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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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, 1999
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
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AMERICAN SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
470 East Paces Ferry Road, N.E.
Georgia Atlanta, Georgia
(State or other jurisdiction of (Address of principal executive
incorporation or organization) offices)
58-1098795 30305
(IRS Employer Identification No.) (Zip Code)
Registrant's telephone number, including area code (404) 261-4381
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on 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)
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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. [_]
At July 12, 1999, 16,772,044 Class A Common Shares and 4,768,289 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 12, 1999) of the Class A shares held by
nonaffiliates was approximately $64 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
1. 1999 Proxy Statement into Part III.
2. Form S-1 Registration Statement No. 2-81444 into Part IV.
3. Form S-8 Registration Statements Nos. 333-55214, 333-62529 and 333-67533
into Part IV.
4. Form 10-K's for fiscal years ended April 30, 1990, 1995 and 1998 into Part
IV.
5. Form 10-Q's for the quarters ended January 31, 1990 and October 31, 1990
into Part IV.
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Forward-Looking Statements
In addition to the historical information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; future customer
benefits attributable to the Company's products; developments in the Company's
markets and strategic focus; new products and product enhancements; potential
acquisitions and the integration of acquired businesses, products and
technologies; strategic relationships; and future economic, business and
regulatory conditions. The cautionary statements made in this Form 10-K should
be read as being applicable to all related forward-looking statements whenever
they appear in this Form 10-K. The Company's actual results could differ
materially from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under the section captioned "Risk Factors" in Item
1 of this Form 10-K as well as the cautionary statements and other factors set
forth elsewhere herein.
PART I
ITEM 1. BUSINESS
Company Overview
American Software Inc. ("American Software" or the "Company") 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 and services solutions are designed to
automate many planning and operational functions principally in the areas of:
(i) Enterprise Resource Planning (ERP), (ii) Flow Manufacturing, (iii) E-
Commerce Solutions and (iv) Logility Value Chain Solutions(TM). 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, millennium conversions,
maintenance and outsourcing.
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 supply chain. ERP functions may include
inventory management, order management, purchasing, finance and manufacturing.
Flow Manufacturing(R) is a solution that is designed to automate the
manufacture of discrete products. Flow Manufacturing is designed around a new
manufacturing paradigm which states that materials should be "pulled" into the
manufacturing process based on customer demand instead of "pushing" materials
based on quarterly production schedules and safety stock needs. Flow
Manufacturing can co-reside with traditional manufacturing solutions or it can
completely replace traditional manufacturing. Flow Manufacturing techniques are
also known as agile, lean, or demand flow manufacturing.
E-Commerce solutions deliver significant benefits including the ability to
reach new markets, lower transaction costs, shorten cycle times, enhance
service levels and maximize profitability. In fiscal 1999, the Company
introduced this new family of strategic Internet-based products to simplify
customer purchases, internal requisitioning, employee expense processing and
order management. In addition, the Company offers a range of outsourcing
services, from sophisticated Data Center and E-commerce outsourcing to project-
related and permanent staffing under the AmQUEST subsidiary.
Value Chain Solutions, which is offered by the Company's Logility, Inc.
subsidiary, represents 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 and warehouse
management, replenishment and manufacturing planning, manufacturing scheduling
as well as transportation management. The Logility
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Value Chain Solutions product suite consists of software that enables
suppliers, manufacturers, distributors and wholesalers to more effectively
collaborate and manage their value chains.
The Company markets and supports its application software products and
services to a wide range of end users, including manufacturers of chemicals,
consumer products, electronics, food and beverage products, pharmaceuticals,
pulp and paper, industrial products, steel, and textiles, as well as retailers,
wholesale distributors, and the health and beauty care industry, petroleum
producers, public utilities and the transportation industry.
Industry Background
Many changes are occurring in global businesses that are forcing companies
to re-engineer the way they manufacture 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 acquiring 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 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.
Effective information technology (IT) solutions, which support not only the
operational aspects of the business but also support planning and 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 profitability 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. These operational aspects of
running an enterprise are the province of ERP systems. Flow Manufacturing is
designed to deliver optimal conversion of raw materials into finished products
in a production environment. Value Chain Solutions allow companies to
proactively synchronize their supply activities and manufacturing schedules so
that inventory plans are sufficient to meet customer demand.
Company Products and Services
The Company's strategy has been to create an integrated line of standard
application software and services for deployment in mainframe, client/server
and web environment 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. 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 and Internet browsers as clients in the
products provided by the Company.
Note: 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.
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The following is a summary of the Company's main software solutions:
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 more solutions
offered by the Company and/or integrated with one or more systems from other
vendors. The Company's Enterprise Solutions are comprised of the following
module groups: Manufacturing, Logistics and Financials.
In April 1998, the Company introduced its next generation ERP solution
called INTELLIPRISE(TM). This client/server based ERP solution supports
multiple international business and manufacturing models, features an "out of
the box" data warehouse, provides internet connectivity and offers the
flexibility to quickly respond to changing business environments.
Manufacturing Modules
Companies may choose either the Company's Traditional Manufacturing or Flow
Manufacturing solutions. The modules listed below are the solution components
within Traditional Manufacturing:
1. Master Scheduling
2. Material Requirements Planning II (MRP 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:
Inventory Asset Management
. Inventory Asset Control
. Lot Processing
. Receipt & Shipment Management
. Serialized Inventory Processing
. Replenishment Processing
. Requistition Management
. Inspection
Procurement
. Blanket Purchasing
. Pricing Management
. Approval Routing
Customer Order Management
. Order Mananagment
. Pricing & Promotions Management
. Shipping Management
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. Billing Management
. Credit Control Processing
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:
General Ledger
. Chart of Accounts Processing
. Budgeting
. Journal Entry Processing
Accounts Payable
. Voucher Entry Processing
. Payment Processing
Treasury
. Bank Reconciliation
. Cash Management
. Netting & Write-Offs
Accounts Receivable
. Credit Management
. Collections Management
. Cash Receipts Management
. Financial Notices & Dunning Management
. Activity Manager
Key benefits of Enterprise Solutions include the following:
Modular, Scaleable Solution. Companies may purchase one or more 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 enterprise management, processing and/or
transaction volume.
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 customers.
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 solutions in the marketplace today. Users that only
license one application module typically are candidates to license
additional 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 and multi-language, as well as
support of multiple databases and extensive analytical capabilities.
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Rapid Deployment. The Company's products utilize a modular design,
thereby streamlining implementation and allowing deployment in a relatively
short time frame. The comprehensive functionality of each module generally
permits customers to implement the solutions with nominal modifications. In
addition, the Company's software combines sophisticated techniques and
tools with an intuitive, Windows-based interface to reduce training
requirements and implementation tasks.
FLOW MANUFACTURING SOFTWARE
The Flow Manufacturing solution is designed to operate with the Company's
Enterprise Solution or with an ERP 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. Line Design
2. Kanban Management
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 innovative
manufactures to automate lean manufacturing operations, the Company was
first-to-market with a comprehensive packaged software solution that meets
Flow Manufacturing, the unique flow requirements of discrete manufacturing.
Scaleable Implementation. Flow Manufacturing can be scaled to handle 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 manufactures 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.
Rapid Deployment. The Company's products utilize a modular design,
thereby streamlining implementation and allowing deployment in a relatively
short time frame. The comprehensive functionality of each module generally
permits customers to implement the solutions with nominal modifications. In
addition, the Company's software combines sophisticated techniques and
tools with an intuitive, Windows-based interface to reduce training
requirements and implementation tasks.
E-COMMERCE SOLUTIONS
The ECON (Electronic Commerce Over the Net) solution is designed to utilize
the power of the Internet to enable a company to reach new markets, lower
transaction costs, shorten cycle times, enhance service levels and maximize
profitability. The specific applications under the ECON family are:
ECON/Order(TM) allows an organization's customers or sales force to
place orders anywhere, anytime. Via the Internet or corporate intranets,
users have secure and easy access to order management system where they can
view important information like existing orders, credit availability,
discounts and promotions, plus online catalogs that make ordering easy.
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ECON/Purchasing(TM) reduces time and costs associated with purchasing by
making it possible to purchase goods online. Purchases can easily search
through multiple catalogs from approved suppliers. Once items are selected
ECON/Purchasing automatically issues the purchase order via the Internet,
fax, or e-mail using "Open buying on the Internet."
ECON/Catalog(TM) simplifies and automates employee purchasing by letting
companies place catalogs and product lists from approved suppliers onto a
corporate intranet for self purchasing. It provides access to supplier
products with all purchasing information contracted for by buyers and
suppliers, giving companies current information 24 hours a day.
ECON/Expenses(TM) delivers a powerful, easy-to-use graphical tool to
expedite expense processing by enabling employees to submit, track and
receive payment for expenses and receipts online, 24 hours a day.
ECON/Expenses removes the inefficiency, high costs and paper jams inherent
in conventional expense processing.
ECON/Bid(TM) expedites bidding activities by streamlining bidding
procedures and processes via the Internet. Its online templates simplify
the creation of bid proposals. The system send e-mail alerts to request
responses from all chosen vendor candidates. ECON/Bid helps complete the
bidding process with preformatted purchase orders and contract templates
sent directly to customers' host or server based systems for processing.
Using this product, customers can 1) take internal costs out of the
process, 2) leverage the Internet to optimize bidding procedures and 3)
free internal bidding processes from paper logjams, delays, and needless
expenses.
AmQUEST solutions provide customers with a range of outsourcing services
such as:
Data Center and Network Outsourcing Services which provides customers
with daily operational and technical support services--including 24x7x365
operations, system software and help desk support, and network-based
solutions. This secure environment supports most computing platforms for
vertical markets including manufacturing, distribution, healthcare,
insurance and the system development arena as an Application Service
Provider (ASP).
E-Commerce Solutions provides turnkey outsourced services for conducting
business over the Internet. AmQUEST will outfit websites for E-Commerce
transactions and encompass Internet, intranet, extranet and electronic data
interchange (EDI) as well as data portals which provide easy access to
enterprise systems via a browser.
Professional Services help customers in the area of managing Information
Technology (IT) recruiting activities to locate highly qualified
professionals for contract, contract-to-hire and permanent IT positions.
LOGILITY VALUE CHAIN SOLUTIONS AND SERVICES
The Company's Value Chain Solutions are provided through Logility, Inc. The
Company currently owns approximately 84% of the common stock of Logility, Inc.,
the remaining 16% being publicly held.
Logility's Value Chain Solutions, is an integrated suite of value chain
management solutions that enables manufacturers, distributors and retailers to
more effectively manage the activities along their respective value chains and
enhance collaboration among trading partners. Logility also provides i-Commerce
products to expand the number of business processes that can be executed via
intranets, extranets and the Internet. Logility's services include applications
hosting and applications management through the i-ConnectionSM for those
companies who prefer that Logility host their value chain management
applications.
The key benefits of the Company's software solutions and services include
the following:
Integrated End-to-End Value Chain Solution. The Company's Logility Value
Chain Solutions provides functionality that addresses both the flow of
information and the flow of products throughout the value chain. By
synchronizing its comprehensive planning software products with its
transportation and
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warehouse management software solutions, the Company's product suite can
more efficiently and accurately coordinate the delivery of products to the
customer. This end-to-end approach allows maximum synchronization of
activities along the value chain.
Comprehensive Planning Solution. The Company's planning solution is
comprised of demand, inventory, event, manufacturing, replenishment and
transportation planning modules that balance demand opportunities with
supply constraints through the synchronization of information gathered from
value chain participants. A key component of the Company's planning
solution is its emphasis on addressing the full range of complex demand
planning requirements of its customers, including comprehensive forecasting
capabilities that take into account each user's unique perspective of the
value chain.
Advanced Collaborative Planning Functionality. The Company's products
allow for collaboration among the various levels within an organization and
among external constituents throughout the value chain. The architecture of
Logility Value Chain Solutions enables key constituents to participate in
the planning process, including marketing, sales, manufacturing,
procurement, logistics and transportation personnel, so that the
requirements of all groups are factored in to create one consensus plan.
The Company's collaborative planning functionality is further enhanced with
i-Commerce tools such as the Company's Logility Voyager XPS(TM), which
leverages Internet technology to facilitate information sharing directly
with trading partners. Through the Company's i-CommunitySM a collaborative
network of trading partners, customers will be able to exchange information
and conduct collaborative planning, forecasting and replenishment.
Robust Warehouse Management Solution. The Company's integrated
WarehousePRO(R) solution is designed to optimize operations within the
warehouse by improving inventory turnover, increasing inventory accuracy
and customer service and reducing inventory levels. The solution's object-
oriented design and user-configurable architecture allows for flexible and
rapid implementation. In addition, the solution features a comprehensive
library of industry best-practice workflows that can be configured by the
customer, thereby minimizing the need for custom programming.
Rapid Deployment. The Company's products utilize a modular design,
thereby streamlining implementation and allowing deployment in a relatively
short time frame. The comprehensive functionality of each module generally
permits customers to implement the solutions with nominal modifications. In
addition, the Company's software combines sophisticated techniques and
tools with an intuitive, Windows-based interface to reduce training
requirements and implementation tasks.
Open, Scaleable, Client/Server Architecture. Logility's software has
been designed to integrate with existing in-house and third-party software
applications and a variety of operating environments and platforms. The
software is scaleable to manage complex processes involving tens of
thousands of products across multiple sites.
Logility's i-Commerce Strategy
Logility has launched an i-Commerce initiative that will enable it to build
on current applications while moving to total Internet-based value chain
management. The Company's i-Commerce strategy includes four levels of products
and services designed to enable the optimization of the customer's value chain
and improve collaboration. These products and services include:
. LVCS--Internet-enabled end-to-end value chain applications through
Logility Value Chain Solutions
. i-Commerce Collaboration Solutions--expands the number of business
processes that can be executed via intranets, extranets and the Internet
. i-Connection(SM)--Logility's applications hosting service and
applications management resources
. i-Community(SM)--enables companies to collaborate with trading partners
through a web-based network
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Products
Logility Value Chain Solutions is an integrated suite of value chain
management solutions designed to synchronize demand opportunities with
supply constraints and logistics operations. The suite is comprised of a
series of integrated modules. These modules can be implemented individually
in certain cases, as well as in combinations or as a full solution suite.
Logility Value Chain Solutions(TM) supports multiple communications
protocols and is designed to operate with industry-standard open
technologies, including leading web-based and client-server environments,
such as HP9000, IBM RS/6000 and Intel-based servers running Windows NT on
Oracle and Microsoft SQL Server 7.
The following table summarizes the Company's product line:
Module Features
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Demand Planning . Item and Group forecasting
. Self-selecting forecast models
. Personalized data views
. Item stratification
. Product life cycle management with
simulation
. Drag and drop data manipulation
Inventory Planning . Time-phased view of inventory
. Graphical simulations of inventory trade-off
. Views of dependent and independent demand
. Inventory management variables
Event Planning . Promotion planning
. Self-learning capabilities using artificial
intelligence
. Causal-based forecasting
. Promotion profitability simulations
Demand Chain Voyager(TM) . Forecast retrieval and modifications via the
Internet and Corporate Intranets
. Tight integration with Demand Planning
. Promotion planning calendars
. Comprehensive security features
. Collaborative planning with trading partners
Manufacturing Planning . Enterprise-wide capacity planning
. Plant-level scheduling
. Supports activity-based costing
. Optimizes sourcing decisions' actual costs
. Interactive simulation
. Real-time, in memory model
. Distributed and remote visual capacity
planning
. Remote and collaborative manufacturing
Replenishment Planning . Supports continuous replenishment strategies
. Constrained, time-phased distribution
requirements planning
. Proactive action messages
. EDI integration
. Available-to-promise methodologies
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Module Features
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. Multi-site sourcing and allocation
Transportation Planning . Load Control Center
. Shipment planning and consolidation
. Freight rating and routing
. Carrier selection
Transportation Management . Load tendering
. Shipment confirmation
. Freight audit and payment control
. Shipment documentation and tracking
Logility Voyager XPS(TM) . Collaborative Planning, Forecasting and
Replenishment (CPFR) compliant
. Collaborative planning with trading
partners
. Configurable deployment
. Open integration architecture
. Value Chain Workflow(TM)
. Universal Exception Builder for managing
exceptions
Value Chain Designer(TM) . Strategic distribution network optimization
. Customer assignment
. Facility location
. Balancing customer service levels and cost
. Sourcing selection and capacity planning
Warehouse PRO(R) . Object oriented architecture
. User configurable options
. Advanced workflow technology
. Dynamic label and report printing
. Integrated graphical user interface
Corporate Strategy
The Company's objective is to become the leading provider of enterprise wide
solutions to mid-market distributors and manufactures. The Company's strategy
includes the following key elements:
Leverage and Expand Installed Base of Customers. The Company currently
targets businesses in the consumer goods, chemicals and pharmaceuticals,
apparel, utilities, telecommunication, food and beverage, and oil and gas
industries. The Company intends to continue to leverage its installed base
of more than 900 customers to introduce additional functionality, product
upgrades, complementary modules, and application hosting services. In
addition, the Company intends to expand sales to new customers in its
existing vertical markets and to target additional vertical markets over
time.
Continue to Expand Sales and Marketing. The Company intends to continue
to pursue an increased share of the market for software solutions by
expanding its sales and marketing activities. The Company intends to
continue building a direct sales force that is focused on selected vertical
markets, such as consumer goods manufacturers.
Maintain Technology Leadership. The Company believes that it is a
technology leader in the field of value chain management and flow
manufacturing software solutions and intends to continue to provide
innovative, advanced solutions and services to these markets. The Company
believes that it was one of the earliest providers of value chain planning
software solutions on a client/server platform and on Windows
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NT, and the first to introduce a value chain planning software solution
that operates over the Internet and provides application hosting services.
The Company intends to continue to develop and introduce new or enhanced
products, such as our ECON Family of Products, and keep pace with
technological developments and emerging industry standards.
Implement E-Commerce Strategy. The Company has launched an E-Commerce
initiative that will enable it to build on current applications while
moving to total Internet-based value chain management. The Company's E-
Commerce strategy includes three levels of products and services designed
to enable the optimization of the customer's value chain and improve
collaboration. These products and services include:
. Continue to develop and sell e-Intelliprise capabilities that
capitalize on the speed and flexibility of the Internet with the
collaborative planning and logistics capabilities of Intelliprise.
. Continue to develop and sell the ECON family of products that
leverage the Internet to streamline processes and communications
with customers, trading partners and employees.
. Continue to grow our AmQUEST subsidiary by focusing on its web-based
service capabilities including operating as an Application Service
Provider (ASP).
Focus on Integrated Planning and Logistics Execution Solution. The
Company believes it is one of the few providers of integrated value chain
management software solutions addressing both demand and supply planning as
well as transportation and warehousing logistics requirements. The Company
is focusing on providing the most comprehensive planning and execution
solution aimed at optimizing operations along the value chain. The Company
intends to continue to focus its development initiatives on enhancing its
end-to-end solution and introducing additional capabilities that complement
its integrated solution.
Focus on Mid-Market. The Company has defined as "Mid-Market" those
corporations or divisions of corporations that have annual revenues ranging
from $100 million to $2 billion. Organizations of this size fit the
Company's historical customer profile, and are prime candidates for the
purchase and use of the Company's wide range of products operating on
various platforms. Additionally, the Company anticipates that its E-
Commerce strategy will be well accepted in this market segment.
Increase Penetration of International Markets. In fiscal year ended
April 30, 1999, the Company generated 10% of its total revenues from
international sales and has marketing relationships with a number of
international distributors. The Company intends to expand its international
presence by adding additional direct sales personnel to address
international markets and has created additional relationships with
distributors in Europe, Latin America and the Asia/Pacific region.
Expand Strategic Relationships. The Company has a number of varying
marketing and/or product relationships with systems integrators and service
organizations, including Arthur Andersen, Clarkston Potomac, INSIGHT, Inc.,
Whittman-Hart, Microsoft, and JBA International. In addition, the Company
has developed a network of international agents who assist in the selling
of the Company's products. Through our Logility, Inc. subsidiary, the
Company has a number of marketing and/or product relationships with ERP
vendors including Oracle, SAP and Ross Systems. The Company intends to
utilize these and future relationships with software and service
organizations to enhance its sales and marketing position.
Continue to Focus on Providing High Quality Customer Service. Providing
high quality customer service is a critical element of the Company's
strategy. The Company intends to continue to invest in technology and
personnel to accommodate the needs of its growing customer base. The
Company will continue to seek new ways to improve service to customers. By
providing application hosting services through our E-Commerce strategy,
customers will have an alternative to managing their own applications.
Continued Investment in ISO 9001 Certified Research & Development. The
Company's quality system has received ISO 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.
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Customers
The Company primarily targets businesses in the consumer-packaged goods,
chemicals, pharmaceuticals, industrial products and other manufacturing
industries. No single customer accounted for 10% or greater of the Company's
revenues in the three years ended April 30, 1999. During fiscal 1999, the
Company provided software and services to approximately 900 customers. A sample
of companies which have purchased one or more of the Company's products and
services is as follows:
Consumer
Packaged Chemicals, Oil & Gas,
Goods Pharmaceuticals Manufacturing and Others
-------- --------------------- ------------------------
Bausch &
Lomb Boots the Chemist Appleton Paper
Coca Cola CITGO Harley Davidson
ConAgra Eastman Chemical Co. HartMarx
Heineken USA FINA Inc. HugoBoss
Nestle
France Norton Chemical Intesa
Sara Lee
Knit
Products Pfizer International Komatsu America
S.C. Johnson
& Sons Pharmacia & Upjohn Maidenform
Seagram SC Johnson Polymer Magneti Marelli
Tiffany's Sigma-Aldrich Corp. Mayville Metal Products
VDK Frozen
Foods Tyco Plastics and Adhesives Mercury Marine
VF
Corporation Reynolds Metals
Siecor (joint venture between Siemens &
Corning)
Utilities Telecommunications Sony Electronics
--------- ------------------
Atlanta Gas
Light
Company Bell Atlantic Subaru of America, Inc.
Consolidated
Edison British Telecom Unifirst
Florida
Power &
Light GTE Union Camp
Indiana Gas
Company Southwestern Bell US Ceramic Tile
Texas
Utilities US West WestPoint Stevens
Virginia
Power William Carter
York International
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 for a particular business problem.
Customers frequently require services beyond those provided by the Company's
standard support/maintenance agreement. 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.
Marketing and Sales
Typically, the Company's customers are medium-sized companies or divisions
of larger companies with substantial data processing budgets.
12
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 84 persons located in six (6) areas
worldwide: Mid U.S. (20), Northeast U.S. (11), Southern U.S. (36), Western U.S.
(4), Europe (12), and Canada (1). 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, participation in industry trade shows and exhibitions, Company-
conducted seminars and telemarketing activities and referrals from existing
customers.
In 1999, the Company continued its program to develop a network of sales
agents to support its sales internationally. These agents, along with a
designated Company-employed country manager, are establishing a national
presence for the Company in targeted countries throughout Latin America, Europe
and the Middle East.
The price for the Company's products typically is determined based upon the
number of modules licensed and the number of servers, users and sites for which
the solution is designed. The license fee for such a solution could range from
$7,000 for a single module to in excess of $6,000,000 for a multi-module,
multiple-user solution incorporating the full range of Company products. During
fiscal year ended April 30, 1999, license fees generally ranged from $50,000 to
$1.5 million.
Licenses
The Company, like many business application software firms, typically enters
into license agreements that 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.
Installation, Network Management, Maintenance and Support
The Company offers a full range of services that allow its customers to
maximize the benefits of the Company's software products including project
management, implementation, product education, technical consulting,
programming services, system integration and maintenance and support. The
customer receives documentation manuals or imbedded help software, which
describe the system's features and its method of operation. The user is
normally entitled to telephone support for a period of at least 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. The Company's services are
priced separately , and fees for its services generally are not included in the
price for its software products. 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.
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 personnel and update them on new
system features.
The Company markets its professional and data processing resources as an
Application Services Provider (ASP) providing hosting of customers
applications, which could be the Company's products or third party vendor
products, normally under long-term contract. The Company believes ASP services
represent a growth
13
opportunity by providing customers with an outsourcing IT solution and creating
a basis for predictable long-term recurring revenues.
To complement customer support, the Company and its customers 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.
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 1999, 1998, and 1997, the Company expensed approximately $11,511,000,
$12,112,000 and $7,343,000, respectively, for research and development. In
addition, the Company capitalized $10,902,000, $8,827,000, and $9,898,000 in
software development costs during fiscal years 1999, 1998, and 1997,
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 $22,413,000, $20,939,000,
and $17,241,000 in fiscal years 1999, 1998 and 1997, respectively, and
represented 21%, 19%, and 20%, respectively, of total revenues in those years.
The Company believes that its client/server and Internet-based solutions,
which utilize the latest technologies, will be important for its long-term
growth. As of April 30, 1999, the Company employed approximately 275 persons in
research, development and enhancement activities.
Competition
The market for enterprise applications is intensely competitive, rapidly
changing and significantly affected by new product offerings and other market
activities. 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 includes manufacturers and
distributors in consumer package goods, food & beverage, chemicals,
pharmaceuticals, industrial products, and textiles, as well as retailers,
wholesale distributors, health & beauty care, public utilities and public
transportation 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 95, and Windows NT.
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. The Company
believes the market trend to open systems, allowing software to 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.
14
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.
Employees
At April 30, 1999, the Company had 682 full-time employees, including 275 in
product development and technical support, 261 in customer support and
professional services, 110 in marketing, sales and sales support, and 36 in
accounting, facilities 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.
Risk Factors
The Company operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section lists some,
but not all, of the risks and uncertainties, which may have a material adverse
effect on the Company's business, operating results or financial condition.
This section should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
Consolidated Financial Statements and Notes thereto for the three years ended
April 30, 1999, 1998 and 1997.
In addition to the "Forward Looking Statements" section contained elsewhere
in this Report, the following factors should be considered carefully in
evaluating the business, financial condition and prospects of the Company.
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have varied in the past and might vary
significantly in the future because of factors such as business conditions or
the general economy, the timely availability and acceptance of the Company's
products, technological change, the effect of competitive products and pricing,
changes in Company strategy, the mix of direct and indirect sales, changes in
operating expenses, personnel changes and foreign currency exchange rate
fluctuations. The Company typically ships software products shortly after
license agreements are signed, and, therefore, does not maintain any material
contract backlog. Furthermore, the Company has typically recognized a
substantial portion of its revenues in the last month of a quarter. As a
result, software products revenues in any quarter are substantially dependent
on orders booked and shipped in that quarter, and the Company cannot predict
software products revenues for any future quarter with any significant degree
of certainty.
The Company's software products revenues are also difficult to forecast
because the market for enterprise application software products is rapidly
evolving, and the Company's sales cycles vary substantially from customer to
customer. Because the licensing of the Company's products generally involves a
significant capital expenditure by the customer, the Company's sales process is
subject to the delays and lengthy approval processes that are typically
involved in such expenditures. In addition, the Company expects that sales
derived through indirect channels, the timing of which is harder to predict
than for direct sales because there is less
15
direct contact with the prospective customer, will increase as a percentage of
total revenues. For these and other reasons, the sales cycle associated with
the licensing of the Company's products varies substantially from customer to
customer and typically lasts between four and six months, during which time the
Company might devote significant time and resources to a prospective customer,
including costs associated with multiple site visits, product demonstrations
and feasibility studies, and might experience a number of significant delays,
over which the Company has no control.
The Company determines its expense levels based, at least in part, on its
expectations as to future revenues. If revenues in a period are below
expectations, operating results are likely to be adversely affected. Net income
might be disproportionately affected by a reduction in revenues because a
proportionately smaller amount of the Company's expenses varies directly with
revenues. As a result of the foregoing factors, it is possible that in some
quarters the Company's operating results will be below the published
expectations of financial research analysts. In that event, the price of the
Company's common stock would likely be materially adversely affected. If this
were to occur, the business, operating results and financial condition of the
Company could be materially adversely affected.
Expansion of Indirect Channels. The Company is building and maintaining
strong working relationships with consulting firms that the Company believes
can play important roles in marketing the Company's products. The Company is
currently investing, and intends to continue to invest, significant resources
to develop these relationships, which could adversely affect the Company's
operating margins. There can be no assurance that the Company will be able to
attract organizations that will be able to market the Company's products
effectively or that will be qualified to provide timely and cost-effective
customer support and service. In addition, the Company's arrangements with
these organizations are not exclusive and, in many cases, may be terminated by
either party without cause, and many of these organizations are also involved
with competing products. Therefore, there can be no assurance that any
organization will continue its involvement with the Company and its products,
and the loss of important organizations could materially adversely affect the
Company's results of operations. In addition, if the Company is successful in
selling products as a result of these relationships, any material increase in
the Company's indirect sales as a percentage of total revenues would be likely
to adversely affect the Company's average selling prices and gross margins
because of the lower unit prices that the Company receives when selling through
indirect channels.
Rapid Technological Change and New Products. The market for the Company's
software products is characterized by rapid technological advances, evolving
industry standards in computer hardware and software technology, changes in
customer requirements and frequent new product introductions and enhancements.
The Company's future success will depend upon its ability to continue to
enhance its current product line, to maintain and extend compatibility with
other leading software systems and with widely used hardware and operating
system platforms, and to develop and introduce new products that keep pace with
technological developments, satisfy increasingly sophisticated customer
requirements and achieve market acceptance. The introduction of products using
new technologies and the emergence of new industry standards could render the
Company's existing products, and products currently under development, obsolete
and unmarketable. In addition, there are special risks associated with
products, such as the ECON product line, Demand Chain Voyager and Logility
Voyager XPS modules, that must comply with rapidly changing Internet standards.
There can be no assurance that the Company will be successful in developing and
marketing, on a timely and cost-effective basis, fully functional product
enhancements or new products that respond to technological advances by others,
or that new products will achieve market acceptance. The Company's failure to
successfully develop and market product enhancements or new products could have
a material adverse effect on the Company's business, operating results and
financial condition.
As a result of the complexities inherent in computing environments and the
broad functionality and performance demanded by customers, major new products
and product enhancements can require long development and testing periods.
Software products as complex as those offered by the Company often encounter
development delays and may contain undetected defects when introduced or when
new versions are released. There can be no assurance that errors will not be
found in new products or product enhancements
16
after commencement of commercial shipments, resulting in damage to the
Company's reputation, loss of revenue, loss of market share, delay in market
acceptance or warranty claims, any of which could have a material adverse
effect upon the Company's business, results of operations and financial
condition. Although the Company generally attempts to limit by contract its
exposure to incidental and consequential damages, if a court failed to enforce
the liability limiting provisions of the Company's contracts for any reason, or
if liabilities arose which were not effectively limited, the Company's
business, results of operations and financial condition could be materially and
adversely affected.
International Operations. The Company derived approximately 10%, 9%, and 10%
of its total revenues from international sales in the fiscal years ended April
30, 1999, 1998 and 1997, respectively. The Company believes that continued
growth and profitability will require increased international sales. The
Company must establish additional foreign operations and hire additional
personnel, as well as expand its indirect sales channels in markets outside
North America. To the extent that the Company is unable to do so in a timely
and effective manner, the Company's growth, if any, in international sales will
be limited, and the Company's business, operating results and financial
condition could be materially adversely affected. In addition, even if
international operations are successfully expanded, there can be no assurance
that the Company will be able to maintain or increase international market
demand for its products or that such operations will be profitable.
The Company's international operations are subject to risks inherent in
international business activities, including, in particular, management and
staffing of an organization spread over various countries, longer accounts
receivable payment cycles in certain countries, compliance with a variety of
foreign laws and regulations, unexpected changes in regulatory requirements,
overlap of different tax structures, foreign currency exchange rate
fluctuations and general economic and political conditions. To date, the
Company's revenues from international operations have primarily been
denominated in United States dollars. Other risks associated with international
operations include import and export licensing requirements, trade restrictions
and changes in tariff rates.
Implementation of E-Commerce Strategy. The Company intends to devote
significant resources to the implementation of its E-Commerce strategy.
Expanding the number of business processes that can be executed via intranets,
extranets and the Internet is a key component of the E-Commerce strategy.
Because of the special risks associated with developing and marketing products
intended for this market segment noted in "Rapid Technological Change and New
Products" above, there can be no assurance that the Company will be successful
in the implementation of its E-Commerce strategy.
Dependence on Proprietary Technology. The Company relies on a combination of
trade secrets, copyright and trademark laws, nondisclosure and other
contractual provisions and technical measures to protect its proprietary rights
in its products. The Company has not sought to patent its software products and
thus does not have the protection that patents might provide. There can be no
assurance that the protections relied upon by the Company will be adequate to
protect its proprietary rights. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties, including customers, may attempt to
reverse engineer or copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. In addition, the laws of
certain foreign countries in which the Company's products are or may be
licensed do not protect the Company's products and intellectual property rights
to the same extent as the laws of the United States. As a result, there can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate or that the Company's competitors will not independently develop
similar technology. Although the Company believes that its products, trademarks
and other proprietary rights do not infringe upon the proprietary rights of
third parties, there can be no assurance that third parties will not assert
infringement claims against the Company. Defense of such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could have
a material adverse effect upon the Company's business results of operation and
financial condition.
17
Certain software used in the Company's products is licensed by the Company
from third parties. There can be no assurance that the Company will continue to
be able to resell this software under its licenses or, if any licensor
terminates its agreement with the Company, that the Company will be able to
develop or otherwise procure replacement software from another supplier on a
timely basis or on commercially reasonable terms. In addition, such third-party
software may contain errors that would be difficult for the Company to detect
and correct.
Year 2000 Compliance. Both the Company's internal operations and products
use a significant number of computer software programs and operating systems.
Given the information known at this time, the Company's systems and products,
coupled with the Company's ongoing efforts to maintain systems and products as
necessary, the Company does not anticipate that the "Year 2000 issue" or
related costs will have a material adverse effect on the Company's business,
results of operations or financial condition. Circumstances could change,
however, most particularly as a result of the necessary system interfaces
between the Company's products and other systems utilized by the Company's
customers. (Please see further information located in Item 7: MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
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 of the Company,
are the sole partners. The term of the lease expired December 31, 1996, and has
been continued on a quarterly basis with a current base rental rate of $17.00
per square foot, pending negotiation of a new lease.
The Company owns a four-story 42,000 square foot building at 3110 Maple
Drive, N.E, a one-story 1,400 square foot building at 3116 Maple Drive, a one-
story 14,000 square foot building at 3120 Maple Drive, and a two-story 10,000
square foot building at 480 East Paces Ferry Road, each of which is located
near the Company's headquarters. The Company also owns a one-story 4,000 square
foot building at 490 East Paces Ferry which it leases 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.
The Company owns a variety of electronic and computer equipment, including
four mid-sized computers, consisting of one IBM 9121 210, one IBM 9121 621, one
3090-600E, five IBM AS/400s and leases one IBM 9672-R24, one IBM 2003-205, one
IBM 2003 2C5, one IBM 9221, one IBM 3090-400J, and one IBM 962 R31 all of which
are used for program development and testing, network management and product
demonstrations.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings are 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.
18
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 under the symbol AMSWA. As of July 12, 1999, there were 7,501
holders of record of the Company's Class A Common Shares, some of whom are
holders in nominee name for the benefit of different shareholders, and two
holders of the Company's Class B Common Shares.
Market Price Information
The table below presents the quarterly high and low sales prices for
American Software, Inc. Class A common stock as reported by NASDAQ, for the
Company's last two fiscal years (1998 and 1999).
High Low
---- ----
Fiscal Year 1999
First Quarter.......................................... $ 8 1/4 $ 5 3/4
Second Quarter......................................... 5 1/2 1 15/16
Third Quarter.......................................... 3 7/16 2 1/8
Fourth Quarter......................................... 3 1/2 2 13/32
High Low
---- ----
Fiscal Year 1998
First Quarter.......................................... $ 8 1/2 $ 6 1/8
Second Quarter......................................... 15 1/8 8 3/4
Third Quarter.......................................... 12 3/4 8 1/2
Fourth Quarter......................................... 10 5/8 7 1/8
No dividends were paid on the Company's common stock during the past three
fiscal years. 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.
19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
1999 1998 1997 1996 1995
-------- -------- ------- ------- --------
(In thousands, except per share amounts)
For year ended April 30:
Revenues........................ $109,177 $107,472 $84,711 $77,557 $ 79,462
Total costs and expenses........ 147,175* 98,820 83,030 92,886* 93,049
-------- -------- ------- ------- --------
Operating earnings (loss)..... (37,998) 8,652 1,681 (15,329) (13,587)
Other income.................... 3,415 3,791 1,744 2,569 2,245
-------- -------- ------- ------- --------
Earnings (loss) before income
taxes........................ (34,583) 12,443 3,425 (12,760) (11,342)
Income tax expense (benefit).... (1,766) 4,648 1,093 (3,011) (4,653)
-------- -------- ------- ------- --------
Net earnings (loss)........... $(32,817) $ 7,795 $ 2,332 $(9,749) $ (6,689)
======== ======== ======= ======= ========
Net earnings (loss) per common
and common equivalent share--
diluted........................ $ (1.48) $ .32 $ .10 $ (.44) $ (.30)
Cash dividends per share........ $ -- $ -- $ -- $ -- $ .16
Cash dividends paid............. $ -- $ -- $ -- $ -- $ 3,570
As of April 30:
Working capital................. $ 40,025 $ 63,263 $21,492 $21,511 $ 36,407
Total assets.................... $107,358 $142,656 $99,509 $90,782 $107,792
Long-term debt.................. $ 950 $ -- $ -- $ -- $ --
Shareholders' equity............ $ 67,197 $100,810 $67,152 $64,255 $ 74,037
- --------
* The 1999 total costs and expenses includes write-downs of $26.6 million
related to 1) the write-off of certain capitalized software development
costs in the amount of $24.2 million, 2) purchased research & development
expense of $1.8 million related to the acquisition of New Generation
Computing, 3) an impaired asset write-off of $0.4 million and 4)
restructuring charge of $0.2 million. 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 recorded to the provision for
doubtful accounts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company develops, markets, and supports Internet commerce, enterprise
resource planning ("ERP") and integrated supply chain management solutions. The
product line encompasses integrated business applications such as demand
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 and third
party products. These services include training, system implementation,
consulting, custom programming, network management, millennium conversion, and
telephonic support services.
The Company's revenues are derived primarily from three sources: software
licenses, services and maintenance. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. Commencing May 1,
1998, the Company adopted Statement of Position No. 97-2, Software Revenue
Recognition, and related interpretations. License fee revenues are recognized
at the time of product delivery, provided no significant future obligation
exists and collection is deemed probable. Services revenues consist primarily
of fees from software implementation, training, consulting and customization
services and are recognized as the services are rendered. Maintenance
agreements typically are for a one- to three-year term and usually are entered
into at the time of the initial product license. Maintenance revenues are
recognized ratably over the term of the maintenance agreement.
20
RESULTS OF OPERATIONS
The following table sets forth certain revenue and expense items as a
percentage of total revenues for the three years ended April 30, 1999 and the
percentage increases and decreases in those items for the years ended April 30,
1999 and 1998:
Percentage of Pct. Change
Total Revenues In Dollars
----------------- -------------------------
1999 1998 1997 1999 Vs 1998 1998 Vs 1997
---- ---- ---- ------------ ------------
Revenues:
License fees....................... 18% 31% 36% (42)% 11%
Services........................... 58 47 38 27 54
Maintenance........................ 24 22 26 9 8
--- --- --- --- ---
Total revenues................... 100 100 100 2 27
--- --- --- --- ---
Cost of revenues:
License fees....................... 8 8 8 1 21
Services........................... 42 31 32 36 22
Maintenance........................ 9 7 10 35 (4)
--- --- --- --- ---
Total cost of revenues........... 59 46 50 30 17
--- --- --- --- ---
Gross margin......................... 41 54 50 (22) 37
--- --- --- --- ---
Operating expenses:
Research and development cost,
net............................... 11 11 9 (5) 65
Marketing and sales................ 26 24 25 11 25
General and administrative......... 13 11 14 27 (6)
Provision for doubtful accounts.... 2 nm nm nm nm
Charge for asset impairment and
purchased R&D..................... 24 nm nm nm nm
--- --- --- --- ---
Total operating expenses......... 76 46 48 68 21
--- --- --- --- ---
Operating earnings (loss)........ (35) 8 2 nm nm
--- ---
Other income, net.................. 3 4 2 (10) nm
--- --- --- --- ---
Earnings (loss) before income
taxes........................... (32) 12 4 nm nm
--- --- --- --- ---
Income taxes....................... nm nm nm nm nm
--- --- --- --- ---
Net earnings (loss).............. (30)% 7% 3% nm nm
=== === === === ===
- --------
nm--not meaningful
GENERAL MARKET CONDITIONS:
Beginning in the second calendar quarter of 1998 (the Company's first
quarter of fiscal 1999), several application software companies began to
experience slowdowns in the sales of their software products. These companies,
as well as industry experts, have identified the following factors as
contributors to this slowdown in the buying market:
. Significant financial commitments devoted to Year 2000 readiness, which
have led to limited discretionary financial resources available for the
purchase of software products such as the Company's.
. Weakness in the overall global economy, which has affected certain
customers' businesses and their buying tendencies.
. Public announcements by large Enterprise Resource Planning (ERP)
software vendors regarding plans for introduction of new products within
the Company's target markets which have led to confusion and indecision
by prospective buyers.
21
The Company believes these factors, as well as possible others, have to some
degree contributed to the Company's reduced revenues in fiscal 1999,
particularly in the area of software license fees.
YEARS ENDED APRIL 30, 1999 AND 1998:
Revenues:
The Company's total revenues increased 2% to $109.2 million in the fiscal
year ended April 30, 1999 from the prior year of $107.5 million in the fiscal
year ended April 30, 1998. This increase was primarily due to a significant
increase in implementation and training services as well as an overall rise in
maintenance revenues. This was offset by a decrease in license fees revenue due
to a general industry market slowdown for software products. International
revenues represented approximately 10% and 9% of total revenues in the years
ended April 30, 1999 and 1998, respectively.
Software Licenses. The Company's license fee revenues decreased 42% in the
fiscal year ended April 30, 1999 to $19.6 million compared to $33.5 million in
the prior year. This decrease was primarily due to an overall enterprise
application market slowdown for software purchases as a result of concerns over
the Asian financial crises and the short-term emphasis on "Year 2000"
compliance projects. License fees for the Logility Value Chain Solutions
software decreased 43% to $ 11.4 million in the fiscal year ended April 30,
1999 compared to $20.4 million in the prior fiscal year. Logility Value Chain
Solutions software constituted approximately 58% and 60% of license fee
revenues in fiscal 1999 and fiscal 1998, respectively.
Services. Services revenues, which are primarily consulting, custom
programming, and network management services, increased 27% to $63.6 million in
fiscal year 1999 from $50.1 million in fiscal year 1998. This increase was
primarily due to increased consulting related to implementation and tailoring
of new customers' software products, staffing services and network management
services. Services revenues constituted 58% and 47% of total revenues in fiscal
year 1999 and fiscal year 1998, respectively. Service revenues as a percentage
of total revenues have fluctuated, and are expected to continue to fluctuate on
a period-to-period basis based upon the demand for implementation, consulting
and network services. Services related to "Year 2000" system compliance have
been declining during fiscal 1999 and the Company believes that this type on
services work will decline further during fiscal 2000.
Maintenance. 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 9% to
$26.0 million in fiscal year 1999 compared to $23.8 million in fiscal year
1998, respectively. This increase was due to increased license fees in fiscal
year 1998 since maintenance growth generally follows license fee revenues which
serve as the source of new maintenance customers. Maintenance revenues
constituted 24% and 22% of total revenues in fiscal year ended April 30, 1999
and fiscal year ended April 30, 1998, respectively.
Gross Margin:
Total gross margin in fiscal 1999 was 41% compared to 54% a year ago. This
decrease was primarily due to the decrease of license fee margin from 76% in
fiscal 1998 compared to 58% in fiscal 1999 as a result of lower license fee
sales and higher capitalized software amortization expense during fiscal 1999.
In addition, the services gross margin decreased to 29% in fiscal 1999 from 33%
in the prior year due mainly to the switch from higher margin services work
related to the "Year 2000" remediation work performed in fiscal year 1998 to
lower margin services work being performed in fiscal 1999. Maintenance gross
margin decreased to 60% for fiscal 1999 when compared to 68% in the same period
a year ago. This reduction was due to slower than anticipated growth in
maintenance revenue during fiscal 1999 combined with additional support efforts
related to newer products introduced during the year
22
The cost of revenues for license fees are expected to increase during the
year ending April 30, 2000 from fiscal year 1999 due to an expected increase in
amortization expense from certain capitalized computer software projects that
are expected to become generally available during the year. The Company will
monitor the market acceptance of these newly released products.
Operating Expenses:
Research and Development. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Years Ended (000's
omitted)
------------------------
April April
30, Percent 30,
1999 Change 1998
------- ------- -------
Gross product development costs.................... $22,413 7% $20,939
Percentage of total revenues..................... 21% 20%
Less: capitalized development...................... (10,902) 24% (8,827)
Percentage of gross prod. dev. costs............. 49% 42%
------- -------
Product development expenses....................... $11,511 (5%) $12,112
Percentage of total revenues..................... 11% 11%
Gross product development costs increased 7% in 1999 compared to a year ago
as a result of the Company's continued investment in new product development.
Capitalized development increased by 24% from a year ago, while the rate of
capitalized development increased to 49% from 42% a year ago due the Company
personnel spending more time on the development phase of projects which are
currently capitalized. Product development expenses as a percentage of total
revenues remained the same at 11% for fiscal years 1999 and 1998.
Marketing and Sales. Marketing and sales expenses increased 11% from a year
ago as a result of a an increased staffing over a year ago, particularly in the
areas of international sales and increased trade show marketing commitments. As
a percentage of total revenues, sales and marketing expenses were 26% for
fiscal 1999 when compared to 24% for fiscal 1998.
General and Administrative. General and administrative (including provision
for doubtful accounts) expenses increased 41% in 1999 to approximately $16.3
million from a year ago primarily due to increased provision for doubtful
accounts, amortization expense related to goodwill from acquisitions and other
general expenses. General and administrative expenses as a percentage of total
expenses was 15% in fiscal 1999 compared to 11% in the prior year.
Charge for asset impairment and purchased R&D. The Company incurred a non-
recurring charge against earnings of $26.6 million during fiscal year 1999.
This charge was the result of: 1) the write-off of certain capitalized software
development costs in the amount of $24.2 million, 2) purchased research &
development expense of $1.8 million related to the acquisition of New
Generation Computing, 3) an impaired asset write-off of $0.4 million and 4)
restructuring charge of $0.2 million.
Other Income. Other income is comprised predominantly of interest income,
gains and losses from sales of investments, changes in the market value of
investments, and minority interest in subsidiary earnings. Other income
decreased 10% to $3.4 million in 1999 compared to as year ago due primarily to
lower average cash investment balances during the year and a lower return on
investments during the year when compared to the prior year, offset by income
from minority loss.
Income Taxes. The effective income tax rate in 1999 was 5% of pretax loss
compared to 37% pretax income in fiscal 1998. This decrease was due to the fact
that the Company experienced a net loss for the fiscal year 1999.
23
YEARS ENDED APRIL 30, 1998 AND 1997:
Revenues:
The Company's total revenues increased 27% to $107.5 million in the fiscal
1998 compared to fiscal 1997. This increase was primarily due to a significant
increase in implementation and training services as well as a rise in product
sales. International revenues represented approximately 9% of total revenues in
fiscal year 1998 compared to 10% in fiscal year ended 1997.
Software Licenses. The Company's license fee revenues increased 11% in the
fiscal year ended April 30, 1998 to $33.5 million compared to $30.1 million in
the fiscal year ended April 30, 1997. This increase was primarily due to
increased licenses fees sales for the Logility Value Chain Solutions software
which increased 63% in the fiscal year ended April 30, 1998 to $20.1 million
compared to $12.4 million in the prior fiscal year. Logility Value Chain
Solutions software has been the principal factor in American Software's license
fee growth, constituting approximately 60% and 41% of license fee revenues in
fiscal year 1998 and fiscal year 1997, respectively. License fees from
Enterprise Solutions decreased 24% in fiscal year 1998 compared to the prior
year primarily due to lower mainframe platform sales.
Services. Services revenues, which consisted primarily of consulting, custom
programming, and network management services, increased 54% to $50.1 million in
fiscal year 1998 from $32.6 million in fiscal year 1997. This increase was
primarily due to increased consulting related to implementation and
customization of new customer's software products and services related to "Year
2000" system compliance. Services revenues constituted 47% and 38% of total
revenues in fiscal year 1998 and fiscal year 1997, respectively.
Maintenance. 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 8% to
$23.8 million in fiscal year 1998 compared to $22.0 million in fiscal year
1997. Maintenance revenues constituted 22% and 26% of total revenues in fiscal
year 1998 and fiscal year 1997, respectively, and generally follow license fee
revenues, which serve as the source of new maintenance customers.
Gross Margin:
Total gross margin in fiscal year ended April 30,1998 was 54% compared to
50% in the prior year. This increase was largely due to the expanded margin
from implementation and training services revenues, which grew to 33% from 16%
a year ago in the same period. The expanded margin was attributable to the
improved utilization of consulting resources and increased billing rates,
resulting in a higher incremental gross margin. The gross margin on maintenance
revenues increased to 68% compared to 64% a year ago as a result of improved
customer service software and processes. The gross margin on license fees
revenues decreased to 76% compared to 78% in 1997 due to an increase in
software amortization costs related to the release of several products during
fiscal 1998.
Operating Expenses:
Research and Development. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Years Ended (000's
omitted)
------------------------
April April
30, Percent 30,
1998 Change 1997
------- ------- -------
Gross product development costs.................... $20,939 21% $17,241
Percentage of total revenues..................... 20% 20%
Less: capitalized development...................... (8,827) (11%) (9,898)
Percentage of gross prod. dev. costs............. 42% 57%
------- -------
Product development expenses....................... $12,112 65% $ 7,343
Percentage of total revenues..................... 11% 9%
24
Gross product development costs increased 21% in fiscal 1998 compared to
fiscal 1997 as a result of the Company's continued investment in new product
development. Capitalized development decreased by 11% from a year ago, while
the rate of capitalized development decreased to 42% from 57% in fiscal year
1997 due to the completion of products during fiscal year 1998 resulted in the
Company personnel spending more time on the design phase of projects that were
expensed in fiscal year 1998. Product development expenses as a percentage of
total revenues, increased to 11% compared to 9% one year ago and the Company's
net product development expenses increased 65% as the Company continued its
investment in new product development.
Marketing and Sales. Marketing and sales expenses increased 25% in fiscal
year ended April 30, 1998 as a result of increased license fees and an
increased sales force. As a percentage of total revenues, sales and marketing
expenses remained materially equivalent at 24% for fiscal year 1998 when
compared to 25% for fiscal year 1997.
General and Administrative. General and administrative expenses (including
the provision for doubtful accounts) decreased 9% in fiscal year 1998 to
approximately $11.5 million from the prior year primarily due to the closure of
a sales office in Singapore in May 1997 and elimination of rented space at the
Company's Atlanta offices in March 1997. Provision for doubtful accounts for
1998 decreased to $0.2 million from $0.7 million in 1997.
Other Income. Other income is comprised predominantly of interest income,
gains and losses from sales of investments, changes in the market value of
investments, and minority interest in subsidiary earnings. Other income
increased 117% to $3.8 million in fiscal year 1998 compared to one year ago due
primarily to the addition of approximately $33.2 million to the Company's cash
and investment portfolio from funds received from the initial public offering
of Logility.
Income Taxes. The effective income tax rate in fiscal year 1998 was 37% of
pretax income compared to 32% in fiscal year 1997. This increase was due to the
fact that the Company experienced a net loss in the quarter ended July 31, 1996
and did not record a deferred tax asset for the net operating loss
carryforward. The effective tax rate was therefore lowered in subsequent
quarters of fiscal 1997 as the Company was profitable.
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.
25
Liquidity And Capital Resources
The Company's operating activities provided cash of approximately $11.9
million in the year ended April 30, 1999, compared to approximately $17.0
million in the same period of the prior year. The activities of that portfolio
are included in operating activities in the consolidated statements of cash
flows.
The cash provided by operations during the year ended April 30, 1999, was
primarily attributable to a non-cash charge for asset impairment and purchased
R&D of $26.4 million, non-cash depreciation and amortization expense of $9.6, a
decrease in accounts receivable of $6.6 million, an increase in accounts
payable of $5.6 million, proceeds from the sale of trading securities of $3.4
million, proceeds from the maturities of trading securities of $2.2 million and
a decrease in prepaid expenses of $2.0 million. This was partially offset by a
net loss of $32.8 million, a decrease in deferred income taxes of $5.4 million,
purchases of trading securities of $3.5 million, decrease in deferred revenues
of $1.6 million and minority interest in loss of subsidiary of $1.4 million.
The cash provided by operations during the year ended April 30, 1998 of $17.0
million was primarily attributable to non-cash depreciation and amortization
expense of $10.1 million, net income of $7.8 million, proceeds from sale of
trading securities of $6.5 million, deferred income taxes of $4.3 million, an
increase in deferred revenues of $3.6 million and proceeds from the maturities
of trading securities of $2.3 million. This was partially offset by an increase
in accounts receivable of $5.9 million, net gain on investments of $4.9
million, a decrease in accounts payable and other liabilities of $3.6 million,
and purchases of trading securities of $3.3 million.
Cash used in investing activities was approximately $1.6 million and $43.7
million for the years ended April 30, 1999 and 1998, respectively. The majority
of the cash was used for purchases of held to maturities investments, purchase
of majority interest in subsidiaries, computer software development costs and
property and equipment, offset by sales of held to maturity securities.
Cash used in financing activities for fiscal year 1999 was approximately
$3.3 million compared to cash provided by financing activities of $33.6 million
in fiscal year 1998. The decrease from the prior year was due primarily to an
increase in use of cash for the repurchase of the Company's common stock in
fiscal year 1999 in the amount of $3.5 million, and the cash provided by
financing activities of $33.6 million for fiscal year 1998 was due primarily
from the issuance of common stock by Logility, Inc., a subsidiary of the
Company.
Days Sales Outstanding in accounts receivable were 80 and 93 days as of
April 30, 1999 and April 30, 1998, respectively. This decrease was due to
improved collection efforts by the Company. The Company's current ratio was 2.2
to 1 and cash and investments totaled 46% of total assets at April 30, 1999
compared to a current ratio of 3.2 to 1 and cash and investments totaling 42%
of total assets at April 30, 1998. The Company expects existing cash and
investments, combined with cash generated from operations, to be sufficient to
meet its operational needs in fiscal 2000. The Company may seek additional
sources of capital to meet its growth objectives in the future. To the extent
that such amounts are insufficient to finance the Company's capital
requirements, the Company will be required to raise additional funds through
equity or debt financing. The Company does not currently have a bank line of
credit. No assurance can be given that bank lines of credit or other financing
will be available on terms acceptable to the Company. If available, such
financing may result in further dilution to the Company's shareholders and
higher interest expense.
On December 18, 1997, American Software, Inc.'s Board of Directors approved
a resolution authorizing the Company to repurchase up to 1.5 million shares of
the Company's Class A common stock. On March 11, 1999, American Software,
Inc.'s Board of Directors approved a resolution authorizing the Company to
repurchase an additional 700,000 shares for a total of up to 2.2 million shares
of the Company's Class A common stock. This repurchase will be through open
market purchases at prevailing market prices. The timing of any repurchases
will depend on market conditions, the market price of the Company's common
stock and management's assessment of the Company's liquidity and cash flow
needs. Since these resolutions, the Company has repurchased approximately 1.3
million shares of common stock at a cost of approximately $4.3 million as of
April 30, 1999.
26
YEAR 2000 READINESS DISCLOSURE
Products:
Based on management's assessment, the Company believes that the current
versions of its software products are Year 2000 compliant. However, the Company
believes some of its customers may be running earlier versions of the Company's
products that are not Year 2000 compliant, and the Company has been encouraging
such customers to migrate to current product versions. The Company offers its
customers the alternatives of implementing a modification to non-compliant
legacy versions of its software or migrating to a later version of the software
which is Year 2000 compliant. Moreover, the Company's products are generally
integrated into other systems involving complex software products developed by
other vendors. Year 2000 problems inherent in a customer's other software
programs might significantly limit that customer's ability to utilize the
Company's products.
Software products as complex as those offered by the Company might contain
undetected errors or failures when first introduced or when new versions are
released, including products believed to be Year 2000 compliant. While the
Company believes that it has assessed, corrected and tested its products to
address the Year 2000 issue, there can be no assurances that the Company's
software products contain or will contain all necessary date code changes or
that errors will not be found in new products or product enhancements after
commercial release, resulting in loss of or delay in market acceptance. In
addition, the Company might experience difficulties that could delay or prevent
the continued successful development and release of products that are Year 2000
compliant or that meet the Year 2000 requirements of customers. If the Company
is unable or is delayed in its efforts to make the necessary date code changes,
there could be a material adverse effect upon the Company's business, operating
results, financial condition and cash flows.
The Company may in the future be subject to claims based on Year 2000
problems in its own, as well as in others' products, and issues arising from
the integration of multiple products within an overall system. Although the
Company has not been a party to any litigation involving its products or
services related to Year 2000 compliance issues, there can be no assurance that
the Company will not in the future be required to defend its products or
services in such proceedings, or otherwise address claims based on Year 2000
issues. The costs of defending and resolving Year 2000-related disputes, and
any liability of the Company for Year 2000-related damages, including
consequential damages, could have a material adverse effect on the Company's
business, operating results, and financial condition.
The Company believes that Year 2000 issues have affected and may continue to
affect the purchasing decisions of customers and potential customers of the
Company's products. Many businesses are expending significant resources on
projects to make their current hardware and software systems Year 2000
compliant. Such expenditures may result in reduced funding for projects to
purchase software products such as those offered by the Company. Potential
customers may also choose to defer purchasing Year 2000 compliant products
until they believe it is absolutely necessary, thus resulting in potentially
stalled market sales within the industry. Any of the foregoing could have a
material adverse effect on the Company's business, operating results and
financial condition.
Internal Systems:
The Company is working to identify and remediate all internal systems which
may impact the operations of the Company. The cost of converting the Company's
internal systems is not expected to be material since the Company is utilizing
internal resources to meet its Year 2000 readiness needs. The Company has
completed 95% of its system evaluation and 85% of its remediation. The Company
estimates the completion of its remediation and testing by August 31, 1999.
The Company utilizes third-party vendor equipment, telecommunication
products and software products that may or may not be Year 2000 compliant. The
Company has been communicating with such third party vendors about their plans
and progress in addressing the Year 2000 problem, and the Company has requested
27
assurances that such equipment, product and services will be Year 2000
compliant. The Company has received such assurances from most of the third
party vendors and is waiting to receive such assurances from the remaining
vendors. In the event that such additional assurances are not timely received,
the Company will switch to another vendor or take such other action as the
Company shall deem appropriate. Although the Company is currently taking steps
to address the impact of the Year 2000 compliance issue surrounding such third-
party products, failure of any critical technology components to be Year 2000
compliant may have an adverse impact on business operations or require the
Company to incur unanticipated expenses to remedy any problems.
The Company's evaluation of Year 2000 issues includes the development of
contingency plans for business functions that are susceptible to a substantive
risk of disruption resulting from a Year 2000 related event. Because the
Company has not yet identified any business function that is materially at risk
of the Year 2000 related disruption, it has not yet developed detailed
contingency plans specific to Year 2000 events for any business function. The
Company is prepared for the possibility, however, that certain business
functions may be hereafter identified as at risk and will develop contingency
plans for such business functions when and if such determinations are made.
Forward-looking statements contained in this Year 2000 Compliance discussion
should be read in conjunction with the Company's disclosure under the heading
of Forward Looking Statements, below.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Foreign Currency. In the year ended April 30, 1999, the Company generated
10% of its revenues outside the United States. International sales usually are
made by the Company's foreign subsidiaries and are denominated typically in
U.S. Dollars or British Pounds Sterling. However, the expense incurred by
foreign subsidiaries is denominated in the local currencies. The effect of
foreign exchange rate fluctuations on the Company in Fiscal 1999 was not
material.
Interest rates. The Company manages its interest rate risk by maintaining an
investment portfolio of available-for-sale instruments with high credit quality
and relatively short average maturities. These instruments include, but are not
limited to, money-market instruments, bank time deposits, and taxable and tax-
advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies, in
accordance with an investment policy approved by the Company's Board of
Directors. These instruments are denominated in U.S. dollars. The fair value of
securities at April 30, 1999 was approximately $27.3 million. Interest income
on the Company's investments is carried in "Other income/(expense)."
The Company also holds cash balances in accounts with commercial banks in
the United States and foreign countries. These cash balances represent
operating balances only and are invested in short-term time deposits of the
local bank. Such operating cash balances held at banks outside the United
States are denominated in the local currency.
Many of the Company's investments carry a degree of interest rate risk. When
interest rates fall, the Company's income from investments in variable-rate
securities declines. When interest rates rise, the fair market value of the
Company's investments in fixed-rate securities. In addition, the Company's
equity securities are subject to stock market volatility. Due in part to these
factors, the Company's future investment income may fall short of expectations
or the Company may suffer losses in principal if forced to sell securities
which have seen a decline in market value due to changes in interest rates. The
Company attempts to mitigate risk by holding fixed-rate securities to maturity,
but should its liquidity needs force it to sell fixed-rate securities prior to
maturity, the Company may experience a loss of principal.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The Statement will be effective for the Company
28
beginning June 15, 2000. The new Statement requires all derivatives to be
recorded on the balance sheet at fair value and establishes accounting
treatment for three types of hedges: hedges of changes in the fair value of
assets, liabilities, or firm commitments; hedges of the variable cash flows of
forecasted transactions; and hedges of foreign currency exposures of net
investments in foreign operations. The Company has not invested in derivative
instruments nor participated in hedging activities and therefore does not
anticipate there will be a material impact on the results of operations or
financial position from Statement No. 133.
In December 1998, the AICPA issued SOP No. 98-9, Modification of SOP No. 97-
2, Software Revenue Recognition, with Respect to Certain Transactions. This SOP
amends SOP No. 97-2 to, among other matters, require recognition of revenue
using the "residual method" in circumstances outlined in the SOP. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections
of SOP No. 97-2 and (2) the difference between the total arrangement fee and
the amount deferred for the undelivered elements is recognized as revenue
related to the delivered elements. SOP No. 98-9 is effective for fiscal years
beginning after March 15, 1999. The Company does not believe that the adoption
of SOP No. 98-9 will have a material effect on its revenue recognition.
Forward-Looking Statements
It should be noted that the foregoing discussion contains forward-looking
statements, which are subject to substantial risks and uncertainties. There are
a number of factors that could cause actual results to differ materially from
those anticipated by statements made herein. The timing of releases of the
Company's software products can be affected by client needs, marketplace
demands and technological advances. Development plans frequently change, and it
is difficult to predict with accuracy the release dates for products in
development. In addition, other factors, including 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 these products and
services, the effect of competitive products and pricing, and the irregular
pattern of revenues, as well as a number of other risk factors which could
affect 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, 1999 and 1998................. 30
Consolidated Statements of Operations for the Years ended April 30, 1999,
1998 and 1997............................................................ 31
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the Years ended
April 30, 1999, 1998 and 1997............................................ 32
Consolidated Statements of Cash Flows for the Years ended April 30, 1999,
1998 and 1997............................................................ 33
Notes to the Consolidated Financial Statements............................ 34
Independent Auditors' Report.............................................. 49
29
AMERICAN SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
April 30, 1999 and 1998
1999 1998
--------- -------
Assets
Current assets:
Cash and cash equivalents................................ $ 21,567 14,466
Investments.............................................. 27,297 45,757
Trade accounts receivable, less allowance for doubtful
accounts of $1,718 in 1999 and $1,222 in 1998:
Billed................................................. 17,534 20,309
Unbilled............................................... 3,539 7,091
Deferred income taxes.................................... 1,294 823
Refundable income taxes.................................. -- 1,117
Prepaid expenses and other current assets................ 1,759 2,577
--------- -------
Total current assets................................. 72,990 92,140
Property and equipment, less accumulated depreciation...... 16,542 17,189
Intangible assets, less accumulated amortization........... 16,248 31,812
Other assets............................................... 1,578 1,515
--------- -------
$ 107,358 142,656
========= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable......................................... $ 3,442 2,972
Accrued compensation and related costs................... 4,995 3,798
Other current liabilities................................ 8,230 4,824
Deferred revenue......................................... 16,298 17,283
--------- -------
Total current liabilities............................ 32,965 28,877
Long-term debt............................................. 950 --
Deferred income taxes...................................... 1,294 6,260
--------- -------
Total liabilities.................................... 35,209 35,137
--------- -------
Minority interests......................................... 4,952 6,709
Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares;
issued 19,469,405 shares in 1999 and 19,369,756 shares
in 1998............................................... 1,947 1,937
Class B, $.10 par value. Authorized 10,000,000 shares;
issued and outstanding 4,768,289 shares in 1999 and
4,798,289 shares in 1998; convertible into Class A
shares on a one-for-one basis......................... 477 480
Additional paid-in capital............................. 60,368 57,656
Other comprehensive income............................. 244 273
Retained earnings...................................... 20,408 53,225
Class A treasury stock, 2,603,823 and 1,428,427 shares
as of April 30, 1999 and 1998, respectively........... (16,247) (12,761)
--------- -------
Total shareholders' equity........................... 67,197 100,810
--------- -------
Commitments and contingencies
$ 107,358 142,656
========= =======
See accompanying notes to consolidated financial statements.
30
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Years ended April 30, 1999, 1998, and 1997
1999 1998 1997
----------- ---------- ----------
Revenues:
License fees............................ $ 19,602 33,548 30,106
Services................................ 63,572 50,090 32,595
Maintenance............................. 26,003 23,834 22,010
----------- ---------- ----------
Total revenues........................ 109,177 107,472 84,711
----------- ---------- ----------
Cost of revenues:
License fees............................ 8,254 8,182 6,754
Services................................ 45,344 33,439 27,410
Maintenance............................. 10,337 7,642 7,972
----------- ---------- ----------
Total cost of revenues................ 63,935 49,263 42,136
----------- ---------- ----------
Research and development costs, net....... 11,511 12,112 7,343
Marketing and sales expense............... 28,859 25,915 20,811
General and administrative expenses....... 14,427 11,354 12,019
Provision for doubtful accounts........... 1,880 176 721
Charge for asset impairment and purchased
R&D...................................... 26,563 -- --
----------- ---------- ----------
Operating earnings (loss)............. (37,998) 8,652 1,681
Other income (expense):
Interest income......................... 2,094 2,001 989
Minority interest....................... 1,396 (488) --
Other, net.............................. (75) 2,278 755
----------- ---------- ----------
Earnings (loss) before income taxes... (34,583) 12,443 3,425
Income tax expense (benefit).............. (1,766) 4,648 1,093
----------- ---------- ----------
Net earnings (loss)................... $ (32,817) 7,795 2,332
=========== ========== ==========
Net earnings (loss) per common share:
Basic................................... $ (1.48) 0.34 0.10
=========== ========== ==========
Diluted................................. $ (1.48) 0.32 0.10
=========== ========== ==========
Shares used in the calculation of net
earnings (loss)
per common share:
Basic................................... 22,230,656 22,667,283 22,353,192
=========== ========== ==========
Diluted................................. 22,230,656 24,414,515 23,525,532
=========== ========== ==========
See accompanying notes to consolidated financial statements.
31
AMERICAN SOFTWARE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years ended April 30, 1999, 1998, and 1997
Common stock
----------------------------------------- Accumulated
Class A Class B Additional other Total
--------------------- ------------------- paid-in comprehensive Retained Treasury shareholders'
Shares Amount Shares Amount capital income earnings stock equity
---------- ---------- --------- -------- ---------- ------------- ----------- ----------- -------------
Balance at April
30, 1996....... 18,769,083 $1,876,910 4,836,889 $483,689 30,776,204 (19,038) 43,097,649 (11,979,054) 64,236,360
Proceeds from
stock options
exercised at
$2.75 to $5.50
per share and
other stock
option
transactions... 182,243 18,224 -- -- 522,906 -- -- -- 541,130
Conversion of
Class B shares
into Class A
shares......... 21,600 2,160 (21,600) (2,160) -- -- -- -- --
Grants of
compensatory
stock options.. -- -- -- -- 18,084 -- -- -- 18,084
Issuance of 868
Class A shares
under Dividend
Reinvestment
and Stock
Purchase Plan.. -- -- -- -- -- -- -- 5,278 5,278
Net earnings.... -- -- -- -- -- -- 2,331,857 -- 2,331,857
Translation
adjustments.... -- -- -- -- -- 28,838 -- -- 28,838
Comprehensive
income for
fiscal 1997....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Balance at April
30, 1997....... 18,972,926 1,897,294 4,815,289 481,529 31,317,194 9,800 45,429,506 (11,973,776) 67,161,547
Proceeds from
issuance of
Logility, Inc.
subsidiary
common stock... -- -- -- -- 33,152,201 -- -- -- 33,152,201
Minority
interest
resulting from
issuance of
subsidiary
common stock... -- -- -- -- (6,969,866) -- -- -- (6,969,866)
Proceeds from
stock options
exercised at
$2.75 to $7.13
per share and
other stock
option
transactions... 379,830 37,983 -- -- 1,160,004 -- -- -- 1,197,987
Conversion of
Class B shares
into Class A
shares......... 17,000 1,700 (17,000) (1,700) -- -- -- -- --
Grants of
compensatory
stock options.. -- -- -- -- 11,586 -- -- -- 11,586
Repurchase of
98,900 Class A
shares......... -- -- -- -- -- -- -- (794,953) (794,953)
Repurchase of
205,300
Logility, Inc.
common shares.. -- -- -- -- (1,882,149) -- -- -- (1,882,149)
Decrease in
Minority
interest in
Subsidiary,
resulting from
purchase of
stock.......... -- -- -- -- 866,836 -- -- -- 866,836
Issuance of 724
Class A shares
under Dividend
Reinvestment
and Stock
Purchase Plan.. -- -- -- -- -- -- -- 8,000 8,000
Net earnings.... -- -- -- -- -- -- 7,795,281 -- 7,795,281
Translation
adjustments.... -- -- -- -- -- 263,768 -- -- 263,768
Comprehensive
income for
fiscal 1998....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Balance at April
30, 1998....... 19,369,756 1,936,977 4,798,289 479,829 57,655,806 273,568 53,224,787 (12,760,729) 100,810,238
Revised
presentation on
purchase of
Logility shares
from minority
interest....... -- -- -- -- 1,882,149 -- -- -- 1,882,149
Proceeds from
stock options
exercised at
$2.22 to $6.50
per share and
other stock
option
transactions... 69,649 6,963 -- -- 222,126 -- -- -- 229,089
Conversion of
Class B shares
into Class A
shares......... 30,000 3,000 (30,000) (3,000) -- -- -- -- --
Grants of
compensatory
stock options.. -- -- -- -- 24,319 -- -- -- 24,319
Repurchase of
1,179,000 Class
A shares....... -- -- -- -- -- -- -- (3,509,729) (3,509,729)
Issuance of
3,604 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan.. -- -- -- -- -- -- -- 23,316 23,316
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock.......... -- -- -- -- 583,500 -- -- -- 583,500
Net loss........ -- -- -- -- -- -- (32,817,060) -- (32,817,060)
Translation
adjustments.... -- -- -- -- -- (28,656) -- -- (28,656)
Comprehensive
income for
fiscal 1999....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Balance at April
30, 1999....... 19,469,405 $1,946,940 4,768,289 $476,829 60,367,900 244,912 20,407,727 (16,247,142) 67,197,166
========== ========== ========= ======== ========== ======= =========== =========== ===========
Comprehensive
income
--------------
Balance at April
30, 1996.......
Proceeds from
stock options
exercised at
$2.75 to $5.50
per share and
other stock
option
transactions...
Conversion of
Class B shares
into Class A
shares.........
Grants of
compensatory
stock options..
Issuance of 868
Class A shares
under Dividend
Reinvestment
and Stock
Purchase Plan..
Net earnings.... $ 2,331,857
Translation
adjustments.... 28,838
--------------
Comprehensive
income for
fiscal 1997.... $ 2,360,695
==============
Balance at April
30, 1997.......
Proceeds from
issuance of
Logility, Inc.
subsidiary
common stock...
Minority
interest
resulting from
issuance of
subsidiary
common stock...
Proceeds from
stock options
exercised at
$2.75 to $7.13
per share and
other stock
option
transactions...
Conversion of
Class B shares
into Class A
shares.........
Grants of
compensatory
stock options..
Repurchase of
98,900 Class A
shares.........
Repurchase of
205,300
Logility, Inc.
common shares..
Decrease in
Minority
interest in
Subsidiary,
resulting from
purchase of
stock..........
Issuance of 724
Class A shares
under Dividend
Reinvestment
and Stock
Purchase Plan..
Net earnings.... $ 7,795,281
Translation
adjustments.... 263,768
--------------
Comprehensive
income for
fiscal 1998.... $ 8,059,049
==============
Balance at April
30, 1998.......
Revised
presentation on
purchase of
Logility shares
from minority
interest.......
Proceeds from
stock options
exercised at
$2.22 to $6.50
per share and
other stock
option
transactions...
Conversion of
Class B shares
into Class A
shares.........
Grants of
compensatory
stock options..
Repurchase of
1,179,000 Class
A shares.......
Issuance of
3,604 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan..
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock..........
Net loss........ $(32,817,060)
Translation
adjustments.... (28,656)
--------------
Comprehensive
income for
fiscal 1999.... $(32,845,716)
==============
Balance at April
30, 1999.......
See accompanying notes to consolidated financial statements.
32
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended April 30, 1999, 1998, and 1997
1999 1998 1997
--------- ------- -------
Cash flows from operating activities:
Net earnings (loss).............................. $ (32,817) 7,795 2,332
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Charge for asset impairment and purchased R&D.... 26,389 -- --
Depreciation and amortization.................... 9,580 10,072 8,113
Net loss (gain) on investments................... 833 (4,916) (635)
Loss on disposal of property..................... -- 258 --
Minority interest in net (loss) earnings of
subsidiary...................................... (1,396) 488 --
Equity in loss of investee....................... -- -- 575
Grants of compensatory stock options............. 24 12 18
Deferred income taxes............................ (5,437) 4,298 1,093
Changes in operating assets and liabilities:
Purchases of trading securities................. (3,471) (3,267) (242)
Proceeds from sale of trading securities........ 3,421 6,478 2,567
Proceeds from maturities of trading
securities..................................... 2,152 2,334 4,363
Accounts receivable............................. 6,641 (5,912) (6,429)
Prepaid expenses and other current assets....... 2,025 (581) (466)
Accounts payable and other liabilities.......... 5,610 (3,638) 2,338
Income taxes.................................... -- -- 93
Deferred revenue................................ (1,641) 3,565 2,211
--------- ------- -------
Net cash provided by operating activities...... 11,913 16,986 15,931
--------- ------- -------
Cash flows from investing activities:
Capitalized software development costs........... (10,902) (8,827) (9,898)
Purchased software............................... (93) (593) --
Purchase of majority interest in subsidiaries,
net of cash received............................ (1,929) -- --
Minority investment and additional funding in
business........................................ (857) (115) --
Purchases of property and equipment.............. (1,647) (2,640) (2,275)
Sales (purchases) of investments, net............ 15,534 (29,605) --
Purchases of common stock by subsidiary.......... (1,660) (1,882) --
--------- ------- -------
Net cash used in investing activities.......... (1,554) (43,662) (12,173)
--------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of Logility, Inc.
Subsidiary common stock......................... -- 33,152 --
Repurchases of common stock...................... (3,510) (787) --
Proceeds from Dividend Reinvestment Plan......... 23 -- 6
Proceeds from exercise of stock options.......... 229 1,198 541
--------- ------- -------
Net cash provided by (used in) financing
activities.................................... (3,258) 33,563 547
--------- ------- -------
Net change in cash and cash equivalents........ 7,101 6,887 4,305
Cash and cash equivalents at beginning of year.... 14,466 7,579 3,274
--------- ------- -------
Cash and cash equivalents at end of year.......... $ 21,567 14,466 7,579
========= ======= =======
Supplemental disclosures of cash paid during the
year for:
Income taxes..................................... $ 219 161 238
========= ======= =======
Interest......................................... $ 98 -- --
========= ======= =======
Supplemental disclosures of noncash operating,
investing, and financing activities:
Net assets acquired.............................. $ 2,579
=========
See accompanying notes to consolidated financial statements.
33
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999, 1998, and 1997
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of American
Software, Inc., its wholly owned subsidiaries and its majority-owned
subsidiaries (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company is engaged in the development, marketing, and support activities
of a broad range of computer business applications software. The Company's
operations are principally in the computer software industry with a network
management services business.
(b) Revenue Recognition
Commencing May 1, 1998, the Company adopted Statement of Position No. 97-2,
Software Revenue Recognition, and related interpretations. License fees in
connection with license agreements for standard proprietary and tailored
software are recognized upon delivery of the software provide collection is
considered probable and no significant obligations remain outstanding.
The percentage-of-completion method of accounting is utilized to recognize
revenue on products under development for fixed amounts. Progress under the
percentage-of-completion method is measured based on management's best estimate
of the cost of work completed in relation to the total cost of work to be
performed under the contract. Any estimated losses on products under
development for fixed amounts are immediately recognized in the consolidated
financial statements.
Revenue related to professional services, including network management and
education, is recognized as the related services are performed.
Deferred revenue represents advance payments to the Company by customers for
services and products.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
(d) Investments
Investments at April 30, 1999 and 1998 consist of money market funds, debt
securities, and marketable equity securities. The Company accounts for its
investments under the provisions of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS
115). Pursuant to the provisions of SFAS 115, the Company has classified its
investment portfolio as "trading" and "held-to-maturity" in 1999 and 1998.
"Trading" securities are bought and held principally for the purpose of selling
them in the near term and are recorded at fair value. Unrealized gains and
losses on trading securities are included in the determination of net earnings.
"Held-to-maturity" investments are recorded at amortized cost. No adjustment is
made for unrealized gains and losses on held-to-maturity investments.
(e) Property and Equipment
Property and equipment are recorded at cost. Depreciation of buildings,
computer equipment, and office furniture and equipment is calculated using the
straight-line method based upon estimated useful lives of 30 years, three to
five years, and five years, respectively. Leasehold improvements are amortized
using the straight-line method over the estimated useful lives of the assets or
the lease term, whichever is shorter.
34
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
(f) Intangible Assets
Capitalized Computer Software Development Costs. The Company capitalizes
certain computer software development costs in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Costs incurred internally
to create a computer software product or to develop an enhancement to an
existing product are charged to expense when incurred as research and
development expense until technological feasibility for the respective product
is established. Thereafter, all software development costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for general
release to customers. The Company makes ongoing evaluations of the
recoverability of its capitalized software projects by comparing the amount
capitalized for each product to the estimated net realizable value of the
product. If such evaluations indicate that the unamortized software development
costs exceed the net realizable value, the Company writes off the amount by
which the unamortized software development costs exceed net realizable value.
Capitalized computer software development costs are being amortized ratably
based on the projected revenue associated with the related software or on a
straight-line basis over three years, whichever method results in a higher
level of amortization.
Purchased Computer Software Costs, Goodwill, and Other Intangible
Assets. Purchased computer software costs, goodwill, and other intangibles are
amortized on a straight-line basis over the expected periods to be benefited,
generally three to seven years. The Company evaluates the recoverability of
these intangible assets at each period-end using the undiscounted estimated
future net operating cash flows expected to be derived from such assets. If
such an evaluation indicates a potential impairment, the Company uses the fair
value to determine the amount of these intangible assets that should be written
off. During 1999, goodwill additions of $1.4 million and $3.5 million relate to
the acquisition of New Generation Computing and the purchase of additional
interest in Logility, Inc., respectively.
Total Expenditures, Amortization, and Write-offs. Total expenditures for
capitalized computer software development costs, total research and development
expense, total amortization of capitalized computer software development costs,
total amortization of purchased computer software costs and write-off of
capitalized computer software costs are as follows:
Years ended April 30,
----------------------
1999 1998 1997
-------- ------ ------
(in thousands)
Total capitalized computer software development
costs............................................... $ 10,902 8,827 9,898
Total research and development expense............... 11,511 12,112 7,343
-------- ------ ------
Total research and development expense and
capitalized
computer software development costs................. $ 22,413 20,939 17,241
-------- ------ ------
Total amortization of capitalized computer software
development costs................................... $ 6,104 6,706 4,700
-------- ------ ------
Total amortization of purchased computer software
costs
and goodwill........................................ $ 924 560 734
-------- ------ ------
Write-off of capitalized software costs as a result
of net
realizable value analyses........................... $ 24,152 -- --
======== ====== ======
35
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
(h) Income Taxes
The Company accounts for income taxes using the asset and liability method
of Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, ("SFAS No. 109"). Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forward. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(i) Net Earnings (Loss) Per Common Share
On January 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"), which prescribes the
calculation methodology and financial reporting requirements for basic and
diluted earnings per share. Basic earnings (loss) per common share available to
common shareholders are based on the weighted-average number of Class A and B
common shares outstanding, since the Company considers the two classes of
common stock as one class for the purposes of the per share computation.
Diluted earnings (loss) per common share available to common shareholders are
based on the weighted-average number of common shares outstanding and dilutive
potential common shares, such as dilutive stock options. All prior period net
earnings (loss) data presented in these consolidated financial statements have
been restated to conform to the provisions of SFAS 128.
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the consolidated financial
statements and revenues and expenses for reporting periods to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
(k) Impairment of Long-Lived Assets
On April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of ("SFAS No. 121"). SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles held and used by a
company be reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles held for sale, other than those related to
discontinued operations, be reported at the lower of carrying amount or fair
value less cost to sell. The Company's adoption of SFAS No. 121 did not have an
impact on its consolidated financial statements.
(l) Stock Compensation Plans
Prior to May 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board APB Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would generally be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. On May 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"),
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
36
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures under
the provisions of SFAS No. 123.
(m) Sales of Subsidiary Stock
The Company has elected to record gains and losses from sales of subsidiary
stock as a component of equity.
(n) Reclassifications
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform to the presentation adopted in 1999.
(o) Comprehensive Income
On May 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and foreign translation
adjustments and is presented in the consolidated statements of shareholders'
equity and comprehensive income. The statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
(2) Investments
Investments consist of the following:
April 30,
---------------
1999 1998
-------- ------
(in thousands)
Trading
Debt securities:
U.S. Treasury securities................................... $ 606 500
Tax-exempt state and municipal bonds....................... 5,585 8,027
-------- ------
Total debt securities.................................... 6,191 8,527
Equity securities............................................ 7,082 7,671
-------- ------
$ 13,273 16,198
======== ======
April 30, 1999
--------------------------
Unrealized
Carrying Fair gain
value value (loss)
-------- ------ ----------
(in thousands)
Held-to-maturity
Commercial paper.................................. $ 5,229 5,236 7
Corporate bonds................................... 8,795 8,780 (15)
------- ------ ---
$14,024 14,016 (8)
======= ====== ===
37
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
April 30, 1998
--------------------------
Carrying Fair Unrealized
value value gain
-------- ------ ----------
(in thousands)
Held-to-maturity
Certificate of deposit........................... $ 500 500 --
Asset-backed note................................ 1,500 1,500 --
Commercial paper................................. 11,182 11,229 47
Corporate bonds.................................. 16,377 16,520 143
-------- ------ ---
$ 29,559 29,749 190
======== ====== ===
The total carrying value of all investments on a consolidated basis was
$27,287,000 and $45,757,000 at April 30, 1999 and 1998, respectively. All
investments mature within a one year period.
In 1999 and 1998, the Company's investment portfolio of trading securities
experienced net unrealized holding gains (losses) of approximately $(878,000)
and $2,244,000, respectively, which have been included in other income, net in
the 1999 and 1998 consolidated statements of operations.
At April 30, 1999, 97% of the tax-exempt state and municipal bonds related
to state and municipal governments and authorities in Georgia.
(3) Fair Value of Financial Instruments
The Company's financial instruments, excluding investments, consisted of
cash; trade accounts receivable and unbilled accounts receivable; refundable
income taxes; accounts payable; accrued compensation and related costs; accrued
royalties; other current liabilities; and deferred revenue. These
aforementioned financial instruments carrying amounts approximate fair value
because of the short maturity of those instruments. For the Company's
investments classified as "trading," the carrying value represents fair value.
See note 2 for the fair value of the Company's investments classified as "held-
to-maturity."
38
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
(4) Property and Equipment
Property and equipment consist of the following at April 30, 1999 and 1998
(in thousands):
1999 1998
------- ------
Buildings and leasehold improvements.......................... $20,670 20,089
Computer equipment............................................ 20,399 19,107
Office furniture and equipment................................ 4,573 4,632
------- ------
45,642 43,828
Less accumulated depreciation and amortization................ 29,100 26,639
------- ------
$16,542 17,189
======= ======
(5) Intangible Assets
Intangible assets consist of the following at April 30, 1999 and 1998 (in
thousands):
1999 1998
------- ------
Capitalized computer software development costs............... $46,472 68,882
Purchased computer software costs............................. 6,356 6,272
Goodwill...................................................... 4,969 1,097
------- ------
57,797 76,251
Less accumulated amortization................................. 41,549 44,439
------- ------
$16,248 31,812
======= ======
(6) Income Taxes
Income tax expense (benefit) consists of the following:
Years ended April
30,
--------------------
1999 1998 1997
------- ----- -----
(in thousands)
Current:
Federal............................................... $ 3,453 150 --
State................................................. 218 200 --
------- ----- -----
$ 3,671 350 --
------- ----- -----
Deferred:
Federal............................................... $(4,862) 3,838 949
State................................................. (575) 460 144
------- ----- -----
(5,437) 4,298 1,093
------- ----- -----
$(1,766) 4,648 1,093
======= ===== =====
39
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
The Company's effective income tax rate of 5%, 37%, and 32% for the years
ended April 30, 1999, 1998, and 1997, respectively, differs from the "expected"
income tax expense (benefit) for those years calculated by applying the Federal
statutory rate of 34% to earnings (loss) before income taxes as follows:
Years ended April
30,
----------------------
1999 1998 1997
-------- ----- -----
(in thousands)
Computed "expected" income tax expense (benefit)....... $(11,758) 4,231 1,164
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax
effect.............................................. (235) 504 96
Foreign taxes paid................................... -- -- 182
Foreign tax (credits)................................ 650 -- (182)
Tax-exempt interest income........................... (160) (250) (280)
Change in the beginning-of-the year balance of the
valuation allowance for deferred tax assets
allocated to income tax benefit..................... 4,416 -- --
Gain on investments not recognized for tax purposes.. -- 163 113
Estimated liabilities................................ 3,020
Permanent differences................................ 1,310 -- --
Other................................................ 992 -- --
-------- ----- -----
$ (1,766) 4,648 1,093
======== ===== =====
Estimated liabilities for tax issues principally relate to tax authority
examinations and other matters. Permanent difference are primarily derived from
a non-deductible in-process research and development charge and amortization of
goodwill.
The significant components of deferred income tax expense attributable to
earnings (loss) before income taxes for the years ended April 30, 1999, 1998,
and 1997 are as follows:
Years ended April
30,
--------------------
1999 1998 1997
------- ----- -----
(in thousands)
Deferred tax (benefit) expense............................. $(9,853) 4,298 1,093
Increase in beginning-of-the year balance of the
valuation allowance for deferred tax assets............... 4,416 -- --
------- ----- -----
$(5,437) 4,298 1,093
======= ===== =====
40
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
1999 and 1998, are presented as follows:
April 30,
----------------
1999 1998
------- -------
(in thousands)
Deferred tax assets:
Expenses, due to accrual for financial reporting purposes.. $ 1,677 1,776
Accounts receivable, due to allowance for doubtful
accounts.................................................. 690 463
Compensation expense related to grants of nonqualified
stock options............................................. 189 189
Net operating loss carryforwards........................... 7,523 5,296
Foreign tax credit carryforwards........................... 777 1,791
Intangible asset amortization.............................. 922 --
Other...................................................... 720 328
------- -------
Total gross deferred tax assets.......................... 12,498 9,843
Less valuation allowance................................... (6,396) (1,980)
------- -------
Net deferred tax assets.................................. 6,102 7,863
------- -------
Deferred tax liabilities:
Capitalized computer software development costs............ (4,396) (11,505)
Property and equipment, primarily due to differences in
depreciation.............................................. (584) (379)
Gain on investments not recognized for tax purposes........ (1,012) (1,416)
Other...................................................... (110) --
------- -------
Total gross deferred tax liabilities..................... (6,102) (13,300)
------- -------
Net deferred tax liability............................... $ -- (5,437)
======= =======
Refundable income taxes arose primarily from the 1995 taxable losses that
were carried back to earlier profitable years to recover income taxes
previously paid.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon
reversal of deferred tax liabilities, management believes it is more likely
than not the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances at April 30, 1999 and 1998.
At April 30, 1999, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $20.0 million, which are available
to offset future federal taxable income, if any, through fiscal 2019. In
addition, the Company has foreign tax credit carry forwards for federal income
tax purposes of approximately $777,000, which are available to offset future
federal income taxes pursuant to the income tax laws. Such credits expire in
varying amounts through fiscal 2002.
(7) Acquisitions
In July 1998, the Company purchased an 80% majority interest in New
Generation Computing, a company which specializes in accounting and
manufacturing control software for the sewn goods industry (apparel, handbags,
shoes, hats, etc.). This investment was accounted for based on the purchase
accounting method with
41
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
the results of operations included from the date of acquisition. Of the $2.6
million purchase price, the Company acquired $1.2 million in current assets,
$1.8 million in liabilities (including long-term debt of $950,000) and
purchased research and development of $1.8 million, which was expensed upon
acquisition. The related goodwill of $1.4 million is being amortized over a
seven-year period.
In January 1996, the Company acquired a 60% interest in Intellimedia
Commerce, Inc., a company which builds and maintains systems for commerce on
the Internet, for $850,000. In April 1998, the Company acquired an additional
3% interest in Intellimedia for $115,000. To maintain its majority ownership
interest, in May 1998 and August 1998, the Company invested an additional
$58,450 and $108,150 respectively. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations have been included since
the date of acquisition. The related minority interest is not significant.
In March 1995, the Company acquired a 30% interest in TXbase Systems, Inc.,
a client/server-based software company, for approximately $827,000. This
investment was accounted for under the equity method. The excess investment
over the underlying equity in net assets was amortized using the straight-line
method over a period of five years. In January 1997, the Company wrote off the
remaining balance of this investment.
(8) Long-term Debt
During 1999, long-term debt was assumed in the acquisition of New Generation
Computing and consists of several notes payable. The interest rates on the
notes range from 10% to 15% and is paid monthly. Approximately $500,000 matures
on December 31, 2002 and the remaining balance of $450,000 matures on December
31, 2005.
(9) Shareholders' Equity
Certain Class A and Class B Common Stock Rights
Except for the election or removal of Directors and class votes as required
by law or the Articles of Incorporation, holders of both classes of common
stock vote as a single class on all matters with each share of Class A common
stock entitled to cast one-tenth vote per share and each share of Class B
common stock entitled to cast one vote per share. Neither has cumulative voting
rights. Holders of Class A common stock, as a class, are entitled to elect 25%
of the Board of Directors (rounded up to the nearest whole number of Directors)
if the number of outstanding shares of Class A common stock is at least 10% of
the number of outstanding shares of both classes of common stock. No cash or
property dividend may be paid to holders of shares of Class B common stock
during any fiscal year of the Company unless a dividend of $.05 per share has
been paid in such year on each outstanding share of Class A common stock. This
$.05 per share annual dividend preference is non-cumulative. Dividends per
share of Class B common stock during any fiscal year may not exceed dividends
paid per share of Class A common stock during each year. Each share of Class B
common stock is convertible at any time into one share of Class A common stock
at the option of the shareholder. Class A and B shares are considered as one
class for purpose of the earnings (loss) per share computation.
Employee Stock Purchase Plans
In December 1998 the Company began an Employee Stock Purchase Plan that
offers employees the right to purchase shares of the Company's common stock at
85% of the market price, as defined, pursuant to the Employee Stock Purchase
Plan (the "Purchase Plan"). Under the Purchase Plan, full-time employees,
except persons owning 5% or more of the Company's common stock, are eligible to
participate after one month of
42
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
employment. Employees may contribute up to 15% of their annual salary toward
the Purchase Plan up to a maximum of $15,000 per year. Common stock is
purchased in the open market on behalf of the participants. The Company
contributes to the purchase price in order to provide for the 15% discount to
market price. A maximum of 400,000 shares of common stock may be purchased
under the Purchase Plan. During the fiscal year ended April 30, 1999 shares
issued under the Purchase Plan were 23,462.
In November 1998 Logility Inc, a subsidiary of the Company, began an
Employee Stock Purchase Plan that offers employees the right to purchase shares
of the Logility's common stock at 85% of the market price, as defined, pursuant
to the Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase
Plan, full-time employees, except persons owning 5% or more of Logility's
common stock, are eligible to participate after one month of employment.
Employees may contribute up to 15% of their annual salary toward the Purchase
Plan up to a maximum of $15,000 per year. A maximum of 200,000 shares of common
stock may be purchased under the Purchase Plan. Common stock is purchased in
the open market on behalf of the participants. The Company contributes to the
purchase price in order to provide for the 15% discount to market price. During
the fiscal year ended April 30, 1999 shares issued under the Purchase Plan were
12,874.
Stock Option Plans
In fiscal 1992, the Company discontinued issuing options under its Incentive
Stock Option Plan and its Nonqualified Stock Option Plan. There were 38,725
options outstanding under these plans at April 30, 1999. These plans were
replaced with the 1991 Employee Stock Option Plan ("1991 Plan") and the
Director and Officer Stock Option Plan ("D and O Plan"). Under the 1991 Plan,
the Board of Directors is authorized to grant key employees options to purchase
up to 3.6 million shares of Class A common stock, plus any shares granted under
the terminated plans that terminate or expire without being wholly exercised.
These options vest in four equal annual installments commencing one year
from the effective date of grant. All options must be exercised within ten
years of the effective date of grant, but will expire sooner if the optionee's
employment terminates. Under the D and O Plan, the Board of Directors is
authorized to grant directors and officers options to purchase up to 1.0
million shares of Class A common stock. These options typically are exercisable
based upon the terms of such options up to 10 years after the date of grant,
but will expire sooner if the optionee's employment terminates. Additionally,
both the 1991 Plan and D and O Plan can issue either incentive stock options or
nonqualified stock options. Both the 1991 Plan and D and O Plan will terminate
on May 13, 2001.
Incentive and nonqualified options exercisable at April 30, 1999 are
1,168,902 and 241,325 shares, respectively. Options available for grant at
April 30, 1999, for the 1991 Plan and D and O Plan, are 69,838 and 681,313
shares, respectively.
Effective August 7, 1997, Logility, Inc., a subsidiary of the Company,
adopted the Logility, Inc. 1997 Stock Plan ("Subsidiary Stock Plan"). The
Subsidiary Stock Plan provides for grants of incentive stock options and
nonqualified stock options to certain key employees and directors of Logility,
Inc. The Subsidiary Stock Plan also allows for stock appreciation rights in
lieu of or in addition to stock options. Options to purchase a maximum of 1.2
million shares of common stock and a maximum of 300,000 units of Stock
Appreciation Rights ("SARs"), as defined, may be granted under the Subsidiary
Stock Plan. The options and SARs generally vest over a four-year period. The
terms of the options generally are for ten years, and the terms of the SARs
generally are for five years.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for
43
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
the Company's stock-based compensation plans been determined consistent with
SFAS No. 123, the Company's net earnings (loss) and diluted earnings (loss) per
share would have been reduced to the pro forma amounts indicated below
(including amount for Subsidiary Stock Plan).
Years ended April
30,
---------------------
1999 1998 1997
-------- ----- -----
(in thousands,
except per share
data)
Net earnings (loss):
As reported............................................. $(32,817) 7,795 2,332
Pro forma............................................... (36,076) 4,721 1,040
Diluted earnings (loss) per share:
As reported............................................. (1.48) .32 .10
Pro forma............................................... (1.62) .19 .04
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
1999 1998 1997
------- ------- -------
Dividend yield....................................... 0% 0% 0%
Expected volatility.................................. 85.9% 62.1% 211.9%
Risk-free interest rate.............................. 5.6% 5.6% 6.1%
Expected life........................................ 8 years 8 years 8 years
Pro forma net earnings (loss) reflects only options granted in years 1996 to
1999. Therefore, the full effect of calculating compensation cost for stock
options under SFAS 123 is not reflected in the pro forma net earnings (loss)
and related per share amounts presented above because compensation cost is
reflected over the vesting period of the options and compensation cost for
options granted prior to May 1, 1995 is not considered.
A summary of the status of the Company's stock option plans as of April 30,
1999, 1998, and 1997, and changes during the years ended on those dates is
presented below:
1999 1998 1997
---------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
average average average
Fixed options Shares price Shares price Shares price
------------- ----------- --------- ---------- --------- ---------- ---------
Outstanding at beginning
of year................ 3,283,204 $4.84 2,990,234 $3.75 2,611,818 $3.27
Granted................. 2,756,668 3.13 1,079,325 7.34 856,960 5.12
Exercised............... (69,649) 3.29 (379,830) 3.18 (182,243) 6.12
Forfeited/canceled...... (2,551,427) 5.39 (406,525) 4.91 (296,301) 3.62
----------- ---------- ----------
Outstanding at April 30,
1999................... 3,418,796 3.10 3,283,204 4.84 2,990,234 3.75
=========== ========== ==========
Options exercisable at
year-end............... 1,410,227 1,347,694 1,001,956
=========== ========== ==========
Weighted-average fair
value of
options granted during
the year............... $ 1.43 $ 5.56 $ 5.09
=========== ========== ==========
44
AMERICAN SOFTWARE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
The following table summarizes information about fixed stock options
outstanding at April 30, 1999:
Options outstanding Options exercisable
----------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Range of Number average average Number average
exercise outstanding remaining exercise exercisable exercise
prices at April 30, 1999 contractual life price at April 30, 1999 price
-------------- ----------------- ---------------- --------- ----------------- ---------
$ 1.69 - 3.38 2,953,646 8.0 $2.73 1,051,803 $2.78
3.38 - 6.75 378,825 6.7 4.49 283,924 4.48
6.75 - 15.19 86,325 6.0 9.70 74,500 9.92
--------- ---------
3,418,796 7.8 $3.10 1,410,227 $3.50
========= ===== ========= =====
A summary of the status of the Subsidiary's Stock Plan as of April 30, 1999
and 1998, and changes during the years then ended is presented below:
1999 1998
----------------------- ----------------------
Weighted- Weighted-
Fixed options Shares average price Shares average price
------------- -------- ------------- ------- -------------
Outstanding at beginning of
year........................... 262,070 $12.96 -- $ --
Granted......................... 600,130 2.93 267,890 12.97
Exercised....................... -- -- -- --
Forfeited/canceled.............. (306,754) 8.78 (5,820) 13.67
-------- -------
Outstanding at April 30, 1999... 555,446 4.22 262,070 12.96
======== ====== ======= ======
Options exercisable at April 30,
1999........................... 28,150 11.76 16,000 13.22
======== ====== ======= ======
Weighted-average fair value of
options
granted during the year........ 1.71 10.74
====== ======
The following table summarizes information about fixed stock options
outstanding at April 30, 1999 under the Subsidiary Stock Plan:
Options outstanding Options exercisable
----------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Range of Number average average Number average
exercise outstanding remaining exercise exercisable exercise
prices at April 30, 1998 contractual life price at April 30, 1998 price
-------------- ----------------- ---------------- --------- ----------------- ---------
$ 2.75 - 5.00 491,210 9.4 2.91 6,000 3.65
5.01 - 15.13 64,236 8.4 14.23 22,150 13.96
------- ------
555,446 9.3 $ 4.22 28,150 $11.76
======= ====== ====== ======
In August 1998 the Company offered an option repricing program to its
employees. Under the terms of the program, the opportunity was offered to
employees to cancel any outstanding option grant in its entirety and replace it
on a share-for-share basis with an option grant bearing an exercise price equal
to the fair market value of the Company's stock at the new grant date. Newly
issued option grants generally have a term of ten years and vesting occurs
ratably over four years beginning on the new grant date. A total of 1,775,968
options were repriced under this program.
45
AMERICAN SOFTWARE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
In September 1998 Logility, Inc, the Company's subsidiary, offered a similar
option repricing program to its non-executive employees. Under the terms of the
program, the opportunity was offered to employees to cancel any outstanding
option grant in its entirety and replace it on a share-for-share basis with an
option grant bearing an exercise price equal to the fair market value of the
Company's stock at the new grant date. Newly issued option grants have a term
of ten years and vesting occurs ratably over four years beginning on the new
grant date. A total of 136,280 options were repriced under this program.
(10) International Revenues
International revenues approximated $11.4 million or 10%, $10.1 million or
9%, and $8.3 million or 10% of consolidated revenues for the years ended April
30, 1999, 1998, and 1997, respectively, and were primarily from customers in
Canada and Europe.
(11) Commitments
Leases
The Company leases an office facility from a partnership controlled by the
two Class B shareholders, under an operating lease that by its term expired
December 31, 1996. An extension of that lease, on a month-to-month basis, has
been approved by the Board of Directors, pending negotiation of a new long-term
lease. Amounts expensed under this lease for the years ended April 30, 1999,
1998, and 1997 approximated $300,000, $300,000, and $274,000, respectively.
The Company leases other office facilities, certain office equipment, and
computer equipment under various operating leases expiring through 2003. Rental
expense for these operating leases approximated $5.5 million, $4.8 million, and
$3.6 million for the years ended April 30, 1999, 1998, and 1997, respectively.
Approximate aggregate minimum annual rentals under all long-term,
noncancellable, operating leases are as follows:
Years ending April 30, (in thousands)
---------------------- -------------
2000.......................... $ 3,556
2001.......................... 1,401
2002.......................... 594
2003.......................... 87
-------
$ 5,638
=======
401(k) Profit Sharing Plan
The Company has a profit sharing plan covering all employees with at least
12 months of service. The Company's contribution to the plan is determined by
the Board of Directors, and is limited to a maximum of fifteen percent (15%) of
the compensation (as defined) of the participating employees during the
Company's fiscal year, and is payable only out of the annual net earnings or
accumulated earnings of the Company. Participants in the plan are entitled, but
not required, to contribute a maximum of 15% of their annual compensation to
the plan. The Company did not make contributions for 1999, 1998, or 1997.
(12) Contingencies
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse affect on the financial position or
results of operations of the Company.
46
AMERICAN SOFTWARE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
APRIL 30, 1999, 1998 and 1997
(13) Sale of Common Stock of Subsidiary
In October 1997, Logility, Inc., a wholly owned subsidiary of the Company,
sold 2,200,000 shares of its unissued common stock in an initial public
offering. Proceeds from the offering were $31.9 million, less underwriters'
commissions, and other expenses of approximately $3.1 million. In November
1997, Logility, Inc. sold 330,000 shares of common stock as part of the
underwriters' overallotment from the initial public offering for $4.8 million
less issuance costs of approximately $400,000. As a result of the offering
combined with the Company's subsequent purchase of Logility, Inc.'s common
stock, the Company's ownership percentage of the wholly owned subsidiary was
84% at April 30, 1999.
(14) Segment information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information". SFAS 131 establishes standards for
the way public business enterprises are to report information about the
operating segments in annual financial statements and requires those
enterprises to report selected financial information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers.
On February 1, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information". The Company operates and manages its business in two
segments based on software and services provided in two key product markets,
Enterprise Resource Planning (ERP), which automates customers' internal
financial, human resources, and manufacturing functions, and Supply Chain
Planning (SCP), which provides planning and execution software to streamline
customers' interactions with suppliers. Intersegment charges are based on
marketing and general administration services provided to the SCP segment by
the ERP segment.
47
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
April 30, 1999, 1998, and 1997
1999 1998 1997
-------- ------- ------
(in thousands)
Revenues:
Enterprise resource planning...................... $ 82,160 72,810 62,887
Supply chain planning............................. 27,017 34,662 21,824
-------- ------- ------
Total........................................... $109,177 107,472 84,711
======== ======= ======
Operating income before intersegment eliminations:
Enterprise resource planning...................... $(28,719) 6,933 3,635
Supply chain planning............................. (9,279) 1,719 (1,954)
-------- ------- ------
Total........................................... $(37,998) 8,652 1,681
======== ======= ======
Intersegment eliminations:
Enterprise resource planning...................... $ (2,131) (2,505) --
Supply chain planning............................. 2,131 2,505 --
-------- ------- ------
Total........................................... $ -- -- --
======== ======= ======
Operating income after intersegment eliminations:
Enterprise resource planning...................... $(30,850) 4,428 3,635
Supply chain planning............................. (7,148) 4,224 (1,954)
-------- ------- ------
Total........................................... $(37,998) 8,652 1,681
======== ======= ======
Identifiable assets:
Enterprise resource planning...................... $ 66,680 91,826 83,142
Supply chain planning............................. 40,678 50,830 16,367
-------- ------- ------
Total........................................... $107,358 142,656 99,509
======== ======= ======
Capital expenditures:
Enterprise resource planning...................... $ 957 1,862 1,694
Supply chain planning............................. 783 1,371 581
-------- ------- ------
Total........................................... $ 1,740 3,233 2,275
======== ======= ======
Capitalized Software:
Enterprise resource planning...................... $ 6,950 5,658 7,103
Supply chain planning............................. 3,952 3,169 2,795
-------- ------- ------
Total........................................... $ 10,902 8,827 9,898
======== ======= ======
Depreciation and amortization:
Enterprise resource planning...................... $ 5,718 5,335 4,855
Supply chain planning............................. 3,862 4,737 3,258
-------- ------- ------
Total........................................... $ 9,580 10,072 8,113
======== ======= ======
48
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Software, Inc.:
Under date of June 23, 1999, we reported on the consolidated balance sheets
of American Software, Inc. and subsidiaries as of April 30, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended April 30, 1999,
which are included in the April 30, 1999, annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule included in the Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Atlanta, Georgia
June 23, 1999
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
Name Age Position
---- --- --------
James C. Edenfield............. 64 President, Chief Executive Officer,
Treasurer and Director;
Director of Logility, Inc.
Thomas L. Newberry............. 66 Chairman of the Board of Directors
David H. Gambrell.............. 69 Director
Thomas R. Williams............. 70 Director
Executive Vice President, President and
J. Michael Edenfield........... 41 Director of Logility, Inc.
Senior Vice President, General Manager--
Paul Di Bono, Jr............... 60 Enterprise Division
Chief Financial Officer and Senior Vice
James M. Modak................. 42 President
Vincent C. Klinges............. 36 Vice President--Finance
James R. McGuone............... 52 Secretary
All directors hold office until the next annual meeting of the shareholders
of the Company. Executive officers of the Company are elected annually and
serve at the pleasure of the Board of Directors.
Mr. James C. Edenfield is a co-founder of the Company and has served as
Chief Executive Officer since November, 1989, and as Co-Chief Executive Officer
for more than five years prior to that time. He has been a Director since 1971.
Prior to founding the Company, Mr. Edenfield held several executive positions
and was a director of Management Science America, Inc., an applications
software development and sales company. He holds a Bachelor of Industrial
Engineering degree from the Georgia Institute of Technology. Mr Edenfield also
serves as director of Logility, Inc., a majority owned subsidiary of the
Company.
Dr. Newberry is a co-founder of the Company and has served as its Chairman
of the Board since November 1989, and was Co-Chief Executive Officer prior to
that for more than five years. He has been a Director since 1971. Prior to
founding the Company, he held executive positions with several companies
engaged in computer systems analysis and software development and sales
including Management Science America, Inc., where he was also a director. Dr.
Newberry holds Bachelor, Master of Science, and Ph.D. degrees in Industrial
Engineering from the Georgia Institute of Technology.
Mr. Gambrell has served as a Director of the Company since January, 1983. He
has been a practicing attorney since 1952, and is a partner with the law firm
of Gambrell & Stolz, L.L.P., counsel to the Company. He served as a member of
the United States Senate from the State of Georgia in 1971 and 1972. Mr.
Gambrell holds a Bachelor of Science degree from Davidson University and a J.D.
degree from the Harvard Law School.
Mr. Williams has served as a Director of the Company since April, 1989. He
is currently the President of the Wales Group, Inc., a closely-held corporation
engaged in investments and venture capital, and has held such position since
1987. He was a director of Southern Bell Corporation from 1980 to 1983 and is a
Former Chairman of the Board of First Wachovia Corporation, First National Bank
of Atlanta and First Atlanta Corporation. He holds a Bachelor of Science degree
in Industrial Engineering from the Georgia Institute of Technology and a Master
of Science degree in Industrial Management from the Massachusetts Institute of
Technology.
50
Mr. J. Michael Edenfield has served as Executive Vice President since June,
1994. In January, 1997, Mr. Edenfield was elected to President of Logility,
Inc, a majority owned subsidiary of the Company. Mr Edenfield also serves as
director of Logility, Inc. From June 1994 to October 1997, he served as Chief
Operating Officer of the Company. Prior to holding that position, he served as
Senior Vice President of North American Sales and Marketing of American
Software USA, Inc. from July, 1993 to June, 1994, as Senior Vice President of
North American Sales from August, 1992 to July, 1993, as Group Vice President
from May, 1991 to August, 1992 and as Regional Vice President from May, 1987 to
May, 1991. Mr. Edenfield holds a Bachelor of Industrial Management degree from
the Georgia Institute of Technology. Mr. Edenfield is the son of James
C. Edenfield, Chief Executive Officer of the Company.
Mr. Di Bono joined the Company in January 1982 and in July 1993 was elected
Senior Vice President and General Manager for the Enterprise Division (formerly
known as the Midrange Division). Prior to that time, he served as Vice
President for Marketing since December, 1985. Mr. Di Bono holds a B.S. degree
in industrial psychology/business administration from Iowa State University.
James M. Modak has served as Chief Financial Officer and Senior Vice
President of the Company since June 1999. Mr. Modak has served and continues to
serve as Chief Financial Officer and Senior Vice President of Logility, Inc.,
the Company's subsidiary from August 1997. From January 1996 to July 1997, Mr.
Modak served as Senior Vice President--Finance of Total System Services, Inc.,
a New York Stock Exchange-listed credit card processing company. From September
1993 to January 1996, Mr. Modak served as Senior Vice President--Financial
Analysis of First Financial Management Corp., a financial services processing
company. From February 1993 to August 1993 he was Chief Financial Officer of
Shop N Chek, a quality service provider for the retail industry. From July 1991
to February 1993, Mr. Modak was Senior Vice President--Controller of DF
Southeastern, Inc., a savings bank holding company. From 1979 to 1991 he was a
CPA with KPMG LLP. Mr. Modak is a Certified Public Accountant with a Bachelor
of Business Administration degree from the University of Notre Dame.
Mr. Klinges joined the Company in February, 1998 as Vice President of
Finance. From July 1995 to February 1998, Mr. Klinges was employed by Indus
International, Inc. (formerly known as TSW International, Inc.), as Controller.
From November 1986 to July 1995, Mr. Klinges held various positions with Dun &
Bradstreet, Inc. including as Controller of Sales Technologies, a software
division of Dun & Bradstreet Inc. Mr. Klinges holds a Bachelor of Business
Administration from St. Bonaventure University.
Mr. McGuone was elected the Secretary of the Company in May, 1988. He has
been a practicing attorney since 1972, and is a partner with the law firm of
Gambrell & Stolz, L.L.P., counsel to the Company. Mr. McGuone holds a B.A.
degree from Pennsylvania State University and a J.D. degree from Fordham
University School of Law.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors and holders of more than 10% of the Common Stock are
required by regulations promulgated by the Commission pursuant to the Exchange
Act to furnish the Company with copies of all Section 16(a) forms they file.
The Company assists officers and directors in complying with the reporting
requirements of Section 16(a) of the Exchange Act.
Based upon review of filings made under Section 16(a) of the Exchange Act,
not all of the reports required to be filed during fiscal 1999 were filed on a
timely basis. The Company is aware of the following reports that were filed
with the Commission by a director of the Company after their respective due
dates: Thomas R. Williams and Dr. Thomas L. Newberry (annual statements of
beneficial ownership). Based upon its review of copies of filing received by
it, the Company believes that since May 1, 1998 all other Section 16(a) filing
requirements applicable to its directors, officers and greater than 10%
beneficial owners were complied with.
51
ITEM 11. EXECUTIVE COMPENSATION
This information is set forth under the caption "Certain Information
Regarding Executive Officers and Directors" in the Company's 1999 Proxy
Statement (the "Proxy Statement"), which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is set forth under the caption "Voting Securities--Security
Ownership" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Logility, Inc. and Certain Transactions
On October 10, 1997, the Company completed an initial public offering of
2,200,000 shares of common stock in its subsidiary, Logility, Inc.
("Logility"). Prior to that time, Logility was a wholly owned subsidiary of the
Company, operating as the supply chain planning software group, warehouse
management software group and transportation management group. In anticipation
of such offering, the Company and Logility entered into a number of agreements
for the purpose of defining certain relationships between the parties (the
"Intercompany Agreements"). The more significant of the Intercompany Agreements
are summarized below. As a result of the Company's ownership interest in
Logility, the terms of such agreements were not the result of arms-length
negotiation.
Services Agreement
The Company and Logility have entered into a Services Agreement (the
"Services Agreement") with respect to certain services to be provided by the
Company (or subsidiaries of the Company) to Logility. The Services Agreement
provides that such services are provided in exchange for fees which management
of the Company believes would not exceed fees that would be paid if such
services were provided by independent third parties. The services initially
provided by the Company to Logility under the Services Agreement include, among
other things, certain accounting, audit, cash management, corporate
development, employee benefit plan administration, human resources and
compensation, general and administration services, and risk management and tax
services. In addition to these services, the Company has agreed to allow
eligible employees of Logility to participate in certain of the Company's
employee benefit plans. Logility has agreed to reimburse the Company for costs
(including any contributions and premium costs and including third-party
expenses and allocations of certain personnel expenses), generally in
accordance with past practice, relating to the participation by Logility's
employees in any of the Company's benefit plans.
The Services Agreement has an initial term of three years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or Logility elects not to renew its term by giving proper notice.
Logility will indemnify the Company against any damages that the Company may
incur in connection with its performance of services under the Services
Agreement (other than those arising from the Company's gross negligence or
willful misconduct), and the Company will indemnify Logility against any
damages arising out of the Company's gross negligence or willful misconduct in
connection with its rendering of services under the Services Agreement. For the
fiscal years ended 1999 and 1998 the services related to this agreement have
been $1.5 and $1.1 million, respectively.
Facilities Agreement
The Company and Logility have entered into a Facilities Agreement (the
"Facilities Agreement"), which provides that Logility may occupy space located
in certain facilities owned or leased by the Company (or subsidiaries of the
Company).
52
The Facilities Agreement has an initial term of two years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or Logility elects not to renew its term. The Facilities Agreement may
be terminated by Logility for any reason with respect to any particular
facility upon thirty days' written notice. Logility's lease of space at any
facility under the Facilities Agreement is limited by the term of the
underlying lease between the Company and a landlord with respect to any
facility leased by the Company and by the disposition by the Company of any
facility owned by the Company. For the fiscal years ended 1999 and 1998 the
services related to this agreement have been $342,000 and $330,000,
respectively.
Tax Sharing Agreement
Logility is included in the Company's federal consolidated income tax group,
and Logility's federal income tax liability will be included in the
consolidated federal income tax liability of the Company and its subsidiaries.
Logility and the Company have entered into a Tax Sharing Agreement (the "Tax
Sharing Agreement") pursuant to which the Company and Logility will make
payments between them such that the amount of taxes to be paid by Logility,
subject to certain adjustments, will be determined as though Logility were to
file separate federal, state, and local income tax returns, rather than as a
consolidated subsidiary of the Company. Pursuant to the Tax Sharing Agreement,
under certain circumstances, Logility will be reimbursed for tax attributes
that it generates after deconsolidation of Logility from the consolidated tax
group of the Company, such as net operating losses and loss carryforwards. Such
reimbursement, if any, will be made for utilization of Logility's losses only
after such losses are utilized by the Company. For that purpose, all losses of
the Company and its consolidated income tax group will be deemed utilized in
the order in which they are recognized. Logility will pay the Company a fee
intended to reimburse American Software for all direct and indirect costs and
expenses incurred with respect to the Company's share of the overall costs and
expense incurred by the Company with respect to tax related services.
Technology License Agreement
The Company and Logility have entered into a Technology License Agreement
(the "Technology License Agreement") pursuant to which Logility has granted the
Company a non-exclusive, worldwide license to use, execute, reproduce, display,
modify, and prepare derivatives of the Logility Value Chain Solutions product
line, provided such license is limited to maintaining and supporting users that
have licensed Logility Value Chain Solutions products from the Company.
Pursuant to the Technology License Agreement, the Company and Logility are
required to disclose to one another any and all enhancements and improvements
which they may make or acquire in relation to a Logility Value Chain Solutions
product, subject to confidentiality requirements imposed by third parties. The
term of the Technology License Agreement is indefinite, although Logility may
terminate the Technology License Agreement for cause, and the Company may
terminate the Technology License Agreement at any time upon sixty (60) days'
prior written notice to Logility. Upon termination of the Technology License
Agreement, all rights to Logility Value Chain Solutions products licensed by
Logility to the Company revert to Logility, while all rights to enhancements
and improvements made by the Company to Logility Value Chain Solutions products
revert to the Company.
Marketing License Agreement
American Software USA, Inc. ("USA"), a wholly-owned subsidiary of the
Company, and Logility have entered into a Marketing License Agreement (the
"Marketing License Agreement") pursuant to which USA has agreed to act as a
non-exclusive marketing representative of Logility for the solicitation of
license agreements relating to the Logility Value Chain Solutions product line.
The Marketing License Agreement provides for the payment to USA of a commission
equal to 30% (or 50% for affiliates of USA located in the United Kingdom and
France if they carry out installation and provide first-line support services)
of the net license revenue collected by Logility under license agreements for
the Logility Value Chain Solutions product line with certain end-users who are
also licensees of software products of the Company which are secured and
forwarded to Logility by USA and accepted by Logility. The Marketing License
Agreement has a five-year
53
term, although Logility may terminate the Marketing License Agreement for
cause, and either party may terminate the Marketing License Agreement at any
time upon twelve (12) months' prior written notice to the other party. For the
fiscal years ended 1999 and 1998 the services related to this agreement have
been $308,000 and $1.1 million, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. Financial statements; All financial statements of the Company as
described in Item 8 of this report on Form 10-K.
2. Financial statement schedule included in Part IV of this Form:
Page
----
Report of Independent Auditors..................................... 56
Schedule II--Consolidated Valuation Accounts--for the three years
ended April 30, 1999.............................................. 57
All other financial statements and schedules not listed above are omitted as
the required information is not applicable or the information is presented in
the financial statements or related notes.
3. Exhibits
The following exhibits are filed herewith or incorporated herein by
reference:
3.1 The Company's Amended and Restated Articles of Incorporation, and
amendments thereto. (1)
3.2 The Company's Amended and Restated By-Laws dated November 13, 1989. (2)
10.1 Amended and Restated 1991 Employee Stock Option Plan dated August 27,
1998. (3)
10.2 Amended and Restated Directors and Officers Stock Option Plan effective
August 27, 1998. (3)
10.3 Stock Option Agreement between the Company and James C. Edenfield dated
May 15, 1990. (4)
10.4 Stock Option Agreement between the Company and James C. Edenfield dated
January 30, 1995. (5)
10.5 American Software, Inc. 401(k)/Profit Sharing Plan and Trust Agreement.
(6)
10.6 Lease Agreement dated December 15, 1981, between Company and Newfield
Associates. (7)
10.7 Amendment dated January 14, 1983, to Lease Agreement between the Company
and Newfield Associates. (7)
10.8 Subsidiary Formation Agreement entered into among the Company, Logility,
Inc., and certain subsidiaries of the Company, as amended, dated January
23, 1997. (8)
10.9 Services Agreement between the Company and Logility, Inc., dated August
1, 1997. (8)
10.10 Facilities Agreement between the Company and Logility, Inc., dated
August 1, 1997. (8)
10.11 Tax Sharing Agreement between the Company and Logility, Inc., dated
January 23, 1997. (8)
10.12 Stock Option Agreement between the Company and Logility, Inc., dated
August 1, 1997. (8)
10.13 Technology License Agreement between the Company and Logility, Inc., as
amended, dated August 1, 1997. (8)
10.14 Marketing License Agreement between USA and Logility, Inc., as amended,
dated August 1, 1997. (8)
10.15 The Company's Employee Stock Purchase Plan dated September 30, 1998. (9)
10.16 Logility, Inc.'s Amended and Restated 1997 Stock Plan dated August 26,
1998.
10.17 Logility, Inc.'s Employee Stock Purchase Plan dated September 30, 1998.
11.1 Statement re: Computation of Per Share Earnings (Loss).
21.1 List of Subsidiaries.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
54
- --------
(1) Incorporated by reference herein. Filed as an exhibit to the Company's
quarterly report filed on Form 10Q for the quarter ended October 31, 1990.
(2) Incorporated by reference herein. Filed as an exhibit to the Company's
quarterly report filed on Form 10Q for the quarter ended January 31, 1990.
(3) Incorporated by reference herein. Filed by the Company as an exhibit to the
Registrants's Registration Statement No. 333-62529 filed on Form S-8 on
August 31, 1998.
(4) Incorporated by reference herein. Filed as an exhibit to the Company's
annual report filed on Form 10K for the fiscal year ended April 30, 1990.
(5) Incorporated by reference herein. Filed as an exhibit to the Company's
annual report filed on Form 10K for the fiscal year ended April 30, 1995.
(6) Incorporated by reference herein. Filed by the Company as an exhibit to the
Registrants's Registration Statement No. 33-55214 filed on Form S-8 on
December 1, 1992.
(7) Incorporated by reference herein. Filed by the Company as an exhibit to the
Company's Registration Statement No. 2-81444 filed on Form S-1 on January
21, 1983.
(8) Incorporated by reference herein. Filed as an exhibit to the Company's
annual report filed on Form 10K for the fiscal year ended April 30, 1998.
(9) Incorporated by reference herein. Filed by the Company as an exhibit to the
Registrants's Registration Statement No. 333-67533 filed on Form S-8 on
November 19, 1998.
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the fourth quarter of
the recently completed fiscal year.
55
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Software, Inc.:
Under date of June 23, 1999, we reported on the consolidated balance sheets
of American Software, Inc. and subsidiaries as of April 30, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended April 30, 1999,
which are included in the April 30, 1999, annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule included in the Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Atlanta, Georgia
June 23, 1999
56
SCHEDULE II
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Consolidated Valuation Accounts
Years ended April 30, 1999, 1998, and 1997
Allowance for Doubtful Accounts
Additions
Balance at charged to Balance at
beginning costs and end of
Year ended of year expenses Deductions (1) year
- ---------- ---------- ---------- -------------- ----------
April 30, 1997.................. $1,200,000 $ 720,935 $ 739,164 $1,181,771
April 30, 1998.................. 1,181,771 176,000 135,771 1,222,000
April 30, 1999.................. 1,222,000 1,880,000 1,384,000 1,718,000
- --------
(1) Write-offs of accounts receivable.
Deferred Income Tax Valuation Allowance
Additions
Balance at Charged to Balance at
beginning costs and end of
Year ended of year expenses Deductions year
- ---------- ---------- ---------- -------------- ----------
April 30, 1997.................. 1,980,209 -- 1,980,209
April 30, 1998.................. 1,980,209 -- -- 1,980,209
April 30, 1999.................. 1,980,209 4,416,000 -- 6,396,209
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN SOFTWARE, INC.
/s/ James C. Edenfield
By __________________________________
James C. Edenfield
President, Chief Executive
Officer, Treasurer and Director
Date: July 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ James C. Edenfield President, Chief Executive July 23, 1999
_____________________________ Officer, Treasurer and
James C. Edenfield Director
/s/ Thomas L. Newberry Chairman of the Board of July 23, 1999
_____________________________ Directors
Thomas L. Newberry
/s/ David H. Gambrell Director July 23, 1999
____________________________
David H. Gambrell
/s/ Thomas R. Williams Director July 23, 1999
_____________________________
Thomas R. Williams
/s/ James M. Modak Chief Financial Officer and July 23, 1999
_________________________ Sr. Vice President
James M. Modak
/s/ Vincent C. Klinges Principal Accounting Officer July 23, 1999
_____________________________
Vincent C. Klinges
58