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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-12456
AMERICAN SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1098795
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
470 EAST PACES FERRY ROAD, N.E. 30305
ATLANTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (404) 261-4381
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON SHARES, $.10 PAR VALUE
(TITLE OF CLASS)
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 if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
At July 22, 1997, 17,759,779 Class A Common Shares and 4,819,289 Class B
Common Shares of the registrant were outstanding. The aggregate market value
(based upon the closing price of Class A Common Shares as quoted on the NASDAQ
National Market System at July 24, 1997) of the Class A shares held by
nonaffiliates was approximately $127 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
1. 1997 Proxy Statement into Part III.
2. Form S-1 Registration Statement No. 2-81444 into Part IV.
3. Form S-8 Registration Statement No. 33-55214 into Part IV.
4. Form 10-K's for fiscal years ended April 30, 1984, 1985, 1990, 1995 and
1996 into Part IV.
5. Form 10-Q's for the quarters ended January 31, 1990, October 31, 1990 and
October 31, 1996 into Part IV.
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PART I
ITEM 1. BUSINESS
A. GENERAL
American Software, through its subsidiaries, develops, markets and supports
a portfolio of application software solutions that enable businesses to
respond to today's dynamic global marketplace. The Company's software
solutions are designed to automate many planning and operational functions
principally in the areas of: (i) Value Chain Planning, (ii) warehouse
management, (iii) manufacturing, and (iv) Enterprise Resource Planning (ERP).
The Company's products are designed to provide rapid return on investment
while offering maximum scaleability. The Company also provides support for its
software products, such as software enhancements, documentation updates,
customer education, consulting, systems integration services and maintenance.
Value Chain Planning involves the proactive use of information to ensure
that the right products are delivered to the right place at the right time.
This planning process is focused on demand forecasting, inventory management,
replenishment and manufacturing planning, manufacturing scheduling as well as
transportation management. Value Chain Planning solutions are developed and
provided by Logility, Inc, a wholly owned subsidiary of American Software. The
Logility Planning Solutions product suite consists of software that enables
suppliers, manufacturers, distributiors and wholesalers to more effectively
manage their value chains.
Warehouse management solutions refer to the management of activities
necessary to operate a warehouse or distribution center. Key warehouse
management functions include the storage of newly received goods, picking
goods from warehouse storage for shipment to a customer, and packing items for
shipment. WarehousePRO is the Company's integrated solution for automating
warehouse operations.
Flow Manufacturing is a solution which is designed to automate the
manufacture of discrete products. Flow Manufacturing is designed around a new
manufacturing paradigm which states that goods should be "pulled through" the
manufacturing process based on customer demand instead of "pushing" products
based on safety stock needs. Flow Manufacturing can co-reside with traditional
manufacturing solutions or it can completely replace traditional
manufacturing. Flow Manufacturing is also known as Agile or Lean
Manufacturing.
ERP is an integrated suite of products designed to automate many of the
daily operational tasks of a global enterprise. ERP is responsible for the
execution of many key business processes including the physical movement of
and accounting for goods throughout the value chain. ERP functions may include
inventory management, order management, purchasing and finance.
The Company markets and supports its application software products to a wide
range of end users, including manufacturers of chemicals, consumer products,
electronics, food and beverage products, pharmaceuticals, pulp and paper,
steel, and textiles, as well as retailers, wholesale distributors, and the
health and beauty care industry, petroleum producers, public utilities and the
transportation industry.
B. INDUSTRY BACKGROUND
Many dynamics are occuring in industrial businesses which are forcing
companies to re-engineer the way they develop products and deliver services.
Changes in markets, products, partnerships and competition impact business
plans on a daily basis. Competitive pressures are forcing companies to shorten
their product life cycles, which creates significant risks. Retailers and
consumers are becoming more demanding because of the broad range of choices
available. Many companies are aquiring other businesses or even being acquired
in order to assemble a competitive portfolio of products and services. This
means a constant flux in business structures and organizational models.
Manufacturing is also now a global operation, and it is not uncommon to have
an enterprise sourcing supplies in one country, conducting pre-assembly in
another country and performing final assembly in yet a third country. All of
these dynamics mean that swift, accurate decision making is critical to
survival.
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Effective information technology (IT) solutions which support not only the
operational aspects of the business but also support intelligent decision
making can often mean increased competitive advantage. IT solutions which
provide the ability to quickly respond to market opportunities, customer needs
and/or value chain constraints can often lead to increased market share,
increased profitabilty and improved shareholder returns. All of the Company's
software solutions are designed to support either a company's operational
requirements or its decision support needs.
Companies rely on ERP systems to conduct the daily transactions vital to
running a business, from taking an order, to sending a purchase order to a
supplier, to collecting monies from customers. The systems which manage these
operational aspects of running an enterprise are the province of ERP systems.
Warehouse Management systems are concerned with the physical movement of goods
within a warehouse or distribution center. Flow Manufacturing is designed to
deliver optimal conversion of raw materials into finished products. Value
Chain Planning allows companies to proactively synchronize their supply
activities and manufacturing schedules so that inventories plans are
sufficient to meet customer demand.
C. PRODUCTS
The Company's strategy has been to create an integrated line of standard
application software operating on four strategic computer platforms: (1) IBM
System/390 Mainframe or compatible, (2) IBM Midrange--AS/400, (3) UNIX--HP
9000, IBM RS/6000 and other Unix platforms and (4) Intel -based servers and
clients that operate Windows 3.1, Windows NT and OS/2. The products are
written in various standard programming languages utilized for business
application software, including ANS COBOL, COBOL II, Micro Focus COBOL, C,
C++, Visual Basic and other programming languages, and many have both on-line
and batch capabilities. An integral part of this strategy has been to
integrate unique characteristics of personal computers as workstations or
clients in the products provided by the Company. ES/9000, RS/6000 and AS/400
are registered trademarks of the International Business Machine Corporation.
HP 9000 is a registered trademark of Hewlett Packard Corporation. The
following is a summary of the Company's main software solutions.
VALUE CHAIN PLANNING SOFTWARE
The Company's wholly owned subsidiary, Logility, has a portfolio of software
products for Value Chain Planning, Logility Planning SolutionsTM. The Logility
Planning Solutions product line consists of advanced collaborative planning
software that enables suppliers, manufacturers, distributors and wholesalers
to more effectively manage their respective value chains. Logility Planning
Solutions is composed of a suite of integrated modules whose flexibility,
decision support and other capabilities reduce cycle times, optimize
manufacturing execution, control costs and increase an organization's
responsiveness to its customers. Logility Planning Solutions consists of seven
integrated modules organized into three solution groups: Demand Chain
Planning, Supply Chain Planning and Resource Chain Voyager. These modules
perform primarily the following functions:
DEMAND CHAIN PLANNING
Demand Chain Planning is designed to plan for all aspects of customer demand
across the entire value chain. Demand Chain Planning provides capabilities to
balance demand with inventory policies and customer service requirements as
well as perform life cycle analysis and incorporate event and promotion plans.
The Demand Chain Planning product group consists of the following modules:
1. Demand Planning
2. Inventory Planning
SUPPLY CHAIN PLANNING
Supply Chain Planning enables the user to create a comprehensive plan to
have the right amount of products manufactured, replenished and shipped on a
timely and cost-effective basis. Using this solution, companies can
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optimize production and supply constraints in concert with demand
opportunities. Supply Chain Planning also lets companies implement continuous
replenishment strategies with their customers. Supply Chain Planning provides
facilities for both long range planning as well as short term operational
planning and scheduling. The Supply Chain Planning product group consists of
the following modules:
1. Replenishment Planning
2. Manufacturing Planning
3. Transportation Management
RESOURCE CHAIN VOYAGER
Resource Chain Voyager extends the reach of demand and replenishment
planning by enabling companies to collaboratively plan with their customers,
suppliers, distributors or other trading partners using the Internet, a
corporate Intranet, or extranet. This allows demand or replenishment plans to
be shared with and updated by value chain partners in a real-time fashion. The
Resource Chain Voyager product group consists of the following modules:
1. Demand Chain Voyager
2. Supply Chain Voyager
The key benefits of Logility Planning Solutions include the following:
Comprehensive Demand Chain Planning Solution. A key component of Logility
Planning Soulutions is emphasis on addressing the full range of complex demand
planning requirements of its customers, including comprehensive forecasting
capabilities. The demand chain planning products provide enhanced forecast
accuracy through the use of advanced algorithms that take into account the
unique requirements of each user's value chain.
Collaborative Planning. Logility Planning Solutions allow for collaboration
both among the various levels within an organization and among external
constituents throughout the value chain. The architecture of Logility Planning
Solutions enables each constituent to participate in the planning process by
providing inputs that are synchronized to create one consensus plan. This
approach to collaborative planning is further enhanced with the Resource Chain
Voyager module, which leverages Internet technology to facilitate information
sharing.
End-to-End Solution Suite. Logility Planning Solutions provides
functionality to address both demand and supply planning needs. This solution
is comprised of demand, inventory, manufacturing and replenishment planning
modules which balance supply constraints with demand opportunities through the
synchronization of all value chain participants.
Rapid Deployment. Logility Planning Solutions utilizes a highly modular
design which allows customers to select modules that address their specific
individual needs, thereby streamlining implementation. Individual modules
generally can be deployed within three to four months, allowing organizations
to achieve benefits in a relatively short time frame.
Open, Scaleable, Client/Server Architecture. Logility Planning Solutions has
been designed to integrate with existing in-house and third-party software
systems and a variety of client/server operating environments and platforms.
The software is scaleable to manage complex processes involving tens of
thousands of products across multiple sites.
WAREHOUSE MANAGEMENT SOFTWARE
The Company's WarehousePROTM software consists of an integrated system which
automates all aspects of a warehouse. It contains support for automated bar
coding and RF technologies. The object oriented architecture combined with
WarehousePROTM workflows provide for easy configuration and customization of
the system. The system performs primarily the following functions:
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1. Receiving
2. Setup and Administration
3. Product Storage
4. Picking and Shipping
5. Barcode Integrator
6. Performance Analysis
Key benefits of WarehousePRO include the following:
Object Oriented Technology. WarehousePRO is designed with object oriented
technology which allows companies to customize the system to their unique
requirements without requiring specialized services for programming changes.
Configurable Workflow Technology. WarehousePRO comes standard with a library
of workflows, which are pre-built series of activities which direct any
warehouse operation. The WarehousePRO workflow library contains industry
templates which are built around selected industry best practices. When
procedures are changed or the order of work steps are modified, the workflow
templates can be easily modified by the user.
Integrated Performance Analysis Tools. Integrated performance analysis tools
are provided with WarehousePRO which enables warehouse management to spot
trends and isolate efficiency and inventory issues and take the necessary
proactive action.
User Configurable Bar Code/Scanner Integration. Built into WarehousePRO are
standard interfaces to all major radio frequency collection systems. The
seamless interfaces allow companies to easily add new devices and change bar
code configurations without relying on costly services support.
Rapid Deployment. The WarehousePRO architecture is designed so many systems
changes are user configurable. A user configurable solution means that
detailed programming changes are not required to modify processes, work steps
or material handling instructions. Fewer software modifications allow many
warehouses to experience rapid deployment.
FLOW MANUFACTURING SOFTWARE
The Flow Manufacturing solution is designed to operate with the Company's
Enterprise Solution or with an enterprise solution provided by other
companies. Flow Manufacturing can be used in conjunction with Traditional
Manufacturing or it can be the sole manufacturing solution deployed throughout
an enterprise. The solution is designed to support complex multi-plant global
manufacturing requirements. The solution is comprised of the following
modules:
1. Kanban Management
2. Line Design
3. Demand Smoothing
4. Product Costing
5. Engineering Change
6. Method Sheets
Key benefits of Flow Manufacturing include the following:
Market Leadership. After several years of working with companies developing
custom Flow solutions, the Company believes it is first-to-market with a
comprehensive packaged software solution that meets the requirements of
discrete manufacturing.
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Scaleable Implementation. Flow Manufacturing can be scaled to hande a single
production line up to the requirements of a complex multi-plant, multi-source
manufacturing environment. The solution can also co-exist with traditional
manufacturing such that Flow Manufacturing can be used for some portions of
production and assembly while traditional manufacturing is maintained for
others. The Company believes that this hybrid approach to the implementation
of Flow Manufacturing offers companies significant flexibility.
Integration. Flow Manufacturing can be licensed in conjunction with the
Company's other enterprise solutions or it can be licensed to companies that
are using other vendors enterprise solutions. Industry-standard data formats,
interfaces and protocols facilitate this integration.
ENTERPRISE SOLUTIONS SOFTWARE
The Company's enterprise solutions are comprehensive applications designed
to operate complex, multi-site, multi-national enterprises. Most applications
can operate on a stand-alone basis, integrated with one or other solutions
offered by the Company and/or integrate with systems from other vendors. The
Company's Enterprise Solutions are comprised of the following module groups:
Manufacturing, Logistics and Financials.
MANUFACTURING MODULES
Companies may chose either the Company's Traditional Manufacturing solution
or Flow Manufacturing solution. The modules listed below are the solution
components within Traditional Manufacturing:
1. Master Scheduling
2. Material Requirements Planning II
3. Bill of Materials
4. Capacity Planning
5. Production Order Status
6. Route and Work Center Maintenance
7. Shop Floor Control
LOGISTICS MODULES
The Company's logistics solution consists of an integrated system of six
modules which provides information concerning the status of purchasing
activities, customer orders, inventory position and internal inventory
requisition requirements. These modules perform primarily the following
functions:
1. Inventory Control and Accounting
2. Purchasing
3. Material Request
4. Item Information Management System
5. Bid (Request for Quotation)
6. Customer Order Management
FINANCIAL MODULES
The Company's comprehensive financial solutions provide functions such as
financial reporting, budgeting, asset management, cash management, credit
management and receivables management. These systems assist in resolving
customers' specific financial control issues faster and more effectively. The
specific applications available are:
1. General Ledger and Budgeting
2. Accounts Receivable
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3. Accounts Payable
4. Capital Project Accounting
5. Fixed Asset Accounting
6. Continuing Property Records
Key benefits of Enterprise Solutions include the following:
Modular, Scaleable Solution. Companies may purchase one or modules for point
solution(s), which can be integrated with other enterprise software. They may
also purchase an integrated product suite to handle increased requirements for
storage, processing and/or transactions.
Year 2000 compliance. All Enterprise Solutions are year 2000-enabled, which
means that the applications have been modified and tested to handle dating
logic beyond the year 2000. The Company believes that Year 2000 compliant
applications will be sold to both existing customers as well as new companies.
Broad Product Offering. The Company's long-term market presence has enabled
it to develop an extensive portfolio of solutions. The Company believes that
the combined offerings of all product lines are among the broadest range of
soutions in the marketplace today. Users that only license one application
module typically are candidates to license other applications offered by the
Company.
Extensive Functionality. The Company's enterprise software provides
extensive strategic and tactical functionality to facilitate operations and/or
support decision-making across one or multiple sites. This functionality
includes multi-currency, multi-language as well as support of multiple
databases and extensive analytical capabilities.
D. STRATEGY
Continue to Expand Product Line Focused Organizations. In May 1996, the
Company began the process of specializing its sales force to focus on specific
vertical markets. By continuing and expanding this strategy, the Company
believes it will continue to enhance its productivity and better penetrate
particular markets.
Leverage and Expand Installed Base of Customers. The Company's modular-based
product line allows initial sales to create significant opportunities for
additional product licensing. These expanded sales could come from licensing
additional modules not purchased in original transactions or from broadening
the use of the products to additional divisions or users.
Continued Investment in ISO 9001 Certified Research & Development. The
company has received ISO 9001 certification, an international standard for
product and operational quality. The Company will continue to make substantial
investments in research and development to develop new products, enhance
existing products and incorporate new technologies such as the Internet.
Customer Satisfaction. The Company continues to have the highest corporate
commitment to superior, rapid implementations and ongoing customer service.
The Company has made substantial investments in its help desk, Internet-based
support and other areas, and will continue its emphasis on quality and
responsiveness.
E. INTEGRATED SYSTEM DESIGN
While the Company's software applications can be used individually, they are
designed to be combined as integrated systems to meet unique customer
requirements. The user may select virtually any combination of modules to form
an integrated solution to a particular business problem. The license fee for
such a solution could range from $7,000 for a single module to in excess of
$7,000,000 for a multi-module, multiple-user solution incorporating the full
range of Company products.
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Customers frequently require services beyond those provided by the Company's
standard arrangements. To meet those customers' needs, the Company established
a separate professional services division which provides specialized business
and software implementation consulting, custom programming, on-site
installation, system-to-system interfacing and extensive training. These
services, frequently referred to as systems integration services, are provided
for an additional fee normally under a separate contract, based upon time and
materials utilized.
F. MARKETING AND SALES
Typically, the Company's customers are medium-sized companies or divisions
of larger companies with substantial data processing budgets. The Company has
licensed its application software to approximately 1,700 customers. No single
customer accounted for more than ten percent of the Company's revenues in
fiscal 1997.
First-time customers may license a single module or a system composed of
several modules. These customers often license other modules to expand the
range of software available to them, and may also license additional modules
or systems similar to those already licensed for use at additional locations.
The Company sells its products directly to the end-user through its sales
and presales staff of approximately 100 persons located in six (6) areas
worldwide: Mid U.S. (23), Northeast U.S.(17), Southern U.S. (27), Western U.S.
(9), Europe (14), and Canada (3). The presales staff provides consultation,
advice and assistance to the sales executives and the customer in selecting an
appropriate configuration of application software modules to address the
user's needs. The Company obtains sales leads from its advertising in trade
publications, its participation in computer industry trade shows and
exhibitions, Company-conducted seminars and telemarketing activities, and
referrals from existing customers.
In 1997, the Company continued its program, begun in fiscal 1988, to develop
a network of sales agents to support its sales internationally. These agents
along with a designated American Software employed Country Manager are
establishing a national presence for the Company in targeted countries
throughout Asia-Pacific, Europe and the Middle East.
G. LICENSES
American Software, like many business application software firms, typically
enters into license agreements which grant non-exclusive rights to use its
products. The Company's standard license agreements contain provisions
designed to prevent disclosure and unauthorized use of the Company's software.
These agreements warrant that the Company's products will function in
accordance with the specifications set forth in its product documentation.
These licenses are generally granted for a term of ninety-nine years and
provide that, for a one-time fee, the customer may use the software to process
its data at a single facility for a specified division or divisions. A
significant portion of the license fee is generally payable upon the delivery
of product documentation, with the balance due upon installation.
H. INSTALLATION, MAINTENANCE AND SUPPORT
As additional services to its customers, the Company provides Implementation
Services and customized support. Implementation services and customized
support include installation of the Company's software, project planning and
management, and training of the customer's user and systems personnel on the
use of the software system. The customer receives documentation manuals which
describe the system's features and its method of operation. The user is
normally entitled to software product enhancements and maintenance for a
period of six months at no additional charge. The Company's software products
are continually enhanced and improved to accommodate technological changes and
other factors which may affect the customer's information requirements. To
receive maintenance, which includes enhancements, from the Company after the
initial period, customers pay fees which are based on the then-current price
of the product.
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As a part of its support service, the Company provides experienced
application and data processing personnel to answer telephone inquiries on a
24-hours-a-day, seven days-a-week basis, and furnishes consulting support in
implementing and maintaining the systems. In addition, training courses and
documentation materials are available to train customers' personnel and to
update them on new system features.
In fiscal 1992, the Company began to market its professional and data
processing resources on a network management basis. Network management is the
provision of data processing services, normally under long-term contract, by
outside providers. As of July 12, 1997, the Company had entered into 47
network management contracts to provide data processing and support services
on terms of up to five years. The Company believes network management
represents a growth opportunity by providing a basis for predictable long-term
recurring revenues.
To complement customer support, the Company and its product users actively
participate in its User Group Association. Established in 1980, the User Group
exchanges ideas and techniques for use of the Company's products and provides
a forum for customers' suggestions for product development and enhancement.
User Group meetings include guest speakers who are recognized authorities in
their areas of expertise.
I. RESEARCH AND DEVELOPMENT
American Software is committed to the development and acquisition of new
products and to the continued enhancement of its existing products. During
fiscal 1997, 1996, and 1995, the Company expensed approximately $2,300,000,
$3,350,000, and $5,200,000, respectively, for research and development. In
addition, the Company capitalized $9,897,680, $12,750,536, and $7,352,301 in
software development costs during fiscal years 1997, 1996, and 1995,
respectively, in accordance with the Statement of Financial Accounting
Standards No. 86. The Company's new internal product development and
enhancements of existing products include two categories: research and
development expenditures and additions to capitalized computer software
development costs. These combined categories totaled $12,200,000, $16,101,000,
and $12,552,000 in fiscal years 1997, 1996 and 1995, respectively, and
represented 41%, 67%, and 60%, respectively, of total license fee revenues in
those years.
The Company believes that its client/server solutions which utilize the
latest technologies will be important for its long-term growth. The Company
employs approximately 200 persons in research, development and enhancement
activities.
J. COMPETITION
The computer application software industry is highly competitive. In the
application software market, the Company competes directly with a number of
firms, including computer manufacturers, large diversified computer service
companies and independent suppliers of software products. Approximately six
firms that market mainframe application software products and thirty firms
that market midrange and client/server application software products are
significant competitors for one or more of the Company's products. A number of
these competitors have financial, marketing, management and technical
resources substantially greater than those of the Company.
The Company's primary market for its software is finished goods distributors
and manufacturers, industrial manufacturers, utilities, public transportation
and health care providers on IBM mainframe, AS/400, RS/6000, HP 9000, and
additional UNIX platforms, as well as Intel-based servers and clients that
operate Windows 3.1, Windows NT and OS/2.
The Company believes that purchasers of software products are principally
concerned with the range of product modules available, ease of integration,
variety of features, performance, simplicity of use, documentation, technical
support and training. The Company further believes that its software products
and services are competitive in these areas. Price considerations are a key
factor and the Company believes its pricing is competitive in its market. The
Company believes the market trend to open systems, allowing software to
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operate across hardware platforms, will increase the number of competitors and
intensity of competition. Management believes that it is necessary for the
Company to expend significant development monies annually to remain
competitive in the marketplace.
K. TRADEMARKS AND COPYRIGHTS
The Company seeks to protect its proprietary interest in software products
and trade secrets. It maintains non-disclosure and confidentiality agreements
and other contractual arrangements with customers, consultants, employees, and
others. While the strict enforceability of such agreements cannot be assured,
the Company believes that they provide a deterrent to the use of information
which may be proprietary to the Company, and in the event of any breach of
such agreements, the Company intends to take appropriate legal action. It also
copyrights its programs and software documentation related to these programs.
In addition, certain trademarks of the Company have been registered, and
others have registration applications pending. Management believes that the
competitive position of the Company depends primarily on the technical
competence and creative ability of its personnel and that its business is not
materially dependent on copyright protection or trademarks.
L. EMPLOYEES
At April 30, 1997, the Company had 610 full-time employees, including 329 in
product development and technical support, 131 in customer support and
professional services, 120 in marketing, sales and sales support, and 30
persons in accounting and administration. The Company believes that its
continued success will depend in part on its ability to continue to attract
and retain highly skilled technical, marketing and management personnel, who
are in great demand.
The Company has never had a work stoppage and no employees are represented
under collective bargaining arrangements. The Company considers its employee
relations to be excellent.
M. INTERNATIONAL SALES
See note 6 of Notes to Consolidated Financial Statements included as a part
of the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1997 for a discussion of international revenues.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in an approximately 100,000
square foot office building owned by the Company at 470 East Paces Ferry Road,
N.E., Atlanta, Georgia.
The Company also leases a two-story 17,500 square foot building at 443 East
Paces Ferry Road, N.E. Atlanta, Georgia, which is used primarily for financial
administration. This building is owned by a limited partnership of which
Thomas L. Newberry and James C. Edenfield, the principal shareholders, are the
sole partners. The term of the lease expired December 31, 1996, and has been
continued on a month-to-month basis at a base rental of $17.00 per square foot
through the end of calendar 1997, pending negotiation of a new lease.
In January, 1989, the Company acquired a four-story 42,000 square foot
building used for additional office space at 3110 Maple Drive, N.E., Atlanta,
Georgia, along with a one-story 1,400 square foot building at 3116 Maple Drive
used for office space, and a one-story 14,000 square foot building at 3120
Maple Drive which is used for office space.
In May, 1990, the Company acquired a two-story 10,000 square foot building
used for additional office space at 480 East Paces Ferry Road, N.E. Atlanta,
Georgia, along with a one-story 4,000 square foot building at 490 East Paces
Ferry Road which is under lease to a restaurant.
The Company has entered into leases for sales offices located in various
cities in the U. S. and overseas. Normally, these leases are for terms of less
than five years and average 3,000 square feet of leasable space.
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The Company owns a variety of electronic and computer equipment, including
seven mid-sized computers, consisting of one IBM 9370, five IBM AS/400s, and
one IBM 4381 and leases two IBM AS/400s, two IBM 3090 600Es, one IBM 3090-
400J, one IBM 962 R31 and one IBM 9121 210, all of which are used for program
development and testing, network management and product demonstrations.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings required to be disclosed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of the Company's recently completed fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NASDAQ SYMBOL
The Company's Class A Common Shares are listed on the NASDAQ Stock Market--
National Market. There were 1,113 shareholders of record of the Company's
Class A Common Shares and 2 shareholders of the Company's Class B Common
Shares as of July 11, 1997. The payment of future cash dividends will be at
the sole discretion of the Board of Directors and will depend upon the
Company's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of Directors.
MARKET PRICE INFORMATION
The table below presents the high and low sales prices for American
Software, Inc. common stock as reported by NASDAQ, for the Company's last two
fiscal years (1996 and 1997).
HIGH LOW
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FISCAL YEAR 1997
First Quarter............................................ $5 5/8 $3 3/4
Second Quarter........................................... 7 1/8 4
Third Quarter............................................ 7 13/16 4 5/8
Fourth Quarter........................................... 7 13/16 5 3/8
11
HIGH LOW
-------- ------
FISCAL YEAR 1996
First Quarter............................................ $5 7/8 $3 1/2
Second Quarter........................................... 8 3/8 5 1/4
Third Quarter............................................ 8 3/4 3
Fourth Quarter........................................... 5 1/2 3 5/8
The closing price on July 21, 1997 was 7 3/8.
Cash Dividends
FISCAL YEAR 1997
First Quarter................................................ $ -- $ --
Second Quarter............................................... -- --
Third Quarter................................................ -- --
Fourth Quarter............................................... -- --
FISCAL YEAR 1996
First Quarter................................................ $ -- $ --
Second Quarter............................................... -- --
Third Quarter................................................ -- --
Fourth Quarter............................................... -- --
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
1997 1996 1995 1994 1993
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For year ended April 30:
Revenues......................... $84,711 $77,557 $ 79,462 $ 94,222 $106,844
Total costs and expenses......... 83,030 92,886* 93,049 108,328 103,558
------- ------- -------- -------- --------
Operating earnings (loss)...... 1,681 (15,329) (13,587) (14,106) 3,286
Other income..................... 1,744 2,569 2,245 2,428 3,459
------- ------- -------- -------- --------
Earnings (loss) before income
taxes........................... 3,425 (12,760) (11,342) (11,678) 6,745
Income tax expense (benefit)..... 1,093 (3,011) (4,653) (5,090) 1,635
------- ------- -------- -------- --------
Net earnings (loss)............ $ 2,332 $(9,749) $ (6,689) $ (6,588) $ 5,110
======= ======= ======== ======== ========
Net earnings (loss) per common
and common equivalent share..... $ .10 $ (.44) $ (.30) $ (.30) $ .23
Cash dividends per share......... $ -- $ -- $ .16 $ .32 $ .31
Cash dividends paid.............. $ -- $ -- $ 3,570 $ 7,148 $ 6,990
As of April 30:
Working capital.................. $21,492 $21,511 $ 36,407 $ 46,328 $ 61,839
Total assets..................... $97,112 $90,782 $107,792 $117,641 $131,540
Long-term debt................... $ -- $ -- $ -- $ -- $ --
Shareholders' Equity............. $67,152 $64,255 $ 74,037 $ 84,268 $ 98,031
- --------
* The 1996 total costs and expenses includes fourth quarter write-downs of $6.1
million to net realizable value for certain capitalized computer software
development costs and purchased computer software costs and $2.7 million to
the provision for doubtful accounts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
American Software develops, markets, and supports integrated supply chain
management and enterprise resource planning solutions. The product line
encompasses integrated business applications such as demand
12
forecasting, logistics planning, warehouse management, order management,
financials, manufacturing, and transportation solutions. The Company offers
professional services to its customers in support of its products. These
services include training, system implementation, consulting, custom
programming, network management, millennium conversion, and telephonic support
services.
REVENUES
The Company's license fee revenues grew 25% in the fiscal year ended April
30, 1997 and 16% in fiscal year 1996. Logility Planning Solutions software has
been the principal factor in American Software's license fee growth,
constituting approximately 40%, 41% and 19% of license fee revenues in 1997,
1996 and 1995 respectively. License fees from the company's Enterprise
Solutions increased 26% from 1996 to 1997 and decreased 11% from 1995 to 1996.
Services revenues, which are composed primarily of consulting, custom
programming, and network management services (formerly referred to as
outsourcing), increased 6% from 1996 to 1997 due to increased network
management revenues, which increased 26% to $13.0 million in 1997. Services
revenues decreased 15% from 1995 to 1996 due primarily to the fact that license
fee revenues trended down in 1995. This decrease reflected the fact that
services revenues generated in connection with new software licenses typically
trail those license fee revenues by two to three quarters. The decrease from
1995 to 1996 was partially offset by an increase in network management
revenues, which increased 12% to $10.3 million in 1996 from $9.2 million in
1995. Network management services consists generally of assisting customers
with their data processing functions by processing their software on the
Company's equipment. The Company began using the term network management
services to better describe the services it provides.
Maintenance revenues, which consist of product support activities and on-
going product enhancements provided to customers who license the Company's
products and purchase maintenance agreements increased 1% to $22.8 million in
1996 and decreased 3% to $22.0 million in 1997. Maintenance revenues trended up
in 1997 on a quarterly basis and trended down in 1996. Maintenance revenues
generally follow license fee revenues which serve as the source of new
maintenance customers.
The Company believes that revenues trended up in 1997 in all three categories
due to the increase in new products from Logility Planning Solutions being
introduced in the market place and because of the need of businesses to insure
that their software solutions will operate in the new millennium. In the area
of license fees, the Company offers year 2000 enabled solutions to new
customers; in the area of services the Company offers both its existing
customers and new customers assistance in preparing their total enterprise
solutions to operate into the next millennium; and in the area of maintenance
revenues the Company has greater opportunities to retain customers on
maintenance who must insure that their existing solutions are year 2000
enabled. The Company believes that this trend will continue in 1998, although
the magnitude of this trend cannot be accurately projected.
COST OF REVENUES
The cost of revenues for license fees consists primarily of salaries and
related employee benefits, third-party royalties, and amortization of
capitalized computer software development costs. These costs decreased in 1997
due to lowered amortization expense from the write-off of $6.1 million in
capitalized computer software development costs and purchased software costs in
the fourth quarter of 1996, and to a lesser extent due to lower personnel costs
from reduced headcount levels. These costs increased in 1996 from 1995 levels
due to the costs associated with the aforementioned write-off. The cost of
revenues for license fees are expected to substantially increase due to
increased amortization expense when certain capitalized computer software
projects currently under development are completed and become generally
available. The Company believes that these projects will be completed by the
end of calendar 1997.
The cost of revenues for services consists of salaries and related employee
benefits, contract programming, travel and living expenses and the costs of
software and equipment to provide network management services.
13
These costs increased 8% in 1997 and 1% in 1996, primarily due to increased
expenses related to the higher network management revenues.
The cost of revenues for maintenance consists of salaries and related
employee benefits and are accounted for on the basis of time spent by Company
personnel performing activities relative to the maintenance agreements. These
costs decreased 2% in 1997 and decreased 14% in 1996.
Total operating expenses were down 11% in 1997 due primarily to certain
write-offs in the fourth quarter of 1996. Excluding those write-offs, operating
expenses were 10% lower in 1996 compared to 1995. Absent the fourth quarter
write-offs, expenses decreased in 1996 due primarily to a 16% decrease in the
average number of salaried employees.
American Software wrote off approximately $8.8 million from operations in the
fourth quarter of fiscal 1996. Additionally, the Company created a $2.0 million
valuation allowance against certain deferred income tax assets, principally for
foreign tax credits, which affected the tax benefit for both the fourth quarter
and fiscal year 1996. As part of the total $8.8 million in write-offs,
approximately $6.1 million of computer software costs relating to older
technology products were written off. Of that, $3.6 million related to
internally developed software and $2.5 million to purchased software. The
software write-offs were due to insufficient projected revenues as compared to
the carrying values of those products. Additionally, during the fourth quarter
of 1996, the Company wrote off $2.7 million of accounts receivable directly to
the provision for doubtful accounts. Over 50% of the write-offs, comprised of
three accounts, related to international accounts in Eastern Europe and the
Pacific Rim.
The Company's research and development expenditures consist of new product
development and enhancement of existing products. These expenditures totalled
$12.2 million, $16.1 million, and $12.6 million in fiscal years 1997, 1996, and
1995, respectively, and represented 41%, 67%, and 60% of license fees for those
fiscal years.
Marketing and Sales expenses increased 2% in 1997 and decreased 2% in 1996.
These small fluctuations occurred while license fees increased each year,
reflecting increased productivity from the Company's sales force.
Provision for doubtful accounts for 1997 decreased to $.7 million from $3.2
million in 1996 due to the aforementioned write-offs.
Other income is comprised predominantly of interest income, gains and losses
from sales of investments, and changes in the market value of investments, and
was $1.7 million, $2.6 million, and $2.2 million, in 1997, 1996, and 1995,
respectively. Cash and investments totalled approximately $24.4 million and
$26.1 million, and comprised 25% and 29%, of total assets at April 30, 1997 and
1996, respectively.
The income tax expense in 1997 was 32% of pretax income compared to an income
tax benefit of 24% of the pretax loss in 1996, and an income tax benefit of 41%
of the pretax loss in 1995. The decrease in the tax benefit rate from fiscal
1995 to fiscal 1996 was due to the establishment of a $2.0 million valuation
allowance against deferred income tax assets, principally for foreign tax
credits (see footnote 3 to Notes to Consolidated Financial Statements).
The Company believes that inflation has not materially affected the results
of its operations for the past three years.
OPERATING PATTERN
The Company experiences an irregular pattern of quarterly operating results,
caused primarily by fluctuations in both the number and size of software
license contracts received and delivered from quarter to quarter.
14
LIQUIDITY AND CAPITAL RESOURCES
Cash has been provided by: operating activities through the sale of portions
of the company's investment securities; by the receipt of income tax refunds in
1995 and 1996 due to operating loss carrybacks; and by the collection of
accounts receivable in 1995 and 1996.
The Company's operating activities provided cash of $13.1 million in 1997,
$16.5 million in 1996, and $14.0 million in 1995. With the Company's adoption
of SFAS 115 on May 1, 1994, its investments including money market funds are
accounted for as a trading portfolio. The activities of that portfolio are
included in operating activities in the consolidated statements of cash flows.
Income tax refunds due to net operating loss carrybacks generated $4.6 million
in fiscal 1996 and $4.1 million in fiscal 1995.
Cash used for investing activities was $12.2 million in 1997, $15.7 million
in 1996, and $11.2 million in 1995. These activities were primarily for
purchase of property and equipment and expenditures for capitalized computer
software development. The Company had no material commitments for capital
expenditures as of April 30, 1997.
Cash provided by financing activities was $546,408 in 1997, and cash used in
financing activities was $57,000 in 1996, and $3.7 million in 1995. The
reduction in cash used for financing activities in fiscal 1996 as compared to
fiscal 1995 was due to the suspension of the Company's quarterly dividends
after payment of two quarterly dividends in fiscal 1995.
The Company's current ratio was 1.8 to 1 and cash and investments totaled 25%
of total assets at April 30, 1997. The Company expects existing cash and
investments, combined with cash generated from operations, to be sufficient to
meet its operational needs in 1998. The Company may seek additional sources of
capital to meet its growth objectives in the future.
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
It should be noted that this discussion contains forward-looking statements
which are subject to substantial risks and uncertainties. There are a number of
factors which could cause actual results to differ materially from those
anticipated by statements made herein. Such factors include, but are not
limited to, changes in general economic conditions, the growth rate of the
market for the Company's products and services, the timely availability and
market acceptance of new products and services, the ability of the Company to
implement changes in sales strategies and organization on a timely basis, the
effect of competitive products and pricing, and the irregular pattern of
revenues, as well as a number of other risk factors which could effect the
future performance of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Balance Sheets as of April 30, 1997 and 1996................. 16
Consolidated Statements of Operations for the Years ended April 30, 1997,
1996 and 1995............................................................ 18
Consolidated Statements of Shareholders' Equity for the Years ended April
30, 1997, 1996 and 1995.................................................. 19
Consolidated Statements of Cash Flows for the Years ended April 30, 1997,
1996 and 1995............................................................ 20
Notes to the Consolidated Financial Statements............................ 21
Independent Auditors' Report.............................................. 30
15
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
APRIL 30, 1997 AND 1996
1997 1996
------- -------
ASSETS
Current assets:
Cash......................................................... $ 3,442 $ 1,947
Investments (note 2)......................................... 20,964 24,207
Trade accounts receivable, less allowance for doubtful
accounts
of $1,182 in 1997 and $1,200 in 1996........................ 15,919 14,106
Unbilled accounts receivable................................. 3,172 953
Current deferred income taxes (note 3) ...................... 1,995 1,938
Refundable income taxes...................................... 1,060 1,022
Prepaid expenses and other current assets.................... 1,766 1,881
------- -------
Total current assets....................................... 48,318 46,054
------- -------
Property and equipment, at cost:
Buildings and leasehold improvements......................... 20,107 19,241
Computer equipment........................................... 16,992 15,786
Office furniture and equipment............................... 4,548 4,396
------- -------
41,647 39,423
Less accumulated depreciation and amortization................. 24,244 21,804
------- -------
Net property and equipment................................. 17,403 17,619
------- -------
Capitalized computer software development costs, less
accumulated
amortization of $31,838 in 1997 and $27,167 in 1996........... 28,171 22,944
Purchased computer software costs, less accumulated
amortization
of $4,833 in 1997 and $4,101 in 1996.......................... 846 1,231
------- -------
Total computer software costs.............................. 29,017 24,175
------- -------
Other assets, net.............................................. 2,374 2,934
------- -------
$97,112 $90,782
======= =======
See accompanying notes to consolidated financial statements.
16
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
APRIL 30, 1997 AND 1996
1997 1996
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 5,221 $34,940
Accrued compensation and related costs....................... 5,077 3,656
Accrued royalties............................................ 839 947
Other current liabilities.................................... 4,368 3,494
Deferred revenue............................................. 11,321 11,506
------- -------
Total current liabilities.................................. 26,826 24,543
Deferred income taxes (note 3)................................. 3,134 1,984
------- -------
Total liabilities.......................................... 29,960 26,527
------- -------
Shareholders' equity (note 5):
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares; issued
18,972,926 shares in 1997 and 18,769,083 shares in 1996..... 1,897 1,877
Class B, $.10 par value. Authorized 10,000,000 shares; issued
and outstanding 4,815,289 shares in 1997 and 4,836,889
shares in 1996; convertible
into Class A shares on a one-for-one basis.................. 482 484
Additional paid-in capital................................... 31,317 30,776
Retained earnings............................................ 45,430 43,098
------- -------
79,126 76,235
Less Class A treasury stock, 1,330,251 shares in 1997
and 1,331,119 shares in 1996, at cost......................... 11,974 11,980
------- -------
Total shareholders' equity................................. 67,15 264,255
------- -------
Commitments and contingencies (notes 4, 7, and 8)
$97,112 $90,782
======= =======
See accompanying notes to consolidated financial statements.
17
SCHEDULE II
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION ACCOUNTS
YEARS ENDED APRIL 30, 1997, 1996, AND 1995
Allowance for Doubtful Accounts
- -------------------------------
Additions
Balance at charged Balance
beginning to costs at end
Year ended of year and expenses Deductions(1) of year
- ---------- ---------- ------------- ------------- ---------
April 30, 1995........... $3,800,000 (158,944) 1,734,772 1,906,284
April 30, 1996........... 1,906,284 2,371,306 3,077,590 1,200,000
April 30, 1997........... 1,200,000 720,935 739,164 1,181,771
________________
(1) Write-offs of accounts receivable.
Deferred Income Tax Valuation Allowance
- ---------------------------------------
Additions
Balance at charged Balance
beginning to costs at end
Year ended of year and expenses Deductions of year
- ---------- ---------- ------------ ---------- ---------
April 30, 1995.. $ -- -- -- --
April 30, 1996.. -- 1,980,209 -- 1,980,209
April 30, 1997.. 1,980,209 -- -- 1,980,209
18
EXHIBIT INDEX
Exhibit Page
Number Description of Exhibits Number
- --------------------------------- ----------
11.1 Statement re: Computation of Per Share Earnings (Loss).
21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule