1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
(mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S employer
incorporation or organization) identification number)
100 CROSBY DRIVE, BEDFORD MASSACHUSETTS 01730
(Address of principal executive offices, including zip code)
(781) 280-2000
(Registrant's telephone number, including area code)
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
--------- ---------
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 21,822,004 shares of common stock, $.01 par value per share,
as of July 31, 2000.
1
2
PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) as of
June 30, 2000 and September 30, 3 1999. 3
Consolidated Statements of Operations (unaudited)
for the three and nine months ended June 30, 2000 and 1999. 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended June 30, 2000 and 1999. 5
Notes to Consolidated Financial Statements (unaudited). 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURE 32
2
3
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
JUNE 30, SEPTEMBER 30,
2000 1999
-------- -------------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 31,187 $ 59,903
Marketable securities 9,925 30,920
Accounts receivable, trade, less allowance
for doubtful accounts of $3,288 at
June 30, 2000 and $2,867 at
September 30, 1999, respectively 45,759 38,736
Prepaid expenses and other assets 8,549 5,090
Deferred income taxes 2,436 2,017
-------- --------
Total current assets 97,856 136,666
-------- --------
Marketable securities 1,562 7,413
Property and equipment, net 13,448 12,055
Intangible assets, net 54,023 1,509
Other assets 2,273 406
Deferred income taxes 2,237 984
-------- --------
Total assets $171,399 $159,033
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,966 $ 12,172
Accrued compensation 5,901 8,429
Income taxes payable 3,657 4,227
Deferred revenue 20,572 16,580
Deferred income taxes 903 187
-------- --------
Total current liabilities 41,999 41,595
-------- --------
Deferred rent 121 146
Deferred revenue 212 92
Commitments and contingencies
Equity in minority interest -- 44
Stockholders' equity
Preferred stock, $.01 par value; 1,000
authorized, none issued and outstanding
Common stock, $.01 par value; 50,000
authorized; 21,822 and 21,302 issued at
June 30, 2000 and September 30, 1999,
respectively 218 213
Additional paid-in capital 73,448 67,418
Retained earnings 54,883 50,210
Accumulated other comprehensive income 518 (685)
-------- --------
Total stockholders' equity 129,067 117,156
-------- --------
Total liabilities and stockholders' equity $171,399 $159,033
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
3
4
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Software $ 21,238 $ 15,605 $ 55,619 $ 43,481
Support and services 24,055 20,820 69,281 59,771
--------- --------- --------- ---------
Total revenues 45,293 36,425 124,900 103,252
--------- --------- --------- ---------
Cost of revenues:
Software 2,680 1,034 4,184 3,694
Support and services 13,142 10,661 37,842 29,944
--------- --------- --------- ---------
Total cost of revenues 15,822 11,695 42,026 33,638
--------- --------- --------- ---------
Gross margin 29,471 24,730 82,874 69,614
Operating expenses:
Sales and marketing 17,261 11,725 46,949 31,924
Product development 5,630 3,700 15,647 10,804
General and administrative 4,060 2,866 10,629 8,248
Goodwill amortization and other intangibles 3,125 99 4,426 315
--------- --------- --------- ---------
Total operating expenses 30,076 18,390 77,651 51,291
--------- --------- --------- ---------
(Loss)income from operations (605) 6,340 5,223 18,323
Interest income 384 685 2,703 2,012
Interest expense (10) (1) (111) (25)
Other income (expense), net (232) (277) (609) (528)
--------- --------- --------- ---------
(Loss)income before income taxes (463) 6,747 7,206 19,782
(Benefit)/provision for income taxes (177) 2,269 2,533 6,724
--------- --------- --------- ---------
Net (loss)/ income $ (286) $ 4,478 $ $ 13,058
========= ========= ========= =========
Net (loss)/ income per share, basic $ (0.01) $ 0.22 $ 0.22 $ 0.64
--------- --------- --------- ---------
Net (loss)/ income per share, diluted $ (0.01) $ 0.21 $ 0.20 $ 0.63
--------- --------- --------- ---------
Shares used to calculate net (loss)/income per share
Basic 21,811 20,546 21,632 20,206
Diluted 21,811 21,033 22,898 20,697
The accompanying notes are an integral part of the consolidated financial
statements.
4
5
PROJECT SOFTWARE & DEVELOPMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
----------------- -----------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 4,673 $ 13,058
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,874 3,308
Gain on sale and disposal of property
and equipment 50 22
Amortization of discount on marketable securities 108 142
Deferred rent (25) 12
Deferred income taxes (1,898) 55
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable (7,486) (8,003)
Prepaid expenses (3,221) (1,902)
Other assets (1,119) (1,074)
Accounts payable and accrued expenses 883 2,666
Accrued compensation (2,830) (821)
Income taxes payable (453) 37
Deferred revenue 4,309 4,350
-------- --------
Net cash (used in)/ provided by operating activities (1,135) 11,850
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (55,558) 141
Acquisitions of property and equipment and other
capital expenditures (6,798) (3,641)
Purchase of marketable securities (51,929) (33,934)
Sale of marketable securities 81,000 32,827
-------- --------
Net cash used in investing activities (33,285) (4,607)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net of issuance costs -- 13,554
Proceeds from exercise of stock options 6,035 1,195
-------- --------
Net cash provided by financing activities 6,035 14,749
-------- --------
Effect of exchange rate changes on cash (331) (376)
-------- --------
Net (decrease)/ increase in cash and cash equivalents (28,716) 21,616
Cash and cash equivalents, beginning of period 59,903 28,454
-------- --------
Cash and cash equivalents, end of period $ 31,187 $ 50,070
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
5
6
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Project Software & Development, Inc. ("PSDI") and its majority-owned
subsidiaries (collectively, the "Company"), as of June 30, 2000 and have been
prepared by the Company in accordance with generally accepted accounting
principles for interim reporting and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All intercompany accounts and transactions have
been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. The results of operations for the periods
presented herein are not necessarily indicative of the results of operations to
be expected for the entire fiscal year, which ends on September 30, 2000, or for
any other future period.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended September
30, 1999 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on December 29, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. INCOME/(LOSS) PER SHARE
Basic income/(loss) per share is computed by dividing income or loss available
to common shareholders by the weighted average number of common shares
outstanding. Diluted income/(loss) per share is computed by dividing income or
loss available to common shareholders by the weighted average common shares
outstanding plus dilutive potential common shares. For purposes of this
calculation, stock options are considered dilutive potential common shares in
periods in which they have a dilutive effect.
6
7
Basic and diluted income/(loss) per share are calculated as follows:
(in thousands, except per share data)
THREE MONTHS ENDED
BASIC EPS 06/30/00 06/30/99
- -------------------------------------------------------------------------------
Net(loss)/income $ (286) $ 4,478
Weighted average common
Shares outstanding 21,811 20,546
Basic (loss)/income per share $ (0.01) $ 0.22
DILUTED EPS
- -------------------------------------------------------------------------------
Net(loss)/income $ (286) $ 4,478
Weighted average common
Shares outstanding 21,811 20,546
Dilutive potential
Common shares (1) -- 487
-------- --------
Total diluted shares 21,811 21,033
Diluted (loss)/income per share $ (0.01) $ 0.21
(1) Common stock equivalents are not included because they are anti-dilutive.
NINE MONTHS ENDED
BASIC EPS 06/30/00 06/30/99
- -------------------------------------------------------------------------------
Net income $ 4,673 $ 13,058
Weighted average common
Shares outstanding 21,632 20,206
Basic income per share $ 0.22 $ 0.64
DILUTED EPS
- --------------------------------------------------------------------------------
Net income $ 4,673 $ 13,058
Weighted average common
Shares outstanding 21,632 20,206
Dilutive potential
Common shares 1,266 491
-------- --------
Total diluted shares 22,898 20,697
Diluted income per share $ 0.20 $ 0.63
C. ACQUISITIONS
On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a
leading provider of MRO ("Maintenance, Repair and Operations") content
management tools and cataloging services. The acquisition, recorded under the
purchase method of accounting, included the purchase of the outstanding shares
of common stock of INTERMAT, Inc. for $55.1 million in cash plus acquisition
costs of $1.3 million. A
7
8
portion of the purchase price has been allocated to
assets acquired and liabilities assumed based on the estimated fair market value
at the date of acquisition, while the remaining balance of $54.2 million was
recorded as goodwill and other intangible assets. Goodwill of $47.7 million is
being amortized over a period of 5 years on a straight-line basis. Other
intangible assets of $6.5 million are being amortized over a period of 3 to 5
years on a straight-line basis.
The following reflects unaudited proforma combined results of PSDI and Intermat,
Inc. as if the acquisition had taken place at the beginning of fiscal year 2000
and fiscal year 1999:
(in thousands)
NINE NINE
MONTHS MONTHS
06/30/00 06/30/99
(UNAUDITED) (UNAUDITED)
----------- -----------
REVENUE:
PSDI $124,900 $103,252
INTERMAT $ 3,629 $ 7,409
-------- --------
Combined $128,529 $110,661
-------- --------
NET INCOME:
PSDI $ 4,673 $ 13,058
INTERMAT $ (204) $ 661
Amortization
of Goodwill and other intangible
assets $ (8,139) $ (8,139)
-------- --------
Combined $ (3,670) $ 5,580
-------- --------
Basic (loss)/ income per share
$ (0.17) $ 0.28
Diluted (loss)/
income per share $ (0.16) $ 0.27
On June 29, 2000, the Company completed the acquisition of the MAXIMO(TM)
reseller business unit of MIPS Information, Productivity and Systems, Limited in
Brazil. The acquisition, recorded under the purchase method of accounting,
included the purchase of certain assets and assumed liabilities for the purchase
price of $1.3 million plus acquisition expenses of
8
9
$100 thousand. The goodwill of $1.4 million is being amortized on a
straight-line basis over a period of five years.
D. INTANGIBLE ASSETS
Intangible assets consist of the following:
JUNE 30, SEPT. 30,
(in thousands) 2000 1999
-------- ---------
Goodwill . . . . . . . . . . . . $51,645 $ 2,687
Other intangible assets . . . . . 8,304 511
------- --------
$59,949 $ 3,198
Less accumulated amortization . . (5,926) (1,689)
------- --------
$54,023 $ 1,509
======= ========
Amortization expense was $4.4 million and $315 thousand for the nine months
ended June 30, 2000 and 1999, respectively.
E. COMPREHENSIVE INCOME
The following table reflects the components of comprehensive income:
(in thousands)
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
Net(loss)/income $ (286) $4,478
------ ------
Other comprehensive income,
net of tax:
Unrealized gain/(loss) on
Securities arising during
Period 1,516 (88)
Foreign currency translation
Adjustment 44 (28)
------ ------
Comprehensive income $1,274 $4,362
------ ------
9
10
NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
Net income $4,673 $13,058
------ -------
Other comprehensive income,
net of tax:
Unrealized gain/(loss) on
Securities arising during
Period 1,522 (105)
Foreign currency translation
Adjustment (319) (404)
------ -------
Comprehensive income $5,876 $12,549
------ -------
F. SEGMENT INFORMATION, GEOGRAPHIC DATA AND MAJOR CUSTOMERS:
The Company has identified two reportable industry segments: the development,
marketing and support of asset maintenance management software (MAXIMO) and the
development, marketing and support of e-commerce software products and the
related network services (MRO.COM(TM)). Asset information by reportable segment
is not reported, since the Company does not produce such information internally.
The Company also manages these segments across geographic reportable segments:
United States, Other Americas (Canada and Latin America), Europe/Middle East and
Africa, and Asia Pacific. All segments are managed by the same board of
directors and executive officers.
A summary of the Company's operations by segment was as follows:
THREE MONTHS ENDED
JUNE 30,
(in thousands) 2000 1999
---- ----
Revenues:
Asset maintenance software and
services. . . . . . . . . . . . . . . . $ 35,728 $ 35,379
Internet e-commerce software and
services. . . . . . . . . . . . . . . . 9,565 1,046
-------- --------
$ 45,293 $ 36,425
(Loss)/income from operations:
Asset maintenance software and
Services. . . . . . . . . . . . . . . . $ 9,803 $ 8,591
Internet e-commerce software and
Services. . . . . . . . . . . . . . . . (10,408) (2,251)
-------- --------
$ (605) $ 6,340
-------- --------
10
11
NINE MONTHS ENDED
JUNE 30,
(in thousands) 2000 1999
---- ----
Revenues:
Asset maintenance software and
Services. . . . . . . . . . . . . . . . $103,503 $ 98,980
Internet e-commerce software and
Services. . . . . . . . . . . . . . . . 21,397 4,272
-------- --------
$124,900 $103,252
Income from operations:
Asset maintenance software and
Services. . . . . . . . . . . . . . . . $ 23,020 $ 21,545
Internet e-commerce software and
Services. . . . . . . . . . . . . . . . (17,797) (3,222)
-------- --------
$ 5,223 $ 18,323
--------- --------
A summary of the Company's operations by geographical area was as follows:
THREE MONTHS ENDED
JUNE 30,
(in thousands) 2000 1999
---- ----
Revenues:
United States . . . . . . . . . . . . $ 28,134 $ 19,976
Other Americas . . . . . . . . . . . . 3,989 2,459
Intercompany revenues . . . . . . . . . 691 3,300
-------- --------
$ 32,814 $ 25,735
Europe/Middle East and Africa . . . . . $ 9,362 $ 11,078
Asia/Pacific . . . . . . . . . . . . . 3,808 2,912
Consolidating eliminations . . . . . . (691) (3,300)
-------- --------
$ 45,293 $ 36,425
-------- --------
NINE MONTHS ENDED
JUNE 30,
(in thousands) 2000 1999
---- ----
Revenues:
United States . . . . . . . . . . . . $ 76,321 $ 53,850
Other Americas . . . . . . . . . . . . 9,350 7,070
Intercompany revenues . . . . . . . . . 2,792 11,859
-------- --------
$ 88,463 $ 72,779
Europe/Middle East and Africa . . . . . $ 31,038 $ 33,951
Asia/Pacific . . . . . . . . . . . . . 8,191 8,381
Consolidating eliminations . . . . . . (2,792) (11,859)
-------- --------
$124,900 $103,252
-------- --------
11
12
The Company has subsidiaries in foreign countries, which sell the Company's
products and services in their respective geographic areas. Intercompany
revenues primarily represent shipments of software to international subsidiaries
and are eliminated from consolidated revenues. Income (loss) from operations
excludes interest income, interest expense, provision for income taxes and
transaction/translation gains and losses.
G. ACCOUNTING STANDARDS
On December 3, 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101, as amended, summarizes some of the staff's
interpretations of the application of generally accepted accounting principles
to revenue recognition. All registrants are expected to apply the accounting and
disclosure requirements that are described in SAB 101 by the fourth quarter of
their fiscal year beginning after December 15, 1999. The Company is in the
process of evaluating the impact of this interpretation on its future financial
statements.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 to certain issues including: the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for the exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions in FIN 44 are applicable retroactively to specific
events occurring after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
12
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements identified by footnotes in the text. The
forward-looking statements are subject to substantial risks and uncertainties
that could cause actual results to differ materially from those reflected in
such forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed in the section entitled
"Factors Affecting Future Performance". Readers should carefully review the risk
factors described in other documents that the Company files from time to time
with the Securities and Exchange Commission, including those set forth under the
heading "Factors Affecting Future Performance" in the Annual Report on Form 10-K
filed by the Company on December 29, 1999.
OVERVIEW
The Company develops, markets and supports business-to-business Maintenance,
Repair, and Operations ("MRO") e-commerce systems and enterprise asset
maintenance software ("MAXIMO"). Businesses, government agencies, and other
organizations use the Company's MAXIMO product across their enterprise to assist
in the management of their high-value capital assets, such as plants,
facilities, and production equipment, to cut inventories and supply chain costs,
control maintenance expenses, reduce downtime, and more effectively deploy
productive assets, personnel and other resources. The Company complements its
MAXIMO enterprise asset maintenance software with its MRO.COM(TM) brand
Internet-based business-to-business marketplace technology. MRO.COM(TM) offers a
marketplace for MRO buyers and suppliers and a suite of online procurement
software products that improve purchasing efficiency. The Company also offers
Internet-based content management tools and cataloging services developed and
marketed by it's Intermat, Inc. subsidiary. The Company's revenues are derived
primarily from two sources: (i) software licenses and (ii) fees for services,
including support contracts, training and consulting services and commerce fees
for on-line charges to engage in electronic commerce for Maintenance, Repair and
Operations.
ACQUISITIONS
On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a
leading provider of MRO content management tools and cataloging services. The
acquisition, recorded under the purchase method of accounting, included the
purchase of the outstanding shares of common stock of INTERMAT, Inc. for $55.1
million in cash plus acquisition costs of $1.3 million. A
13
14
portion of the purchase price has been allocated to assets acquired and
liabilities assumed based on the estimated fair market value at the date of
acquisition while the remaining balance of $54.2 million was recorded as
goodwill and other intangible assets. Goodwill of $47.7 million is being
amortized over a period of 5 years on a straight-line basis. Other intangible
assets of $6.5 million are being amortized over a period of three to five years
on a straight-line basis.
On June 29, 2000, the Company completed the acquisition of the MAXIMO(TM)
reseller business unit of MIPS Information, Productivity and Systems, Limited in
Brazil. The acquisition, recorded under the purchase method of accounting,
included the purchase of certain assets and assumed liabilities for the purchase
price of $1.3 million plus acquisition expenses of $100 thousand. The goodwill
of $1.4 million is being amortized on a straight-line basis over a period of
five years.
RESULTS OF OPERATIONS
REVENUES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99
- -----------------------------------------------------------------------------------------------------------------
Software licenses $21,238 36% $15,605 $55,619 28% $43,481
Percentage of total 47% 43% 45% 42%
revenues
Support and services $24,055 16% $20,820 $69,281 16% $59,771
Percentage of total of revenues 53% 57% 55% 58%
Total revenues $45,293 24% $36,425 $124,900 21% $103,252
MAXIMO asset maintenance software and services revenues for the current quarter
increased by 2% to $35.3 million compared to $34.7 million for the same period
in the prior year. Year to date MAXIMO asset maintenance software and services
revenues increased by 6% to $102.1 million compared to $96.6 million for the
same period in the prior year.
E-commerce software products and services revenues for the current quarter
increased by 815% to $9.6 million compared to $1.0 million for the same period
in the prior year. Year to date e-commerce software products and services
revenues increased by 398% to $21.4 million compared to $4.3 million for the
same period in the prior year. During the three months ended June 30, 2000, the
Company had one significant license deal for MRO supplier content management
tools for approximately $2.8 million. In addition, during the nine months ended
June 30, 2000, the
14
15
Company also had a significant license agreement for MRO supplier content
management tools for approximately $4.4 million.
Revenues from sales outside the United States increased by 5% to $17.2 million
or 38% of total revenues for the current quarter compared to $16.4 million or
45% of total revenues for the same period in the prior year. Year to date
revenues from sales outside the United States decreased by 2% to $48.6 million
or 39% of total revenues compared to $49.4 million or 48% of total revenues for
the same period in the prior year. The year to date decrease in revenues
occurred primarily in the European region due to stagnant market conditions.
Total software licenses increased 36% for the current quarter compared to the
same period in the prior year, and increased 28% year to date compared to the
same period in the prior year. MAXIMO asset maintenance software license revenue
for the current quarter increased by 4% to $15.3 million compared to $14.7
million for same period in the prior year. Year to date MAXIMO asset maintenance
software license revenues increased slightly to $39.4 million compared to $39.3
million for the same period in the prior year. E-commerce software license
revenue for the current quarter increased 668% to $5.9 million compared to $768
thousand for the same period in the prior year. Year to date E-commerce software
license revenue increased 360% to $16.1 million compared to $3.5 million for the
corresponding period in 1999. The increases are attributable to two significant
license agreements for e-commerce software consisting of a $2.8 million license
in the current quarter and one $4.4 million in the previous quarter, as well as,
an increase in the number of MRO.COM(TM) licenses sold.
Support and services revenues increased for the current quarter compared to the
same period in the prior year, as well as, year to date compared to the same
period in the prior year. Consulting services grew by 8% over the same period in
the prior year's quarter and by 11% year to date. E-commerce services
represented 23% of service revenues compared to 1% of service revenues for the
prior year quarter. Year to date e-commerce services revenues represented 11% of
services revenues compared to 17% of services revenues for the prior year
quarter. The Company is making significant investments in its e-commerce
services organization and has reallocated some of its MAXIMO resources to focus
on the e-commerce side of its business. Support services grew to 28% over the
same period in the prior year's quarter and 24% year to date. The increase is
related to the sequential increases in software license revenues and the high
renewal rate for MAXIMO maintenance contracts.
15
16
COST OF REVENUES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99
- ------------------------------------------------------------------------------------------------------------------
Software licenses $ 2,680 159% $1,034 $4,184 13% $3,694
Percentage of software licenses 13% 7% 8% 8%
Support and services $13,142 23% $10,661 $37,842 26% $29,944
Percentage of support and services 55% 51% 55% 50%
Total cost of revenues $15,822 35% $11,695 $42,026 25% $33,638
Percentage of total revenues 35% 32% 34% 33%
Cost of software licenses revenues consists of software purchased for resale,
royalties paid to vendors of third party software, the amortization of
capitalized software, the cost of software product packaging and media, and
certain employee costs related to software duplication, packaging and shipping.
The increase in the cost of software licenses revenues was due primarily to an
increase in royalties paid to third-party vendors and a one-time cost for
software purchased for resale.
Cost of support and services consists primarily of personnel costs for employees
and the related costs of benefits and facilities. The increase in the cost of
support and services for the three months ended June 30, 2000 over the prior
year's period was attributable to the hiring of employees for the Company's
support and services organization. The increase in the cost of support and
services for the nine months ended June 30, 2000 over the prior year's period
was attributable to the hiring of employees for the Company's support and
services organization and the use of third-party consultants contracted to
perform services for the Company. The Company utilizes the services of these
higher cost third-party consultants in order to meet demand for its services and
backlog. The increase as a percentage of revenues for the three months ended
June 30, 2000 over the prior year's period is attributable to expenses incurred
to hire and train new personnel. The increase as a percentage of revenues for
the nine months ended June 30, 2000 over the prior year's period is attributable
to low utilization of services personnel during the first quarter of the fiscal
year related to year 2000 factors, a European services meeting held in the first
quarter of fiscal 2000 and expenses related to the costs incurred to grow the
MRO.com, Inc. consulting services organization. The Company
16
17
is making and will continue to make significant investments in its services
organization to build up MRO expertise.(1)
OPERATING EXPENSES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99
- -----------------------------------------------------------------------------------------------------------------
Sales and marketing $17,261 47% $11,725 $46,949 47% $31,924
Percentage of total revenues 38% 32% 38% 31%
Product development $5,630 52% $ 3,700 $15,647 45% $10,804
Percentage of total revenues 12% 10% 13% 10%
General and administrative $4,060 42% $2,866 $10,629 29% $8,248
Percentage of total revenues 9% 8% 9% 8%
Goodwill amortization $3,125 306% $99 $4,426 131% $315
Percentage of total revenues 7% --- 4% ----
The increase in sales and marketing expenses was due to increases in sales,
sales support and marketing personnel primarily for the MRO.COM (TM)
organization, sales commissions, marketing research and telemarketing expenses
and higher travel costs. The Company has made and will continue to make
significant investments in the MRO.COM(TM) sales and marketing organization.(1)
The increase in product development expenses was primarily due to the hiring of
additional employees to further enhance and develop MRO.COM(TM) products and
cost of third-party research and development consultants. There were no
internally developed software costs capitalized in fiscal year 1999 or fiscal
2000.
The Company intends to continue to make investments in electronic commerce
products for MRO supply chain management. (1) The Company will also continue to
invest in Java applications for its MAXIMO enterprise asset maintenance
product.(1)
The increase in general and administrative expenses was primarily due to the
hiring of additional personnel and related benefits, as well as, other expenses
to support the global expansion of the Company. The current quarter also
included a provision for bad debt to cover Asian receivables. The days sales
outstanding were within the Company's targeted range of 90 to 95 days for the
quarter ended June 30, 2000.
- -----------------------------
(1) Forward looking statement
17
18
NON-OPERATING EXPENSES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 6/30/00 % 6/30/99 6/30/00 % 6/30/99
- -----------------------------------------------------------------------------------------------------------------
Interest income $384 (44)% $685 $2,703 34% $2,012
Interest (expense) $(10) 900% $(1) $ (111) 344% $ (25)
Other income (expense) $(232) (16)% $(277) $ (609) 15% $ (528)
Interest income is attributable to interest earned on marketable securities and
cash equivalents. The Company liquidated a portion of its marketable securities
in order to complete the purchase of INTERMAT, Inc. and has thus earned less
interest income due to the decrease in investments. The Company may decide to
make further investments in marketable securities in the future. (1)
The decrease in other expense for the current quarter compared to the same
period in the prior year was primarily attributable to foreign currency
translation gains offset by translation losses. The increase in other expense
year to date compared to the same period in the prior year is due to foreign
currency translation losses. To date, the Company has not engaged in currency
hedging transactions.
PROVISION FOR INCOME TAXES
The Company's effective tax rates were 38% and 34% for the three months ended
June 30, 2000 and 1999, respectively, and 35% and 34% for the nine months ended
June 30, 2000 and 1999, respectively. The increase in the effective tax rate
benefit is attributable to current realization of net operating loss carry
forwards and the deferred tax benefit provided on research credits and net
operating loss carry forwards. The Company anticipates that its fiscal 2000
effective tax rate will not exceed 36%.(1)
- -----------------------------
(1) Forward looking statement
18
19
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and cash equivalents and marketable
securities of $42.7 million and working capital of $55.9 million. Cash used in
operations for the nine months ended June 30, 2000 was $1.1 million, primarily
attributable to an increase in receivables and prepaid expenses, and a decrease
in accounts payable, offset by income generated for the year, increases in
deferred revenues and a decrease in accrued compensation.
Cash used in investing activities for the nine months ended June 30, 2000
totaled $33.3 million, primarily due to the liquidation of a portion of its
marketable securities in order to complete the purchase of INTERMAT, Inc. in the
quarter ended March 31, 2000.
Cash provided by financing activities for the nine months ending June 30, 2000
was $6.0 million, resulting from proceeds received from exercises of employee
stock options.
As of June 30, 2000, the Company's principal commitments consist primarily of
office leases for its U.S. and European headquarters. Under the terms of the
U.S. lease agreement, upon termination of the lease, the Company has the right
to extend the lease for an additional six year term for an agreed upon fixed
cost. The Company leases its facilities and certain equipment under
non-cancelable operating lease agreements that expire at various dates through
September 2006.
The Company may use a portion of its cash to acquire additional businesses,
products and technologies complementary to its business. (1) The Company also
plans to make investments over the next year in its new MRO.COM(TM) e-commerce
products and to develop content and add suppliers to WWW.MRO.COM, its
e-commerce hub.
The Company believes that its current cash balances and marketable securities
combined with cash flow from operations will be sufficient to meet its working
capital and capital expenditure requirements through at least June 30, 2001.(1)
- -----------------------------
(1) Forward looking statement
19
20
FACTORS AFFECTING FUTURE PERFORMANCE
The nature of forward-looking information is that such information involves
significant assumptions, risks and uncertainties. Certain public documents of
the Company and oral statements made by authorized officers, directors,
employees, agents and representatives of the Company, acting on its behalf, may
include forward-looking information which will be influenced by the following
and other assumptions, risks and uncertainties. Forward-looking information
requires management of the Company to make assumptions, estimates, forecasts and
projections regarding the Company's future results as well as the future
effectiveness of the Company's strategic plans and future operational decisions.
Forward-looking statements made by or on behalf of the Company are subject to
the risk that the forecasts, projections, and expectations of management, or
assumptions underlying such forecasts, projections and expectations, may become
inaccurate. Accordingly, actual results and the Company's implementation of its
plans and operations may differ materially from forward-looking statements made
by or on behalf of the Company. The following discussion identifies certain
important factors that could affect the Company's actual results and actions and
could cause such results and actions to differ materially from any
forward-looking statements made by or on behalf of the Company that related to
such results and actions.
Other factors, which are not identified herein, including those described in the
Company's most recent annual report on Form 10-K under the heading "Factors
Affecting Future Performance" could also have such an effect.
RAPID TECHNOLOGICAL CHANGE
The computer software industry is characterized by rapid technological advances,
changes in customer requirements and frequent product introductions and
enhancements. The Company's success depends upon its ability to continue to
enhance its current products and to develop and introduce new products that keep
pace with technological developments, respond to evolving customer requirements
and achieve market acceptance. In particular, the Company believes that it must
continue to respond quickly to users' needs for broad functionality and to
advances in hardware and operating systems. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness and revenues. There can be no
assurance that the Company will be successful in developing and marketing new
products or product enhancements, or that the Company will not experience
significant delays in developing such new products or product enhancements. Such
delays could have a material adverse effect on the Company's results of
operations. In addition, there can be no assurance that new products and product
20
21
enhancements developed by the Company will achieve market acceptance.
DEPENDENCE ON MAXIMO
The Company's revenues are primarily attributable to the licensing of its MAXIMO
client/server product, introduced in 1991, and to related services and support.
Revenues from licenses of MAXIMO and related services and support accounted for
approximately 94% of the Company's total revenues in 1999. The Company's
financial performance in 2000 depends largely on continued market acceptance of
MAXIMO. The Company believes that continued market acceptance of MAXIMO will
largely depend on its ability to enhance and broaden the capabilities of MAXIMO
by among other things, developing additional application modules for MAXIMO and
by developing and incorporating into the MAXIMO product technologies that are
emerging in connection with the Internet. Any factor adversely affecting sales
of MAXIMO, such as delays in development, significant software flaws,
incompatibility with significant hardware platforms, operating systems or
databases, increased competition or negative evaluations of MAXIMO, would have a
material adverse effect on the Company's business and financial results.
NEW PRODUCTS; NEW MARKETS
In the second quarter of fiscal 1999, the Company formed a new wholly-owned
subsidiary, MRO.com, Inc. The Company's MRO.COM(TM) brand Internet-based
business-to-business marketplace technology and business-to-business marketplace
offers buyers and suppliers a suite of online procurement software products that
improve purchasing efficiency. In the second quarter of fiscal 2000, the Company
purchased Intermat, Inc., which offers customers Internet-based content
management tools and cataloging services.
There can be no assurance that the Company's MRO.COM(TM) products will be sold
successfully in the business-to-business electronic commerce market or that the
Company's MRO.COM(TM) products will achieve market acceptance. There is also no
assurance that the Company can create a large enough community of sellers and
buyers.
The Company's future success in the electronic commerce market may depend on its
ability to accurately determine the functionality and features required by its
customers, as well as the ability to enhance its MRO.COM(TM) products and
deliver them in a timely manner.
The Internet procurement market is a nascent market that may undergo rapid
technological change. The Company cannot predict the present and future size of
the potential market for its MRO.COM(TM) products and services. The Company may
incur substantial costs to enhance and modify its MRO.COM(TM) products
21
22
and services in order to meet the demands of this growing and changing market.
The Company's MRO.COM(TM) product segment is not yet profitable and may not be
profitable for sometime, if ever.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has experienced, and may in the future experience, significant
period-to-period fluctuations in revenues and operating results. The Company's
revenues and income from operations typically grow at a lower rate or decline in
the first quarter of each fiscal year, compared to the fourth quarter of the
preceding fiscal year. In addition, revenues are typically higher in the fourth
quarter than in other quarters of the year. The Company believes that these
quarterly patterns are partly attributable to the Company's sales commission
policies, which compensate members of the Company's direct sales force for
meeting or exceeding annual quotas. In addition, the Company's quarterly
revenues and operating results have fluctuated historically due to the number
and timing of product introductions and enhancements, the budgeting and
purchasing cycles of customers, the timing of product shipments and the timing
of marketing and product development expenditures. The Company typically
realizes a significant portion of its revenue from sales of software licenses in
the last two weeks of a quarter, frequently even in the last days of a quarter.
Large software license contracts may have a significant impact on revenues for
any quarter and could, therefore, result in significant fluctuations in
quarterly revenues and operating results. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company generally ships its products upon receipt of orders and maintains no
significant product backlog. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. A delay in or loss of orders can cause significant variations in
operating results. A significant portion of the Company's operating expenses are
fixed in the short term, and planned expenditures are based primarily on sales
forecasts. Accordingly, if revenues do not meet the Company's expectations in
any given quarter, operating results may be materially adversely affected.
COMPETITION
The market for applications software is intensely competitive and rapidly
changing. While the Company believes that it has competed effectively to date,
competition in its industry is likely to intensify as current competitors expand
their product lines and new companies enter the market. To remain successful in
the future, the Company must respond promptly and effectively
22
23
to the challenges of technological change, evolving standards and its
competitors' innovations by continually enhancing its own products, services and
support offerings, as well as its marketing programs. There can be no assurance
that the Company will continue to be able to compete successfully in the future.
The market for asset maintenance software is fragmented by geography, by
hardware platform and by industry orientation, and is characterized by a large
number of competitors including both independent software vendors and certain
enterprise resource planning vendors. Independent software vendors include
Datastream, Inc. and Indus Group. MAXIMO also competes with integrated
enterprise resource planning systems which are provided by several large
vendors, such as SAP and JD Edwards and others, and which include maintenance
modules. Currently, the Company's client/server versions of MAXIMO compete with
products of a number of large vendors some of which have traditionally provided
maintenance software running on mainframes and minicomputers and are now
offering systems for use in the client/server environment. MAXIMO also
encounters competition from vendors of low cost maintenance management systems
designed initially for use by a single user or limited number of users as
vendors of these products upgrade their functionality to enter the client/server
market.
The Company's MRO supply chain management business using the Internet has many
diverse competitors offering a wide range of differing products, services and
technologies. The Company expects competition to intensify as current
competitors expand their product offerings and new competitors enter the market.
In addition, the market for electronic procurement solutions is relatively new
and underdeveloped. While the Company believes that electronic commerce products
and technologies complement the Company's existing products, there can be no
assurance that the Company will be able to compete successfully in this market.
Many of the Company's enterprise asset management competitors are also entering
the MRO e-commerce market. The current potential competitors in the MRO
e-commerce market include Clarus, Commerce One, Concur, Connect, Peregrine, IBM,
Intellisys, Microsoft, Netscape, Oracle, PeopleSoft, SAP and others.
Certain of the Company's competitors have greater financial, marketing, service
and support and technological resources than the Company. To the extent that
such competitors increase their focus on the asset maintenance or planning and
cost systems markets, or on the supply chain management business, the Company
could be at a competitive disadvantage.
INTERNATIONAL OPERATIONS
A significant portion of the Company's total revenues are derived from
operations outside the United States. The Company derived 46.4%, 45.7%, and
43.8% of its total revenue from sales outside the United States in fiscal years
1999, 1998, and 1997,
23
24
respectively. The Company continues to invest in international infrastructure,
global product functionality and translated versions of financial and other
software products. In the event international expansion and/or product
globalization efforts are not successful, the Company's business operating
results and financial condition may be adversely affected. This international
business is subject to various risks common to international activities,
including exposure to currency fluctuations, greater difficulty in collecting
accounts receivable, political and economic instability, the greater difficulty
of administering business abroad and the need to comply with a wide variety of
foreign import and United States export laws and regulatory requirements.
A significant portion of the Company's total revenue is derived from
international operations that are conducted in foreign currencies. Changes in
the values of these foreign currencies relative to the United States dollar have
in the past adversely affected, and may in the future affect, the Company's
results of operations and financial position. Gains and losses on translation to
United States dollars and settlement of receivables from international
subsidiaries may contribute to fluctuations in the Company's results of
operations. To date, the Company has not engaged in currency hedging
transactions. The Company may in the future undertake currency hedging, although
there can be no assurance that hedging transactions, if entered into, would
materially reduce the effects of fluctuations in foreign currency exchange rates
on the Company's results of operations.
DEPENDENCE ON THIRD PARTIES
The client/server versions of MAXIMO operate with the Oracle, SQLServer, and
SQLBase database management systems. Introduction and increased market
acceptance of database management systems with which the Company's products do
not operate could adversely affect the market for the Company's products.
The Company has entered into nonexclusive license agreements with, among others,
Brio Technologies, Inc., Broadvision Incorporated, Centura Software Corporation,
Cognos Corporation, Netronic Software GmbH, Intelligent Labeling Technologies,
Incorporated, Verity Software, and webMethods, Inc. pursuant to which the
Company incorporates into its products software providing certain application
development, user interface, business intelligence, content and graphics
capabilities developed by these companies. If the Company were unable to renew
these licenses, or if any of such vendors were to become unable to support and
enhance its products, the Company could be required to devote additional
resources to the enhancement and support of these products or to acquire or
develop software providing equivalent capabilities, which could cause delays in
the development and introduction of products incorporating such capabilities.
24
25
The MRO.com, Inc.'s business operations are dependent on third party data
centers, which could be destroyed or damaged. MRO.com, Inc.'s operations are
dependent upon the ability to protect computer equipment and the information
stored in these third party data centers against damage that may be caused by
natural disasters, fire, power loss, telecommunication or Internet failures,
unauthorized intrusions, computer viruses and other similar damaging events. The
Company cannot assure that any of these damaging events would not result in a
prolonged outage of the Company's network services or that the Company would not
experience a reduction of revenues, which could have a material adverse effect
on our business and financial results.
PRODUCT DEVELOPMENT: INTERNET
The Company has developed a Java-based component architect software application
to incorporate into the MAXIMO product technologies emerging in conjunction with
the Internet. Internet technologies and applications generally are developing
and gaining acceptance rapidly in the market. MRO supply chain management using
electronic commerce is a nascent market with many standards and technologies
remaining to be developed. Accordingly, developing technologies pose risks to
the Company. The Company believes that electronic commerce products and
technologies complement the Company's enterprise asset management products.
There can be no assurance that the Company will successfully anticipate trends
in this market, that the Company will be successful in Internet technology
development or acquisition efforts or that the Company's Internet applications,
if developed, will achieve market acceptance.
INTERNET RELATED RISKS
If Internet usage continues to grow rapidly, its infrastructure may not be able
to support customer and user demands and its performance and reliability may
decline. If outages, delays, or viruses on the Internet occur frequently or
increase in frequency, overall Internet usage including usage of the Company's
products and services could grow more slowly or decline. The Company is
dependent upon improvements being made to the entire Internet as well as to
particular customers' networking infrastructures to alleviate overloading and
congestion. If these improvements are not made, the ability of the Company's
customers to utilize the Company's solution will be hindered, and the Company's
business, operating results and financial condition may suffer.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is dependent upon proprietary technology. The Company
currently has no patents and protects its technology primarily through
copyrights, trademarks, trade secrets and employee and third party nondisclosure
agreements. The Company's software products are sometimes licensed to customers
under
25
26
"shrink wrap" licenses included as part of the product packaging. Although, in
larger sales, the Company's shrink-wrap licenses may be accompanied by
specifically negotiated agreements signed by the licensee, in many cases its
shrink-wrap licenses are not negotiated with or signed by individual licensees.
Certain provisions of the Company's shrink-wrap licenses, including provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed program, may be unenforceable under the laws of certain jurisdictions.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States. There
can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or development by others of similar technology. Although the Company
believes that its products and technology do not infringe on any valid claim of
any patent or any other proprietary rights of others, there can be no assurance
that third parties will not assert infringement claims in the future. Litigation
may be necessary to enforce the Company's intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could potentially have a material adverse result on our operating
results and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on certain key executive officers and technical
employees, the loss of one or more of whom could have an adverse impact on the
future operations of the Company. The Company does not have employment contracts
with, and does not maintain key person life insurance policies on, any
personnel. The Company continues to hire a significant number of additional
sales, services and technical personnel. Competition for hiring of such
personnel in the software industry is intense, and the Company from time to time
experiences difficulty in locating candidates with the appropriate
qualifications within the desired geographic locations, or with certain industry
specific domain expertise. It is widely believed that the technology industry is
at or beyond a condition of full employment. There can be no assurance that the
Company will be able to retain its existing personnel or attract additional
qualified employees.
CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS
As part of its overall strategy, the Company plans to continue to acquire or
invest in complementary companies, products, or technologies and to enter into
joint ventures and strategic alliances with other companies. There can be no
assurance that the Company will be successful in overcoming the risks associated
or problems encountered in connection with such business
26
27
combinations, investments, or joint ventures, or that such transactions will not
materially adversely affect the Company's business, financial condition, or
operating results.
POSSIBLE CONTINUED VOLATILITY OF STOCK PRICE
Fiscal 1999 and 2000 was marked by significant fluctuations in the market price
of the common stock, par value $.01 per share, of the Company (the "Common
Stock"). Factors such as announcements of technological innovations or new
products by the Company, its competitors and other third parties, as well as
quarterly variations in the Company's results of operations and market
conditions in the industry, may cause the market price of the Common Stock to
continue to fluctuate significantly. In addition, the stock market in general
has recently experienced substantial price and volume fluctuations, which have
particularly affected the market prices of many software and e-commerce
companies and which have often been unrelated to the operating performance of
such companies. These broad market fluctuations also may adversely affect the
market price of the common stock.
LITIGATION RISKS
The Company is subject to the normal risks of litigation with respect to its
business operation.
NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS
The Company has no obligation to release publicly any revision or update to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
27
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposures to market risk are the effect of fluctuations in
interest rates earned on its cash equivalents and marketable securities.
At June 30, 2000, the Company held $42.7 million in cash equivalents and
marketable securities consisting of taxable and tax exempt municipal securities.
Cash equivalents are classified as available for sale and valued at amortized
cost, which approximates fair market value. A hypothetical 10 percent increase
in interest rates would not have a material impact on the fair market value of
these instruments due to their short maturity.
28
29
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Company held a Special Meeting in Lieu of the Annual Meeting of
stockholders on April 25, 2000. At the Special Meeting the stockholders of
the Company voted to approve the following actions:
1. To elect Robert L. Daniels and John A. McMullen as Class I Directors
of the Company for a term of three years.
NUMBER OF SHARES/VOTED
------------------------------
FOR AUTHORITY WITHHELD
--- ------------------
Robert L. Daniels 18,120,537 146,542
John A. McMullen 18,157,307 109,772
2. To approve the Company's Amended and Restated 1999 Equity Incentive
Plan.
NUMBER OF SHARES/VOTED
----------------------
For 17,006,265
Against 1,233,946
Abstain 26,868
3. To approve the proposal to ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent accountants.
NUMBER OF SHARES/VOTED
----------------------
For 18,246,947
Against 15,527
Abstain 7,605
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Organization of the Company (included
as Exhibit 3.3 to the Company's Registration Statement on Form S-1,
File No. 0.23852, and incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, File No. 0-23852 and incorporated herein by reference)
29
30
3.3 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (which is attached
as Exhibit A to the Rights Agreement included as Exhibit 4(b) to the
Company's Current Report on Form 8-K dated February 2, 1998, File No.
0-23852, and incorporated herein by reference)
3.4 Amendment to Articles of Organization adopted on December 15, 1999
(included as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999, File No. 0-23852, and incorporated
herein by reference)
4. Instruments defining the Rights of Security Holders, Including
Indentures
4.1 Specimen certificate for the Common Stock of the Company (included as
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of Organization of the
Company (included as Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-76420, and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between Project Software
& Development, Inc. and BankBoston, N.A. as Rights Agent (included as
Exhibit 4 (a) to the Company's Current Report on Form 8-K dated February 2,
1998, File No. 0-23852, and incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (included as
Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2,
1998, File No. 0-23852, and incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and
incorporated herein by reference)
10. Material Contracts
10.1 Fiscal Year 2000 Executive Bonus Plan
10.2 Amended and Restated 1999 Equity Incentive Plan
30
31
27. Financial Data Schedule
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K/A on May 15, 2000 to amend a
Form 8-K filed on March 16, 2000, related to its acquisition of all of
the outstanding capital stock of INTERMAT, Inc. from Strategic
Distribution, Inc.
31
32
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.
PROJECT SOFTWARE & DEVELOPMENT, INC.
Date: AUGUST 14, 2000 By: /s/ Carole A. Tyner
--------------------------------------
Carole A. Tyner
Authorized Officer
Vice President Finance
(Principal Accounting Officer)
32
33
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
3.1 Amended and Restated Articles of Organization of the Company
(included as Exhibit 3.3 to the Company's Registration Statement
on Form S-1, File No. 0-23852 and incorporated herein by
reference)
3.2 Restated By-Laws of the Company, as amended (included as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996 File No. 0-23852 and
incorporated herein by reference)
3.3 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Project Software &
Development, Inc. (which is attached As Exhibit A to the
Rights Agreement included as Exhibit 4 (b) to the
Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852, and incorporated herein by reference)
3.4 Amendment to Articles of Organization adopted on December 15,
1999 (included as Exhibit 3.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1999, File No.
0-23852, and incorporated herein by reference)
4.1 Specimen certificate for the Common Stock of the Company
(included as Exhibit 4.1 to the Company's Registration Statement
on Form S-1, Registration No. 33-76420, and incorporated herein
by reference)
4.2 Article 4B of the Amended and Restated Articles of Organization
of the Company (included as Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-76420,
and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between Project
Software & Development, Inc. and BankBoston, N.A. as Rights Agent
(included as Exhibit 4 (a) to the Company's Current Report on
Form 8-K dated February 2, 1998, File No.0-23852, and
incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Project Software & Development,
Inc. (included as Exhibit 4 (b) to the Company's Current Report
on Form 8-K dated February 2, 1998, File No. 0-23852, and
incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the
Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852, and incorporated herein by reference)
10.1 Fiscal Year 2000 Executive Bonus Plan
10.2 Amended and Restated 1999 Equity Incentive Plan
27.1 Financial Data Schedule