UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-23852
MRO SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S employer incorporation or organization)
identification number)
100 CROSBY DRIVE, BEDFORD MASSACHUSETTS 01730
(Address of principal executive offices, including zip code)
(781) 280-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 25,683,098
shares of common stock, $.01 par value per share, as of August 8,2005.
MRO SOFTWARE, INC.
10-Q INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) as of June 30, 2005 and
September 30, 2004. 2
Consolidated Statements of Operations (unaudited) for the
three and nine months ended June 30, 2005 and June 30, 2004. 3
Consolidated Statements of Cash Flows (unaudited) for the
nine months ended June 30, 2005 and June 30, 2004. 4
Notes to Consolidated Financial Statements (unaudited). 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 24
ITEM 4. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults upon Senior Executives 25
Item 4. Submission of Matter to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits 25
SIGNATURE 27
Page 1
MRO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2005 2004
--------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 82,263 $ 56,982
Marketable securities 31,154 36,152
Accounts receivable, trade, less allowance
for doubtful accounts of $1,708 at June 30, 2005,
and $2,324 at September 30, 2004, respectively 38,841 36,636
Prepaid expenses and other current assets 5,840 5,072
Deferred income taxes 1,337 1,470
--------- ---------
Total current assets 159,435 136,312
--------- ---------
Marketable securities 9,855 15,273
Property and equipment, net 7,560 7,227
Goodwill 46,337 46,768
Intangible assets, net 3,712 5,541
Deferred income taxes 6,798 7,611
Other assets 3,297 3,989
--------- ---------
Total assets $ 236,994 $ 222,721
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,419 $ 12,871
Accrued compensation 9,768 10,142
Income taxes payable 4,341 5,473
Deferred revenue 32,506 29,373
Deferred lease obligation 371 292
--------- ---------
Total current liabilities 60,405 58,151
--------- ---------
Deferred lease obligation 2,278 2,210
Deferred revenue 611 900
Other long term liabilities 303 325
Stockholders' equity
Preferred stock, $.01 par value;1,000 authorized,
none issued and outstanding
Common stock, $.01 par value; 50,000 authorized;
25,628 and 24,983 issued and outstanding at June 30, 2005
and September 30, 2004, respectively 256 250
Additional paid-in capital 125,864 118,903
Deferred compensation (2,635) (370)
Retained earnings 49,347 41,503
Accumulated other comprehensive income 565 849
--------- ---------
Total stockholders' equity 173,397 161,135
--------- ---------
Total liabilities and stockholders' equity $ 236,994 $ 222,721
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
2
MRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2005 2004 2005 2004
--------- --------- --------- ---------
Revenues:
Software $ 19,233 $ 12,996 $ 44,231 $ 36,658
Support and services 33,997 33,304 99,534 99,166
--------- --------- --------- ---------
Total revenues 53,230 46,300 143,765 135,824
--------- --------- --------- ---------
Cost of revenues:
Software 2,608 1,582 5,087 5,289
Support and services 16,441 14,960 48,376 45,140
--------- --------- --------- ---------
Total cost of revenues 19,049 16,542 53,463 50,429
--------- --------- --------- ---------
Gross profit 34,181 29,758 90,302 85,395
Operating expenses:
Sales and marketing 15,861 13,941 44,443 41,486
Product development 8,183 7,001 21,921 21,104
General and administrative 4,397 4,280 13,334 13,134
Amortization of other intangibles 89 165 272 574
--------- --------- --------- ---------
Total operating expenses 28,530 25,387 79,970 76,298
--------- --------- --------- ---------
Income from operations 5,651 4,371 10,332 9,097
Interest income, net 693 313 1,811 761
Other income/(expense), net 7 35 78 (292)
--------- --------- --------- ---------
Income before income taxes 6,351 4,719 12,221 9,566
Provision for income taxes 2,289 1,631 4,377 3,327
--------- --------- --------- ---------
Net income $ 4,062 $ 3,088 $ 7,844 $ 6,239
========= ========= ========= =========
Net income per share, basic $ 0.16 $ 0.12 $ 0.31 $ 0.25
--------- --------- --------- ---------
Net income per share, diluted $ 0.16 $ 0.12 $ 0.31 $ 0.25
--------- --------- --------- ---------
Shares used to calculate net income per share
Basic 25,327 24,873 25,206 24,740
Diluted 25,936 25,409 25,687 25,342
The accompanying notes are an integral part of the consolidated financial
statements.
3
MRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
-------------------------
(IN THOUSANDS) 2005 2004
--------- ---------
Cash flows from operating activities:
Net income $ 7,844 $ 6,239
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,303 3,536
Amortization of other intangibles 1,829 2,459
Amortization of premium on marketable securities (57) 89
Loss on sale and disposal of property
and equipment 62 ---
Stock-based compensation 236 166
Deferred income taxes 1,659 785
Changes in operating assets and liabilities:
Accounts receivable (2,385) (4,141)
Prepaid expenses and other assets (42) 78
Accounts payable, accrued expenses and other liabilities 680 (3,766)
Accrued compensation (247) (349)
Income taxes payable (1,408) (1,344)
Deferred revenue 2,922 1,027
--------- ---------
Net cash provided by operating activities 13,396 4,779
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment and other
capital expenditures (2,669) (3,597)
Purchase of marketable securities (183,178) (58,654)
Sale of marketable securities 193,858 28,250
--------- ---------
Net cash provided by/(used in) investing activities 8,011 (34,001)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of employee stock options
stock purchases 4,322 3,167
--------- ---------
Net cash provided by financing activities 4,322 3,167
--------- ---------
Effect of exchange rate changes on cash (448) 751
--------- ---------
Net increase/(decrease) in cash and cash equivalents 25,281 (25,304)
Cash and cash equivalents, beginning of period 56,982 73,662
--------- ---------
Cash and cash equivalents, end of period $ 82,263 $ 48,358
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
4
MRO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of MRO Software, Inc. ("MRO") and its majority-owned subsidiaries
(collectively, the "Company"), as of June 30, 2005 and have been prepared by the
Company in accordance with generally accepted accounting principles for interim
reporting and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. All intercompany accounts and transactions have been eliminated. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of those of a normal
recurring nature, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows at the dates and for the periods
indicated. The results of operations for the periods presented herein are not
necessarily indicative of the results of operations to be expected for the
entire fiscal year, which ends on September 30, 2005, or for any other future
period.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended September
30, 2004 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on December 14, 2004.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain prior year financial statement items have been reclassified to conform
to the current year's format.
B. INCOME PER SHARE
Basic income per share is computed by dividing income or loss available to
common shareholders by the weighted average number of common shares outstanding.
Diluted income per share is computed by dividing income or loss available to
common shareholders by the weighted average number of common shares outstanding
plus dilutive potential common shares. For purposes of this calculation, stock
options are considered dilutive potential common shares in periods in which they
have a dilutive effect.
Basic and diluted income per share are calculated as follows:
THREE MONTHS ENDED
(in thousands, except per share data) 06/30/05 06/30/04
-------- --------
Net income $ 4,062 $ 3,088
Denominator:
Weighted average common shares outstanding-basic 25,327 24,873
Effect of dilutive securities (1) 609 536
------- -------
Weighted average common shares outstanding-diluted 25,936 25,409
======= =======
Net income per share, basic $ 0.16 $ 0.12
Net income per share, diluted $ 0.16 $ 0.12
Page 5
NINE MONTHS ENDED
(in thousands, except per share data) 06/30/05 06/30/04
-------- --------
Net income $ 7,844 $ 6,239
Denominator:
Weighted average common shares outstanding-basic 25,206 24,740
Effect of dilutive securities (1) 481 602
------- -------
Weighted average common shares outstanding-diluted 25,687 25,342
======= =======
Net income per share, basic $ 0.31 $ 0.25
Net income per share, diluted $ 0.31 $ 0.25
(1) The calculation of diluted earnings per common share excludes the impact of
1,476,000 shares and 1,567,000 shares for the three months ended June 30, 2005
and 2004, respectively, and 1,761,000 shares and 1,556,000 shares for the nine
months ended June 30, 2005 and 2004, respectively, related to stock options and
unvested restricted stock which are anti-dilutive. Common stock equivalents of
609,000 shares and 536,000 shares were included in the computation of diluted
net income per share for the three months ended June 30, 2005 and 2004,
respectively, and 481,000 shares and 602,000 shares for the nine months ended
June 30, 2005 and 2004, respectively.
C. ACCOUNTING POLICIES
STOCK-BASED COMPENSATION AND PRO FORMA INFORMATION
The Company complies with the pro forma disclosure requirements of the Financial
Accounting Standards Board ("FASB") SFAS No. 123, as amended by SFAS No. 148.
The fair value of the Company's stock options was estimated using the
Black-Scholes option-pricing model. This model was developed for use in
estimating fair value of traded options that have no vesting restrictions and
are fully transferable. This model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimates, in management's opinion, the Black-Scholes
model may not necessarily provide a reliable single measure of the fair value
of its stock options. The following table illustrates the effect on net income
and earnings per share on a pro forma basis as if the Company had applied the
fair value recognition provisions of SFAS No.123 to stock-based employee
compensation.
THREE MONTHS ENDED
(in thousands, except per share amounts) 06/30/05 06/30/04
--------- ---------
Net income
As reported $ 4,062 $ 3,088
Add: Stock-based employee compensation expense
included in net income 142 61
Deduct: Stock-based employee compensation
expense determined under the fair value based
method for all awards, net of related tax effects (1,252) (1,610)
Pro forma net income $ 2,952 $ 1,539
Earnings per share:
Basic-as reported $ 0.16 $ 0.12
Basic-pro forma $ 0.12 $ 0.06
Diluted-as reported $ 0.16 $ 0.12
Diluted-pro forma $ 0.11 $ 0.06
Page 6
NINE MONTHS ENDED
(in thousands, except per share amounts) 06/30/05 06/30/04
--------- ---------
Net income
As reported $ 7,844 $ 6,239
Add: Stock-based employee compensation expense
included in net income 236 166
Deduct: Stock-based employee compensation
expense determined under the fair value based
method for all awards, net of related tax effects (3,532) (5,413)
Pro forma net income $ 4,548 $ 992
Earnings per share:
Basic-as reported $ 0.31 $ 0.25
Basic-pro forma $ 0.18 $ 0.04
Diluted-as reported $ 0.31 $ 0.25
Diluted-pro forma $ 0.18 $ 0.04
With the exception of restricted stock awards to non-employee members of the
board of directors and executive management, no stock-based compensation cost is
reflected in net income, as all stock-based awards granted under the Company's
plans consist of stock options that have an exercise price equal to the market
value of the underlying common stock on the date of grant.
D. COMPREHENSIVE INCOME:
The following table reflects the components of comprehensive net income:
THREE MONTHS ENDED
(in thousands) 06/30/05 06/30/04
-------- --------
Net income $ 4,062 $ 3,088
Other comprehensive net income,
Net of tax:
Unrealized gain/(loss) on securities arising during period 70 (194)
Foreign currency translation adjustment (950) (336)
------- -------
Comprehensive income $ 3,182 $ 2,558
======= =======
NINE MONTHS ENDED
(in thousands) 06/30/05 06/30/04
-------- --------
Net income $ 7,844 $ 6,239
Other comprehensive net income,
Net of tax:
Unrealized gain/(loss) on securities arising during period 146 (122)
Foreign currency translation adjustment (430) 440
------- -------
Comprehensive income $ 7,560 $ 6,557
======= =======
E. SEGMENT INFORMATION, GEOGRAPHIC DATA AND MAJOR CUSTOMERS:
The Company reports revenues and income under one reportable industry segment.
The Company's management assesses operating results on an aggregate basis to
make decisions about the allocation of resources.
Page 7
The Company manages its business in the following geographic areas: United
States, Other Americas (Canada and Latin America), Europe/Middle East and
Africa, and Asia Pacific. A summary of the Company's revenues by geographical
area is as follows:
THREE MONTHS ENDED
(in thousands) 06/30/05 06/30/04
-------- --------
Revenues:
United States $ 31,089 $ 26,510
Other Americas 2,419 2,375
Intercompany 3,641 3,093
-------- --------
Subtotal $ 37,149 $ 31,978
Europe/Middle East and Africa 15,357 14,516
Asia/Pacific 4,365 2,899
Intercompany (3,641) (3,093)
-------- --------
Total revenues $ 53,230 $ 46,300
======== ========
NINE MONTHS ENDED
(in thousands) 06/30/05 06/30/04
--------- --------
Revenues:
United States $ 82,482 $ 77,010
Other Americas 7,438 7,469
Intercompany 8,874 9,205
--------- ---------
Subtotal $ 98,794 $ 93,684
Europe/Middle East and Africa 42,268 42,581
Asia/Pacific 11,577 8,764
Intercompany (8,874) (9,205)
--------- ---------
Total revenues $ 143,765 $ 135,824
========= =========
The Company has subsidiaries in foreign countries, which sell the Company's
products and services in their respective geographic areas. Intercompany
revenues reflect our transfer pricing policies and primarily represent shipments
of software to international subsidiaries. Intercompany revenues are eliminated
from consolidated revenues.
F. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the amount of goodwill for the quarter ended June 30, 2005 are as
follows:
Balance as of September 30, 2004 $ 46,768
Utilization of acquired net operating losses (431)
--------
Balance as of June 30, 2005 $ 46,337
========
Intangible assets as of June 30, 2005 and September 30, 2004 consist of the
following:
(in thousands) 06/30/05 09/30/04
-------- --------
Goodwill, net $ 46,337 $ 46,768
Acquired technology 16,654 16,654
Page 8
Accumulated amortization (13,229) (11,673)
-------- --------
Sub-total acquired technology 3,425 4,981
-------- --------
Other intangibles 2,611 2,711
Accumulated amortization (2,324) (2,151)
-------- --------
Sub-total other intangibles 287 560
-------- --------
Total intangible assets, net $ 50,049 $ 52,309
======== ========
Other intangibles consist of customer contracts, customer lists and non-compete
agreements.
Amortization expense of intangible assets was $608 thousand and $638 thousand
for the three months ended June 30, 2005 and 2004, respectively, and $ 1.8
million and $2.5 million for the nine months ended June 30, 2005 and 2004,
respectively.
As of June 30, 2005, remaining amortization expense on existing intangibles for
the next five years is as follows:
(in thousands)
- --------------
2005 (remaining 3 mos) $ 593
2006 1,565
2007 659
2008 659
2009 236
--------
Total $ 3,712
--------
G. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS No.
154, Accounting Changes and Error Corrections ("FAS 154"). FAS No. 154 replaces
APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, and establishes retrospective application as the
required method for reporting a change in accounting principle. FAS No. 154
provides guidance for determining whether retrospective application of a change
in accounting principle is impracticable and for reporting a change when
retrospective application is impracticable. The reporting of a correction of an
error by restating previously issued financial statements is also addressed. FAS
No. 154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. The Company does not anticipate
that the adoption of FAS No. 154 will have a material impact on its consolidated
results of operations.
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47). FIN 47 provides guidance
relating to the identification and recognition of legal obligations to perform
an asset retirement activity. FIN 47 requires recognition of a liability for the
fair value of a conditional asset retirement obligation when incurred if the
liability's fair value can be reasonably estimated. We are required to adopt the
provisions of FIN 47 by September 30, 2006. We do not expect FIN 47 to have a
material impact on our results of operations, financial position or cash flows.
In December 2004, the FASB issued a revised Statement of Financial Accounting
Standard (SFAS) No. 123, Share-Based Payment (FAS 123(R)). FAS 123(R) requires
public entities to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award and recognize the cost over the period during which an employee is
required to provide
Page 9
service in exchange for the award. In addition, in March 2005, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 107, Share-Based
Payment (SAB 107). SAB 107 provides supplemental implementation guidance on FAS
123(R), including guidance on valuation methods, (including assumptions such as
expected volatility and expected term), classification of compensation expense,
inventory capitalization of share-based compensation cost, income tax effects,
disclosures in Management's Discussion and Analysis, and several other issues.
Currently, we follow APB No. 25 which does not require the recognition of
compensation expense relating to the issuance of stock options so long as the
quoted market price of our stock at the date of grant is less than or equal to
the amount an employee must pay to acquire the stock. However, other share-based
awards such as restricted share units and performance shares are currently
expensed under the present rules. The original FAS 123 requires footnote
disclosure only of pro forma net income as if a fair-value-based method had been
used. In April 2005, the SEC amended the compliance dates for FAS 123(R) from
fiscal periods beginning after June 15, 2005 to fiscal years beginning after
June 15, 2005. We will continue to account for share-based compensation using
the intrinsic value method set forth in APB No. 25, until adoption of FAS 123
(R) on October 1, 2005. We are currently assessing the impact of FAS 123(R) and
SAB 107 on our financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets
(FAS 153) which eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception from fair value measurement for exchanges of nonmonetary
assets that do not have commercial substance. We are required to adopt FAS 153
for nonmonetary asset exchanges occurring in the first quarter of fiscal year
2006 and its adoption is not expected to have a significant impact on our
results of operations, financial condition or cash flows.
In December 2004, the FASB issued Staff Position No. 109-1, Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004. The Act provides a deduction for income from qualified domestic production
activities, which will be phased in from our fiscal year 2006 through 2011. In
return, the Act also provides for a two-year phase-out of the existing
extra-territorial income exclusion (ETI) for foreign sales that was viewed to be
inconsistent with international trade protocols by the European Union. In this
Staff Position, the FASB states that the deduction should be accounted for as a
special deduction, meaning that it should not reduce our statutory rate but
shall be recognized in the period when it is deductible on our tax return. We do
not expect the Staff Position to materially impact the financial position,
results of operations or cash flows for our fiscal year 2005.
In December 2004, the FASB issued Staff Position No. 109-2, Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. The Act contains a special one-time tax
deduction of 85% of certain foreign earnings that are repatriated from foreign
subsidiaries pursuant to new Internal Revenue Code Section 965. We may elect to
apply the provisions of the new code section for either our fiscal year 2005 or
2006. The deduction is subject to a number of limitations and, as of today,
uncertainty remains as to how to interpret numerous provisions in the Act. This
Staff Position allows companies additional time beyond the financial reporting
period of enactment to evaluate the effect of the Act. As such, we expect to
complete our evaluation of the effects of the repatriation provision during the
fourth quarter of fiscal year 2005 and have currently made no decisions on the
amounts of potential dividend repatriation. Until the evaluation is completed,
we will make no changes in our current intention to indefinitely reinvest
accumulated earnings of our foreign subsidiaries.
H. GUARANTOR ARRANGEMENTS
We warrant that our software products will perform substantially in accordance
with the product specifications as contained in certain associated
documentation, which is provided with the products, for a period of ninety days
from initial delivery of the products to the customer. Our sole obligation under
this warranty is to use reasonable efforts to correct a verified problem that is
brought to our attention during the warranty period, or if we are unable to
provide a correction, we are obligated to accept the return of the product and
refund the license fee paid. We warrant that our professional services will be
provided in accordance with good professional practice, and that any software
developed by our services organization will perform substantially in accordance
with its approved specifications for a period of thirty days from
Page 10
initial delivery of the services to the customer. Our sole obligation under this
warranty is to use reasonable efforts to correct a verified problem that is
brought to our attention during the warranty period, or if we are unable to
provide a correction, we are obligated to accept the return of the deliverables
and refund the fee paid for the services. If necessary, we would provide for the
estimated cost of product and services warranties based on specific warranty
claims and claim history. However, we have never incurred significant expense
under our product or services warranties, our liability for breach of warranty
is limited to the amount of the license or services fees actually paid, and we
maintain insurance covering such claims in an amount sufficient to cover a
refund of the license or services fees paid by any particular customer during
the last 12 months. As a result, we believe the estimated fair value of these
warranty obligations is minimal. Accordingly, we have no liabilities recorded
for these warranty obligations as of June 30, 2005.
Under our standard end-user license agreement, we agree to indemnify our
customers against infringement claims that may be brought by third parties
asserting that our products infringe on certain intellectual property rights. In
our services agreements with customers, we will also, as a matter of standard
practice, agree to indemnify customers (a) against claims that may be brought by
third parties asserting that the results of our services infringe on certain
intellectual property rights, (b) against damages caused by our breach of
certain confidentiality provisions in the contract, and (c) against damages to
personal property, and death, caused by our services personnel while on-site at
customer premises. These indemnification provisions are generally based on our
standard contractual terms. All such provisions, whether based on our standard
contracts or negotiated with a given customer, are entered into in the normal
course of business based on an assessment that the risk of loss is remote. The
terms of the indemnifications as negotiated may vary in duration and nature, and
our obligations to indemnify may be unlimited as to amount. There have been no
demands for indemnity and the contingencies triggering the obligation to
indemnify have not occurred to our knowledge and are not expected to occur. The
Company maintains insurance that covers such indemnification obligations, and
the amount of coverage that we maintain is sufficient to cover a refund of the
license and services fees received from any particular customer during the last
12 months. Historically, the Company has not made any material payments pursuant
to any such indemnity obligations. Accordingly, we have no liabilities recorded
for any such indemnity obligations as of June 30, 2005.
When we acquire a business or a company, we may assume liability for certain
events or occurrences that took place prior to the date of acquisition. The
maximum potential amount of future payments we could be required to make for
such obligations is undeterminable at this time. All of these obligations were
grand fathered under the provisions of FIN No. 45 as they were in effect prior
to December 31, 2002. Accordingly, we have no liabilities recorded for the
assumption of any such liabilities as of June 30, 2005.
I. PROVISION FOR INCOME TAXES
We are subject to continuous examinations of our income tax returns by the
Internal Revenue Service. The Company is currently undergoing an income tax
audit with the Internal Revenue Service. We believe that we have provided
sufficiently for all audit exposures. A favorable settlement of this audit or
the expiration of the statute of limitations on the assessment of income taxes
for any tax year may result in a reduction of future tax provisions, which could
be significant. The Company expects to recognize any such benefit upon
expiration of the statute of limitations.
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q, as
well as documents incorporated herein by reference, may contain forward-looking
statements (within the meaning of section 27A of the Securities Act of 1933, as
amended, and section 21E of the Securities Exchange Act of 1934, as amended).
The following and similar expressions identify forward-looking statements:
"expects," "anticipates," and "estimates." Forward-looking statements include,
without limitation, statements related to: our plans, objectives, expectations
and intentions; the timing of, availability and functionality of products under
development or recently introduced; and market and general economic conditions.
Important factors that could cause actual results to differ materially from
those suggested by the forward-looking statements for various reasons, include
those discussed under the heading "Factors Affecting Future Performance" below.
These forward-looking statements speak only as of the date of this Quarterly
Report, and we disclaim any obligation to update such forward looking statements
as a result of any change in circumstances or otherwise.
OVERVIEW
MRO Software, Inc. is the leading global provider of strategic asset and service
management solutions. In March 2005, we released our new generation of products,
Maximo Enterprise Suite (MXES). MXES is a comprehensive suite of products built
on a single, common platform. It combines enhanced Enterprise Asset Management
(EAM) functionality with new service management capabilities (ITAM) that
together improve the effectiveness of asset management strategies. MXES includes
Maximo and Maximo Enterprise for traditional assets and service management and
our ITAM products: Maximo Discovery for autodiscovery of IT assets, Maximo Asset
Center for advanced IT asset management, and Maximo Service Center, a
full-featured service desk based on the IT Infrastructure Library (ITIL)
guidelines. Each product of MXES can be implemented separately as a stand-alone
solution or deployed together. In addition, we also offer several industry
specific solutions based on the Maximo platform and incorporating specific
functionality delivered through either technology partnerships or integrations.
Industry specific solutions include Nuclear Power, Transportation, Oil & Gas,
Transmission and Distribution (Utilities) and Pharmaceuticals. The Company will
continue to sell and support certain prior versions of Maximo Enterprise (EAM)
and Maximo MainControl (ITAM). Using our products and services, our customers
improve production reliability, labor efficiency, material optimization,
software license compliance, lease management, warranty and service management
and provisioning across their critical asset bases.
We report all our revenues in one reportable business segment. Our management
assesses operating results on an aggregate basis to make decisions about the
allocation of resources. Our actual results are reported in United States
dollars. International revenues accounted for 42% and 43% of total revenues for
the three months ended June 30, 2005 and 2004, respectively, and 43% for both
the nine months ended June 30, 2005 and 2004, respectively, and, therefore, the
fluctuation in exchange rates can have a significant impact on our results of
operations. In the three and nine months ended June 30, 2005, the fluctuation in
the Euro dollar and the British pound, in particular, had a favorable impact on
our revenue results. We assess the impact of foreign currency exchange rates on
our business, primarily revenues, by recalculating the current period's
financial results using the comparable period's exchange rates to devise a
constant currency rate in order to compare period over period results. We
believe that this non-GAAP financial measure provides useful information to
management and investors since it reflects performance of our international
territories without the effect of exchange rates. Total actual revenues
increased 15% for the three months ended June 30, 2005 compared to the three
months ended June 30, 2004, and 6% for the nine months ended June 30, 2005 as
compared to the nine months ended June 30, 2004. However, in constant currency
terms, the actual revenues increased approximately 13% for the three months
ended June 30, 2005 and 3% for the
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nine months ended June 30, 2005. The exchange rates had a similar impact on
direct and operating expenses, and, therefore, the overall impact on net income
was immaterial for the three and nine months ended June 30, 2005.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires that
management make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. These estimates and assumptions are
affected by management's application of accounting policies.
Critical accounting policies, in which different judgments and estimates by our
management could materially affect our reported condition and results of
operations, include revenue recognition, estimating the allowance for doubtful
accounts, deferred tax assets, and the valuation of long-lived assets. These
critical accounting policies and estimates should be read in conjunction with
the critical accounting policies and estimates included in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission (SEC) on December
14, 2004. We include and update critical accounting policies and estimates in
interim periods if a new critical accounting policy is adopted or amended or if
there are material changes in related judgments or conditions underlying our
estimates in the interim period.
RESULTS OF OPERATIONS
REVENUES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 06/30/05 % 06/30/04 06/30/05 % 06/30/04
- -------------- -------- ------ --------- ------- ------- --------
Software licenses $19,233 48% $12,996 $44,231 21% $ 36,658
Percentage of total revenues 36% 28% 31% 27%
Support revenues $18,732 6% $17,699 $56,186 6% $ 52,850
Percentage of total revenues 35% 38% 39% 39%
Service revenues $15,265 (2)% $15,605 $43,348 (6)% $ 46,316
Percentage of total revenues 29% 34% 30% 34%
Total revenues $53,230 15% $46,300 $143,765 6% $135,824
Our revenues are derived primarily from two sources: (i) software licenses, and
(ii) fees for support and services.
Software license revenues increased 48% for the three months ended June 30, 2005
compared to the three months ended June 30, 2004, and increased 21% for the nine
months ended June 30, 2005 compared to the nine months ended June 30, 2004.
Using constant currency rates, software license revenues increased approximately
47% for the three months ended June 30, 2005, and increased approximately 18%
for the nine months ended June 30, 2005. The increases in software license
revenues for the three and nine months ended June 30, 2005 are attributable to
the successful penetration with the Maximo Industry solutions, (specifically the
utilities vertical), early success with the new MXES product, and an increase in
the average selling price. The increase in the average selling price is
attributable to four large license sales over $1.0 million.
Support revenues increased 6% for both the three and nine months ended June 30,
2005 compared to the three and nine months ended June 30, 2004. Using constant
currency rates, support revenues increased
Page 13
approximately 4% for both the three and nine months ended June 30, 2005. Support
revenues have increased as a result of a cumulative increase in the number of
Maximo licenses and a strong renewal rate (90%) for support contracts.
Service revenues decreased 2% for the three months ended June 30, 2005 compared
to the three months ended June 30, 2004 and decreased 6% for the nine months
ended June 30, 2005 compared to the nine months ended June 30, 2004. Using
constant currency rates, service revenues decreased approximately 3% for the
three months ended June 30, 2005 and 9% for the nine months ended June 30, 2005.
The decreases in service revenues for these periods were due to a decline in
Maximo service revenues of 1% for the three months ended June 30, 2005 and 6%
for the nine months ended June 30, 2005 due primarily to the conclusion of a
multi-year engagement that had been generating $1 to $2 million of revenue per
quarter for the previous two years. Overall, our services business operates in a
highly competitive industry and there are numerous independent consulting firms
who implement our Maximo products and compete for our services business. In
addition, in connection with the delivery of the new MXES product, services
personnel were utilized to support sales efforts.
COST OF REVENUES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 06/30/05 % 06/30/04 06/30/05 % 06/30/04
- -------------- -------- ------ -------- -------- ------ --------
Cost of software licenses revenues $ 2,608 65% $ 1,582 $ 5,087 (4)% $ 5,289
Percentage of software license
revenues 14% 12% 12% 14%
Cost of support revenues $ 3,084 15% $ 2,676 $ 8,929 12% $ 7,981
Percentage of support revenues 16% 15% 16% 15%
Cost of services revenues $13,357 9% $12,284 $39,447 6% $37,159
Percentage of services revenues 88% 79% 91% 80%
Total cost of revenues $19,049 15% $16,542 $53,463 6% $50,429
Percentage of total revenues 36% 36% 37% 37%
Cost of software license revenues consists of software purchased for resale,
royalties paid to vendors of third-party software, the cost of software product
packaging and media, certain employee costs related to software duplication,
packaging and shipping and amortization of acquired technology. The 65% increase
in the cost of software license revenues for the three months ended June 30,
2005 compared to the three months ended June 30, 2004 was primarily due to an
increase in purchases of third-party software related to our Maximo Mobile Suite
product and royalties paid to vendors of third-party software. Costs for third
party software can fluctuate quarter to quarter as it is heavily dependent on
demand for this product. The 4% decrease in the cost of software license
revenues for the nine months ended June 30, 2005 compared to the nine months
ended June 30, 2004 was due primarily to the decrease in amortization of
acquired technology due to the completion of amortization of fully amortized
assets. Amortization of acquired technology amounted to $518 thousand and $473
thousand for the three months ended June 30, 2005 and 2004, respectively and
$1.6 million and $1.9 million for the nine months ended June 30, 2005 and 2004,
respectively. Partially offsetting the decrease was an increase in purchases of
third-party software related to our Maximo Mobile Suite product.
Cost of support and services consists primarily of personnel costs for employees
and the related costs of benefits and facilities, costs for utilization of
third-party consultants and costs to support the MRO Operations Center. Cost of
support revenues increased 15% for the three months ended June 30, 2005 compared
to the three months ended June 30, 2004 and increased 12% for the nine months
ended June 30, 2005 compared to the nine months ended June 30, 2004. The
increases for the three and nine months ended June 30, 2005 as compared to the
three and nine months ended June 30, 2004 were primarily attributable to
increases in renewals of third-party support contracts related to the Maximo
Mobile Suite product and general increases in salaries and related benefits,
partially offset by a decrease in general operating
Page 14
expenses. Cost of support revenues, as a percentage of total support revenues,
was 16% and 15% for both the three and nine months ended June 30, 2005 and 2004,
respectively.
Cost of service revenues increased 9% for the three months ended June 30, 2005
as compared to the three months ended June 30, 2004 and increased 6% for the
nine months ended June 30, 2005 as compared to the nine months ended June 30,
2004. Cost of service revenues, as a percentage of total service revenues was
88% and 79% for the three months ended June 30, 2005 and 2004, respectively, and
91% and 80% for the nine months ended June 30, 2005 and 2004, respectively. The
increases for the three and nine months ended June 30, 2005 as compared to the
three and nine months ended June 30, 2004 were attributable to an increase in
service incentives, an increase in the utilization of third party consultants
implementing our products, salaries and related benefits, and travel and
entertainment expenses related to worldwide professional services meetings,
partially offset by decreases in reimbursable expenses.
OPERATING EXPENSES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 06/30/05 % 06/30/04 06/30/05 % 06/30/04
- -------------- -------- ------ -------- -------- ------- --------
Sales and marketing $15,861 14% $13,941 $44,443 7% $41,486
Percentage of total revenues 30% 30% 31% 31%
Product development $ 8,183 17% $ 7,001 $21,921 4% $21,104
Percentage of total revenues 15% 15% 15% 16%
General and administrative $ 4,397 3% $ 4,280 $13,334 2% $13,134
Percentage of total revenues 8% 9% 9% 10%
Amortization of other intangibles $ 89 (46)% $ 165 $ 272 (53)% $ 574
Percentage of total revenues 1% 1% 1% 1%
Sales and marketing expenses increased 14% for the three months ended June 30,
2005 compared to the three months ended June 30, 2004 and increased 7% for the
nine months ended June 30, 2005 as compared to the nine months ended June 30,
2004. The increase for the three months ended June 30, 2005 as compared to the
three months ended June 30, 2004 was primarily attributable to an increase in
sales commissions due to an increase in software license sales, a general
increase in salaries and related benefits, travel and entertainment expenses,
and advertising expenses to market new products (MXES). The increase for the
nine months ended June 30, 2005 as compared the nine months ended June 30, 2004
was primarily attributable to a general increase in salaries and related
benefits, an increase in sales commissions due to an increase in software
license sales, an increase in advertising expenses to market new products
(MXES), and costs to recruit a new Vice President of Worldwide Sales, and travel
and entertainment expenses, partially offset by a general decrease in overall
sales and marketing expenses.
Product development expenses increased 17% for the three months ended June 30,
2005 compared to the three months ended June 30, 2004 and increased 4% for the
nine months ended June 30, 2005 as compared to the nine months ended June 30,
2004. The increases for the three and nine months ended June 30, 2005 as
compared to the three and nine months ended June 30, 2004 were due to an
increase in salaries and related benefits due to an increase in head count and
an increase in expenditures for translation of our products in various foreign
languages. We expended $1.2 million in translation expenses in the quarter ended
June 30, 2005, however, this increase in translation expenses is expected to
drop down to a lower level over the next few quarters. Partially offsetting
these increases is a general decrease in overall product and development
expenses. We have developed several industry specific solutions based on the
Maximo platform and incorporating specific functionality delivered through
either technology partnerships or integrations. Industry specific solutions
include Nuclear Power, Transportation, Oil & Gas, Transmission and Distribution
(Utilities) and Pharmaceuticals. In March 2005, we released our new generation
of products, Maximo Enterprise Suite (MXES). MXES is a comprehensive suite of
products that are built on
Page 15
a single, common platform combining enhanced Enterprise Asset Management (EAM)
functionality, new service management capabilities and IT Asset and Service
Management that together improve the effectiveness of asset management
strategies.
General and administrative expenses increased 3% for the three months ended June
30, 2005 as compared to the three months ended June 30, 2004 and increased 2%
for the nine months ended June 30, 2005 as compared to the nine months ended
June 30, 2004. General and administrative costs have mainly increased due to the
costs for the assessment of internal controls in order to comply with the
Sarbanes Oxley Act of 2002. General and administrative expenses, as a percentage
of total revenues, was 8% and 9% for the three months ended June 30, 2005 and
2004, respectively and 9% and 10% for the nine months ended June 30, 2005 and
2004, respectively.
The decrease in amortization of other intangibles expense for the three and nine
months ended June 30, 2005 and 2004, respectively, was due to cessation of
amortization for fully amortized assets.
NON-OPERATING INCOME/EXPENSES
Three Three Nine Nine
Months Months Months Months
Ended Change Ended Ended Change Ended
(in thousands) 06/30/05 % 06/30/04 06/30/05 % 06/30/04
- --------------- -------- ------ -------- -------- ------ --------
Interest income, net $ 693 121% $ 313 $ 1,811 138% $ 761
Other income/(expense), net $ 7 (80)% $ 35 $ 78 (127)% $ (292)
Interest income is attributable to interest earned on marketable securities and
cash and cash equivalents. We invest a large portion of our cash in marketable
securities such as United States treasury and treasury-backed instruments,
municipal bonds and highly rated conservative corporate bonds. We were able to
earn more income in the three and nine months ended June 30, 2005 as compared to
the three and nine months ended June 30, 2004 because we invested more cash into
higher yielding securities, mostly higher yielding U.S. bonds. The change in
other income was primarily due to a swing in foreign currency transaction gains
and losses. We reported net currency transaction losses of $71 thousand for the
three months ended June 30, 2005 compared to net currency transaction losses of
$21 thousand for the three months ended June 30, 2004 and net currency
transaction gains of $67 thousand for the nine months ended June 30, 2005
compared to net currency transaction losses of $597 thousand for the nine months
ended June 30, 2004. We have no foreign exchange contracts at the present time.
Transaction gains and losses are primarily attributable to settlement of foreign
intercompany account balances.
INCOME TAXES
Our effective tax rate was 36% for both the three and nine months ended June 30,
2005 and 35% for the three and nine months ended June 30, 2004. The tax
provision was calculated on income generated in domestic and foreign tax
jurisdictions and on changes in our net deferred tax assets and liabilities.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2005, we had cash and cash equivalents of $82.3 million and
marketable securities of $41.0 million. The Company's working capital was $99.0
million.
Cash provided by operations was $13.4 million for the nine months ended June 30,
2005 primarily attributable to income generated from operations and collection
of accounts receivable.
Cash provided by investing activities was $8.0 million for the nine months ended
June 30, 2005 and was primarily provided by the sales and maturities of
marketable securities, offset by the purchase of marketable securities and
capital expenditures.
Page 16
Cash provided by financing activities was $4.3 million for the nine months ended
June 30, 2005 and represents proceeds from our employee stock option and
purchase plans.
As of June 30, 2005, our principal commitments consist primarily of office space
and equipment operating leases for our U.S. and European headquarters. Our
corporate headquarters are under a lease through December 31, 2009. We lease our
other facilities and certain equipment under non-cancelable operating lease
agreements that expire at various dates through June 30, 2019.
We may use a portion of our cash to acquire additional businesses, products or
technologies complementary to our business. We also plan to make investments
over the next year in our products and technology.
We expect that our cash flow from operations, together with our current cash and
marketable securities, will be sufficient to meet our working capital and
capital expenditure requirements through at least June 30, 2006. Our liquidity
and working capital requirements, including the current portions of any
long-term commitments, are satisfied through cash flow from operations, leaving
our cash reserves available for acquisitions, other investments and
unanticipated expenditures. We have no long-term debt obligations. The factors
that might impact our cash flows include those that might impact our business
and operations generally, as described below under the heading "Factors
Affecting Future Performance."
NEW ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS No.
154, Accounting Changes and Error Corrections ("FAS 154"). FAS No. 154 replaces
APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, and establishes retrospective application as the
required method for reporting a change in accounting principle. FAS No. 154
provides guidance for determining whether retrospective application of a change
in accounting principle is impracticable and for reporting a change when
retrospective application is impracticable. The reporting of a correction of an
error by restating previously issued financial statements is also addressed. FAS
No. 154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. The Company does not anticipate
that the adoption of FAS No. 154 will have a material impact on its consolidated
results of operations.
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47). FIN 47 provides guidance
relating to the identification and recognition of legal obligations to perform
an asset retirement activity. FIN 47 requires recognition of a liability for the
fair value of a conditional asset retirement obligation when incurred if the
liability's fair value can be reasonably estimated. We are required to adopt the
provisions of FIN 47 by September 30, 2006. We do not expect FIN 47 to have a
material impact on our results of operations, financial position or cash flows.
In December 2004, the FASB issued a revised Statement of Financial Accounting
Standard (SFAS) No. 123, Share-Based Payment (FAS 123(R)). FAS 123(R) requires
public entities to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award and recognize the cost over the period during which an employee is
required to provide service in exchange for the award. In addition, in March
2005, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 107, Share-Based Payment (SAB 107). SAB 107 provides supplemental
implementation guidance on FAS 123(R), including guidance on valuation methods,
(including assumptions such as expected volatility and expected term),
classification of compensation expense, inventory capitalization of share-based
compensation cost, income tax effects, disclosures in Management's Discussion
and Analysis, and several other issues. Currently, we follow APB No. 25 which
does not require the recognition of compensation expense relating to the
issuance of stock options so long as the quoted market price of our stock at the
date of grant is less than or equal to the amount an employee must pay to
acquire the stock. However, other share-based awards such as restricted share
units and performance shares are currently expensed under the present rules. The
original FAS 123 requires footnote disclosure only of pro forma net income as if
a fair-value-based method had been used. In April 2005, the SEC amended the
compliance dates for FAS 123(R) from fiscal periods beginning after June 15,
2005 to
Page 17
fiscal years beginning after June 15, 2005. We will continue to account for
share-based compensation using the intrinsic value method set forth in APB No.
25, until adoption of FAS 123 (R) on October 1, 2005. We are currently assessing
the impact of FAS 123(R) and SAB 107 on our financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets
(FAS 153) which eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception from fair value measurement for exchanges of nonmonetary
assets that do not have commercial substance. We are required to adopt FAS 153
for nonmonetary asset exchanges occurring in the first quarter of fiscal year
2006 and its adoption is not expected to have a significant impact on our
results of operations, financial condition or cash flows.
In December 2004, the FASB issued Staff Position No. 109-1, Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004. The Act provides a deduction for income from qualified domestic production
activities, which will be phased in from our fiscal year 2006 through 2011. In
return, the Act also provides for a two-year phase-out of the existing
extra-territorial income exclusion (ETI) for foreign sales that was viewed to be
inconsistent with international trade protocols by the European Union. In this
Staff Position, the FASB states that the deduction should be accounted for as a
special deduction, meaning that it should not reduce our statutory rate but
shall be recognized in the period when it is deductible on our tax return. We do
not expect the Staff Position to materially impact the financial position,
results of operations or cash flows for our fiscal year 2005.
In December 2004, the FASB issued Staff Position No. 109-2, Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. The Act contains a special one-time tax
deduction of 85% of certain foreign earnings that are repatriated from foreign
subsidiaries pursuant to new Internal Revenue Code Section 965. We may elect to
apply the provisions of the new code section for either our fiscal year 2005 or
2006. The deduction is subject to a number of limitations and, as of today,
uncertainty remains as to how to interpret numerous provisions in the Act. This
Staff Position allows companies additional time beyond the financial reporting
period of enactment to evaluate the effect of the Act. As such, we expect to
complete our evaluation of the effects of the repatriation provision during the
fourth quarter of fiscal year 2005 and have currently made no decisions on the
amounts of potential dividend repatriation. Until the evaluation is completed,
we will make no changes in our current intention to indefinitely reinvest
accumulated earnings of our foreign subsidiaries.
FACTORS AFFECTING FUTURE PERFORMANCE
The nature of forward-looking information is that such information involves
significant assumptions, risks and uncertainties. Certain of our public
documents and statements made by our authorized officers, directors, employees,
agents and representatives acting on our behalf may include forward-looking
information which will be influenced by the factors described below and by other
assumptions, risks and uncertainties. Forward-looking information is based on
assumptions, estimates, forecasts and projections regarding our future results
as well as the future effectiveness of our strategic plans and our operational
decisions. Forward-looking statements made by or on behalf of us are subject to
the risk that the forecasts, projections and expectations of management, or
assumptions underlying such forecasts, projections and expectations, may prove
to be inaccurate. Accordingly, actual results and our implementation of our
plans and operations may differ materially from forward-looking statements made
by or on behalf of us. The following discussion identifies certain important
factors that could affect our actual results and actions and could cause such
results and actions to differ materially from forward-looking statements.
WE DEPEND SUBSTANTIALLY ON OUR MAXIMO EAM PRODUCT.
Most of our revenues are derived from the licensing of our Maximo EAM family of
products and sales of related services and support. Our financial performance
depends largely on continued market acceptance of these products. We believe
that continued market acceptance and our revenue stability and growth will
largely depend on our ability to continue to enhance and broaden the
capabilities of these products. If we are unable to continue to enhance and
improve Maximo EAM so that it delivers the capabilities required by existing and
potential customers and remains competitive with other products in the market,
or if a trend
Page 18
emerges such that customers decide to consolidate their IT systems and eliminate
their standalone or "best-of-breed" EAM application software altogether, our
revenues, margins and results of operations and financial condition may be
materially and adversely affected.
THE TRADITIONAL MARKET FOR OUR MAXIMO EAM PRODUCT IS MATURE AND SATURATED AND
MAY PRESENT LIMITED OPPORTUNITY FOR GROWTH.
Maximo has been the industry-leading plant floor capital asset maintenance
product for a number of years, and we have acquired a large number of customers
in this market. However, most large industrial organizations have made
significant investments in systems that support the maintenance of their capital
assets, and opportunities for new Maximo sales in the EAM market are in a state
of continuous decline. In addition, the emergence and growth of this market have
attracted a large number of competitors, and most of the largest software
companies that sell into complementary markets have developed competing asset
maintenance products. It is likely that this market will continue to mature,
there will be fewer sales opportunities for the Company, and competitive forces
will put downward pressure on our average sales prices and rates of success. To
be competitive in the EAM market, we have made significant investments in Maximo
EAM to meet the needs of specific industries in which we have a presence, such
as the nuclear, transportation, power generation, transmission and distribution,
and other industries. We refer to these industry-specific Maximo offerings as
"Industry Solutions." While we continue to strengthen our Maximo EAM offering,
these efforts may not be sufficient to overcome the effects of maturity and
saturation in our traditional market, and our revenues, margins, results of
operation and financial condition may be materially and adversely affected.
OUR EFFORTS TO REACH INTO NEW MARKETS WITH NEW PRODUCTS MAY NOT BE SUCCESSFUL.
Given the maturity and saturation of the traditional EAM market, in order to
maintain revenues at their current levels and to grow our business, we have
recently broadened our product offerings in order to develop additional sources
of revenues, and we continue to do so. We are attempting, through acquisitions
and internal development, to deliver products that address markets that are new
to us, such as the ITAM and Help Desk and Service Desk markets. These efforts
reached a significant milestone with the initial release of Maximo Enterprise
Suite (MXES), in March 2005. We are planning significant enhancements to this
initial release, and will continue to broaden this offering. Our continuing
development of MXES and of our Maximo EAM Industry Solutions, and our ability to
derive revenue and grow, is subject to the following risks, among others:
- We may not be able to develop and market our new products on time,
with acceptable quality or with functions and features that meet the
requirements of customers in these markets.
- The MXES products may not contain all of the functionality deemed
necessary by prospective buyers in these markets.
- It is possible that our sales, service or support personnel may not
be adequately trained and/or staffed to sell, implement or support
the new products. Newly developed products require a higher level of
development, distribution and support expenditures in the early
stages of their product life cycles.
- In the event that our development efforts are not progressing as
intended, or if our new product releases or technologies are not
successful in the markets they are intended to address, we may
increase our rate of expenditure in this area over and above the
level of investment experienced in the past or previously projected,
which could have a material adverse affect on our results of
operation or financial condition.
- We may not derive revenues from MXES in proportion to our investment
and sales efforts, and those efforts may serve as a significant
distraction from our efforts to maintain revenues at current levels
in our traditional EAM market.
Page 19
- Our positioning of the combination of our traditional EAM products
and our ITAM products in a single offering as a logical suite of
products may not be accepted in the marketplace. As a result of this
and other factors, we may not be able to benefit from the trend
among customers to consolidate their information technology (IT)
systems, and we may not be successful in our attempts to sell our
new products into our existing accounts, or our traditional EAM
products to customers primarily interested in our new products.
If any of our newly developed products do not gain market acceptance and
generate revenues from new industries or markets, we may not be able to grow our
business or maintain revenues at current levels, and our revenues, margins,
results of operations and financial condition may be materially and adversely
affected.
OUR SALES EFFORTS DEPEND IN PART ON STRATEGIC RELATIONSHIPS AND RESELLER
ARRANGEMENTS WITH OTHER COMPANIES.
We have entered into strategic relationships with various larger companies, such
as HP, IBM and SAIC. In order to generate revenue through these relationships,
each party must coordinate with and support the other's sales and marketing
efforts, and each party must make significant sales and marketing investments.
Our ability to generate revenues through these relationships depends in large
part upon the efforts of these other companies, which are outside of our
control. The efforts of these companies may in turn be influenced by factors
internal to these companies, or by developments in their respective industries
or markets, that we fail to anticipate.
In addition, we are renewing our focus on generating software license sales
through value-added resellers, systems integrators and other indirect sales
channels. The Company may have difficulty in establishing the infrastructure
necessary to initiate, maintain and support these channel relationships, and
these relationships may either not materialize or they may fail to produce
additional sales. We may not derive revenues from in proportion to our
investment in channel sales, and those efforts may serve as a significant
distraction from our direct sales efforts.
IF WE ARE UNABLE TO KEEP PACE WITH THE RAPID CHANGES IN TECHNOLOGY AND CUSTOMER
DEMAND THAT CHARACTERIZE OUR INDUSTRY, OUR COMPETITIVE POSITION COULD BE
IMPAIRED.
The computer software industry is characterized by rapid technological advances,
changes in customer requirements and frequent product introductions and
enhancements by us and by our competitors. Our success depends on our abilities
to enhance our current products, to develop and introduce new products that keep
pace with technological developments, to respond to evolving customer
requirements and changing industry standards, to offer functionality and other
innovations that are unique to our products and superior to those of our
competitors, and ultimately to achieve market acceptance. In particular, we
believe that we must continue to innovate and develop new functionality, to
respond quickly to users' needs for new functionality and to advances in
hardware and operating systems, and that we must continue to create products
that conform to industry standards regarding the communication and
interoperability among software, hardware and communications products of many
different vendors. If we fail to anticipate or respond adequately to
technological developments and changes in market definitions or changes in
customer requirements within particular market segments, or if we have any
significant delays in product development or introduction, then we could lose
competitiveness and revenues.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND TO SEASONAL
VARIATION.
We have experienced, and may in the future experience, significant
period-to-period fluctuations in revenues and operating results. In addition,
our quarterly revenues and operating results have fluctuated historically due to
the number and timing of product introductions and enhancements, customers
delaying their purchasing decisions in anticipation of new product releases, the
budgeting and purchasing cycles of customers, the timing of product shipments
and the timing of marketing and product development expenditures. We typically
realize a significant portion of our revenue from sales of software licenses in
the last two weeks of each quarter, frequently even in the last few days of a
quarter. Failure to close a small
Page 20
number of large software license contracts may have a significant impact on
revenues for the quarter and could, therefore, result in significant
fluctuations in quarterly revenues and operating results, and divergence of
those results from our expectations. Accordingly, we believe that
period-to-period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
WE FACE INTENSE COMPETITION IN THE MARKETS WE SERVE.
The markets for strategic asset management software such as Maximo EAM, Maximo
ITAM and Maximo Enterprise Suite (MXES) are fragmented by geography, by market
and industry segments, by hardware platform and by industry orientation, and are
characterized by a large number of competitors including both independent
software vendors and certain ERP vendors. Independent software vendors include
DataStream Systems, Inc. and Indus International, Inc. We also compete with
integrated ERP systems, which include maintenance modules offered by several
large vendors, such as SAP and Oracle. In the ITAM market we compete with
companies such as Peregrine Systems, Computer Associates and BMC Software. MXES
will compete with all of these companies, plus additional companies, in the Help
Desk and Service Desk markets, such as HP. Maximo also encounters competition
from vendors of low cost maintenance management systems designed initially for
use by a single user or limited number of users as vendors of these products
upgrade their functionality and performance to enter the enterprise market.
Certain of our competitors have greater financial, marketing, service and
support and technological resources than we do. To the extent that such
competitors increase their focus on the asset maintenance, planning and cost
systems markets, or on the industrial supply chain market, we could be at a
competitive disadvantage.
Current or potential competitors may make strategic acquisitions, thereby
increasing their ability to deliver products that better address the needs of
our customers. There is no assurance that we will be able to compete
successfully should this occur and this could have a material adverse effect on
our financial condition and results of operations.
OUR INTERNATIONAL OPERATIONS SUBJECT US TO SPECIAL RISKS.
A significant portion of our total revenues and expenses are derived and
incurred from operations outside the U.S. Our ability to sell our products
internationally is subject to a number of risks. General economic and political
conditions in each country could adversely affect demand for our products and
services. Exposure to currency fluctuations and greater difficulty in collecting
accounts receivable could affect our sales. We could be affected by the need to
comply with a wide variety of foreign import laws, U.S. export laws and
regulatory requirements. Trade protection measures and import and export
licensing requirements subject us to additional regulation and may prevent us
from shipping products to a particular market and increase our operating costs.
OUR SOFTWARE PRODUCTS ARE DEPENDENT ON THIRD-PARTY PROVIDERS OF SOFTWARE AND
SERVICES, AND FAILURE OF THESE PARTIES TO PERFORM AS EXPECTED, OR TERMINATION OF
OUR RELATIONSHIPS WITH THEM, COULD HARM OUR BUSINESS.
We have entered into nonexclusive license agreements with other software
vendors, pursuant to which we incorporate into our products and solutions
software providing certain application development, hardware and network
discovery, user interface, mobile technology, report writing, application
servers, business intelligence, content and graphics capabilities developed by
these companies. If we cannot renew these licenses (at all or on commercially
reasonable terms), or if any of such vendors were to become unable to support
and enhance their products, we could be required to devote additional resources
to the enhancement and support of these products or to acquire or develop
software providing equivalent capabilities, which could cause delays in the
development and introduction of products incorporating such capabilities.
Page 21
WE MAY HAVE EXPOSURE TO ADDITIONAL TAX LIABILITIES.
We are subject to income taxes and non-income taxes (e.g., import/export duties,
and payroll, sales, use, value-added, net worth, property, and goods and
services taxes) in both the U.S. and various foreign jurisdictions. The amount
of taxes paid is subject to our interpretation of applicable tax laws in the
jurisdictions in which we file. We are regularly subject to examinations of our
tax returns by the Internal Revenue Service and other tax authorities. We
regularly assess the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of our provision and accruals for taxes.
While we believe that we have properly interpreted applicable tax laws, there
can be no assurance that a governing tax authority will not have a different
interpretation of the law and assess us with additional taxes. Should we be
assessed with additional taxes, there could be a material and adverse effect on
our results of operations or financial condition.
CHANGES IN REGULATIONS OR CRITICAL ACCOUNTING POLICIES COULD MATERIALLY AND
ADVERSELY AFFECT US.
New laws, regulations or standards related to us or our products, and new
accounting pronouncements, could be implemented or changed in a manner that
could adversely affect our business, results of operations or financial
condition. In particular, the FASB recently enacted SFAS 123(R), which requires
compensation costs related to share-based payment transactions to be recognized
in the financial statements. We believe that SFAS 123(R) will have a significant
adverse effect on our reported financial results and may impact the way in which
we conduct our business.
We may be eligible for several tax benefits provided for under the American Jobs
Creation Act of 2004, which was signed into law on October 22, 2004. The
potential tax benefits include a temporary 85% foreign dividends received
deduction for certain dividends received from controlled foreign corporations.
There are several statutory requirements, which must be met if we determine that
the 85% dividends received deduction is advantageous. However, if we do not
appropriately comply with the statutory requirements then the 85% foreign
dividends received deduction could be forfeited resulting in a potentially
adverse affect on our results of operations.
WE MAY PERFORM MORE FIXED PRICE SERVICES CONTRACTS.
A trend has emerged and is continuing among customers in our market towards
demanding consulting and implementation services on a fixed-price basis, whereby
we agree to deliver the contract requirements for a fixed fee regardless of the
number of person-hours actually provided, as opposed to our traditional services
arrangements where we deliver services on a time-and-materials basis. In cases
where services are provided either for the future delivery of functionality or
on a fixed price basis and our standard software is licensed at the same time,
and if the services are essential to the overall solution desired by the
customer or if we cannot determine the fair value of the services being
delivered, then we may not be able to recognize the software license revenue
from such transactions at the time the agreements are signed, but rather may be
required to recognize such license revenue under the contract method of
accounting, or to recognize a greater portion (or all) of the revenue from these
transactions as services revenue. This would likely result in a postponement of
recognition of, or even a reduction in, software license revenues, and have an
adverse affect on our results of our operations.
WE MAY BE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY.
Our success is dependent upon our proprietary technology. We currently have two
U.S. patents (and other corresponding patents or applications pending in various
foreign countries), and we protect our technology primarily through copyrights,
trademarks, trade secrets and employee and third-party nondisclosure agreements.
Our software products are sometimes licensed to customers under "shrink-wrap" or
"click- wrap" licenses included as part of the product packaging or acknowledged
by customers who register online. Although, in larger sales, our shrink-wrap and
click-wrap licenses may be accompanied by specifically negotiated agreements
signed by the licensee, in many cases our shrink-wrap and click-wrap licenses
are not negotiated with or signed by individual licensees. Certain provisions of
our shrink-wrap and click-wrap licenses, including provisions protecting against
unauthorized use, copying, transfer and disclosure of the licensed program, and
limitations or liabilities and exclusions of remedies, may be unenforceable
under the laws of certain jurisdictions. In addition, the laws of some foreign
countries do not
Page 22
protect our proprietary rights to the same extent as do the laws of the U.S.
Finally, we sell our products through distributors and resellers, and are
therefore dependent on those companies to take appropriate steps to adequately
implement our contractual protections and to enforce and protect our rights. We
cannot give any assurance that the steps that we have taken to protect our
proprietary rights will be adequate to prevent misappropriation of our
technology or development by others of similar technology. Although we believe
that our products and technology do not infringe on any valid claim of any
patent or any other proprietary rights of others, we cannot give any assurance
that third parties will not assert infringement claims in the future. Litigation
may be necessary to enforce our intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources, could
result in the deterioration or outright loss of our patent rights, copyrights or
other intellectual property, and could potentially have a material adverse
affect on our operating results and financial condition.
LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY EXECUTIVE OFFICERS OR INABILITY
TO RECRUIT NEEDED SALES, SERVICES AND TECHNICAL PERSONNEL COULD ADVERSELY AFFECT
OUR BUSINESS.
We are highly dependent on certain key executive officers, technical and sales
employees, and the loss of one or more of such employees could have an adverse
impact on our future operations. We do not have employment contracts with any
personnel, and we do not maintain any so-called "key person" life insurance
policies on any personnel. We continue to hire additional sales, services and
technical personnel. Competition for hiring of such personnel in the software
industry is intense, and from time to time we may experience difficulty in
locating candidates with the appropriate qualifications within the desired
geographic locations, or with certain industry specific expertise. There can be
no assurance that we will be able to retain our existing personnel or attract
additional qualified employees.
WE ARE EXPOSED TO FLUCTUATIONS IN THE MARKET VALUES OF OUR PORTFOLIO INVESTMENTS
AND IN INTEREST RATES.
We invest a significant portion of our cash in marketable securities. These
securities are classified as available-for-sale and are recorded at fair value
on the Consolidated Balance Sheet with unrealized gains or losses reported as a
separate component of accumulated other comprehensive income (loss), net of tax.
Economic downturns and other factors subject these securities to volatility in
the market place. As a result, we may recognize the decline in fair value of
these investments.
OTHER RISKS
The foregoing is not a complete description of all risks relevant to our future
performance, and the foregoing should be read and understood together with and
in the context of similar discussions which may be contained in the documents
that we file with the SEC in the future. We undertake no obligation to release
publicly any revision to the foregoing or any update to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
Page 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to market risk is the effect of fluctuations in interest
rates earned on our cash equivalents and marketable securities and exposures to
foreign currency exchange rate fluctuations.
At June 30, 2005, we held $123.3 million in cash equivalents and marketable
securities consisting of taxable and tax exempt municipal securities. Interest
rate movements affect the interest income we earn. We place our investments with
high quality issuers and limits risk by purchasing only investment-grade
securities. A hypothetical 10 percent increase in interest rates would not have
a material impact on the fair market value of these instruments due to their
short maturity.
We develop our products in the United States and market them in North America,
Europe, Middle East and Africa, Australia, Asia Pacific and Latin America. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As of June 30, 2005, we did not engage in foreign currency hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
We carry out periodic evaluations, under the supervision of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon such evaluations,
the Chief Executive Officer and the Chief Financial Officer concluded that, as
of June 30, 2005, our disclosure controls and procedures were effective to
timely alert them to any material information relating to our (including our
consolidated subsidiaries) that would be required to be included in our periodic
filings with the Securities and Exchange Commission.
While there have been no significant changes in our internal controls over
financial reporting or in other factors that could significantly affect internal
controls over financial reporting subsequent to their evaluation, we are
currently undergoing a comprehensive effort to comply with Section 404 of the
Sarbanes-Oxley Act of 2002. Compliance is required for our fiscal year ended
September 30, 2005. This effort includes documenting and testing of internal
controls over financial reporting. During the quarter ended June 30, 2005, we
have not identified any material weaknesses in our internal controls over
financial reporting as defined by the Public Company Accounting Oversight Board.
We will continue with our efforts of compliance and will modify or improve our
internal controls over financial reporting as needed. The matters noted herein
have been discussed with our Audit Committee.
Page 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2 RECENT SALES OF UNREGISTERED SECURITIES, USE OF PROCEEDS FROM
REGISTERED SECURITIES CHANGES IN SECURITIES
NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS
EXHIBIT
NO. DESCRIPTION
3. Instruments Defining the Rights of Security-Holders
3.1 Amended and Restated Articles of Organization of the Company
(included as Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No. 33-76420, and
incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended (included as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996, File No. 0-23852,
and incorporated herein by reference)
3.3 Amendment to By-Laws adopted on February 1, 2001 (included as
Exhibit 3.3 to the Company's Current Report on Form 10-Q for
the quarter ended March 31, 2001, File No. 0-23852 and
incorporated herein by reference)
3.4 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of MRO Software, Inc. (which is
attached as Exhibit A to the Rights Agreement included as
Exhibit 4 (b) to the Company's Current Report on Form 8-K
dated February 2, 1998, File No. 0-23852, and incorporated
herein by reference)
3.5 Amendment to Articles of Organization adopted on December 15,
1999 (included as Exhibit 3.4 to the Company's Form 10-Q for
the quarter ended December 31, 1999, File No. 0-23852, and
incorporated herein by reference)
3.6 Amendment to Articles of Organization, dated March 6, 2001
(included as Exhibit 3.4 to the Company's Current Report on
Form 8-K dated March 9, 2001, File No. 0-23852, and
incorporated herein by reference)
3.7 Nonstatutory Stock Option Agreement Form (included as Exhibit
3.7 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2004, File No. 0-23852, and
incorporated herein by reference)
Page 25
3.8 Stock Option Agreement Form for Employees (included as Exhibit
3.8 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2004, File No. 0-23852, and
incorporated herein by reference)
4. Instruments Defining the Rights of Security Holders, Including
Indentures
4.1 Specimen certificate for the Common Stock, $.01 par value, of
the Company (included as Exhibit 4.1 to the Company's Current
Report on Form 10-Q for the quarter ended December 31, 2001,
File No. 0-23852 and incorporated herein by references)
4.2 Article 4B of the Amended and Restated Articles of
Organization of the Company (included as Exhibit 4.1 to the
Company's Registration Statement on Form S-1, Registration No.
33-76420, and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between the
Company and BankBoston, N.A. as Rights Agent (included as
Exhibit 4 (a) to the Company's Current Report on Form 8-K
dated February 2, 1998, File No. 0-23852, and incorporated
herein by reference)
4.4 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of the Company (included as
Exhibit 4 (b) to the Company's Current report on Form 8-K
dated February 2, 1998, File No. 0-23852, and incorporated
herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the
Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852, and incorporated herein by reference)
9. Voting Trust Agreements
9.1 Shareholders Agreement between Robert L. Daniels and Susan H.
Daniels dated August 1, 2001 (included as Exhibit 9.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2001 File No. 0-23852, and incorporated herein
by reference)
31. Rule 13a-14(a)/15(d)-14(a) Certifications
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32. Section 1350 Certifications
32.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
The Company will furnish a copy of any exhibit listed to requesting stockholders
upon payment of the Company's reasonable expense in furnishing those materials.
Page 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MRO SOFTWARE, INC.
Date: August 9, 2005 By: /s/ Peter J. Rice
-----------------
Peter J. Rice
Executive Vice President -
Finance and Administration,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Page 27
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Amended and Restated Articles of Organization of the Company (included
as Exhibit 3.3 to the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended (included as Exhibit
3.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996 File No. 0-23852 and incorporated herein by
reference)
3.3 Amendment to By-Laws adopted on February 1, 2001 (included as
Exhibit 3.3 to the Company's Current Report on Form 10-Q for the
quarter ended March 31, 2001, File No. 0-23852 and incorporated
herein by reference)
3.4 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of MRO Software, Inc. (which is attached as Exhibit A
to the Rights Agreement included as Exhibit 4 (b) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No. 0-23852,
and incorporated herein by reference)
3.5 Amendment to Articles of Organization adopted on December 15, 1999
(included as Exhibit 3.4 to the Company's Form 10-Q for the quarter
ended December 31, 1999, File No. 0-23852, and incorporated herein by
reference)
3.6 Amendment to Articles of Organization dated March 6, 2001 (included as
Exhibit 3.4 to the Company's Current Report on Form 8-K dated March 9,
2001, File No. 0-23852, and incorporated herein by reference)
3.7 Nonstatutory Stock Option Agreement Form (included as Exhibit 3.7 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2004, File No. 0-23852, and incorporated herein by
reference)
3.8 Stock Option Agreement Form for Employees (included as Exhibit 3.8 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2004, File No. 0-23852, and incorporated herein by
reference)
4.1 Specimen certificate for the Common Stock, $.01, of the Company
(included as Exhibit 4.1 to the Company's Current Report on Form 10-Q
for the quarter ended December 31, 2001, File No. 0-23852 and
incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of Organization of the
Company (included as Exhibit 4.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-76420, and incorporated
herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between the Company and
BankBoston, N.A. as Rights Agent (included as Exhibit 4 (a) to the
Company's Current Report on Form 8-K dated February 2, 1998, File
No.0-23852, and incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of MRO Software, Inc. (included as Exhibit 4 (b) to
the Company's Current Report on Form 8-K dated February 2, 1998, File
No. 0-23852, and incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No. 0-23852,
and incorporated herein by reference)
9.1 Shareholders Agreement between Robert L. Daniels and Susan H. Daniels
dated August 1, 2001 (included as Exhibit 9.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2001 File
No. 0-23852, and incorporated herein by reference)
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Page 28