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 January 31, 1996
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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 March 8, 1996
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Class A Common Stock, $.10 par value 17,431,752 Shares
Class B Common Stock, $.10 par value 4,836,889 Shares
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form 10-Q
Quarter ended January 31, 1996
Index
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Page
No.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - Unaudited -
January 31, 1996 and April 30, 1995 3-4
Condensed Consolidated Statements of Operations -
Unaudited - Three Months and Nine Months ended
January 31, 1996 and January 31, 1995 5
Condensed Consolidated Statement of Shareholders'
Equity - Unaudited - Nine Months ended January 31, 1996 6
Condensed Consolidated Statements of Cash Flows -
Unaudited - Nine Months ended January 31, 1996 and
January 31, 1995 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II - Other Information 12
2
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
January 31, 1996 April 30, 1995
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ASSETS
Current assets:
Cash $ 1,729,541 $ 1,228,461
Investments 29,160,084 31,276,773
Trade accounts receivable, less allowance for
doubtful accounts of $1,588,951 at January 31,
1996 and $1,906,284 at April 30, 1995 15,260,116 11,008,273
Unbilled accounts receivable 926,655 5,409,390
Current deferred income taxes 3,538,502 2,269,548
Refundable income taxes 3,205,448 8,304,601
Prepaid expenses and other current assets 2,983,802 2,474,950
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Total current assets 56,804,148 61,971,996
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Property and equipment, at cost 39,172,539 37,375,541
Less accumulated depreciation and amortization 21,166,306 19,283,211
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Net property and equipment 18,006,233 18,092,330
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Capitalized computer software development costs, net 24,346,891 20,372,465
Purchased computer software costs, net 3,882,790 5,414,553
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Total computer software costs 28,229,681 25,787,018
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Other assets, net 4,296,957 1,940,209
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$107,337,019 $107,791,553
============ ============
See accompanying notes to condensed consolidated financial statements.
(continued)
3
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited), Continued
January 31, 1996 April 30, 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,117,728 $ 5,132,774
Accrued compensation and related costs 3,210,484 2,797,422
Accrued royalties 897,206 1,161,836
Other current liabilities 3,915,239 3,722,891
Deferred revenue 10,661,156 12,750,156
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Total current liabilities 23,801,813 25,565,079
Deferred income taxes 9,609,521 8,189,662
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Total liabilities 33,411,334 33,754,741
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Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000
shares; issued 18,742,871 shares at
January 31, 1996 and 18,729,871 shares at
April 30, 1995 1,874,288 1,872,988
Class B, $.10 par value. Authorized 10,000,000
shares; issued and outstanding 4,836,889
shares at January 31, 1996 and 4,840,489 shares
at April 30,1995; convertible into Class A shares
on a one-for-one basis 483,689 484,049
Additional paid-in capital 30,700,116 30,656,333
Retained earnings 52,848,048 52,846,986
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85,906,141 85,860,356
Less Class A treasury stock, 1,331,650 shares at
January 31, 1996 and 1,306,943 shares
at April 30, 1995, at cost 11,980,456 11,823,544
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Total shareholders' equity 73,925,685 74,036,812
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$107,337,019 $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
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Three Months Ended Nine Months Ended
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January 31, January 31,
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1996 1995 1996 1995
----------------- ------------------ ------------- -------------
Revenues:
License fees $ 4,508,419 $ 6,152,341 $19,292,916 $ 13,692,431
Services 7,211,146 8,572,229 23,029,765 28,292,667
Maintenance 5,652,909 5,869,337 17,415,705 17,123,081
----------- ----------- ----------- ------------
Total revenues 17,372,474 20,593,907 59,738,386 59,108,179
----------- ----------- ----------- ------------
Cost of revenues:
License fees 5,329,821 5,963,620 16,581,321 18,329,402
Services 5,753,244 5,625,901 16,371,031 17,008,628
Maintenance 1,179,401 1,001,903 3,420,246 3,238,375
----------- ----------- ----------- ------------
Total cost of revenues 12,262,466 12,591,424 36,372,598 38,576,405
----------- ----------- ----------- ------------
Selling, general, and
administrative expenses 7,559,993 9,953,978 25,746,202 33,472,633
----------- ----------- ----------- ------------
Operating loss (2,449,985) (1,951,495) (2,380,414) (12,940,859)
Other income, net 1,157,225 208,266 2,362,800 1,247,301
----------- ----------- ----------- ------------
Loss before
income taxes (1,292,760) (1,743,229) (17,614) (11,693,558)
Income tax benefit (516,937) (751,048) (18,676) (4,842,736)
----------- ----------- ----------- ------------
Net earnings (loss) $ (775,823) $ (992,181) $ 1,062 $ (6,850,822)
=========== =========== =========== ============
Earnings (loss) per common and
common equivalent share $(.03) $(.04) $ - $(.31)
=========== =========== =========== ============
Weighted average number of
common and common
equivalent shares outstanding 22,252,383 22,346,511 23,122,873 22,324,261
=========== =========== =========== ============
See accompanying notes to condensed consolidated financial statements.
5
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
Nine months ended January 31, 1996
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Common stock
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Class A Class B Additional Total
---------------------- ----------------- paid-in Retained Treasury shareholders'
Shares Amount Shares Amount capital earnings stock equity
---------- ---------- --------- -------- ----------- ----------- ------------ -------------
Balance at April 30, 1995 18,729,871 $1,872,988 4,840,489 $484,049 $30,656,333 $52,846,986 $(11,823,544) $74,036,812
Net earnings -- -- -- -- -- 1,062 -- 1,062
Proceeds from stock options
exercised 9,400 940 -- -- 28,150 -- -- 29,090
Proceeds from dividend
reinvestment and
stock purchase plan -- -- -- -- -- -- 3,088 3,088
Conversion of Class B shares
into Class A shares 3,600 360 (3,600) (360) -- -- -- --
Repurchase of 25,000 Class A
shares -- -- -- -- -- -- (160,000) (160,000)
Grants of compensatory
stock options -- -- -- -- 15,633 -- -- 15,633
---------- ---------- --------- -------- ----------- ----------- ------------ -----------
Balance at January 31, 1996 18,742,871 $1,874,288 4,836,889 $483,689 $30,700,116 $52,848,048 $(11,980,456) $73,925,685
========== ========== ========= ======== =========== =========== ============ ===========
See accompanying notes to condensed consolidated financial statements.
6
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
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January 31,
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1996 1995
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Cash flows from operating activities:
Net earnings (loss) $ 1,062 $(6,850,822)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 8,880,176 8,822,470
Loss on disposal of fixed assets 18,807 -
Equity in loss of investee 18,583 -
Net gain on investments (962,519) (104,795)
Grants of compensatory stock options 15,633 194,424
Deferred income taxes 150,905 381,441
Change in operating assets and liabilities:
Net decrease (increase) in money market funds 656,826 (3,445,908)
Purchases of investments (7,731,571) (3,004,384)
Proceeds from sales and maturities of investments 10,153,953 14,480,910
Accounts receivable 230,892 4,768,878
Prepaids and other assets (1,213,885) 614,367
Accounts payable and other accrued liabilities 325,734 (483,948)
Income taxes 3,999,153 (1,903,999)
Deferred revenue (2,089,000) (1,809,464)
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Net cash provided by operating activities 12,454,749 11,659,170
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Cash flows from investing activities (Note C):
Capitalized software development costs (9,148,434) (5,233,554)
Purchases of property and equipment (1,827,413) (3,530,715)
Purchase of Intellimedia Commerce, Inc. stock (850,000) -
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Net cash used in investing activities (11,825,847) (8,764,269)
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Cash flows from financing activities:
Repurchases of common stock (160,000) -
Proceeds from exercise of stock options 29,090 147,476
Proceeds from dividend reinvestment
and stock purchase plan 3,088 75,742
Dividends paid - (3,569,715)
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Net cash used in financing activities (127,822) (3,346,497)
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Net increase (decrease) in cash 501,080 (451,596)
Cash at beginning of period 1,228,461 2,172,745
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Cash at end of period $ 1,729,541 $ 1,721,149
============ ===========
Supplemental disclosure of cash received during the
period for income taxes $ (4,503,977) $(3,541,352)
============ ===========
See accompanying notes to condensed consolidated financial statements.
7
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 1996
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.
C. Acquisition
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On January 11, 1996, the Company acquired 6,000 shares representing 60% of
the capital stock of Intellimedia Commerce, Inc., a company providing
Internet-related services, for $850,000 in cash. The transaction was
accounted for as a purchase, and accordingly, results of operations have been
included since the date of acquisition. The purchase price allocation, based
upon preliminary estimates (subject to further adjustment), was made to
assets and liabilities based on their estimated fair values as of the date of
acquisition. The pro forma results are not significant to the accompanying
condensed consolidated statements of operations.
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 January 31, 1996, revenues totaled $17,372,474, down 16%
from $20,593,907 in the corresponding quarter of fiscal 1995. Revenues for the
nine months ended January 31, 1996 totaled $59,738,386, up 1% from $59,108,179
in the prior year period. Software license fees were 27% lower than the third
quarter of fiscal 1995 and 41% higher for the nine month period ended January
31, 1996 compared to the prior year. The reduction in license fee revenues for
the third quarter of fiscal 1996 was primarily due to a significant shortfall in
sales of the Company's mainframe products. Revenues from sales of its
client server product, Supply Chain Planning, increased 260% over the same
quarter last year and grew 190% for the nine month period versus a year ago.
The Company's ability to stabilize and grow total license fee revenues in the
near term depends on its ability to make sales of its mainframe and midrange
products while it continues to grow its client server business.
Services revenues were 16% lower than the corresponding quarter a year ago and
19% lower on a year to date basis. The decline was in part due to a customer's
deferral of a significant services contract. Generally, services revenues were
below expectations given the levels of license fee revenues reported in the
preceding six to nine month period. One factor contributing to the lower levels
is a lower rate of services requested for the Company's client server products
than that experienced for its mainframe and midrange products. The Company
expects to generate significant services assisting its customers in preparing
their enterprise solutions to operate successfully through the turn of the
millennium. Additionally, the Company continues to refine its services model
for client server implementations.
Maintenance revenues decreased 4% from third quarter 1995 and are up 2% for the
current nine months compared to fiscal 1995. The quarterly decline and the
reduced rate of increase in the nine month period were due to reduced license
fees in fiscal 1995 compared to fiscal 1994 and 1993.
The cost of revenues for license fees decreased 11% compared to the third
quarter of fiscal 1995 and decreased 10% for the nine months ended January 31,
1996 due to attrition of personnel during the second half of fiscal 1995 and to
lower royalty expenses. Services costs increased 2% versus the same quarter a
year ago due to increased outsourcing costs. Service costs decreased 4% for the
nine months compared to the prior year period due to fewer personnel
requirements to provide the reduced consulting and programming services which
more than offset increases in outsourcing costs. Maintenance costs increased
18% compared to the year ago third quarter, and increased 6% for the nine months
ended January 31, 1996 compared to the nine months ended January 31,1995 due to
increases in personnel costs.
Selling, general and administrative expenses decreased 24% for the quarter and
decreased 23% for the nine months over the same periods in fiscal 1995. The
decrease is primarily due to reductions in salaries and other costs associated
with fewer employees and an increase in the expenses deferred associated with
the capitalization of internally developed software.
9
Other income increased approximately $949,000 for the quarter and increased
approximately $1,115,000 for the nine months over the same periods in fiscal
1995. The increase is primarily due to increases in the fair market value of
the Company's stock and bond portfolios, which are treated as a "trading"
portfolio under SFAS 115.
The effective tax benefit was 40% compared to 43% in the third quarter of fiscal
1995 and increased to 106% compared to 41% for the nine months ended January 31,
1995. 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 $12.5 million
for the nine months ended January 31, 1996 and approximately $11.7 million in
the prior year period. This increase of approximately $800,000 occurred while
the Company had net earnings of $1,062 for the nine months ended January 31,
1996 and a net loss of approximately $6.9 million for the prior year period. The
primary reasons for this increase are: 1) Increased profitability during the
nine months ended January 31, 1996 provided cash and substantially reduced the
creation of new refundable income taxes compared to prior year periods and 2)
The Company received an income tax refund in the current year 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. Cash
provided from these two factors was offset by the following uses of cash: 1) The
Company received less proceeds from the sale and maturity of investments in the
nine months ended January 31, 1996 compared to the prior year period and 2)
Accounts receivable showed a decrease at January 31, 1995 of approximately $4.8
million due to decreasing revenues, compared to a decrease of approximately
$200,000 at January 31, 1996.
Cash used for investing activities was approximately $11.8 million for the nine
months ended January 31, 1996 and approximately $8.8 million in the prior year
period. Comparing these two periods, one component of investing activities,
capitalized software development costs, increased approximately $3.9 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 nine months ended January 31, 1996 and 1995 due primarily
to large investments made in the Company's computer outsourcing facilities in
the prior year period. On January 11, 1996 the Company purchased a 60% interest
in Intellimedia Commerce, Inc., a company providing Internet-related services,
for $850,000. The financial results from Intellimedia Commerce, Inc. have been
included in the Company's consolidated financial statements since the date of
acquisition, such results were immaterial to the Company. The purchase price
allocation, based upon preliminary estimates (subject to further adjustment),
was made to assets and liabilities based on their estimated fair values as of
the date of acquisition.
Cash used for financing activities was approximately $128,000 for the nine
months ended January 31, 1996 and approximately $3.3 million in the prior year
period. The reduction in cash used between these two periods was due primarily
to the suspension of the quarterly dividend which occurred in the third quarter
of the fiscal year ended April 30, 1995.
10
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 29% 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.
11
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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Not applicable
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 January
31, 1996.
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 March 14, 1996 /s/ James C. Edenfield
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James C. Edenfield
President, Chief
Executive Officer
and Treasurer
DATE March 14, 1996 /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