| Presentation and Summary of Significant Accounting Policies | (1) Presentation and Summary of Significant Accounting
Policies
(a) Basis of Presentation
Founded in 1970 and headquartered in Atlanta, Georgia, American
Software, Inc. and its subsidiaries (collectively, the
“Company”) are engaged in the development, marketing,
and support activities of a broad range of computer business
application software products. The Company’s operations are
principally in the computer software industry, and its products and
services are used by customers within the United States and certain
international markets. We provide our software solutions through
three major business segments, which are further broken down into a
total of six major product and service groups. The three operating
segments are (1) Supply Chain Management (“SCM”),
(2) Information Technology (“IT”) Consulting and
(3) Other.
• The SCM segment consists of Logility,
Inc. (see Note 9), which provides collaborative supply chain
solutions to streamline and optimize the production, distribution
and management of products between trading partners, as well as
wholly-owned subsidiaries of Logility, DMI, NGC and Halo.
• The IT Consulting segment consists of
The Proven Method, Inc., an IT staffing and consulting services
firm.
• The Other segment consists of
(i) American Software ERP, which provides purchasing and
materials management, customer order processing,
financial, e-commerce
Certain prior period amounts have been recasted to conform within
these footnotes to current period presentation.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of
American Software, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Revenue Recognition and Deferred Revenue
The Company recognizes revenue predominately in accordance with the
Software Revenue Recognition Topic of the Financial Accounting
Standards Board’s (FASB) Accounting Standards Codification
(ASC).
License. case-by-case
Services and other. , out-of-pocket out-of-pocket
Software-as-a-Service as-needed
Maintenance.
Indirect Channel Revenue. end-user,
Deferred Revenue.
Sales Taxes. .
Unbilled Accounts Receivable.
(d) Cost of Revenues
Cost of revenues for licenses includes amortization of developed
technology and capitalized computer software development costs,
salaries and benefits and value-added reseller (VAR) commissions.
Costs for maintenance and services revenues include the cost of
personnel to conduct implementations, customer support and
consulting, and other personnel-related expenses as well as agent
commission expenses related to maintenance revenues generated by
the indirect channel. Commission costs for maintenance are deferred
and amortized over the related maintenance term.
(e) Cash Equivalents
Cash equivalents of $47.0 million and $62.6 million at
April 30, 2018 and 2017, respectively, consist of overnight
repurchase agreements and money market deposit accounts. The
Company considers all such investments with original maturities of
three months or less to be cash equivalents for purposes of the
consolidated statements of cash flows.
(f) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash and cash equivalents, short- and long-term investments and
accounts receivable. The Company maintains cash and cash
equivalents and short- and long-term investments with various
financial institutions. The Company’s sales are primarily to
companies located in North America and Europe. The Company performs
periodic credit evaluations of its customers’ financial
condition and does not require collateral. Accounts receivable are
due principally from companies under stated contract terms.
(g) Returns and Allowances
The Company has not experienced significant returns or warranty
claims to date and, as a result, the allowance for the cost of
returns and product warranty claims at April 30, 2018 or 2017 is
not significant.
The Company records an allowance for doubtful accounts based on the
historical experience of write-offs and a detailed assessment of
accounts receivable. The total amounts of expense/(recovery) to
operations were approximately $24,000, $39,000, and $0 for 2018,
2017, and 2016, respectively, which are included in general and
administrative expenses in the accompanying consolidated statements
of operations. In estimating the allowance for doubtful accounts,
management considers the age of the accounts receivable, the
Company’s historical write-offs, and the credit worthiness of
the customer, among other factors. Should any of these factors
change, the estimates made by management will also change
accordingly, which could affect the level of the Company’s
future provision for doubtful accounts. Uncollectible accounts are
written off when it is determined that the specific balance is not
collectible.
(h) Investments
Investments consist of commercial paper, corporate bonds,
government securities, certificates of deposits and marketable
equity securities. The Company accounts for its investments in
accordance with the Investments—Debt and Equity Securities
Topic of the FASB ASC. The Company has classified its
investment portfolio as “trading.”
“Trading” securities are bought and held principally
for the purpose of selling them in the near term and are recorded
at fair value. Unrealized gains and losses on trading securities
are included in the determination of net earnings. For the purposes
of computing realized gains and losses, cost is identified on a
specific identification basis. Investments with maturities less
than one year as of the balance sheet date are classified as
short-term investments and those that mature greater than one year
are classified as long-term investments.
(i) Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation and amortization. Depreciation of buildings, computer
equipment, purchased computer software, office furniture and
equipment is calculated using the straight-line method based upon
the estimated useful lives of the assets (three years for computer
equipment and software, seven years for office furniture and
equipment and thirty years for buildings). Leasehold improvements
are amortized using the straight-line method over the estimated
useful lives of the assets or the related lease term, whichever is
shorter. Depreciation and amortization expense on buildings,
furniture, equipment and purchased computer software was $492,000,
$731,000, and $807,000 in 2018, 2017 and 2016, respectively.
(j) Capitalized Computer Software Development
Costs
The Company capitalizes certain computer software development costs
in accordance with the FASB ASC Costs of Software to be Sold,
Leased or Marketed Topic. Costs incurred internally to create a
computer software product or to develop an enhancement to an
existing product are charged to expense when incurred as research
and development expense until technological feasibility for the
respective product is established. Thereafter, software development
costs are capitalized and reported at the lower of unamortized cost
or net realizable value. Capitalization ceases when the product or
enhancement is available for general release to customers. The
Company makes ongoing evaluations of the recoverability of its
capitalized software projects by comparing the net amount
capitalized for each product to the estimated net realizable value
of the product. If such evaluations indicate that the unamortized
software development costs exceed the net realizable value, the
Company writes off the amount by which the unamortized software
development costs exceed net realizable value. Capitalized computer
software development costs are amortized ratably based on the
projected revenues associated with the related software or on a
straight-line basis over three years, whichever method results in a
higher level of amortization. Amortization of capitalized computer
software development costs is included in the cost of license
revenues in the consolidated statements of operations.
Total Expenditures and
Amortization.
Years ended April 30,
2018 2017 2016
(in thousands)
Total capitalized computer software development costs $ 4,804 $ 3,724 $ 3,246
Total research and development expense 11,877 11,889 11,248
Total research and development expense and capitalized computer
software-development costs $ 16,681 $ 15,613 $ 14,494
Total amortization of capitalized computer software development
costs $ 3,690 $ 4,250 $ 3,921
Capitalized computer software development costs consist of the
following at April 30, 2018 and 2017 (in thousands):
2018 2017
Capitalized computer software development costs $ 33,841 $ 29,037
Accumulated amortization (24,113 ) (20,423 )
$ 9,728 $ 8,614
Of the Company’s capitalized software projects that are
currently completed and being amortized, the Company expects
amortization expense for the next three years to be as follows
(in thousands):
2019 $ 3,820
2020 3,125
2021 469
$ 7,414
(k) Acquisition-Related Intangible Assets (exclusive of
Logility’s treasury stock repurchases)
Acquisition-related intangible assets are stated at historical cost
and include acquired software and certain other intangible assets
with definite lives. The intangible assets are being amortized
over a period ranging from one to eight years. For 2018, total
amortization expense related to acquisition-related intangible
assets was approximately $1,849,000, with $580,000 included in
operating expense and $1,269,000 included in cost of license fees
in the accompanying consolidated statements of operations. For
2017, total amortization expense related to acquisition-related
intangible assets was approximately $1,659,000, with $1,041,000
included in operating expense and $618,000 included in cost of
license fees in the accompanying consolidated statements of
operations. For 2016, total amortization expense related to
acquisition-related intangible assets was approximately $890,000,
with $272,000 included in operating expense and $618,000 included
in cost of license fees in the accompanying consolidated statements
of operations.
Acquisition-Related Intangible Assets consist of the following at
April 30, 2018 and 2017 (in thousands):
Weighted 2018 2017
Current technology 3 $ 6,000 $ 4,872
Customer relationships 8 1,700 1,400
Non-compete 3 100 390
Trademarks 3 340 200
8,140 6,862
Accumulated amortization (3,020 ) (3,463 )
$ 5,120 $ 3,399
The Company expects amortization expense for the next five years to
be as follows based on intangible assets as of April 30, 2018
(in thousands):
2019 $ 2,388
2020 1,600
2021 772
2022 213
2023 52
Thereafter 95
$ 5,120
(l) Goodwill and Other Intangibles
Goodwill represents the excess of costs over fair value of assets
of businesses acquired. Goodwill and intangible assets acquired in
a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead are tested
for impairment at least annually in accordance with the
Intangibles-Goodwill and Other Topic of the FASB ASC. The
Company evaluates the carrying value of goodwill annually and
between annual evaluations if events occur or circumstances change
that would more likely than not reduce the fair value of the
reporting unit below its carrying amount. Such circumstances could
include, but are not limited to, (1) a significant adverse
change in legal factors or in business climate,
(2) unanticipated competition, or (3) an adverse action
or assessment by a regulator.
When evaluating whether the goodwill is impaired, the Company
compares the fair value of the reporting unit to which the goodwill
is assigned to its carrying amount, including goodwill. The Company
identifies the reporting unit on a basis that is similar to its
method for identifying operating segments as defined by the Segment
Reporting Topic of the FASB ASC. If the carrying amount of a
reporting unit exceeds its fair value, then the amount of the
impairment loss must be measured. This evaluation is applied
annually on each impairment testing date (April 30) unless there is
a triggering event present during an interim period.
For the years ended April 30, 2018 and 2017, the Company
performed a qualitative assessment based on economic, industry and
company-specific factors as the initial step in the annual goodwill
impairment test for all reporting units. Based on the results of
the qualitative assessment, companies are only required to perform
Step 1 of the annual impairment test for a reporting unit if the
company concludes that it is more likely than not that the
unit’s fair value is less than its carrying amount. To the
extent the Company concludes it is more likely than not that a
reporting unit’s estimated fair value is less than its
carrying amount, the two-step
Intangible assets with estimable useful lives are required to be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with the Property, Plant, and Equipment Topic of
the FASB ASC.
Goodwill consisted of the following by segment
(in thousands):
Supply Chain IT Other Total
Balance at April 30, 2016 $ 18,749 $
— $
— $ 18,749
Goodwill related to the AdapChain Acquisition 800
—
— 800
Balance at April 30, 2017 19,549
—
— 19,549
Goodwill related to the Halo Acquisition 6,339
—
— 6,339
Balance at April 30, 2018 $ 25,888 $
— $
— $ 25,888
* Goodwill related to Logility, Inc.,
New Generation Computing, Inc., Demand Management, Inc. and their
acquisitions.
Intangible Assets (including Acquisition-Related Intangible
Assets) consisted of the following by segment
(in thousands):
Supply Chain IT Other Total
Balance at April 30, 2016 $ 1,858 $
— $
— $ 1,858
Intangibles related to the AdapChain Acquisition 3,200
—
— 3,200
Amortization expense (1,659 )
—
— (1,659 )
Balance at April 30, 2017 3,399
—
— 3,399
Intangibles related to the Halo Acquisition 3,570
—
— 3,570
Amortization expense (1,849 )
—
— (1,849 )
Balance at April 30, 2018 $ 5,120 $
— $
— $ 5,120
(m) Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(n) Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) No.
2014-09, Revenue from Contracts with
Customers (Topic 606)
The Company adopted the new revenue standard effective May 1, 2018
using the modified retrospective transition method. Under this
method, the Company elects to apply the cumulative effect method to
contracts that are not complete as of the adoption date. The
Company’s total revenue impact is expected to be
approximately $1.2 million, with approximately 70% impacting the
fiscal year ending April 30, 2019, which is the result of upfront
recognition of revenue under the new standard for term licenses and
certain perpetual license contracts that were previously recognized
over time due to the lack of VSOE for the undelivered element. In
addition, under the new standard, the Company will capitalize a
portion of sales commission expenses and recognize them ratably
over the associated period of economic benefit. As a result, the
cumulative impact due to the adoption of the new revenue standard
on the opening consolidated balance sheet is expected to be an
increase in opening retained earnings, with a corresponding
increase to contract assets and a decrease in deferred revenue. We
have not identified other significant differences related to the
pattern of revenue recognition or presentation of revenue compared
to our historical accounting. The Company is continuing to finalize
the impact of adopting the new revenue standard on its financial
position but has identified changes to its accounting policies and
practices and controls to support the new revenue recognition
standard.
In February 2016, the FASB issued
ASU No. 2016-02, Leases
(Topic 842)
(o) Use of Estimates
The preparation of these consolidated financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosures of
contingent assets and liabilities, at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, we
evaluate our estimates, including, but not limited to those related
to revenue/collectability, income taxes, allocation of fair values
in acquisitions and business combinations. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of
which, form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from
other sources. Our actual results could differ materially from
these estimates under different assumptions or conditions.
(p) Stock-Based Compensation
The Company has four stock-based employee compensation plans under
which options to purchase common stock of the Company were
outstanding as of April 30, 2018. Those plans are described
more fully in Note 7. In addition to two American Software
plans, effective July 9, 2009, the Company adopted the
Logility, Inc. 1997 Stock Plan and Logility, Inc. 2007 Stock Plan
as equity plans of the Company in conjunction with the
Company’s acquisition of the shares of Logility common stock
it did not previously own.
The Company recorded stock option compensation cost of
approximately $1,467,000, $1,428,000 and $1,593,000 and related
income tax benefits of approximately $547,000, $528,000 and
$586,000 for the years ended April 30, 2018, 2017 and 2016,
respectively. Stock-based compensation expense on current year
grants is recorded on a straight-line basis over the vesting period
for the entire award directly to
additional paid-in
The Company adopted ASU No. 2016-09, Compensation
– Stock Compensation: Improvements to Employee Share-Based
Payment Accounting, paid-in paid-in
(q) Comprehensive Income
The Comprehensive Income Topic of the FASB ASC establishes
standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements.
The Company did not have any other comprehensive income items for
2018, 2017, or 2016.
(r) Impairment of Long-Lived Assets
The Company reviews long-lived assets, such as property, and
equipment, and purchased intangibles subject to amortization, for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount
by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of by sale would be separately
presented in the consolidated balance sheet and reported at the
lower of the carrying amount or fair value less costs to sell, and
are no longer depreciated. The assets and liabilities of a group
classified as held for sale would be presented separately in the
appropriate asset and liability sections of the consolidated
balance sheet.
(s) Earnings per Common Share
The Company has two classes of common stock of which Class B
common shares are convertible into Class A common shares at
any time, on a one-for-one “two-class”
For the Company’s basic earnings per share calculation,
the Company uses the “two-class” two-classes
Diluted earnings per share is calculated similarly to basic
earnings per share, except that the calculation includes the
dilutive effect of the assumed exercise of options issuable under
the Company’s stock incentive plans. For the Company’s
diluted earnings per share calculation for Class A
shares, the Company uses the “if-converted”
For the Company’s diluted earnings per share calculation
for Class B shares, the Company uses
the “two-class” two-classes
The following tables set forth the computation of basic earnings
per common share and diluted earnings per common share
(in thousands except for per share amounts), see
Note 7 for total stock options outstanding and potentially
dilutive:
Basic earnings per common share:
Year Ended Year Ended Year Ended
Class A Class B Class A Class B Class A Class B
Distributed earnings per share $ 0.44 $ 0.43 $ 0.44 $ 0.44 $ 0.40 $ 0.40
Undistributed earnings/(loss) per share (0.04 ) (0.04 ) 0.06 0.06 (0.04 ) (0.04 )
Total per share $ 0.40 $ 0.39 $ 0.50 $ 0.50 $ 0.36 $ 0.36
Distributed earnings $ 12,321 $ 974 $ 11,845 $ 1,066 $ 10,479 $ 1,025
Undistributed earnings/(loss) (1,151 ) (91 ) 1,568 142 (1,148 ) (114 )
Total $ 11,170 $ 883 $ 13,413 $ 1,208 $ 9,331 $ 911
Basic weighted average common shares 27,805 2,275 26,793 2,439 26,143 2,584
Diluted EPS for Class A common shares using
the If-Converted
Year Ended April 30, 2018
Undistributed and Class A EPS*
Per basic $ 11,170 27,805 $ 0.40
Common stock equivalents
— 392
11,170 28,197 0.40
Class B conversion 883 2,275
Diluted EPS for Class A $ 12,053 30,472 $ 0.40
Year Ended April 30, 2017
Undistributed and Class A EPS*
Per basic $ 13,413 26,793 $ 0.50
Common stock equivalents
— 335
13,413 27,128 0.49
Class B conversion 1,208 2,439
Diluted EPS for Class A $ 14,621 29,567 $ 0.49
Year Ended April 30, 2016
Undistributed and Class A EPS*
Per basic $ 9,331 26,143 $ 0.36
Common stock equivalents
— 278
9,331 26,421 0.35
Class B conversion 911 2,584
Diluted EPS for Class A $ 10,242 29,005 $ 0.35
Diluted EPS for Class B common shares using
the Two-Class
Year Ended April 30, 2018
Undistributed and Class B EPS*
Per basic $ 883 2,275 $ 0.39
Reallocation of undistributed earnings from Class A shares to
Class B shares
—
—
Diluted EPS for Class B $ 883 2,275 $ 0.39
Year Ended April 30, 2017
Undistributed and Class B EPS*
Per basic $ 1,208 2,439 $ 0.50
Reallocation of undistributed earnings from Class A shares to
Class B shares (2 )
—
Diluted EPS for Class B $ 1,206 2,439 $ 0.49
Year Ended April 30, 2016
Undistributed and Class B EPS*
Per basic $ 911 2,584 $ 0.35
Reallocation of undistributed earnings from Class A shares to
Class B shares 2
—
Diluted EPS for Class B $ 913 2,584 $ 0.35
* Amounts adjusted for rounding
(t) Advertising
All advertising costs are expensed as incurred. Advertising
expenses, which are included within sales and marketing expenses,
were $2.4 million, $2.3 million and $2.1 million in
fiscal 2018, 2017 and 2016, respectively.
(u) Guarantees and Indemnifications
The Company accounts for guarantees in accordance with the
Guarantee Topic of the FASB ASC .
The Company warrants to its customers that its software products
will perform in all material respects in accordance with the
standard published specifications in effect at the time of delivery
of the licensed products to the customer generally for 90 days
after delivery of the licensed products. Additionally, the Company
warrants to its customers that services will be performed
consistent with generally accepted industry standards or specific
service levels through completion of the agreed upon services. If
necessary, the Company will provide for the estimated cost of
product and service warranties based on specific warranty claims
and claim history. However, the Company has not incurred
significant recurring expense under product or service warranties.
Accordingly, the Company has no liabilities recorded for these
agreements as of April 30, 2018 or 2017.
(v) Industry Segments
The Company operates and manages its business in three reportable
segments. See Note 9 of the Consolidated Financial
Statements. |
