<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 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 Identification No.)
of incorporation or organization)
4343 EAST CAMELBACK ROAD, 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 January 31, 2000, there were 18,098,636 outstanding shares of Common
Stock, par value $.001 per share, of Viasoft, Inc.
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VIASOFT, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999
and June 30, 1999 3
Consolidated Statements of Operations for the
three and six months ended December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
six months ended December 31, 1999 and 1998 5
Consolidated Statements of Comprehensive Income for
the three and six months ended December 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 11
Item 3. Legal Proceedings 24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
</TABLE>
2
<PAGE> 3
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
--------- ---------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 32,401 $ 25,609
Investments, at amortized cost 43,019 55,650
Accounts receivable (less allowance for doubtful accounts
of $927 and $829, respectively) 13,854 23,632
Prepaid expenses and other 4,640 5,966
--------- ---------
Total current assets 93,914 110,857
--------- ---------
Furniture and equipment, net 4,842 6,349
--------- ---------
Other assets:
Investments, at amortized cost 12,641 4,791
Intangible assets, net 2,881 4,232
Long-term deferred tax asset 7,131 7,527
Other 384 413
--------- ---------
Total other assets 23,037 16,963
--------- ---------
Total assets $ 121,793 $ 134,169
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 911 $ 1,012
Accrued compensation 1,989 2,488
Accrued income taxes payable 1,103 2,966
Restructuring reserves 1,687 3,278
Other accrued expenses 6,821 9,949
Deferred revenue 12,914 19,541
--------- ---------
Total current liabilities 25,425 39,234
--------- ---------
Deferred revenue, recognized after one year 107 206
--------- ---------
Other long term liabilities -- 99
--------- ---------
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, 48,000,000 shares
authorized, 19,456,133 shares issued at both
December 31, 1999 and June 30, 1999, respectively 19 19
Capital in excess of par value 122,214 122,989
Accumulated deficit (14,050) (15,485)
Cumulative translation adjustment (1,062) (814)
Treasury stock, at cost, 1,428,501 and 1,550,296 shares at
December 31, 1999 and June 30, 1999, respectively (10,860) (12,079)
--------- ---------
Total stockholders' equity 96,261 94,630
--------- ---------
Total liabilities and stockholders' equity $ 121,793 $ 134,169
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 4
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software license fees $ 4,964 $ 13,738 $ 12,016 $ 23,473
Maintenance fees 7,828 8,849 16,126 17,142
Professional services fees 2,714 7,091 6,002 14,379
Other 2 9 9 16
-------- -------- -------- --------
Total revenues 15,508 29,687 34,153 55,010
-------- -------- -------- --------
Operating expenses:
Cost of software license and
maintenance fees 1,828 4,606 4,495 8,355
Cost of professional services fees 3,277 6,107 7,021 12,099
Sales and marketing 5,189 11,239 12,002 22,344
Write-off of purchased in-process research
and development -- -- -- 5,013
Research and development 2,098 3,768 4,432 8,222
General and administrative 2,552 2,477 5,925 5,139
Restructuring charge -- -- -- 4,790
-------- -------- -------- --------
Total operating expenses 14,944 28,197 33,875 65,962
-------- -------- -------- --------
Income (loss) from operations 564 1,490 278 (10,952)
-------- -------- -------- --------
Other income (expense):
Interest income 1,100 1,049 2,128 2,418
Interest expense -- (2) -- (2)
Other income (expense), net (105) (310) (197) (103)
-------- -------- -------- --------
Total other income (expense) 995 737 1,931 2,313
-------- -------- -------- --------
Income (loss) before income taxes 1,559 2,227 2,209 (8,639)
Income tax (benefit)/provision 545 780 774 (3,019)
-------- -------- -------- --------
Net income (loss) $ 1,014 $ 1,447 $ 1,435 $ (5,620)
======== ======== ======== ========
Basic earnings (loss) per common share $ 0.06 $ 0.08 $ 0.08 $ (0.30)
======== ======== ======== ========
Weighted average number of common shares outstanding 18,001 18,311 17,970 18,633
======== ======== ======== ========
Diluted earnings (loss) per common and common share
equivalent $ 0.06 $ 0.08 $ 0.08 ($ 0.30)
======== ======== ======== ========
Weighted average number of common and common share
equivalents outstanding 18,279 18,481 18,342 18,633
======== ======== ======== ========
</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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,435 $ (5,620)
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities -
Depreciation and amortization 2,917 2,783
Write-off of purchased in-process research and development -- 5,013
Restructuring charge -- 4,780
Changes in operating assets and liabilities, net of effect of business acquired:
(Increase) decrease in accounts receivable 9,778 (812)
Decrease in prepaid expenses and other 1,231 3,701
(Increase) decrease in other assets 359 (2,929)
Decrease in accrued income taxes (1,863) (3,588)
Decrease in accounts payable and other accrued expenses (4,768) (2,844)
Decrease in accrued compensation (499) (1,059)
Decrease in deferred revenue (6,825) (3,968)
-------- --------
Total adjustments 330 1,077
-------- --------
Net cash (used in) provided by operating activities 1,765 (4,543)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (11) (2,691)
Cash paid for business, net of cash acquired -- (6,000)
Purchase of investments (27,109) (48,273)
Investment maturities 32,019 59,838
-------- --------
Net cash provided by investing activities 4,899 2,874
-------- --------
FINANCING ACTIVITIES:
Purchase of treasury stock -- (12,074)
Sale of treasury stock 444 822
Payments received on common stock subscriptions receivable -- --
Proceeds from issuance of common stock -- --
Payments for offering costs -- --
-------- --------
Net cash (used in) provided by financing activities 444 (11,252)
-------- --------
Effect of exchange rate changes on cash (316) 401
-------- --------
Net increase (decrease) in cash and cash equivalents 6,792 (12,520)
Cash and cash equivalents, beginning period 25,609 37,809
-------- --------
Cash and cash equivalents, end of period $ 32,401 $ 25,289
======== ========
Supplemental cash flow information:
Income taxes paid $ 691 $ 2,894
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
( in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income (loss) $ 1,014 $ 1,447 $ 1,435 $(5,620)
Other comprehensive income, net of tax
Foreign currency translation adjustments (326) 65 (161) 261
------- ------- ------- -------
Comprehensive income (loss) $ 688 $ 1,512 $ 1,274 $(5,359)
======= ======= ======= =======
</TABLE>
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
SIX MONTHS ENDED DECEMBER 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 ("GAAP") for interim financial
information and the instructions to Form 10-Q. Accordingly, they do not include
all the information and footnotes required by 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
six months period ended December 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, 1999.
2. TERMINATION OF PROPOSED TRANSACTION WITH COMPUWARE
On July 15, 1999, Viasoft and Compuware Corporation ("Compuware") announced
the execution of a merger agreement providing for Compuware to acquire Viasoft
through a cash tender offer followed by a merger ("Merger"). As contemplated by
the merger agreement, on July 22, 1999, a wholly-owned subsidiary of Compuware,
CV Acquisition, Inc., offered to purchase all outstanding shares of Viasoft's
Common Stock for $9.00 per share on the terms and conditions of an Offer to
Purchase submitted to the Viasoft shareholders. This offer had an original
expiration date of August 19, 1999, which was subsequently extended a number of
times. The final extension date was January 18, 2000. On January 18, 2000,
Viasoft and Compuware agreed to terminate the merger agreement.
Consummation of the tender offer was subject to certain conditions,
including the expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act. On August 3, 1999, both Viasoft
and Compuware received requests for additional information and documents from
the Antitrust Division of the Department of Justice ("DOJ") in connection with
its review of the companies' Hart-Scott-Rodino filings. As a result of these
information requests, Compuware extended the tender offer to allow sufficient
time to comply with the information requests and to allow the DOJ time to
complete its investigation.
7
<PAGE> 8
On October 29, 1999, the DOJ filed a civil antitrust lawsuit against
Compuware and Viasoft in the United States District Court for the District of
Columbia to block the proposed acquisition of Viasoft by Compuware. The DOJ
alleged that competition in the mainframe testing/debugging and fault diagnostic
tool markets would be substantially lessened as a result of the proposed
transaction. Compuware and Viasoft extended the tender offer a number of times
in order to provide additional time to evaluate and pursue available options in
defense of the civil action. Viasoft agreed with Compuware to terminate the
merger agreement because the Board of Directors did not believe that continuing
the litigation for many months, with its inherent risks, substantial costs and
potential for irreparable damage to the Viasoft business and relationships with
customers, distributors and employees was in the best interest of Viasoft
shareholders.
Viasoft believes that its business, results of operations, financial
condition and liquidity have been materially adversely affected by the
announcement of the proposed acquisition by Compuware, the DOJ litigation and
resulting termination of the transaction. Relationships with customers have been
adversely affected and revenues from product licenses and professional services
have declined as customers have delayed or reconsidered purchase decisions. In
addition, the Company has experienced significant employee attrition as a result
of the announcement of the Compuware transactions and the subsequent delays and
uncertainty. Loss of employees has been most significant in the marketing and
administration functions and in the sales force, particularly in the United
States. The Company believes that its business, results of operations, financial
condition and liquidity may be further materially adversely affected, as the
Company works to recover from the effects of the terminated Compuware
transaction. Among other things, Viasoft will be required to restructure and
rebuild its workforce and reinforce both its customer relationships and position
in the marketplace following termination of the proposed merger. As part of this
restructuring, the Company recently announced the reorganization of its business
into two independent business units. Implementing this reorganization required a
workforce reduction of 20-25%, or approximately 70 people.
Viasoft will take a pre-tax charge of approximately $1.8 million in its
fiscal third quarter ended March 31, 2000, for costs related to the merger.
These costs are primarily for outside legal fees and financial services
associated with the merger, as well as significant litigation expenses.
On January 24, 2000, Viasoft received a letter from Compuware claiming that
Viasoft violated the previously-terminated merger agreement with Compuware and
demanding $10 million in damages. Compuware alleged that Viasoft violated its
obligations under the merger agreement to refrain from seeking alternative
take-over proposals and, as a result, failed to use reasonable efforts to obtain
regulatory approval and consummate the proposed transaction. Viasoft has
publicly disclosed these claims and has stated that there is no basis for the
claims. To Viasoft's knowledge, Compuware has not commenced any legal
proceedings with respect to the claims. In light of these circumstances, and
because Viasoft believes the Compuware
8
<PAGE> 9
allegations to be entirely without merit, Viasoft does not believe a reserve for
this matter is appropriate.
3. SUBSEQUENT EVENT - REDUCTION IN FORCE
On February 11, 2000, Viasoft announced a reorganization of the Company
into two independent business units, resulting in a workforce reduction of
20-25%, or approximately 70 people. A one-time charge of $1.4 million,
representing severance costs, will be taken in the current fiscal quarter.
4. ACQUISITION
SHL SYSTEMHOUSE CO. ("SHL")
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.
Viasoft renamed the product Visual Process.
In connection with the Company's reorganization and change in business model
in the fourth quarter of fiscal 1999, the plans for this product were
significantly altered. During the fourth quarter of fiscal 1999, the Company
decided to sell the license to the technology and to discontinue future
development on the product. The Company hired a consulting firm to provide an
estimated market value of the product and to market the product to potential
buyers. In addition, the Company has written down the intangible assets related
to the SHL purchase to their estimated fair market value, resulting in a charge
of approximately $130,000, and reclassified the assets to current assets.
Viasoft has shut down the Visual Process development lab in Toronto, Canada and
the remaining support of Visual Process was moved to its Phoenix office in the
second quarter of fiscal 2000. The Company believes its efforts to sell the
license were inhibited by the announcement of the proposed Compuware acquisition
and by the closure of the development lab in Toronto and is presently reviewing
its alternatives with respect to the product.
5. FISCAL 1999 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, as the year 2000
market declined, and to allow the business to invest in other products and
service 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, and accordingly developed plans to grow its services
business.
In the first quarter of fiscal 1999, the Company took a $4.8 million pre-tax
restructuring charge. 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.
The Company took a pre-tax charge of approximately $7.5 million in the
fourth quarter of fiscal 1999 in connection with its April reorganization and
transition to the new business model. This charge related to severance for a
reduction in workforce of approximately 20% of its 500 employees worldwide of
$2.8 million; a write down in accordance with SFAS No. 121 of certain long-lived
assets based on the net present value of future cash flows of $4.3 million; a
write down of certain capitalized software which was determined to be impaired
through a net realizable value test based on future forecasted revenues of
$300,000; and additional facility exit costs of $100,000.
As of December 31, 1999, approximately 194 employees have been separated
from the Company in conjunction with the fiscal 1999 reorganization and
restructuring plans and $4.8 million in severance and related costs had been
paid out or incurred. Approximately $313,000 had been used for office
consolidation costs as of December 31, 1999.
6. BUSINESS SEGMENTS
Viasoft operates primarily in three business segments in the software
industry: domestic products, domestic professional services and international
products and professional services. For purposes of these segments, all of the
Americas operations are reported as part of the domestic segment. The Company
evaluates each business segment based upon operating profit. Each business
segment's operating profits do not include an allocation of the cost of license
and maintenance, research and development costs, corporate overhead costs,
write-offs of purchase in-process research and development charges,
restructuring charges and other income. The
9
<PAGE> 10
Company does not evaluate assets and capital expenditures on a segment basis.
Segment information for the three and six months ended December 31, 1999 and
1998, is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
----------------------------------------------------
REVENUES:
<S> <C> <C> <C> <C>
Domestic products $ 8,727 $ 13,961 $ 17,278 $ 25,876
Domestic professional services 1,678 5,900 3,925 12,146
International products and professional services 5,103 9,826 12,950 16,988
-------- -------- -------- --------
Total revenues 15,508 29,687 34,153 55,010
OPERATING EXPENSES:
Domestic products 1,117 4,353 3,865 9,492
Domestic professional services 1,983 5,254 4,526 10,394
International products and professional services 4,357 5,780 9,066 10,678
Cost of license and maintenance 1,755 4,577 4,360 8,320
Research and development 2,098 3,768 4,432 8,221
Corporate overhead 3,634 4,465 7,626 9,054
-------- -------- -------- --------
Total operating expenses 14,944 28,197 33,875 56,159
INCOME (LOSS) FROM OPERATIONS, BEFORE WRITE-OFF
OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT,
RESTRUCTURING CHARGES, OR OTHER INCOME:
Domestic products 7,610 9,608 13,413 16,384
Domestic professional services (305) 646 (601) 1,752
International products and professional services 746 4,046 3,884 6,310
Cost of license and maintenance (1,755) (4,577) (4,360) (8,320)
Research and development (2,098) (3,768) (4,432) (8,221)
Corporate overhead (3,634) (4,465) (7,626) (9,054)
-------- -------- -------- --------
TOTAL INCOME (LOSS) FROM OPERATIONS, BEFORE
WRITE-OFF OF PURCHASED IN-PROCESS RESEARCH AND
DEVELOPMENT, RESTRUCTURING CHARGES, OR
OTHER INCOME: 564 1,490 278 (1,149)
Write-off of purchased in-process research and
development -- -- -- (5,013)
Restructuring charges -- -- -- (4,790)
Other income 995 737 1,931 2,313
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES $ 1,559 $ 2,227 $ 2,209 $ (8,639)
======== ======== ======== ========
</TABLE>
The Company operates in one industry segment which includes the development,
marketing and support of business solutions that enable large organizations
worldwide to understand, manage, evolve, reuse, transition and modernize
mission-critical applications that support their fundamental business processes.
These business solutions are provided through integrated software products and
specialized professional consulting services.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. Such
forward-looking statements include, but are not limited to, statements regarding
future events and the Company's plans and expectations. The Company's actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
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, 1999 and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission. See "Special Note on Forward-Looking Statements."
OVERVIEW
On July 15, 1999, Viasoft and Compuware announced the execution of a merger
agreement providing for Compuware to acquire Viasoft through a cash tender
offer, subject to the satisfaction of certain conditions. The expiration date of
this offer had been extended a number of times, in order to provide additional
time to evaluate available options to defend a civil action filed by the
Antitrust Division of the Department of Justice ("DOJ") to block the
acquisition. The merger agreement was terminated by Viasoft and Compuware on
January 18, 2000. (See Note 2 to the Consolidated Financial Statements).
Viasoft believes that its business, results of operations, financial
condition and liquidity have been materially adversely affected by the
announcement of the proposed acquisition by Compuware, the DOJ litigation and
resulting termination of the transaction. Relationships with customers have been
adversely affected and revenues from product licenses and professional services
have declined as customers have delayed or reconsidered purchase decisions. In
addition, the Company has experienced significant employee attrition as a result
of the announcement of the Compuware transactions and the subsequent delays and
uncertainty. Loss of employees has been most significant in the marketing and
administration functions and in the sales force, particularly in the United
States. The Company believes that its business, results of operations, financial
condition and liquidity may be further materially adversely affected, as the
Company works to recover from the effects of the terminated Compuware
transaction. Among other things, Viasoft will be required to restructure and
rebuild its workforce and reinforce both its customer relationships and position
in the marketplace following termination of the proposed merger. As part of this
restructuring, the Company recently announced the reorganization of its business
into two independent business units. Implementing this reorganization required a
workforce reduction of 20-25%, or approximately 70 people.
11
<PAGE> 12
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 fiscal 1998
primarily to sell the OnMark 2000 product line.
Revenue is recognized in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" and SOP 98-9 which modifies SOP 97-2 with respect
to certain transactions involving multiple element arrangements. Accordingly,
revenue from software licensing is recognized when delivery of the software has
occurred, a signed non-cancelable license agreement has been received from the
customer or a purchase order has been received from a reseller after receipt of
an executed reseller agreement and any remaining obligations under the license
agreement are 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.
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The discussion of results of operations for the three and six months ended
December 31, 1999 and 1998, below excludes the effect of restructuring charges
and purchased in-process research and development charges.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
REVENUES
Total revenues were $15,508,000 for the quarter ended December 31, 1999, as
compared to $29,687,000 for the quarter ended December 31, 1998. Software
license fees were $4,964,000 for the quarter ended December 31, 1999, a decrease
of 64% from $13,738,000 in the quarter ended December 31, 1998. The decrease in
software license fees related to customer decisions to postpone or reconsider
purchases due to the proposed acquisition of the Company by Compuware, loss of
sales personnel as a result of the transaction and, additionally, the slowdown
in the worldwide demand for the Company's year 2000 mainframe and desktop
software tools. Beginning in late fiscal 1999, OnMark 2000 license revenues
began to decline significantly both domestically and internationally. This
decline continued to accelerate as the year 2000 approached. Management believes
that the year 2000 market is substantially over and that the Company will
receive only minimal year 2000 related revenue in the next several quarters. In
addition, management believes that license fee revenue may continue to be
adversely affected by the terminated merger with Compuware, as the Company works
to recover from the effects of the terminated Compuware transaction.
Maintenance fees were $7,828,000 in the quarter ended December 31, 1999,
compared to $8,849,000 in the quarter ended December 31, 1998, a decrease of
12%. 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 has experienced
erosion in maintenance revenue because a large percentage of license
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<PAGE> 14
sales in late fiscal 1998 and throughout fiscal 1999 were OnMark 2000 licenses
without maintenance agreements. In addition, in fiscal 1999 and continuing into
fiscal 2000, the Company saw instances of maintenance cancellations that
management believes were the result of customers canceling maintenance after
completion of their year 2000 remediation projects. If, in the future, customers
discontinue use of Viasoft products because they do not plan to continue their
use following completion of year 2000 projects, a material adverse effect on the
Company's maintenance revenues could result.
Professional services fees were $2,714,000 for the quarter ended December
31, 1999, a decrease of 62% from $7,091,000 in the quarter ended December 31,
1998. In April 1999, the Company announced a reorganization of its operations to
transition to a solutions-driven model focused on e-business enablement, and
accordingly developed plans to grow its services business. Management believed
that the Company could experience weakness in professional services fee revenue
and margins as it transitioned to this new model. As a result of the
announcement of the proposed acquisition of the Company by Compuware in July
1999, the Company has not been able to fully implement the planned transition to
a solutions-based model. The decrease in professional services fee income is a
result of customers, both domestically and internationally, delaying or
reconsidering decisions regarding signing new services agreements pending the
outcome of the merger with Compuware, as well as the reorganization commenced in
the fourth quarter of fiscal 1999. Management believes that professional
services fee revenue may continue to be adversely affected by the terminated
merger with Compuware for the reasons discussed above.
COST OF REVENUES
Cost of software license and maintenance fees, which includes royalties,
cost of customer support and packaging and product documentation, was $1,828,000
in the quarter ended December 31, 1999, a decrease of 60% from $4,606,000 in the
quarter ended December 31, 1998. Gross margins on software license and
maintenance fees increased to 86% in the quarter ended December 31, 1999,
compared to 80% in the quarter ended December 31, 1998. The decrease in royalty
expenses in the quarter ended December 31, 1999, of $2.1 million or 83% over the
same period in fiscal 1999 due to the decrease in sales of the OnMark 2000
product line was the primary reason for the margin improvement and the reduction
in costs. All products in the OnMark product line require royalty payments to
third parties. As noted above, OnMark revenues have declined significantly
year-over-year. Other factors contributing to the decrease in cost of software
license and maintenance fees and improvement in margins included lower software
license fee revenues, the reduction in the number of customer support personnel
and third party consultants used for customer support worldwide as a result of
the Company's fiscal 1999 reorganization and personnel attrition due to the
terminated Compuware transaction.
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
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<PAGE> 15
$3,277,000 in the quarter ended December 31, 1999, a decrease of 46% from
$6,107,000 in the quarter ended December 31, 1998. The decrease in expenses was
primarily a result of lower subcontractor costs in line with the decrease in
professional services fee revenues. The gross margin for professional services
was a negative 21% in the quarter ended December 31, 1999, compared to 14% in
the quarter ended December 31, 1998. The negative margin was a result of the
Company's inability to cover the costs of the overhead in the professional
services group due to the decline in professional services fee revenue in the
second quarter of fiscal 2000. The Company believes that negative professional
services margins may continue in the near term as the Company works to recover
from the effects of the terminated Compuware transaction.
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 $5,189,000 in the quarter ended
December 31, 1999, a decrease of 54% from $11,239,000 in the quarter ended
December 31, 1998. Sales and marketing expense as a percentage of total revenues
was 34% in the quarter ended December 31, 1999, and 38% in the quarter ended
December 31, 1998. These decreases are attributable primarily to a decrease in
the number of sales and marketing personnel and their related costs as a result
of attrition due to the Company's fiscal 1999 reorganization plan and the
terminated Compuware transaction. In addition, bonuses and commissions declined
due to the decrease in license revenues. Furthermore, external consulting,
marketing and promotional costs declined as the Company reprioritized strategic
marketing programs in anticipation of the proposed merger with Compuware.
Management anticipates that sales and marketing expenses will increase as
Viasoft takes steps to reinforce customer relationships and its position in the
marketplace following termination of the Compuware transaction.
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 $2,098,000 in the
quarter ended December 31, 1999, compared to $3,768,000 in the quarter ended
December 31, 1998. Research and development expenses decreased 44%
year-over-year. Research and development charges for third-party development of
$480,000 were incurred in the second quarter of fiscal 1999. There were no such
expenditures made in the first quarter of fiscal 2000. The decrease in these
third-party development costs along with the decrease in development personnel
as a result of the Company's reorganization are the primary reasons for the
decline in research and development expenses. As a percentage of total revenues,
research and development costs increased to 14% in the quarter ended December
31, 1999, from 13% for the quarter ended December 31, 1998, primarily as a
result of the decrease in revenues.
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<PAGE> 16
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 $2,552,000 in the quarter ended December 31, 1999, an increase of 3% from
$2,477,000 in the quarter ended December 31, 1998. This increase is primarily a
result of additional amortization of intangibles related to the EraSoft and SHL
acquisitions offset by savings in personnel costs as a result of attrition due
to the Company's reorganization and the Compuware transaction. As a percentage
of total revenues, general and administrative expenses were 16% in the quarter
ended December 31, 1999, compared to 8% in the quarter ended December 31, 1998.
This increase is primarily due to the overall decrease in revenues.
OTHER INCOME (EXPENSE)
Other income was $995,000 in the quarter ended December 31, 1999, compared
to $737,000 in the quarter ended December 31, 1998. The increase is primarily a
result of an overall decrease in foreign exchange losses.
INCOME TAX BENEFIT/PROVISION
The Company's income tax provision was $545,000 in the quarter ended
December 31, 1999, compared to $780,000 in the quarter ended December 31, 1998.
The Company's effective rate for the quarters ended December 31, 1999 and 1998
was 35% .
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
REVENUES
Total revenues were $34,153,000 for the six months ended December 31, 1999,
as compared to $55,010,000 for the quarter ended December 31, 1998. Software
license fees were $12,016,000 for the six months ended December 31, 1999, a
decrease of 49% from $23,473,000 in the six months ended December 31, 1998. The
decrease in software license fees related to customer decisions to postpone or
reconsider purchases due to the proposed acquisition of the Company by Compuware
and, additionally, the slowdown in the worldwide demand for the Company's year
2000 mainframe and desktop software tools. Beginning in late fiscal 1999, OnMark
2000 license revenues began to decline significantly both domestically and
internationally. This decline has continued to accelerate as the year 2000
approached. Management believes that the year 2000 market is substantially over
and the Company will receive only minimal year 2000 related revenue in the next
several quarters. In addition, management believes that license fee revenue may
continue to be adversely affected by the terminated merger with Compuware, as
the Company works to recover from the effects of the
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<PAGE> 17
terminated Compuware transaction.
Maintenance fees were $16,126,000 for the six months ended December 31,
1999, compared to $17,142,000 in the six months ended December 31, 1998, a
decrease of 6%. 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 has
experienced erosion in maintenance revenue because a large percentage of license
sales in late fiscal 1998 and throughout fiscal 1999 were OnMark 2000 licenses
without maintenance agreements. In addition, in fiscal 1999 and continuing into
fiscal 2000, the Company saw instances of maintenance cancellations that
management believes were the result of customers canceling maintenance after
completion of their year 2000 remediation projects. If, in the future, customers
discontinue use of Viasoft products because they do not plan to continue their
use following completion of year 2000 projects, a material adverse effect on the
Company's maintenance revenues could result.
Professional services fees were $6,002,000 for the six months ended December
31, 1999, a decrease of 58% from $14,379,000 in the quarter ended December 31,
1998. In April 1999, the Company announced a reorganization of its operations to
transition to a solutions-driven model focused on e-business enablement, and
accordingly developed plans to grow its services business. Management believed
that the Company could experience weakness in professional services fee revenue
and margins as it transitioned to this new model. As a result of the
announcement of the proposed acquisition of the Company by Compuware in July
1999, the Company has not been able to fully implement the planned transition to
a solutions-based model. The decrease in professional services fee income is a
result of customers, both domestically and internationally, delaying or
reconsidering decisions regarding signing new services agreements pending the
outcome of the merger with Compuware, as well as the reorganization commenced in
the fourth quarter of fiscal 1999. Management believes that professional
services fee revenue will continue to be adversely affected by the terminated
merger with Compuware for the reasons discussed above.
COST OF REVENUES
Cost of software license and maintenance fees was $4,495,000 in the six
months ended December 31, 1999, a decrease of 46% from $8,355,000 in the six
months ended December 31, 1998. Gross margins on software license and
maintenance fees increased to 84% for the six months ended December 31, 1999,
compared to 79% for the six months ended December 31, 1998. The decrease in
royalty expenses in the six months ended December 31, 1999, of $2.9 million or
70% over the same period in fiscal 1999 due to the decrease in sales of the
OnMark 2000 product line was the primary reason for the margin improvement and
the reduction in costs. All products in the OnMark product line require royalty
payments to third parties. As noted above, OnMark revenues have declined
significantly year-over-year. Other factors contributing
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<PAGE> 18
to the decrease in cost of software license and maintenance fees are the
reduction in the number of customer support personnel and third party
consultants used for customer support worldwide as a result of the Company's
reorganization which commenced in fiscal 1999 as well as the announcement of the
Compuware transaction and lower product packaging costs and external consulting
costs as a result of the reduction in OnMark revenue.
Cost of professional services fees was $7,021,000 in the six months ended
December 31, 1999, a decrease of 42% from $12,099,000 in the six months ended
December 31, 1998. The decrease in expenses was primarily a result of lower
subcontractor costs in line with the decrease in professional services fee
revenues. The gross margin for professional services was a negative 17% in the
six months ended December 31, 1999, compared to a positive margin of 16% in the
six months ended December 31, 1998. The negative margin was a result of the
Company's inability to cover the costs of the overhead in the professional
services group due to the decline in professional services fee revenue. The
Company believes that negative professional services margins may continue in the
near term as the Company works to recover from the effects of the terminated
Compuware transaction.
SALES AND MARKETING
Sales and marketing expenses were $12,002,000 in the six months ended
December 31, 1999, a decrease of 46% from $22,344,000 in the six months ended
December 31, 1998. Certain expenses totaling approximately $600,000 which had
been classified as sales and marketing expenses in the first quarter of fiscal
2000 have been reclassified to general and administrative in the year-to-date
presentation to more accurately reflect the nature of the expenses. Sales and
marketing expense as a percentage of total revenues was 35% in the six months
ended December 31, 1999, and 41% in the same period in fiscal 1999. These
decreases are attributable primarily to a decrease in the number of sales and
marketing personnel and their related costs as a result of attrition due to the
Company's reorganization plan which commenced in fiscal 1999 and the terminated
Compuware transaction. In addition, bonuses and commissions declined due to the
decrease in license revenues and external consulting, marketing and promotional
costs also declined during this period. Also, in fiscal 1999, the Company took a
$1.1 million charge for bad debts which was not necessary in fiscal 2000.
Management anticipates that sales and marketing expenses will increase as
Viasoft takes steps to reinforce customer relationships and its position in the
marketplace following termination of the Compuware transaction.
RESEARCH AND DEVELOPMENT
Research and development expenditures were $4,432,000 in the six months
ended December 31, 1999, compared to $8,222,000 in the six months ended December
31, 1998. Research and development expenses decreased 46% year-over-year. In
fiscal 1999, research and development charges of $1.5 million for third-party
development of certain technologies acquired during the first six months of
fiscal 1999 were incurred. There were no such expenditures made in fiscal
18
<PAGE> 19
2000. With no significant third-party development expenses as well as the
decrease in development personnel as a result of the Company's reorganization
research and development expenses declined year-over-year. As a percentage of
total revenues, research and development costs decreased to 13% in the six
months ended December 31, 1999, from 15% for the quarter ended December 31,
1998, primarily as a result of the reduction in third-party development costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $5,925,000 for the six months ended
December 31, 1999, as compared to $5,139,000 in the six months ended December
31, 1998. Certain expenses totaling approximately $600,000 which had been
classified as sales and marketing expenses in the first quarter of fiscal 2000
have been reclassified to general and administrative in the year-to-date
presentation to more accurately reflect the nature of the expenses. General and
administrative expenses have increased 15% year-over-year. This increase is
primarily a result of additional amortization of intangibles related to the
EraSoft and SHL acquisitions (see Note 4 to the Consolidated Financial
Statements) and additional external consulting costs related to the Company's
year 2000 readiness project, offset by savings in personnel costs as a result of
attrition due to the Company's reorganization and the Compuware transaction. As
a percentage of total revenues, general and administrative expenses were 17% in
the six months ended December 31, 1999, compared to 9% in the six months ended
December 31, 1998. This increase is primarily due to the overall decrease in
revenues and the increase in expenses noted above.
OTHER INCOME (EXPENSE)
Other income was $1,931,000 in the six months ended December 31, 1999,
compared to $2,313,000 in the six months ended December 31, 1998. The decrease
is primarily a result of a decrease in interest income year-over-year due to
lower interest rates and lower average investment balances.
INCOME TAX BENEFIT/PROVISION
The Company's income tax provision was $774,000 in the six months ended
December 31, 1999, compared to a benefit of $3,019,000 in the six months ended
December 31, 1998, as a result of the losses due to the restructuring charges
and the write-off of purchased research and development (see Note 5 to the
Consolidated Financial Statements). The Company's effective rate for the six
months ended December 31, 1999 and 1998, was 35%.
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<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents and
investments of $88,061,000, representing a increase of $2,012,000 from the total
of $86,049,000 at June 30, 1999. The increase is primarily from cash generated
from operations.
The Company's net cash provided by operating activities was $1,765,000 for
the six months ended December 31, 1999, and net cash used in operations was
$4,543,000 for the six months ended December 31, 1998. Net cash provided by
operations for the quarter ended December 31, 1999, was composed primarily of
net income and non-cash charges for depreciation and amortization, offset by a
net decrease in working capital. Net cash used in operations for the six months
ended December 31, 1998, was composed primarily of a net loss and a net decrease
in working capital, offset by non-cash charges for the write-offs of purchased
in-process research and development for the SHL acquisition, restructuring
charges, and depreciation and amortization.
The Company's investing activities provided cash of $4,899,000 and
$2,874,000 in the six months ended December 31, 1999 and 1998, respectively. In
the six months ended December 31, 1999, cash was provided by investment
maturities exceeding purchases. In the six months ended December 31, 1998, cash
was provided by investment maturities, offset by the purchase of investments,
the cash paid to acquire SHL and, to a lesser extent, business and technology
acquisitions and the purchase of furniture, fixtures, and equipment.
The Company's financing activities provided cash of $444,000 and used cash
of $11,252,000 in the six months ended December 31, 1999 and 1998, respectively.
In the six months ended December 31, 1999, cash was provided by sales of
treasury stock for stock option exercises and the employee stock purchase plan.
In the six months ended December 31, 1998, cash was used to purchase shares of
treasury stock through the Company's stock repurchase program.
As of December 31, 1999, the Company did not have any material commitments
for capital expenditures. For the remainder of fiscal 2000, the Company
anticipates capital expenditures of approximately $1.0 million, primarily for
computer hardware and software to continue to update the Company's network
infrastructure for technological changes.
The Company expects that existing working capital, together with cash from
operations, will be sufficient for the foreseeable future to meet its capital
and liquidity needs for existing operations and general corporate purposes.
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YEAR 2000 CONSIDERATIONS
The following disclosure is a year 2000 readiness disclosure statement
pursuant to the Year 2000 Readiness and Disclosure Act of 1998.
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
Viasoft has completed remediation of all major internal operating and
mission-critical systems and desktop systems. As a result of its initial year
2000 assessment and because of changing business requirements, Viasoft has
installed 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. Installation of both systems was completed by
July 31, 1999. Viasoft completed remediation of its mission critical desktop
year 2000 issues, which included software packages, PC hardware and data files.
The Company utilized its own product suite, OnMark 2000, to assess its desktop
concerns. The assessment and remediation of its desktop systems for year 2000
compliance was completed on October 31, 1999. The Company will continue to
install any vendor provided fixes or patches should they be made available by
and mandated by the vendor. To date, the Company has experienced no major year
2000 date related problems or failures.
VENDORS, FACILITIES AND OTHER THIRD PARTIES
Viasoft completed evaluation of the year 2000 readiness of its material
vendors, facilities, and other third parties with respect to IT, as well as
non-IT, assets. Viasoft forwarded questionnaires to many of its material vendors
and other third parties and evaluates the responses on a case-by-case basis,
placing primary emphasis on its vendors providing critical services. Viasoft
placed the emphasis of its vendor review on its primary vendors, such as payroll
services, computer services, telephone services, financial services and
principal office locations. Where necessary, the Company replaced all
non-compliant payroll services vendors and telephone systems. The Company has
tested all vendor-related products, facilities and third party computerized
interfaces and to date has not experienced any year 2000 date-related problems
or failures.
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 completed assessment of all of its internally developed and
third-party developed products for year 2000
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<PAGE> 22
compliance, and believes that all of such products have been designed to satisfy
the Company's year 2000 specifications. The Company provides information on its
website to update customers and other interested parties on the year 2000 status
of its software products. In addition, the Company has completed a mailing to
all customers alerting them to the year 2000 problem and referring them to the
Company's website for additional information. As part of its ongoing evaluation,
the Company developed an internal project plan for 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 was
completed in August 1999 for the most current releases of Viasoft products. The
testing of products licensed by Viasoft from third parties for resale to
customers was completed in October 1999. The Company will continue to monitor
and test newly developed or acquired products for year 2000 compliance.
Throughout the millennium holiday weekend the Company provided twenty-four
hour customer support for all of its products. Employees were strategically
placed throughout the globe to provide that support. While the Company was
prepared to handle any customer support calls and had multiple avenues for
support available, no product related issues were received and the holiday
weekend passed without incident. Since January 1, 2000, the Company has received
no reports of year 2000 related problems experienced by the Company's customers
with regard to any of the Company's products.
CONTINGENCY PLANS
The Company prepared a contingency plan in the event that its internal
operating systems, vendors, facilities, products, or any other components of its
business operations were to fail to operate as a consequence of the year 2000
century date change. The Company addressed needs such as short term use of
backup equipment or software, developing manual workaround processes, the use of
cell phones and alternate e-mail addresses, and the temporary relocation of key
customer support employees to an alternate self-contained work site. The Company
completed the contingency plan and received approval by executive management in
December 1999.
To ensure that the Company was prepared to respond to any customer support
requests or internal system failures over the millennium holiday weekend,
precautionary steps were taken as a part of the Company's contingency plan. The
Company staged customer support employees and equipment at a secondary
"hot-site" should primary communications be unavailable or if facilities could
not be occupied at the Phoenix location. No major internal system failures
occurred and, while the Company was prepared to handle any customer support
calls and had multiple avenues for support available, no product related issues
were received and the holiday weekend passed without incident. Since January 1,
2000, the Company has received no reports of year 2000 related problems
experienced by the Company's customers with regard to any of the Company's
products. The cost of implementation of these contingency plans was
approximately $90,000.
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BUDGET FOR YEAR 2000 READINESS PROJECT
The Company budgeted approximately $5.6 million for its year 2000 compliance
program and has incurred approximately $5.1 million of these expenses to date.
Costs incurred for year 2000 compliance include internal staff to the extent
they were dedicated to the project, a portion of which is included in general
and administrative expenses and the remainder of which is included in research
and development expenses. The Company started incurring these expenses in 1995,
when the Company first began the assessment and remediation of internally
developed products.
The Company reviews its year 2000 compliance budget every quarter and
adjusts for changes in its implementation plan for its internal systems or for
product testing and remediation changes. The budget was reduced approximately
$400,000 during the second quarter of fiscal 2000 as a result of the reduced
support expense required after the millennium weekend. Some additional expenses,
primarily for implementation of the contingency plans and the additional
staffing that the plan required, could continue in the next few months.
The estimated costs of the Company's year 2000 compliance program have not
had a material effect on the Company's financial position, results of operations
or liquidity.
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 (except as described below)
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 local currency. 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 $190,000
from foreign currency fluctuations in the six months ended December 31, 1999,
compared to a gain of $122,000 in the six months ended December 31, 1998.
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 and comprehensive income in the
Company's Consolidated Financial Statements.
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ITEM 3. LEGAL PROCEEDINGS.
On October 29, 1999, the United States Department of Justice ("DOJ") filed a
civil antitrust lawsuit against Compuware and Viasoft in the United States
District Court of the District of Columbia to block the proposed acquisition of
Viasoft by Compuware. The DOJ alleged that competition in the mainframe
testing/debugging and fault diagnostic tool markets would be substantially
lessened as a result of the proposed transaction. On January 18, 2000, Viasoft
and Compuware agreed to terminate the proposed acquisition. Following
termination of the transaction, the DOJ lawsuit was dismissed without prejudice
pursuant to a stipulation among the parties on January 24, 2000.
On January 24, 2000, Viasoft received a letter from Compuware claiming that
Viasoft violated the previously-terminated merger agreement with Compuware and
demanding $10 million in damages. Compuware alleged that Viasoft violated its
obligations under the merger agreement to refrain from seeking alternative
take-over proposals and, as a result, failed to use reasonable efforts to obtain
regulatory approval and consummate the proposed transaction. Viasoft has stated
that there is no basis for these claims and believes the Compuware allegations
to be entirely without merit. To Viasoft's knowledge, Compuware has not
commenced any legal proceedings with respect to its claims. Any proceedings that
are commenced with respect to this matter will be defended vigorously.
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, risks associated with the
reorganization of the Company, the affect of the termination of the proposed
acquisition by Compuware and claims made against the Company by Compuware, risks
associated with the
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<PAGE> 25
Company's efforts to restructure and rebuild its workforce and reinforce both
customer relationships and its position in the marketplace following termination
of the Compware transaction, the Company's dependence on the rapidly declining
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, 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 dependence on key management and technical
personnel and increasing competition to attract skilled personnel, 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, 1999, 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.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION
4 Seventh Amendment to Agreement and Plan of Merger Among
Compuware Corporation, CV Acquisition, Inc. and Viasoft, Inc.
dated as of January 18, 2000.
11 Computation of Earnings Per Share for the three months and six
months ended December 31, 1999 and 1998.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
26
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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: February 11, 2000 By /s/ Steven D. Whiteman
-----------------------------------
Steven D. Whiteman
President
Acting Chief Accounting Officer
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EXHIBIT INDEX
NUMBER DESCRIPTION
4 Seventh Amendment to Agreement and Plan of Merger Among
Compuware Corporation, CV Acquisition, Inc. and Viasoft, Inc.
dated as of January 18, 2000.
11 Computation of Earnings Per Share for the three months and six
months periods ended December 31, 1999 and 1998.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 4
SEVENTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AMONG COMPUWARE CORPORATION, CV ACQUISITION, INC. AND
VIASOFT, INC.
THIS SEVENTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of
January 18, 2000 ("Seventh Amendment") is by and among Compuware Corporation, a
Michigan corporation ("Compuware"), CV Acquisition, Inc., a Delaware corporation
and a wholly-owned subsidiary of Compuware ("Merger Sub"), and Viasoft, Inc., a
Delaware corporation ("Viasoft").
RECITALS
A. The parties hereto entered into an Agreement and Plan of Merger, dated
as of July 14, 1999, which was amended by a First Amendment of Agreement and
Plan of Merger dated as of August 18, 1999, a Second Amendment of Agreement and
Plan of Merger dated as of October 29, 1999, a Third Amendment to Agreement and
Plan of Merger dated as of November 5, 1999, a Fourth Amendment to Agreement and
Plan of Merger dated as of November 29, 1999, a Fifth Amendment to Agreement and
Plan of Merger dated as of December 20, 1999 and a Sixth Amendment to Agreement
and Plan of Merger dated as of January 10, 2000 (such agreement, as amended, the
"Agreement").
B. The parties desire to amend the Agreement to provide for their mutual
written consent to terminate the Agreement in accordance with the terms and
conditions set forth herein.
C. All capitalized terms used herein which are defined in the Agreement
shall have the same meanings herein as set forth in the Agreement.
Therefore, the parties agree as follows:
1. Notwithstanding any terms in the Agreement to the contrary, the
Agreement is hereby terminated pursuant to Section 8.1(a) of the Agreement by
mutual written consent of the parties, duly authorized by their respective
Boards of Directors, effective upon execution and delivery of this Seventh
Amendment by all parties hereto.
2. Upon the execution and delivery of this Seventh Amendment by the
parties hereto, the Agreement shall become void and have no further force or
effect, except to the extent expressly set forth in Section 8.2 of the Agreement
providing for the continuing obligations of the parties under the
Confidentiality Agreement; provided, that any claims of either party for any
breach prior to the date of this Seventh Amendment by the other party of such
party's representations, warranties, covenants or agreements shall survive the
termination of the Agreement.
<PAGE> 2
IN WITNESS WHEREOF, Compuware, Merger Sub and Viasoft have caused this
Seventh Amendment to be signed by the respective officers hereunto duly
authorized all as of the date first written above.
COMPUWARE CORPORATION
By: /s/ Thomas Costello, Jr.
------------------------------------
Name: Thomas Costello, Jr.
Title: Vice President, Secretary and
General Counsel
CV ACQUISITION, INC.
By: /s/ Thomas Costello, Jr.
------------------------------------
Name: Thomas Costello, Jr.
Title: Vice President, Secretary and
Treasurer
VIASOFT, INC.
By: /s/ Steven D. Whiteman
------------------------------------
Name: Steven D. Whiteman
Title: President and Chief
Executive Officer
<PAGE> 1
VIASOFT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS(LOSS) PER SHARE
Exhibit 11
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 17,951 18,463 17,906 19,321
Effect of Weighting of Shares:
Employee stock options exercised 1 5 40 47
Shares purchased 49 66 24 33
Treasury shares -- (223) -- (768)
-------- -------- -------- --------
Weighted average number of common shares outstanding 18,001 18,311 17,970 18,633
======== ======== ======== ========
Net income (loss) $ 1,014 $ 1,447 $ 1,435 $ (5,620)
======== ======== ======== ========
Earnings (loss) per common share $ 0.06 $ 0.08 $ 0.08 $ (0.30)
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 17,951 18,463 17,906 19,321
Effect of Weighting of Shares:
Warrants and employee stock options outstanding 278 170 372 --
Employee stock options exercised 1 5 40 47
Shares purchased 49 66 24 33
Treasury shares -- (223) -- (768)
-------- -------- -------- --------
Weighted average number of common and common
share equivalents outstanding 18,279 18,481 18,342 18,633
======== ======== ======== ========
Net income (loss) $ 1,014 $ 1,447 $ 1,435 $ (5,620)
======== ======== ======== ========
Earnings (loss) per common and common share equivalent $ 0.06 $ 0.08 $ 0.08 $ (0.30)
======== ======== ======== ========
</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 December
31, 1999 and the related consolidated statements of operations for the six
months ended December 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 32,401
<SECURITIES> 43,019
<RECEIVABLES> 13,854
<ALLOWANCES> 927
<INVENTORY> 0
<CURRENT-ASSETS> 93,914
<PP&E> 12,389
<DEPRECIATION> 7,546
<TOTAL-ASSETS> 121,793
<CURRENT-LIABILITIES> 25,425
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 96,242
<TOTAL-LIABILITY-AND-EQUITY> 121,793
<SALES> 34,144
<TOTAL-REVENUES> 34,153
<CGS> 11,516
<TOTAL-COSTS> 33,875
<OTHER-EXPENSES> 197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,128)
<INCOME-PRETAX> 2,209
<INCOME-TAX> 774
<INCOME-CONTINUING> 1,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,435
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
