Exhibit 99.3
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 third quarter ended January 31, 2004 and the audited financial
statements and notes for the fiscal year (FY) ended April 30, 2003. 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 are
substantially unchanged from those presented under the "Risk Factors" heading in
the "Key Information" section of our annual report on Form 20-F, No. 333-103019,
for the fiscal year ended April 30, 2003 filed on October 31, 2003 with the
United States Securities and Exchange Commission, and available through the
website maintained by the Commission at www.sec.gov, and filed on November 3,
2003 with the Canadian Securities Administrators, and available through the
website maintained by the Canadian Securities Administrators and the Canadian
Depository for Securities at www.sedar.com, which risks and uncertainties are
incorporated by reference herein. Unless otherwise indicated, all dollar amounts
are expressed in U.S. dollars, and the word "dollars" and the symbol "$" refer
to U.S. dollars.
Our financial statements are prepared in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"). The financial statements of the
Company have historically been reported in Canadian dollars. Effective May 1,
2003 the Company adopted the U.S. dollar as its reporting currency, as U.S.
dollar denominated operations represent an increasingly significant portion of
the Company's operations. Accordingly, the change of the Company's reporting
currency from the Canadian dollar to the U.S. dollar reduces the Company's
exposure to foreign currency translation adjustments. Comparative financial
information has been recast as if the U.S. dollar had always been used as the
Company's reporting currency, and financial information has been translated into
U.S. dollars for all periods presented. 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.
On February 3, 2004 our common shares were registered under the Securities and
Exchange Act of 1934 and began trading on the NASDAQ National Market under the
ticker symbol "GEAC". Our common shares also continue to be listed on the
Toronto Stock Exchange under the ticker symbol "GAC."
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,
time capture, budgeting, financial
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consolidation, management reporting and analysis 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
worldwide.
Geac today has a presence in the financial front and back offices of many of the
largest companies in the world. These companies rely on our software
applications for their financial and operational processing.
GEAC GROWTH STRATEGY
SOFTWARE REVENUE GROWTH
Geac's dual objectives are (i) to extend relationships with our existing
customers by improving the productivity of those customers' existing business
processes with new products that build on those customers' ERP and Internet
frameworks, and (ii) to attract new customers by delivering a suite of software
solutions that can be integrated with their existing enterprise application
systems. In both cases, we aim to help our customers improve their business
performance with their existing resources. In order to continue to do so
effectively, we need to identify compelling products that are consistent with
our existing suite of products and then to employ a combination of three
strategies to aggregate those product offerings into a complimentary suite:
build, buy and partner. We believe that, if we are successful in achieving these
objectives, the result is likely to be an increase in new software license
revenues.
BUILD: ORGANIC GROWTH/PRODUCT EXPANSION
During our third quarter we continued to focus on growing our business
organically along key product lines, integrating important product and
organizational components of Comshare and other recent acquisitions and
developing new extension and integration applications in support of our
Performance Management strategy.
We have broadened our service offerings, expanded our delivery model, and
enhanced the value of existing product lines with a series of initiatives
designed to sustain our customer base by extending the value our customers
derive from Geac software.
- VALUE FOR MAINTENANCE - In Q2 FY 2004 we introduced a value-based
maintenance offering, which delivers new technology to users of our
mainframe software products that simplifies Web-enablement of
applications and integration with Geac and non-Geac systems. The new
program was rolled out to existing Geac E and M Series customers
coming up for maintenance renewal in Q3 FY 2004. An important
component of the value - based maintenance offering is an
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initiative that offers multiple years of support including
incentives to encourage customers to extend beyond our traditional
one year maintenance contract. To date, approximately 13% of our
renewing E and M series customers have elected to participate in the
Value For Maintenance (VFM) program representing 20% of the total
renewal dollars. We will continue to refine this offering as we
receive customer feedback. We expect more customers to transition to
this program as they renew their maintenance contracts. Once we have
determined that the VFM program achieves our dual objectives of
providing customer value and increasing customer retention we will
look to introduce it to customers in other product lines.
- HOSTED APPLICATION OFFERING - As we announced when reporting as to
our second quarter, we have expanded our delivery model by
broadening the availability of our ASP offering across our
Performance Management suite. There are currently 133,000 individual
licensed users of Geac Performance Management presently under
contract worldwide. Our hosted solutions represent one of several
application delivery and deployment options that we offer our
customers as part of our commitment to provide flexibility and
choice. Our expanded application delivery model also includes
licensed software and usage-based programs.
- ORGANIC GROWTH/PRODUCT EXPANSION - We continue to experience
strengthening interest in our System21 Aurora line. We currently
have more than 23 active projects with customers and license sales
in this quarter increased by 63% over the same quarter last year. In
January, our Library Solutions division was awarded a new license
and maintenance agreement with the Vrije Universiteit Amsterdam
having a value of more than $500,000 for Vubis Smart(R) library
automation software. Vubis Smart will be used in Vrije
Universiteit's Central Library and all 12 of its branches. Vrije
Universiteit Amsterdam joined more than 100 customers who have
purchased this next generation product to date.
BUY: GROWTH THROUGH ACQUISITIONS
On August 6, 2003 we acquired Comshare, a leading provider of business
performance management software for planning, budgeting, forecasting, financial
consolidation, management reporting, and analysis. This acquisition, coupled
with the acquisition of Extensity in Q4 FY 2003, is a significant piece of our
strategy to build a business performance management product suite. Approximately
30% of our current Performance Management sales pipeline is comprised of
existing Geac customers, which underscores an important component of our
acquisition strategy - the ability to sell newly-acquired Performance Management
products into new and existing Geac customer accounts. In the third quarter,
Geac closed several Geac Performance Management sales with existing customers,
encompassing planning and expense management applications. For example, we
concluded a $425,000 sale of our time and expense management solution to a
global manufacturer, and another $300,000 sale of our budgeting and planning
application to a major retailer.
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Geac Performance Management is an integrated product suite that enables
companies to bolster their effectiveness by tightening the linkage between
business strategy formulation and operational execution. Geac Performance
Management can be linked to a multitude of general ledger, ERP, CRM, and other
applications provided by Geac and other software vendors. More than 600
customers with non-Geac back-office systems rely on Geac Performance Management
for any or all of their planning, budgeting, forecasting, expense and travel
management, financial consolidation and reporting and analysis.
PARTNER: KEY RELATIONSHIPS
During the third quarter of FY 2004, Geac expanded its relationship with
Microsoft(R). The two companies delivered joint marketing and sales events
within the business performance management market. In addition, the companies
ran a well-attended webcast with the CFO Magazine in January for the purpose of
educating the marketplace on the impact of business performance management and
generating interest in Geac's product offering. Geac and Microsoft jointly
closed business representing more than $500,000 in software license revenue for
our third quarter.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JANUARY 31, 2004 COMPARED TO THE THREE MONTH PERIOD
ENDED JANUARY 31, 2003
Revenue - Revenue for the third quarter of FY 2004 ended January 31, 2004 was
$116.2 million compared to $102.6 million in the corresponding period in FY
2003, an increase of $13.6 million, or 13.2%. An increase in software license
revenue of 49.9% or $6.2 million, from $12.5 million to $18.7 million, and an
increase in support and services revenue of $8.2 million, from $81.4 million to
$89.6 million, was offset by a decrease in hardware revenue of $0.8 million,
from $8.7 million to $7.9 million.
The Company will continue to report on its two major business segments:
Enterprise Applications Solutions (EAS) and Industry Specific Applications
(ISA). The software products acquired in the Comshare and Extensity transactions
are components of the EAS business segment. The business integration of Comshare
and Extensity has reached a level where it is not possible to identify the
expense components of the merged businesses separately.
Revenue in the EAS segment was $96.4 million in the third quarter of FY 2004,
compared to $80.2 million in the third quarter of FY 2003 and $90.9 million in
the second quarter of FY2004. Revenue from the business acquired in the Comshare
and Extensity transactions contributed $15.9 million to this year-over-year
20.2% increase. Excluding revenue from these acquired businesses, EAS segment
revenue organically grew by $0.3 million.
EAS software license sales to new and existing customers were $16.9 million,
compared to $9.9 million in the third quarter of FY 2003 and compared to $13.2
million
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in the second quarter of FY 2004. This represents an increase of 72.0% and 28.6%
respectively. The software products acquired in the Comshare and Extensity
transactions represented $5.2 million of total EAS software license sales during
the quarter. EAS software license revenue is anticipated to continue to grow
through the remainder of the fiscal year as a result of license sales of the
software products acquired in the Comshare and Extensity transactions and from
our new System 21 Aurora application.
EAS support and services revenue was $72.3 million, compared to $62.8 million in
the third quarter of FY 2003. Support and services revenue generated by the
Comshare and Extensity businesses represented $10.7 million of the total during
the quarter. Therefore, excluding this revenue, there was a $1.2 million
decline. Services and other revenue, which consists primarily of professional
implementation and training services, accounted for $4.8 million of the net $9.5
million increase.
EAS hardware sales revenue was $7.2 million, a decrease of $0.3 million from the
$7.5 million in the third quarter of FY 2003.
ISA segment revenue was $19.8 million, compared to $22.4 million in the third
quarter of FY 2003. The net $2.6 million decline was primarily attributable to
reduced revenues in the Interealty division, as the result of clients' decisions
not to renew their contracts. The ISA segment is not viewed as a growth segment
for Geac and competitive pricing pressure is expected to continue; however
Vubis, our new Libraries product, has met with success.
Cost of revenue increased by 9.6%, to $45.9 million from $41.9 million in the
corresponding period in FY 2003. These increased costs were in support of a
notable increase in both software license sales and support and services
revenue. The gross profit margin in the third quarter of FY 2004 increased to
60.5% of revenue from 59.2% a year ago and from 59.5% in the second quarter of
FY 2004.
Operating Expenses. Operating expenses were $51.1 million in the third quarter
of FY 2004, compared to $42.5 million in the corresponding period last year. The
year over year increase in operating expenses is primarily attributable to the
Comshare and Extensity acquisitions.
- - Sales and marketing expenses increased by $5.1 million, and sales and
marketing expenses as a percentage of revenues increased from 13.2% in the
third quarter of FY 2003, to 16.1% in the third quarter of FY 2004. This
increase reflects personnel expenses and related sales and marketing costs
intended to drive increased new software license revenue. Sales and marketing
expenses as a percentage of revenues decreased from 17.8% in Q2 of FY 2004 to
16.1% in Q3 of FY 2004 as a result of further integration of the Comshare and
Extensity sales force. We continue to prioritize integration efforts with the
goal of facilitating and accelerating the selling process.
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- - Product development expenses increased by $2.2 million, and product
development expenses as a percentage of revenues increased from 13% in the
third quarter of FY 2003 to 13.4% in the third quarter of FY 2004. This
increase is primarily attributable to continued spending to support the
development of applications associated with the Extensity and Comshare
businesses, and the release of internally developed products.
- - General and administrative (G&A) expenses are basically flat year over year
but G & A expenses as a percentage of revenues decreased from 15.0% in the
third quarter of FY 2003, to 13.3% in the third quarter of FY 2004. G & A
decreased as a percentage of revenue from 13.9% in the second quarter of FY
2004, to 13.3% in the third quarter of FY 2004.
Net Restructuring and Other Unusual Items. During the third quarter of FY 2004,
the Company recorded a net reversal of $0.9 million in net restructuring and
other unusual items, which included a reversal of $1.6 million of accrued
liabilities and other provisions recorded in prior years which were no longer
required, and a gain of $0.2 million resulting from the sale of assets
associated with our Northern Ontario Networks and Technical Consulting (NTC)
division. These credits were partially offset by a charge of $0.8 million
relating to adjustments with respect to a lease obligation assumed in the JBA
acquisition and a charge of $0.1 million for severance related to the
restructuring of the Company's business in North America. In the corresponding
period last year, the Company did not record any restructuring and other unusual
items.
Amortization of Intangible Assets. As a result of the intellectual property
acquired in the Extensity and Comshare transactions, $2.3 million has been
recorded in amortization of intangibles. In the third quarter of FY 2003 there
was a $0.2 million charge for amortization of intangible assets on the income
statement.
The purchase price allocation for the acquisition of Comshare has been based on
available information at the time of the preparation of these interim
consolidated financial statements and management's best estimate of the fair
value of the net assets acquired. To the extent that these amounts prove to be
excessive or inadequate, they will be adjusted up to the end of our current
fiscal year by an adjustment to goodwill.
Other Income (Expense). Other expense of $1.0 million in the third quarter of FY
2004 was directly attributable to a net loss on foreign exchange. The foreign
exchange loss in the quarter is primarily attributable to the acquisition of
Comshare. At the time of acquisition, Comshare US recorded amounts owing to the
European Comshare entity in US dollars, resulting in the foreign exchange loss
as the US dollar depreciated as compared to the British Pound Sterling during
the quarter. In the corresponding period last year, other income in the amount
of $0.7 million included a $0.6 million gain on foreign exchange and $0.5
million in investment income from the sale of marketable securities, partially
offset by a $0.4 million adjustment in the valuation of fixed assets.
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Income Taxes. The provision for income taxes was $3.7 million in the third
quarter of FY 2004, compared to $7.2 million in the corresponding period last
year. Of the total $3.7 million provision for income taxes recorded in the third
quarter of FY 2004, $0.3 million reflected utilization of income tax assets, and
$3.4 million represented cash taxes. Of the total $7.2 million provision for
income taxes recorded in the third quarter of FY 2003, $6.7 million reflected
utilization of income tax assets, and $0.5 million represented cash taxes. The
effective tax rate for the third quarter of FY 2004 was 20.2%, compared to a
rate of 37.4% for the third quarter of FY 2003.
The decrease in the effective tax rate from the third quarter of FY 2003 to the
third quarter of FY 2004 is due to the use of previously unrecognized losses and
timing differences to reduce income, as well as the recognition of future tax
assets due to changes in tax circumstances in various subsidiaries. These
decreases, which are reflected in the future tax provision are partially offset
by additional current taxes from adjusting the liability for current taxes
previously recorded to actual tax liabilities on tax returns.
Net Income Net income was $14.4 million, or $0.17 per diluted share, compared to
$12.0 million, or $0.15 per diluted share, in the third quarter of FY 2003.
Compared to the third quarter of FY 2003, currency fluctuations -- primarily
attributable to the British Pound Sterling and the Euro against the U.S. Dollar
- -- had the effect of increasing net income by $0.6 million or $0.01 per share.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 31, 2004 COMPARED TO THE NINE MONTHS ENDED JANUARY 31,
2003
Revenue - Revenue for the nine months ended January 31, 2004 was $329.2 million
compared to $305.9 million for the nine months ended January 31, 2003, an
increase of $23.3 million, or 7.6%. EAS segment revenue grew by 14.3% as a
result of revenue from both acquired and organic software, while ISA segment
revenue declined by 14.4%. A 40.0% increase in software license revenue of $13.4
million, from $33.4 million to $46.8 million, and an increase in support and
services revenue of $14.2 million, from $247.3 million to $261.5 million, was
offset by a decrease in hardware revenue of $4.3 million, from $25.2 million to
$20.9 million. As a percentage of total revenue, Software has increased from
10.9% for the year ended April 30, 2003 to 14.2% for the nine months ended
January 31, 2004. This increase is strong evidence of management execution of
our strategy to increase software revenue in our total revenue mix.
Revenue in the EAS segment was $268.1 million in the first nine months of FY
2004, compared to $234.6 million in the first nine months of FY 2003. This
year-over-year $33.6 million, or 14.3% increase is attributable to $35.2 million
in revenue from the Comshare and Extensity product lines.
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EAS software license sales to new and existing customers were $40.9 million,
compared to $26.5 million in the first nine months of FY 2003. This represents
an increase of $14.4 million, or 54.5%. The software products acquired in the
Comshare and Extensity transactions represented $10.8 million of total EAS
software license sales during the first nine months of FY 2004.
EAS support and services revenue was $209.1 million, compared to $186.8 million
in the same period in FY 2003. Support and services revenue generated by the
Comshare and Extensity businesses represented $24.4 million of the FY 2004
total. Therefore, excluding this revenue, there was a $2.1 million decrease
primarily in support revenue. Services and other revenue, which consists
primarily of professional implementation and training services, accounted for
$12.0 million of the net $22.4 million increase.
EAS hardware sales revenue was $18.1 million, compared to $21.3 million during
the first nine months of FY 2003. This represents a 15.2% decline in hardware
revenue. This declining trend may continue as a result of Geac's shift of focus
away from this low margin business.
ISA segment revenue declined by $10.3 million, from $71.3 million to $61.0
million, or 14.4% as compared to the first nine months of FY 2003. The decline
is primarily attributable to revenue from the Interealty division, which
declined by $8.4 million, reflecting significant price pressure and customer
losses in the core Multiple Listing Service (MLS) application business and the
continuing decline in revenue from the MLS book publishing business, which was
expected. Revenue for the restaurants division also declined by $1.4 million of
which $1.2 million was a decline in hardware revenue. All other ISA businesses
combined accounted for the remaining $0.5 million revenue decline.
Cost of Revenues. Costs of revenues increased by $2.6 million, or 2.0%, from
$129.3 million in the first nine months of FY 2003 to $131.8 million in the
first nine months of FY 2004 because of the increase in revenue and the variable
nature of the expenses. However, gross profit margins increased from 57.7% to
59.9%. Costs of software license revenues increased by $0.9 million related to
licensing of third party software in several of our product lines. Costs of
support and services, primarily comprised of personnel and related costs,
increased by $5.5 million, or 5.3% as a result of a 5.8% increase in support and
services revenue.
Operating Expenses. Operating expenses were $147.9 million, compared to $124.3
million in the first nine months of last year. The results for the first nine
months of FY 2004 include expenses relating to the Extensity and Comshare
businesses, whereas the results for the first nine months of FY 2003, which
pre-date the acquisition of these businesses, do not. The year over year
increase in operating expenses is attributable to these acquisitions.
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- - Sales and marketing expenses increased by $12.6 million, and sales and
marketing expenses as a percentage of revenues increased from 13.8% in the
first nine months of FY 2003 to 16.6% in the first nine months of FY 2004.
Sales and marketing expenses are expected to increase as a percentage of
revenue as software revenue increases as a percentage of Geac's total
revenue.
- - Product development expenses increased by $5.3 million, and product
development expenses as a percentage of revenues increased from 12.7% in the
first nine months of FY 2003 to 13.4% in the first nine months of FY 2004.
This increase is primarily attributable to the acquisitions of Extensity and
Comshare, which are designed to support Geac's strategy of buy, build and
partner for software license revenue growth.
- - General and administrative (G&A) expenses increased by $3.9 million in the
first nine months of FY2004 compared to the first nine months of FY 2003,
although only $0.1 million of the increase occurred in Q3 of FY2004. G & A
expenses as a percentage of revenue is expected to decline going forward.
Net Restructuring and Other Unusual Items. During the nine months ended January
31, 2004 the Company recorded a net reversal of $3.8 million in net
restructuring and other unusual items, which included a reversal of $4.8 million
of accrued liabilities and other provisions recorded in prior years which were
no longer required, and a gain of $0.2 million resulting from the sale of assets
associated with our Northern Ontario NTC division. These credits were partially
offset by a charge of $0.8 million relating to new information obtained on a
lease obligation assumed in the JBA acquisition and a charge of $0.4 million for
severance related to the restructuring of the Company's business in North
America. In the corresponding period last year the Company recorded a net
reversal of $0.7 million in net restructuring and other unusual items.
Amortization of Intangible Assets. Amortization of intangible assets, primarily
acquired software, was $5.4 million for the period ending January 31, 2004,
compared to $0.5 million in the same period in FY 2003. This $4.9 million
increase is attributable to amortization of intangible assets associated with
the Extensity and Comshare businesses, which were acquired in the fourth quarter
of FY 2003 and the second quarter of FY 2004, respectively.
The purchase price allocation for the acquisition of Comshare has been based on
available information at the time of the preparation of these interim
consolidated financial statements. To the extent that these amounts prove to be
excessive or inadequate, they will be adjusted up to the end of our current
fiscal year by an adjustment to goodwill.
Other Income (Expense). Other expense of $1.8 million YTD in FY 2004 was
attributable to a net loss on foreign exchange. In the corresponding period last
year, Other income in the net amount of $2.3 million is attributable to $1.3
million of foreign
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exchange gains, a $0.6 million gain on the sale of marketable securities, and a
$0.4 million gain on the sale of fixed assets.
Income Taxes. The provision for income taxes was $13.2 million in the first nine
months of FY 2004, compared to $21.0 million in the corresponding period last
year. Of the total $13.2 million provision for income taxes recorded in the
first nine months of FY 2004, $6.9 million reflected utilization of income tax
assets, and $6.3 million represented cash taxes. Of the total $21.0 million
provision for income taxes recorded in the first nine months of FY 2003, $17.4
million reflected utilization of income tax assets, and $3.6 million represented
cash taxes. The effective tax rate for the first nine months of FY 2004 was
27.6%, compared to a rate of 38.0% for the first nine months of FY 2003.
The decrease in the effective tax rate from the third quarter of FY 2003 to the
third quarter of FY 2004 is due to the use of previously unrecognized losses and
timing differences to reduce income, as well as the recognition of future tax
assets due to changes in tax circumstances in various subsidiaries. These
decreases, which are reflected in the future tax provision, are partially offset
by additional current taxes from adjusting the liability for current taxes
previously recorded to actual tax liabilities on tax returns.
Net Income. Net income was $34.6 million, or $0.40 per diluted share, compared
to $34.1 million, or $0.42 per diluted share, in the first nine months of FY
2003. During the first nine months of FY 2004, currency fluctuations - primarily
attributable to the strength of the British Pound Sterling and the Euro against
the U.S. Dollar - had the effect of increasing net income by $1.0 million, or
$0.01 per share.
LIQUIDITY AND FINANCIAL CONDITION
At January 31, 2004 cash and cash equivalents totalled $79.0 million, compared
to $89.8 million at April 30, 2003. Excluding from the cash and cash equivalents
figure of $79.0 million at January 31, 2004 an increase of $3.0 million from the
effect of foreign exchange rates, cash and cash equivalents declined by $13.9
million in the first nine months of FY 2004. However, $39.1 million in net cash
was used for the acquisition of Comshare in Q2 of this fiscal year.
The third quarter of each fiscal year continues to be the period in which we
generally record the highest number of renewals for maintenance and support
contracts. Accordingly, cash receipts from maintenance contract renewals are
highest in the third quarter of the fiscal year and lowest in the first and
second quarters, while maintenance revenue is recognized ratably over the year.
This seasonality is reflected in the increase in cash provided from operating
activities from negative $2.2 million in the second quarter of FY 2004 to
positive $30.8 million in the third quarter of FY 2004. Compared to the third
quarter of FY 2003 cash provided from operating activities decreased by $7.0
million, or 18.6% primarily caused by a
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longer renewal cycle on maintenance contracts resulting in a lower deferred
revenue balance.
For the first nine months of FY 2004 cash provided in operating activities was
$28.2 million, compared to $11.0 million in the first nine months of FY 2003. In
the first nine months of FY 2003 there was a decrease of $34.5 million in
non-cash working capital primarily attributable to payments of prior year
restructuring charges. Such a significant restructuring charge did not occur in
FY 2003 that would impact FY 2004 and we do not expect to record an unusual item
related to restructuring in FY 2004. Excluding changes in non-cash working
capital and deferred revenue, cash provided by operating activities was $48.3
million for the first nine months of FY 2004, compared to $59.5 million for the
first nine months of FY 2003 largely due to a $17.4 million future tax asset
recorded for FY 2003 compared to a $6.8 million future tax asset for FY 2004.
Cash used in investing activities was $1.0 million in the third quarter of FY
2004, compared to cash provided by investing activities of $1.0 million in the
corresponding period last year. Cash used in investing activities in the third
quarter of FY 2004 included $1.6 million in additions to property, plant and
equipment, offset by $0.3 from the proceeds on sale of our Northern Ontario NTC
division, and $0.4 million in restricted cash and cash equivalents.
Cash provided by financing activities was $1.0 million in the third quarter of
FY 2004 as a result of the receipt of $0.3 million in proceeds from the issuance
of common shares and the addition of a capital lease of $0.7 million in Europe.
In the corresponding period last year, cash provided by financing activities was
$7.4 million as a result of the receipt of $7.8 million in proceeds from the
exercise of 4,475,000 warrants, offset by the repayment of long-term debt in the
amount of $0.4 million.
Accounts receivable and other, including unbilled receivables, was $71.5 million
at January 31, 2004 compared to $61.6 million at the end of FY 2003. This $9.9
million increase included the effects of a $6.1 million increase due to changes
in foreign exchange rates, an $8.9 million increase associated with the Comshare
acquisition, net of a $5.1 million reduction in other receivables primarily
attributable to collections of outstanding receivables at January 31, 2004.
Prepaid other assets, which are comprised of deposits, prepaid maintenance,
insurance, and prepaid royalties, increased by $0.8 million, from $11.9 million
at the end of FY 2003 to $12.7 million at the end of the third quarter of FY
2004. The increase is primarily attributable to prepaid amounts associated with
the acquisition of Comshare.
Other assets of $4.7 million were recorded for the period ended January 31,
2004, which includes a pension asset, currently valued at $3.2 million, acquired
in the Comshare transaction and $1.5 million related to the financing costs of
the Wells Fargo three year revolving credit facility.
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Accounts payable and accrued liabilities were $116.2 million at the end of the
third quarter of FY 2004, compared to $95.0 million at the end of FY 2003. This
$21.2 million net increase is primarily attributable to a $17.6 million pension
liability assumed in the Comshare acquisition, and a net $2.0 million reserve
for premises, severance and other reserves related to the Comshare acquisition.
Legal accruals increased by $1.3 million, and other liabilities increased by
$9.4 million, including $4.3 million for tax related liabilities. These
increases were offset by a $9.1 million net reduction in other restructuring
reserves.
Deferred revenue is comprised of deferred maintenance and support revenues,
which are recognized ratably over the term of the related maintenance agreement
and deferred professional services revenue, which is recognized as such services
are performed. The term for maintenance agreements has historically been one
year; however, we have recently initiated a campaign for customer retention that
offers multiple years of support with incentives to encourage customers to
extend beyond one year. Deferred revenue declined by $8.0 million, from $122.6
million at the end of FY 2003 to $114.6 million at the end of the third quarter
of FY 2004. Excluding the effect of a $9.2 million increase in deferred revenue
at January 31, 2004 associated with the Comshare acquisition, a $6.1 million
increase attributable to foreign exchange rates, and a $1.4 million decrease
associated with the release of previously recorded provisions, deferred revenue
declined by $21.9 million. Factors that contributed to this decline are: longer
customer renewal cycles in part because of the introduction of VFM and multiple
year contracts, attrition in maintenance contracts and longer time period for
collections of annual maintenance billings in Europe. In the corresponding
period last year, deferred revenue declined by $14.0 million, excluding the
effect of foreign exchange rates.
COMMITMENTS NOT REFLECTED IN THE BALANCE SHEET
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 January 31, 2004.
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