UNITED STATES
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 October 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-12456
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AMERICAN SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1098795
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
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(Address of principal executive offices) (Zip Code)
(404) 261-4381
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year, if changed since
last report)
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Classes Outstanding at December 8, 1995
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Class A Common Stock, $.10 par value 17,427,640 Shares
Class B Common Stock, $.10 par value 4,836,889 Shares
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form 10-Q
Quarter ended October 31, 1995
Index
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Page
No.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - Unaudited
- October 31, 1995 and April 30, 1995 3-4
Condensed Consolidated Statements of Operations
- Unaudited - Three Months and Six Months ended
October 31, 1995 and October 31, 1994 5
Condensed Consolidated Statement of Shareholders'
Equity - Unaudited - Six Months ended
October 31, 1995 6
Condensed Consolidated Statements of Cash Flows
- Unaudited - Six Months ended October 31, 1995
and October 31, 1994 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Part II - Other Information 11-12
2
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
October 31, 1995 April 30, 1995
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ASSETS
Current assets:
Cash $ 2,264,552 $ 1,228,461
Investments 32,970,741 31,276,773
Trade accounts receivable, less allowance for
doubtful accounts of $1,779,029 at October 31, 1995
and $1,906,284 at April 30, 1995 12,921,644 11,008,273
Unbilled accounts receivable 4,636,552 5,409,390
Current deferred income taxes 3,890,093 2,269,548
Refundable income taxes 1,696,921 8,304,601
Prepaid expenses and other current assets 2,762,636 2,474,950
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Total current assets 61,143,139 61,971,996
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Property and equipment, at cost 38,232,642 37,375,541
Less accumulated depreciation and amortization 20,512,344 19,283,211
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Net property and equipment 17,720,298 18,092,330
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Capitalized computer software development costs, net 22,559,300 20,372,465
Purchased computer software costs, net 4,314,654 5,414,553
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Total computer software costs 26,873,954 25,787,018
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Other assets, net 3,280,606 1,940,209
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$109,017,997 $107,791,553
============ ============
See accompanying notes to condensed consolidated financial statements.
(continued)
3
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited), Continued
October 31, 1995 April 30, 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,228,121 $ 5,132,774
Accrued compensation and related costs 3,207,441 2,797,422
Accrued royalties 987,248 1,161,836
Other current liabilities 3,960,514 3,722,891
Deferred revenue 11,864,859 12,750,156
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Total current liabilities 25,248,183 25,565,079
Deferred income taxes 8,961,841 8,189,662
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Total liabilities 34,210,024 33,754,741
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Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000
shares; issued 18,738,933 shares at
October 31, 1995 and 18,729,871 shares at
April 30, 1995 1,873,895 1,872,988
Class B, $.10 par value. Authorized 10,000,000
shares; issued and outstanding 4,840,489
shares at October 31, 1995 and April 30,1995;
convertible into Class A shares on a one-for-
one basis 484,049 484,049
Additional paid-in capital 30,680,647 30,656,333
Retained earnings 53,623,871 52,846,986
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86,662,462 85,860,356
Less Class A treasury stock, 1,311,650 shares at
October 31, 1995 and 1,306,943 shares
at April 30, 1995, at cost 11,854,489 11,823,544
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Total shareholders' equity 74,807,973 74,036,812
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$109,017,997 $107,791,553
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See accompanying notes to condensed consolidated financial statements.
4
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Six Months Ended
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October 31, October 31,
-------------------------- ---------------------------
1995 1994 1995 1994
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Revenues:
License fees $ 7,334,989 $ 4,883,766 $14,784,497 $ 7,540,090
Services 8,209,769 9,644,064 15,818,619 19,720,438
Maintenance 5,863,484 5,729,417 11,762,796 11,253,744
----------- ----------- ----------- ------------
Total revenues 21,408,242 20,257,247 42,365,912 38,514,272
----------- ----------- ----------- ------------
Cost of revenues:
License fees 5,281,730 6,050,164 11,251,500 12,365,782
Services 5,771,784 5,889,967 10,617,787 11,382,727
Maintenance 1,225,554 1,084,187 2,240,845 2,236,472
----------- ----------- ----------- ------------
Total cost of revenues 12,279,068 13,024,318 24,110,132 25,984,981
----------- ----------- ----------- ------------
Selling, general, and
administrative expenses 9,084,724 12,412,912 18,186,209 23,518,655
----------- ----------- ----------- ------------
Operating earnings (loss) 44,450 (5,179,983) 69,571 (10,989,364)
Other income, net 616,699 220,651 1,205,575 1,039,035
----------- ----------- ----------- ------------
Earnings (loss) before
income taxes 661,149 (4,959,332) 1,275,146 (9,950,329)
Income tax expense (benefit) 252,226 (2,067,698) 498,261 (4,091,688)
----------- ----------- ----------- ------------
Net earnings (loss) $ 408,923 $(2,891,634) $ 776,885 $ (5,858,641)
=========== =========== =========== ============
Earnings (loss) per common and
common equivalent share $ .02 $ (.13) $ .03 $ (.26)
=========== =========== =========== ============
Weighted average number of
common and common
equivalent shares outstanding 23,725,016 22,326,994 23,744,367 22,312,964
=========== =========== =========== ============
See accompanying notes to condensed consolidated financial statements.
5
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
Six months ended October 31, 1995
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Common stock
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Class A Class B
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Shares Amount Shares Amount
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Balance at April 30, 1995 18,729,871 $1,872,988 4,840,489 $484,049
Net earnings -- -- -- --
Proceeds from stock options exercised 9,062 907 -- --
Proceeds from dividend reinvestment
and stock purchase plan -- -- -- --
Repurchase of 5,000 Class A shares -- -- -- --
Grants of compensatory stock options -- -- -- --
---------- ---------- --------- ---------
Balance at October 31, 1995 18,738,933 $1,873,895 4,840,489 $484,049
========== ========== ========= =========
Six months ended October 31, 1995
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Additional Total
paid-in Retained Treasury shareholders'
capital earnings stock equity
----------- ----------- ------------ -----------
Balance at April 30, 1995 $30,656,333 $52,846,986 $(11,823,544) $74,036,812
Net earnings -- 776,885 -- 776,885
Proceeds from stock options exercised 13,892 -- -- 14,799
Proceeds from dividend reinvestment
and stock purchase plan -- -- 1,555 1,555
Repurchase of 5,000 Class A shares -- -- (32,500) (32,500)
Grants of compensatory stock options 10,422 -- -- 10,422
----------- ----------- ------------ -----------
Balance at October 31, 1995 $30,680,647 $53,623,871 $(11,854,489) $74,807,973
=========== =========== ============ ===========
See accompanying notes to condensed consolidated financial statements.
6
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the
Six Months Ended
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October 31,
--------------------------
1995 1994
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Cash flows from operating activities:
Net earnings (loss) $ 776,885 $(5,858,641)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,699,210 5,878,398
Loss on disposal of fixed assets 18,807 -
Equity in loss of investee 54,794 -
Net gain on investments (310,742) (83,425)
Grants of compensatory stock options 10,422 129,616
Deferred income taxes (848,366) (25,196)
Change in operating assets and liabilities:
Net (increase) decrease in money market funds (1,577,874) 2,261,306
Purchases of investments (3,349,465) (3,603,858)
Proceeds from sales and maturities of investments 3,544,112 8,336,802
Accounts receivable (1,140,533) 4,532,039
Prepaids and other assets (666,627) 325,551
Accounts payable and other accrued liabilities 568,401 (221,803)
Income taxes 5,507,681 (461,501)
Deferred revenue (885,297) (2,400,799)
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Net cash provided by operating activities 7,401,408 8,808,489
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Cash flows from investing activities:
Capitalized software development costs (5,461,655) (2,948,790)
Purchases of property and equipment (887,516) (2,581,666)
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Net cash used in investing activities (6,349,171) (5,530,456)
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Cash flows from financing activities:
Repurchases of common stock (32,500) -
Proceeds from exercise of stock options 14,799 305,041
Proceeds from dividend reinvestment
and stock purchase plan 1,555 (45,632)
Dividends paid - (3,542,074)
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Net cash used in financing activities (16,146) (3,282,665)
----------- -----------
Net increase (decrease) in cash 1,036,091 (4,632)
Cash at beginning of period 1,228,461 2,172,745
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Cash at end of period $ 2,264,552 $ 2,168,113
=========== ===========
Supplemental disclosure of cash received during the
period for income taxes $(4,161,054) $(3,689,697)
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7
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
October 31, 1995
A. Basis of Presentation
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The accompanying condensed consolidated financial statements are unaudited.
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 rules and
regulations of the Securities and Exchange Commission. These financial
statements should be used in conjunction with the consolidated financial
statements and related notes contained in the 1995 Annual Report on Form 10-
K. The financial information presented in the condensed consolidated
financial statements reflects all normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the period
indicated.
B. Earnings (Loss) Per Common and Common Equivalent Share
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Earnings (loss) per common and common equivalent share are based on the
weighted average number of Class A and B shares outstanding, since the
Company considers the two classes of common stock as one class for the
purposes of the earnings (loss) per share computation, and share equivalents
from dilutive stock options outstanding during each period. Share
equivalents are excluded from the aforementioned computation during loss
periods.
8
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
ITEM 2
RESULTS OF OPERATIONS
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For the quarter ended October 31, 1995 revenues totaled $21,408,242, up 6% from
$20,257,247 in the corresponding quarter of fiscal 1995. Revenues for the six
months ended October 31, 1995 totaled $42,365,912, up 10% from $38,514,272 in
the prior year period. Software license fees were 50% higher than the second
quarter of fiscal 1995 and 96% higher for the six month period ended October 31,
1995 compared to the prior year. License fee revenues continued to grow over
the previous year due to a more experienced sales force and better conditions
in the applications software market where American Software participates.
Services revenues were 15% lower than the corresponding quarter a year ago.
This decrease is due to lower license fees in fiscal 1995 than in fiscal 1994.
Generally, the consulting and custom programming components of services revenues
tend to increase or decrease with software license fee revenue fluctuations,
often lagging six to nine months behind changes in license fee revenues.
Maintenance revenues increased 2% from second quarter 1995 and are up 5% for the
current six months compared to fiscal 1995. The rate of increase has slowed due
to reduced license fees in fiscal 1995 compared to fiscal 1994 and 1993.
The cost of revenues for license fees decreased 13% compared to the second
quarter of fiscal 1995 and decreased 9% for the six months ended October 31,
1995 due to attrition of personnel during the second half of fiscal 1995.
Services costs decreased 2% for the quarter and decreased 7% for the six months
compared to the prior year periods due to decreased headcount. In addition,
maintenance costs increased 13% compared to the year ago second quarter, and
were flat for the six months ended October 31, 1995 compared to the six months
ended October 31,1994 due to headcount changes.
Selling, general and administrative expenses decreased 27% for the quarter and
decreased 23% for the six months over the same periods in fiscal 1995. The
decrease is primarily due to reductions in salaries and other costs associated
with fewer employees.
The effective tax rate was 38% compared to a benefit of 42% in the second
quarter of fiscal 1995 and increased to 39% compared to a benefit of 41% for the
six months ended October 31, 1994. The Company's tax rate fluctuates due to the
impact of its tax-free municipal bond interest.
FINANCIAL CONDITION
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The Company's operating activities provided cash of approximately $7.4 million
for the six months ended October 31, 1995 and approximately $8.8 million in the
prior year period. This decrease of approximately $1.4 million occurred while
the Company had net earnings of approximately $777,000 for the six months ended
October 31, 1995 and a net loss of approximately $5.9 million for the prior year
period. The primary reasons for this decrease are: 1) Due to increased
profitability during the six months ended October 31, 1995, the Company
substantially reduced the creation of new refundable income taxes. This was
partially offset by the fact that the Company received an income
9
tax refund from the carryback of a net operating loss from the year ended April
30, 1995, of approximately $4.1 million and received approximately $3.7 million
in the prior year period for carryback of a net operating loss from the year
ended April 30, 1994, 2) The Company used less proceeds from the sale and
maturity of investments in the six months ended October 31, 1995, and 3)
Accounts receivable decreased at October 31, 1994 due to decreasing revenues,
while accounts receivable increased at October 31, 1995 due to increasing
revenues.
Cash used for investing activities was approximately $6.3 million for the six
months ended October 31, 1995 and approximately $5.5 million in the prior year
period. Comparing these two periods, one component of investing activities,
capitalized software development costs, increased approximately $2.5 million as
a result of increased product development efforts. Partially offsetting this
increase, purchases of property and equipment decreased approximately $1.7
million as between the six months ended October 31, 1995 and 1994 due primarily
to large investments made in the Company's computer outsourcing facilities in
the prior year period.
Cash used for financing activities was approximately $16,000 for the six months
ended October 31, 1995 and approximately $3.3 million in the prior year period.
The reduction in cash used between these two periods was due to the suspension
of the quarterly dividend which occurred in the third quarter of the fiscal year
ended April 30, 1995.
The Company's consolidated balance sheet remains strong with a current ratio of
2.4 to 1. Liquidity also remains strong with cash and short-term investments
totaling 32% of total assets. The Company believes that existing cash and
short-term investments as well as cash from operations will be sufficient to
meet its operational objectives for at least the next twelve month period.
10
PART II OTHER INFORMATION
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Item 1. Legal Proceedings
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Not applicable
Item 2. Changes in Securities
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Not applicable
Item 3. Defaults Upon Senior Securities
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Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
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The Registrant's Annual Meeting of Shareholders was held on September
6, 1995. At that meeting, in addition to re-election of directors, the
shareholders voted upon a proposed amendment to the 1991 Employee Stock
Option Plan to increase the base number of option shares authorized
under that Plan from 1,650,000 to 2,150,000. On a weighted basis,
5,905,935 shares were voted in favor of the amendment, 344,057 shares
were voted against the amendment and 26,360 shares abstained from
voting on the amendment.
Item 5. Other Information
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Not applicable
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibit 11 Statement re: computation of Per Share Earnings (Loss).
(b) No reports on Form 8-K were filed during the quarter ended
October 31, 1995.
11
SIGNATURES
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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.
AMERICAN SOFTWARE, INC.
DATE December 14, 1995 /s/ James C. Edenfield
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James C. Edenfield
President, Chief Executive Officer
and Treasurer
DATE December 14, 1995 /s/ Peter W. Pamplin
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Peter W. Pamplin
Chief Accounting Officer
12
EXHIBIT INDEX
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Exhibit Page
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11 Statement re: computation of Per Share Earnings (Loss) 14
13
EXHIBIT 11
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Statement re: computation of Per Share Earnings (Loss)
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
Common stock:
Weighted average common
shares outstanding:
Class A shares 17,423,040 17,486,505 17,423,050 17,472,475
Class B shares 4,840,489 4,840,489 4,840,489 4,840,489
----------- ----------- ----------- -----------
22,263,529 22,326,994 22,263,539 22,312,964
Dilutive effect of outstanding
Class A common stock
options (as determined by
the application of the treasury
stock method using the
average market price for
the period) 1,461,487 - 1,480,828 -
----------- ----------- ----------- -----------
Totals 23,725,016 22,326,994 23,744,367 22,312,964
=========== =========== =========== ===========
Net earnings (loss) $ 408,923 $(2,891,634) $ 776,885 $(5,858,641)
=========== =========== =========== ===========
Earnings (loss) per common
and common equivalent share $ .02 $ (.13) $ .03 $ (.26)
=========== =========== =========== ===========
14