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, 1997
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________________ to________________________
Commission File Number: 0-12456
------------------------------------------------------
AMERICAN SOFTWARE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1098795
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
- ------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(404) 261-4381
----------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(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
------- ------
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 13, 1997
- ------------------------------------ -----------------------------
Class A Common Stock, $.10 par value 17,619,073 Shares
Class B Common Stock, $.10 par value 4,815,289 Shares
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form 10-Q
Quarter ended January 31, 1997
Index
-----
Page
No.
----
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- Unaudited - January 31, 1997 and April 30, 1996 3-4
Condensed Consolidated Statements of Operations
- Unaudited - Three Months and Nine Months ended
January 31, 1997 and January 31, 1996 5
Condensed Consolidated Statement of Shareholders' Equity
- Unaudited - Nine Months ended January 31, 1997 6
Condensed Consolidated Statements of Cash Flows
- Unaudited - Nine Months ended January 31, 1997 and
January 31, 1996 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 12-13
2
PART I FINANCIAL INFORMATION
- ------
Item 1. Financial Statements
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
January 31, 1997 April 30, 1996
---------------- --------------
ASSETS
Current assets:
Cash $ 3,814,468 $ 1,947,249
Investments 18,521,507 24,207,169
Trade accounts receivable, less allowance for
doubtful accounts of $1,200,000 at January 31, 1997
and April 30, 1996 12,125,026 14,106,363
Unbilled accounts receivable 4,952,244 953,089
Current deferred income taxes 1,938,373 1,938,059
Refundable income taxes 940,717 1,021,915
Prepaid expenses and other current assets 2,050,989 1,880,485
----------- -----------
Total current assets 44,343,324 46,054,329
----------- -----------
Property and equipment, at cost 40,489,491 39,423,021
Less accumulated depreciation and amortization 23,596,637 21,804,448
----------- -----------
Net property and equipment 16,892,854 17,618,573
----------- -----------
Capitalized computer software development costs, net 27,385,707 22,943,859
Purchased computer software costs, net 838,868 1,231,076
----------- -----------
Total computer software costs 28,224,575 24,174,935
----------- -----------
Other assets, net 2,288,434 2,934,117
----------- -----------
$91,749,187 $90,781,954
=========== ===========
See accompanying notes to condensed consolidated financial statements.
(continued)
3
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited), Continued
January 31, 1997 April 30, 1996
---------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,768,283 $ 4,940,084
Accrued compensation and related costs 4,544,013 3,656,371
Accrued royalties 801,080 946,548
Other current liabilities 4,386,402 3,493,964
Deferred revenue 10,323,575 11,505,860
----------- -----------
Total current liabilities 24,823,353 24,542,827
Deferred income taxes 1,983,729 1,983,729
----------- -----------
Total liabilities 26,807,082 26,526,556
----------- -----------
Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000
shares; issued 18,889,014 shares at
January 31, 1997 and 18,769,083 shares at
April 30, 1996 1,888,903 1,876,910
Class B, $.10 par value. Authorized 10,000,000
shares; issued and outstanding 4,815,289
shares at January 31, 1997 and 4,836,889 shares
at April 30,1996; convertible into Class A shares
on a one-for-one basis 481,529 483,689
Additional paid-in capital 31,063,062 30,776,204
Retained earnings 43,484,733 43,097,649
----------- -----------
76,918,227 76,234,452
Less Class A treasury stock, 1,330,585 shares at
January 31, 1997 and 1,331,119 shares
at April 30, 1996, at cost 11,976,122 11,979,054
----------- -----------
Total shareholders' equity 64,942,105 64,255,398
----------- -----------
$91,749,187 $90,781,954
=========== ===========
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 Nine Months Ended
-------------------------- ----------------------------
January 31, January 31,
-------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------- -------------
Revenues:
License fees $ 8,165,055 $ 4,508,419 $20,567,142 $19,292,916
Services 7,749,153 7,211,146 22,770,344 23,029,765
Maintenance 5,652,738 5,652,909 16,304,935 17,415,705
----------- ----------- ----------- -----------
Total revenues 21,566,946 17,372,474 59,642,421 59,738,386
----------- ----------- ----------- -----------
Cost of revenues:
License fees 2,795,146 2,596,593 7,486,679 9,119,205
Services 6,678,134 6,319,975 19,907,641 18,586,317
Maintenance 1,982,413 1,937,795 5,884,998 5,862,525
----------- ----------- ----------- -----------
Total cost of revenues 11,455,693 10,854,363 33,279,318 33,568,047
----------- ----------- ----------- -----------
Research & Development 2,871,341 4,210,588 9,472,256 11,757,193
Less: Capitalized software (2,278,015) (3,686,779) (7,605,746) (9,148,434)
Marketing and sales expenses 5,391,535 4,758,379 15,442,023 15,281,644
General and administrative expenses 3,343,259 3,685,908 9,578,348 10,660,350
----------- ----------- ----------- -----------
Operating earnings (loss) 783,133 (2,449,985) (523,778) (2,380,414)
Other income, net 655,492 1,157,225 1,284,851 2,362,800
----------- ----------- ----------- -----------
Earnings (loss) before
income taxes 1,438,625 (1,292,760) 761,073 (17,614)
Income tax expense (benefit) 292,219 (516,937) 373,989 (18,676)
----------- ----------- ----------- -----------
Net earnings (loss) 1,146,406 $ (775,823) $ 387,084 $ 1,062
=========== =========== =========== ===========
Earnings (loss) per common and
common equivalent share $.05 $(.03) $.02 $ -
=========== =========== =========== ===========
Weighted average number of
common and common
equivalent shares outstanding 23,832,951 22,252,383 23,887,307 23,122,873
=========== =========== =========== ===========
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, 1997
------------------------------------------------------------------------------------------------------
Common stock
-----------------------------------------------
Class A Class B Additional Total
---------------------- ----------------------- paid-in Retained Treasury shareholders'
Shares Amount Shares Amount capital earnings stock equity
---------- ---------- ---------- ----------- ----------- ----------- ------------- -------------
Balance at
April 30, 1996 18,769,083 $1,876,910 4,836,889 $483,689 $30,776,204 $43,097,649 $(11,979,054) $64,255,398
Net earnings -- -- -- -- -- 387,084 -- 387,084
Proceeds from stock
options exercised 98,331 9,833 -- -- 277,552 -- -- 287,385
Proceeds from dividend
reinvestment and stock
purchase plan -- -- -- -- -- -- 2,932 2,932
Conversion of Class B
shares into
Class A shares 21,600 2,160 (21,600) (2,160) -- -- -- --
Grants of compensatory
stock options -- -- -- -- 9,306 -- -- 9,306
---------- ---------- --------- ---------- ----------- ----------- ------------ -----------
Balance at
January 31, 1997 18,889,014 $1,888,903 4,815,289 $481,529 $31,063,062 $43,484,733 $(11,976,122) $64,942,105
========== ========== ========= ========== =========== =========== ============ ===========
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
--------------------------
January 31,
--------------------------
1997 1996
----------- ------------
Cash flows from operating activities:
Net earnings $ 387,084 $ 1,062
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 5,538,230 8,880,176
Loss on disposal of fixed assets 94 18,807
Equity in loss of investee 448,851 18,583
Net gain on investments (621,487) (962,519)
Grants of compensatory stock options 9,306 15,633
Deferred income taxes (314) 150,905
Change in operating assets and liabilities:
Net decrease (increase) in money market funds (174,921) 656,826
Purchases of investments (47,384) (7,731,571)
Proceeds from sales and maturities of investments 6,529,454 10,153,953
Accounts receivable (2,017,818) 230,892
Prepaids and other assets (163,597) (1,213,885)
Accounts payable and other accrued liabilities 1,462,811 325,734
Income taxes 81,198 3,999,153
Deferred revenue (1,182,285) (2,089,000)
----------- ------------
Net cash provided by operating activities 10,249,222 12,454,749
----------- ------------
Cash flows from investing activities (Note C):
Capitalized software development costs (7,605,746) (9,148,434)
Purchases of property and equipment (1,066,574) (1,827,413)
Purchase of Intellimedia Commerce, Inc. stock - (850,000)
----------- ------------
Net cash used in investing activities (8,672,320) (11,825,847)
----------- ------------
Cash flows from financing activities:
Repurchases of common stock - (160,000)
Proceeds from exercise of stock options 287,385 29,090
Proceeds from dividend reinvestment
and stock purchase plan 2,932 3,088
----------- ------------
Net cash provided by (used in) financing activities 290,317 (127,822)
----------- ------------
Net increase in cash 1,867,219 501,080
Cash at beginning of period 1,947,249 1,228,461
----------- ------------
Cash at end of period $ 3,814,468 $ 1,729,541
=========== ============
Supplemental disclosure of cash paid (received) during the
period for income taxes $ 64,188 $ (4,503,977)
=========== ============
See accompanying notes to condensed consolidated financial statements.
7
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 31, 1997
A. Basis of Presentation
---------------------
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 1996 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
------------------------------------------------------
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
-----------
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
- ---------------------
For the quarter ended January 31, 1997, revenues totaled $21,566,946, up 24%
from $17,372,474 in the corresponding quarter of fiscal 1996. Revenues for the
nine months ended January 31, 1997 totaled $59,642,421, comparable to
$59,738,386 in the prior year period.
Software license fees were 81% higher than the third quarter of fiscal 1996 and
7% higher for the nine month period ended January 31, 1997 compared to the prior
year. License fee revenues for the fiscal 1997 third quarter increased over the
same period a year ago due primarily to sales of the Company's newer products
and to the relicensing of year 2000 enabled mainframe products. The Company's
ability to grow license fee revenues in the near term will depend primarily on
its ability to maintain sales of its mainframe and midrange products while it
grows its client server business.
Services revenues were 8% higher than the corresponding quarter a year ago and
1% lower on a year to date basis. Services revenues from outsourcing/network
services and the Company's internet commerce activities increased while its
consulting and software customization revenues declined. The most significant
factor contributing to the decline in consulting and software customization
services revenues was the continued decline in older technology software sales.
Sales of those products, largely mainframe software, typically have generated
higher services revenues from both implementation consulting and customization
than have the newer generation products. In the near term, services revenues
are expected to be bolstered by increasing activity related to assisting
customers enable their installed software to operate up to and beyond the year
2000.
Maintenance revenues were comparable to third quarter 1996 and are down 6% for
the current nine months compared to fiscal 1996. The trend for maintenance
revenues is improving. During the quarter ended January 31, 1997, maintenance
revenues increased on a quarter to quarter basis for the second quarter in a
row. Increased numbers of customers using the Company's mainframe and midrange
software are renewing their maintenance agreements at higher rates due primarily
to available upgrades to the year 2000 enabled software. This apparent trend,
as well as new customers signing up for maintenance, caused the sequential
quarter increases. The Company expects this trend to continue in the near term
as the year 2000 approaches.
The cost of revenues for license fees increased 8% compared to the third quarter
of fiscal 1996 and decreased 18% for the nine months ended January 31, 1997. The
quarterly increase was primarily due to a decrease in the amount of costs
deferred for capitalized software compared to the third quarter of fiscal 1996.
The year to date decrease versus 1996 was due to personnel attrition and lower
amortization expense from capitalized computer software development costs as a
result of the write-off of certain older technology products in the fourth
quarter of fiscal 1996. Services costs increased 6% versus the same quarter a
year ago and increased 7% for the nine months ended January 31, 1997 due to
increased outsourcing activities. In addition, maintenance costs increased 2%
compared to the year ago third quarter, and remained flat for the nine months
ended January 31, 1997 compared to the nine months ended January 31, 1996 due to
increased maintenance activities during the fiscal 1997 quarter.
9
Research and development expenditures decreased 32% as compared to the third
quarter of fiscal 1996 and decreased 19% for the nine months ended January 31,
1997, with a 38% and 17% decrease respectively in the amount of these
expenditures that were capitalizable. During the current fiscal year the Company
has made generally available the following products: Flow Manufacturing,
Warehouse P&RO, the Oracle version of Supply Chain Planning, as well as various
upgrades to existing products. The completion of these development projects
caused the decrease in research and development compared to the corresponding
periods of fiscal 1996.
Marketing and sales expense increased 13% compared to the third quarter of
fiscal 1996 and increased 1% for the nine months ended January 31, 1997,
compared to the prior year period. The Company has increased its sales and
marketing efforts commensurate with the rollout of its new products as well as
to increase awareness of its existing products.
General and administrative expenses decreased 9% for the quarter and decreased
10% for the nine month period over the same periods in fiscal 1996. These
expenses decreased in several categories due to management's continued attention
to cost control.
Other income decreased 43% for the quarter and decreased 46% for the nine months
over the same periods in fiscal 1996. The decrease was primarily due to fewer
gains in the portfolios and to having fewer funds invested this year versus last
year. Additionally, the Company wrote-off certain investments during the
quarter totaling approximately $270,000 which contributed to the decrease
relative to comparable periods in the prior fiscal year.
The effective tax rate was 20% compared to a benefit of 40% in the third quarter
of fiscal 1996 and increased to 49% compared to a benefit of 106% for the nine
months ended January 31, 1996.
FINANCIAL CONDITION
- -------------------
The Company's operating activities provided cash of approximately $10.2 million
for the nine months ended January 31, 1997 and approximately $12.4 million in
the prior year period. This decrease of approximately $2.2 million occurred
while the Company had net earnings of $387,084 for the nine months ended January
31, 1997 and $1,062 for the prior year period. The primary reasons for this
decrease are: 1) The Company received less proceeds from the sale and maturity
of investments in the nine months ended January 31, 1997 compared to the prior
year period and 2) accounts receivable increased at January 31, 1997 as compared
to the prior year period.
Cash used for investing activities was approximately $8.7 million for the nine
months ended January 31, 1997 and approximately $11.8 million in the prior year
period. Comparing these two periods, capitalized software development costs
decreased approximately $1.5 million and property and equipment decreased
approximately $760,000 as between the nine months ended January 31, 1997 and
1996.
Cash provided by financing activities was approximately $290,000 for the nine
months ended January 31, 1997 and cash used by financing activities was
approximately $128,000 in the prior year period. The increase in cash provided
10
between these two periods was due primarily to the increase in employee stock
option exercises during the nine months ended January 31, 1997.
The Company's consolidated balance sheet remains strong with a current ratio of
1.8 to 1. Liquidity also remains strong with cash and short-term investments
totaling 24% 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.
IMPORTANT CONSIDERATIONS REGARDING FORWARD-LOOKING STATEMENTS
- -------------------------------------------------------------
It should be noted that this discussion contains forward-looking statements,
which are subject to substantial risks and uncertainties. There are a number of
factors which could cause actual results to differ materially from those
anticipated by statements made herein. Such factors include changes in general
economic conditions, the growth rate of the market for the Company's products
and services, the timely availability and market acceptance of these products
and services, the effect of competitive products and pricing, and the irregular
pattern of revenues, as well as a number of other risk factors which could
effect the future performance of the Company. In most cases, the impact of
these factors cannot be predicted with any degree of accuracy.
11
PART II OTHER INFORMATION
- -------
Item 1. Legal Proceedings
- ------- -----------------
On December 18, 1996, the Company agreed to settlement terms with The
McKinely Group, Inc. ("McKinley") with respect to a lawsuit brought by
the Company against McKinley in the United State District Court for the
Northern District of Georgia. Such action, together with counterclaims
asserted against the Company, was dismissed with prejudice on January 3.
1997. This litigation previously was reported in the Company's report on
Form 10-K for the year ended April 30, 1995. Management of the Company
are satisfied with the terms of such settlement, which are subject to an
agreement of confidentiality.
Item 2. Changes in Securities
- ------- ---------------------
Not applicable
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable
Item 5. Other Information
- ------- -----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(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, 1997.
12
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.
AMERICAN SOFTWARE, INC.
DATE March 14, 1997 /s/James C. Edenfield
--------------------------- ----------------------------------------
James C. Edenfield
President, Chief Executive Officer
and Treasurer
DATE March 14, 1997 /s/Peter W. Pamplin
--------------------------- ----------------------------------------
Peter W. Pamplin
Chief Accounting Officer
13
EXHIBIT INDEX
-------------
Exhibit Page
------- ----
11 Statement re: computation of Per Share Earnings (Loss) 15
14