EXHIBIT 1
Geac Annual Report
2003
Transformation. Change. Revitalization.
"BY ALLOWING OUR CUSTOMERS TO BUY WHAT THEY NEED, WHEN THEY NEED IT, AND
INTEGRATE NEW MODULES RAPIDLY AND WITH LOW RISK INTO THEIR EXISTING SYSTEMS, WE
ARE HELPING THEM BOOST THE PERFORMANCE OF THEIR BUSINESS."
-- Charles Jones, Chief Executive Officer
TO OUR SHAREHOLDERS:
Fiscal 2003 represented another year of change at Geac as we continue to make
progress along the road to rejuvenating the Company, despite continuing global
challenges for everyone in the information technology industry. We are pleased
with Geac's progress in this difficult economic and political climate, but there
is much yet to do. We are also encouraged by our customers' response as we
continue to execute on our strategy of transforming Geac into a leading,
growth-oriented software company focused on Business Performance Management. We
are committed to helping our customers derive maximum value from their existing
IT systems today and in the future through an array of high-value front-office
applications. And we note that new license revenue in the fourth quarter grew
slightly over both the third quarter of Fiscal 2003 and the fourth quarter of
Fiscal 2002.
Fiscal 2003, we enjoyed our second consecutive year of profitability. We
strengthened our balance sheet; increased our cash position, including
restricted cash, by $11.5 million, to $132.2 million after incurring $33.7
million on the purchase prices of Extensity and EBC Informatique; and we
improved our gross profit margin and operating income margin despite a decline
in sales of $92.8 million. We have been focused on serving our customers and on
slowing the loss of customers on annual maintenance contracts. Additionally, we
are working hard to show customers that it is in their interests to spend more
with us on new value-added applications and services that leverage their
existing investments.
Change will be a continuous process for Geac. We have more to do to accomplish
our goal of producing solid revenue growth while maintaining the Company's
earnings and cash flow performance, and are confident that this goal is
achievable. We made progress this year in implementing our strategy of
acquiring, developing and partnering for applications that are designed to
reduce cost and improve business processes for our customers. We have endeavored
to build strong customer relationships through the release of new product
enhancements and product features and the addition of new employee facing
applications that extend the functionality of our existing back office
accounting and operational systems.
Behind these accomplishments are the efforts of an exceptional group of
managers, some of whom joined the company during the past fiscal year. The new
management team joins existing team members to bring more than 100 years of
combined software company operating experience with such companies as IBM, Terra
Lycos, Texas Instruments, Harbinger, Sterling Software, The Learning Company,
and Platinum Technology.
This team, together with our other talented senior managers and our more than
2,500 employees, is responsible for the global implementation of our Business
Performance Management strategy, which delivers solutions to our customers that
help improve business performance at every level, whether in the form of major
new software applications, leveraging new technologies such as XML, Java, .Net,
Linux and Web services, or enabling enhanced functionality.
Geac powers the accounting back offices of thousands of today's leading
organizations around the world. Many customers rely on us every day for
business-critical financial and operational transaction processing. These
business processes involve everyday accounting, payroll, HR and manufacturing
operations. Our long-term vision is to turn these ordinary business processes to
extraordinary advantage through software solutions. Our mission is to deliver a
suite of innovative software applications that measure and manage operational
and financial processes and improve overall business performance. Our strategy
is to deliver these best in class new products and extend existing functionality
through a combination of internal product development, an aggressive program
focused on acquisitions in contiguous markets, and partnerships with
industry-leading software providers, such as IBM, Microsoft, Business Objects,
Lombardi, Information Builders and FRx Software. This strategy is designed to
extend and improve returns for our customers by providing innovative
functionality without the significant costs, risks and timetable associated with
installing an entirely new system. Customer expectations have changed and
technology has advanced -- so today, with innovation, there is no reason why a
customer cannot leverage the reliable, safe, secure and often cost effective IBM
zSeries or iSeries computing platforms with Linux and Web services, rather than
make wholesale changes in underlying computing platforms. Geac is supporting its
customers with an Application Integration Framework that supports Web services.
We believe that our "build, buy, partner" strategy developed in conjunction with
our customer requirements is the fastest and best way to help customers improve
overall business performance and, in so doing, to build new sources of revenue
for the Company. To support this strategy, the Company has made significant
investments during the past year in a number of product development initiatives
related to each of these three growth approaches. Leveraging Geac's
approximately 450 software developers around the world, our goal was to deliver
a series of new products and application modules all designed to drive
efficiency, productivity and, ultimately, business performance of the
enterprise. Some examples of these efforts include the Extensity integration,
System21 Aurora, Linux for IBM zSeries, Business Process Management, and new
Active Access modules.
System21 Aurora was officially launched to the European user community in April
of this year, and subsequently in North America as well. This solution combines
next-generation enterprise resource planning functionality with real-time
process management capabilities. It has already received a positive customer
response and generated new software license and service revenue for the Company.
This represents the largest investment in System21 in five years.
As many of you know, we successfully completed the acquisition of Extensity on
March 6 of this year. With the acquisition complete, 139 former Extensity
employees have been integrated into the Geac organization. We are maintaining a
development center in Emeryville, California, which provides us with a west
coast presence in the U.S. to better serve our existing and prospective
customers in the region. And, our integrated development team is focused on the
design and engineering of several new product offerings that will complement our
existing financial applications. This acquisition resulted in the licensing of
Geac travel and expense software to both new and existing customers in the
fourth quarter.
In addition, on June 23, 2003, we announced our intent to acquire Comshare, Inc.
This announcement demonstrates Geac's continued commitment to its Business
Performance Management strategy through the addition of new front office
applications that can be cross-sold to our 5,000 enterprise customers as well as
to new customers.
Our commitment to entering into partnerships with companies that provide
emerging and innovative technologies is demonstrated by our new partnership with
Lombardi Software. This partnership is part of our overall strategy to deliver
Business Process Management solutions to our customers. It features a best in
class solution for optimizing and managing processes in a business from end to
end. We already have developed and are in the process of selling this solution
integrated with our existing back office systems.
These actions are showing encouraging results. We have licensed products to both
existing and new customers, and we are gaining on our goal to satisfy customer
requirements with the best solutions. This is just the beginning of the new
Geac, executing throughout the organization on "Performance at Every Level." The
management team and Board believe strongly that Geac is a different company than
it was even a year ago, and it will be a different company in the next year. We
are focused on a growth strategy based on true Business Performance Management
that links both operational and financial processes with critical performance
management solutions. We have identified a business path and a technology
direction that preserves the integrity of existing enterprise applications while
delivering added value through improved business performance utilizing Geac's
new applications. And, through a collaborative and
cooperative global effort, we strive to set the standard for best practices in
everything we do as we serve approximately 18,000 customers around the globe.
These are critical steps. We are building the strength to reinvent ourselves
into what our customers require of us, and we are committed to delivering
performance at every level to the global marketplace.
We take some measured pride that this transformational change has occurred
without sacrificing profitability, even as we operate in a more competitive
marketplace, and with less revenue. We have, for your benefit, improved
operating margins while spending on new products, better management and new
enterprises, all to continue to build on the baseline of profitability
established last year as we turn a substantial company into a great company in
the years ahead.
We ask you to join us in thanking our more than 2,500 loyal employees in 60
offices in 22 countries for their continued dedication and hard work. We are
grateful for our customers' confidence in Geac. And we thank you, our
shareholders, for your continuing support as we transform Geac into a leading
growth-oriented software company serving markets throughout the world to build
shareholder value.
On behalf of our Team,
Sincerely,
CHARLES S. JONES
President & Chief Executive Officer
July 21, 2003
MANAGEMENT TEAM
CHARLES S. JONES
President and Chief Executive Officer
HEMA ANGANU
Treasurer
ARTHUR GITAJN
Chief Financial Officer
JOYCE KOENIG
Vice President, Strategic Financial Analysis
BERTRAND SCIARD
Managing Director, Europe and Asia Pacific
JOHN L. SHERRY III
Senior Vice President,
Marketing and Strategic Alliances
CRAIG C. THORBURN
Senior Vice President, Mergers & Acquisitions,
and Corporate Secretary
JAMES M. TRAVERS
Senior Vice President and President,
Geac Americas
TIMOTHY J. WRIGHT
Chief Technology Officer
& Chief Information Officer
DONNA DE WINTER
Vice President and Corporate Controller
JEFFREY SNIDER
Senior Vice President and General Counsel
BOARD OF DIRECTORS
C. KENT JESPERSEN
Chairman of the Board,
Geac Computer Corporation Limited
CHARLES S. JONES
President and Chief Executive Officer,
Geac Computer Corporation Limited
THOMAS I. A. ALLEN, Q. C.
Senior Partner, Ogilvy Renault
DAVID FRIEND
Chairman, Sonexis, Inc.
PIERRE MACDONALD
Chairman and Chief Executive Officer,
MacD Consult Inc.
MICHAEL D. MARVIN
Founder and Chairman Emeritus, MapInfo Corporation
WILLIAM G. NELSON
Private Investor
ROBERT L. SILLCOX
Chairman, Quant Investment Strategies Inc.
BOARD COMMITTEES
Audit Committee
ROBERT L. SILLCOX
Committee Chairman
Chairman, Quant Investment Strategies Inc.
Former Chief Investment Officer of Ontario Municipal Employees Retirement System
Advisor to State Street Global Advisors (Canada)
Director, Bank of China (Canada)
Director, Glenmount International, L.P.
Director, HelpCaster Technologies Inc.
Committee Members
Thomas I. A. Allen, Q.C.
C. Kent Jespersen
Pierre MacDonald
William G. Nelson
"An important role your independent Audit Committee performs is the quarterly
review of the Company's consolidated financial statements together with the
notes thereto and management's discussion and analysis (MD&A). These reports to
shareholders are accurate reflections of what has transpired to affect your
Company during the period under review. Each member of the Audit Committee is
committed to their individual responsibility to ensure the Company provides
accurate, timely, and full disclosure to the public."
Corporate Governance Committee
THOMAS I. A. ALLEN, Q.C.
Committee Chairman
Senior Partner, Ogilvy Renault
Chairman, Accounting Standards Oversight Council of Canada
Advisory Board member, Office of the Superintendent of Financial Institutions of
Canada
Chairman, Westwind Capital Corporation
Director, Bema Gold Corporation
Director, YM Biosciences Inc.
Director, Middlefield Bancorp Limited
Committee Members
William G. Nelson
Robert L. Sillcox
"The focus of the Corporate Governance Committee is to ensure that systems are
in place, and utilized, to generate an optimum flow of accurate information to
Management and to the Board. Particular efforts are being directed to ensuring
that Geac is well positioned to comply with new legislated and policy
requirements in Canada and in the United States."
Human Resources and Compensation Committee
PIERRE MACDONALD
Committee Chairman
Chairman and Chief Executive Officer, MacD Consult Inc.
Chairman, Eurocopter Canada Ltd.
Vice Chairman, Export Development Canada
Director, Aeterna Laboratories Inc.
Director, AIM Funds Management Inc.
Director, Slater Steel Inc.
Committee Members
C. Kent Jespersen
Michael D. Marvin
"The principal role of the Human Resources and Compensation Committee is to
ensure that Geac attracts and retains the best executive management team
possible and that corporate policies regarding human resources are in place and
observed. Going forward, we will place increased emphasis on the development of
management and client concentric skills required today in a growth-oriented
software company."
BUSINESS PERFORMANCE MANAGEMENT
Enabler of Change, Serving Evolving Needs
Richard Smith, General Manager, Geac System21
Marylon McGinnis, Senior Vice President, Development and Support
Dedicated to meeting and anticipating changing customer needs, Geac's Business
Performance Management strategy drives the Company's development efforts and
represents a significant move to provide greater value to customers today and in
the future.
Geac Business Performance Management solutions help create today's responsive
businesses -- businesses that are able to manage and react effectively to a
variety of operational changes, challenges and opportunities. Our software
solutions are globally regarded as secure, reliable and flexible; they deliver
high return at low risk. Our offerings provide enterprises with greater control
and access to data, as well as the tools to improve enterprise processes and
business performance in real time. In this way, Geac solutions represent an
extraordinary step forward for customer organizations as they continue to
address and manage change.
We understand our customers' businesses, and our strong heritage in enterprise
software allows us to match new products and services to their existing and
future needs. We have more than 2,500 experienced professionals globally with
expertise in the industries that matter most to our customers, and the
operational and leadership skills to ensure their continued success.
More importantly, we have a strategy for our customers' future and a vision that
is based squarely on their changing needs: we are delivering a complete
portfolio of operational and financial management solutions, allowing customers
to incrementally build out their existing infrastructure for improved business
performance. Geac is developing, acquiring and partnering to complement our core
suite of enterprise applications with strategic value-added applications like
travel and expense reporting, time and attendance and procurement. We're also
integrating analytics and performance management tools to help organizations
increase visibility into their data and optimize fundamental business processes.
And, to ensure universal access to data and the utmost ease-of-use, we're
building intuitive Web-based interfaces to link these new front-office
applications to back-office systems to help our customers collaborate more
effectively.
Improving Process Driving Growth
Michael Slipsager, General Manager, Geac Runtime
NEW BALANCE
New Balance knows the importance of being "fast on its feet." A US $1.4 billion
manufacturer of athletic footwear and apparel worldwide, New Balance has grown
rapidly in an increasingly competitive market. In order to remain competitive
and improve its operational efficiency, New Balance has turned to Geac since
1995 to provide an integrated information technology infrastructure across North
America and Europe.
Geac System21 Style is specifically engineered for multinational organizations
in the fashion and apparel industries -- like New Balance -- with complex
sourcing, supply chain and accounting needs, often distributed across various
countries and legal entities. Using Geac System21 Style, New Balance has been
able to increase inventory control, improve customer service and realize
significant operational cost savings. Specifically, the solution has met the
company's need for automated monthly reporting, integrated sourcing across
multiple warehouses, and increased collaboration and efficiency with suppliers,
all of which are critical due to the highly seasonal nature of the business.
In 2003, New Balance upgraded to the latest version of Geac System21 and is
utilizing Geac inter.connect to integrate its Geac and non-Geac applications.
Additionally, New Balance has begun implementing Geac's SellIT RunTime solution
to streamline and manage the entire sales force and improve customer service.
This solution, chosen for its superior integration and customization
capabilities, is expected to go live during the summer of 2003.
Is Your Business Extraordinary?
Elizabeth Ireland, Senior Vice President, Marketing, Geac Americas
Gary Dohnt, General Manager, Local Government
In today's performance- and change-driven landscape, ordinary businesses often
fall short. Companies must strive to offer their customers an extraordinary
experience. At Geac, we are doing just that. Geac turns ordinary businesses into
extraordinary ones through software.
We provide business-critical transaction processing to power the back offices of
thousands of today's leading organizations. For global companies and smaller
regional businesses alike, we turn customers' ordinary business processes to
extraordinary advantage through a combination of partnerships, strategic
acquisitions, and internal research and development. The end result is
best-in-class solutions that provide significant value and tangible benefit to
our approximately 18,000 customers around the world. We have introduced and will
continue to develop an array of front-office applications to complement our core
back-office solutions and help customers enhance their performance at every
level.
Our solutions form the heart of our customers' financial and operational systems
and include a complete suite of software that enables them to automate business
processes, measure and manage financial assets and improve overall performance
across the enterprise. Specifically, our solutions help organizations handle
such essential business functions as finance and accounting, travel expense
management, human resources, payroll, procurement, budgeting and forecasting,
reporting, production planning, customer service, supply chain management and
project management.
As a provider of core business-critical software solutions, companies around the
world depend on Geac every day. While our customers may vary greatly in terms of
size, geography and business focus, our solutions all serve a common purpose: to
help organizations turn their ordinary business processes to extraordinary
advantage.
Our software solutions and services give organizations the ability to Automate,
Measure and Improve for better business performance.
1. AUTOMATE: We automate and drive costs out of business processes, while
leveraging existing technology.
2. MEASURE: We help measure the impact of changed processes and enable
continual optimization of process through business intelligence and
benchmarking.
3. IMPROVE: Geac delivers business process management tools to enable
rapid changes and improve overall business performance.
Proven Incremental Modules on Demand
Viviane Ribeiro, General Manager, Geac France
Don Smith, Senior Vice President, Hosted Operations
Global organizations trust Geac's enterprise solutions to measure and manage
their operations. One way that Geac is helping its customers do this is through
an incremental approach to building out their information technology
infrastructures. Our customers tell us the days of the multi-million dollar,
mega-license ERP deals are over. So we have focused over the past year on
providing high-value front-office applications and back-office integration that
enable customers to build out their computing infrastructures incrementally. By
allowing our customers to buy what they need, when they need it, and integrate
new modules rapidly and with low risk into their existing systems, we are
helping them boost the performance of their business. Geac's Application
Integration Framework has been designed to exploit recent advances in Web
services. Our new global integrated development environment has been built to
deliver on the promise of a Services Oriented Architecture (SOA), to give our
customers the ability to extend their existing internal infrastructure without
the significant integration efforts that were required in the past.
Geac's suite of Web-enabled applications delivers information access and control
to a broad range of users. Our Geac Extensity application suite is the first to
allow for cohesive control and analysis of all employee-initiated corporate
spending. Geac Extensity applications allow employees to plan, book and expense
business travel; request vendor payments; capture time for charging to projects
and cost centers; and calculate paid time off and overtime. To enhance overall
financial performance, we also provide advanced business intelligence and
financial reporting capabilities. These value-added offerings help streamline
business processes, increase productivity and improve customer service by
allowing employees, customers and vendors to access and act on critical
information anywhere, anytime, over the Web.
Proven modules on demand, provided at the moment customers need them. This is
just the beginning of our journey at Geac, and during the coming year, we will
continue to deliver these new applications and enhanced functionality.
Reduced Costs, Increased Efficiency
OFFICE DEPOT
After a comprehensive search for a more efficient expense reporting process,
Office Depot made the switch in 2000 to Geac Extensity Expense Reports to
automate the annual processing of more than 120,000 expense reports. Geac
Extensity has delivered all that Office Depot hoped for and more, as it has
effectively provided considerable return on investment through reduced
administration and postage costs. Additionally, employees appreciate the
software's intuitive, Web-enabled interface. As Office Depot continues to
automate its core financial and operational processes, tools like Geac Extensity
will remain an integral part of the company's strategy for growth and
development.
Web-Enabling ERP
LEE MEMORIAL HOSPITAL
Lee Memorial Health System has looked to Geac over the years to provide a stable
IT environment and meet its larger organizational goals. With a stable
environment and solid performance on the back end -- from financials to HR
processes -- Lee Memorial recently decided to Web-enable its Geac system.
Through this Web enablement, Lee Memorial is providing employees, managers and
administrators
throughout the organization with direct access to critical financial and
administrative data, enabling proactive decision making, increased automation
and tighter integration between business processes.
Building a Foundation for e-Government
GOVERNMENT OF BARBADOS
Governments, like private sector companies, are always seeking ways to gain
greater control over, and efficiency in, their financial operations. In the late
1990s, the Government of Barbados began a review of software solutions in hopes
of automating its core financial processes. Now, just six years later, Barbados,
working closely with Geac, has successfully transformed what was a totally
manual financial system into a 95 percent automated system that's providing a
foundation for the country's evolution to e-government.
In 1997, Barbados selected Geac SmartStream to help automate and integrate the
country's financial systems to ensure efficiency and controlled expenditure
management. After successfully implementing the Geac SmartStream suite in the
Ministry of Finance, Barbados soon decided to roll it out to all its other
ministries.
Geac SmartStream has afforded the government centralized budget control and
increased visibility into the flow of funds across the organization. It also has
delivered significant cost and time savings, reducing by half the amount of time
it takes the Government to report financials to Parliament at fiscal year-end.
In 2003, Barbados rolled out the Geac SmartStream Receivable and Billing
solution to further extend the value of its existing systems. As a testament to
the progress it has made with Geac SmartStream, the Government of Barbados
received the Geac Customer Excellence Award at Geac's ALLIANCE2003 user
conference.
True Performance Starts at Every Level
John A. Overholt, Senior Vice President Sales & Services, , Geac Americas
Mark Oney, Senior Vice President, Engineering
Today's business environment demands performance. Performance throughout the
enterprise, and at every level. As a provider of Geac Business Performance
Management solutions, Geac is solving concrete business problems for companies
large and small, and at various levels of the organization. We understand that
organizations face daunting challenges, such as global information access,
operational efficiency, employee productivity and customer responsiveness, and
we specifically tailor our solutions to help our customers achieve their
business goals.
Geac software solutions and services offer customers the ability to automate,
measure and improve for better business performance. We automate and drive costs
out of business processes, while leveraging existing technology; we help
customers measure the impact of changed processes and enable continual
optimization of processes through business intelligence and benchmarking; and we
deliver business process management tools to enable rapid changes.
As a result, Geac customers can increase their overall business efficiency by
improving performance at every level. For example, by streamlining certain
business processes -- e.g. automating three distribution related processes into
one -- a plant manager can now focus on other, more strategic business issues,
such as inventory management or quality assurance. Similarly, by providing
greater transparency into financial processes in real time, a CFO can now
confidently prepare a realistic view of the company's monthly, weekly, or even
hourly performance.
Through an open business performance framework, Geac's applications are easily
integrated with the solutions our customers already have in place -- whether
those systems are from Geac or not. We have been the trusted supplier to many
organizations for more than 30 years, and going forward, we will continue to
partner with our customers for growth and success, taking their businesses
forward and improving performance at every level.
Financial Review
MANAGEMENT DISCUSSION AND ANALYSIS
MANAGEMENT DISCUSSION AND ANALYSIS
The following management discussion and analysis of results of operations and
financial position should be read in conjunction with the financial statements
and notes for the fiscal years (FY) ended April 30, 2003, and April 30, 2002.
This discussion contains certain forward-looking statements based on current
expectations. These forward-looking statements entail various risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements. These risks and uncertainties
include those discussed below in the section entitled "Risks and Uncertainties."
Our financial statements are prepared in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"). All dollar amounts are in
Canadian dollars. As used in this discussion and unless the context otherwise
requires or unless otherwise indicated, all references to "Geac," "we," "our,"
or the "Company" refer to Geac Computer Corporation Limited and its consolidated
subsidiaries.
OVERVIEW
Geac is a global enterprise software company for business performance
management, providing customers worldwide with the core financial and
operational solutions and services to improve their business performance in real
time. Our solutions include cross-industry enterprise application systems (EAS)
for financial administration and human resources functions, expense management,
and time capture, and enterprise resource planning applications for
manufacturing, distribution, and supply chain management. These cross-industry
applications are marketed globally and span a number of product lines. We also
provide industry specific applications (ISA) tailored to the real estate,
restaurant, property management, and construction marketplaces, and for
libraries, and public safety agencies. In addition to our families of software
products, we are a reseller of computer hardware and software, and we provide a
broad range of professional services, including application hosting, consulting,
implementation services, and training. Headquartered in Markham, Ontario,
Canada, Geac employed approximately 2,500 people around the world as of April
30, 2003, compared to approximately 3,000 people as of April 30, 2002.
Geac today has a presence in the financial back offices of many of the largest
companies in the world. These companies rely on Geac software applications for
their financial and operational processing. Our objective is to extend our
relationships with these customers and to attract new customers by delivering a
suite of software solutions that can be integrated with our enterprise
application systems and help our customers improve their business performance.
Our capabilities to achieve this objective have been enhanced by several new
hires in FY 2003. Mr. James M. Travers, a senior technology executive whose
career spans more than 25 years with industry leaders, including Texas
Instruments, Harbinger Corporation, and Agillion, Inc., was appointed Senior
Vice President of Geac Computer Corporation Ltd. and President of Geac Americas,
effective August 6, 2002.
Mr. James J. McDevitt, former chief financial officer at Clarus Corporation,
joined the Company as Vice President and General Manager of the U.S.-based ISA
business units, effective December 16, 2002. Mr. Timothy J. Wright, who
previously managed the global technology organization for Terra Lycos and The
Learning Company, was appointed Chief Technology Officer and Chief Information
Officer effective January 6, 2003; and Mr. John A. Overholt, who served in
software and computer systems sales and sales management positions in a 19-year
career with Texas Instruments and subsequently served as Vice President of North
American Sales for Sterling Software, joined the Company as Senior Vice
President of Enterprise Sales for Geac Americas on January 21, 2003.
We achieved several significant milestones in FY 2003. In view of an expected
decline in revenues from our legacy enterprise and certain industry specific
applications, we continued to manage our costs in line with revenues; and our
fourth quarter ended April 30, 2003, marked our eighth consecutive profitable
quarter, excluding net restructuring and other unusual items. We continued to
strengthen our balance sheet, and our cash position increased from $115.4
million at the end of FY 2002 to $128.8 million at the end of FY 2003. In
addition, with the acquisition of Extensity, Inc. in the fourth quarter and the
release of our new Geac System21 Aurora product, we made significant progress
executing on our strategy to deliver a suite of innovative software solutions
through a unified application framework, which measure and manage operational
and financial processes to improve our customers' overall business performance.
In FY 2003 we completed two acquisitions, the most significant being the
acquisition of California based Extensity, a leading provider of solutions to
automate employee-based financial systems. The acquisition, valued at US$50.3
million (approximately $74.0 million), was completed on March 6, 2003, and was a
significant step in the execution of our strategy to expand into the business
performance management market. The Extensity business has been integrated into
our Enterprise Server business. In addition, effective August 5, 2002, we
acquired the IBM e-Server iSeries software assets, customer agreements, and
employee base of EBC Informatique, a French hardware and software solutions
provider.
The transaction was valued at Euros 2.45 million (approximately $3.76 million).
EBC Informatique's iSeries unit was integrated with our Anael Solutions division
in France. These acquisitions have been accounted for as purchases, and results
for these two businesses are reflected in the EAS segment from the date of
acquisition.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements requires management to make
judgments, estimates, and assumptions that affect the reported amounts of assets
and liabilities, revenues and expenses, and related disclosures. Our estimates
are based upon historical experience and on other assumptions that are believed
to be reasonable under the circumstances. Our ongoing evaluation of these
estimates forms the basis for making judgments about the carrying values of
assets and liabilities and the reported amount of revenues and expenses, in
cases where they are not readily ascertainable from other sources. Actual
results may differ from these estimates under different assumptions.
Our critical accounting policies are those that affect our financial statements
materially and involve a significant level of judgment by management. A summary
of our significant accounting policies, including the critical accounting
policies discussed below, is set forth in note 2 to our consolidated financial
statements. Revenue Recognition. We derive revenues from three sources-
software, support and services, and hardware. Support and services include
software maintenance and support, training, system implementation, and
consulting. Maintenance and support consists of technical support and software
upgrades and enhancements. We resell computer hardware and peripherals primarily
as a service to certain
customers who look to us to provide a complete product solution. Significant
management judgments and estimates are involved in determining the revenue
recognized in any accounting period. Material differences may result in the
amount and timing of our revenue for any period if different conditions were to
prevail. We recognize product revenue when persuasive evidence of an arrangement
exists, the product has been delivered, the fee is fixed and determinable, and
collection of the resulting receivable is probable. In bundled arrangements, we
allocate revenue to each element of the arrangement based upon vendor specific
objective evidence (VSOE). We use a purchase order or a signed contract as
evidence of an arrangement for licenses of software and sales of hardware and
services. Revenues derived through our resellers are evidenced by a master
agreement governing the relationship.
Software is delivered to customers electronically or on a CD-ROM, tape, or
diskette, as appropriate. We assess whether the fee is fixed and determinable
based on the payment terms associated with the transaction. Our standard payment
terms are generally less than 90 days. In instances where payments are subject
to extended payment terms, revenue is deferred until payments become due, which
is generally when the payment is received. We assess collectibility based on a
number of factors, including the customer's past payment history and current
credit-worthiness. If we determine that collection of a fee is not reasonably
assured, we defer the revenue and recognize it at the time collection becomes
reasonably assured, which is generally upon receipt of cash payment.
When licenses are sold together with hardware, consulting, and implementation
services, services revenues are recognized based on percentage of completion.
Our consulting and implementation service contracts are bid either on a
fixed-fee basis or on a time-and-materials basis. For a fixed-fee contract, we
recognize revenue using the percentage of completion method. For
time-and-materials contracts, we recognize revenue as services are performed.
Maintenance and support revenue is recognized ratably over the term of the
maintenance contract. Amounts billed in accordance with customer contracts, but
not yet earned, are recorded as deferred revenue.
Valuation of Identifiable Goodwill and Other Intangible Assets. We account for
our business acquisitions under the purchase method of accounting. The total
cost of an acquisition is allocated to the underlying net assets based on their
respective estimated fair values. As part of this allocation process, we must
identify and attribute values and estimated lives to the intangible assets
acquired. While we may employ experts to assist us with these matters, such
determinations involve considerable judgment, and often involve the use of
significant estimates and assumptions, including those with respect to future
cash inflows and outflows, discount rates, and asset lives. These determinations
will affect the amount of amortization expense recognized in future periods.
We review the carrying values of all identifiable goodwill and other intangible
assets when conditions arise that indicate that any impairment may have
occurred. Examples of these conditions include significant underperformance
relative to historical or expected future operating results, significant changes
in the manner of our use of the acquired assets or our strategy, significant
negative industry or economic trends, or significant decline in our share price
or market capitalization.
Prior to May 1, 2001, we determined impairment by comparing the undiscounted
amount of expected future operating cash flows with the carrying amounts of such
assets. Expected future operating cash flows were based upon our best estimate
given the facts and circumstances at that time. Impairments in the carrying
amount of identifiable intangible assets and goodwill were expensed. Effective
May 1, 2001, we adopted the recommendations of the Canadian Institute of
Chartered Accountants (CICA) Handbook Section 3062, "Goodwill and Other
Intangible Assets." Under the new standard, goodwill and other intangible assets
with an indefinite life are not amortized, but are tested for impairment at
least annually, as well as within six months of adopting the new standard. The
determination of fair value involves
significant management judgment. Impairments in the carrying amounts of
identifiable goodwill and other intangible assets with indefinite lives will be
expensed. As the valuation of identifiable goodwill and other intangible assets
requires significant estimates and judgment about future performance and fair
value, our future results could be affected if our current estimates of future
performance and fair value change.
Accounting for Income Taxes. We operate in multiple jurisdictions, and our
profits are taxed pursuant to the tax laws of these jurisdictions. Our effective
tax rate may be affected by the changes in, or interpretations of, tax laws in
any given jurisdiction, utilization of net operating losses and tax credit carry
forwards, changes in geographical mix of income and expense, and changes in
management's assessment of matters, such as the ability to realize future tax
assets. As a result of these considerations, we must estimate our income taxes
in each of the jurisdictions in which we operate. This process involves
estimating our actual current tax exposure, together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in future tax assets and liabilities, which
are included in our consolidated balance sheet. We must then assess the
likelihood that our future tax assets will be recovered from future taxable
income and establish a valuation allowance for any amounts we believe will not
be recoverable. Establishing or increasing a valuation allowance increases our
income tax expense.
Significant management judgment is required in determining our provision for
income taxes, our income tax assets and liabilities, and any valuation allowance
recorded against our net income tax assets. We recorded a valuation allowance as
at April 30, 2003, due to uncertainties related to our ability to utilize some
of our income tax assets before they expire. The valuation allowance was based
on our estimates of taxable income by jurisdiction in which we operate and the
period over which our income tax assets will be recoverable. In the event that
actual results differ from these estimates or we adjust these estimates in
future periods, we may need to amend our valuation allowance, which could
materially impact our financial position and results of operations.
Effective May 1, 2000, we adopted CICA 3465, which established new standards for
the recognition, measurement, presentation, and disclosure of income taxes. The
new recommendations follow the liability method of accounting for income taxes.
Under this method, current income taxes are recognized for the estimated income
taxes payable for the current year. Future income tax assets and liabilities are
recognized for temporary differences between the tax and accounting bases of
assets and liabilities, as well as for the benefit of losses available to be
carried forward to future years for income tax purposes. Future income tax
assets are recognized only to the extent that, in the opinion of management, it
is more likely than not that the future income tax assets will be realized.
Future income tax assets and liabilities are measured using substantively
enacted income tax rates expected to be recovered or settled. Future income tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of substantive enactment. Prior to the adoption of the new
recommendations, income tax expense had been determined using the deferral
method of income tax allocation. Under this method, deferred income tax expense
was based on items of income and expense that were reported in different years
in the financial statements and tax returns and was measured at the income tax
rate in effect in the year the difference originated.
Restructuring. We have rationalized certain facilities and have established
reserves against outstanding commitments for leased properties that we have
vacated or plan to vacate. These reserves are based upon our estimate of future
events, such as the time required to sublease the property and the amount of
sublease income that might be generated from the date we vacate the property and
the expiration of the lease. These estimates are reviewed based on changes in
circumstances. Adjustments to the restructuring charge will be made in future
periods, if necessary, should different conditions prevail from those
anticipated in our original estimate.
Accounts Receivable. We estimate the collectibility of our accounts receivable,
and we maintain allowances for estimated losses. Management analyzes accounts
receivable, historical bad debts, receivable aging, customer credit-worthiness,
and current economic trends when evaluating the adequacy of the allowance for
doubtful accounts. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances might be required.
RESULTS OF OPERATIONS
Revenue. Revenue for FY 2003 was $623.7 million, compared to $716.5 million for
the preceding year. Software license revenue declined by $8.0 million, or 9.6
percent; support and services revenue declined by $80.2 million, or 13.8
percent; and revenue from the sale of computer hardware declined by $4.7
million, or 9.0 percent. Excluding from FY 2002 results $5.2 million in revenue
attributable to the publishing software business, which was sold on August 9,
2001, and excluding from FY 2003 results $3.4 million in revenue attributable to
the Extensity business, which was acquired on March 6, 2003, total revenue
declined by $91.1 million, or 12.8 percent, from $711.3 million in FY 2002 to
$620.2 million in FY 2003. Compared to FY 2002, currency fluctuations--primarily
attributable to the British Pound Sterling, the U.S. Dollar, and the Euro
against the Canadian Dollar--had the effect of reducing revenues by $19.7
million.
Revenue in the EAS segment was $479.5 million, compared to $531.3 million last
year. Excluding revenue from the Extensity acquisition, EAS segment revenue
declined by $55.2 million, or 10.4 percent, to $476.1 million. EAS software
licenses to new and existing customers, in the amount of $62.1 million, declined
by $0.6 million from the prior year.
A $2.2 million decline in revenue from licenses of client server software
systems, primarily our SmartStream and local government systems, was almost
entirely offset by a $1.6 million increase in revenue from licenses of our E
Series and M Series software systems for mainframe computers. EAS support and
services revenue declined by $49.1 million, or 11.5 percent. Of this $49.1
million decline, EAS maintenance revenue -- primarily contracted support to
customers of our licensed software -- declined by $24.4 million, or 8.4 percent.
This decline, which was in line with our expectations, was due to attrition in
maintenance contract renewals for mainframe ($20.8 million), and client server
applications ($9.2 million), which were partially offset by a $5.6 million
increase in maintenance contract revenues from our System21 software systems,
primarily for mid-range server architectures. Other EAS support and services
revenue -- primarily professional implementation and training services --
declined by $24.7 million, or 18.1 percent. We expect a continuing decline in
EAS maintenance revenue. This decline may be offset, to some extent, if we
experience an increase in professional services revenue in FY 2004, primarily as
a result of the Extensity acquisition. EAS hardware sales revenue declined by
$2.0 million, or 5.1 percent, reflecting a $2.8 million decline in hardware
sales associated with client server applications, which was partially offset by
a $0.8 million increase in mid-range computer hardware sales.
Revenue in the ISA segment was $144.2 million, compared to $185.2 million last
year. Excluding $5.2 million in revenue from the publishing software business,
which was sold in the first quarter of FY 2002, ISA segment revenue declined by
$35.8 million, or 19.9 percent, from $180.0 million in FY 2002 to $144.2 million
in FY 2003. Of this $35.8 million decline, $25.3 million is attributable to the
Interealty business and reflects the continuing effects of a change in the
service and pricing model for the Multiple Listing Service (MLS) application
business, as the internet has supplanted more costly virtual private networks,
significant price pressure and customer losses in the core MLS application
business, and the continuing decline in revenue from the MLS book publishing
business, which was expected. Revenue in other ISA businesses declined by $10.5
million, or 10.0 percent, with declines in software systems serving the
construction ($6.3 million), restaurants ($2.9 million), and property management
($1.7 million)
markets, partially offset by a $0.3 million increase in public safety systems
revenue and a $0.1 million increase in library systems revenue.
Cost of Revenues. Cost of revenues was reduced by $59.5 million, or 18.2
percent, from $326.6 million in FY 2002 to $267.1 million in FY 2003; and gross
profit margin (gross profit as a percentage of total revenues) increased from
54.4 percent in FY 2002 to 57.2 percent in FY 2003. Cost of software license
revenues was reduced by $1.4 million, or 12.2 percent, as lower revenues from
resellers of our industry-specific applications have resulted in lower costs of
reseller software sales. Costs of support and services, which consist primarily
of personnel and related costs, were reduced by $56.1 million, or 20.5 percent;
and support and services margins increased from 53.0 percent to 56.6 percent. In
the fourth quarter of FY 2002 we recorded a $30.6 million pre-tax provision for
costs related to the restructuring of the business, including severance costs,
which were subject to limitations in accordance with Canadian GAAP. Excluding
$2.1 million in severance costs in excess of the amounts that had been accrued
in the fourth quarter of FY 2002, costs of support and services were reduced by
$58.2 million, and support and services margins increased from 53.0 percent to
57.1 percent, primarily as a result of improved professional services
utilization rates. Hardware costs were reduced by $2.0 million, or 4.9 percent;
and hardware margins declined from 19.1 percent to 15.5 percent, primarily as a
result of a low margin $3.1 million hardware sale to a single customer in the
first quarter of FY 2003.
Operating Expenses. Operating expenses were $271.7 million, compared to $302.6
million last year. Excluding net restructuring and other unusual items of $5.2
million and $26.7 million, respectively, goodwill impairment of $16.8 million,
and amortization of intangibles of $1.6 million and $1.7 million, respectively,
operating expenses were reduced by $26.0 million, or 9.5 percent, from $274.1
million in FY 2002 to $248.1 million in FY 2003.
- Sales and marketing expenses were reduced by $3.0 million, or 3.2
percent, primarily as a result of restructuring efforts, and sales and
marketing expenses as a percentage of revenues increased from 13.0
percent in FY 2002 to 14.5 percent in FY 2003. Excluding $1.1 million
in severance costs in excess of the amounts that had been accrued in
the fourth quarter of FY 2002, sales and marketing expenses were
reduced by $4.1 million, or 4.4 percent, and sales and marketing
expenses as a percentage of revenues increased from 13.0 percent in FY
2002 to 14.3 percent in FY 2003. This increase in the percentage of
revenues reflects investments in personnel and related sales and
marketing costs intended to drive increased new license revenue in
certain businesses in the coming year.
- Product development expenses were reduced by $24.5 million, or 26.4
percent, and product development expenses as a percentage of revenues
were reduced from 13.0 percent in FY 2002 to 10.9 percent in FY 2003.
Excluding $1.5 million in severance costs in excess of the amounts
that had been accrued in the fourth quarter of FY 2002, product
development expenses were reduced by $26.0 million, or 28.1 percent,
and product development expenses as a percentage of revenues were
reduced from 13.0 percent to 10.7 percent. This reduction reflects the
maturity of our mainframe back office financial applications, the
completion of major development projects for mid-range and
client-server applications, and the consolidation of Extensity
application development with existing Geac application development.
Product development expenses are projected to increase over the course
of the next year.
- General and administrative expenses increased by $1.5 million, or 1.7
percent; and general and administrative expenses as a percentage of
revenues increased from 12.3 percent in FY 2002 to 14.4 percent in FY
2003. The net $1.5 million increase is attributable to a $2.9 million
reduction in the provision for doubtful accounts in FY 2002; an
increase of $6.2 million in professional fees; an increase of $1.2
million in insurance costs; a $2.6 million adjustment in the second
quarter of FY 2003 to increase the amortization of property, plant,
and equipment to more accurately reflect
the valuation of acquired assets; and $1.6 million in restructuring
costs in excess of the amounts that had been accrued in the fourth
quarter of FY 2002, net of a $13.0 million reduction in other general
and administrative expenses. As a result of the consolidation of back
office finance and accounting operations in North America, which was
completed in FY 2003, and in Europe, which is expected to be completed
by the end of the first quarter of FY 2004, general and administrative
expenses as a percentage of revenues are expected to be reduced over
the course of the next fiscal year.
Net Restructuring and Other Unusual Items. Net restructuring and other unusual
items were $5.2 million in FY 2003, compared to $26.7 million last year. The
$5.2 million in net restructuring and other unusual items in FY 2003 included a
$5.0 million provision for the settlement of legal claims, a $3.5 million
pre-tax provision for premises rationalization, and a $2.8 million charge for
severance relating to the restructuring of our North American operations. The
restructuring of these operations reflects management's decision to consolidate
certain development, sales and marketing, and support and services operations
into similar operations acquired in the Extensity acquisition. These charges
were partially offset by a net $6.1 million reversal of accrued liabilities and
other provisions related to acquisitions and restructuring, which were recorded
in prior years and which were no longer required. This $6.1 million reversal
includes $3.9 million for severance and premises rationalization related to last
year's restructuring of the business, including $2.4 million related to premises
rationalization and $1.5 million for severance costs not required as a result of
changes in the original plan and employee attrition during the year. In
addition, net restructuring and other unusual items reflects a net release of
$2.2 million primarily related to restructuring and acquisition-related
provisions on certain FY 2000 acquisitions, which are no longer required for
their originally intended purposes.
In FY 2002, the $26.7 million in net restructuring and other unusual items
included a $34.8 million pre-tax provision for severance, premises
rationalization and other costs related to the restructuring of the business; a
$5.1 million write-down of assets; a $5.3 million net provision for the
settlement of legal claims, primarily related to our acquisition of JBA Holdings
plc; a $4.6 million charge for strategic planning costs; and a $2.9 million
charge for unamortized financing costs of a credit facility that, in light of
our improved cash position, we terminated in March 2002 to avoid additional
costs. These charges were partially offset by a net $21.0 million reversal of
excess accrued liabilities and other provisions relating to acquisitions and
restructuring, which were recorded in prior years and which were no longer
required, and a $5.1 million pre-tax gain on the sale of the publishing systems
business.
Goodwill Impairment. As previously announced on June 8, 2003, in connection with
the annual review of the carrying value of goodwill, we recorded a $16.8 million
goodwill write-down in the fourth quarter of FY 2003 relating to the Interealty
business, based on revised future estimates of its likely performance. This
represented the full amount of goodwill on our balance sheet for the Interealty
business. This goodwill write-down had the effect of reducing earnings per
diluted share by $0.20 for the fourth quarter of FY 2003 and by $0.21 for the
full year. No goodwill impairment was recorded in FY 2002.
Amortization of Intangible Assets. Amortization of intangible assets, primarily
acquired software, was $1.6 million in FY 2003, compared to $1.7 million in FY
2002.
Interest Income and Expense. Net interest income in FY 2003 was $1.3 million,
compared to net interest expense of $1.6 million in FY 2002. This change
reflects a $2.9 million reduction in interest expense, which was primarily
attributable to the repayment of $39.5 million in bank indebtedness in the
first two quarters of FY 2002.
Other Income (Expense). Other expense of $2.6 million in FY 2003 included a $4.2
million loss on foreign exchange, net of $0.9 million in investment income and a
$0.7 million gain on the sale of fixed assets. Of the total $4.2 million loss on
foreign exchange in FY 2003, $6.2 million was incurred in the fourth quarter and
was partially offset by a gain of $2.0 million through the first three quarters
of FY
2003. Other income of $0.9 million in FY 2002 was composed of a $0.6 million
gain on foreign exchange and a $0.3 million gain on the sale of fixed assets.
Income Taxes. The provision for income taxes was $33.3 million in FY 2003,
compared to $34.1 million in FY 2002. Our effective tax rate for FY 2003 was
39.9 percent. Excluding the effect of goodwill impairment, which is not a tax
deductible expense, our effective tax rate for FY 2003 would have been 33.2
percent, compared to the Canadian statutory rate of 38.0 percent. This lower
effective tax rate is primarily attributable to the utilization of tax losses
not valued in prior years in accordance with CICA 3465. Of the total $33.3
million provision for income taxes recorded in FY 2003, $25.6 million reflects
utilization of income tax assets, and $7.7 million represents cash taxes. Of the
total $34.1 million provision for income taxes recorded in FY 2002, $13.9
million reflects utilization of income tax assets, and $20.2 million represents
cash taxes.
Net Income (Loss). Net income was $50.3 million, or $0.62 per diluted share,
compared to net income of $52.5 million, or $0.69 per diluted share, last year.
Compared to FY 2002, currency fluctuations -- primarily attributable to the
British Pound Sterling, the U.S. Dollar, and the Euro against the Canadian
Dollar -- had the effect of reducing revenues by $19.7 million and reducing net
income by $1.6 million, or $0.02 per diluted share.
LIQUIDITY AND FINANCIAL CONDITION
At April 30, 2003, cash and cash equivalents totaled $128.8 million, compared to
$115.4 million at April 30, 2002. Excluding from the total at April 30, 2003, a
reduction of $5.5 million from the effect of foreign exchange rates, cash and
cash equivalents increased by $18.9 million during FY 2003.
Cash provided by operating activities, including the effects of changes in both
non-cash working capital and deferred revenue, was $43.2 million in FY 2003,
compared to $82.9 million in FY 2002. Excluding changes in non-cash working
capital and deferred revenue, cash provided by operating activities increased
from $67.8 million in FY 2002 to $101.7 million in FY 2003. Non-cash working
capital was reduced by $38.6 million, primarily as a result of a reduction in
accounts payables and accrued liabilities. In the corresponding period last
year, non-cash working capital increased by $60.0 million, primarily
attributable to increases in receivables, prepaid expenses, accounts payable and
accrued liabilities. Excluding the effects of changes in foreign exchange rates,
deferred revenue associated with acquisitions, and net restructuring and other
unusual items, deferred revenue declined by $20.0 million in FY 2003, compared
to $45.0 million in FY 2002.
Net cash outflows from investing activities totaled $34.5 million in FY 2003,
compared to $6.2 million in FY 2002, and included $33.7 million for
acquisitions, net of cash acquired, and $2.7 million for additions to property,
plant, and equipment, offset by $1.9 million in restricted cash and cash
equivalents.
Net cash inflows from financing activities were $10.2 million in FY 2003,
including $13.9 million from the exercise of five million purchase warrants at
$2.75 per warrant and from the sale of common shares under the common share
Company's Employee Stock Purchase Plan (ESPP), partially offset by $3.7 million
used for repayment of long-term debt. Net cash inflows of $5.2 million in FY
2002 included $24.8 million in net proceeds from the sale of six million common
shares on September 27, 2001, and $17.9 million in net proceeds from the first
quarter sale of 10 million special warrants at a price of $2.00 per special
warrant. Each special warrant was exercisable for one common share plus one half
of a common share purchase warrant. The special warrants were fully exercised on
August 1, 2001. Each full purchase
warrant entitled the purchaser to acquire one common share of Geac for $2.75 at
any time within 18 months of June 29, 2001, and all five million purchase
warrants were exercised in FY 2003. In total, the FY 2002 net issuance of common
shares and special warrants generated $43.1 million, which was used to fund
working capital requirements and to repay bank indebtedness.
Accounts receivable at year end totaled $88.3 million, compared to $86.0 million
at the end of FY 2002. This net $2.3 million increase includes the effects of a
$4.2 million increase due to changes in foreign exchange rates and a $5.3
million increase associated with the Extensity acquisition, net of a $7.2
million reduction in other receivables, which was due to lower revenues.
Prepaid expenses, which are composed of deposits, prepaid maintenance,
insurance, and prepaid royalties, increased by $1.0 million, from $16.0 million
at the end of FY 2002 to $17.0 million at the end of FY 2003. This increase is
primarily due to $0.8 million in prepaid expenses, which were assumed in the
Extensity acquisition, and a $0.5 million increase attributable to changes in
foreign exchange rates, net of a $0.3 million reduction in the prepaid expenses
of our U.S. based businesses.
Accounts payable and accrued liabilities were $136.2 million at the end of FY
2003, compared to $170.3 million at the end of FY 2002. This $34.1 million
reduction includes a $19.6 million reduction in trade payables, a $6.0 million
reduction in accrued professional fees and legal costs, a net $5.5 million
reduction in accrued restructuring charges, a $2.2 million reduction in
tax-related liabilities, and a $1.2 million reduction in compensation related
accruals, net of an aggregate $0.4 million increase in other items. The net $5.5
million reduction in accrued restructuring charges includes a reduction of $22.2
million in the balance as of April 30, 2002, and a net release of $3.9 million
in prior year restructuring provisions that are no longer required, offset by a
$10.2 million increase in restructuring associated with the Extensity
acquisition, a $3.7 million provision for premises rationalization, and a $6.8
million charge for severance related to the restructuring of our operations.
Deferred revenue is composed of deferred maintenance and support revenues, which
are recognized ratably over the term of the related maintenance
agreement--normally one year--and deferred professional services revenue, which
is recognized as such services are performed. Deferred revenue declined by $22.2
million, from $198.0 million at the end of FY 2002 to $175.8 million at the end
of FY 2003. Excluding a $6.5 million increase in deferred revenue at April 30,
2003, associated with Extensity and a $5.7 million reduction associated with
foreign exchange, deferred revenue declined by $23.0 million, which was
primarily due to attrition in maintenance and support contracts.
Long-term debt at April 30, 2003, including the current portion, was $9.1
million, compared to $11.9 million at April 30, 2002. Excluding the effect of
changes in foreign exchange rates, which had the effect of increasing the April
30, 2003 balance by $0.9 million, long-term debt was reduced by $3.7 million.
COMMITMENTS AND CONTINGENCIES
The Company does not have derivative financial instruments or any equity
interests in unconsolidated companies or any other business arrangements related
to the foregoing, which would have a material effect on the assets and
liabilities of the Company at April 30, 2003.
As disclosed in note 12 to the FY 2003 financial statements and in accordance
with Canadian GAAP, the Company has commitments that are not reflected in the
balance sheet of the Company. These commitments include operating leases for
office equipment and premises, and letters of credit, bank guarantees, and
performance bonds that are routinely issued on Geac's behalf by financial
institutions,
primarily in connection with premises leases and contracts with public sector
customers. The Company does not have any other business arrangements, derivative
financial instruments, or any equity interests in unconsolidated companies that
would have a material effect on the assets and liabilities of the Company at
April 30, 2003.
The Company, in the normal course of business, is subject to legal proceedings
being brought against it and its subsidiaries. The most significant of these are
complaints relating to JBA and its software prior to Geac's acquisition of JBA
in September 1999. The ultimate outcome of these matters cannot currently be
determined, nor can the liability that could potentially result from a negative
outcome in each case currently be reasonably estimated. In the event of a
negative outcome, the liability that the Company may ultimately incur with
respect to any of these matters may be in excess of amounts currently accrued
with respect to such matters and, as a result, these matters may potentially be
material to the Company's consolidated financial statements.
QUARTERLY RESULTS
The following table sets forth unaudited consolidated statements of operations
for each of the Company's last eight quarters. These data have been derived from
unaudited consolidated statements of operations that have been prepared on the
same basis as the annual audited consolidated statements of operation and, in
our opinion, include all adjustments necessary for a fair presentation of such
information. These unaudited quarterly results should be read in conjunction
with the consolidated financial statements and notes thereto appearing elsewhere
in the Annual Report. The consolidated results of operations for any quarter are
not necessarily indicative of the results for any future period.
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of Canadian dollars, except
per share amounts)
2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4
- ----------------------------------------------------------------------------------------------------------------------------
Revenues
Software 13,596 19,155 19,401 23,550 20,012 21,340 19,504 22,862
Support and services 127,198 128,818 125,522 119,159 149,359 148,157 144,993 138,351
Hardware 14,345 11,263 13,592 8,068 10,184 13,407 15,094 13,271
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues 155,139 159,236 158,515 150,777 179,555 182,904 179,591 174,484
- ----------------------------------------------------------------------------------------------------------------------------
Cost of revenues
Software 2,465 2,179 2,565 2,823 2,002 2,214 1,438 5,775
Support and services 56,253 56,494 53,182 51,183 69,280 69,461 71,193 63,246
Hardware 12,828 9,065 11,732 6,336 8,083 11,583 12,109 10,247
- ----------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 71,546 67,738 67,479 60,342 79,365 83,258 84,740 79,268
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 83,593 91,498 91,036 90,435 100,190 99,646 94,851 95,215
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses
Sales and marketing 22,786 21,685 21,101 24,627 23,813 22,638 22,890 23,832
Product development 16,700 17,713 17,216 16,627 24,645 22,425 23,468 22,254
General and
Administrative 20,002 23,815 23,922 21,906 22,770 25,610 20,814 18,925
Net restructuring and
other unusual items -- (1,157) -- 6,321 -- (14,574) -- 41,310
Goodwill impairment -- -- -- 16,785 -- -- -- --
Amortization of
intangible assets 435 -- 385 813 423 420 448 447
- ----------------------------------------------------------------------------------------------------------------------------
59,923 62,056 62,624 87,079 71,651 56,519 67,620 106,768
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 23,670 29,442 28,412 3,356 28,539 43,127 27,231 (11,552)
- ----------------------------------------------------------------------------------------------------------------------------
Interest income 439 477 533 588 463 329 514 594
Interest expense (208) (187) (176) (172) (769) (869) (1,411) (472)
Other income
(expense), net 2,169 209 1,184 (6,115) (273) 1,903 (1,291) 594
- ----------------------------------------------------------------------------------------------------------------------------
2,400 499 1,541 (5,699) (579) 1,363 (2,188) 716
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
before income taxes 26,070 29,941 29,953 (2,343) 27,960 44,490 25,043 (10,836)
Income taxes 9,905 11,613 11,243 587 10,979 18,083 13,200 (8,152)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) 16,165 18,328 18,710 (2,930) 16,981 26,407 11,843 (2,684)
- ----------------------------------------------------------------------------------------------------------------------------
Basic net income
(loss) per share 0.21 0.23 0.23 (0.03) 0.27 0.36 0.15 (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Diluted net income
(loss) per share 0.20 0.23 0.23 (0.03) 0.27 0.34 0.14 (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding
(thousands)
Basic 78,146 78,505 80,184 83,766 62,031 74,326 78,087 78,130
Diluted 80,436 80,280 81,662 84,385 63,088 76,728 81,944 81,439
RISKS AND UNCERTAINTIES
Each of the following risks, together with other information contained in this
management discussion and analysis should be considered in evaluating Geac and
its businesses.
GEAC IN THE PAST HAS HAD LOSSES AND MAY NOT MAINTAIN ITS CURRENT PROFITABILITY
IN THE FUTURE. THE TRADING PRICE OF GEAC COMMON SHARES MAY FALL IF GEAC FAILS TO
MAINTAIN PROFITABILITY OR GENERATE SUFFICIENT CASH FROM OPERATIONS.
Geac generated net income of` $50.3 million in FY 2003 and $52.5
million in FY 2002. However, Geac incurred net losses of $255.8 million
in FY 2001. As a result of losses, Geac had an accumulated deficit of
$46.4 million at April 30, 2003. As Geac grows its business, Geac
expects operating expenses and capital expenditures to increase
correspondingly, and as a result, Geac will need to generate
significant revenue to maintain profitability. Geac may not be able to
sustain or to increase profitability or cash flows from operations on a
quarterly or annual basis in the future and could incur losses in
future periods. If Geac's revenues continue to decline as they have in
each of its two most recent fiscal years, its operating results could
be seriously impaired because many of its expenses are fixed and cannot
be easily or quickly reduced. A failure to maintain profitability could
materially and adversely affect Geac's business.
Geac recorded goodwill impairment and net restructuring and other
unusual items of $21.9 million in FY 2003 and $26.7 million in FY 2002,
related to significant write-downs of goodwill and intangible assets,
as well as to restructuring efforts intended to reduce costs and more
efficiently organize Geac's operations.
Geac periodically reviews the value of acquired intangibles and
goodwill to determine whether any impairment exists and could
write-down a portion of its intangible assets and goodwill as part of
any such future review. Geac also periodically reviews opportunities to
more efficiently organize its operations, and may record further
restructuring charges in connection with any such reorganization. Any
write down of intangible assets or goodwill or restructuring charges in
the future could materially and adversely affect Geac's results of
operations.
GEAC'S REVENUES AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY FROM QUARTER TO
QUARTER, AND THE TRADING PRICE OF THE GEAC COMMON SHARES COULD FALL IF ITS
REVENUES OR OPERATING RESULTS ARE BELOW THE EXPECTATIONS OF ANALYSTS OR
INVESTORS.
- Many factors have caused and may in the future cause Geac's revenue
and operating results to fluctuate significantly. Some of these
factors are:
- the timing of significant orders, delivery and implementation of our
products;
- the gain or loss of any significant customer;
- the number, timing and significance of new product announcements and
releases by Geac or its competitors;
- Geac's ability to acquire or to develop (independently or through
strategic relationships with third parties), to introduce and to
market new and enhanced versions of its products on a timely basis;
- possible delays in the shipment of new products and purchasing delays
of current products as Geac's
- customers anticipate new product releases;
- order cancellations and shipment rescheduling or delays;
- patterns of capital spending and changes in budgeting cycles by Geac's
customers;
- market acceptance of new and enhanced versions of Geac's products;
- changes in the pricing and the mix of products and services Geac
sells;
- seasonal variations in Geac's sales cycle (such as lower sales levels
typically experienced by its European operations during summer
months);
- the level of product and price competition;
- changes in operating expenses;
- exchange rate fluctuations;
- the timing of any acquisitions and related costs;
- changes in personnel and related costs; and
- legal proceedings in the normal course of business.
In addition, Geac expects that a substantial portion of its revenue will
continue to be derived from renewals of maintenance contracts from customers of
its software applications. These maintenance contracts typically expire on an
annual basis, and the timing of cash collections of related revenues varies from
quarter to quarter. In addition, Geac's new license revenue and results of
operations may fluctuate significantly on a quarterly and annual basis in the
future, as a result of a number of factors, many of which are outside of its
control. A sale of a new license generally requires a customer to make a
purchase decision that involves a significant commitment of capital. As a
result, the sales cycle associated with the new license revenue will vary
substantially and will be subject to a number of factors, including customers'
budgetary constraints, timing of budget cycles and concerns about the pricing or
introduction of new products by Geac or its competitors.
If Geac's revenues or operating results fall below the expectations of financial
analysts or investors, the trading price of Geac's common shares could fall. As
a result of the foregoing factors and the other factors described in this
section, Geac believes that period-to-period comparisons of its revenue and
operating results are not necessarily meaningful. You should not rely on these
comparisons to predict Geac's future performance.
GEAC EXPERIENCES CUSTOMER ATTRITION, WHICH COULD AFFECT ITS REVENUES MORE
ADVERSELY THAN GEAC EXPECTS, AND GEAC MAY BE UNABLE TO ADAPT QUICKLY TO SUCH
ATTRITION. ANY SIGNIFICANT REDUCTION IN REVENUES AS A RESULT OF ATTRITION MAY
RESULT IN A DECREASE IN THE TRADING PRICE OF GEAC'S COMMON SHARES.
Geac expects that a substantial portion of its revenue will continue to
be derived from renewals of annual maintenance contracts with customers
of its software applications, and, to a lesser extent, from
professional services engagements for these customers. Attrition in
Geac's customer base
has historically taken place, and continues to take place, when
existing customers elect not to renew their maintenance contracts and
cease purchasing professional services from Geac. This can occur for a
variety of reasons, including a customer's decision to replace Geac's
product with that of a competing vendor, to purchase maintenance or
consulting services from a third party service provider, or to forgo
maintenance altogether. It can also occur when a customer is acquired
or ceases operations.
To date, Geac has experienced relatively predictable and stable
customer attrition, and has been able, in part, to replace the revenue
lost through attrition with new revenue from maintenance contracts and
professional services associated with new license sales and from
maintenance contract price increases, as well as from acquisitions.
However, any factors that adversely affect the ability of Geac's
installed systems to compete with those available from others, such as
availability from competitors of products offering more advanced
product architecture, superior functionality or performance or lower
prices, or factors that reduce demand for Geac's maintenance and
professional services, such as intensifying price competition, could
lead to increased rates of customer attrition. Should the rate of
customer attrition exceed Geac's expectations, Geac may be unable to
replace the lost revenue or to reduce its costs sufficiently or in a
timely enough fashion to maintain profitability. In such circumstances,
higher than expected customer attrition could have a material adverse
effect on Geac's business, results of operations, and financial
condition.
GEAC MAY BE UNABLE TO REALIZE ITS GROWTH STRATEGY IF IT IS UNABLE TO IDENTIFY
OTHER SUITABLE ACQUISITION OPPORTUNITIES.
Geac believes that its future success depends upon its ability to make
additional worthwhile acquisitions to offset the effect of customer
attrition, such as its recent acquisitions of Extensity and EBC
Informatique. If Geac cannot make additional worthwhile acquisitions,
its revenues and stock price will likely decline. Geac cannot be
certain that it will be able to identify additional suitable
acquisition candidates available for purchase at reasonable prices, to
consummate any acquisition, or to successfully integrate any acquired
business into its operations. When evaluating an acquisition
opportunity, Geac cannot assure you that it will correctly identify the
risks and costs inherent in the business that it is acquiring. In
addition, to achieve desired growth rates as Geac becomes larger,
acquisition candidates are likely to be larger and may include public
companies. The acquisition of a public company may involve additional
risks, including the potential for lack of recourse against public
shareholders for undisclosed material liabilities of the acquired
business. If Geac were to proceed with one or more significant future
acquisitions in which the consideration consisted of cash, a
substantial portion of its available cash resources could be used to
consummate the acquisitions.
GEAC'S INABILITY TO SUCCESSFULLY INTEGRATE OTHER BUSINESSES THAT IT ACQUIRES MAY
DISRUPT ITS OPERATIONS OR OTHERWISE HAVE A NEGATIVE IMPACT ON ITS BUSINESS.
Geac made two acquisitions during FY 2003, and no acquisitions during
FY 2002. Geac made numerous acquisitions prior to FY 2001, including
eleven during FY 2000. Geac is frequently in formal or informal
discussions with potential acquisition candidates and may make
additional acquisitions of, or large investments in, other businesses
that offer products, services, and technologies that Geac believes
would complement its products and services. Integration of Geac's
completed acquisitions and any future acquisitions involves a number of
special risks, including the following: diversion of management's
attention from, and disruption of, Geac's on-going business; failure to
successfully integrate the personnel, information systems, technology,
and operations of the acquired business; failure to maximize the
potential financial and strategic benefits of the transaction; failure
to realize the expected synergies from businesses that Geac
acquires; possible impairment of relationships with employees and
customers as a result of any integration of new businesses and
management personnel; impairment of assets related to resulting
goodwill; reductions in future operating results from amortization of
intangible assets; and unanticipated adverse events, circumstances, or
legal liabilities associated with the transaction or the acquired
business.
Moreover, mergers or acquisitions of technology companies are generally
risky and often fail to deliver the return on investment that acquirers
expect. Such failures can result from a number of factors, including
the following: rapid changes in technology in the markets in which the
combining companies compete, and in demand for their products and
services; difficulties in integrating the businesses and personnel of
the acquired company; failure to achieve expected revenue or cost
synergies; unanticipated costs or liabilities; and other factors. If
Geac is unable to integrate future acquisitions successfully, its
business and results of operations could be adversely affected.
THE LOSS, CANCELLATION OR DELAY OF ORDERS BY GEAC'S CUSTOMERS COULD HARM ITS
BUSINESS.
The purchase of some of Geac's products, particularly its EAS products,
and of its related professional services may involve a significant
commitment of resources and costs for Geac's customers. As a result,
Geac's sales process involves a lengthy evaluation and product
qualification process that may require significant capital
expenditures. For these and other reasons, the sales cycle associated
with the license of Geac's products, renewal of maintenance agreements,
and sale of related professional services varies substantially from
contract to contract and customer to customer. The sales cycles for
Geac's products vary by product and application, and may range up to a
year or more for large, complex installations. Geac may experience
delays over which it has no control and which further extend that
period. During the process, Geac may devote significant time and
resources to a prospective customer, including costs associated with
multiple site visits, product demonstrations, and feasibility studies.
If Geac is unsuccessful in generating offsetting revenues during these
sales cycles, its revenues and earnings could be substantially reduced
or it could experience a large loss. Any significant or ongoing failure
to ultimately achieve sales as a result of Geac's efforts, or any
delays or difficulties in the implementation process for any given
customer, could have a negative impact on Geac's revenues and results
of operations.
DEMAND FOR GEAC'S PRODUCTS AND SERVICES FLUCTUATES RAPIDLY AND UNPREDICTABLY,
WHICH MAKES IT DIFFICULT TO MANAGE GEAC'S BUSINESS EFFICIENTLY AND CAN REDUCE
ITS GROSS MARGINS, PROFITABILITY AND MARKET SHARE.
Geac depends upon the capital spending budgets of its customers. World
economic conditions have in the past adversely affected Geac's
licensing and maintenance revenue. Geac believes that the continued
weakness in its revenues from sales of new licenses of its enterprise
applications systems is consistent with the experience of other
participants in its industry. If economic or other conditions reduce
Geac's customers' capital spending levels, its business, results of
operations, and financial condition may be adversely affected. There
has been a severe worldwide downturn in information technology spending
over the last few years, and any growth in Geac's markets will depend
on a general recovery in information technology spending. Growth
prospects for Geac's existing businesses are uncertain, with expansion
in the industry also being highly dependent on users of enterprise
applications systems enhancing their current systems through Web-based
applications and new functionality that is complementary to that of
their existing systems. Currently, Geac believes that the market for
enterprise resource planning software is weak, and it may continue to
be weak for the foreseeable future.
In addition, the purchase and implementation of Geac's products can
constitute a major portion of Geac's customers' overall corporate
services budget, and the amount customers are willing to invest in
acquiring and implementing such products has tended to vary in response
to economic or financial crises or other business conditions.
Prolongation of the current economic downturn or other difficulty in
the economies where Geac licenses its products, including North
America, the United Kingdom, and other European countries, could have a
material adverse effect on its business, financial position, operating
results, or cash flows. In particular, Geac's financial position may be
significantly adversely affected by a prolonged recession or economic
slowdown in any of the economies where Geac derives a substantial
portion of its revenue.
GEAC FACES SIGNIFICANT COMPETITION FROM OTHER PROVIDERS OF ENTERPRISE
APPLICATIONS SOFTWARE AND SYSTEMS, WHICH MAY REDUCE ITS MARKET SHARE OR LIMIT
THE PRICES IT CAN CHARGE FOR ITS SYSTEMS AND SERVICES.
The enterprise resource planning market in which Geac competes is
maturing and is deeply penetrated by large independent software
suppliers, such as SAP, Oracle, and PeopleSoft, and a large number of
other suppliers that sell to small and mid-sized customers. As a
result, competition is intense, and significant pricing pressure
exists. The intensity of this competition increases as demand for
products and services, such as those offered by Geac, weakens. To
maintain and to improve its competitive position, Geac must continue to
develop and to introduce, in a timely and cost effective manner, new
products, product features, and services. In addition, Geac expects
that a substantial portion of its revenue will continue to be derived
from renewals of annual maintenance contracts with customers of its
software applications. Although Geac has experienced relatively stable
and predictable attrition relating to these contracts, increased
competition could significantly reduce the need for its maintenance
services, as customers could either decide to replace Geac's software
applications with a competitor's applications or to enter into a
maintenance contract with a third party to service its software.
Geac anticipates additional competition as other established and
emerging companies enter the market for its products and as new
products and technologies are introduced. For example, companies that
historically have not competed in the enterprise resource planning
systems market could introduce new enterprise applications based on
newer product architectures that could provide for functionality
similar to that of Geac's products that are based on older technology.
In addition, current and potential competitors may make strategic
acquisitions or establish co-operative relationships among themselves
or with third parties, thereby increasing the ability of their products
to address the needs of Geac's prospective customers. Accordingly, it
is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. This
competition could result in price reductions, fewer customer orders,
reduced gross margins, and loss of market share. In addition, variances
or slowdowns in Geac's new licensing revenue may negatively impact its
current and future revenue from services and maintenance, since such
services and maintenance revenues typically depend on new license
sales.
GEAC'S COMPETITORS MAY HAVE ADVANTAGES OVER GEAC THAT MAY INHIBIT ITS ABILITY TO
COMPETE EFFECTIVELY.
Many of Geac's competitors and potential competitors have significantly
greater financial, technical, marketing, and other resources, greater
name recognition, and a larger installed base of customers than does
Geac. The products of some of Geac's competitors are based on more
advanced product architectures or offer performance advantages compared
with Geac's more mature EAS products. Geac's competitors may be able to
respond more quickly to new or emerging technologies and changes in
customer requirements or may devote greater resources to
the development, promotion, and sale of their products than Geac is
able to do. Many competitive factors affect the market for Geac's
products and its ability to earn maintenance, professional services and
new license revenue. Some of these factors are: vendor and product
reputation; expertise and experience in implementing products in a
particular customer's industry sector; cost of ownership; ease and
speed of implementation; customer support; product architecture,
quality, price and performance; product performance attributes, such as
flexibility, scalability, compatibility, functionality and ease of use;
and vendor financial stability. Geac's inability to compete effectively
based on any of the foregoing factors could have a material adverse
effect on its business, results of operations and financial condition.
Not all of Geac's existing products compete equally well with respect
to each of these factors. To the extent that Geac concludes that one or
more of its existing products is unable to compete effectively, it may
reduce the amount of product development, sales and marketing and other
resources that it devotes to that product, which could result in
customer dissatisfaction and a more rapid than anticipated rate of
customer attrition and decline in revenues from that product, each of
which could have a material adverse effect on Geac's business, results
of operations, and financial condition.
GEAC'S BUSINESS MAY BE IMPACTED BY THE RECENT CONSOLIDATION TREND IN THE
SOFTWARE INDUSTRY.
There is a recent trend in the software industry generally and the
enterprise resource planning segment specifically towards the
consolidation of the participants within the industry and between
segments. This trend may continue and could result in fewer
participants in each segment, some of whom may have greater economic
resources, broader geographic scope, a broader range of products and
better overall positioning than Geac. As a result of this consolidation
trend and the fact that there may be fewer participants in the industry
or each segment, competition may increase and pricing pressure on
Geac's products may intensify. Industry participants with a broader
range of product offerings may be better able to meet customers' needs
and win new business. In addition, as a result of this trend,
customers' buying patterns may be impacted. The uncertainty in the
market created by this trend may cause customers to postpone or delay
their buying decisions until the uncertainty regarding this
consolidation trend is reduced. Geac believes that, to the extent it is
unable to capitalize on this consolidation trend, it could have a
material adverse effect on its business, financial position, operating
results or cash flows.
GEAC'S RAPID GROWTH THROUGH ACQUISITIONS HAS PLACED SIGNIFICANT DEMANDS ON
GEAC'S MANAGEMENT RESOURCES AND OPERATIONAL INFRASTRUCTURE. ANY FAILURE TO
MANAGE GROWTH EFFECTIVELY MAY LEAD TO A DISRUPTION IN GEAC'S OPERATIONS AND A
RESULTING DECLINE IN PROFITABILITY.
In recent years, Geac has experienced substantial growth, primarily
through acquisitions, which have significantly expanded its operations.
Geac has made 32 acquisitions between May 1, 1996, and April 30, 2003,
and plans to continue to make acquisitions in the future. This growth
and expansion have placed, and will continue to place, a significant
demand on Geac's management resources. To manage growth effectively,
Geac must maintain a high level of quality, efficiency and performance
and must continue to enhance its operational, financial, and management
systems and to attract, to train, to motivate and to manage employees.
Geac may not be able to effectively manage this expansion, and any
failure to do so could lead to a disruption in Geac's business, a loss
of customers and revenue, and increased expenses. Any such decline in
profitability could lessen the trading price of the Geac common shares.
POTENTIAL DIVESTITURES MAY REDUCE REVENUES IN THE SHORT TERM AND CREATE
UNCERTAINTY AMONG GEAC EMPLOYEES, CUSTOMERS AND POTENTIAL CUSTOMERS, WHICH COULD
HARM GEAC'S BUSINESS.
Geac has in the past divested, and may in the future consider divesting
certain portions of its business. Any divestitures would result in a
short-term reduction in revenue and could harm Geac's results of
operations if it were not able to reduce expenses accordingly or to
generate offsetting sources of revenue. To the extent that its
consideration of these potential divestitures became known prior to its
completion, Geac could face the risk, among others, that customers and
potential customers of the business division in question might be
reluctant to purchase Geac's products and services during this period.
In addition, Geac might face the risk that it may be unable to retain
qualified personnel within that business division during this period.
These risks could prevent Geac from successfully completing on
favourable terms, or at all, divestitures that would otherwise be
beneficial to Geac and may in the process weaken business divisions
subject to consideration for divestiture that are not, in fact,
divested. Any of these events could result in a loss of customers,
revenues, and employees and could harm Geac's results of operations.
GEAC'S INTERNATIONAL OPERATIONS EXPOSE GEAC TO ADDITIONAL RISKS, INCLUDING
CURRENCY-RELATED RISK.
Geac is subject to risks of doing business internationally, including
fluctuations in currency exchange rates, increases in duty rates,
difficulties in obtaining export licenses, difficulties in the
enforcement of intellectual property rights and political
uncertainties. Geac derived more than 95 percent of its total revenue
from sales outside Canada in each of FY 2002 and FY 2003. Geac's most
significant international operations are in the United States, the
United Kingdom, and France which are the only countries in which Geac's
revenues constituted more than 10 percent of its total worldwide
revenues during FY 2002 and FY 2003. Historically, Geac's Canadian
sales and expenses have been denominated in Canadian dollars, and
Geac's non-Canadian sales and expenses have been denominated in the
currencies of 21 other jurisdictions. Geac has not to date used
forward, exchange contracts to hedge exposures denominated in
non-Canadian currencies or use any other derivative financial
instrument for trading, hedging, or speculative purposes.
To the extent that Geac makes sales denominated in currencies other
than Canadian dollars, gains and losses on the conversion of such sales
to Canadian dollars may, in the future, contribute to fluctuations in
Geac's business and operating results. In addition, fluctuations in
exchange rates could affect the demand for Geac's products. Additional
risks Geac faces in conducting business internationally include the
following: longer payment cycles, difficulties in managing
international operations, including constraints associated with local
laws regarding employment, problems in collecting accounts receivable,
complex international tax compliance requirements, and the adverse
effects of tariffs, duties, price controls or other restrictions that
impair trade.
SEASONAL TRENDS IN SALES OF GEAC'S SOFTWARE PRODUCTS MAY RESULT IN PERIODIC
REDUCTIONS IN GEAC'S CASH FLOW AND IMPAIRMENT OF ITS OPERATING RESULTS.
Seasonality in Geac's business could result in its revenues or cash
flow in a given period being less than market estimates. Seasonality
could also result in quarter-to-quarter decreases in Geac's revenues or
cash flow. Geac's revenues and operating results in its January quarter
have tended to benefit from customer spending related to calendar year
end budget cycles. In FY 2003, approximately 40 percent of Geac's
maintenance contracts were scheduled for renewal on a calendar year
basis. Accordingly, cash receipts from maintenance contract renewals
are highest in the January quarter and lowest in the July and October
quarters. These historical patterns may change over time, however,
particularly as Geac's operations become larger and the sources of its
revenue change and become more diverse. Geac's European operations have
expanded significantly in recent years and may experience variability
in demand associated with seasonal buying patterns in these foreign
markets. For example, Geac's July and October quarters typically
experience reduced sales and cash collections activity, in part, due to
the European summer holiday season.
IMPACT OF GEOPOLITICAL AND OTHER WORLD OR LOCAL EVENTS MAY HAVE A SIGNIFICANT
EFFECT ON GEAC'S OPERATIONS.
Various events, including natural disasters, extreme weather
conditions, labour disputes, civil unrest, war and political
instability, terrorism, and contagious illness outbreaks, or the
perceived threat of these events, may cause a disruption of Geac's
normal operations and may disrupt the domestic and international travel
of its sales and other personnel. In addition to the general
uncertainty that these events or the perceived threat of these events
could have on the market for Geac's products, the ability of Geac's
personnel, including maintenance and sales personnel, to travel to
visit customers or potential customers may be affected. The sales cycle
for Geac's products includes a period of education for potential
customers on the use and benefits of Geac's products and services, as
well as the integration of Geac's products and services with additional
applications utilized by individual customers. Any disruption in the
ability of Geac personnel to travel could have a material and adverse
impact on Geac's ability to complete this process and to service these
customers, which could, in turn, have a material adverse effect on
Geac's business, results of operations, and financial condition. In
addition, these events or the perceived threat of these events may
require Geac to reorganize its day-to-day operations to minimize the
risks associated with these events. The costs associated with the
reorganization of Geac's day-to-day operation, even on a short-term
basis, could also have a material adverse effect on Geac's business,
results of operations, and financial condition.
IF GEAC CANNOT ATTRACT AND RETAIN QUALIFIED SALES PERSONNEL, CUSTOMER SERVICE
PERSONNEL, AND SOFTWARE DEVELOPERS, GEAC MAY NOT BE ABLE TO SELL AND TO SUPPORT
ITS EXISTING PRODUCTS OR TO DEVELOP NEW PRODUCTS.
Geac depends on key technical, sales, and senior management personnel.
Many of these individuals would be difficult to replace if they were to
leave Geac's employment. In addition, Geac's success is highly
dependent on its continuing ability to identify, to hire, to train, to
assimilate, to motivate, and to retain highly qualified personnel,
including recently hired officers and other employees. Competition for
qualified employees is particularly intense in the technology industry,
and Geac has in the past experienced difficulty recruiting qualified
employees. Geac's failure to attract and to retain the necessary
qualified personnel could seriously harm its operating results and
financial condition.
Geac's future growth depends, in part, upon its ability to develop new
products and to improve existing products. Geac's ability to develop
new products and services and to enhance its existing products and
services will depend, in part, on its ability to recruit and to retain
top quality software programmers. If Geac is unable to hire and to
retain sufficient numbers of qualified programming personnel, it may
not be able to develop new products and services or to improve its
existing products and services in the time frame necessary to execute
its business plan.
GEAC'S EXECUTIVE OFFICERS ARE CRITICAL TO ITS BUSINESS, AND THESE OFFICERS MAY
NOT REMAIN WITH GEAC IN THE FUTURE.
Geac's future success largely depends on the continued efforts and
abilities of its executive officers. Their skills, experience, and
industry contacts significantly benefit Geac. Although Geac has
employment and noncompetition agreements with Paul Birch, Geac's
President and Chief Executive Officer; Arthur Gitajn, Geac's Chief
Financial Officer; James Travers, President, Geac Americas; Timothy
Wright, Geac's Chief Technology Officer; Joyce Koenig, Vice President,
Strategic Financial Analysis; John L. Sherry, Senior Vice President,
Marketing and Strategic Alliances; and Bertrand Sciard, Geac's Managing
Director, Geac Enterprise Solutions, Europe and Asia, it cannot assure
you that they will all choose to remain employed by Geac. If Geac loses
the services of one or more of its executive officers, or if one or
more of them decide to join a competitor or otherwise compete directly
or indirectly with Geac, Geac's business, operating results, and
financial condition could be harmed. Geac does not maintain key-man
life insurance on any of its employees.
THE MARKET FOR GEAC'S SOFTWARE PRODUCTS IS CHARACTERIZED BY RAPID TECHNOLOGICAL
ADVANCES, AND GEAC MUST CONTINUALLY IMPROVE ITS TECHNOLOGY TO REMAIN
COMPETITIVE.
Rapid technological change and frequent new product introductions and
enhancements characterize the enterprise solutions software industry.
Geac's current and potential customers increasingly require greater
levels of functionality and more sophisticated product offerings. In
addition, the life cycles of Geac's products are difficult to estimate.
Accordingly, Geac believes that its future success depends upon its
ability to enhance current products and to develop and to introduce new
products offering enhanced performance and functionality at competitive
prices in a timely manner, and on Geac's ability to enable its products
to work in conjunction with other products from other suppliers that
Geac's customers may utilize. Geac's failure to develop and to
introduce or to enhance products in a timely manner could have a
material adverse effect on its business, results of operations, and
financial condition. Geac may be unable to respond on a timely basis to
the changing needs of its customer base, and the new applications Geac
designs for its customers may prove to be ineffective. Geac's ability
to compete successfully will depend in large measure on its ability to
be among the first to market with effective new products or services,
to maintain a technically competent research and development staff, and
to adapt to technological changes and advances in the industry,
including providing for the continued compatibility of Geac's software
products with evolving computer hardware and software platforms and
operating environments. Geac cannot assure you that it will be
successful in these efforts. In addition, competitive or technological
developments may require Geac to make substantial, unanticipated
investments in new products and technologies, and Geac may not have
sufficient resources to make these investments. If Geac were required
to expend substantial resources to respond to specific technological or
product changes, its operating results would be adversely affected.
GEAC MAY BE UNABLE TO DEVELOP AND TO MAINTAIN COLLABORATIVE DEVELOPMENT AND
MARKETING RELATIONSHIPS, WHICH COULD RESULT IN A DECLINE IN REVENUES OR SLOWER
THAN ANTICIPATED GROWTH RATES.
A key element of Geac's business strategy is the formation of
collaborative relationships with other leading companies. Geac believes
that its success will depend, in part, on its ability to maintain these
relationships and to cultivate additional corporate alliances with such
companies. Geac cannot assure you that its historical collaborative
relationships will be commercially successful, that it will be able to
negotiate additional collaborative relationships, that such additional
collaborative relationships will be available to Geac on acceptable
terms, or that any such relationships, if established, will be
commercially successful. In addition, Geac cannot assure you that
parties with whom Geac has established, or will establish,
collaborative relationships will not, either directly or in
collaboration with others, pursue alternative technologies or develop
alternative products in addition to, or instead of, Geac's products or
experience financial or other difficulties that lessen their value to
Geac and to its customers. Geac's financial condition or results of
operations may be adversely affected by a failure on the part of Geac
or these third parties to establish and maintain collaborative
relationships.
GEAC MAY BECOME INCREASINGLY DEPENDENT ON THIRD PARTY SOFTWARE INCORPORATED IN
ITS PRODUCTS, AND, IF SO, IMPAIRED RELATIONS WITH THESE THIRD PARTIES, ERRORS IN
THIRD-PARTY SOFTWARE, OR INABILITY TO ENHANCE THE SOFTWARE OVER TIME COULD HARM
GEAC'S BUSINESS.
Geac incorporates third party software into its products. Currently,
the third-party software Geac uses includes several products from IBM,
including Websphere Application Server, Websphere Commerce Suite, HACP,
and MQSeries. Other third-party software incorporated by Geac in its
products includes Cognos Powerplay and Impromptu, FRx Professional
Edition and Enterprise Edition, NetManage Rumba, Applix iSales, Jacada,
Brio Brio.Report, Rogue Wave Software Tools.h++, FileNET Panagon,
Captaris RightFax, Microsoft Clearlead, Microsoft.net, application
server software licensed from BEA Systems, off-line database software
from Pointbase, off-line client server software from Pumatech,
synchronization software from Aether Systems, reporting software from
Business Objects, and Java Web Start from Sun Microsystems. Geac may
incorporate additional third party software into its products as it
expands its product lines. The operation of Geac's products would be
impaired if errors occur in the third-party software that it licenses.
It may be more difficult for Geac to correct any errors in third-party
software because the software is not within its control. Accordingly,
Geac's business would be adversely affected in the event of any errors
in this software. Furthermore, it may be difficult for Geac to replace
any third-party software if a vendor seeks to terminate its license to
the software.
GEAC MAY BE UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY AND THAT OF OTHER
COMPANIES GEAC MAY ACQUIRE, WHICH COULD HARM GEAC'S COMPETITIVE POSITION.
Geac has relied, and expects to continue to rely, on a combination of
copyright, trademark and trade secret laws, confidentiality procedures,
and contractual provisions to establish, to maintain, and to protect
its proprietary rights. Despite Geac's efforts to protect its
proprietary rights in its intellectual property and that of other
companies Geac may acquire, unauthorized parties may attempt to copy
aspects of its products or to obtain information it regards as
proprietary. Policing unauthorized use of Geac's technology, if
required, may be difficult, time consuming, and costly. Geac's means of
protecting its technology may be inadequate.
Third parties may apply for patent protection for processes that are
the same as or similar to Geac's processes or for products that use the
same or similar processes as Geac's products. Despite Geac's efforts to
protect its proprietary rights, unauthorized parties may attempt to
copy aspects of its products or services or to obtain and to use
information that Geac regards as proprietary. Third parties may also
independently develop similar or superior technology without violating
Geac's proprietary rights. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do
the laws of Canada and the United States.
Geac believes that trademark protection is an important factor in
establishing product recognition. Geac's inability to protect its
trademarks from infringement could result in injury to any goodwill,
which may be developed in its trademarks. Moreover, Geac may be unable
to use one or more of its trademarks because of successful third-party
claims.
Claims of infringement are becoming increasingly common as the software
industry develops and legal protections, including patents, are applied
to software products. Although Geac believes that its products and
technology do not infringe proprietary rights of others, litigation may
be necessary to protect Geac's proprietary technology, and third
parties may assert infringement claims against Geac with respect to
their proprietary rights. Any claims or litigation can be time
consuming and expensive regardless of their merit. Infringement claims
against Geac could cause product release delays, require Geac to
redesign its products or to enter into royalty or license agreements,
which agreements may not be available on terms acceptable to Geac, or
at all.
PRODUCT DEVELOPMENT DELAYS COULD HARM GEAC'S COMPETITIVE POSITION AND REDUCE ITS
REVENUES.
If Geac experiences significant delays in releasing new or enhanced
products, its position in the market could be harmed and its revenue
could be substantially reduced, which would adversely affect Geac's
operating results. Geac has experienced product development delays in
the past and may experience delays in the future. In particular, Geac
may experience product development delays associated with the
integration of recently acquired products and technologies. Delays may
occur for many reasons, including an inability to hire a sufficient
number of developers, discovery of bugs and errors, or the inability of
Geac's current or future products to conform to customer and industry
requirements.
The market for certain of Geac's employee relationship management
software applications and services, acquired in its Extensity
acquisition, is at an early stage of development. The success of Geac
in this market will depend, in part, upon the continued development of
this market and the increasing acceptance by customers of the benefits
to be provided by employee relationship management applications and
services. In addition, as the market evolves, it is unclear whether the
market will accept Geac's suite of applications as a preferred solution
for employee relationship management needs. Accordingly, these products
and services may not achieve significant market acceptance or realize
significant revenue growth. Unless a critical mass of organizations and
their suppliers use these solutions and recommend them to new
customers, these solutions may not achieve widespread market
acceptance.
GEAC'S SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUE, DELAYED OR LIMITED MARKET ACCEPTANCE, OR PRODUCT LIABILITY CLAIMS WITH
SUBSTANTIAL LITIGATION COSTS.
As a result of their complexity, software products may contain
undetected errors or failures when entering the market. Despite testing
by Geac and testing and use by current and potential customers, defects
and errors may be found in new products after commencement of
commercial shipments or the offering of a network service using these
products. In these circumstances, Geac may be unable to successfully
correct the errors in a timely manner or at all. The occurrence of
errors and failures in Geac's products could result in negative
publicity and a loss of, or delay in, market acceptance of those
products, which could reduce revenue from new licenses and lead to
increased customer attrition. Alleviating these errors and failures
could require significant expenditure of capital and other resources by
Geac. The consequences of these errors and failures could have a
material adverse effect on Geac's business, results of operations, and
financial condition.
Because many of Geac's customers use its products for business-critical
applications, any errors, defects, or other performance problems could
result in financial or other damage to Geac's customers and could
significantly impair their operations. Geac's customers or other third
parties could seek to recover damages from Geac in the event of actual
or alleged failures of Geac's products or the provision of services.
Geac has in the past been, and may in the future continue to be,
subject to these kinds of claims. Although Geac's license agreements
with customers typically contain provisions designed to limit its
exposure to potential claims, as well as any liabilities arising from
these claims, the provisions may not effectively protect against these
claims and the liability and associated costs. Accordingly, any such
claim could have a material adverse effect upon Geac's business,
results of operations, and financial condition. In addition, defending
this kind of claim, regardless of its merits, or otherwise satisfying
affected customers, could entail substantial expense and require the
devotion of significant time and attention by key management personnel.
THE HOSTING SERVICES OF GEAC'S APPCARE SERVICE, EXTENSITY PRODUCTS, AND
INTEREALTY SUBSIDIARY ARE DEPENDENT ON THE UNINTERRUPTED OPERATION OF ITS DATA
CENTERS. ANY UNEXPECTED INTERRUPTION IN THE OPERATION OF ITS DATA CENTERS COULD
RESULT IN CUSTOMER DISSATISFACTION AND A LOSS OF REVENUES.
The hosting services offered by Geac's AppCare remote application
management service, Extensity products, and Interealty subsidiary are
each dependent on the uninterrupted operation of Geac's data centers
and on Geac's ability to protect computer equipment and information
stored in its data centers against damage that may be caused by natural
disaster, fire, power loss, telecommunications or internet failure,
unauthorized intrusion, computer viruses and other similar damaging
events. If any of Geac's data centers were to become inoperable for an
extended period Geac might be unable to provide its customers with
contracted services. Although Geac takes what it believes to be
reasonable precautions against such occurrences, Geac can give no
assurance that damaging events such as these will not result in a
prolonged interruption of its services, which could result in customer
dissatisfaction, loss of revenue and damage to Geac's business.
In addition, if customers determine that Geac's hosted product is not
scalable, does not provide adequate security for the dissemination of
information over the Internet, or is otherwise inadequate for
Internet-based use, or if for any other reason customers fail to accept
Geac's hosted products for use on the Internet or on a subscription
basis, Geac's business will be harmed. As a provider of hosted
services, Geac expects to receive confidential information, including
credit card, travel booking, employee, purchasing, supplier, and other
financial and accounting data, through the Internet. There can be no
assurance that this information will not be subject to computer
break-ins, theft, and other improper activity that could jeopardize the
security of information for which Geac is responsible. Any such lapse
in security could expose Geac to litigation, loss of customers, or
otherwise harm Geac's business. In addition, any person who is able to
circumvent Geac's security measures could misappropriate proprietary or
confidential customer information or cause interruptions in Geac's
operations. Geac may be required to incur significant costs to protect
against security breaches or to alleviate problems caused by breaches.
Additionally, in the past, computer viruses and software programs that
disable or impair computers have been distributed and have rapidly
spread over the Internet. Computer viruses could be introduced into
Geac's systems or those of its customers or suppliers, which could
disrupt Geac's software solutions or make them inaccessible to
customers or suppliers. Further, a well-publicized compromise of
security could deter people from using the Internet to conduct
transactions that involve transmitting confidential information. Geac's
failure to prevent security breaches, or well-publicized security
breaches affecting the Internet in general could significantly harm its
business, operating results and financial condition.
As Internet commerce evolves, Geac expects that federal, provincial,
state or foreign agencies will adopt regulations covering issues, such
as user privacy, pricing, taxation of goods and services provided over
the Internet, and content and quality of products and services. It is
possible that legislation could expose companies involved in electronic
commerce to liability, which could limit the growth of electronic
commerce generally. Legislation could dampen the growth in Internet
usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws, rules or regulations could limit the
market for Geac's products and services.
GEAC'S SHAREHOLDER PROTECTION RIGHTS PLAN MAY DISCOURAGE TAKE-OVER ATTEMPTS OR
MAKE IT LESS LIKELY THAT STOCKHOLDERS WILL RECEIVE A PREMIUM FOR ANY GEAC COMMON
SHARES IN CONNECTION WITH A FUTURE ACQUISITION OF GEAC.
Geac has adopted a shareholder protection rights plan, which authorizes
the issuance of one right for each Geac common share. The rights
represent the right to purchase, subject to the terms and
conditions of the Rights Plan, Geac common shares that would have the
effect of diluting the interests of potential acquirers. The Rights
Plan may have an anti-take-over effect and discourage take-over
attempts not first approved by Geac's board of directors. This may make
it harder for you to receive a premium for any Geac common shares in
connection with a future acquisition of Geac. The rights plan may also
assist the board of directors in maximizing shareholder value in the
event of a take-over attempt.
GEAC'S ACQUIRED SUBSIDIARY, EXTENSITY, IS THE TARGET OF A SECURITIES CLASS
ACTION COMPLAINT, WHICH MAY RESULT IN SUBSTANTIAL COSTS AND DIVERT MANAGEMENT
ATTENTION AND RESOURCES.
In November 2001, Extensity and certain of its officers and directors,
were named as defendants in a class action stock broker complaint filed
in the United States District Court for the Southern District of New
York now captioned "In Re Extensity Inc., Initial Public Offering
Securities Litigation." In the complaint, the plaintiffs alleged that
Extensity, certain of its officers and directors and the underwriters
of its initial public offering ("IPO") violated the federal securities
laws of the United States because Extensity's IPO registration
statement and prospectus contained untrue statements of material fact
or omitted material facts regarding the compensation to be received by,
and the stock allocation practices of, the IPO underwriters. The
plaintiffs seek an order declaring the action to be a class action, as
well as unspecified damages, prejudgment and postjudgment interest,
attorneys' fees and costs, and such other and further relief as the
Court may deem just and proper. This action may divert the efforts and
attention of Geac's management and, if determined adversely, could have
a material impact on Geac's business, financial position, results of
operations and cash flows.
June 24, 2003
MANAGEMENT'S REPORT
The consolidated financial statements and other financial information therein
were prepared by the management of Geac Computer Corporation Limited, reviewed
by the Audit Committee and approved by the Board of Directors.
Management is responsible for the consolidated financial statements and believes
that they present fairly the Company's financial condition and results of
operations in conformity with Canadian generally accepted accounting principles.
Management has included in the Company's consolidated financial statements
amounts based on estimates and judgments that it believes are reasonable under
the circumstances.
To discharge its responsibilities for financial reporting and safeguarding of
assets, management has established systems of internal accounting control that
it believes provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of consolidated
financial statements. Consistent with the concept of reasonable assurance, the
Company recognizes that the cost of maintaining these controls should not exceed
their expected benefits. Management further seeks to assure the quality of the
financial records through careful selection and training of personnel, and
through the adoption and communication of financial and other relevant policies.
The shareholders have appointed PricewaterhouseCoopers LLP to audit the
consolidated financial statements. Their report outlines the scope of their
examination and their opinion.
Paul D. Birch Arthur Gitajn
President and Chief Executive Officer Chief Financial Officer
AUDITOR'S REPORT
To the Board of Directors and Shareholders of Geac Computer Corporation Limited
We have audited the consolidated balance sheets of Geac Computer Corporation
Limited as at April 30, 2003 and 2002 and the consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
two-year period ended April 30, 2003. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at April 30, 2003
and 2002 and the results of its operations and its cash flows for each of the
years in the two-year period ended April 30, 2003 in accordance with Canadian
generally accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
June 18, 2003, except as to Note 23 which is as of June 23, 2003
CONSOLIDATED BALANCE SHEETS
As at April 30,
- ----------------------------------------------------------------------------------------------------------------------
(in thousands of Canadian dollars) 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
ASSETS $ $
Current assets
Cash and cash equivalents 128,755 115,449
Restricted cash and cash equivalents (note 2) -- 4,769
Accounts receivable and other (note 3) 78,443 78,367
Unbilled receivables 9,893 7,607
Future income taxes (note 18) 23,277 20,508
Inventory (note 4) 1,128 2,119
Prepaid expenses 17,056 16,016
- ----------------------------------------------------------------------------------------------------------------------
258,552 244,835
Restricted cash and cash equivalents (note 2) 3,433 451
Future income taxes (note 18) 32,982 58,073
Property, plant and equipment (note 5) 36,768 47,679
Intangible assets (note 6) 16,013 424
Goodwill (note 7) 128,137 126,867
- ----------------------------------------------------------------------------------------------------------------------
475,885 478,329
======================================================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (note 8) 136,152 170,309
Income taxes payable 44,602 44,596
Current portion of long-term debt (note 11) 1,050 1,987
Deferred revenue 171,929 187,301
- ----------------------------------------------------------------------------------------------------------------------
353,733 404,193
Deferred revenue 3,857 10,679
Long-term debt (note 11) 8,058 9,954
- ----------------------------------------------------------------------------------------------------------------------
365,648 424,826
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital
Preference shares; no par value; unlimited shares authorized; none issued or outstanding -- --
Common shares; no par value; unlimited shares authorized
Issued and outstanding 84,136,490 (2002 - 78,144,608) 170,117 154,420
Options 240 --
Purchase warrants -- 1,750
Deficit (46,400) (96,673)
Cumulative foreign exchange translation adjustment (13,720) (5,994)
- ----------------------------------------------------------------------------------------------------------------------
110,237 53,503
- ----------------------------------------------------------------------------------------------------------------------
475,885 478,329
======================================================================================================================
Commitments and contingencies (note 12)
The accompanying notes are an integral part of these consolidated financial
statements.
Approved by the Board of Directors
CHARLES S. JONES ROBERT L. SILLCOX
Chairman Chair of the Audit Committee
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30,
- ----------------------------------------------------------------------------------------------------
(in thousands of Canadian dollars, except share and per share data) 2003 2002
- ----------------------------------------------------------------------------------------------------
REVENUES $ $
Software 75,702 83,718
Support and services 500,697 580,860
Hardware 47,268 51,956
- ----------------------------------------------------------------------------------------------------
Total revenues 623,667 716,534
- ----------------------------------------------------------------------------------------------------
COST OF REVENUES
Software 10,032 11,429
Support and services 217,112 273,180
Hardware 39,961 42,022
- ----------------------------------------------------------------------------------------------------
Total cost of revenues 267,105 326,631
- ----------------------------------------------------------------------------------------------------
Gross profit 356,562 389,903
- ----------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Sales and marketing 90,199 93,173
Product development (note 9) 68,256 92,792
General and administrative 89,645 88,119
Net restructuring and other unusual items (note 17) 5,164 26,736
Goodwill impairment (note 7) 16,785 --
Amortization of intangible assets 1,633 1,738
- ----------------------------------------------------------------------------------------------------
271,682 302,558
- ----------------------------------------------------------------------------------------------------
Income from operations 84,880 87,345
- ----------------------------------------------------------------------------------------------------
Interest income 2,037 1,900
Interest expense (743) (3,521)
Other income (expense), net (2,553) 933
- ----------------------------------------------------------------------------------------------------
(1,259) (688)
- ----------------------------------------------------------------------------------------------------
Income from operations before income taxes 83,621 86,657
Income taxes (note 18) 33,348 34,110
- ----------------------------------------------------------------------------------------------------
Net income 50,273 52,547
- ----------------------------------------------------------------------------------------------------
Basic net income per share 0.63 0.72
- ----------------------------------------------------------------------------------------------------
Diluted net income per share 0.62 0.69
- ----------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding ('000s) (note 15)
Basic 80,152 73,130
Diluted 81,695 75,784
====================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands of Canadian dollars) Years ended April 30, 2003 and 2002
Cumulative
foreign
Share Capital exchange Total
----------------------------- Special Purchase translation shareholders'
Shares Amount Options warrants warrants Deficit adjustment equity
- ----------------------------------------------------------------------------------------------------------------------------------
(thousands) $ $ $ $ $ $ $
BALANCE - APRIL 30, 2001
AS REPORTED 62,031 113,113 -- -- -- (140,960) (8,132) (35,979)
Adoption of new accounting
pronouncements (note 2) -- -- -- -- -- (8,260) 8,260 --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE - APRIL 30, 2001
AS RESTATED 62,031 113,113 -- -- -- (149,220) 128 (35,979)
Issued for cash 6,114 25,172 -- 17,885 -- -- -- 43,057
Exercise of special warrants 10,000 16,135 -- (17,885) 1,750 -- -- --
Net income -- -- -- -- -- 52,547 -- 52,547
Foreign exchange translation
adjustment -- -- -- -- -- -- (6,122) (6,122)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE - APRIL 30, 2002 78,145 154,420 -- -- 1,750 (96,673) (5,994) 53,503
Issued for cash (note 13) 58 197 -- -- -- -- -- 197
Exercise of purchase
warrants (note 13) 5,000 15,500 -- -- (1,750) -- -- 13,750
Issued in exchange for shares
of acquired company (note 13) 933 -- -- -- -- -- -- --
Option value resulting from
acquisition (note 13) -- -- 240 -- -- -- -- 240
Net income -- -- -- -- -- 50,273 -- 50,273
Foreign exchange translation
adjustment -- -- -- -- -- -- (7,726) (7,726)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE - APRIL 30, 2003 84,136 170,117 240 -- -- (46,400) (13,720) 110,237
===============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
- --------------------------------------------------------------------------------------------------
(in thousands of Canadian dollars) 2003 2002
- --------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) $ $
Operating activities
Net income for the year 50,273 52,547
Adjusted for items not involving cash:
Amortization of intangible assets 1,633 1,738
Amortization of property, plant and equipment 15,904 18,058
Goodwill impairment 16,785 --
Write-down of other assets -- 2,668
Write-down of property, plant and equipment -- 5,065
Future income tax expense 25,648 13,939
Reversal of accrued liabilities and other provisions (7,750) (20,963)
Gain on divestiture of operations -- (5,256)
Other (744) 47
Change in non-cash working capital excluding deferred revenue (note 22) (38,602) 60,021
Change in deferred revenue (19,984) (44,991)
- --------------------------------------------------------------------------------------------------
43,163 82,873
- --------------------------------------------------------------------------------------------------
Investing activities
Acquisitions less cash acquired (note 20) (33,660) --
Proceeds from divestiture of operations less cash divested (note 21) -- 1,626
Net additions to property, plant and equipment (2,651) (5,529)
Additions to other assets -- (3,130)
Change in restricted cash and cash equivalents 1,787 815
- --------------------------------------------------------------------------------------------------
(34,524) (6,218)
- --------------------------------------------------------------------------------------------------
Financing activities
Issue of common shares and special warrants 13,947 43,057
Decrease in bank indebtedness -- (39,489)
(Repayment)/issuance of long-term debt (3,759) 1,651
- --------------------------------------------------------------------------------------------------
10,188 5,219
- --------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (5,521) (102)
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents
Net increase in cash and cash equivalents 13,306 81,772
Cash and cash equivalents - Beginning of year 115,449 33,677
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents - End of year 128,755 115,449
==================================================================================================
Supplemental cash flows disclosure (note 22)
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED STATEMENTS (April 30, 2003 and 2002)
(Amounts in thousands of Canadian dollars, except share and per share data and
as otherwise noted)
1. NATURE OF OPERATIONS
Geac Computer Corporation Limited (Geac or the Company) is a global enterprise
software company for business performance management, providing customers
worldwide with the core financial and operational solutions and services to
improve their business performance in real time. Geac's solutions include
cross-industry enterprise application systems (EAS) for financial administration
and human resources functions, expense management, and time capture, and
enterprise resource planning applications for manufacturing, distribution, and
supply chain management. These cross-industry applications are marketed globally
and span a number of product lines. Geac also provides industry specific
applications (ISA) tailored to the real estate, restaurant, property management,
and construction marketplaces, and for libraries, and public safety agencies.
Geac is also a reseller of computer hardware and software, and we provide a
broad range of professional services, including application hosting, consulting,
implementation services, and training. Geac's most significant international
operations are in the United States, the United Kingdom, and France.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
a) FOREIGN CURRENCY TRANSLATION
Effective May 1, 2002, the Company adopted retroactively the revised
recommendations of Canadian Institute of Chartered Accountants (CICA) 1650,
"Foreign Currency Translation," and accordingly eliminated the deferral and
amortization of unrealized translation gains and losses on foreign currency
denominated monetary items that have a fixed or ascertainable life extending
beyond the period.
As of April 30, 2002, the retroactive adoption of CICA 1650 resulted in an
increase of $8,260 to opening deficit, an increase of $7,558 in cumulative
foreign exchange translation adjustment, and an increase of $702 in net income,
or $0.01 per diluted share, for fiscal year 2002.
Transactions denominated in currencies other than the functional currency are
translated into the functional currency as follows: current monetary assets and
liabilities are translated at the exchange rate in effect at the consolidated
balance sheet dates, and revenues and expenses are translated at the average
exchange rate for the year. Long-term monetary liabilities are translated at the
exchange rate in effect at the consolidated balance sheet dates. Non-monetary
assets and liabilities are translated at historical rates. Gains and losses
arising from such translation are reflected in the consolidated statements of
operations.
b) STOCK-BASED COMPENSATION
Effective May 1, 2002, the Company adopted the new CICA 3870, "Stock-Based
Compensation and Other Stock-Based Payments" (CICA 3870). As permitted under the
new recommendations, the Company has elected not to adopt the fair value method
of accounting for stock options granted to employees and continues to apply the
same policy as in prior years. Hence the new recommendations have had no effect
on the balance sheet or the net income of the Company. The Company has presented
the required disclosures under the new accounting standard in note 13.
The Company has two stock-based compensation plans, which are described in note
13. No compensation expense has been recognized for these plans when stock or
stock options have been issued to employees, directors or executive officers
because all such options and stock have been granted at or above the prevailing
market price at the time of the grant. Any consideration paid by employees on
exercise of options or on purchase of stock is credited to the Company's share
capital account.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
including future income tax assets and liabilities, the 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.
CONSOLIDATION
These consolidated financial statements comprise the financial statements of
Geac Computer Corporation Limited and its subsidiary companies which are fully
owned by Geac. Intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are composed of non-restricted cash and short-term,
highly liquid investments with an original maturity of 90 days or less.
RESTRICTED CASH AND CASH EQUIVALENTS
Cash and cash equivalents are considered restricted when they are subject to
contingent rights of a third party customer, vendor, or government agency. As of
April 30, 2003, the majority of restricted cash and cash equivalents are related
to letters of credit issued for the benefit of lessors of office space. These
letters of credit are collateralized by cash in the amount of $2,462 (US$1,717).
As of April 30, 2002, the restricted cash and cash equivalents were mainly
related to cash collateralization of $3,191 of performance bonds for customer
contracts, and $1,809 of bank guarantees and letters of credit for office space
and vendor obligations.
GOODWILL
Goodwill represents the excess of the cost of an acquired enterprise over the
net of the amounts assigned to assets acquired and liabilities assumed.
Effective May 1, 2001, the Company adopted CICA 3062, "Goodwill and Other
Intangible Assets." Under CICA 3062, goodwill and indefinite lived intangible
assets are no longer amortized but are reviewed for impairment annually.
Goodwill is required to be tested for impairment between the annual tests if an
event occurs or circumstances change such that it is more likely than not that
the fair value of a reporting unit has been reduced below its carrying value.
Examples of these conditions include significant underperformance relative to
historical or expected future operating results, significant changes in the
manner of our use of the acquired assets or our strategy, significant negative
industry or economic trends, or significant decline in our share price or market
capitalization. Geac determines the fair value of its reporting units using the
income method and the present value of estimated future cash flows. When it is
determined that the carrying amount of goodwill exceeds the fair value of
goodwill as a result of the impairment testing, a goodwill impairment loss will
be recognized on the statement of operations. Prior to
May 1, 2001, goodwill was amortized on a straight-line basis over the estimated
periods of benefit not exceeding ten years.
INVENTORY
Work-in-progress and finished goods inventory are stated at the lower of cost on
a first-in, first-out basis and net realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated amortization
and are amortized over the estimated useful lives of the related assets as
follows:
- Buildings--40 years straight-line
- Computers, processing and office equipment and machinery--3 to 5
years straight-line
- Automobiles--4 years straight-line
- Leasehold improvements--straight-line over the lease term
- Assets under capital leases--straight-line over the useful lives of
the assets, as indicated above
The Company reviews, on an ongoing basis, the carrying values of its property,
plant and equipment. If it is determined that the carrying value of property,
plant and equipment is not recoverable and exceeds its fair value, a write-down
to fair value is charged to income in the period that such a determination is
made.
INTANGIBLE ASSETS
Intangible assets, which consist of acquired software, customer relationships
and agreements, and trademarks, are recorded at cost less accumulated
amortization. Intangible assets are amortized on a straight-line basis over the
estimated useful lives of the related assets, which normally do not exceed five
years.
Intangible assets are reviewed on an ongoing basis. When events and
circumstances indicate that carrying amounts may not be recoverable, a
write-down to fair value is charged to income in the period that such a
determination is made.
INCOME TAXES
Effective May 1, 2000, the Company adopted CICA 3465, "Income Taxes." The
recommendations require the liability method of accounting for income taxes.
Under this method, current income taxes are recognized for the estimated income
taxes payable for the current year. Future income tax assets and liabilities are
recognized for temporary differences between the tax and accounting bases of
assets and liabilities, as well as for the benefit of losses available to be
carried forward to future years for income tax purposes. Future income tax
assets are recognized only to the extent that, in the opinion of management, it
is more likely than not that the future income tax assets will be realized.
Future income tax assets and liabilities are measured using substantively
enacted income tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Future income tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of substantive enactment. Prior to the
adoption of the recommendations, income tax expense was determined using the
deferral method of income tax allocation. Deferred income tax expense was based
on items of
income and expense that were reported in different years in the financial
statements and income tax returns and measured at the income tax rate in effect
in the year the difference originated.
Investment tax credits arising from research and development are deducted from
the related costs and, accordingly, are included in the determination of income
in the same year as the related costs.
REVENUE RECOGNITION
Revenue from the sale of software licenses is recognized when persuasive
evidence of an arrangement exists, delivery of the product has occurred, the fee
is fixed or determinable, and collectibility is probable. Arrangements for which
the fees are not fixed or determinable are recognized in the period they become
known and due.
For software contracts sold through indirect channels, revenue is recognized
when, based on the shipping terms, delivery of the software products to the
resellers is deemed to occur, provided that all fees are fixed or determinable,
evidence of an arrangement exists and collectibility is reasonably assured.
Contract terms do not provide resellers with product rotation rights or rights
of return.
For contracts involving significant implementation or customization essential to
the functionality of the Company's products, the license and service revenues
are recognized over the period of the engagement, using the
percentage-of-completion method. Progress is measured using milestones or costs
incurred. Revenue is classified in the financial statements as either license
revenue or professional services revenue based upon the Company's estimates of
fair value for each of the elements. A provision for estimated contract losses
is recognized in the period the loss becomes probable and can be reasonably
estimated.
Revenue from professional services, such as consulting fees or training fees, is
recognized as the services are performed. Maintenance and support revenues are
recognized ratably over the term of the related maintenance agreement, which is
normally one year.
The timing of revenue recognition may differ from contract payment schedules,
resulting in revenues that have been earned but not yet billed. These amounts
are included in unbilled receivables. Customer advances in excess of revenue
earned and recognized are recorded as deferred revenue.
The Company has established VSOE of fair value of its products and services for
purposes of accounting for multiple-element arrangement and believes that the
evidence gathered complies with the requirements of SOP 97-2. VSOE is
established for each of the elements in the arrangement based on the following:
- Customers are generally required to renew their maintenance and
technical support contracts annually and pay separately for such
renewal. The Company considers the renewal rates, which are included
as a term of the arrangement, to represent VSOE of fair value for the
maintenance and technical support element in the arrangement.
- The Company has an established history of selling consulting and
professional services separately. The Company charges standard hourly
rates for consulting services, which are based on the nature of the
services and the experience of the professionals who are performing
the services. The Company considers these rates to represent VSOE of
fair value for consulting services.
- The Company occasionally sells computer hardware, such as IBM e-server
i-Series (formerly AS/400) servers, for use in conjunction with
software systems, where appropriate, to provide a more complete
solution to customers. The VSOE of fair value for this element of the
arrangement is based on the price established by our suppliers and is
consistent with the price actually paid by the Company to the
suppliers, at a modest mark up.
For the sale of software licenses bundled with a one-year service and
maintenance contract, the Company generally invoices 100% of the fee at the
inception of the license contract, with terms of 30 days. For maintenance
renewals, 100% of the annual fee is charged at the inception of the maintenance
contract, with terms of 30 days. Consulting contracts are generally billed based
on time and materials, throughout the term of the assignment, with terms of 30
days.
RESEARCH AND DEVELOPMENT COSTS
Research costs, other than capital expenditures, are expensed as incurred.
Development costs are expensed as incurred unless they meet the criteria under
Canadian generally accepted accounting principles for deferral and amortization.
Research and development costs are reduced by the amount of related government
grants and other amounts recoverable.
As of April 30, 2003, the Company has not deferred any development costs.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses incurred in
fiscal 2003 were $3,621 (2002 - $4,995).
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in the cost of revenues.
EARNINGS PER SHARE
Effective May 1, 2001, the Company adopted the revised recommendations in CICA
3500, "Earnings per Share" (EPS). The revised Handbook section requires the use
of the treasury stock method, which assumes that proceeds received from the
exercise of stock options are used to purchase common shares at the average
market price during the year. The resulting incremental shares are included in
the denominator of the diluted EPS calculation.
FOREIGN SUBSIDIARIES
The financial statements of integrated foreign operations are remeasured into
the functional currency using the temporal method. Under this method, monetary
assets and liabilities are remeasured at the exchange rates in effect at the
consolidated balance sheet dates. Non-monetary assets and liabilities are
remeasured at historical rates. Revenues and expenses are translated at the
average rate for the year. Gains and losses resulting from the translation are
reflected in the consolidated statements of operations.
The financial statements of self-sustaining operations with a functional
currency other than the Canadian dollar are translated into the reporting
currency using the current rate method. Under this method, assets and
liabilities are translated at the exchange rates in effect at the balance sheet
dates, and revenues and expenses are translated at the average rate for the
year. Gains and losses resulting from translation are reflected in the
cumulative foreign exchange translation adjustment in shareholders' equity.
COMPARATIVE FIGURES
Certain of the prior year's figures have been reclassified to conform to the
current year's presentation.
3. ACCOUNTS RECEIVABLE AND OTHER
April 30,
2003 2002
- ---------------------------------------------------------------
$ $
Trade accounts receivable 86,962 83,096
Allowance for doubtful accounts (8,907) (8,431)
Other receivables 388 3,702
- --------------------------------------------------------------
78,443 78,367
- --------------------------------------------------------------
4. INVENTORY
April 30,
2003 2002
- ----------------------------------------------------------
$ $
Finished goods 1,110 1,091
Work-in-progress 18 1,028
- --------------------------------------------------------
1,128 2,119
========================================================
5. PROPERTY, PLANT AND EQUIPMENT
- -----------------------------------------------------------------------------------------------------------------------
April 30, 2003
Accumulated
Cost amortization Net
- -----------------------------------------------------------------------------------------------------------------------
$ $ $
Land 2,932 -- 2,932
Buildings 14,079 3,536 10,543
Computers, processing and office equipment and machinery 111,937 99,332 12,605
Automobiles 1,172 901 271
Leasehold improvements 17,840 13,527 4,313
Assets under capital leases (i) 8,902 2,798 6,104
- -------------------------------------------------------------------------------------------------------------------
156,862 120,094 36,768
===================================================================================================================
April 30, 2002
Accumulated
Cost amortization Net
- ----------------------------------------------------------------------------------------------------------------------
$ $ $
Land 3,175 -- 3,175
Buildings 15,186 3,186 12,000
Computers, processing and office equipment and machinery 113,752 93,427 20,325
Automobiles 1,878 1,563 315
Leasehold improvements 18,667 12,357 6,310
Assets under capital leases (i) 13,227 7,673 5,554
- -------------------------------------------------------------------------------------------------------------------
165,885 118,206 47,679
===================================================================================================================
(i) Assets under capital leases mainly consist of a building.
6. INTANGIBLE ASSETS
April 30, 2003
Accumulated
Cost amortization Net
- ----------------------------------------------------------------------------------------------------------------------
$ $ $
Acquired software (i) 11,730 594 11,136
Customer relationships and agreements (i) 4,373 539 3,834
Trademarks and name (i) 1,101 58 1,043
- -------------------------------------------------------------------------------------------------------------------
17,204 1,191 16,013
===================================================================================================================
April 30, 2002
Accumulated
Cost amortization Net
- ----------------------------------------------------------------------------------------------------------------------
$ $ $
Acquired software 3,443 3,019 424
==================================================================================================================
(i) Additions of intangible assets in fiscal 2003 resulted from the acquisitions
of Extensity, Inc. and the assets of EBC Informatique (note 20).
7. GOODWILL
- --------------------------------------------------------------------------------------------------------------------
April 30,
2003 2002
$ $
- --------------------------------------------------------------------------------------------------------------------
Goodwill 190,449 203,106
Less: Accumulated amortization 62,312 76,239
- -------------------------------------------------------------------------------------------------------------------
128,137 126,867
===================================================================================================================
In connection with the annual review of the carrying value of goodwill, a
goodwill write-down of $16,785 was recorded in the fourth quarter of fiscal 2003
relating to the Interealty business, based on revised future estimates of its
likely performance. This represented the full amount of goodwill on the
Company's balance sheet for the Interealty business.
The changes in the carrying amount of goodwill are as follows:
Balance as at April 30, 2001 $ 132,737
Goodwill sold as part of the sale of publishing systems business (3,607)
Goodwill adjustment related to pre-acquisition liabilities (3,967)
Foreign exchange impact 1,704
- -------------------------------------------------------------------------------------------------------------------
Balance as at April 30, 2002 $ 126,867
Goodwill from EBC acquisition (note 20) 2,478
Goodwill from Extensity acquisition (note 20) 24,357
Goodwill impairment (16,785)
Goodwill adjustment related to pre-acquisition liabilities (note 17) (1,081)
Foreign exchange impact (7,699)
- -------------------------------------------------------------------------------------------------------------------
Balance as at April 30, 2003 128,137
===================================================================================================================
The goodwill has not been allocated to segments as it is not included in the
determination of segment assets reviewed by the chief operating decision maker.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- --------------------------------------------------------------------------------------------------------------------
April 30,
2003 2002
- --------------------------------------------------------------------------------------------------------------------
$ $
Accounts payable 15,948 35,528
Payroll and benefits 40,370 41,605
Accrued restructuring charges 33,380 38,844
Accrued professional fees and legal costs 14,448 20,425
Commodity and property taxes 8,390 10,543
Hardware and third party software 5,418 4,568
Insurance 2,307 2,331
Other accrued liabilities 15,891 16,465
- -------------------------------------------------------------------------------------------------------------------
136,152 170,309
===================================================================================================================
9. RESEARCH AND DEVELOPMENT COSTS
- -------------------------------------------------------------------------------------------------------------------
April 30,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
$ $
Research and development costs (included in product development expenses) 25,964 35,997
===================================================================================================================
Product development expenses, which include maintenance-related development, are
$68,256 in fiscal 2003 (2002 - $92,792) net of investment tax credits of $nil in
fiscal 2003 (2002 - $1,400).
10. CREDIT FACILITY
The Company entered into a 24-month revolving credit facility in the second
quarter of fiscal 2002 in the amount of US$20,000. Borrowings under this
facility were collateralized by a substantial portion of the Company's assets
and bore interest at a variable rate with a minimum of 9.75%. There was no
drawdown under this credit facility, and it was terminated by the Company in
March 2002.
11. LONG-TERM DEBT
- -------------------------------------------------------------------------------------------------------------------
April 30,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
$ $
Collateralized loans
Euro loans bearing interest of 4.10% to 6.50% per annum, repayable in fiscal
2004 (2002 - until fiscal 2005),
collateralized by certain assets of the borrowing subsidiary 16 1,039
Sterling loans, bearing interest at 2.00% above bank base rate per annum,
repayable in full in fiscal 2007, collateralized by real properties 3,590 5,252
Uncollateralized loans
Euro loans bearing interest ranging from 4.10% to 4.60% per annum,
repayable until fiscal 2005 517 --
Sterling loans, bearing interest ranging from a variable rate of 1.10%
above bank base rate per annum, repayable until fiscal 2003 -- 106
Capital lease obligations
Bearing interest between 4.75% and 8.00% (2002 - 5.00% and 8.29%),
uncollaterized 4,907 5,544
Mandatorily redeemable preference shares
US dollar preference shares issued by subsidiary, bearing a fixed dividend
of 12% per annum, redeemable and retractable after fiscal 2008 .78 --
- -------------------------------------------------------------------------------------------------------------------
9,108 11,941
Less: Current portion 1,050 1,987
- -------------------------------------------------------------------------------------------------------------------
Long-term debt 8,058 9,954
===================================================================================================================
The interest expense on long-term debt and interest paid are as follows:
April 30,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
$ $
Interest expense on long-term debt 415 676
Cash interest paid on long-term and short-term obligations 704 2,990
===================================================================================================================
The capital repayments required on the Company's total long-term obligations at
April 30, 2003 are as follows:
- --------------------------------------------------------------
2004 $ 1,050
2005 526
2006 526
2007 4,159
2008 692
2009 and subsequent 2,155
- --------------------------------------------------------------
9,108
==============================================================
12. COMMITMENTS AND CONTINGENCIES
The Company has operating leases on rental equipment for varying terms up to a
maximum of 5 years, leases on vehicles for varying terms up to a maximum of 4
years, and has entered into leases for the rental of premises for varying terms
up to a maximum of 12 years. Aggregate lease payments in each of the next five
years, beginning with the year ending April 30, 2004, are as follows:
- ----------------------------------------------------------------
2004 $ 23,094
2005 19,337
2006 13,228
2007 4,209
2008 2,240
2009 and subsequent 4,282
- ----------------------------------------------------------------
66,390
================================================================
The operating lease expense incurred in fiscal 2003 was $24,374 (2002 -
$29,423).
The Company has capital leases on assets (notes 5 and 11) for varying terms up
to a maximum of 8 years. Aggregate lease payments on assets held under capital
leases in each of the next five years, beginning with the year ending April 30,
2004, are as follows:
- ----------------------------------------------------------------
2004 $ 910
2005 809
2006 807
2007 807
2008 807
2009 and subsequent 2,422
- ----------------------------------------------------------------
6,562
Less: Imputed interest on capital lease obligations 1,655
- ----------------------------------------------------------------
4,907
================================================================
As at April 30, 2003, letters of credit and bank guarantees are outstanding for
approximately $3,923 (2002 - $2,432). The Company is potentially liable for
approximately $179 (2002 - $3,128) of performance bonds, which are routinely
issued on its behalf by financial institutions in connection with outstanding
contracts with various public sector customers.
The Company, in the normal course of business, is subject to legal proceedings
being brought against it and its subsidiaries. The most significant of these are
complaints relating to JBA Holdings plc and its software prior to Geac's
acquisition of JBA in September 1999. The ultimate outcome of these matters
cannot currently be determined, nor can the liability that could potentially
result from a negative outcome in each case currently be reasonably estimated.
In the event of a negative outcome, the liability that the Company may
ultimately incur with respect to any of these matters may be in excess of
amounts currently accrued with respect to such matters and, as a result, these
matters may be material to the Company's consolidated financial statements.
13. SHARE CAPITAL
The Company is authorized to issue an unlimited number of common shares, with no
par value, and an unlimited number of preference shares, with no par value,
issuable in series.
In March 2003, the Company acquired Extensity, Inc. Under the terms of the
merger agreement, Extensity shareholders were able to elect to receive, for each
share of Extensity common stock, 0.627 of a Geac common share or US$1.75 in
cash. In connection with this transaction, the Company issued 932,736 shares at
a value of $4.13 per share, which is determined based on an average market price
of Geac during 3 days prior to the closing of the acquisition. The issued share
capital of $3,852 was offset by the issuance costs incurred in the transaction.
In accordance with the terms of the merger agreement, the Company assumed all of
the Extensity outstanding options on the closing date of March 6, 2003. The fair
value of $240 of the assumed options was recognized as part of the share capital
of the Company.
In May 2001, the Company entered into an agreement with a syndicate of
underwriters led by CIBC World Markets Inc. under which the underwriters agreed
to buy 10 million units via special warrants. Each unit consisted of one common
share plus one half of a common share purchase warrant, and the units were
issued at $2.00 per unit, for aggregate proceeds of $20,000. The net proceeds
after underwriters' fees and other issue expenses were $17,885. On August 1,
2001, the 10 million special warrants were exercised, which resulted in the
issuance of 10 million common shares and 5 million common share purchase
warrants and an increase in share capital in the amount of $16,135. The purchase
warrants were recorded at their fair value of $1,750. Each full common share
purchase warrant entitled the purchaser to acquire a common share of the Company
for $2.75 at any time up to 18 months from the close of the offering on June 29,
2001. During the second and third quarters of fiscal 2003, all 5 million
purchase warrants were exercised. As a result of this exercise, share capital
increased by $13,750 and the fair value of purchase warrants of $1,750 was
reclassified and recognized as part of the issued share capital.
The Company also completed another equity financing on September 27, 2001. The
sale of 6 million common shares at $4.50 per share raised gross proceeds of
$27,000. The net proceeds after commissions and other issue expenses were
$24,775.
STOCK OWNERSHIP PLAN
An Employee Stock Ownership Plan (ESOP), under which employees could make
quarterly purchases of shares of the Company at a 10% discount from the lower of
the weighted average market price of the shares during the fiscal quarter or the
average market closing price during the last five business days in the
quarter, has been in existence since 1984. After 28,387 shares were issued under
the ESOP, on July 31, 2001, the Company replaced the ESOP with an amended and
restated Employee Stock Purchase Plan (ESPP) with similar terms effective August
1, 2001. The maximum number of shares available for issuance to plan members
under ESPP is 600,000, which excludes the number of shares issued under the
ESOP. During fiscal 2003, 39,646 (2002 - 65,295) shares were issued to employees
at a weighted average price of $3.57 (2002 - $3.49) per share. The aggregate
number of shares available to be issued under the ESPP as at April 30, 2003, is
523,446 (2002 - 563,092). The Company's share capital account was credited for
$141 (2002 - $228) for cash received from employees for purchases of stock under
the stock ownership plan.
STOCK OPTION PLAN
Options have been granted to employees, directors, and executive officers to
purchase common shares at or above the prevailing market price at the time of
the grant under the Employee Stock Option Plan. Options under this plan usually
vest over three to four years and expire ten years from the date granted. The
maximum number of shares reserved for Geac's stock option plan is 9.2 million.
As of April 30, 2003, the total number still available to be issued under the
existing plan was 1,977,097 (2002 - 1,584,597) options.
In connection with the Extensity acquisition, 175,768 options were issued to
replace outstanding options of Extensity, Inc. and 958,320 additional options
were granted on March 25, 2003, to employees of Extensity, Inc., which vest over
three years and expire in ten years after the date of grant.
An analysis of the stock options outstanding under the employee stock option
plan and other arrangements is as follows:
2003 2002
- --------------------------------------------------------------------------------------------------------------------
Weighted Weighted
average average
Number exercise Number exercise
of options price of options price
- --------------------------------------------------------------------------------------------------------------------
(thousands) (thousands)
$ $
Outstanding - Beginning of year 6,492 9.64 6,627 13.40
Options granted 2,404 4.39 2,671 4.82
Options exercised (20) 2.89 (49) 3.47
Options expired (974) 14.48 (1,625) 15.52
Options forfeited (688) 11.27 (1,132) 11.98
- -------------------------------------------------------------------------------------------------------------------
Outstanding - End of year 7,214 7.10 6,492 9.64
- -------------------------------------------------------------------------------------------------------------------
Weighted average exercise price
of options exercisable - End of year 9.83 13.01
===================================================================================================================
The Company's share capital account was credited with $56 (2002 - $169) for cash
received from employees upon the exercise of stock options.
During fiscal 2002, the Company extended the contractual life of 96,750 options,
but in fiscal 2003, the Company did not extend the contractual life of any
options.
Options outstanding Options exercisable
- ---------------------------------------------------------------------------------------------------------------
Number Weighted Number Weighted
outstanding average Weighted outstanding average Weighted
Range of as at remaining average as at remaining average
exercise April 30, contractual exercise April 30, contractual exercise
prices 2003 life (years) price 2003 life (years) price
- ---------------------------------------------------------------------------------------------------------------
$ $ $
0.38 - 3.52 1,509,768 8.0 2.82 518,142 7.6 2.85
4.24 - 4.83 2,543,320 9.5 4.56 98,750 8.8 4.78
6.37 - 9.32 2,609,250 6.6 8.18 2,063,750 6.3 8.10
10.15 - 29.25 367,000 3.3 20.60 355,250 3.2 20.50
32.92 - 41.25 185,000 3.6 35.11 152,500 3.5 35.52
- --------------------------------------------------------------------------------------------------------------
0.38 - 41.25 7,214,338 7.7 7.10 3,188,392 6.1 9.83
==============================================================================================================
SHAREHOLDER PROTECTION RIGHTS PLAN
Pursuant to the Company's Shareholder Protection Rights Plan (the "Plan"), on
March 15, 2000, the board of directors of the Company authorized the issuance of
one right (a "Right") for each common share that was outstanding on that date or
issued subsequently. Generally, each Right, except for Rights owned by an
acquiring person (as defined in the Plan) will, if certain events occur,
constitute the right to purchase from the Company, on payment of the exercise
price, that number of shares of the Company having an aggregate market price
equal to twice the exercise price, subject to adjustment in certain
circumstances. Prior to the separation time (as defined in the Plan), the
exercise price for a Right is equal to three times the market price from time to
time. After the separation time, the exercise price is three times the market
price at the separation time. The Rights become exercisable after the separation
time, which generally occurs ten days after a person acquires beneficial
ownership of or announces an intention to acquire 20% or more of the voting
securities of the Company unless the board of directors determines that it
should be a later date. Until the separation time, the Rights trade together
with the existing common shares. The Plan will expire on the date of the annual
meeting of the Company to be held in 2003, subject to earlier termination in
certain circumstances. The board of directors may, in certain circumstances,
redeem outstanding Rights at a redemption price of $0.001 per Right.
PRO FORMA STOCK-BASED COMPENSATION
Effective May 1, 2002, the Company adopted prospectively the new CICA 3870,
"Stock-Based Compensation and Other Stock-Based Payments." As permitted under
the new recommendations, the Company has elected not to adopt the fair value
method of accounting for stock options granted to employees and continues to
apply the same policy as in prior years. Hence the new recommendations have had
no effect on the balance sheet or the net income of the Company. The assumptions
underlying the computation of compensation expense based on the fair value
method of accounting and the resulting impact that the fair value method of
accounting would have had on net income are as follows.
The fair value of stock options was estimated using Black-Scholes option-pricing
model. The weighted average exercise price and fair value of stock options newly
granted, and weighted average fair value of shares issued under the ESPP in
fiscal 2003, are as follows:
STOCK OPTION EXERCISE PRICE FAIR VALUE
Weighted average value of in-the-money options per share * $ 2.61 $ 2.20
Weighted average value of at-the-money options per share * 4.69 3.41
Weighted average value of out-of-the-money options per share * 4.34 3.04
- ---------------------------------------------------------------------------------------------------------------------
ESPP FAIR VALUE
Weighted average value per share $ 1.23
- ---------------------------------------------------------------------------------------------------------------------
Had the Company recorded compensation expense based on the fair value of the
options at the grant date and shares issued under the ESPP, results would have
been as follows:
2003
- ---------------------------------------------------------------------------------------------------------
Net income - as reported $ 50,273
Pro forma stock-based compensation expense 580
- ---------------------------------------------------------------------------------------------------------
Net income - pro forma 49,693
Basic net income per share - as reported $ 0.63
Pro forma stock-based compensation expense per share 0.01
- ---------------------------------------------------------------------------------------------------------
Basic net income per share - pro forma 0.62
Diluted net income per share - as reported $ 0.62
Pro forma stock-based compensation expense per share 0.01
- ---------------------------------------------------------------------------------------------------------
Diluted net income per share - pro forma 0.61
* In-the-money options are defined as the options with an exercise price
less than the market price of the stock on the grant date of the
options. At-the-money options are defined as the options with an
exercise price the same as the market price of the stock on the grant
date of the options. Out-of-the money options are defined as the
options with an exercise price more than the market price of the stock
on the grant date of the options.
For the purpose of pro forma disclosure, the estimated fair value of
the options is amortized to expense over their vesting period on a
straight-line basis. In accordance with CICA recommendations, the pro
forma disclosure excludes the effect of options granted before the
adoption of CICA 3870.
The fair value of each option and each share issued under the ESPP was
estimated on the date of grant/issue using the Black-Scholes
option-pricing model with the following assumptions at the measurement
date:
ASSUMPTIONS STOCK OPTION ESPP
Weighted average risk-free interest rate 4.54% 2.68%
Weighted average expected life 6.61 years 0.25 years
Weighted average volatility in the market price of common shares 75.81% 65.50%
Weighted average dividend yield Nil Nil
14. FINANCIAL INSTRUMENTS
Financial instruments included in the consolidated balance sheets consist of
cash and cash equivalents, accounts receivable, unbilled receivables, accounts
payable and accrued liabilities, and long-term debt.
a) FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The fair values of accounts receivable, unbilled receivables, and accounts
payable and accrued liabilities approximate their carrying values because of the
short-term maturity of those instruments. At April 30, 2003, there is no
significant difference between the carrying value and the fair value of
long-term debt. The Company is not a party to any significant derivative
instruments.
b) CREDIT RISK
The Company is subject to credit risk for billed and unbilled receivables and
cash and cash equivalents. Receivables are with customers in many diverse
industries and are subject to normal industry credit risks. The Company places
its temporary excess cash in high-quality, short-term financial instruments
issued or guaranteed by major financial institutions in the countries in which
it operates or in similar low-risk instruments.
c) INTEREST RATE RISK
The Company is subject to interest rate risk on its floating rate long-term
debt. The annual increase or decrease in interest expense for each one
percentage change in interest rates on the floating rate debt at April 30, 2003,
is $36 (2002 - $54).
d) FOREIGN EXCHANGE RISK
The Company is subject to foreign exchange risk because most of its business is
transacted in currencies other than Canadian dollars. Accordingly, most of its
financial instruments are denominated in foreign currencies. The amount of the
net risk fluctuates in the normal course of business, as transactions in various
jurisdictions are concluded.
15. WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
The following table summarizes the reconciliation of the basic weighted average
number of shares outstanding and the diluted weighted average number of shares
outstanding used in the diluted net income per share calculations:
Years ended April 30,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
(thousands) (thousands)
Basic weighted average number of shares outstanding 80,152 73,130
Stock options and warrants 1,543 2,654
- -------------------------------------------------------------------------------------------------------------------
Diluted weighted average number of shares outstanding 81,695 75,784
16. SEGMENTED INFORMATION
The Company reports segmented information according to CICA 1701, "Segment
Disclosures." This standard requires segmentation based on the way management
organizes segments for monitoring performance.
The Company operates the following business segments, which have been segregated
based on product offerings, reflecting the way that management organizes the
segments within the business for making operating decisions and assessing
performance.
ENTERPRISE APPLICATIONS SYSTEMS (EAS) offer software solutions, which include
cross-industry enterprise business applications for financial administration and
human resource functions, and enterprise resource planning applications for
manufacturing, distribution, and supply chain management.
INDUSTRY-SPECIFIC APPLICATIONS (ISA) products include applications for the real
estate, construction, banking, hospitality and publishing marketplaces, as well
as a range of applications for libraries and public safety administration.
Accounting policies for the operating segments are the same as those described
in note 2. There are no significant inter-segment revenues. Segment assets
consist of working capital items, excluding cash and cash equivalents. Cash and
cash equivalents are considered to be corporate assets. Property, plant and
equipment are typically shared by operating segments and those assets are
managed by geographic region, rather than through the operating segments.
Year ended April 30, 2003
EAS ISA TOTAL
- -------------------------------------------------------------------------------------------------------------------
$ $ $
Revenues
Software 62,132 13,570 75,702
Support and services 379,321 121,376 500,697
Hardware 38,060 9,208 47,268
- -------------------------------------------------------------------------------------------------------------------
Total revenues 479,513 144,154 623,667
Segment contribution 107,357 11,227 118,584
Segment assets 72,505 21,220 93,725
===================================================================================================================
Year ended April 30, 2002
EAS ISA TOTAL
- -------------------------------------------------------------------------------------------------------------------
$ $ $
Revenues
Software 62,758 20,960 83,718
Support and services 428,468 152,392 580,860
Hardware 40,104 11,852 51,956
- -------------------------------------------------------------------------------------------------------------------
Total revenues 531,330 185,204 716,534
Segment contribution 105,667 14,063 119,730
Segment assets 74,595 18,221 92,816
===================================================================================================================
RECONCILIATION OF SEGMENT CONTRIBUTION TO INCOME FROM OPERATIONS BEFORE INCOME
TAXES
Years ended April 30,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
$ $
Segment contribution 118,584 119,730
Investment tax credits -- 1,400
Corporate expenses - net of recharges (8,519) (5,026)
Amortization of intangible assets (1,633) (1,738)
Interest income/(expense), net 1,294 (1,621)
Foreign exchange (4,156) 648
Net restructuring and other unusual items (note 17) (5,164) (26,736)
Goodwill impairment (16,785) --
- -------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 83,621 86,657
===================================================================================================================
RECONCILIATION OF SEGMENT ASSETS TO TOTAL COMPANY ASSETS
April 30,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
$ $
Segment assets 93,725 92,816
Goodwill 128,137 126,867
Intangible assets 16,013 424
Property, plant and equipment 36,768 47,679
Future income taxes 56,259 78,581
Cash and cash equivalents 128,755 115,449
Restricted cash and cash equivalents 3,433 5,220
Other unallocated assets 12,795 11,293
- -------------------------------------------------------------------------------------------------------------------
Total assets 475,885 478,329
===================================================================================================================
GEOGRAPHICAL INFORMATION
2003 2002
- --------------------------------------------------------------------------------------------------------------------
Property, Property,
plant and plant and
equipment, equipment,
intangible intangible
assets and assets and
Revenue goodwill Revenue goodwill
- --------------------------------------------------------------------------------------------------------------------
$ $ $ $
Canada 19,418 10,760 25,464 29,702
U.S.A. 306,466 139,694 380,008 116,688
United Kingdom 105,034 7,621 105,774 10,467
France 83,127 9,983 83,652 3,759
Australia 27,111 2,005 32,844 2,945
All other 82,511 10,855 88,792 11,409
- -------------------------------------------------------------------------------------------------------------------
623,667 180,918 716,534 174,970
===================================================================================================================
Revenues in the above tables are based on the location of the sales
organization, which reflects the location of the customers to which sales are
made. Revenues are derived from the licensing of software and the provision of
related support and consulting services.
17. NET RESTRUCTURING AND OTHER UNUSUAL ITEMS
In fiscal year 2003, the Company recorded $5,164 of net restructuring and other
unusual items, which is composed of gross charges of $11,251 and credits of
$6,087, as discussed below:
- A charge of $2,807 for severance relating to the restructuring
of the Company's business in North America. This charge
relates to 162 employees terminated in the fourth quarter and
planned to be terminated over the course of the next quarter.
These employees are primarily from the support and services,
development and sales and marketing areas. As at April 30,
2003, $764 of this amount had been paid to 77 employees,
leaving a balance of $2,043, related to 85 employees, to be
paid over the next fiscal year. Further severance charges of
approximately $1,000 are expected to be incurred in fiscal
2004 related to additional actions under this restructuring.
- A net release of $471 relating to the fiscal 2002
restructuring charge. This release comprises a net reduction
in severance accruals of $1,490 as a result of plan amendments
and employee attrition prior to their planned termination; a
reduction in premises rationalization of $2,447 for plan
amendments; offset by an increase in premises rationalization
accruals of $3,466 for changes in estimated recoveries and
settlements related to actions in the fiscal 2002
restructuring. The original fiscal 2002 restructuring charge
included severance of $16,758 related to 643 employees
primarily from the support and services and general and
administrative areas. As at April 30, 2003, $13,037 of this
amount had been paid to 552 employees, leaving a balance of
$2,231 to be paid over the next fiscal year related to 69
employees. Of the premises rationalization charge, $5,613 was
paid by April 30, 2003, and the balance of $9,683 will be
recognized from May 1, 2003, through the end of contractual
lease obligations.
- A charge of $4,978 for legal claims.
- A credit of $2,150 primarily for the elimination of deferred
revenue from a fiscal 2000 acquisition based on revised
estimates of the acquired obligations. In addition to the
adjustments affecting income, acquisition-related accruals
were reduced by $1,081 with a corresponding reduction of
goodwill of the related acquisition based on management's
determination that such accruals were no longer needed for
their originally intended purpose.
In fiscal year 2002, the Company recorded $26,736 of net restructuring and other
unusual items which is comprised of the following:
- A charge of $34,814 for severance, premises rationalization,
and other costs related to restructuring of the Company's
business worldwide as discussed above. As at April 30, 2002,
$1,588 of the severance had been paid to 100 employees,
leaving a balance of $15,170 related to 543 employees; and
$1,015 of the premises rationalization had been paid leaving
$16,728 to be paid from May 1, 2002, through the end of
contractual lease obligations.
- A reversal of $24,930 of accrued liabilities and other excess
provisions relating to prior years' restructuring activities
and Y2K provisions, as well as acquisition-related accruals.
The decision was based on management's determination that such
provisions were no longer needed for their originally intended
purpose. Of the total reversal, $14,052 specifically related
to restructuring and Y2K provisions and $6,911 related to
accrual estimates on certain fiscal year 2000 acquisitions,
for which the majority of goodwill and intangible assets were
written down in fiscal year 2001; and therefore, the reversal
was recorded as a credit to income. The remaining balance of
$3,967,
which also represents acquisition accruals, was written off as
an adjustment to goodwill related to that specific
acquisition.
- Asset write-downs totalling $5,065.
- A gain of $5,073 on the sale of the publishing systems
business (note 21).
- A net charge of $5,321 for the settlement of legal claims,
primarily related to the acquisition of JBA.
- A charge of $4,647 for strategic planning costs.
- A charge of $2,925 for unamortized financing costs of a credit
facility that was terminated in March 2002.
Activity related to the Company's restructuring plans, integration actions, and
Y2K transition costs, including provisions recorded prior to fiscal 2001, were
as follows:
Legal Y2K Premises Workforce
matters transition restructuring reductions Other Total
- ---------------------------------------------------------------------------------------------------------------------------------
$ $ $ $ $ $
April 30, 2001 provision balance 10,788 169 14,438 14,939 924 41,258
Fiscal year 2002 provision additions 8,003 -- 17,743 17,036 -- 42,782
Fiscal year 2002 costs charged against provisions (8,638) -- (5,734) (6,196) (770) (21,338)
Fiscal year 2002 provision release (347) (169) (4,033) (9,349) (154) (14,052)
- ----------------------------------------------------------------------------------------------------------------------------------
April 30, 2002 provision balance 9,806 -- 22,414 16,430 -- 48,650
Fiscal year 2003 provision additions 4,978 -- 12,307 8,345 -- 25,630
Fiscal year 2003 costs charged against provisions (9,092) -- (6,957) (15,222) -- (31,271)
Fiscal year 2003 provision release (181) -- (2,447) (1,490) -- (4,118)
- ----------------------------------------------------------------------------------------------------------------------------------
April 30, 2003 provision balance 5,511 -- 25,317 8,063 -- 38,891
==================================================================================================================================
Fiscal year 2003 provision additions include $8,585 for premises restructuring
related to the Extensity acquisition. As at April 30, 2003, $141 had been
charged against this provision, and the remaining $8,444 will be recognized
through to the end of the contractual lease obligation of the premise. Fiscal
year 2003 provision additions also include $1,568 for workforce reductions
related to 32 employees of Extensity in the general and administrative, support
and services, and sales and marketing areas. As at April 30, 2003, $808 had been
paid to 30 employees, leaving a balance of $760 to be paid over the next fiscal
year.
18. INCOME TAXES
The provision for income taxes reflects an effective income tax rate that
differs from the combined basic Canadian federal and provincial income tax rate
for the reasons in the table below.
2003 2002
- -------------------------------------------------------------------------------------------------------------------
$ $
Combined basic Canadian federal and provincial income tax rate 38.0% 40.6%
Provision for income taxes based on above rate 31,776 34,898
Increase (decrease) resulting from
Non-deductible amortization arising from acquisitions 620 545
Write-down of goodwill 6,378 --
Foreign tax rate differences (1,729) 5,796
Change to valuation allowance 2,482 (9,351)
Benefit of previously unrecognized losses and timing differences realized (8,353) --
Other 2,174 2,222
- -------------------------------------------------------------------------------------------------------------------
Provision for income taxes per consolidated statements of operations 33,348 34,110
===================================================================================================================
Total amount of income taxes paid in excess of recoveries is $8,949 (2002 -
$10,916).
INCOME TAX EXPENSE
2003 2002
- -------------------------------------------------------------------------------------------------------------------
$ $
Current income tax expense 7,700 20,171
- -------------------------------------------------------------------------------------------------------------------
Change in temporary differences 8,105 15,037
Recognition of loss carry-forwards 15,061 8,253
Change to valuation allowance 2,482 (9,351)
- -------------------------------------------------------------------------------------------------------------------
Future income tax expense 25,648 13,939
- -------------------------------------------------------------------------------------------------------------------
33,348 34,110
===================================================================================================================
The following table shows the income tax effects of temporary differences that
gave rise to future income tax assets as at April 30, 2003 and 2002.
2003 2002
- ------------------------------------------------------------------------------------------------------------------
$ $
Provisions and other 21,944 16,779
Deferred revenue 3,368 6,203
Valuation allowance (2,035) (2,474)
- ------------------------------------------------------------------------------------------------------------------
Future income taxes - current 23,277 20,508
Property, plant and equipment 31,297 33,308
Non-capital loss carry-forwards 67,524 78,846
Capital loss carry-forwards 3,707 2,034
Intangible assets (6,339) --
Valuation allowance (63,207) (56,115)
- ------------------------------------------------------------------------------------------------------------------
Future income taxes - non-current 32,982 58,073
- ------------------------------------------------------------------------------------------------------------------
Total future income taxes 56,259 78,581
==================================================================================================================
Substantially all of the Company's activities are carried out through operating
subsidiaries in a number of countries. The income tax effect of operations
depends on the income tax legislation in each country and operating results of
each subsidiary and the parent Company.
The Company has non-capital losses of approximately $191,958 (2002 - $235,700),
which are available for carry-forward against taxable income in future years and
which expire as shown in the table below. Certain non-capital losses may be
subject to restrictions on their availability.
The Company has capital losses of approximately $188,260 (2002 - $182,000),
which are available for carry-forward against taxable capital gains in future
years and which expire as shown in the table below.
Capital Non-capital
losses losses
- ----------------------------------------------------------------------------------------
$ $
2004 -- --
2005 -- --
2006 -- 973
2007 -- --
2008 - 2022 -- 50,989
Losses without expiry date 188,260 139,996
- --------------------------------------------------------------------------------------
188,260 191,958
======================================================================================
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized. Management evaluates a variety of factors,
including the Company's earnings history, the number of years the Company's
non-capital losses can be carried forward, and projected future taxable income.
As indicated in the table above, management has provided for a valuation
allowance for a portion of the non-capital loss carry-forwards in certain
jurisdictions where it is unlikely that the entities will generate sufficient
taxable income in the carry-forward years to utilize the losses and for all of
the capital losses. For the balance of future tax assets, although realization
is not assured, management believes it is more likely than not that the future
tax assets will be realized.
19. RELATED PARTY TRANSACTIONS
Accounts receivable and other as at April 30, 2003, included $363 (2002 - $398)
for a loan due from a former officer of the Company. The loan is partially
collateralized by 215,815 shares of the Company, which had a market value of
$1,176 as at April 30, 2003. The loan is repayable three years following
termination of the officer's employment, which occurred in October 2000, and
bears interest at the prime rate from the date of termination of his employment.
The carrying value of the loan was written down to the market value of the
underlying shares of the Company in fiscal 2001, and an estimated settlement
cost of $2,518 was recorded.
The Company acquired legal services from a law firm of which the Company's
Senior Vice President, Mergers and Acquisitions and Corporate Secretary is a
partner, in the amount of $2,070 in fiscal 2003 (2002 - $1,686).
20. ACQUISITIONS
During the year ended April 30, 2003, the total net cash purchase price of the
businesses acquired by the Company was $33,660, related to the businesses as
described below. In fiscal 2003, the Company acquired the shares of Extensity,
Inc. and certain assets of EBC Informatique. Acquisitions were accounted for by
the purchase method with the results of operations of each business included in
the consolidated financial statements from the respective dates of acquisition.
Effective August 5, 2002, the Company acquired certain assets of EBC
Informatique, a French hardware and software solutions provider. These assets
included customer contracts, intellectual property rights, trademarks, and
property, plant and equipment. The cash purchase price was $3,763. The acquired
net assets included, at fair value, $49 of property, plant and equipment; $3,709
of acquired intangible assets, including $2,953 of customer agreements, $662 of
acquired software, and $94 of trademark; $319 of current liabilities; $878 of
net future income tax liabilities; and $1,276 of other liabilities. The
difference between the purchase price and the net fair value of all identified
assets and liabilities acquired was $2,478 and is accounted for as goodwill.
On March 6, 2003, the Company acquired 100% of the common shares of Extensity,
Inc., a provider of solutions to automate employee-based financial systems,
headquartered in California. The purchase price was $74,032, consisting of
$63,876 of cash, 932,736 of common shares with a value of $3,852 less issuance
costs of $3,852, $240 of fair value of the assumed outstanding stock options of
Extensity, Inc., and $6,064 of transaction costs. The acquired net assets
included, at fair value, $43,895 of cash; $5,852 of
other current assets; $1,884 of property, plant and equipment; $13,680 of
acquired intangible assets, including $11,327 of acquired software, $1,324 of
customer agreements, and $1,029 of trademark; $18,698 of current liabilities;
and $4,529 of other liabilities. The Company recorded $7,591 of future income
tax assets as a component of the transaction. The difference between the
purchase price and the net fair value of all identifiable assets and liabilities
acquired was $24,357 and is accounted for as goodwill. Goodwill is not assigned
to an operating segment and is not deductible for income tax purposes.
There were no acquisitions during the year ended April 30, 2002.
21. DIVESTITURE OF OPERATIONS
There was no divestiture of operations in fiscal 2003.
The total sales proceeds from divestitures in fiscal 2002 were $1,626, the
majority of which related to the sale of the publishing systems business in
August 2001 for $1,500. The sale excluded real estate assets. The net
liabilities disposed of in the sale included accrued divestiture costs and
amounted to $3,573. The transaction resulted in a gain of $5,073, which was
recorded as an unusual item on the consolidated statements of operations (note
17).
22. SUPPLEMENTAL CASH FLOWS DISCLOSURE
Years ended April 30,
2003 2002
- --------------------------------------------------------------------------------------------------------------------
$ $
Change in non-cash working capital excluding deferred revenue (i)
Accounts receivable and other and unbilled receivables 6,656 28,108
Inventory 1,212 2,417
Prepaid expenses 603 1,198
Accounts payable and accrued liabilities (46,248) 22,743
Income taxes payable (825) 5,555
- ------------------------------------------------------------------------------------------------------------------
Total change in non-cash working capital excluding deferred revenue (38,602) 60,021
- ------------------------------------------------------------------------------------------------------------------
Cash paid for the following:
Interest (note 11) 704 2,990
Income taxes paid, net of recoveries (note 18) 8,949 10,916
- ------------------------------------------------------------------------------------------------------------------
(i) Excludes components of working capital associated with acquisitions, which
are reflected on the consolidated statements of cash flows in "acquisitions less
cash acquired."
23. SUBSEQUENT EVENT
On June 23, 2003, the Company announced that it had entered into a definitive
merger agreement to acquire Comshare, Incorporated (Comshare), a provider of
corporate performance management software, based in Michigan, for US$52 million
in cash, by way of a cash tender offer, to be followed by a cash merger. Under
the terms of the definitive agreement, Comshare shareholders will receive
US$4.60 in cash for each share of Comshare common stock held. The tender offer
is expected to be completed by August 2003. The transaction is subject to
regulatory clearance, approval by Comshare's shareholders and other customary
closing conditions.
FIVE YEAR FINANCIAL HIGHLIGHTS
(in thousands of Canadian dollars, except share and per share data) Years ended April 30,
- -----------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $ $
Revenues (1)(2) 623,667 716,534 834,844 964,073 759,538
Income (loss)from continuing operations before goodwill
impairment, net restructuring and other unusual items
and income taxes (1)(2)(3) 105,570 113,393 (81,489) 67,541 178,693
Goodwill impairment (16,785) -- -- -- --
Net restructuring and other unusual items (5,164) (26,736) (312,238) -- (268,854)
Income taxes(1) 33,348 34,110 (42,450) 22,799 25,392
Net income (loss) from continuing operations(1)(3) 50,273 52,547 (351,277) 44,742 (115,553)
Net (loss) income from discontinued operations, net of taxes(1) -- -- (449) 4,311 3,986
Gain on disposal of discontinued operations, net of taxes -- -- 95,951 -- --
Net income (loss)(3) 50,273 52,547 (255,775) 49,053 (111,567)
Basic net income (loss) per share (3) (4) 0.63 0.72 (4.12) 0.79 (1.80)
Diluted net income (loss) per share (3) (4) 0.62 0.69 (4.12) 0.78 (1.80)
Common shares outstanding 84,136 78,145 62,031 62,143 61,537
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents (2) 128,755 115,449 36,210 40,951 226,893
Current assets (2) 258,552 244,835 211,752 304,499 362,731
Total assets (2) 475,885 478,329 463,365 915,718 607,237
Current liabilities (2) 353,733 404,193 469,624 653,710 407,635
Total liabilities (2) 365,648 424,826 499,344 698,842 442,873
Shareholders' equity (deficiency) (3) 110,237 53,503 (35,979) 216,876 164,364
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities (5) (6) (7) 101,749 67,843 14,339 171,379 200,420
Cash used in investing activities (2) (6) (7) (34,524) (6,218) (4,989) (302,248) (118,502)
Cash provided by (used in) financing activities (6) 10,188 5,219 (107,783) 34,649 (47,869)
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Comparative figures of the 5 year financial highlights summary were restated
to reflect discontinued operations.
(2) Certain figures for the year 2002 were restated to conform with the current
year presentation.
(3) Comparative figures for the year 2002 were restated in accordance with CICA
Section 1650, "Foreign Currency Translation". The prior years' figures for
1999 - 2001 were not restated accordingly.
(4) EPS figures for the years 2000 - 2003 were calculated in accordance with
revised recommendations in CICA Section 3500, "Earnings per Share". The prior
year's figure for 1999 was not restated accordingly.
(5) Before changes in non-cash working capital and deferred revenue.
(6) Cashflows for the years 1999 - 2003 were prepared in accordance with the
amended Section 1540, "Statement of Cash Flows".
(7) Cashflows for the years 2000 and 2001 were restated to segregate cashflows
from discontinued operations.
SHAREHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR
Our transfer agent, Computershare Trust Company of Canada, can help you with a
variety of shareholder related services, including change of address and lost
share certificates.
EMAIL careregistryinfo@computershare.com
ONLINE www.computershare.com
PHONE 800.564.6253 / 514.982.7270
FAX 888.453.0330 / 416.263.9394
MAIL Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, ON M5J 2Y1
STOCK EXCHANGE LISTING
Geac common shares are listed on The Toronto Stock Exchange under ticker symbol
GAC.
WEB SITE
For more information on Geac, including current financial and corporate
information, stock quotations, press releases and product announcements, visit
our Web site at www.investors.geac.com
INVESTOR RELATIONS
EMAIL investor@geac.com
PHONE 905.475.0525 during regular business
hours for financial documents
or investment related questions
FAX 905.475.3847
MAIL Geac Computer Corporation Limited
11 Allstate Parkway, Suite 300
Markham, ON L3R 9T8
SUBSCRIBE TO GEAC NEWSFLASH
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ANNUAL GENERAL MEETING
DATE September 10, 2003
TIME 10.00 a.m. ET
VENUE The Design Exchange
234 Bay Street
Toronto-Dominion Centre
Toronto, ON M5K 1B2
LEGAL COUNSEL
EMAIL craig.thorburn@blakes.com
ONLINE www.blakes.com
PHONE 416.863.2965
FAX 416.863.2653
MAIL Blake, Cassels & Graydon LLP
199 Bay Street
Box 25, Commerce Court West
Toronto, ON M5L 1A9
AUDITORS
ONLINE www.pwcglobal.com
PHONE 416.863.1133
FAX 416.365.8215
MAIL PricewaterhouseCoopers LLP
Royal Trust Tower, TD Centre
Suite 3000, Box 82
Toronto, ON M5K 1G8
GEAC OFFICE LOCATIONS
WORLD HEADQUARTERS
Geac Computer Corporation Limited
11 Allstate Parkway, Suite 300
Markham, Ontario L3R 9T8
Canada
Tel. +1.905.475.0525
Fax +1.905.475.3847
NORTH AMERICAN HEADQUARTERS
120 Turnpike Road
Southborough, MA 01772
United States
Tel. +1.508.871.5000
Fax +1.508.871.5887
EUROPE/MIDDLE EAST/AFRICA HEADQUARTERS
72 Rue du Colonel De Rochebrune
92380 Garches
Paris
France
Tel. +33.1.47.95.90.00
Fax +33.1.47.95.19.00
ASIA-PACIFIC HEADQUARTERS
Level 2, 29-57 Christie Street
St. Leonards, 2065 NSW
Australia
Tel. +61.2.9978.7400
Fax +61.2.9978.7490