<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
BAAN COMPANY N.V.
Vanenburgerallee 13
3882 RH Putten
The Netherlands
and
4600 Bohannon Drive
Menlo Park, California, USA
(Addresses of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
From 20-F X Form 40-F .
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes No X .
--- ---
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
82 - N.A. .
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BAAN COMPANY N.V.
Form 6-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Information (unaudited)*:
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Exhibit Index 25
Exhibit 11.1 Statement of Computation of Earnings per Share 26
</TABLE>
*Restated to reflect the pooling of interests with Aurum Software, Inc. for all
periods presented.
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BAAN COMPANY N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS*
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 201,530 $ 236,986
Short-term marketable securities ........................................... 99,790 3,867
Accounts receivable, net of allowance for doubtful accounts
of $8,525 in 1997 and $8,504 in 1996 ..................................... 221,575 163,666
Other current assets ....................................................... 34,476 12,707
--------- ---------
Total current assets ..................................................... 557,371 417,226
Property and equipment, at cost .............................................. 77,653 55,119
Less accumulated depreciation and amortization ............................... (32,838) (22,937)
--------- ---------
Net property and equipment ................................................... 44,815 32,182
Software development costs, net of amortization of $11,185 in 1997
and $8,159 in 1996 ......................................................... 26,462 16,147
Intangible assets, net of amortization of $15,785 in 1997 and $13,025 in 1996 19,066 24,269
Other non current assets ..................................................... 11,335 7,149
--------- ---------
Total assets ............................................................. $ 659,049 $ 496,973
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings from banks ........................................... $ 95 $ 870
Accounts payable ........................................................... 45,089 36,749
Accrued expenses ........................................................... 27,320 11,246
Payroll and other taxes .................................................... 11,090 6,133
Income taxes payable ....................................................... 33,873 19,686
Accrued compensation and benefits .......................................... 29,372 18,078
Other current liabilities .................................................. 9,805 4,679
Deferred revenue ........................................................... 36,027 14,097
Current portion of long-term debt .......................................... 821 825
--------- ---------
Total current liabilities ................................................ 193,492 112,363
Long-term debt ............................................................... 200,779 176,260
Other long-term liabilities .................................................. 4,967 5,334
Shareholders' equity:
Common shares, par value - NLG .01 per share, 350,000,000 shares authorized;
95,652,941 issued and outstanding in 1997 (93,908,770 in 1996) ........... 555 545
Additional paid-in capital ................................................. 169,653 158,368
Deferred compensation ...................................................... (307) (372)
Retained earnings .......................................................... 93,222 45,211
Accumulated translation adjustment ......................................... (3,312) (736)
--------- ---------
Total shareholders' equity ............................................... 259,811 203,016
--------- ---------
Total liabilities and shareholders' equity ................................... $ 659,049 $ 496,973
========= =========
</TABLE>
*Restated to reflect the pooling of interests with Aurum Software, Inc. for all
periods presented.
See accompanying notes to condensed consolidated financial statements.
3
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BAAN COMPANY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS*
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
License revenue ........................ $ 108,684 $ 59,801 $ 292,223 $ 155,813
Maintenance and service revenue ........ 64,194 43,325 170,894 116,426
Hardware and other revenue ............. 336 1,869 877 10,102
--------- --------- --------- ---------
Total net revenues ................... 173,214 104,995 463,994 282,341
Costs and expenses:
Cost of license revenue ................ 4,692 2,944 19,729 9,898
Cost of maintenance and service revenue 51,023 35,213 131,264 97,633
Cost of hardware and other revenue ..... 175 1,505 417 7,934
Sales and marketing .................... 47,330 27,526 126,334 74,352
Research and development ............... 23,765 11,727 65,757 30,047
General and administrative ............. 14,315 9,018 38,761 24,827
Amortization of intangible assets ...... 1,338 1,594 4,172 4,569
Restructuring and other expenses ....... 9,618 -- 9,618 --
--------- --------- --------- ---------
Total costs and expenses ............. 152,256 89,527 396,052 249,260
--------- --------- --------- ---------
Income from operations ................... 20,958 15,468 67,942 33,081
Interest income (expense), net ........... 1,169 (73) 2,707 57
--------- --------- --------- ---------
Income before income taxes ............... 22,127 15,395 70,649 33,138
Provision for income taxes ............... 3,788 5,942 22,638 13,098
--------- --------- --------- ---------
Net income ............................... $ 18,339 $ 9,453 $ 48,011 $ 20,040
========= ========= ========= =========
Net income per share ..................... $ 0.18 $ 0.10 $ 0.47 $ 0.21
========= ========= ========= =========
Shares used in computing per share amounts 103,171 98,312 102,565 97,555
========= ========= ========= =========
</TABLE>
*Restated to reflect the pooling of interests with Aurum Software, Inc. for all
periods presented.
See accompanying notes to condensed consolidated financial statements.
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BAAN COMPANY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS*
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Operating Activities
Net income ....................................................................... $ 48,011 $ 20,040
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................................. 17,009 14,412
Benefit for deferred income taxes ............................................. (1,872) (797)
Foreign currency transaction gains ............................................ (5,330) (60)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable .......................................................... (62,460) (48,189)
Other current assets ......................................................... (19,504) (7,314)
Accounts payable ............................................................. 8,041 4,514
Accrued and other current liabilities ........................................ 39,364 15,240
Income taxes payable ......................................................... 15,307 81
Deferred revenue ............................................................. 23,743 4,539
--------- ---------
Net cash provided by operating activities ....................................... 62,309 2,466
--------- ---------
Investing activities
Property and equipment purchased ................................................. (26,098) (16,788)
Property and equipment sold ...................................................... 3,562 3,615
Increase in capitalized software development costs ............................... (13,621) (5,491)
Payment for acquisition, net of cash acquired .................................... (3,512) (3,567)
Purchases of marketable securities ............................................... (372,560) --
Proceeds from maturities and sales of marketable securities ...................... 276,637 19,417
Other ............................................................................ 3,365 (27)
--------- ---------
Net cash used in investing activities ............................................ (132,227) (2,841)
--------- ---------
Financing activities
Net borrowings (payments) under short-term credit facilities ..................... (615) 2,190
Payments on long-term borrowings ................................................. (711) (727)
Proceeds from issuance of convertible subordinated notes ......................... 25,000 --
Issuance costs of convertible subordinated notes ................................. (875) --
Net proceeds from issuance and repurchase of mandatorily redeemable convertible
preferred and common stock, net of issuance .................................... -- 882
Net proceeds and repayment of notes payable, sales and leasebacks of
property and equipment ......................................................... -- 1,141
Proceeds from issuance of common shares .......................................... 10,155 4,884
--------- ---------
Net cash provided by financing activities ....................................... 32,954 8,370
--------- ---------
Effect of foreign currency exchange rates on cash and cash
equivalents ...................................................................... 1,508 784
--------- ---------
Increase (decrease) in cash and cash equivalents ................................... (35,456) 8,779
Cash and cash equivalents at beginning of the period ............................... 236,986 14,960
--------- ---------
Cash and cash equivalents at end of the period ..................................... $ 201,530 $ 23,739
========= =========
</TABLE>
*Restated to reflect the pooling of interests with Aurum Software, Inc. for all
periods presented.
See accompanying notes to condensed consolidated financial statements.
5
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BAAN COMPANY N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The condensed consolidated financial statements are stated in United
States dollars and are prepared under United States generally accepted
accounting principles for interim financial statements. These condensed
consolidated financial statements do not represent the Dutch statutory financial
statements.
BUSINESS
Baan Company N.V. (the Company or Baan) is incorporated in The
Netherlands. The Company provides open systems, client/server-based Enterprise
Resource Planning ("ERP") software. The Company sells and supports its product
through corporate headquarters in Putten, The Netherlands and Menlo Park,
California (USA), Business Support Centers in The Netherlands, the United States
and India, and direct and indirect distribution channels.
INTERIM FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements at
September 30, 1997 and for the three and nine months ended September 30, 1997
and 1996 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the consolidated financial position at such date and the
consolidated operating results and cash flows for those periods. Consolidated
results for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of results that may be expected for any future quarter or
for the entire year. The condensed consolidated balance sheet at December 31,
1996 has been derived from the audited consolidated financial statements at that
date. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission Rules and Regulations. These condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 1996
included in the Company's Form 20-F filed with the Securities and Exchange
Commission.
In October 1997, the AICPA issued SOP 97-2, Software Revenue
Recognition, which changes the requirements for revenue recognition effective
for transactions that the Company will enter into beginning January 1, 1998. The
Company has not yet assessed what the impact of the SOP will be on its 1998
financial statements.
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BAAN COMPANY N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly and majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
FOREIGN EXCHANGE
Assets and liabilities of the Company's foreign subsidiaries are
translated from their respective functional currencies to United States dollars
at period-end exchange rates. Income and expense items are translated on a
quarterly basis at the average rates of exchange prevailing during the quarter.
The adjustment resulting from translating the financial statements of the
Company's foreign subsidiaries is reflected as an accumulated translation
adjustment in shareholders' equity. Foreign currency transaction gains and
losses are included in results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company in the
management of its foreign currency exposures. Realized and unrealized gains and
losses on foreign currency forward contracts are normally marked to market and
recognized in results of operations. Any realized and unrealized gains and
losses on contracts used to hedge intracompany transactions of a long-term
investment nature are included in the accumulated translation adjustment in
shareholders' equity.
PER SHARE INFORMATION
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issuable upon the exercise
of stock options (using the treasury stock method). All shares, common stock
equivalents, and per share amounts do not reflect the two for one stock split
effected on December 11, 1997, as discussed further below.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options and other common equivalents will be
excluded. The impact is expected to result in an increase in primary earnings
per share of $0.01 for the third quarter ended September 30, 1997 and 1996 and
an increase of $0.03 and $0.02 for the nine
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BAAN COMPANY N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
months ended September 30, 1997 and 1996, respectively. The Company has not yet
determined what the impact of Statement 128 will be on the calculation of fully
diluted earnings per share.
MARKETABLE SECURITIES
Debt securities that the Company has both the positive intent and
ability to hold to maturity are carried at amortized cost. Debt securities that
the Company does not have the positive intent and ability to hold to maturity
and all marketable equity securities are classified as securities
available-for-sale and are carried at fair value.
Management determines the proper classifications of debt and marketable
equity securities at the time of purchase and reevaluates such designations as
of each balance sheet date. By policy, the Company's investments are primarily
in short-term notes. As of September 30, 1997, all such securities were
designated as available-for-sale. Accordingly, these securities are carried at
fair value. As the difference between cost and fair value at September 30, 1997,
was immaterial, no adjustments have been made to the historical carrying value
of the investments and no unrealized gains or losses have been recorded as a
separate component of shareholders' equity.
ASSET IMPAIRMENT
The Company recognizes impairment losses on its long-lived assets held
for use when its estimate of the undiscounted future cash flows expected to be
generated by such assets is less than their carrying amount. Measurement of the
impairment loss is based on the fair value of the asset. Generally, fair value
will be determined using valuation techniques such as the present value of the
expected future cash flows. The carrying value of long-lived assets is reviewed
on a regular basis for the existence of facts or circumstances both internally
and externally that may suggest impairment. The Company has recognized
impairment losses of $1,343,000 relating to capitalized software, goodwill,
equipment and accounting software write-offs in connection with the Aurum
acquisition. Previously, the Company had not recognized any impairment losses
relating to its long-lived assets since 1993.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
8
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BAAN COMPANY N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2 ACQUISITIONS
In May 1996, the shareholders of Berclain Group Inc. ("Berclain") agreed
to exchange their shares in Berclain for 544,000 shares of the Company's common
shares. Berclain is a Canadian software company and a provider of manufacturing
synchronization and scheduling solutions. The business combination was effective
May 31, 1996 and was accounted for as a pooling of interests. In November 1996,
the shareholders of Antalys, Inc. ("Antalys") agreed to exchange their shares in
Antalys for 915,000 shares of the Company's common shares. Antalys is an
American software company and a provider of configuration management software
that automates the configuration and pricing for products and services. The
business combination was effective November 30, 1996 and was accounted for as a
pooling of interests. Because Berclain's and Antalys' financial statements were
not material to the consolidated financial statements of the Company, the
Company did not restate any of its consolidated financial statements prior to
the combinations. Consolidation of Berclain and Antalys reduced the Company's
retained earnings by approximately $548,000.
In May 1997, the Company signed a definitive agreement to acquire all of
the outstanding shares of Aurum Software, Inc. ("Aurum") for approximately 4.2
million Baan common shares. Aurum is an American software company and a provider
of customer relationship management software. The business combination was
completed in August 1997 and was accounted for as a pooling of interests. As the
combination was considered material to the Company, the accompanying condensed
consolidated financial statements are presented on a combined basis for all
periods presented.
During the third quarter ended September 30, 1997, the Company
recognized $9.6 million of restructuring and other charges related to direct
transaction and integration costs as a result of the combination with Aurum.
Restructuring charges include $4.2 million for fees of financial advisors,
lawyers, and accountants, $1.3 million for capitalized software, goodwill and
other asset write-offs, and $1.8 million for contractual software upgrades and
commitments, and for other miscellaneous charges related to the acquisition.
Non-recurring costs of $2.3 million included software discontinuation costs and
migration costs related to the Antalys product.
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BAAN COMPANY N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table, expressed in thousands, summarizes the Company's
restructuring and non-recurring costs and activity for the third quarter ended
September 30, 1997:
<TABLE>
<CAPTION>
Total Cash Asset Accrual balance at
Costs Paid Write-offs September 30, 1997
------ ------ ---------- ------------------
<S> <C> <C> <C> <C>
Professional Fees ................................ $4,189 $1,169 $ -- $3,020
Capitalized Software, Intangibles and Other Assets 1,343 -- 1,343 --
Other Restructuring Costs ........................ 1,800 838 -- 962
Non-recurring, Discontinuation and Migration Costs 2,286 399 -- 1,887
------ ------ ------ ------
Total Restructuring and Other Charges ............ $9,618 $2,406 $1.343 $5,869
====== ====== ====== ======
</TABLE>
Combined and separate results of the Company and Aurum for the periods
prior to the acquisition were as follows:
<TABLE>
<CAPTION>
In thousands Three Months Ended Nine Months Ended Two months ended Eight months ended
(unaudited) September 30, 1996 September 30, 1996 August 31, 1997 August 31, 1997
- ----------- ------------------ ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Net Sales:
Prior to August 31, 1997:
Aurum Software, Inc. ........... $ 7,314 $ 18,252 $ 3,395 $ 24,232
Baan Company ................... 97,681 264,089 49,155 319,098
--------- --------- --------- ---------
Combined results after
August 31, 1997 ................ $ 104,995 $ 282,341 $ 52,550 $ 343,330
========= ========= ========= =========
Net Income:
Prior to August 31, 1997:
Aurum Software, Inc. ........... $ 160 $ (447) $ (4,507) $ (3,538)
Baan Company ................... 9,293 20,487 (26,166) 2,537
--------- --------- --------- ---------
Combined results after
August 31, 1997 ................ $ 9,453 $ 20,040 $ (30,673) $ (1,001)
========= ========= ========= =========
</TABLE>
3 LITIGATION
The Company is involved in legal actions arising in the ordinary course
of business. While the outcome of such matters is currently not determinable, it
is management's opinion that these matters will not have a material adverse
effect on the Company's consolidated financial condition or consolidated results
of its operations.
4 LONG-TERM DEBT
In December 1996, the Company issued $175,000,000 of 4.5% unsecured convertible
subordinated notes ("Notes") pursuant to an indenture dated as of December 15,
1996 ("Indenture"). The Notes are convertible into the Company's common shares
at any time after
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BAAN COMPANY N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
the 90th day following the last original issue date of the Notes at a conversion
price of $44.00 per share. The Notes are redeemable by the Company under certain
conditions after December 16, 1998 and at any time after December 16, 1999.
Until the Notes are converted or redeemed, the Company will pay interest
semi-annually, commencing June 15, 1997. In January 1997, the Company issued
another $25,000,000 of Notes under the same terms and conditions. The Notes are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture) of the Company.
Costs of approximately $5,000,000 incurred in connection with issuing
the Notes have been capitalized and are being amortized to interest expense over
the term of the Notes. Such costs are included in other non current assets in
the accompanying financial statements.
5 SALE OF ACCOUNTS RECEIVABLE
In March and June 1997, the Company assigned accounts receivable
totaling $13.8 million and $3.7 million, respectively, subject to limited
recourse. Under the terms of the agreements, the purchaser assumed all credit
loss risk. The proceeds from the sales were less than the face amount of the
accounts receivable by an amount which approximates the short-term unsecured
borrowing cost of the Company's customers. The discount from the face were
$507,000 and $209,000 for the March and June 1997 transactions, respectively,
and are included in selling and marketing expenses in the appropriate periods in
the accompanying financial statements. The Company did not assign any accounts
receivable for the three month period ended September 30, 1997.
6 SUBSEQUENT EVENTS
In November 1997, the Company approved a two-for-one stock split
effective December 11, 1997. Accordingly, the authorized number of common shares
will increase from 350 million to 700 million and the number of outstanding
shares will increase from approximately 96 million to approximately 192 million.
All references in this Form 6-K to number of shares and per share amounts
reflect pre-split amounts.
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BAAN COMPANY N.V.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion in the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains trend
analysis and other forward-looking statements that are subject to risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include but are not limited to those set
forth under "Certain Factors That May Effect Future Results of Operations" in
this Form 6K, and the factors discussed in the Company's Form 20-F filed with
the Securities and Exchange Commission.
RESULTS OF OPERATIONS
OVERVIEW
In May 1997, the Company signed a definitive agreement to acquire all of
the outstanding shares of Aurum Software, Inc. ("Aurum") for approximately 4.2
million Baan common shares. Aurum is an American software company and provider
of customer relationship management software. The business combination was
completed in August 1997 and was accounted for as a pooling of interests. As the
combination was considered material to the Company, the accompanying condensed
consolidated financial statements are presented on a combined basis for all
periods presented.
The Company's principal source of revenues consists of license fees and
related services, including consulting, implementation, training and
maintenance. In addition, in the Netherlands and certain other European markets,
the Company has historically resold third party hardware on an original
equipment manufacturer ("OEM") basis to meet the needs of customers in these
markets for total system solutions. License revenues are derived from software
licensing fees, and are recognized upon delivery if no significant vendor
obligations remain, amounts are due within one year, and collection of the
resulting receivable is deemed probable. Maintenance and service revenues are
derived from maintenance support services, training and consulting. Maintenance
revenues from customer maintenance fees for ongoing customer support and product
updates are recognized ratably over the term of the maintenance, which is
typically twelve months. Service revenues from training and consulting are
recognized when the services are performed. Hardware revenues are derived from
resales of third party hardware in connection with licenses of the Company's
software, and are recognized upon installation and recognition of the related
license revenue.
In October 1997, the AICPA issued SOP 97-2, Software Revenue
Recognition, which changes the requirements for revenue recognition effective
for transactions that the Company will enter into beginning January 1, 1998. The
Company has not yet assessed what the impact of the SOP will be on its 1998
financial statements.
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A significant portion of the Company's business is conducted in
currencies other than the U.S. dollar (the currency in which its financial
statements are stated), primarily the Dutch guilder and the German mark. The
Company has historically recorded a majority of its expenses in guilders,
especially research and development expenses, and a substantial majority of its
revenues have been denominated in guilders, marks and, more recently U.S.
dollars. As a result, appreciation in the value of the guilder relative to the
value of the U.S. dollar could adversely affect operating results. Foreign
currency transaction gains and losses arising from normal business operations
(for example, gains and losses arising from the change in foreign exchange rates
between the dates of booking revenues and collecting the foreign currency
receivable) are credited to or charged against earnings in the period incurred.
As a result, fluctuations in the value of the currencies in which the Company
conducts its business relative to the U.S. dollar have caused and will continue
to cause currency transaction gains and losses. The Company uses derivative
financial instruments on a selected basis to help offset the effects of exchange
rate changes on intracompany cash flow exposures denominated in foreign
currencies. These exposures include firm trade accounts, royalties, service fees
and loans. The Company continues to evaluate its currency management policies.
Notwithstanding the measures the Company has adopted, due to the number of
currencies involved, the constantly changing currency exposures and the
substantial volatility of currency rates, there can be no assurance that the
Company will not experience currency losses in the future, nor can the Company
predict the effect of exchange rate fluctuations upon future operating results.
NET REVENUES
Net revenues increased by 65% ($68.2 million) to $173.2 million and 64%
($181.7 million) to $464.0 million in the three and nine month periods ended
September 30, 1997, respectively, when compared to the corresponding periods in
1996. Net revenues for EMEA (Europe, Middle East and Africa), North America and
for Latin America and Asia Pacific combined for the three month period ended
September 30, 1997 were 40%, 46% and 14%, respectively, compared to 45%, 41% and
14% for the corresponding period in 1996. Net revenues for EMEA, North America
and for Latin America and Asia Pacific combined for the nine month period ended
September 30, 1997 were 43%, 43% and 14%, respectively, compared to 47%, 39%,
and 14% for the same period in 1996. The shift in net revenue percentages in the
geographies for the periods presented primarily reflects the continued growth
rate of the North American operations.
License revenues increased by 82% ($48.9 million) to $108.7 million and
88% ($136.4 million) to $292.2 million for the three and nine month periods
ended September 30, 1997, respectively, compared to $59.8 million and $155.8
million in the corresponding periods in 1996. License revenues as a percentage
of total net revenues were 63% for the three and nine month periods ended
September 30, 1997, compared to 57% and 55% for the corresponding periods in
1996. The increase in license revenues and in license revenue as a percentage of
total net revenues resulted from both an increase in the number of software
licenses and a higher transaction size, and reflected the broader market trend
toward client/server computing,
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<PAGE> 14
continued market acceptance of the Company's products, and the expansion of the
Company's operations.
Maintenance and service revenues increased 48% ($20.9 million) to $64.2
million and 47% ($54.5 million) to $170.9 million for the three and nine month
periods ended September 30, 1997, respectively, compared to $43.3 million and
$116.4 million for the same periods in 1996. These increases were primarily
attributable to increased maintenance fees and services to a larger installed
base of customers, which in turn was a result of the growth in product licenses.
As a percentage of total net revenues, maintenance and service revenues were 37%
for the three and nine month periods ended September 30, 1997, compared to 41%
for the corresponding periods in 1996.
In addition, the increase of license revenue as a percentage of total
net revenues for the three and nine month periods ended September 30, 1997
compared to the same periods in 1996, reflected the decrease in hardware and
other revenue in the 1997 periods. The decrease in hardware and other revenue
reflects the Company's continued expansion into international markets where
customers require complete hardware and software installations less frequently.
Further, the Company continues to de-emphasize the resale of third party
hardware on an OEM basis.
GROSS PROFIT
The following table, expressed in thousands, sets forth for the periods
indicated, gross profit and gross margin for each revenue category:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
------------------------------------- -------------------------------------
$ % $ % $ % $ %
-------- --- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross profit:
License ............... $103,992 96% $ 56,857 95% $272,494 93% $145,915 94%
Maintenance and service 13,171 21 8,112 19 39,630 23 18,793 16
Hardware and other .... 161 48 364 19 460 52 2,168 21
-------- -------- -------- --------
Total gross profit .... $117,324 68% $ 65,333 62% $312,584 67% $166,876 59%
======== ======== ======== ========
</TABLE>
The Company's gross profit as a percentage of total net revenues was 68%
and 67% for the three and nine month periods ended September 30, 1997,
respectively, compared to 62% and 59% for the corresponding periods in 1996.
Gross margin on license revenue was 96% and 93% for the three and nine month
periods ended September 30, 1997, respectively, compared to 95% and 94% for the
three and nine month periods ending September 30, 1996. Cost of license revenue
consists primarily of amortization of capitalized software, the cost of third
party software and the cost of media and freight. Amortization of capitalized
software amounted to $1,210,000 and $3,787,000 for the three and nine month
periods ended September 30, 1997, respectively, compared to $569,000 and
$1,842,000 for the corresponding periods in 1996.
Gross margin on maintenance and service revenues was 21% and 23% for the
three and nine month periods ended September 30, 1997, respectively, as compared
to 19% and 16% for
14
<PAGE> 15
the three and nine month periods ended September 30, 1996, respectively. The
gross margin increase for the 1997 periods compared to the same periods in 1996
were primarily due to improvements in utilization rates and pricing structure.
Cost of maintenance and service revenues consist primarily of cost of product
support, consulting and training, including associated software engineering
activities.
SALES AND MARKETING
The Company's sales and marketing expenses increased 72% ($19.8 million)
to $47.3 million and 70% ($52.0 million) to $126.3 million in the three and nine
month periods ended September 30, 1997, respectively, from $27.5 million and
$74.4 million for the corresponding periods in 1996. These increases reflect the
Company's commitment to expand its international sales channels and the
associated hiring of additional sales staff and sales support personnel in all
geographic regions. Sales and marketing expenses included a net foreign currency
transaction gain of $5.3 million for the nine months ended September 30, 1997.
$4.0 million of that gain was recorded in the first quarter of 1997 and was
offset by a charge to bad debt expense of $4.0 million to increase the general
allowance for bad debt. As a percentage of total net revenues, sales and
marketing expenses were 27% for each of the three and nine month periods ended
September 30, 1997, compared to 26% for each of the same periods in 1996. The
Company expects that sales and marketing expenses will grow in absolute dollars
as the Company continues to expand its sales and distribution channels and
customer support organization.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 103% ($12.0 million) to
$23.8 million and 119% ($35.7 million) to $65.8 million for the three and nine
month periods ended September 30, 1997, respectively, from $11.7 million and
$30.0 million for the same periods in 1996. As a percentage of total net
revenues, research and development expenses were 14% for each of the three and
nine month periods ended September 30, 1997 compared to 11% for the same periods
in 1996. These increases reflect the Company's continuing investment in the
development of new and enhanced products and new technologies, primarily
consisting of the hiring of additional research and development personnel. The
Company capitalized 12% of aggregate research and development costs in the three
and nine month periods ended September 30, 1997 compared to 14% and 15% for the
corresponding periods in 1996. Capitalization rates may vary from period to
period because of the timing of specific significant projects. Aggregate
research and development costs including both research and development costs and
capitalized software costs were $26.9 million and $74.6 million for the three
and nine month periods ended September 30, 1997, respectively, compared to $13.6
million and $35.2 million for the corresponding periods in 1996.
The Company believes it is critical to the Company's future success to
continue to develop new and enhanced products and technologies. Accordingly, the
Company intends to continue to increase its research and development expenses in
absolute dollars over time.
15
<PAGE> 16
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 59% ($5.3 million) to
$14.3 million and 56% ($13.9 million) to $38.8 million for the three and nine
month periods ended September 30, 1997, respectively, compared to $9.0 million
and $24.8 million for the comparable periods in 1996. The increases reflect the
expansion of the Company's operations with the resulting increase of additional
general and administrative personnel and infrastructure costs. Such costs
included the hiring of certain key executives into finance and general corporate
positions and the payroll and facilities costs included in establishing
administrative and finance support personnel in multiple locations. As a
percentage of total net revenues, general and administrative expenses were 8%
for the three and nine month periods ended September 30, 1997 compared to 9% for
each of the corresponding periods in 1996. The Company expects that general and
administrative expenses will continue to increase in absolute dollars as the
Company continues to expand its finance staff and install additional internal
systems to support the Company's growth in operations.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets remained relatively consistent at $1.3
million and $4.2 million for the three and nine month periods ended September
30, 1997, respectively, compared to $1.6 million and $4.6 million for the same
periods in 1996. The Company expects that amortization of intangible assets
associated with prior acquisitions will result in charges of approximately $6.4
million per year through 1998 and will decline in following years.
RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses were $9.6 million for the three and
nine month periods ended September 30, 1997. These expenses related to the
direct transaction and integration costs as a result of the combination with
Aurum. Restructuring charges include $4.2 million for fees of financial
advisors, lawyers, and accountants, $1.3 million for capitalized software,
goodwill and other asset write-offs, and $1.8 million for contractual software
upgrades and commitments, and for other miscellaneous charges related to the
acquisition. Non-recurring costs of $2.3 million included software
discontinuation costs and migration costs related to the Antalys product. The
cash outflows and asset write-offs related to the $9.6 million charge are
approximately $2.4 million and $1.3 million, respectively, of which $5.9 million
remains to be expended at the end of the quarter. See Note 2 of the Notes to
Condensed Consolidated Financial Statements.
NET INTEREST INCOME (EXPENSE)
Net interest income increased to $1.2 million and $2.7 million for the
three and nine month periods ended September 30, 1997, respectively, compared to
($73,000) and $57,000 for the three and nine month periods ended September 30,
1996. Interest expense on the convertible notes, working capital lines of credit
and amortization of debt issuance costs were more than offset by interest earned
from the investment of the proceeds from the convertible notes.
16
<PAGE> 17
INCOME TAXES
The effective tax rate for the three and nine months ended September 30,
1997 was 17% and 32%, respectively, compared to 39% for the same periods in
1996. The effective tax rates in 1996 were higher than the statutory rate
primarily due to operating profits in higher tax jurisdictions and the
nondeductible status of goodwill amortization.
In July 1997, the Company was notified by the Dutch tax authorities that
it qualified for a reduced tax rate for the next ten years effective January
1997. Based on this ruling and other initiatives, the Company decreased its
effective tax rate to 32%. The Company recorded an adjustment in the third
quarter of 1997 of $3.3 million to reflect the reduction of its effective tax
rate year to date. The Company anticipates that its effective tax rate will
remain at 32% for the remainder of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash, cash equivalents and
marketable securities of $301.3 million and working capital of $363.9 million.
In the first nine months of 1997, the Company's operating activities provided
net cash of $62.3 million. Net income before depreciation and the amortization
of intangibles and the increase in accrued liabilities was offset by the
increase in net accounts receivable. Accounts receivable net of allowance for
doubtful accounts was $221.6 million at September 30, 1997 compared to $163.7
million at December 31, 1996. Deferred revenue increased by $23.7 million for
the nine month period ended September 30, 1997 to $36.0 million primarily due to
the annual maintenance billing completed in the first quarter and the deferral
of a portion of a third quarter license contact. In March and June 1997, the
Company assigned $13.8 million, and $3.7 million, respectively, of its existing
accounts receivables, subject to limited recourse. The Company did not assign
any accounts receivable for the three month period ended September 30, 1997. See
Note 5 of the Notes to Condensed Consolidated Financial Statements. Accounts
receivable days' sales outstanding (the ratio of the quarter-end accounts
receivable balance to quarterly revenues, multiplied by 90) was 115 days as of
September 30, 1997 compared to 111 days as of December 31, 1996. DSO increased
primarily due to the growth of extended payment terms in Europe.
Investing activities used $132.2 million in the nine month period ended
September 30, 1997. Purchases of marketable securities of $372.6 million and
equipment purchases of $26.1 million were only partially offset by proceeds from
maturities and sales of marketable securities of $276.6 million. As of January
20, 1998, with the exception of the semi-annual interest payments on the
convertible debt of $4.5 million per payment, direct costs of the Aurum
transaction, approximately $56 million to make several small acquisitions and
investments, and additions of property and equipment, the Company had no
significant capital commitments.
Financing activities provided cash of $33.0 million, which was primarily
because of the additional issuance of $25.0 million of unsecured convertible
subordinated notes and proceeds of $10.2 million from the issuance of common
stock. The Company has a credit facility with ABN AMRO Bank in The Netherlands
which allows the Company and its subsidiaries to borrow up to
17
<PAGE> 18
NLG 40 million ($20.1 million, based on the exchange rate at September 30,
1997). The interest rate for this facility is 4.75%.
The Company believes that existing cash, cash equivalents and marketable
securities, together with cash generated by operations and existing credit
facilities, will be sufficient to meet the Company's working capital needs and
currently planned capital expenditure requirements for at least the next twelve
months. Continued growth in the Company's business and other factors may from
time to time require additional capital. There can be no assurance that
additional capital will be available to the Company if and when needed, or that
such additional capital will be available on acceptable terms.
18
<PAGE> 19
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Operating History; Limited Profitability
The Company has experienced substantial revenue growth in recent years,
but its profitability, as a percentage of net revenues, has varied widely on a
quarterly and annual basis. Due to the Company's limited operating history on a
significant international scale, the rate of growth of the Company's business
and the variability of operating results in past periods, there can be no
assurance that the Company's revenues will continue at the current level or will
grow, or that the Company will be able to sustain profitability on a quarterly
or annual basis.
Variability of Quarterly Operating Results
The Company's net revenues and operating results can vary, sometimes
substantially, from quarter to quarter. The Company's revenues in general, and
in particular its license revenues, are relatively difficult to forecast due to
a number of reasons, including (i) the relatively long sales cycles for the
Company's products, (ii) the size and timing of individual license transactions,
(iii) the timing of the introduction of new products or product enhancements by
the Company or its competitors, (iv) the potential for delay or deferral of
customer implementations of the Company's software, (v) changes in customer
budgets, and (vi) seasonality of technology purchases and other general economic
conditions. In the last three years, and particularly in its U.S. operations,
the Company has made significant changes in its business focus, including
greater emphasis on sales to larger customers. As a result, the Company has
realized an increasingly high portion of total net revenues from individually
large licenses, which could contribute to greater quarterly variability. While
the Company believes that its allowance for doubtful accounts as of September
30, 1997 remains adequate, a significant portion of the Company's accounts
receivable at such date are derived from sales of large licenses, often to new
customers with which the Company does not have a payment history. Accordingly,
there can be no assurance that the allowance will be adequate to cover any
receivables which are later determined to be uncollectible, particularly if one
or more large receivables becomes uncollectible.
The Company's software products generally are shipped as orders are
received. As a result, license revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter. Because the Company's
operating expenses are based on anticipated revenue levels and because a high
percentage of the Company's expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
result in losses. The Company plans to increase expenditures in order to fund
continued build-up of international operations, greater levels of research and
development, a larger direct and indirect sales and marketing staff, development
of new distribution and resale channels, and broader customer support
capability, although annual expenditures will depend upon ongoing results and
evolving business needs. To the extent such expenses precede or are not
subsequently followed by increased revenues, the Company's operating results
would be materially adversely affected.
19
<PAGE> 20
The Company believes that fourth quarter revenues have historically been
positively impacted by year-end capital purchases by some large corporate
customers. This seasonality, which the Company believes is common in the
computer software industry, is likely to increase as the Company focuses on
larger corporate accounts, and typically result in first quarter license
revenues in any year being lower than license revenues in the immediately
preceding fourth quarter.
North American Operations
In order to support the growth of the Company's business in the North
American market, the Company continues to incur significant costs to build
infrastructure ahead of anticipated revenues. As a result of this expansion, the
Company must continue to implement and improve its operational and financial
control systems and to expand, train and manage its employee base and
relationships with third party implementation providers, in order to provide
high-quality training, product implementation and other customer services. These
factors have placed, and are expected to continue to place, a significant strain
on the Company's management and operations. There can be no assurance that the
Company's North American operations will continue to be successful or that the
Company will be able to manage effectively the increased level of operations in
North America. Any lack of success in North American markets or inability to
manage these activities effectively would have a material adverse effect on the
Company's results of operations.
Management of Growth
The Company's business has grown rapidly in the last five years. The
growth of the Company's business and expansion of the Company's customer base
has placed a significant strain on the Company's management and operations. The
Company's recent expansion has resulted in substantial growth in the number of
its employees, the scope of its operating and financial systems and the
geographic area of its operations, resulting in increased responsibility for
both existing and new management personnel. The Company's ability to support the
growth of its business will be substantially dependent upon having in place
highly trained internal and third party resources to conduct pre-sales activity,
product implementation, training and other customer support services.
Accordingly, the Company's future operating results will depend on the ability
of its officers and other key employees to continue to implement and improve its
operational, customer support and financial control systems, to expand, train
and manage its employee base and to work effectively with third party
implementation providers. There can be no assurance that the Company will be
able to manage its recent or any future expansion successfully, and any
inability to do so would have a material adverse effect on the Company's results
of operations.
Convertible Subordinated Notes : Leverage
In December of 1996, the Company incurred $175 million of indebtedness
with the sale of 4.5% convertible subordinated notes due 2001. That amount was
increased by an additional $25 million (for a total of $200 million convertible
notes) when an over-allotment option was exercised in January 1997. The Notes
are convertible into the Company's common shares at a
20
<PAGE> 21
conversion price of $44.00 per share. As a result of this additional
indebtedness, the Company's principal and interest obligations increased
substantially. The degree to which the Company is leveraged could materially
adversely affect the Company's ability to obtain additional financing for
working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service obligations will be dependent upon the
Company's future performance, which will be subject to financial, business and
other factors affecting the operations of the Company, many of which are beyond
its control.
Competition
The information management application software market is highly
competitive, is changing rapidly, and is significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for open systems,
client/server, Enterprise Resource Planning ("ERP") software solutions and the
Company's current and prospective competitors offer a variety of products and
solutions to address this market. The Company's primary competition comes from a
large number of independent software vendors and other sources including SAP AG
("SAP"), Oracle Corporation ("Oracle"), System Software Associates, Inc.
("SSA"), and PeopleSoft Inc. ("PeopleSoft"). In addition, the Company faces
indirect competition from suppliers of custom-developed business application
software that have focused mainly on proprietary mainframe and
minicomputer-based systems with highly customized software, such as the systems
consulting groups of major accounting firms and system integrators. The Company
also faces indirect competition from systems developed by the internal MIS
departments of large organizations.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources than
the Company, greater name recognition, and a larger installed base of customers.
In addition, certain competitors, including SAP, Oracle, and PeopleSoft, have
well-established relationships with customers of the Company. Further, because
the Company's products run in relational database management systems ("RDBMS")
and Oracle has the largest market share for RDBMS software, Oracle may have a
competitive advantage in selling its application products to its RDBMS customer
base. The Company may also face market resistance from the large installed base
of legacy systems because of the reluctance of these customers to commit the
time and effort necessary to convert to an open systems-based client/server
software solution. Further, as the client/server computing market develops,
companies with significantly greater resources than the Company could attempt to
increase their presence in this market by acquiring or forming strategic
alliances with competitors of the Company.
The Company relies on a number of systems consulting and systems
integration firms for implementation and other customer support services, as
well as recommendations of its products during the evaluation stage of the
purchase process. Although the Company seeks to maintain close relationships
with these third party implementation providers, many of these third parties
have similar, and often more established, relationships with the Company's
principal competitors. If the Company is unable to develop and retain effective,
long-term relationships with these third parties, it would adversely affect the
Company's competitive position. Further,
21
<PAGE> 22
there can be no assurance that these third parties, many of which have
significantly greater financial, technical and marketing resources than the
Company, will not market software products in competition with the Company in
the future or will not otherwise reduce or discontinue their relationship with
or support of the Company and its products.
The Company believes that its success has been due in part to its early
focus on the client/server architecture of its software products. However, the
Company's principal competitors currently offer products using client/server
architecture, and the Company believes that other competitors are actively
developing client/server-based products. As a result, competition (including
price competition) is likely to increase substantially, which could result in
price reductions and loss of market share. There can be no assurance that the
Company will be able to compete successfully with existing or new competitors or
that competition will not have a material adverse effect on the Company's
business.
Rapid Technological Change and New Products
The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements, and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to continue to enhance its current product line and to develop and
introduce new products that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
In particular, the Company must continue to anticipate and respond adequately to
advances in RDBMS software and desktop computer operating systems such as
Microsoft Windows and its successor operating systems. There can be no assurance
that the Company will be successful in developing and marketing, on a timely and
cost-effective basis, fully functional product enhancements or new products that
respond to technological advances by others, or that its new products will
achieve market acceptance.
Historically, the Company has issued significant new releases of its
BAAN family of software products approximately every two years with interim
releases on a more frequent basis. As a result of the complexities inherent in
both the RDBMS and client/server environments and the broad functionality and
performance demanded by customers for ERP products, major new product
enhancements and new products can require long development and testing periods
to achieve market acceptance. The Company has experienced delays in the
scheduled introduction of new and enhanced products. In addition, software
programs as complex as those offered by the Company may contain undetected
errors or "bugs" when first introduced or as new versions are released that,
despite testing by the Company, are discovered only after a product has been
installed and used by customers. For example, Version 3.0 contained certain
identified software errors which required correction in Version 3.1. There can
be no assurance that the Company's most recent software release, BAAN IV, or
future releases of the Company's products will not contain further software
errors. Any such errors could impair the market acceptance of these products and
adversely affect operating results. Problems encountered by customers installing
and implementing new releases or with the performance of the Company's products
could also have a material adverse effect on the Company's business and
operating results. Customers have only recently commenced implementation of the
BAAN IV version of the Company's software.
22
<PAGE> 23
If the Company were to experience delays in the introduction of new and enhanced
products, or if customers were to experience significant problems with the
implementation and installation of new releases or were to be dissatisfied with
product functionality or performance, it could materially adversely affect the
Company's business and operating results.
Integration of Acquisitions
As part of its strategy to complement and expand its existing business
and product offerings, the Company has recently entered into several acquisition
agreements with third parties. In November 1996, the Company completed the
acquisition of Antalys, Inc. ("Antalys"), a provider of order management and
product configuration software. In addition, in August 1997, the Company
completed the acquisition of Aurum Software, Inc. ("Aurum"), a provider of
enterprise-wide sales-force automation software and distribution services. The
Company expects to continue to pursue acquisitions of other companies with
potentially complementary product lines, technologies and businesses.
Acquisitions, including those entered into by the Company to date,
involve a number of risks and difficulties, including technology acceptance,
expansion into new geographic markets and business areas, the diversion of
management's attention, the assimilation of the operations and personnel of
acquired companies and the integration of acquired companies' business and
financial reporting systems with those of the Company. There can be no assurance
that the Company will successfully integrate the operations of Antalys and Aurum
or other business acquisitions. If any such acquisition were to be unsuccessful,
the Company's results of operations could be materially adversely affected.
Further, possible future acquisitions by the Company could result in dilutive
issuances of debt or equity securities, the incurrence of additional debt and
contingent liablilities and additional amortization expenses related to goodwill
and other intangible assets, which could adversely affect the Company's results
of operations.
Additional Considerations
Due to the factors noted above, as well as other factors that may affect
the Company's operating results, the Company's future earnings and stock price
may be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period. Additionally, the Company may
not learn of, or be able to confirm, any such shortfalls until late in the
fiscal quarter, or following the end of the quarter because license fees are
often recorded late in a quarter. Finally, the stock prices for many companies
in the technology and emerging growth sector have experienced wide fluctuations,
which have often been unrelated to individual company operating performance. The
Company participates in a dynamic industry and the Company's stock price may
experience significant volatility.
23
<PAGE> 24
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BAAN COMPANY N.V.
By: /s/ Klaas Wagenaar
------------------------
Klaas Wagenaar
Senior Vice President Finance
and Administration & Chief
Financial Officer
Date: January 21, 1998
24
<PAGE> 25
BAAN COMPANY N.V.
EXHIBIT INDEX
Page
Exhibit 11.1 Statement of Computation of Earnings per Share 26
25
<PAGE> 1
EXHIBIT 11.1
BAAN COMPANY N.V.
EXHIBIT 11.1 -
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE*
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary (i)
Weighted average common shares
outstanding ............ 95,653 89,432 95,152 88,599
Common stock equivalents ..... 7,518 8,880 7,413 8,956
-------- -------- -------- --------
103,171 98,312 102,565 97,555
======== ======== ======== ========
Net income ................... $ 18,339 $ 9,453 $ 48,011 $ 20,040
======== ======== ======== ========
Net income per share ......... $ 0.18 $ 0.10 $ 0.47 $ 0.21
======== ======== ======== ========
</TABLE>
*Restated to reflect the pooling of interests with Aurum Software, Inc. for all
periods presented.
(i) The difference between primary and fully diluted earnings per share is
immaterial.
26
