorganization. This charge will relate to severance for a reduction in
workforce of approximately 20% of its 500 employees worldwide, a writedown in
accordance with SFAS No. 121 of certain long-lived assets based on the net
present value of future cash flows which became impaired as a result of the
Company's transition to its new business model, a writedown of certain
capitalized software which was determined to be impaired through a net
realizable value test based on future forecasted revenues also as a result of
the Company's transition to its new business model and additional facility exit
costs.
The discussion of results of operations for the nine months ended March 31,
1999 below excludes the effect of these restructuring charges and a purchased
in-process research and development charge of approximately $5.0 million pre-tax
(See Note 2 of Notes to Consolidated Financial Statements) recorded in the first
quarter of fiscal 1999.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
REVENUES
Total revenues were $25,808,000 for the third quarter of fiscal 1999, a
decrease of 4% from $26,805,000 for the third quarter of fiscal 1998. Software
license fees were $10,693,000 in the third quarter of fiscal 1999, a decrease of
27% from $14,720,000 in the third quarter of fiscal 1998. Software license fees
decreased as a result of the worldwide slow down in demand for the Company's
year 2000 mainframe software tools. In addition, license revenue from OnMark
2000, the Company's desktop year 2000 software tool, declined year over year in
the domestic marketplace. OnMark 2000 sales were up in the third quarter of
fiscal 1999 compared to the same period in fiscal 1998 in the international
marketplace primarily because it was released on a limited basis to the
international market in the third quarter of fiscal 1998. The Company
anticipates that desktop license revenues will continue to be a significant
percentage of license revenues in the near term and, as a result, mainframe
license revenues may continue to decrease year over year. The Company also
anticipates that OnMark 2000 license revenues will decline domestically and
internationally as the millennium draws near.
Maintenance fees were $8,407,000 in the third quarter of fiscal 1999, an
increase of 17% from $7,216,000 in the third quarter of fiscal 1998. The
increase was due to new software licenses, increases in the fees charged for
annual maintenance, and customer system upgrades. With the Company's entry into
the desktop software market with the OnMark 2000 product line, it has
experienced that a large number of OnMark customers do not purchase maintenance
services. As a result, the Company anticipates a continued slowing in
maintenance revenue growth to the extent that license sales of OnMark 2000
continue to remain a significant percentage of revenues.
Professional services fees were $6,693,000 in the third quarter of fiscal
1999, an increase of 38% from $4,865,000 in the third quarter of fiscal 1998.
The growth in professional services fee revenue is a result of the Company's
decision in late fiscal 1998 to move from providing only enablement services to
offering a broader range of solutions, including large-scale projects.
Professional services fee revenue has increased year over year but has decreased
on a consecutive quarter basis over the past two quarters. The Company made
several significant changes to its services business in the recent
reorganization and management believes it may experience weakness in
professional services fee revenue and margins as it transitions to this new
business model. The Company will continue to closely monitor its progress in
this area from both a revenue generation and profitability standpoint.
COST OF REVENUES
Cost of software license and maintenance fees, which includes royalties,
cost of customer support and packaging and product documentation, was $3,785,000
in the third quarter of fiscal 1999, an increase of 8% from $3,509,000 in the
third quarter of fiscal 1998. The cost of license and maintenance fees increased
due to increases in the number of customer support personnel and their related
costs, higher salaries and outside consultant costs, and amortization of the
10
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purchased research and development from the January 1998 EraSoft acquisition and
the July 1998 Systemhouse product acquisition (See Note 2 of Notes to
Consolidated Financial Statements). Gross margins on software license and
maintenance fees decreased to 80% in the third quarter of fiscal 1999 compared
to 84% in the third quarter of fiscal 1998. The gross margin decreased due to
increased sales of products requiring royalties to third parties, primarily
OnMark, as well as the decrease in revenues.
Cost of professional services fees, which consists principally of personnel
costs, third party subcontracting costs, and other costs related to the
professional services business, was $5,965,000 in the third quarter of fiscal
1999, an increase of 42% from $4,203,000 in the third quarter of fiscal 1998.
Management expects that the use of subcontractors will continue within the new
business model in order to staff large projects. The cost increase was offset in
part by lower salaries and related costs as internal services headcount declined
year over year. The gross margin for professional services was 11% in the third
quarter of fiscal 1999 compared to 14% in the third quarter of fiscal 1998. The
increase in expenses was primarily a result of additional subcontractor costs to
support the increase in revenues, primarily from large consulting projects. The
decrease in margins is primarily the result of certain non-profitable solutions
which were discontinued as part of the Company's reorganization. Going forward,
the Company's new solution driven business model requires additional investment
in internal headcount and infrastructure during the remainder of fiscal 1999 and
into fiscal 2000.
SALES AND MARKETING
Sales and marketing expenses, which consist primarily of salaries,
commissions and related benefits and administrative costs allocated to the
Company's sales and marketing personnel, were $9,987,000 in the third quarter of
fiscal 1999, an decrease of 9% from $10,989,000 in the third quarter of fiscal
1998. Sales and marketing expenses as a percentage of total revenues was 39% in
the third quarter of fiscal 1999 and 41% in the third quarter of 1998. These
decreases are attributable primarily to a decrease in sales and marketing
personnel and the associated costs, lower marketing and promotion costs, and
lower reseller commissions offset by an increase in sales training costs.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist primarily of personnel costs
of the research and development staff and the facilities, computing, benefits
and other administrative costs allocated to such personnel and third-party
development costs. Research and development expenditures were $2,933,000 in the
third quarter of fiscal 1999, compared to $6,600,000 in the third quarter of
fiscal 1998. As a percentage of total revenues, research and development costs
were 11% in the third quarter of fiscal 1999 compared to 25% for the same period
in fiscal 1998. In the third quarter of fiscal 1998, the company incurred $3.2
million in third party development costs related to the OnMark product (see note
2 to the Consolidated Financial Statements). There were no third-party
development costs in the third quarter of fiscal 1999. To a lesser extent, the
decrease was also a result of a reduced number of employees and all the related
costs as a result of the reduction in force announced in the first quarter of
fiscal 1999. This reduction was partially offset by additional third-party
contractor costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance and
accounting, legal, human resources, corporate information systems and other
administrative functions of the Company. General and administrative expenses
were $2,823,000 in the third quarter of fiscal 1999, compared to $1,892,000 in
the third quarter of fiscal 1998. General and administrative expenses increased
49% year over year. As a percentage of total revenues, general and
administrative expenses were 11% in the third quarter of fiscal 1999 compared to
7% in the third quarter of fiscal 1998. These increases are a result of
additional administrative personnel and their related costs, general salary
increases and amortization of intangibles related to the EraSoft and Systemhouse
acquisitions.
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OTHER INCOME(EXPENSE)
Other income was $432,000 in the third quarter of fiscal 1999 compared to
$1,364,000 in the same period in fiscal 1998. The decrease is a result of the
decline in interest income from lower investment balances and interest rates
compared to the same period a year ago as well as foreign exchange losses
incurred due to the dollar strengthening against European currencies.
INCOME TAX BENEFIT/PROVISION
The Company's effective tax rate was 35% in the third quarter of fiscal
1999, compared to 34%, for the same period in fiscal 1998.
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
REVENUES
Total revenues were $80,818,000 for the first nine months of fiscal 1999 as
compared to $81,041,000 for the first nine months of fiscal 1998. Software
license fees were $34,166,000 in the first nine months of fiscal 1999, a
decrease of 24% from $44,928,000 in the first nine months of fiscal 1998. The
decrease in software license fees for the year related to the slow down in the
worldwide demand for the Company's year 2000 mainframe software tools. Sales of
the Company's desktop product, OnMark 2000, which was released in the third
quarter of fiscal 1998, has partially replaced the lost revenues from mainframe
sales and represents a significant percentage of license revenues. The Company
anticipates that desktop license revenues will continue to be a significant
percentage of license revenues in the near term and, as a result, mainframe
license revenues may continue to decrease year over year. The Company also
anticipates that OnMark 2000 license revenues will continue to decline
domestically and internationally as the millennium draws near.
Maintenance fees were $25,549,000 in the first nine months of fiscal 1999,
an increase of 20% from $21,203,000 in the first nine months of fiscal 1998. The
increase was due to new software licenses, increases in the fees charged for
annual maintenance and customer system upgrades. With the Company's entry into
the desktop software market with the OnMark 2000 product line, it has
experienced that a large number of OnMark customers do not purchase maintenance
services. As a result, there could be some erosion in maintenance revenue growth
to the extent that license sales of OnMark 2000 continue to grow as a percentage
of revenues.
Professional services fees were $21,071,000 in the first nine months of
fiscal 1999, an increase of 42% from $14,827,000 in the first nine months of
fiscal 1998. The growth in professional services fee revenue is a result of the
Company's decision in late fiscal 1998 to move from providing only enablement
services to offering a broader range of solutions, including large-scale
projects. Professional services fee revenue has increased year over year but has
decreased on a consecutive quarter basis over the past two quarters. The Company
made several significant changes to its services business in the recent
reorganization and management believes it may experience weakness in
professional services fee revenue and margins as it transitions to this new
business model. The Company will continue to closely monitor its progress in
this area from both a revenue generation and profitability standpoint.
COST OF REVENUES
Cost of software license and maintenance fees was $12,140,000 in the first
nine months of fiscal 1999, an increase of 51% from $8,031,000 in the first nine
months of fiscal 1998. Gross margins on software license and maintenance fees
decreased to 80% in the first nine months of fiscal 1999 compared to 88% in the
12
<PAGE>
first nine months of fiscal 1998. Management anticipates that the cost of
license and maintenance fees will continue to increase and the gross margin will
continue to decrease year over year as long as sales of products requiring
royalties to third parties, primarily OnMark 2000, continue to represent a
significant portion of license fee revenue. Royalty expenses in the first nine
months of fiscal 1999 increased 64% over the same period in fiscal 1998
primarily due to the increase in sales of the OnMark 2000 product line as a
percentage of total license sales. Other factors contributing to the increase in
cost of software license and maintenance fees and decline in margins, included
increases in the number of customer support personnel and their related costs,
increased salaries, amortization of the purchased research and development from
the January 1998 EraSoft acquisition and the July 1998 Systemhouse product
acquisition (See Note 2 of Notes to Consolidated Financial Statements) and
increased OnMark 2000 related costs, including outside consultants to provide
customer support and product documentation and packaging.
Cost of professional services fees was $18,064,000 in the first nine months
of fiscal 1999, an increase of 36% from $13,295,000 in the first nine months of
fiscal 1998. The increase in expenses was primarily a result of additional
subcontractor costs to support the increase in revenues, primarily from large
consulting projects. Management expects that the use of subcontractors will
continue within the new business model in order to staff large projects. The
cost increase was offset in part by lower salaries and related costs as internal
services headcount declined year over year. The gross margin for professional
services was 14% in the first nine months of fiscal 1999 compared to 10% in the
first nine months of fiscal 1998. The increase in margins is primarily the
result of the renewed focus by management on profitability and the completion of
a non-profitable large fixed fee completed contract late in fiscal 1998. Going
forward, the Company's new solution driven business model requires additional
investment in internal headcount and infrastructure during the remainder of
fiscal 1999 and into fiscal 2000.
SALES AND MARKETING
Sales and marketing expenses were $32,331,000 in the first nine months of
fiscal 1999, an increase of 7% from $30,176,000 in the first nine months of
fiscal 1998. This increase is attributable primarily to an increase in personnel
and the associated costs, higher salaries, a $1.0 million bad debt provision and
increased marketing and promotion costs. These increases were offset in part by
decreases in commissions and bonuses due to the decrease in license revenues.
Sales and marketing expenses as a percentage of total revenues was 40% in the
first nine months of fiscal 1999 and 37% in the first nine months of 1998. This
increase is due primarily to the increase in costs noted above.
RESEARCH AND DEVELOPMENT
Research and development expenditures were $11,155,000 in the first nine
months of fiscal 1999, compared to $12,703,000 in the first nine months of
fiscal 1998. Research and development expenses decreased 12% year over year. As
a percentage of total revenues, research and development costs were 14% in the
first nine months of fiscal 1999 compared to 16% for the same period in fiscal
1998. In fiscal 1998, the Company paid $3.2 million for purchased third-party
development of certain technologies acquired for the OnMark 2000 product line
(See Note 2 of Notes to Consolidated Financial Statements). Third-party
development charges in the same period of fiscal 1999 were significantly lower
than those incurred in fiscal 1998. The decreases noted above were also a result
of lower bonuses and recruiting costs offset by increases in salaries and the
cost of third-party consultants.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $7,962,000 in the first nine
months of fiscal 1999, compared to $5,794,000 in the first nine months of fiscal
1998. General and administrative expenses increased 37% year over year. This
increase is a result of additional administrative personnel and their related
costs, general salary increases and amortization of intangibles related to the
EraSoft and Systemhouse acquisitions. As a percentage of total revenues, general
and administrative expenses were 10% in the first nine months of fiscal 1999
compared to 7% in the first nine months of fiscal 1998. This increase is
primarily due to the overall decrease in revenues year over year and the
additional personnel costs.
13
<PAGE>
OTHER INCOME(EXPENSE)
Other income was $2,745,000 in the first nine months of fiscal 1999
compared to $3,334,000 in the same period in fiscal 1998. The decrease is a
result of foreign exchange losses incurred due to the dollar strengthening
against European currencies.
INCOME TAX BENEFIT/PROVISION
The Company's effective tax rate was 35% in the first nine months of fiscal
1999, compared to 35%, for the same period in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash and cash equivalents and
investments of $86,923,000, representing a decrease of $16,682,000 from
$103,605,000 at June 30, 1998. The decrease is primarily a result of the cost of
the share purchases under the Company's stock repurchase program and the
Systemhouse acquisition (See Note 2 of Notes to Consolidated Financial
Statements).
The Company's net cash provided by operating activities for the first nine
months of fiscal 1999 was $7,039,000 compared to cash provided by operations of
$9,015,000 for the first nine months of fiscal 1998. Net cash provided by
operations for the first nine months of fiscal 1999 was composed primarily of
the non-cash charges for the purchased in-process research and development
charge, the restructuring charge and depreciation and amortization offset by the
net loss for the year and a net decrease in working capital. For the first nine
months of fiscal 1998, net cash provided from operations was comprised primarily
of net income and non-cash adjustments offset by a net decrease in working
capital.
The Company's investing activities used cash of $2,756,000 and $68,443,000,
in the first nine months of fiscal 1999 and 1998, respectively. In fiscal 1999,
cash was used for investment and capital purchases and payments for the
acquisition of the Systemhouse and Erasoft businesses offset by cash provided by
investment maturities. In fiscal 1998, the primary use of cash was for
investment purchases and cash paid for the Erasoft acquisition (see Note 2 to
the Consolidated Financial Statements).
The Company's financing activities used cash of $12,523,000 and provided
cash of $79,925,000 in the first nine months of fiscal 1999 and 1998,
respectively. In fiscal 1999, cash was used for the purchase of 1,625,000 shares
of treasury stock through the Company's stock repurchase program. In fiscal
1998, cash was primarily provided by the completion of the Company's public
offering of common stock net of payments for offering costs.
As of March 31, 1999, the Company did not have any material commitments for
capital expenditures. For the remainder of fiscal 1999, the Company anticipates
capital expenditures of approximately $700,000, of which $200,000 is estimated
to be spent for two internal software systems projects and the remainder is for
computer hardware and software to continue to update the Company's network
infrastructure. As of March 31, 1999, the Company had repurchased 1,760,000
shares of its common stock of the 2,500,000 shares authorized by the Board of
the Directors.
The Company expects that its existing working capital will be sufficient
for the foreseeable future to meet its capital and liquidity needs for existing
operations and general corporate purposes, as well as the addition of services
personnel, strategic marketing initiatives, and potential acquisitions of
products, technologies and businesses.
14
<PAGE>
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
The results of operations of the Company for the periods discussed above
have not been significantly affected by inflation or foreign currency
fluctuations. Sales made through the Company's foreign distributors are
denominated in U.S. dollars except in Italy and Spain, where they are
denominated in lira and pesetas, respectively. Sales by the Company's foreign
subsidiaries are principally denominated in the currencies of the countries
where sales are made. The Company experienced losses of approximately $587,000
from foreign currency fluctuations in the nine months ended March 31, 1999,
primarily due to the strength of the US dollar as compared to certain European
currencies.
The Company has not to date sought to hedge the risks associated with
fluctuations in foreign exchange rates. The Company continues to evaluate the
relative costs and benefits of hedging and may seek to hedge these risks in the
future, if appropriate. Gains and losses relating to translation of the
financial statements of the Company's foreign subsidiaries are included as a
separate component of stockholders' equity in the Company's Consolidated
Financial Statements.
YEAR 2000 CONSIDERATIONS
The Company is aware of the problems associated with the year 2000 date
change and has established and continues to evaluate and update its program to
address any potential year 2000 compliance issues relating to its (i) internal
operating systems, (ii) vendors, facilities and other third parties, and (iii)
software products that it licenses to customers.
INTERNAL OPERATING SYSTEMS
The Company has completed its assessment of all of its major internal
operating systems (including non-IT assets) and is continuing to monitor any new
additions to its internal operating systems for year 2000 compliance. As a
result of such assessment and because of changing business requirements as well,
the Company is currently installing new enterprise-wide systems relating to the
Company's accounting and customer relationship management needs, each of which
has been warranted by the vendor to be year 2000 compliant. The customer support
and order processing portions of the customer relationship management system are
currently up and operational, on a worldwide basis, as of December 31, 1998.
Work on this project continues, with plans to add new functionality and
integration between components within the system, but the previous non-year 2000
compliant customer relationship management systems have already been replaced.
The business needs of the Company required that the installation of the new
accounting system be implemented in several phases. The Company expects the
first phase, which will include the installation of an upgraded and year 2000
compliant system, to be completed by June 30, 1999. The Company is also
reviewing its desktop year 2000 concerns, which include software packages and PC
hardware. The Company is using its own product suite, OnMark 2000, to assess its
desktop concerns. The Company expects this assessment to be completed by June
30, 1999. The Company anticipates that all required remediation and testing of
its internal operating systems for year 2000 compliance will be completed by
October 31, 1999. If the Company's major internal operating systems are not year
2000 compliant in a timely manner, the Company's business operations would be
materially and adversely affected and the Company may be required to incur
unanticipated expenses to remedy any problems not addressed by these compliance
efforts.
VENDORS, FACILITIES AND OTHER THIRD PARTIES
The Company continues to evaluate the year 2000 readiness of its material
vendors, facilities and distributors and resellers with respect to IT, as well
as non-IT, assets. The Company has forwarded questionnaires to many of its
material vendors, its primary office locations, distributors and resellers, is
checking information made publicly available by these parties and is evaluating
responses on a case-by-case basis. The Company will place the emphasis of its
vendor review on its primary vendors, such as payroll services, computer
services and phone systems and principal office locations. In the event that the
Company's distributors and resellers are not year 2000 compliant in a timely
15
<PAGE>
manner, the Company could experience material adverse consequences with respect
to the marketing and sale of its products and, as a result, the Company's
business, results of operations and financial condition would be materially and
adversely affected. If the Company's major vendors or facilities are not year
2000 compliant in a timely manner, the Company's business operations would be
materially and adversely affected and the Company may be required to incur
unanticipated expenses to remedy any problems.
PRODUCTS
The Company's development of products and technology is accomplished
through (i) in-house development, and (ii) acquisition or license from third
parties. The Company continues to evaluate and update its assessment of all of
its internally developed and third-party developed products for year 2000
readiness, and believes that all of such products have been designed to satisfy
the Company's year 2000 specifications. The Company now provides information on
its Web page to update customers and other interested parties on the year 2000
status of its software products. As part of its ongoing evaluation, the Company
has developed an internal project plan that contemplates the re-testing of its
software products pursuant to a methodology designed specifically for the
purpose of detecting year 2000 errors. Actual testing began in March and is
currently estimated to be completed in July. The Company will continue to
monitor and test newly developed or acquired products for year 2000 compliance.
In the event that any of the Company's developed or acquired products are not
year 2000 compliant in a timely manner, the Company's sales may decline
materially, customers and those with whom they do business may assert product
liability and other claims, and the Company's business, results of operations
and financial condition would be materially and adversely affected.
CONTINGENCY PLANS
To date, the Company has not completed its contingency plans in the event
that its internal operating systems, vendors, facilities, distributors,
resellers or products, or any other components of its business operations, fail
to operate in compliance with the year 2000 century date change. The Company
expects to develop its preliminary contingency plans by July 31, 1999 and
expects to be in a position to finalize those plans and begin implementation, if
required, by October 31, 1999.
BUDGET FOR YEAR 2000 COMPLIANCE PROJECT
The Company has budgeted approximately $6.7 million for its year 2000
compliance program and has incurred approximately $4.9 million of these expenses
to date. These costs include internal staff to the extent they are dedicated to
the project, a portion of which are expensed in the Company's general and
administrative expenses line item and the remainder are expensed in its research
and development expenses line item. The Company started incurring these expenses
in 1995, when the Company first began the assessment and remediation of
internally developed products, and expenses are expected to continue through
fiscal year 2000.
The Company revised its year 2000 compliance budget during the third
quarter, of fiscal 1999, primarily to reflect changes in its implementation plan
for new customer relationship management and accounting systems. The cost of
designing and implementing both of these systems represents a very large portion
of the year 2000 compliance budget: $4.6 million of the $6.7 million budgeted.
The Company decided to replace these systems several years ago primarily because
of business requirements, but the replacement also served the purpose of
eliminating two major systems that would otherwise have had to be remediated and
tested to become year 2000 compliant. As a result, the costs of these new
systems has been included in the year 2000 compliance budget for purposes of
this disclosure. The revision made to the budget during the third quarter
adjusted the cost of the customer management system to include the cost of
designing and implementing the customer support and order processing portion of
the system, which is the portion that replaced the prior noncompliant system,
but excludes the cost of implementing additional sales management functionality
and integration between components and systems. These additional costs will
begin in the fourth quarter of fiscal 1999. A similar revision was made to the
year 2000 compliance budget with respect to the new accounting system. The costs
of the upgrade to a year 2000 compliant system have been included in the year
2000 compliance budget, but the costs of additional functionality and
16
<PAGE>
integration, which will be implemented over the next nine months, have been
excluded. The budget was also revised to reflect additional staffing for the
overall management of the year 2000 compliance program and the testing of its
software products, as well as increases to the estimated costs of replacing or
remediating noncompliant desktop software packages and network equipment. The
net effect of the changes made to the year 2000 budget in the third quarter was
a decrease of $0.9 million. The company will continue to adjust the budget on a
quarterly basis as its year 2000 compliance program progresses.
The estimated costs of the Company's year 2000 compliance program have not
had and are not expected to have a material effect on the Company's financial
position, results of operations or liquidity. However, there can be no assurance
that the Company will not experience material adverse consequences in the event
that the Company's year 2000 compliance program is not successful or its
vendors, facilities, distributors or resellers are unable to resolve their year
2000 compliance issues in a timely manner.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS FORM 10-Q CONTAINS
EXPRESS OR IMPLIED FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND THE COMPANY INTENDS THAT SUCH
FORWARD-LOOKING STATEMENTS BE SUBJECT TO THE SAFE HARBORS CREATED THEREBY.
INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS ARE THOSE STATEMENTS IN "YEAR 2000
CONSIDERATIONS" REGARDING THE COMPANY'S PLANS AND EXPECTATIONS RELATING TO THE
COMPANY'S YEAR 2000 COMPLIANCE. ADDITIONAL WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS MAY BE MADE BY THE COMPANY FROM TIME TO TIME IN FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, IN ITS PRESS RELEASES, QUARTERLY CONFERENCE
CALLS OR OTHERWISE. THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS",
"FORECASTS", "PROJECTS", "PLANS", "ESTIMATES" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS
WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE OR OPERATIONS AND SPEAK
ONLY AS OF THE DATE THE STATEMENTS ARE MADE. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES AND READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM SUCH STATEMENTS. FACTORS THAT CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S DEPENDENCE ON THE
YEAR 2000 CENTURY DATE CONVERSION MARKET, BOTH MAINFRAME AND DESKTOP, AND
DEPENDENCE ON ITS ESW PRIMARY PRODUCT LINE, THE VOLATILITY OF THE COMPANY'S
COMMON STOCK PRICE, FLUCTUATIONS IN REVENUES AND OPERATING RESULTS, FLUCTUATIONS
IN MARKET DEMAND AND PRODUCT MIX, THE COMPANY'S ABILITY TO MANAGE CHANGES IN ITS
PROFESSIONAL SERVICES BUSINESS AND RISKS ASSOCIATED WITH A PROFESSIONAL SERVICES
BUSINESS, INCLUDING VOLATILITY OF WORKLOAD, ABILITY TO SUCCESSFULLY MANAGE
CONSULTING PROJECTS, PROPER ALLOCATION OF RESOURCES AND HIRING, TRAINING AND
RETAINING QUALIFIED PERSONNEL, RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
INCLUDING LONGER PAYMENT CYCLES AND EXCHANGE RATE FLUCTUATIONS, THE COMPANY'S
ABILITY TO MANAGE RAPID CHANGE IN ITS BUSINESS AND INDUSTRY, THE COMPANY'S
ABILITY TO ENHANCE EXISTING PRODUCTS AND DEVELOP OR ACQUIRE NEW PRODUCTS AND
TECHNOLOGY TO KEEP PACE WITH TECHNOLOGICAL DEVELOPMENTS AND EVOLVING INDUSTRY
STANDARDS AND TO RESPOND TO CHANGES IN CUSTOMER NEEDS, THE COMPANY'S ABILITY TO
IDENTIFY, COMPLETE, MANAGE AND INTEGRATE ACQUISITIONS OF BUSINESSES, PRODUCTS
AND TECHNOLOGIES, CHARGES, COSTS AND UNCERTAINTIES RELATED TO ACQUISITIONS,
INTENSE COMPETITION IN THE COMPANY'S MARKETS, THE PERFORMANCE OF THE COMPANY'S
DISTRIBUTORS AND RESELLERS, THE COMPANY'S DEPENDENCE ON KEY MANAGEMENT AND
TECHNICAL PERSONNEL AND INCREASING COMPETITION TO ATTRACT SKILLED PERSONNEL, THE
ADEQUACY OF THE COMPANY'S PROGRAM TO ADDRESS YEAR 2000 COMPLIANCE ISSUES AND
GENERAL ECONOMIC AND BUSINESS CONDITIONS, AS WELL AS FACTORS DISCUSSED ELSEWHERE
IN THIS FORM 10-Q, IN "FACTORS THAT MAY AFFECT FUTURE RESULTS" IN THE COMPANY'S
FORM 10-K FOR THE YEAR ENDED JUNE 30, 1998 AND OTHER RISKS DETAILED FROM TIME TO
TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING ITS
FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE
INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS
CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS WILL BE REALIZED. THE INCLUSION
OF SUCH FORWARD-LOOKING INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION
BY THE COMPANY OR ANY OTHER PERSON THAT THE FUTURE EVENTS, PLANS OR EXPECTATIONS
CONTEMPLATED BY THE COMPANY WILL BE ACHIEVED. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY UPDATE, REVIEW OR REVISE ANY FORWARD-LOOKING STATEMENTS
TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENTS IS
BASED.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION
------ -----------
11 Computation of Earnings Per Share for the three and
nine month periods ended March 31, 1999 and 1998
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Viasoft, Inc.
Date: May 13, 1999 By /s/ Steven D. Whiteman
-------------------------------
Steven D. Whiteman
President
Date: May 13, 1999 By /s/ Mark R. Schonau
-------------------------------
Mark R. Schonau
Chief Financial Officer
19
VIASOFT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS(LOSS) PER SHARE
Exhibit 11
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 18,145 19,358 19,321 17,723
Effect of Weighting of Shares:
Employee stock options exercised 8 13 61 116
Shares issued in secondary offering -- -- -- 1,021
Shares purchased -- -- 55 15
Treasury shares (99) -- (994) --
-------- -------- -------- -------
Weighted average number of common shares
outstanding 18,054 19,371 18,443 18,875
======== ======== ======== =======
Net income (loss) $ 487 $ (4,136) $ (5,133) $ 4,665
======== ======== ======== =======
Earnings (loss) per common share $ 0.03 $ (0.21) $ (0.28) $ 0.25
======== ======== ======== =======
DILUTED EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 18,145 19,358 19,321 17,723
Effect of Weighting of Shares:
Warrants and employee stock options outstanding 141 -- -- 872
Employee stock options exercised 8 13 61 116
Shares issued in secondary offering -- -- -- 1,021
Shares purchased -- -- 55 15
Treasury shares (99) -- (994) --
-------- -------- -------- -------
Weighted average number of common and common
share equivalents outstanding 18,195 19,371 18,443 19,747
======== ======== ======== =======
Net income (loss) $ 487 $ (4,136) $ (5,133) $ 4,665
======== ======== ======== =======
Earnings (loss) per common and common share
equivalent $ 0.03 $ (0.21) $ (0.28) $ 0.24
======== ======== ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE COMPANY AND ITS SUBSIDIARIES AS OF MARCH 31,
1999 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 29,545
<SECURITIES> 54,180
<RECEIVABLES> 25,600
<ALLOWANCES> 784
<INVENTORY> 0
<CURRENT-ASSETS> 113,775
<PP&E> 15,625
<DEPRECIATION> 6,420
<TOTAL-ASSETS> 139,505
<CURRENT-LIABILITIES> 40,919
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 98,158
<TOTAL-LIABILITY-AND-EQUITY> 139,505
<SALES> 80,787
<TOTAL-REVENUES> 80,818
<CGS> 30,204
<TOTAL-COSTS> 91,455
<OTHER-EXPENSES> 658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,405)
<INCOME-PRETAX> (7,892)
<INCOME-TAX> (2,759)
<INCOME-CONTINUING> (5,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,133)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
