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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20059
----------------------
ARDENT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2818132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 WASHINGTON STREET 01581-1021
WESTBORO, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 366-3888
----------------------
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 [ ]
The number of shares outstanding of each of the registrant's classes of
common stock as of:
DATE CLASS OUTSTANDING SHARES
March 31, 1998 Common stock, $.01 par value 14,494,478
The index to the Exhibits appears on page 15
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ARDENT SOFTWARE, INC.
FORM 10-Q/A
FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PAGE NUMBERING
IN SEQUENTIAL
NUMBERING SYSTEM
----------------
PART I FINANCIAL INFORMATION
Introduction 3
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 (Restated) 4
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1998
and March 30, 1997 (Restated) 5
Condensed Consolidated Statement of Comprehensive
Income (Loss) for the three months ended
March 31, 1998 and March 30, 1997 (Restated) 6
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and
March 30, 1997 (Restated) 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
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INTRODUCTION
On February 10, 1998, the Company merged with Unidata, Inc. ("Unidata") in a
transaction accounted for as a pooling of interests (see note 1). The statements
of operations and related statements of comprehensive income (loss) and cash
flows for the three months ended March 30, 1997 included in the Company's 10-Q
report filed on May 14, 1998 reflected the combination, for pooling purposes, of
the Company's accounts for the three months ended March 30, 1997 (its first
fiscal quarter of 1997) with Unidata's accounts for the three months ended
September 30, 1996 (Unidata's first fiscal quarter of 1997). The Company has
subsequently determined that, although such combination was in accordance with
generally accepted accounting principles, it is more appropriate (and also
equally in accordance with generally accepted accounting principles) that the
Company's fiscal quarters in 1997 be combined, for pooling purposes, with
Unidata's corresponding calendar, rather than fiscal quarters. The statements of
operations and related statement of comprehensive income (loss) and cash flows
included in this 10-Q/A reflect the change in combining quarters for 1997 for
pooling purposes (see note 9). Management's discussion and analysis of financial
condition and results of operations in this 10-Q/A has also been revised from
that filed with the initial 10-Q. In addition, the balance sheets as of December
31, 1997 and March 31, 1998 included in the Company's 10-Q report filed on May
14, 1998, reflected a charge against in-process research and development taken
by Unidata in December 1997. The Company has subsequently reduced the amount of
that charge and the balance sheets included in this 10-Q/A reflect this
reduction (see note 9).
These changes do not impact results for the three months ended March 31, 1998 as
previously reported.
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PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARDENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (RESTATED, SEE NOTE 9)
(IN THOUSANDS)
MARCH 31, DEC. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 15,526 $ 24,155
Accounts receivable - net 20,711 21,161
Prepaid expenses, deferred income taxes and
other current assets 8,600 7,546
-------- --------
Total current assets 44,837 52,862
-------- --------
Property and equipment - net 6,408 15,916
-------- --------
Long-term assets:
Intangible assets - net 16,427 17,245
Deferred income taxes and other long-term assets 10,125 8,020
-------- --------
Total long-term assets 26,552 25,265
-------- --------
Total assets $ 77,797 $ 94,043
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Line of credit $ -- $ 7,357
Accounts payable, accrued expenses and other current
liabilities 20,407 19,098
Accrued merger and restructuring costs 6,142 1,068
Deferred revenue 16,246 13,248
-------- --------
Total current liabilities 42,795 40,771
-------- --------
Long-term liabilities:
Non-current debt and other long-term liabilities 9,720 21,190
-------- --------
Stockholders' equity 28,238 35,038
Cost of treasury stock (2,956) (2,956)
-------- --------
Total stockholders' equity 25,282 32,082
-------- --------
Total liabilities and stockholders' equity $ 77,797 $ 94,043
======== ========
See notes to condensed consolidated financial statements.
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ARDENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
-------------------------
March 31, March 30,
1998 1997
-------- --------
(Restated,
see Note 9)
Revenue:
Software $ 14,792 $ 14,951
Services and other 10,918 11,069
-------- --------
Total revenue 25,710 26,020
-------- --------
Costs and expenses:
Cost of software 1,671 2,100
Cost of services and other 5,355 6,374
Selling and marketing 9,289 9,287
Product development 4,240 3,982
General and administrative 2,628 2,956
Merger costs 14,895 --
-------- --------
Total costs and expenses 38,078 24,699
-------- --------
Income (loss) from operations (12,368) 1,321
Other income (expense)-net 154 (564)
-------- --------
Income (loss) before income tax benefit (12,214) 757
Income tax provision (benefit) (2,857) 293
-------- --------
Net income (loss) $ (9,357) $ 464
======== ========
Basic income (loss) per common share $ (.66) $ .03
======== ========
Basic shares used for computation 14,206 13,545
======== ========
Diluted income (loss) per common share $ (.66) $ .03
======== ========
Diluted shares used for computation 14,206 14,105
======== ========
See notes to condensed consolidated financial statements.
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ARDENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
Three months ended Three months ended
March 31, 1998 March 30, 1997
------------------ ------------------
(Restated,
see Note 9)
Net income (loss) $(9,357) $464
Change in translation adjustment (91) (48)
------- ----
Comprehensive net income (loss) $(9,448) $416
======= ====
See notes to condensed consolidated financial statements.
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ARDENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
-------------------------
March 31, March 30,
1998 1997
-------- --------
(Restated,
see Note 9)
Cash flows from operating activities:
Net income (loss) $ (9,357) $ 464
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Unidata activity for the period July 1 to
December 31, 1996 -- 694
Depreciation and amortization 1,733 2,294
Stock compensation 7 7
Loss on disposal of assets 889 --
Change in deferred income taxes (3,961) --
Increase (decrease) in cash from:
Current assets 2,334 1,916
Current liabilities 9,877 (2,906)
-------- --------
Cash provided by operations 1,522 2,469
-------- --------
Cash flows from investing activities:
Unidata activity for the period July 1 to
December 31, 1996 -- (1,737)
Expenditures for property and equipment (345) (274)
Expenditures for intangible assets (604) (363)
Decrease (increase) in cash surrender value of
officers' life insurance and deposits and other (273) (188)
Other assets (1,500) (174)
-------- --------
Cash used in investing activities (2,722) (2,736)
-------- --------
Cash flows from financing activities:
Unidata activity for the period July 1 to
December 31, 1996 -- 7
Sale of common stock 2,641 201
Borrowings under line of credit 7,330 400
Repayments of line of credit (7,357) (721)
Repayments under long-term debt (10,000) (147)
-------- --------
Cash provided by (used in) financing activities (7,386) (260)
-------- --------
Effect of exchange rate changes on cash (43) (77)
-------- --------
Decrease in cash and equivalents (8,629) (604)
Cash and equivalents, beginning of period 24,155 15,545
-------- --------
Cash and equivalents, end of period $ 15,526 $ 14,941
======== ========
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited financial
statements included in the Company's Annual Report to Stockholders for the
year ended December 31, 1997 and the Company's Registration Statement on
Form S-4, filed on December 31, 1997, related to the merger with Unidata,
Inc. ("Unidata").
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
interim periods presented. The operating results for the interim periods
presented are not necessarily indicative of the results which could be
expected for the full year.
On February 10, 1998 the Company merged with Unidata. The merger was
accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements have been restated to include the accounts of Unidata
for all fiscal periods prior to the merger. The Company's 1997 unaudited
quarterly results have been presented using the same calendar periods for
both the Company and Unidata.
2. Income (Loss) Per Common Share
Basic income (loss) per common share is computed using the weighted average
number of common shares outstanding during each year. Diluted income (loss)
per common share reflects the effect of the Company's outstanding options
(using the treasury stock method), except where such items would be
anti-dilutive.
3. Income Taxes
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year,
adjusted for significant non-deductible costs. Cumulative adjustments to
the tax provision are recorded in the interim period in which a change in
the estimated annual effective rate is determined.
4. Litigation
The Company was a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court in the
District of Massachusetts. The plaintiffs alleged in the Complaint that the
Company and certain of its officers, during July through October 1995, made
certain untrue statements and failed to disclose certain information
regarding the Company's prospective financial performance in violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder and that such statements and omissions artificially inflated the
market prices of the Company's stock. The Company denied the allegations.
Following completion of discovery, the defendants and their insurance
carrier reached, in September 1998, an agreement to settle the action. The
Company recorded its contribution to the agreed settlement in the third
quarter of 1998 which was not material to financial position or the results
of operations.
The Company is a defendant in two actions filed against Unidata prior to
its merger into the Company, one in May 1996 in the U.S. District Court for
the Western District of Washington and one in September 1996 in the U.S.
District Court for the District of Colorado. The plaintiff, a company
controlled by a former stockholder of Unidata and a distributor of its
products in certain parts of Asia, alleges in both suits that the improper
distribution of certain Unidata products in the plaintiff's exclusive
territory and asserts damages of approximately $30,000,000 under claims for
fraud, breach of contract, unfair competition, RICO violations, and
trademark and copyright infringement, among other relief. Unidata denied
the allegations in its answers to the complaints and the proceedings are
currently in their early stages. Management of the Company believes that
the actions are without merit and plans to continue to oppose them
vigorously.
The Company is a defendant in an action filed in July 1998 in the U.S.
District Court for the Southern District of Ohio. The plaintiff, with whom
the Company entered into a joint venture in 1996 to develop the Object
Studio product, alleges in its complaint that the Company is obligated to
support the joint venture in amounts up to $1,400,000 per year
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for an aggregate present value liability of up to $8,000,000. The Company
believes the allegations are without merit and has denied its alleged
liability and filed certain counterclaims against the plaintiff seeking an
amount in excess of $9,000,000.
5. Acquisition Costs
In connection with the merger with Unidata, the Company recorded a one-time
charge for merger costs of $14,895,000. Included in these costs were
$3,910,000 for financial advisor, legal, and accounting fees related to the
merger and $10,985,000 for costs associated with the combining operations
of the two companies including expenditures of $6,209,000 for severance,
benefits and other, $2,170,000 for closure of facilities and $2,606,000 for
the write-off of redundant assets. As of March 31, 1998, $5,225,000 remains
unpaid, comprised principally of severance and facility costs.
6. Line of Credit
In March 1998, the Company entered into a working capital line of credit
with a bank under which the Company may borrow up to the lesser of
$12,500,000 or 80% of domestic eligible accounts receivable and 70-80% of
eligible foreign accounts receivable, conditioned upon meeting certain
financial covenants, including maintaining specified levels of quarterly
earnings, tangible net worth, working capital and liquidity. The line of
credit also limits the Company's ability to pay dividends. At March 31,
1998, there was $7,330,000 outstanding under the Company's line of credit
which has been classified under long-term liabilities as the line of credit
expires in March 2000. No additional amounts were available for borrowing.
7. Commitments
In March 1998, the Company renegotiated the lease of its principal
operating facility. This lease had been classified as a capital lease. As a
result of this renegotiation, the term of the lease was modified and
reduced from 20 years to 13 years. As a result of this modification, the
lease no longer qualifies as a capital lease and has been reclassified as
operating. In connection with this reclassification, the Company removed
the asset and liability from the balance sheet and recorded a net gain of
approximately $600,000 as a component of other income in the quarter ended
March 31, 1998.
8. Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which requires the presentation of an additional primary financial
statement providing a prominent display of the components of items of other
comprehensive income or loss. The only item that the Company currently
records as other comprehensive income or loss is the change in cumulative
translation adjustment resulting from the changes in exchange rates and the
effect of those changes upon translation of the financial statements of the
Company's foreign operations. As of March 31, 1998 and December 31, 1997,
the cumulative translation adjustment was ($246,000) and ($155,000),
respectively.
9. Restatements
RECOMBINATION OF 1997
Following the merger with Unidata in February 1998, as described in Note 1,
the Company initially combined the two companies' results of operations for
the period ended March 30, 1997 for the Company with the period ended
September 30, 1996 for Unidata. This resulted in Unidata's operating
results for the six months ended December 31, 1997, a net loss of
$12,295,000, being recorded as an increase in accumulated deficit as of
December 31, 1997, rather than as a component of the 1997 statement of
operations. Subsequent to the issuance of the Company's quarterly report on
Form 10-Q for the quarterly period ended March 31, 1998, the Company's
management determined that the results for 1997 are more fairly presented
including both companies' results on a calendar year basis. As a result,
the accompanying statement of operations for the three months ended March
30, 1997 have been restated from amounts previously reported to present the
Company's 1997 unaudited results using the same calendar periods for both
the Company and Unidata. This combining methodology records Unidata's
operating results for the six months ended December 31, 1996, a net loss of
$549,000, as an increase in accumulated deficit as of December 31, 1996.
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The Company is also restating previously reported financial information as
of December 31, 1997 and March 31, 1998 to adjust the in-process research
and development ("IPRD") charge recorded in December 1997 related to the
acquisition by Unidata of O2 Technologies ("O2"). The Securities and
Exchange Commission ("SEC") issued new guidance in September 1998 on its
views regarding the methodologies used to determine the value of acquired
IPRD and intangible assets in a purchase business combination. Generally
accepted accounting principles require that amounts allocated to IPRD be
expensed upon consummation of an acquisition accounted for as a purchase.
As a result of this new guidance, the Company has modified the methods used
to value IPRD and other intangibles acquired related to O2. The revised
valuation is based on management's estimates of the net cash flows
associated with expected operations of O2 and gives explicit consideration
to the SEC's views on acquired IPRD as set forth in its September 1998
letter to the American Institute of Certified Public Accountants. As a
result of the revised valuation, the amount of purchase price allocated to
IPRD decreased from $9,669,000 to $3,040,000, and the amount allocated to
other intangible assets, including goodwill, increased from $1,800,000 to
$8,429,000.
EFFECTS OF RESTATEMENTS
The effects of these changes on the statement of operations are as follows,
for the three months ended March 31, 1997:
Three Months Ended March 30, 1997
---------------------------------
As Previously
Reported As Restated
------------- -----------
Revenue $23,794 $26,020
Total costs and expenses 23,873 24,699
Income (loss) from operations (79) 1,321
Net income (loss) $ (535) $ 464
Basic income (loss) per share $ (.04) $ .03
Diluted income (loss) per share $ (.04) $ .03
Shares for basic computation 13,529 13,545
Shares for diluted computation 13,529 14,105
A summary of the effects of this change on consolidated financial position
are as follows, as of the date indicated:
December 31, 1997 March 31, 1998
----------------------------- ----------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ----------- ------------- ------------
Intangible assets - net $10,616 $17,245 $9,798 $16,427
Total assets 87,414 94,043 71,168 77,797
Stockholders' equity 25,453 32,082 18,653 25,282
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ARDENT SOFTWARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
INTRODUCTION
RECOMBINATION OF 1997
Following the merger with Unidata in February 1998, as described in Note 1, the
Company initially combined the two companies' results of operations for the
period ended March 31, 1997 for the Company with the period ended September 30,
1996 for Unidata. Subsequent to the issuance of the Company's quarterly report
on Form 10-Q for the quarterly period ended March 31, 1998, the Company's
management determined that the results for 1997 are more appropriately presented
including both companies' results on a calendar year basis. As a result, the
accompanying statement of operations for the three months ended March 31, 1997
has been restated from amounts previously reported to present the Company's 1997
unaudited results using the same calendar periods for both the Company and
Unidata.
The Company is also restating previously reported financial information as of
December 31, 1997 and March 31, 1998 to adjust the in-process research and
development ("IPRD") charge recorded in December 1997 related to the acquisition
by Unidata of O2 Technologies ("O2"). The Securities and Exchange Commission
("SEC") issued new guidance in September 1998 on its views regarding the
methodologies used to determine the value of acquired IPRD and intangible assets
in a purchase business combination. Generally accepted accounting principles
require that amounts allocated to IPRD be expensed upon consummation of an
acquisition accounted for as a purchase. As a result of this new guidance, the
Company has modified the methods used to value IPRD and other intangibles
acquired related to O2. The revised valuation is based on management's estimates
of the net cash flows associated with expected operations of O2 and gives
explicit consideration to the SEC's views on acquired IPRD as set forth in its
September 1998 letter to the American Institute of Certified Public Accountants.
The discussion which follows analyzes the combined results of operations for the
three months ended March 31, 1998 and the comparable fiscal period in 1997.
RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of total revenue for
the three months ended March 31, 1998 and March 30, 1997.
Three Months Ended
---------------------
March 31, March 30,
1998 1997
-------- --------
Revenue:
Software 57.5% 57.5%
Services and other 42.5 42.5
----- -----
Total revenue 100.0 100.0
----- -----
Costs and expenses:
Cost of software 6.5 8.1
Cost of services and other 20.8 24.5
Selling and marketing 36.1 35.7
Product development 16.5 15.3
General and administrative 10.2 11.3
Merger costs 57.9 --
----- -----
Total costs and expenses 148.1 94.9
----- -----
Income from operations (48.1)% 5.1%
===== =====
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REVENUE
The Company's total revenue decreased 1% to $25,710,000 in the first quarter of
1998 from $26,020,000 in the first quarter of 1997. The decrease in the first
quarter revenue was due primarily to a decrease in services revenue offset by an
increase in sales of the data warehouse and object database product lines.
Software license revenue for the first quarter of 1998 was flat to the first
quarter of 1997. Decreases in older product line revenues were offset by an
increase in DataStage revenue which represented approximately 14% of license
revenue in the quarter ended March 31, 1998 compared to 4% of license revenue in
the same period of the prior year. The DataStage product was introduced in first
quarter of 1997. In addition, license revenue increased due to revenue
associated with the object database product, O2 System, acquired through the
acquisition of O2 Technology in December 1997. Software license revenue
represented 58% of total revenue in both periods.
Services and other revenue, consisting of consulting, training, and software
maintenance, decreased 1% to $10,918,000 in the first quarter of 1998 from
$11,069,000 in the first quarter of 1997. Services and other revenue represented
42% of total revenue in both periods.
COST OF SOFTWARE
Cost of software, which consists of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs, decreased 20% to $1,671,000 for the first quarter of 1998
from $2,100,000 for the same period of the prior year. This decrease in cost of
software is due to a reduction in amortization costs related to software and
other capitalized costs, as well as the maturation of certain royalty agreements
late in 1997. Cost of software decreased to 11% of license revenue from 14% in
the first quarter of 1997.
COST OF SERVICES AND OTHER
Cost of services and other, which consist of consulting, training, and other
customer support service costs decreased 16% to $5,355,000 for the first quarter
of 1998 as compared to $6,374,000 in the same period of the prior year. This
decrease in costs is a result of the Company utilizing less sub-contracted
resources on consulting engagements.
SELLING AND MARKETING
Selling and marketing expenses, which consist primarily of sales organization
costs and marketing programs, represented 36% of total revenue or $9,289,000 in
the first quarter of 1998 compared to 36% of total revenue or $9,287,000 in the
same period of the prior year. The relative flat levels of spending is partially
due to cost savings associated with the decrease in spending on promotions of
the relational database technology and tools products due to efficiencies gained
from the merger. This spending represented 55% of the spending in 1998 as
compared to 97% in 1997. These savings were offset by the additional investment
in the DataStage and O2 System products selling and marketing programs, which
represented 45% of total selling and marketing costs in 1998 as compared to 3%
in 1997.
PRODUCT DEVELOPMENT
Product development expenses, which consist primarily of salaries and related
benefits of development personnel and facility costs, increased 6% to $4,240,000
in the first quarter of 1998 as compared to the same period of the prior year.
This increase in spending is due primarily to development efforts dedicated to
the DataStage and O2 System products. Product development expenses as a
percentage of revenue increased to 17% for the first quarter as compared to 15%
for the comparable period of 1997. The Company is currently investing 53% of its
research and development funds into these new technologies in the first quarter
of 1998 compared to 4% in the same period of 1997. Relational database
technology and tools development represented 47% of research and development
costs in the first quarter of 1998 as compared to 97% in 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 11% to $2,628,000 for the first
quarter of 1998 as compared to the same period of the prior year. The first
quarter decrease was due to cost synergies realized through the elimination of
duplicate positions and facilities in conjunction with the merger of the Company
and Unidata.
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MERGER COSTS
The Company recorded a one time charge of $14,895,000 associated with the merger
with Unidata. This amount includes $3,910,000 for financial advisor, legal, and
accounting fees related to the merger and $10,985,000 for costs associated with
combining the operations of the two companies including expenditures of
$6,209,000 for severance, benefits and other, $2,170,000 for closure of
facilities and $2,606,000 for the write-off of redundant assets. As of March 31,
1998, $5,225,000 remains unpaid comprised principally of severance and facility
costs.
INCOME TAXES
The Company recorded a benefit from income taxes of $2,857,000 for the first
quarter of 1998 compared to a provision of $293,000 for the first quarter of
1997. This represents an effective tax rate of 23% in 1998. This effective tax
rate is substantially less than the statutory rate due to certain non-deductible
merger charges incurred in the first quarter of 1998.
FOREIGN CURRENCY TRANSLATION
The Company hedges its exposure to foreign currency fluctuations through foreign
exchange forward contracts. As of December 31, 1997, the Company had foreign
exchange forward contracts outstanding used to hedge foreign exchange exposure
on intercompany balances of certain of its international subsidiaries. These
contracts are comprised of contracts to sell foreign currency aggregating
$5,236,000 of notional amount (principally British pounds and French francs).
These contracts are short-term in duration (typically 90 days) and have limited
market risk, since decreases or increases in the unrealized gain or loss on any
position is generally fully offset by corresponding increases or decreases in
gains and losses on the intercompany balances being hedged. Credit risk is
limited to the risk that counterparties to these contracts fail to deliver at
maturity. The Company deals only with reputable financial institutions in
entering into these contracts and therefore believes that credit risk is
insignificant. Currency forward contracts are used only to hedge identified
foreign currency commitments and are never held for speculative purposes. The
gains and losses associated with currency rate changes on these contracts, net
of the corresponding gains and losses on the hedged intercompany accounts, are
recorded as a component of other income/expense in the period the change occurs.
Foreign exchange gains or losses were not material in any period presented.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through sales of equity
securities and positive cash flow from operations. At March 31, 1998 the Company
had $15,526,000 in cash and cash equivalents and $2,042,000 in working capital
($18,288,000 excluding deferred revenue, the satisfaction of which will have no
cash impact). The Company has a working capital line of credit with a bank under
which the Company may borrow, on an unsecured basis, up to the lesser of
$12,500,000 or 80% of eligible domestic accounts receivable and 70-80% of
eligible foreign accounts receivable, conditioned upon meeting certain financial
covenants, including maintaining specified levels of quarterly earnings,
tangible net worth and liquidity. The line of credit also limits the Company's
ability to pay dividends. At March 31, 1998, there was $7,330,000 outstanding
under the Company's line of credit which has been classified under long-term
liabilities as the line of credit expires in March 2000. No additional amounts
were available for borrowing.
The Company believes that its available cash, anticipated cash generated from
operations based upon its operating plan, and future amounts available under its
credit facility, if any, will be sufficient to finance the Company's operations
and meet its foreseeable cash requirements at least for the next twelve months.
During the quarter, the Company transferred its rights to certain accounts
receivable to a finance company in exchange for cash payments from the finance
company. Total cash received by the Company in the first quarter of 1998 under
these arrangements was approximately $4,000,000.
In March, 1998, the Company renegotiated the lease of its principal operating
facility. This lease had been classified as a capital lease. As a result of this
renegotiation, the term of the lease was modified and reduced from 20 years to
13 years. As a result of this modification, the lease no longer qualifies as a
capital lease and has been reclassified as operating. In connection with this
reclassification, the Company removed the asset and liability from the balance
sheet and recorded a net gain of approximately $600,000 in the quarter ended
March 31, 1998
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) released Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information," both of which were adopted by the Company in the first
quarter of 1998. SFAS 130 requires that the Company to provide a prominent
display of the components of items of other comprehensive income. SFAS No. 131
requires the Company to provide information about the segments of its business
based upon discrete components of its businesses; such information will be
provided in the Company's Annual Report on Form 10-K.
In June 1998, the FASB released SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which the Company will be required to adopt
effective January 1, 2000. SFAS No. 133 establishes standards for reporting and
accounting for derivatives instruments, and conforms the requirements for
treatment of hedging activities across the different types of exposures hedged.
The Company has not yet completed its evaluation of SFAS No. 133, but does not
expect it to significantly affect the accounting and reporting of its current
hedging program.
EUROPEAN UNION CURRENCY CONVERSION
On January 1, 1999, certain member nations of the European Economic and Monetary
Union ("EMU") will adopt a common currency, the Euro. For a three-year
transition period, both the Euro and the individual participants' currencies
will remain in circulation. After June 30, 2002, the Euro will be the sole legal
tender for EMU countries. The adoption of the Euro will affect a multitude of
financial systems and business applications as the commerce of these nations
will be transacted in the Euro and the existing national currency during the
transition period. Of the eleven of the fifteen member countries currently
admitted into the EMU, the Company has subsidiary operations in two of these
countries and distributor relationships in the remaining nine. The Company has
begun to assess the potential impact that may result from the Euro conversion.
In addition to tax and accounting considerations, the Company is assessing the
potential impact from the Euro conversion in a number of areas, including the
technological challenges to adapt information technology, the competitive impact
of cross-border price transparency, the impact on currency exchange costs and
currency exchange rate risk, and the impact on existing contracts. At this early
stage of its assessment, the Company cannot yet predict the anticipated impact
of the Euro conversion on the Company.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
State of Readiness - Ardent has made preliminary assessments of their respective
Year 2000 readiness of their information technology ("IT") systems, including
the software solutions that the Company provides to their customers, and their
non-IT systems. These assessments include (i) quality assurance testing of the
Company's internally developed proprietary software; (ii) contacting third-party
vendors and licensors of material hardware, software and services that are both
directly and indirectly related to Ardent's business; (iii) contacting vendors
of material non-IT systems; (iv) assessment and implementation of repair or
replacement requirements; and (v) creation of contingency plans in the event of
Year 2000 failures. The Company has been informed by many of their vendors of
material hardware and software components of their respective IT systems that
the products of these vendors they use are currently Year 2000 compliant. Ardent
is not aware of any Year 2000 compliance problems relating to their proprietary
products or their respective IT or non-IT systems that would, despite efforts to
avoid or fix such problems, have a material adverse effect on the Company's
business, results of operations and financial condition.
Costs - To date, the Company has not incurred material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
the expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters. At this time, Ardent does not possess
the information necessary to estimate the potential costs of the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although the Company does not anticipate that such expenses will
be material, such expenses, if higher than anticipated, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
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Risks -There can be no assurance that the Company will not discover Year 2000
compliance problems in its proprietary products that will require substantial
revisions. In addition, there can be no assurance that third-party software,
hardware or services incorporated into its material IT or non-IT systems will
not need to be revised or replaced, all of which could be time consuming and
expensive. The failure of the Company to fix its proprietary products, if
necessary, or to fix or replace third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs, the loss
of customers and other business interruptions, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. Moreover, failure to adequately address Year 2000
compliance issues in its products and its internal IT and non-IT systems could
result in claims of mismanagement, misrepresentation or breach of contract and
related litigation, which could be costly and time-consuming to defend.
CAUTIONARY STATEMENT
When used anywhere in this 10-Q and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer of the
Company, the words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimated", "project", or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements", which speak only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Certain of
such risks and uncertainties are set forth below and in Part II of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The Company
specifically declines any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
FACTORS AFFECTING FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number of
risks, many of which are beyond the Company's control. The following discussion
highlights some of these risks.
The Company's future operating results may vary substantially from period to
period. The timing and amount of the Company's license fee revenues are subject
to a number of factors that make estimation of revenues and operating results
prior to the end of the quarter extremely uncertain. Quarterly fluctuations may
be caused by several factors including but not limited to timing of customer
orders, adjustments of delivery schedules to accommodate customer or regulatory
requirements, timing and level of international sales, mix of products sold, and
timing of level of expenditures for sales, marketing and new product
development. The Company generally ships its products upon receipt of orders and
maintains no significant backlog. The company has experienced a pattern of
recording 60 percent to 80 percent of its quarterly revenues in the third month
of the quarter, with a concentration of such revenues in the last two weeks of
that third month. The Company's operating expenses are based on projected annual
and quarterly revenue levels and a substantial portion of the Company's costs
and expenses, including costs of personnel and facilities, cannot be easily
reduced. As a result, if projected revenues are not achieved in the expected
time frame, the Company's results of operations for that quarter would be
adversely affected. Accordingly, the results of any one period may not be
indicative of the operating results for future periods.
The market price of the Company's common stock is highly volatile. Failure to
achieve revenue, earnings, and other operating and financial results as
forecasted or anticipated by analysts could result in an immediate adverse
effect on the market price of the Company's stock.
The market for the Company's products is characterized by ongoing technological
developments and changes in customer requirements and industry standards. If the
Company is unable to develop and introduce new products or enhancements in a
timely manner in response to changing market conditions or customer requirements
or if errors are found in products after commercial shipments, the Company's
business and results of operations will be adversely affected.
The Company currently derives a substantial portion of its total revenue from
its core database products, UniVerse and Unidata. The Company's future results
will depend, to a significant extent, on continued market acceptance of these
products as well as market acceptance of new products, such as DataStage and O2
System. Any factor adversely affecting the market for these products would have
a material adverse effect of the Company's business and financial results. In
addition, approximately 36% of the Company's total revenue in the quarter ended
March 31, 1998 were attributable to international sales made through
international subsidiaries. Because a substantial portion of the Company's total
revenue is
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derived from such international operations, which are conducted in foreign
currencies, changes in the value of those currencies relative to the United
States dollar may affect the Company's results of operations and financial
position. The Company engages in certain currency-hedging transactions intended
to reduce the effect of fluctuations of foreign currency exchange rates on the
Company's results of operations. However, there can be no assurance that such
hedging transactions will materially reduce the effect of fluctuations on such
results. If, for any reason, exchange or price controls or other restrictions on
the conversion of foreign currencies were imposed, the Company's business could
be adversely affected. Other potential risks inherent in the Company's
international business generally include longer payment cycles, greater
difficulties in accounts receivable collection and the burdens of complying with
a wide variety of foreign laws and regulations.
The market for application development software is intensely competitive. The
Company competes with many companies offering alternative solutions to the needs
addressed by the Company's products. Many of these competitors may have greater
financial, marketing, or technical resources than the Company and may be able to
adapt more quickly to new or emerging technologies and standards or changes in
customer requirements or to devote greater resources to the promotion and sale
of their products than the Company.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court in the
District of Massachusetts. The plaintiffs alleged in the Complaint that the
Company and certain of its officers, during July through October 1995, made
certain untrue statements and failed to disclose certain information regarding
the Company's prospective financial performance in violation of Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that such
statements and omissions artificially inflated the market prices of the
Company's stock. The Company denied the allegations. Following completion of
discovery, the defendants and their insurance carrier reached, in September
1998, an agreement to settle the action. The Company recorded its contribution
to the agreed settlement in the third quarter of 1998 which was not material to
financial position or the results of operations.
The Company is a defendant in two actions filed against Unidata prior to its
merger into the Company, one in May 1996 in the U.S. District Court for the
Western District of Washington and one in September 1996 in the U.S. District
Court for the District of Colorado. The plaintiff, a company controlled by a
former stockholder of Unidata and a distributor of its products in certain parts
of Asia, alleges in both suits that Unidata improperly authorized distribution
of certain Unidata products in the plaintiff's exclusive territory and asserts
damages of approximately $30,000,000 under claims for fraud, breach of contract,
unfair competition, RICO violations, and trademark and copyright infringement,
among other relief. Unidata denied the allegations in its answers to the
complaints and the proceedings are currently in their early stages. Management
of the Company believes that the actions are without merit and plans to continue
to oppose them vigorously.
The Company is a defendant in an action filed in July 1998 in the U.S. District
Court for the Southern District of Ohio. The plaintiff, with whom the Company
entered into a joint venture in 1996 to develop the Object Studio product,
alleges in its complaint that the Company is obligated to support the joint
venture in amounts up to $1,400,000 per year for an aggregate present value
liability of up to $8,000,000. The Company believes the allegations are without
merit and has denied its alleged liability and filed certain counterclaims
against the plaintiff seeking an amount in excess of $9,000,000.
ITEM 2 AND 3. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 10, 1998, the stockholders of the Company approved the merger of
Unidata, Inc. ("Unidata") and the Company. Unidata was merged into the Company
on such date on substantially the terms that were disclosed in the Company's
registration statement, Form S-4 (No. 333-43533), that became effective on
December 31, 1997. This information was disclosed in the Form 8-K (No.
001-13631) that was filed on February 12, 1998.
Of the 8,291,358 shares eligible to vote, 6,410,577 were represented at this
meeting. This matter received favorable votes of 6,293,788 shares and negative
votes of 47,184 shares. 69,605 shares, including broker non-votes, abstained
from voting.
ITEM 5. NONE
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27-1 Financial Data Schedule - 1998
27-2 Financial Data Schedule - 1997
(b) The Company filed a report on Form 8-K on February 12, 1998,
disclosing the approval of the merger between the Company and Unidata,
Inc. effective February 10, 1998.
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.
Ardent Software, Inc.
(Registrant)
Dated: March 31, 1999 /s/ Peter Gyenes
------------------------------------
Peter Gyenes
Chairman and Chief Executive Officer
(principal executive officer)
\Dated: March 31, 1999 /s/ Charles F. Kane
-----------------------------------
Charles F. Kane
Vice President, Finance, and
Chief Financial Officer
(principal finance and accounting
officer)