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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
(mark one)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
20 UNIVERSITY ROAD, CAMBRIDGE, MASSACHUSETTS 02138
(Address of principal executive offices, including zip code)
(617) 661-1444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K.
As of December 16, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $ 277,765,338.00 based on the
last sale price of such stock on such date.
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 9,715,593 shares of common stock, $.01 par value per share, as
of December 16, 1996.
DOCUMENT INCORPORATED BY REFERENCE
Certain portions of the Company's Definitive Proxy Statement
for its 1997 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Total number of pages: __________
Exhibit index is located on page: __________
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PART I
ITEM 1. BUSINESS
GENERAL
Project Software & Development, Inc. ("PSDI" or the "Company")
develops, markets and supports applications software used by businesses,
government agencies and other organizations to assist them in maintaining
high-value capital assets such as facilities, plants and production equipment.
The Company's products are designed to enable customers to reduce down-time,
control maintenance expenses, cut spare parts inventories and costs, improve
purchasing efficiency and more effectively deploy productive assets, personnel
and other resources.
PRODUCTS
The Company's enterprise-wide client/server application products are
MAXIMO(Copyright) and P/X(Copyright). MAXIMO, an asset maintenance management
system, is the Company's principal product and its first client/server product.
The client/server version of MAXIMO was first released in February 1991 and has
been employed in production applications for more than five years. Revenues
from licenses of MAXIMO have grown from $1,406,000 in fiscal year 1991 to
$42,212,000 in fiscal year 1996. In fiscal 1996, the Company introduced a new
suite of MAXIMO products: MAXIMO Enterprise, MAXIMO Workgroup and MAXIMO
ADvantage. MAXIMO Enterprise, a new version of which was released in March
1996, is a client/server product, which runs on Oracle7 and SYBASE platforms
and is intended for the high function, high usage segment of the maintenance
management market. MAXIMO Workgroup, released in July 1996, is also a
client/server product and runs on SQLBase and Oracle7 Workgroup Server and is
intended for the mid-range segment of the maintenance management market. On
March 1, 1996 the Company acquired Maintenance Automation Corporation ("MAC").
The product acquired as a result of the acquisition of MAC, Chief Advantage,
was renamed MAXIMO ADvantage. MAXIMO ADvantage is intended as a point solution
for the lower-end maintenance market. MAXIMO ADvantage supports Microsoft
Access for the single user, PC LAN segment.
P/X, the Company's planning and cost system, was released in June 1992.
Revenues from licenses of P/X grew from $1,148,000 in fiscal year 1992 to
$3,219,000 in fiscal 1993 and $3,604,000 in fiscal 1994. However, revenues from
P/X licenses have declined to $1,622,000 in fiscal 1995 and to $871,000 in
fiscal 1996. The decline in P/X revenues can be attributed to product
performance issues, delays in releasing a new version of the product, diminished
demand for high-end planning and cost solutions, increased competition, and the
Company's declining focus on selling and marketing this product.
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MAXIMO permits work orders to be generated and tracked electronically,
and also to be linked to related information, such as labor and equipment
records, job procedures, parts inventories and purchasing systems. Failure
analysis using MAXIMO can assist in designing preventive maintenance procedures
to reduce future equipment failure rates and downtime.
The Company's MAXIMO client/server products are designed to enable
customers to take full advantage of the computing environment, and offer robust
functionality, drawing upon the Company's established track record as a provider
of large-scale applications critical to the operations of major industrial
companies. MAXIMO Enterprise and Workgroup provide access to standard commercial
SQL databases and incorporate a modular design and an open architecture which
permits end users to customize their applications.
The Company's mainframe product is PROJECT/2, a scheduling and cost
management package. This product was produced in an earlier technology phase.
The Company will continue to support PROJECT/2, but will not actively sell
PROJECT/2. The Company does not currently intend to develop significant new
enhancements or features for PROJECT/2.
The Company has discontinued its practice of offering systems which
include the computer hardware necessary to run its software. However, in
isolated instances, upon customer request, the Company may resell one or more
personal computers or peripheral equipment, such as bar code readers, in
conjunction with a license of its products.
MAXIMO ENTERPRISE AND WORKGROUP
MAXIMO Enterprise and Workgroup are comprised of a series of integrated
modules, each of which is linked to the others and to a relational database
management system. Each module includes one or more applications functions,
including the following:
Work Order Management organizes maintenance work, including labor,
parts and tools, and tracks actual usage and associated costs.
Asset Management tracks corporate assets, including facilities and
equipment and their associated warranty, downtime, maintenance costs, failure
history and performance data.
Spare Parts Inventory Control maintains spare parts inventory balances,
tracks parts issued from stock and automatically reorders parts when minimum
balances have been reached, including multiple stores for Enterprise.
Purchasing generates purchase requisitions and purchase orders, logs in
received parts, analyzes vendor performance and
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integrates with accounting applications, including invoice matching and multiple
currency functionality for Enterprise.
Labor Management manages employee records and tracks employee
attendance and time reporting, including productive and non-productive time such
as travel and waiting for parts.
Planning and Scheduling schedules work orders based on availability of
labor, parts and equipment and automatically generates routine preventive
maintenance work orders based on time, meter frequencies or other criteria.
Work Manager creates and closes work orders, assigns labor to
outstanding work, manages backlogs and tracks ongoing jobs in real time.
MAXIMO ADVANTAGE
The MAXIMO ADvantage maintenance management system offers the following
functionality:
Work and Labor Management creates, edits and closes new and existing
work orders.
Planning & Scheduling controls labor and material resources, including
contractor information. It assists in resource leveling manpower and balancing
labor and material needs with availability.
Work Order Bar Code permits inputting of work order data using a
barcode scanner.
Time Cards charges time to work orders, service requests/QUIK calls or
time and materials accounts.
Inventory adds items, edits stock levels and sets reorder points to
create purchase requisitions automatically. It also issues items to work orders,
service requests, maintenance records or inventory accounts.
Inventory Bar Code allows the issuing of items and performance of
physical inventory using a barcode scanner.
Preventive Maintenance allows the set up of PM schedules for equipment
items or facilities. Work orders will be created automatically at the appointed
time, complete with tools, supplies and procedures. PM schedules can also be
based on meters, run time or usage.
Purchase Order allows the creation of purchase orders, including
setting dollar-value approval levels.
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MAXIMO Enterprise and Workgroup's database server functions
are provided by a direct link to ORACLE, SYBASE and Centura Corporation's
(Centura) SQLBase, widely-used commercial relational database management
systems, employing industry-standard SQL commands. The Company is currently
developing an interface to Microsoft Corporation's SQL Server database
management system. MAXIMO accommodates database servers operating under Novell
NLM, Windows NT and UNIX operating systems, and supports a variety of network
operating systems, including Novell NetWare, Banyan VINES and IBM LAN Server for
0S/2, and standard network communications protocols including TCP/IP and
IPX/SPX. MAXIMO's use of a standard SQL database and support for a broad range
of server platforms, network operating systems and communications protocols
provides customers with the flexibility to match their computing resources to
their needs, and facilitates the integration of data from other applications
such as accounting and human resources.
MAXIMO Enterprise and Workgroup were built using a
commercially-available application development tool set, SQLWindows from Centura
Corporation. As a result, MAXIMO's "front-end" user interface, including
screens, menus and help messages can readily be modified by the customer, using
standard tools. In addition, tables, data structures and other elements of the
"back-end" database can be modified by the customer using utilities provided by
the Company. The customer is therefore not constrained by a proprietary system
design, nor does the customer need to rely on outside consultants with special
expertise or knowledge of programming languages in order to customize the system
to fit its needs.
MAXIMO ADvantage runs on the Microsoft Access database and run on
stand-alone PC's, LANs and WANs. MAXIMO ADvantage's open architecture supports
connectivity to numerous applications, including predictive, energy or
reliability centered management, vibrations analysis, accounting, estimating and
purchasing systems.
MAXIMO ADvantage was built using a commercially available application
development tool set, Visual Basic from Microsoft Corporation. The core of the
software constituting MAXIMO ADvantage was acquired by the Company through its
acquisition of MAC. MAC's product, Chief ADvantage, has been renamed MAXIMO
ADvantage and enhanced since the acquisition. The software architecture for
PC-based MAXIMO ADvantage is considerably different from the client/server
architecture of MAXIMO Enterprise and Workgroup. Since its acquisition of MAC,
the Company has incurred significant additional and unexpected costs to
complete the development of MAXIMO ADvantage to meet the quality and
functionality standards demanded by the Company.
MAXIMO runs on personal computers and provides the maintenance worker
with an intuitive, easily mastered graphical user interface employing
mouse-driven "point and click" commands,
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pull-down menus, icon bars and other standard features of Windows. MAXIMO
permits the use of touch screens, bar code readers and other specialized input
devices, providing for flexible and efficient data collection and input. An
application launching feature provides access from within any MAXIMO module to
other MAXIMO modules, as well as, to word processing, spreadsheet, graphics,
computer-aided-design ("CAD") and other personal productivity tools provided by
third parties.
P/X
P/X is a multi-user, multi-project planning and cost system. The key
functions of P/X include planning and prioritizing tasks, multi-project
scheduling and project management, cost/schedule integration, and graphical
reporting. P/X is designed to run on personal computers under Microsoft Windows.
P/X operates on network operating systems including Novell NetWare, Banyan VINES
and Microsoft LAN Manager. Development efforts of the P/X product are focused on
integrating the P/X scheduling functionality tightly with the MAXIMO product and
on providing the scheduling features required for the markets supported by the
MAXIMO product.
PRODUCT PRICING
The current United States list price for the minimum five-user
configuration of MAXIMO Workgroup for use with Centura's SQLBase databases is
approximately $20,000, with an added fee of $3,000 for each additional user. The
current U.S. list price for the minimum ten-user configuration of MAXIMO
Enterprise for use with ORACLE and SYBASE databases is approximately $65,000,
with an added fee of $5,000 for each additional user. MAXIMO Enterprise
application modules generally are bundled for an additional fee and not licensed
separately. The current U.S. list price for a single configuration of MAXIMO
ADvantage is $2,995 for use with Microsoft Corporation's Access database. The
current U.S. list price for a five-user LAN version is $3,995. A number of
optional modules are available. Discounts from the Company's list prices may be
made available for volume purchasers or for competitive or strategic reasons.
OEM customers who purchase the Company's products in significant quantities
receive discounts of 35% to 60%, depending upon the level of initial purchases
and commitments. The Company also offers site-license arrangements to major
accounts.
International pricing for the Company's products varies by territory,
depending on the cost of localizing, marketing, selling and supporting the
product. Generally, list prices outside North America exceed the comparable U.S.
list prices by 15% or more. The Company's international distributors and agents
receive discounts ranging from 35% to 50%.
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The license fee for MAXIMO generally includes 90 days of technical
support. At the time of initial licensing, customers typically purchase a
support contract providing for an additional year of technical support, at a
current U.S. list price generally equal to 15% to 20% of the applicable license
fee. In most circumstances, customers also purchase installation, customization
and training services, and in many instances customers subsequently license
additional seats, platform upgrades or options. The total first-year revenues to
the Company from a typical MAXIMO Enterprise and Workgroup implementation,
including paid-up license fees and revenues from support contracts and
installation, customization and training services, average from $200,000 to
$250,000 and from $50,000 to $75,000, respectively. A large multi-site
implementation can result in significantly larger first-year revenues.
CUSTOMER SUPPORT, SERVICE AND TRAINING
Because many of the Company's customers implement their client/server
maintenance management products in complex, large-scale applications on which
the success of their organizations depend, a high level of customer service and
technical support is critical to customer satisfaction. In addition, deployment
of enterprise-wide applications in a heterogeneous client/server computing
environment incorporating multiple operating systems, network operating systems
and communications protocols can present customers with substantial technical
challenges. The Company offers support and consulting services designed to
assist customers in meeting these challenges and successfully implementing
business solutions which realize the benefits promised by client/server
computing. The Company believes that its approach to service and support has
been and will continue to be a significant factor in the market acceptance of
its products. Revenues from support and services accounted for 40.8 % of the
Company's total revenues in fiscal year 1996, and the Company expects that
recurring revenues from support and services will continue to account for a
substantial portion of its total revenues.
Customer Support Programs. Subscribers to the Company's annual support
contracts receive customer service and technical support by telephone (including
dial-in diagnostics), fax, support on line via the Internet, and electronic
bulletin board, receive a newsletter and periodic technical bulletins, receive a
reduction in the rate to attend the Company's annual user group meetings and are
entitled to receive periodic software updates. The Company believes that support
contracts are a stable source of recurring revenue.
As of September 30, 1996, the Company employed a technical support,
training and consulting and sales support staff of 160 employees, of whom 101
are based at the Company's headquarters in Cambridge, Massachusetts, and sales
offices throughout the United States, 27 are located in Florida, and 32 operate
out six
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international technical response centers owned by the Company and are located in
the United Kingdom, France, Germany, the Netherlands, Sweden and Australia.
Telephone support calls are handled by applications software specialists,
supported by a computerized call tracking and problem reporting system. The
Company's network of international distributors and sales agents also provide
first-level technical support, training and consulting services within their
geographical territories.
Training. The Company conducts comprehensive training programs covering
Company applications and concepts for its end users. Training is offered at the
Company's headquarters in Cambridge, Massachusetts and at regional centers
located in California, Florida, Maryland, Michigan, Texas, Australia, France,
Germany, Sweden, the United Kingdom and the Netherlands. The Company also offers
on-site training classes at customer sites as requirements dictate. The Company
has found that most clients desire initial user training classes in connection
with the license of a system and often attend subsequent advanced schools or
send additional users to schools.
Implementation Consulting. The Company also provides consulting
services, on a fee basis, to assist customers in planning and carrying out the
deployment of the Company's solutions. In many cases, customers are able to
install and implement MAXIMO systems and perform any necessary customization
themselves with only limited assistance from the Company. In other cases,
particularly where a complex, integrated solution or extensive customization is
required, the Company provides extensive implementation planning, project
management, network communications, system integration and custom modification
services. The Company's professional services group has expert knowledge of the
Company's products and tools, is familiar with the concepts and theories of
maintenance and planning and cost analysis, and can draw upon experience in
implementing systems addressing diverse applications on a number of different
platforms in a wide range of industries worldwide.
Network Operations Group. The Company maintains a network operations
group of 14 persons which provides technical support to assist customers in
implementing MAXIMO in distributed computing environments involving one or more
complex networks. These specialists in server and client hardware platforms,
network operating systems and communications protocols supplement the
applications and systems expertise of the Company's technical support staff. The
network operations group helps customers plan complex network installations,
troubleshoot and resolve conflicts arising from heterogeneous hardware
configurations, communications protocols and network operating systems, and
optimize network performance.
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CUSTOMERS
The Company's customers include electric, water and other utilities,
educational, research and health care institutions, government agencies, hotels,
casinos, airlines and railroads, as well as large, well known corporations in
the manufacturing, oil and gas, construction, aerospace, defense, ship building,
telecommunications, data processing, computer, entertainment, banking,
insurance, pharmaceutical, and other industries. The Company's products have
been installed and are supported in major markets worldwide. Local language
support is provided in many of these markets. MAXIMO has been installed at more
than 4,000 sites by more than 800 companies, government agencies and other
organizations. No customer has accounted for more than 10% of the Company's
total revenue in any of its three most recent fiscal years.
SALES AND MARKETING
The Company markets its products in North America through a direct
sales force of 48 persons operating out of its Cambridge, Massachusetts
headquarters, and sales offices located in California, Colorado, Maryland,
Michigan, New Jersey, New York, Oregon, Texas, Washington, and a tele-sales and
tele-marketing force of 19 persons operating out of its Florida office. The
Company serves the global needs of its customers with a sales force of 46
persons through a network of wholly-owned subsidiaries in Australia, Canada,
France, Germany, the Netherlands, Sweden, and the United Kingdom and through
distributors and sales agents in parts of Africa, Asia, Europe, the Middle East
and South America Approximately 41% of the Company's total revenues in fiscal
1996 were derived from sales outside the United States.
The Company markets its products through advertising campaigns in
national trade periodicals, direct mail and seminar series. These efforts are
supplemented by listings in relevant trade directories, exhibitions at trade
shows and conference appearances. Initial leads are qualified by telemarketing
before being turned over to either the direct sales force or tele-sales. MAXIMO
Enterprise and Workgroup sales representatives work closely with technical sales
personnel in each of the Company's sales offices throughout the sales process,
although to a lesser degree for Workgroup.
The Company's direct and tele-sales personnel are compensated through
salaries plus commissions based on annual quotas and also may receive quarterly
bonuses. Sales management personnel receive salaries plus bonuses based on
monthly, quarterly and annual revenue and contribution targets.
The sales cycle for MAXIMO, from the initial sales presentation to the
issuance of a purchase order, typically ranges from 30 to 60 days for ADvantage,
three to six months for
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Workgroup and six to twelve months for Enterprise. The Company believes that
customers generally choose MAXIMO based on the features it provides and upon a
preference for the product architecture and ease of use. This results in a
purchasing process that generally does not involve lengthy trials, reducing the
number of sales calls and the level of support necessary to close a sale.
Delivery lead times for the Company's products are very short and,
consequently, substantially all of the Company's software revenues in each
quarter result from the orders received in the quarter. Accordingly, the Company
only maintains a backlog for its consulting and training services and believes
that its backlog at any point in time is not a reliable indicator of future
sales and earnings. The absence of significant backlog may contribute to
unpredictability in the Company's results of operations.
An important part of the Company's sales and marketing strategy is to
build and maintain marketing relationships with companies that PSDI believes can
assist it to penetrate new markets. The Company has agreements with ISSC (an
affiliate of IBM) and ABB Service Worldwide (an affiliate of Asea Brown Boveri)
. The Company plans to work more closely with major systems integrators and to
expand and leverage its relationships with engineering and construction firms
and original equipment manufacturers ("OEMs") which incorporate the Company's
products into facilities or systems developed by them through its MAXIMO
Alliance Program. The Company has OEM arrangements with companies such as
Honeywell Incorporated and Johnson Controls, Inc., under which these companies
may integrate MAXIMO with their building controls systems.
PRODUCT DEVELOPMENT
As of September 30, 1996, the Company employed 81 professionals in
product design, application development, technology research and quality
assurance. The Company's product design group (consisting of 8 persons) is
responsible for identifying application trends in the market and works closely
with key customers to define and specify product requirements. The applications
development group (consisting of 48 persons) is organized in groups focused on
application functionality, user interface and output, and database and systems
development. This group also works closely with the product design group to
develop new products and functional modules, and maintains and enhances the
functionality and useability of the Company's existing products. The technology
research group investigates and researches new technologies that provide
functionality that is targeted for commercial release in time frames ranging
from several months to several years into the future. The Company's quality
assurance group (consisting of 31 persons) tests the Company's software for
compliance with the functional and
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technical specifications established by the product design group and confirms
that it operates as expected with third-party operating systems, network
operating systems and applications software, tests manufactured products, and
prepares and updates user documentation and training manuals.
The Company's total product development expenses in 1996, 1995 and 1994
were $7,653,000, $6,639,000 and $4,753,000, respectively. The Company
capitalizes certain software development costs in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Capitalized software costs
are amortized over the estimated market life of the product (generally one to
three years) and amounts amortized are included in the cost of software
revenues. In fiscal year 1996, the Company capitalized $634,000 of software
development costs. There were no software development costs capitalized in 1995.
In fiscal year 1994, the Company capitalized $739,000 of software development
costs. In fiscal years 1996, 1995 and 1994, the Company amortized $948,000,
$1,120,000 and $1,054,000, of software development costs, respectively.
The Company's client/server products consist primarily of internally
developed software and the product acquired from MAC. In addition, the Company
has incorporated in its products graphical user interfaces, applications
development tools and database management systems developed by other vendors.
The Company believes that its long-term relationships with key vendors of
third-party software. In September 1994, the Company released a version of
MAXIMO for use with the ORACLE database. In 1996, the Company released an
application programming interface ("API") to ORACLE's accounting software. The
Company is also a third-party reseller of Centura Corporation's SQLBase, and
developed its MAXIMO product using applications tools developed by Centura
Corporation which have subsequently been made commercially available by Centura
Corporation. In May 1996, the Company released a version of MAXIMO Enterprise
for use with the SYBASE database. The Company's relationships with these leading
database management system vendors enable the Company's customers to take
advantage of the latest developments in database technology. The Company also
maintains ongoing relationships with other third-party software developers, such
as Netronic Software GmbH (graphics and interface technology), XVT Software,
Inc. (interface technology) and MITI (report generation). See "Licensed
Technology."
The Company's product development efforts are currently focused on
providing application enhancements for the MAXIMO product line (Enterprise,
Workgroup and ADvantage). The Company also is in the process of developing a
version of MAXIMO Enterprise that will utilize the Microsoft SQL Server database
management system and standard application programming interfaces to enable
other third-party applications software to be more easily integrated with the
Company's products. In addition, the
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technology research group is currently researching developing and incorporating
into the MAXIMO product technologies that are emerging in conjunction with the
Internet.
The computer industry is characterized by rapid technological advances,
changes in customer requirements and frequent product introductions and
enhancements. The Company's future success will depend upon its ability to
enhance its current products and to develop and introduce new products that keep
pace with technological developments, respond to evolving customer requirements
and achieve market acceptance. In particular, the Company believes that it must
continue to respond quickly to users' needs for broad functionality and
multi-platform support and to advances in hardware and operating systems. Any
failure by the Company to anticipate or respond adequately to technological
development and customer requirements, or any significant delays in product
development or introduction could result in a loss of competitiveness and
revenues.
The Company has experienced delays in the introduction of new products
and product enhancements. These delays have varied in duration depending on the
scope of the project and the nature of the problems encountered. There can be no
assurance, however, that the Company will be successful in developing and
marketing new products or product enhancements on a timely basis or that the
Company will not experience significant delays in the future, which could have a
material adverse effect on the Company's results of operations. In addition,
there can be no assurance that new products and product enhancements developed
by the Company will achieve market acceptance.
COMPETITION
The market for applications software is intensely competitive and
rapidly changing. In general, the Company competes on the basis of (1) product
architecture, which includes distributed computing capability, access to
commercial SQL databases, and ease of customization and integration with other
applications; (2) functionality, which includes the breadth and depth of
features and functions, and ease of use; (3) support and service, which includes
the range and quality of technical support, training and consulting services, as
well as the capability to provide these on a global basis; and (4) product
pricing in relation to performance.
The market for asset maintenance software is fragmented by geography,
hardware platform and industry orientation, and is characterized by a large
number of competitors, none of which enjoys a dominant market position.
Currently, MAXIMO Enterprise and Workgroup compete with products of a number of
large vendors which have traditionally provided maintenance software running on
mainframes and minicomputers, and are now offering systems for use in the
client/server environment. MAXIMO Enterprise also
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competes with integrated enterprise management systems which are provided by
several large vendors and which include maintenance modules. MAXIMO ADvantage
competes with a number of competitors, one of which is a public company, but
most of which are small regional companies. The Company expects that in the
future MAXIMO Enterprise and Workgroup may encounter competition from vendors of
low cost maintenance systems designed initially for use by a single user or
limited number of users, as vendors of these products upgrade their
functionality in an attempt to enter the client/server market. The Company
believes that the functionality of MAXIMO, its open product architecture and the
Company's ability to provide global distribution and support have been
significant factors in the competitive success of MAXIMO.
While the Company believes that MAXIMO has competed effectively to
date, competition in its industry is likely to intensify as current competitors
expand their product lines and new companies enter the market. To remain
successful in the future, the Company must respond promptly and effectively to
the challenges of technological change, evolving standards and its competitors'
innovations by continually enhancing its own product and support offerings, as
well as its marketing programs. There can be no assurance that the Company will
continue to be able to compete successfully in the future.
PRODUCTION
The principal materials and components used in the Company's software
products include computer media, user materials and training guides. The Company
currently uses third-party vendors to print its user manuals, packaging and
related materials, but duplicates program diskettes and CD-Roms in its
manufacturing and distribution facility located in Watertown, Massachusetts. The
Company then assembles the third party produced documentation with diskettes and
CD-Roms and ships these directly from its manufacturing and distribution
facility. To date, the Company has been able to obtain adequate supplies of all
components and materials and has not experienced any material difficulties or
delays in manufacture and assembly of its products or materials due to product
defects.
PROPRIETARY RIGHTS AND LICENSES
The Company has registered its MAXIMO and P/X trademarks with the
United States Patent and Trademark Office. Registrations with equivalent offices
in many foreign countries in which it does business have been obtained or are in
process.
The Company regards its software as proprietary and attempts to protect
its rights with a combination of trademark, copyright and employee and third
party non-disclosure agreements. Despite these precautions, it may be possible
for unauthorized parties to copy or reverse-engineer portions of the Company's
products.
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While the Company's competitive position could conceivably be threatened by its
inability to protect its proprietary information, the Company believes that
copyright and trademark protection are less important to the Company's success
than other factors such as knowledge, ability and experience of the Company's
personnel, its name recognition and ongoing product development and support.
The Company's software products are usually licensed to customers under
a perpetual, non-transferable, non-exclusive license that stipulates how many
concurrent users may access the system. The Company relies on both "shrink wrap"
licenses and negotiated agreements depending on various factors including the
size, level of integration and term of the agreement. A shrink wrap license
agreement is a printed license agreement included with the packaged MAXIMO
software that sets the terms and conditions under which the purchaser can use
the product, and purports to bind the purchaser to such terms and conditions by
its acceptance and purchase of the software. Certain provisions of the Company's
shrink wrap licenses, including provisions protecting against unauthorized use,
copying, transfer and disclosure of the licensed program, may be unenforceable
under the laws of certain jurisdictions. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States.
MAXIMO(Copyright) and P/X(Copyright) are registered trademarks of the
Company. Microsoft(Copyright) is a registered trademark and Windows(Trademark)
is a trademark of Microsoft Corporation. This Annual Report on Form 10-K also
includes other trademarks of the Company and trademarks of companies other than
the Company.
LICENSED TECHNOLOGY
The Company licenses certain software programs from third-party
developers and incorporates them into the Company's products. These licenses are
non-exclusive worldwide licenses which terminate on varying dates. The Company
believes that it will be able to renew non-perpetual licenses or that it will be
able to obtain substitute products if needed.
The Company has entered into a non-exclusive license agreement with
Centura Corporation that permits the Company to include certain Centura
proprietary software products collectively called the "SQL System" in the
Company's products. Under the terms of the agreement, the Company is required to
pay fixed royalty fees to Centura. Centura may terminate the agreement on the
occurrence of a material, uncured breach of the agreement by the Company. The
Company has entered into a non-exclusive license agreement with Management
Information Technology, Incorporated ("MITI") that grants the Company's
end-users to the rights to a single-user, application specific SQR3 license to
modify the standard reports delivered with
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MAXIMO. Under the terms of the agreement, the Company is currently required to
pay royalties to MITI based upon every system the Company sells with any SQR3
license. The Company may terminate the agreement at any time. MITI may terminate
the agreement on the occurrence of a material, uncured breach of the agreement
by the Company. Currently, these products are included in MAXIMO Enterprise and
Workgroup. The Company has entered into a non-exclusive license agreement with
Netronic Software GmbH ("Netronic") that permits the Company to incorporate
certain graphic software programs into the Company's products. Under the terms
of the agreement, the Company is currently required to pay royalties to
Netronic. The Company may terminate the agreement at any time. Netronic may
terminate the agreement on the occurrence of a material, uncured breach of the
agreement by the Company.
EMPLOYEES
As of September 30, 1996, the Company had 414 full-time employees
including 146 in sales, marketing and related services, 81 in product research,
applications development, technology research, and quality assurance, 132 in
customer support, training and consulting services, and 55 in finance and
administration, human resources, manufacturing and facilities. The Company's
employees are not represented by any collective bargaining organization, and the
Company has never experienced a work stoppage. The Company believes that its
relations with employees are good.
ITEM 2. PROPERTY
The Company's headquarters are located in Cambridge, Massachusetts in a
leased facility consisting of approximately 45,000 square feet, at an average
annual cost of approximately $1,700,000, under a 13 year lease that expires on
December 31, 1997. The Company also leases a 13,000 square foot manufacturing
and distribution facility in Watertown, Massachusetts at an average annual cost
of approximately $100,000 under a lease expiring on May 31, 1998. The Company
leases additional sales offices in California, Colorado, Connecticut, Florida,
Georgia, Illinois, Maryland, Michigan, Missouri, New Hampshire, New Jersey, New
York, Texas, Washington, and Oregon. The Company also leases offices for its
international operations in Australia, Canada, France, Germany, Hong Kong, the
Netherlands, Sweden, Thailand and the United Kingdom.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Annual Report on Form 10-K, the Company is not a party to
any legal proceedings the outcome of which, in the opinion of management, would
have a material adverse effect on the Company's results of operations or
financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
STOCK INFORMATION
Price Range of Common Stock
The Company's Common Stock is traded in the over-the-counter market and
prices are quoted on the National Association of Securities Dealers Automated
Quotation National Market System ("Nasdaq National Market") under the symbol
PSDI. As of December 16, 1996, there were approximately 47 holders of record of
the Company's Common Stock. This reflects the fact that most of the Company's
stock is held in street names through one or more nominees.
The following table sets forth the high and low per share trading
prices of the Company's Common Stock, as reported on the Nasdaq National Market
consolidated reporting system for the year ended September 30, 1996.
FISCAL 1996 HIGH LOW
First Quarter $37.75 $21.75
Second Quarter $40.75 $22.25
Third Quarter $48.50 $29.50
Fourth Quarter $49.75 $28.00
FISCAL 1995 HIGH LOW
First Quarter $12.17 $8.83
Second Quarter $17.67 $9.50
Third Quarter $20.67 $14.17
Fourth Quarter $33.75 $19.38
Since 1983, the Company has not declared or paid cash dividends on its
Common Stock, other than distributions to stockholders made with respect to
fiscal years 1992 and 1993 to satisfy certain federal and state tax obligations
of the stockholders attributable to the Company's S corporation status prior to
October 1, 1993. The Company currently intends to retain any future earnings to
finance growth and therefore does not anticipate paying cash dividends in the
foreseeable future.
On June 15, the Company's Board of Directors declared a 3-for-2 stock
split in the form of a dividend, which was paid to all holders of record on June
26, 1995. All share and per share data has been restated to reflect this stock
split as though it occurred at the beginning of the period.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company set forth below
have been derived from the consolidated financial statements for the Company for
the periods indicated. This selected consolidated financial data should be read
in conjunction with "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and the notes thereto included elsewhere herein.
YEAR ENDED SEPTEMBER 30.
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except
share and per share
data)
Revenues $ 73,329 $50,372 $36,753 $ 29,978 $ 26,870
Income from 14,606 8,438 4,702 1,857 1,157
operations
Historical net income $ 10,046 $ 5,629 $ 2,315 $ 1,265 $ 891
Historical income per $ 1.00 $ 0.64 $ 0.33 $ 0.22 $ 0.16
share
Pro forma data
(unaudited):
Pro forma net income(1) -- -- $ 2,601 $ 1,277 $ 552
Pro forma income per -- -- $ 0.37 $ 0.22 $ 0.10
share (1)
Weighted number of 10,052 8,846 6,942 5,811 5,724
common and common
equivalent shares -------- ------- ------- -------- --------
Total Assets 83,476 64,960 28,713 13,899 13,395
Long-Term Obligations 628 962 1,333 2,718 692
Dividends Per Share -- -- -- $ 0.11 $ 0.08
(1) From October 1, 1981 through September 30, 1993, the Company operated as an
S corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended and comparable provisions of certain state tax laws. The pro forma
adjustments for the fiscal years ended September 30, 1992 and 1993 reflect
provisions for federal and state income taxes as if the Company has been subject
to federal and state income taxation as a corporation during such periods,
including the historical extraordinary benefit from utilization of foreign net
operating loss carryforwards for the fiscal year ended September 30, 1992. For
the three-month period ended December 31, 1993, the provision for income tax is
adjusted to exclude the expense of the cumulative deferred tax provision
required on termination of S corporation status.
(2) The consolidated financial statements of the Company for all periods
presented include the results and balances of an acquisition accounted for as
a pooling-of-interests.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's revenues are derived primarily from two sources: software
licenses and fees for services, including support contracts and training and
consulting services. The Company has experienced a significant shift in the
sources of its revenues as a result of its decision to concentrate its resources
on the development and marketing of enterprise-wide asset maintenance management
systems operating in a client/server environment. Prior to 1991, the Company's
revenues were derived primarily from licenses of its project management software
(consisting of character-based software designed to run on mainframe,
minicomputers and personal computers), and, to a lesser extent, from sales of
computer hardware. The Company acquired Maintenance Automation Corporation
("MAC") on March 1, 1996. MAC is a developer of maintenance management software
for the single-user, PC LAN segment.
The Company released MAXIMO, its first client/server product, in 1991,
and released P/X, its second client/server product, in 1992. In fiscal year
ended September 30, 1991, revenues from client/server software constituted 11.4%
of software revenues. By the fiscal year ended September 30, 1996, revenues from
client/server software accounted for 88.6% of software revenues, of which 92.5%
was attributable to the client/server versions of MAXIMO.
In fiscal 1996, the Company introduced a new suite of MAXIMO products:
MAXIMO Enterprise, MAXIMO Workgroup and MAXIMO ADvantage. MAXIMO Enterprise, a
new version of which was released in March 1996, is a client/server product,
which runs on Oracle7 and SYBASE platforms and is intended for the high
function, high usage segment of the maintenance management market. MAXIMO
Workgroup, released in July 1996, is also a client/server product and runs on
SQLBase and Oracle Workgroup and is intended for the mid-range segment of the
maintenance management market.
The product acquired as a result of the acquisition of MAC on March 1,
1996, MAXIMO ADvantage, is intended for the lower-end maintenance market. MAXIMO
ADvantage supports Microsoft Access for the single user, PC LAN segment. The
Company has incurred significant additional and unexpected costs in completing
development of MAXIMO ADvantage due to a delay in excess of six months in
completing the release of this product. The delay was necessary to meet the
quality expectations and functionality demanded by the Company. The Company has
also restructured the tele-sales operation employed by MAC to improve the
fluidity of the sales distribution channel. Further effecting MAXIMO ADvantage
sales was the delay in availability of a CD-Rom based
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multi-media evaluation kit. This evaluation kit became available in fiscal 1997.
The Company believes that most of the additional expenses that need to be
incurred in connection with the completion of the new release of MAXIMO
ADvantage and the restructuring of the tele-sales distribution channel should be
incurred by the end of the first six months of fiscal 1997. These unexpected
costs and a shortfall in expected revenues resulted in a net operating loss of
$1,203,000 for MAC for fiscal 1996.
Revenues from licenses of P/X grew from $1,148,000 in fiscal year 1992
to $3,219,000 in fiscal year 1993 and $3,604,000 in fiscal year 1994. However,
P/X has not achieved market acceptance, and revenues from P/X software licenses
declined to $1,622,000 in fiscal year 1995 and $871,000 in fiscal year 1996.
This product is no longer actively marketed by the Company as a stand alone
solution.
The sources of the Company's revenues from support and services have
also shifted since the introduction of the Company's new generation of
client/server products. Revenues from support and services relating to the
Company's client/server products have increased, while those relating to the
Company's mainframe and other software have declined. However, the decline in
revenues from mainframe and other software support and services has been more
gradual, due to customers' continued needs for support of installed mainframe
and other systems. Support and services as a percentage of total revenues were
40.8%, 40.3% and 46.2%, for 1996, 1995, and 1994, respectively. The decline from
fiscal 1994 is attributable to the shift in revenues generated from the
Company's mainframe and other software to revenues generated from the Company's
MAXIMO suite of products.
The Company experienced an increase in the average selling price of its
MAXIMO client/server software licenses during fiscal 1996. The Company
attributes this increase in part to licenses of a version of MAXIMO for use with
the ORACLE and SYBASE database management systems. These client/server versions
of MAXIMO have a higher entry price and are typically implemented in
configurations involving a larger number of users, for whom additional license
fees are paid. Larger software license contracts, if any, may have a significant
impact on revenues for any quarter and could therefore result in significant
fluctuations in quarterly revenues and operating results.
The Company's revenues attributable to its operations outside the
United States are a significant portion of revenues. The Company expects that
international revenues will continue to be a significant percentage of total
revenues. As the percentage of the Company's total revenues which are derived
from international operations and are conducted in foreign currencies grows,
changes in the values of these foreign currencies relative to the United States
dollar will affect the Company's results of
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operations, and may contribute to fluctuations in the Company's results of
operations. The functional currencies of the Company's international
subsidiaries include the pound sterling, the French franc, the German
deutschemark, the Dutch guilder, the Swedish krona, and the Australian and
Canadian dollars, each of which has fluctuated significantly in relation to the
United States dollar. In addition, the Company is exposed to potential losses as
a result of transactions giving rise to accounts receivable in currencies other
than the United States dollar or the functional currencies of its international
subsidiaries. When the value of a foreign currency in which the accounts
receivable of the Company are denominated changes between the date the account
receivable is accrued and the date on which it is settled, the resulting gain or
loss is recorded as a foreign currency transaction adjustment. The Company
recorded foreign currency transaction losses of $142,000, $117,000 and $76,000
for the fiscal years 1996, 1995 and 1994, respectively. The Company may in the
future undertake currency hedging, although there can be no assurance that
hedging transactions, if entered into, would materially reduce the effects of
fluctuations in foreign currency exchange rates on the Company's results of
operations.
To date, inflation has not had a material impact on the Company's
financial results. There can be no assurance, however, that inflation may not
adversely affect the Company's financial results in the future.
Business Combinations.
On December 27, 1995, the Company acquired the shares of its Swedish
distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000.
In addition, the Company is obligated to pay the seller an earnout based on
revenue target achievement for the fiscal year ended September 30, 1996. The
total earnout at September 30, 1996 was $147,000.
On March 1, 1996, the Company acquired certain assets and assumed
specific liabilities of the IHS department of debis Systemhaus Standard -
Software - Produkte GmbH for the sum of $646,000. In addition, the Company will
pay an earnout based on revenue target achievement for the twelve months ended
December 31, 1996. The earnout is estimated to be $216,000 at September 30,
1996.
On March 1, 1996, the Company acquired MAC in exchange for the issuance
of 368,946 shares of the Company's common stock. MAC provides the Company an
existing, although immature, tele-sales channel which has been restructured and
can target entities and industries supplemental to those currently targeted by
the Company's existing direct sales channel, such as real estate management,
hotels and small education and medical facilities. MAC's product, CHIEF
ADvantage has been renamed MAXIMO ADvantage and has been enhanced since the
acquisition.
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Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenues:
Year Ended September 30.
------------------------
1996 1995 1994
------ ------ ------
Revenues:
Software 59.2% 59.7% 53.8%
Support and services 40.8 40.3 46.2
------ ------ ------
Total revenues: 100.0 100.0 100.0
Total cost of revenues 24.9 25.3 28.0
------ ------ ------
Gross margin 75.1 74.7 720
------ ------ ------
Operating expenses:
Sales and marketing 33.3 32.8 33.7
Product development 10.4 13.2 12.9
General and 10.2 12.0 12.6
administrative
Merger expenses 1.3 -- --
------ ------ ------
Total operating 55.2 58.0 59.2
expenses: ------ ------ ------
Income from operations 19.9 16.7 12.8
Other income(expense), net 2.6 1.8 (0.2)
------ ------ ------
Income before income taxes 22.5 18.5 12.6
Historical income taxes 8.8 7.4 6.3
------ ------ ------
Historical net income 13.7% 11.1% 6.3%
------ ------ ------
Pro forma income taxes (1) 5.6
------
Pro forma net income 7.0%
------
(1) For the fiscal year ended September 30, 1994, the provision for income taxes
is adjusted to exclude the expense of the cumulative deferred tax provision
required on termination of S corporation status.
(2) All periods presented have been restated to include the results and
balances of an acquisition accounted for as a pooling-of-interests.
Revenues
Total revenues increased 45.6% to $73,329,000 in 1996 and 37.1% to
$50,372,000 in 1995 from $36,753,000 in 1994. Prior year comparative revenues
include only nine months of MAXIMO ADvantage revenues in fiscal 1995, as MAC's
fiscal year was changed to coincide with the Company's. The growth in revenues
is generated from the Company's MAXIMO software and related support and
services. A significant portion of the Company's total revenues are derived from
operations outside the United States. Revenues from sales outside the United
States for 1996 increased 53.7% to $29,734,000 or 40.5% of total revenues,
compared to $19,340,000 or 38.4% of total revenues in 1995 and $14,576,000 or
39.7% of total revenues in 1994. The decrease in the percentage of total
revenues generated outside the United
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States in 1995 can be attributed primarily to a few large licenses of MAXIMO in
the United States.
The Company's software revenues increased 44.3% to $43,382,000 in 1996
and 51.9% to $30,054,000 in 1995 from $19,780,000 in 1994. Software revenues as
a percentage of total revenues were 59.2%, 59.7% and 53.8% in 1996, 1995 and
1994, respectively. The progressive growth in software revenues is attributable
to increases in the number of MAXIMO licenses, the number of users per license
of MAXIMO and a few large MAXIMO Enterprise software license deals, combined
with the release of the client/server versions of MAXIMO on SYBASE and Oracle.
Revenues from licenses of MAXIMO and from related support and services increased
60.9% to $66,710,000 or 91.0% of total revenues in 1996, compared to $41,462,000
or 82.3% of total revenues in 1995 and $24,817,000 or 67.5% of total revenues in
1994. Revenues from licenses of P/X and from related support and services
decreased 13.7% to $4,861,000 or 6.6% of total revenues in 1996, compared to
$5,630,000 or 11.2% of total revenues in 1995 and $6,738,000 or 18.3% of total
revenues in 1994. The decline in P/X revenues year over year occurred most
significantly in P/X software license revenues and can be attributed to product
performance issues, diminished demand for high-end planning and cost solutions,
increased competition, and the Company's declining focus on selling and
marketing this product.
Revenues from support and services increased 47.4% to $29,947,000 in
1996 from $20,318,000 in 1995 and 19.7% to $20,318,000 in 1995 from $16,973,000
in 1994. The increases year over year are attributable to increased sales of
MAXIMO support contracts and consulting and training services, partially offset
by declines in sales of support contracts and services relating to the Company's
project management software. Support and services as a percentage of total
revenues were 40.8%, 40.3% and 46.2%, for 1996, 1995 and 1994, respectively.
Cost of Revenues.
The total cost of revenues increased 43.4% to $18,238,000 in 1996 and
23.7% to $12,719,000 in 1995 from $10,283,000 in 1994. Prior year comparative
costs of revenues for 1995 include only nine months of MAC costs in fiscal 1995,
as MAC's fiscal year was changed to coincide with the Company's. The total cost
of revenues as a percentage of total revenues were 24.9%, 25.3% and 28.0% in
1996, 1995 and 1994, respectively.
Cost of software revenues consists of the amortization of capitalized
software, royalties paid to vendors of third party software, the cost of
software product packaging and media, and certain employee costs related to
software duplication, packaging and shipping. Cost of software revenues
increased 14.5% to
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$3,106,000 in 1996 and 20.2% to $2,713,000 in 1995 from $2,258,000 in 1994. In
fiscal 1996, the Company changed the estimated useful life of its MAXIMO
Enterprise product from three years to fifteen months to accurately reflect the
lifecycles for new releases of this product. This change resulted in additional
amortization expense of $565,000. In fiscal 1995, the Company accelerated the
amortization expense of its internally developed software related to its P/X
product, which resulted in $514,000 of additional expense. The increases year
over year are also attributable to production costs associated with increased
licenses of software. The cost of client/server software revenues as a
percentage of client/server software revenues was 7.2%, 9.0% and 11.4% in 1996,
1995 and 1994, respectively. The decreases as a percentage of revenues were due
primarily to economies resulting from increased sales volume.
Cost of support and services consists primarily of personnel costs for
employees and the related costs of benefits and facilities. Cost of support and
services revenues increased 51.2% to $15,132,000 in 1996 from $10,006,000 in
1995 and 24.7% to $10,006,000 in 1995 from $8,025,000 in 1994. Cost of support
and services as a percentage of support and services revenues was 50.5%, 49.2%,
and 47.3% in 1996, 1995 and 1994, respectively. In fiscal 1996, the increases as
a percent of revenues are attributable to the hiring costs of third-party
consultants contracted with to perform services for the Company as a result of
the increases in the number of licenses sold and the timing of hiring permanent
employees. Also in fiscal 1996, the Company created a Business Solutions group
whose goal is to do project management for large industry implementations in
certain vertical markets. The increases year over year are also attributable to
the costs of personnel to support international distributors in certain
territories where the distributors performed a larger proportion of services
without corresponding increases in service revenues to the Company.
Sales and Marketing Expenses.
Sales and marketing expenses increased 47.5% to $24,422,000 in 1996 and
33.6% to $16,555,000 in 1995 from $12,395,000 in 1994. Prior year comparative
sales and marketing expenses for 1995 include only nine months of MAC expenses
in fiscal 1995, as MAC's fiscal year was changed to coincide with the Company's.
The increases year over year are primarily due to increases in the number of
sales personnel, sales commissions, travel and lodging expenses, and an increase
in advertising costs and the restructuring of the MAC tele-sales operation.
Sales and marketing expenses as a percentage of total revenues were 33.3%, 32.8%
and 33.7% in 1996, 1995, and 1994, respectively. The increase as a percentage of
revenues for fiscal 1996 is due primarily to increases in sales commissions paid
to both the geographic sales representatives and in some cases the industry
oriented vertical sales representative, therefore decreasing the
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margin on the sale. The decrease as a percentage of revenues for fiscal 1995 was
due primarily to the increased productivity of the Company's sales and marketing
staffs combined with increased sales of the Company's MAXIMO product by
distributors.
Product Development Expenses.
Product development expenses increased 15.3% to $7,653,000 in 1996 and
39.7% to $6,639,000 in 1995 from $4,753,000 in 1994. Prior year comparative
product development expenses for 1995 include only nine months of MAC expenses
in fiscal 1995, as MAC's fiscal year was changed to coincide with the Company's.
The increase for fiscal 1996 is primarily due to the engagement of additional
employees and third party consultants who worked on the new client/server
release of MAXIMO during the first six months of the year, offset by the
capitalization of the software costs related to the product, as no software
costs were capitalized for fiscal 1995. Capitalization of software costs were
$634,000, $0 and $739,000 in fiscal 1996, 1995 and 1994, respectively. During
fiscal 1996, the Company spent progressively more of its development
expenditures on MAXIMO such that virtually all of its development dollars were
incurred on the MAXIMO product line by the end of the year. Product development
expenses as a percentage of total revenues were 10.4%, 13.2%, and 12.9% in 1996,
1995, and 1994, respectively. The decreases as a percentage of revenues in
fiscal 1996 are attributable to the delays in planned hires of new development
staff until the later half of fiscal 1996 and capitalization of internal
software developments costs in 1996 versus no capitalization of expenses in
1995.
General and Administrative Expenses.
General and administrative expenses include the cost of the Company's
finance, human resources, information services and administrative operations.
Prior year comparative general and administrative expenses for 1995 include only
nine months of MAC expenses in fiscal 1995, as MAC's fiscal year was changed to
coincide with the Company's. General and administrative expenses increased 23.7%
to $7,445,000 in 1996 and 30.3% to $6,021,000 in 1995 from $4,620,000 in 1994.
The increase in fiscal 1996 is primarily due to goodwill amortization for the
purchase of two international distributors, expenses related to professional
fees in connection with growth of the Company, as well as, increases in
insurance premiums resulting from the second public offering in July 1995. The
increase in fiscal 1995 was primarily due to an increase in the provision for
bad debt expenses in proportion to the increase in receivables. General and
administrative expenses as a percentage of total revenues were 10.2%, 12.0% and
12.6% in 1996, 1995, and 1994, respectively. The decrease as a percentage of
revenues in fiscal 1996 is attributable to salary reductions due to the
departure of several MAC executives and administrative employees, and the
ability of the Company to manage a larger
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revenue base without commensurate increases in general and administrative
expenses.
Other Income/Expense.
Interest income increased to $1,971,000 in 1996 from $1,104,000 in 1995
and $235,000 in 1994. Prior year comparative expenses include only nine months
of MAC expenses in fiscal 1995, as MAC's fiscal year was changed to coincide
with the Company's. The increases are attributable to interest earned on cash
equivalents and marketable securities purchased with the net proceeds of the
Company's public offering in 1995 and initial public offering in 1994. Interest
expense was $38,000 in 1996, $49,000 in 1995 and $303,000 in 1994. The decrease
in 1995 was attributable to the retirement of subordinated debt in 1994 in
conjunction with the Company's initial public offering and the buyout of certain
capital equipment leases. Other income (expense), net, decreased to $42,000 in
1996 from $136,000 in 1995, compared to net income of $11,000 in 1994. The
decrease in 1996 is primarily attributable to an increase in income derived from
the MAXIMO Users Group Conference, offset by foreign currency translation
losses. The increase in 1995 is attributable to foreign currency translation
losses.
Provision for Income Taxes.
The Company's effective tax rates were 39.1%, 39.8% and 50.2% in 1996,
1995 and 1994, respectively. The Company's pro forma effective tax rate was
44.0% in 1994. The pro forma tax rate excludes the effect of $286,000 of
cumulative deferred taxes required to be recorded on termination of Subchapter S
corporation status. The decrease in the effective tax rate for fiscal 1996 can
be attributed to the use of a Foreign Sales Corporation partially offset by
non-deductible merger expenses. The decrease in the effective tax rate for
fiscal year 1995 can be attributed primarily to a reduction in foreign
withholding taxes. At September 30, 1996, the Company had net operating loss
carryforwards of approximately $1,259,000 and $94,000 of credit carryforwards in
certain foreign jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash and cash equivalents of
approximately $9,097,000 and working capital of $53,289,000. Cash provided by
operations for fiscal year 1996 was $2,691,000, generated primarily by income
earned for the period and depreciation, offset by the increase in accounts
receivable and the acquisition costs in connection with the purchase of our
Swedish and German distributors. Cash used in investing activities totaled
$5,041,000, primarily for the purchase computer equipment, office equipment and
capitalization of internal software costs, and purchases of marketable
securities. Cash provided by financing activities was $2,120,000, generated
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by proceeds from exercises of employee stock options, offset by the repayment of
MAC's equipment loans and amounts borrowed on their line of credit.
As of September 30, 1996, the Company's principal commitments consisted
primarily of an office lease for its headquarters and leases of computer
equipment and motor vehicles. The Company leases its facilities and certain
equipment under non-cancelable operating lease agreements that expire at various
dates through March 1999.
In March 1996, the Company extended its $5,000,000 unsecured line of
credit with Chase Manhattan Bank, N.A., which will expire on March 31, 1997. The
Company believes that its current cash balances combined with cash flow from
operations and credit available under its bank line of credit will be sufficient
to meet its working capital and capital expenditure requirements through at
least September 30, 1997.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company generally ships its product upon receipt of orders and
maintains no significant backlog. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. A delay in or loss of orders can cause significant variations in
quarterly operating results. In addition, the Company's revenues and operating
results have fluctuated historically, due to the number and timing of product
introductions and enhancements, the budgeting and purchasing cycles of customers
and the timing of large orders, the timing of product shipments and the timing
of marketing and product development expenditures. Large software license
contracts may have a significant impact on revenues for any quarter and could
therefore result in significant fluctuations in quarterly revenues and operating
results. The Company's revenues and income from operations typically grow at a
lower rate or decline in the first quarter of each fiscal year. In addition,
revenues are typically higher in the fourth quarter than in other quarters of
the year, reflecting the Company's fiscal year end and a sales commission policy
that bases rewards on achievement of annual quotas. As a result of these
factors, the Company has experienced, and may in the future experience,
significant period-to-period fluctuations in revenues and operating results.
FACTORS OF FUTURE PERFORMANCE
Further information on factors that could affect the Company's business
and financial results are included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to exhibits and financial statement schedules
are included in Part IV item 14(a) (1) and (2).
Quarterly Financial Data (Unaudited)
The company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as an
indication of future performance.
(in thousands, except per share amounts)
1996 Quarter Dec.31, Mar. 31, June 30, Sep. 30, Year Ended
- ------------
Ended: 1995 1996 1996 1996 1996
- -------- ---- ---- ---- ---- ----
Total revenues $16,187 $16,376 $18,151 $22,615 $73,329
Income from
operations 3,213 2,676 3,720 4,997 14,606
Income before
income taxes 3,634 2,993 4,207 5,663 16,497
Provision for
income taxes 1,507 1,546 1,457 1,941 6,451
Net income 2,127 1,447 2,750 3,722 10,046
Net income per
share $ 0.21 $ 0.14 $ 0.27 $ 0.37 $ 1.00
1995 Quarter Dec.31, Mar. 31, June 30, Sep. 30, Year Ended
- ------------
Ended: 1994 1995 1995 1995 1995
- ------ ---- ---- ---- ---- ----
Total revenues $10,277 $11,628 $13,633 $14,834 $50,372
Income from
operations 1,702 1,663 2,412 2,661 8,438
Income before
income taxes 1,826 1,860 2,476 3,195 9,357
Provision for
income taxes 728 854 942 1,204 3,728
Net income 1,099 1,006 1,534 1,991 5,629
Net income per
share $ 0.13 $ 0.12 $ 0.18 $ 0.20 $ 0.64
The consolidated financial statements of the Company for all periods presented
include the results and balances of an acquisition accounted for as a
pooling-of-interests.
27
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
(ITEMS 10,11,12,13)
In accordance with general instruction G(3) to Form 10-K, information
required by Part III is incorporated by reference from the Company's definitive
Proxy Statement for its 1997 Annual Meeting of Stockholders to be filed,
pursuant to Regulation 14A, within 120 days after the end of the Company's
fiscal year ended September 30, 1996.
28
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The financial statements and schedules filed as part of this Report are
listed in the following Index to Financial Statements and Schedules. The
exhibits filed as part of this Report are listed in the accompanying Index to
Exhibits.
(a) The following documents are filed as a part of this Report:
1. Consolidated Financial Statements. The following Consolidated
Financial Statements of the Company are filed as part of this report:
PAGE
----
Report of Independent Accountants ................... 35
Consolidated Balance Sheets -
September 30, 1996 and 1995 ......................... 36
Consolidated Statements of Operations -
Years Ended September 30, 1996, 1995 and 1994 ....... 37
Consolidated Statements of Cash Flows -
Years Ended September 30, 1996, 1995 and 1994 ....... 38
Consolidated Statements of Stockholders' Equity -
Years Ended September 30, 1996, 1995 and 1994 ....... 39
Notes to Consolidated Financial Statements .......... 40
2. Financial Statement Schedules. The following financial
statement schedules of Project Software & Development, Inc.
for the Years Ended September 30, 1996, 1995 and 1994 are
filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of
the Company.
SCHEDULE PAGE
-------- ----
II Valuation and Qualifying Accounts......... 56
Schedules not listed above have been omitted because they are not
applicable or are not required, or the information required to be set
forth therein is included in the Consolidated Financial Statements or
Notes thereto.
3. Exhibits.
Exhibits 10.3 through 10.5 include the Company's compensatory plans or
arrangements required to be filed as exhibits pursuant to Item 14(c) of
Form 10-K.
3. Instruments Defining the Rights of Security-Holders
3.1 Amended and Restated Articles of Organization of the
Company (included as Exhibit 3.3 to the Company's Registration
Statement on Form S-l, Registration
29
31
No. 33-76420, and incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended
9. Voting Trust Agreements
9.1 1996 Daniels Voting Trust Agreement dated August 19, 1996
among Susan H. Daniels, Robert L. Daniels and Robert L.
Daniels, as Trustee
10. Material Contracts
10.1 Underwriting Agreement, dated July 13, 1995, by and among
the Company, Robertson, Stephens & Company, L.P., Montgomery
Securities and First Albany Corporation, as representatives of
the several underwriters and certain shareholders of the
Company named in Schedule B thereto. (included as Exhibit 10.1
to the Company's Registration Statement on Form S-1,
Registration No.33-76420, and incorporated herein by
reference)
10.2 Forms of Lock-Up Agreements (included as Exhibit 10.4 to
the Company's Registration Statement on Form S-1, Registration
No.33-76420, and incorporated herein by reference)
10.3 1996 Executive Bonus Plan (included as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995, Commission File No. 0-23852 and
incorporated herein by reference)
10.5 Amended and Restated 1994 Incentive and Nonqualified
Stock Option Plan, as approved by the stockholders of the
Company by written consent dated April 15, 1994 (included as
Exhibit 10.16 to the Company's Registration Statement on Form
S-1, Registration No.33-76420, and incorporated herein by
reference)
10.6 1994 Employee Stock Purchase Plan, as amended
10.7 Agreement and Plan of Merger, dated as of March 1, 1996,
by and among the Company, Toolbox Acquisition Corp.,
Maintenance Automation Corporation, Johnson Controls, Inc.,
Eli G. Katz, Phyllis S. Katz, Mitchell B. Knecht, Heidi D.
Knecht, Nicholas E. Meola, Naomi R. Meola, Johnson Controls,
Inc. and Eli G. Katz, as agent (included
30
32
as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, File No. 0-23852, and
incorporated herein by reference)
10.8 Escrow Agreement, dated as of March 1, 1996, by and among
the Company, Toolbox Acquisition Corp., Maintenance Automation
Corporation, Johnson Controls, Inc., Eli G. Katz, Phyllis S.
Katz, Mitchell B. Knecht, Heidi D. Knecht, Nicholas E. Meola,
Naomi R. Meola, Johnson Controls, Inc. and Eli G. Katz, as
agent (included as Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, File
No. 0-23852, and incorporated herein by reference)
10.9 Registration Rights Agreement, dated as of March 1, 1996,
by and among the Company, Toolbox Acquisition Corp.,
Maintenance Automation Corporation, Johnson Controls, Inc.,
Eli G. Katz, Phyllis S. Katz, Mitchell B. Knecht, Heidi D.
Knecht, Nicholas E. Meola, Naomi R. Meola, Johnson Controls,
Inc. and Eli G. Katz, as agent (included as Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, File No. 0-23852, and incorporated
herein by reference)
10.10 Directors and Officers Liability and Company
Reimbursement Policy for the Company issued by Lexington
Insurance Company for the period of March 18, 1996 through
March 18, 1997 (included as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, File No. 0-23852, and incorporated herein by reference)
10.11 Directors and Officers Liability and Company
Reimbursement Policy for the Company issued by Zurich
Insurance Company for the period of March 18, 1996 through
March 18, 1997 (included as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, File No. 0-23852, and incorporated herein by reference)
10.12 Form of PSDI 1994 Authorized Value Added Reseller
Agreement (included as Exhibit 10.22 to the Company's
Registration Statement on Form S-1, Registration No. 33-76420,
and incorporated herein by reference)
31
33
10.13 Reseller Agreement dated May 20, 1994 between the
Company and Oracle Corporation (included as Exhibit 10.12 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30,1994, Commission File No. 0-23852, and
incorporated herein by reference)
10.14 Employee Separation Agreement dated as of July 31, 1996
between the Company and Dean F. Goodermote
11. Statements re computation of per share earnings
11.1 Statement re computation of per share earnings
21. Subsidiaries of the registrant
21.1 Subsidiaries of the Company
23. Consents of experts and counsel
23.1 Consent of Coopers & Lybrand L.L.P.
27. Financial Data Schedule
27.1 Financial Data Schedule
99. Certain Factors
99. Certain Factors - Certain factors concerning the Company
dated December 27, 1996 concerning certain cautionary
statements of the Company to be taken into account in
conjunction with the consideration and review of the Company's
publicly-disseminated documents and oral statements (including
oral statements made by others on behalf of the Company) that
include forward-looking information.
(b) Reports on Form 8-K
During the three months ended September 30, 1996, the Company
filed a current Report on Form 8-K dated August 19, 1996
which, in Item 5, described the restructuring of the Company's
management and certain additional actions, including By-Law
amendments, taken by vote of the Board of Directors. A copy of
the Company's By-Laws, as amended, was filed under Item 7.
32
34
The Company will furnish a copy of any exhibit listed to requesting
stockholders upon payment of the Company's reasonable expense in furnishing
those materials.
33
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: December 27, 1996.
PROJECT SOFTWARE & DEVELOPMENT, INC.
By: /s/ Paul D. Birch
-----------------------------------
Paul D. Birch
Executive Vice President
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.
/s/ Dean F. Goodermote Chairman December 27, 1996
- ------------------------------ of the Board
Dean F. Goodermote
/s/ Paul D. Birch Executive Vice December 27, 1996
- ------------------------------ President, Chief
Paul D. Birch Financial officer
and Treasurer
(Co-Principal Executive
officer,Principal Financial
and Accounting Officer)
/s/ Norman E. Drapeau,Jr Co-Principal December 27, 1996
- ------------------------------ Executive officer
Norman E. Drapeau Jr.
/s/ Robert L. Daniels Director December 27, 1996
- ------------------------------
Robert L. Daniels
/s/ Charles S. Jones Director December 27, 1996
- ------------------------------
Charles S. Jones
- ------------------------------ Director December 27, 1996
Michael D. Marvin
- ------------------------------ Director December 27, 1996
William G. Nelson
34
36
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the consolidated financial statements and the financial
statement schedule of Project Software & Development, Inc. and its subsidiaries
listed in the index on page 29 of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Project
Software & Development, Inc. and its subsidiaries as of September 30, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1996 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 8, 1996
35
37
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995
---- ----
(IN THOUSANDS,EXCEPT SHARE DATA)
Current assets:
Cash and cash equivalents $ 9,097 $ 9,346
Marketable securities 36,798 36,025
Accounts receivable, trade, less allowance
for doubtful accounts of $1,954 in 1996 and
$1,346 in 1995 27,030 13,922
Prepaid expenses 1,410 1,267
Other assets 748 425
Deferred income taxes 892 452
------- -------
Total current assets 75,975 61,437
------- -------
Property and equipment, net 4,174 2,391
Computer software costs, net 787 789
Goodwill, net 1,832 --
Deferred income taxes 675 314
Other assets 33 29
------- -------
Total assets $83,476 $64,960
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,384 $ 5,116
Accrued compensation 5,007 3,714
Income taxes payable 248 603
Deferred income taxes 5 --
Deferred revenue 9,042 6,601
Line of credit -- 325
Leased equipment obligation -- 28
Current maturities of long-term debt -- 67
------- -------
Total current liabilities 22,686 16,454
------- -------
Deferred income taxes 168 277
Deferred rent 85 158
Deferred revenue 375 469
Long-term debt, less current maturities included -- 58
Commitments and contingencies
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding -- --
Common stock, $.01 par value;15,350,000 authorized;
and outstanding 9,702,549 and 9,566,712 for 1996 and 1995,
respectively 97 96
Additional paid-in capital 45,324 42,725
Retained earnings 14,538 4,492
Cumulative translation adjustment 49 159
Net unrealized gain on marketable securities 154 72
------- -------
Total stockholders' equity 60,162 47,544
------- -------
Total liabilities and stockholders' equity $83,476 $64,960
======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
36
38
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1996 1995 1994
------------ ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revenues:
Software $ 43,382 $ 30,054 $ 19,780
Support and services 29,947 20,318 16,973
------------ ----------- -----------
Total revenues 73,329 50,372 36,753
------------ ----------- -----------
Cost of revenues:
Software 3,106 2,713 2,258
Support and services 15,132 10,006 8,025
------------ ----------- -----------
Total cost of revenues 18,238 12,719 10,283
------------ ----------- -----------
Gross margin 55,091 37,653 26,470
Operating expenses:
Sales and marketing 24,422 16,555 12,395
Product development 7,653 6,639 4,753
General and administrative 7,445 6,021 4,620
Merger expenses 965 -- --
------------ ----------- -----------
Total operating expenses 40,485 29,215 21,768
------------ ----------- -----------
Income from operations 14,606 8,438 4,702
Interest income 1,971 1,104 235
Interest (expense) (38) (49) (303)
Other income (expense), net (42) (136) 11
------------ ----------- -----------
Income before income taxes 16,497 9,357 4,645
Provision for income taxes 6,451 3,728 2,330
------------ ----------- -----------
Net income $ 10,046 $ 5,629 $ 2,315
============ =========== ===========
Historical income per share $ 1.00 $ 0.64 $ 0.33
------------ ----------- -----------
Pro forma data:
Historical provision for income taxes -- -- 2,330
Pro forma - decrease to historical taxes -- -- (286)
------------ ----------- -----------
Total taxes -- -- 2,044
------------ ----------- -----------
Pro forma net income -- -- 2,601
------------ ----------- ===========
Pro forma income per share $ -- $ -- $ 0.37
------------ ----------- -----------
Weighted number of common and
common equivalent shares 10,051,908 8,845,746 6,942,422
------------ ----------- -----------
The accompanying notes are an integral part of the
consolidated financial statements.
37
39
PROJECT SOFTWARE & DEVELOPMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 10,046 $ 5,629 $ 2,315
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,662 2,391 1,997
Loss on sale and disposal of property
and equipment 17 42 11
Amortization of discount on marketable securities 331 172 --
Deferred rent (73) (34) (11)
Deferred taxes (908) (735) 217
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable (12,935) (4,871) (590)
Prepaid expenses (90) (519) (75)
Other assets 144 54 (35)
Accounts payable 2,209 1,577 590
Accrued compensation 1,361 2,522 516
Income taxes payable (347) (227) 622
Deferred revenue 2,374 2,613 (614)
--------- --------- --------
Net cash provided by operating activities 4,791 8,614 4,943
--------- --------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash (1,837) -- --
Acquisitions of property and equipment (3,204) (2,007) (621)
Proceeds from sale of property and equipment 6 5 37
Additions to computer software costs (1,084) (83) (821)
Purchases of marketable securities (191,574) (148,609) --
Sales of marketable securities 190,552 112,484 --
--------- --------- --------
Net cash used in investing activities (7,141) (38,210) (1,405)
--------- --------- --------
Cash flows from financing activities:
Payments on leased equipment (29) (413) (176)
(Payments)/Borrowings on line of credit, net (325) 244 (8)
Payment of subordinated notes -- -- (917)
(Payments)/ Borrowings on long-term notes, net (124) 35 43
Repayment of shareholders -- -- (143)
Proceeds from issuance of common stock,
net of issuance costs -- 23,552 11,470
Proceeds from exercise of stock options
including related tax benefit 2,600 915 --
Dividend distribution -- -- (116)
--------- --------- --------
Net cash provided by financing activities 2,122 24,333 10,153
--------- --------- --------
Effect of exchange rate changes on cash (21) 2 (25)
--------- --------- --------
Net (decrease)/increase in cash and cash equivalents (249) (5,261) 13,666
Cash and cash equivalents, beginning of year 9,346 14,607 941
--------- --------- --------
Cash and cash equivalents, end of year $ 9,097 $ 9,346 $ 14,607
========= ========= ========
The accompanying notes are an integral part of
the consolidated financial statements.
38
40
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Net
Unrealized
Common Stock Additional Accumulated Cumulative Gains on Total
Shares Paid-in Earnings Translation Marketable Stockholders
(in thousands, except share data) Issued Amount Capital (Deficit) Adjustment Securities Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1993 .......... 5,355,005 $54 $ 5,719 ($ 3,117) ($ 28) $ 2,628
Adjustment for pooling
of interests .............. 339,520 3 25 (335) (307)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance restated .............. 5,694,525 57 5,744 (3,452) (28) 2,321
Transactions of pooled
company ................... 29,426 1 396 397
Issuance of common stock,
net of issuance cost
of $805 ................... 2,250,006 22 11,028 11,050
Exercise of warrants .......... 299,250 3 1,103 1,106
Net income .................... 2,315 2,315
Translation adjustment ........ 137 137
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1994 .......... 8,273,207 83 18,271 (1,137) 109 17,326
Issuance of common stock,
net of issuance cost
of $470 ................... 1,207,500 12 23,540 23,552
Stock options exercised
and related tax benefit,
employee stock purchases... 86,005 1 914 915
Net income .................... 5,629 5,629
Translation adjustment ........ 50 50
Net unrealized gain on
marketable securities ..... $ 72 72
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1995 .......... 9,566,712 96 42,725 4,492 159 72 47,544
Stock options exercised
and related tax benefit,
employee stock purchases... 135,837 1 2,599 2,600
Net income .................... 10,046 10,046
Translation adjustment ........ (110) (110)
Net unrealized gain on
marketable securities ..... 82 82
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1996 ....... 9,702,549 $97 $45,324 $ 14,538 $ 49 $ 154 $ 60,162
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the
consolidated financial statements.
39
41
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
The Company's primary business is the development, marketing, sales and
support of applications software used by business, government and other
organizations to improve the productivity of facilities, plants and production
equipment.
Basis of Presentation
The consolidated financial statements include the accounts of Project
Software & Development, Inc. ("PSDI") and its majority-owned subsidiaries
(collectively, the "Company"). All intercompany accounts and transactions have
been eliminated. The consolidated financial statements of the Company for all
periods presented in this report include the results and balances of an
acquisition accounted for as pooling-of-interests.
Income per Share
Income per share is computed for each period based upon the weighted
average number of common shares outstanding and dilutive common stock
equivalents (using the treasury stock method). For purposes of this calculation,
stock options are considered common stock equivalents in periods in which they
have a dilutive effect. All share and per share data has been restated to
account for businesses acquired as pooling of interests.
Pro forma adjustments to net income include an adjustment to exclude
the expense of the cumulative deferred tax provision required on termination of
S Corporation status. Fully diluted and primary income per share data are the
same for each period presented.
Depreciation and Amortization
Property and equipment are stated at cost.
Depreciation is computed over the estimated useful lives of the assets
as follows:
Description Estimated Useful Life
----------- ---------------------
Computer equipment............................ 3 years
Vehicles...................................... 3 years
Furniture and fixtures........................ 5 years
Leasehold improvements are amortized on the straight-line method over
the shorter of their estimated useful life or term of the lease. Maintenance and
repairs are charged to expense as incurred and betterments are capitalized. Upon
retirement or sale, the cost of the assets disposed of and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the determination of net income.
40
42
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Goodwill
The excess cost over net assets of acquired companies is being
amortized over five years using the straight-line method of amortization.
Computer Software Costs
Computer software costs consist of internally developed and purchased or
licensed software. Development costs incurred in the research and development of
new software products and enhancements to existing products are expensed in the
period incurred unless they qualify for capitalization under Statement of
Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased or Otherwise Marketed." These costs are amortized on
a straight-line basis over the estimated useful or market life of the software
(generally, one to three years). In fiscal 1996, the Company changed the
estimated useful life of its MAXIMO Enterprise product from three years to
fifteen months to accurately reflect the lifecycles for new releases of this
product. This change resulted in additional amortization expense of $565,000. In
fiscal 1995, the Company accelerated the amortization expense of its internally
developed software related to its P/X product, which resulted in $514,000 of
additional expense.
Income Taxes
As of October 1, 1981, PSDI elected to become a Subchapter S corporation
for federal income tax reporting purposes. Under this election, PSDI passed
through to its stockholders as individual taxpayers, on a pro rata basis, each
item of income (loss), deduction and tax credit. Accordingly, no federal income
tax provision was required for PSDI. In those states that did not recognize
Subchapter S status, state taxes were provided for and foreign taxes were
provided where appropriate. On October 1, 1993, PSDI terminated its status as a
Subchapter S corporation. (see Note B).
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109), which requires an asset and
liability approach for accounting and reporting for income taxes. SFAS 109
also requires a valuation allowance against net deferred tax assets if, based
upon the available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. As permitted under SFAS 109,
prior years' financial statements were not restated. The adoption of SFAS 109
did not have a material impact on the Company's financial position or results
of operations.
The Company has not provided for the U.S. income tax on earnings of its
foreign subsidiaries as it considers these earnings to be permanently
reinvested. At September 30, 1996, the undistributed earnings of foreign
subsidiaries were $1,219,000.
41
43
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Revenue Recognition
The Company licenses its software products upon contract execution and
shipment, provided that no significant vendor obligations remain outstanding and
collection of the resulting receivable is deemed probable. Insignificant vendor
obligations, if any, remaining after contract execution and shipment are
accounted for either by deferring a pro rata portion of revenue for the
remaining tasks or by accruing the costs related to the remaining obligations.
The revenue from maintenance contracts is recognized ratably over the term
of the agreement, generally one year. Revenues from services and system
implementations are recognized as the services are performed. Revenue from
hardware sales is recognized upon shipment. To date, the Company's warranty and
product return expenses have been immaterial.
Deferred Revenue
Deferred revenue includes revenues from fixed fee license agreements with
payment terms greater than one year and maintenance contracts billed in advance.
Foreign Currency
Assets and liabilities are translated at current exchange rates at the
balance sheet dates. The translation adjustments made on translation of the
balance sheet are recorded as a separate component of stockholders' equity.
Revenues and expenses are translated into U.S. dollars at average exchange
rates. Foreign currency transaction gains and losses are included in determining
net income. The Company recorded losses of $142,000, $117,000 and $76,000 for
1996, 1995 and 1994, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with original
maturities of three months or less to be cash equivalents. Cash equivalents
consist primarily of money market funds, which are stated at cost, which
approximates market.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of temporary cash investments and
accounts receivables.
The Company restricts investment of temporary cash investments to financial
institutions with high credit standing. The Company has not experienced any
losses on these investments to date. Credit risk on trade receivables is
minimized as a result of the diverse nature of the Company's customer base. As
of September 30, 1995, the Company had a receivable due from the U.S.
Government, which represented 13% of the Company's accounts receivable balance.
The Company collected all amounts due on this receivable in the normal course of
business. The Company has not experienced significant losses related to accounts
receivable from
42
44
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
individual customers or groups of customers in a particular industry or
geographic area. Due to these factors, no additional credit risk beyond amounts
provided for collection losses is believed inherent in the Company's accounts
receivable.
Marketable Securities
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
(SFAS 115). The Company's marketable securities are classified as
available-for-sale and are stated at their fair market value. The fair market
value of marketable securities was determined based on quoted market prices.
Unrealized gains and losses on securities classified as available-for-sale are
reported as a separate component of stockholder's equity.
Accounting Standards
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" for fiscal years beginning after December 15, 1995. SFAS No. 123
prescribes accounting and reporting standards for all stock-based compensation
plans, including employee stock options, restricted stock, and stock
appreciation rights. SFAS No. 123 does not require companies to change their
existing accounting for employee stock options under Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" {the
intrinsic value method) but requires pro forma disclosures of what net income
and earnings per share would have been had the new fair value method been used.
The Company has elected to continue following present accounting rules under APB
Opinion No. 25 and will adopt the new disclosure provisions of SFAS No. 123
beginning in fiscal year 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
43
45
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
B. INCOME TAXES:
The components of income before income taxes and extraordinary item and the
historical related provision for income taxes consist of the following:
Year Ended September 30,
--------------------------------------
(in thousands) 1996 1995 1994
-------- ------- -------
Income before income taxes and
extraordinary items:
United States ................. $ 15,484 $ 8,240 $ 3,531
Foreign ....................... 1,013 1,117 1,114
-------- ------- -------
$ 16,497 $ 9,357 $ 4,645
======== ======= =======
(Liability Method)
--------------------------------------
Current taxes:
Federal ................... 5,291 3,146 1,188
State ..................... 1,075 765 317
Foreign ................... 757 347 345
Foreign withholding taxes.. 233 206 266
-------- ------- -------
$ 7,356 $ 4,464 $ 2,116
-------- ------- -------
Deferred taxes:
Federal ................... (382) (561) 233
State ..................... (63) (134) 4
Foreign ................... (460) (41) (23)
-------- ------- -------
(905) (736) 214
-------- ------- -------
Total .................. $ 6,451 $ 3,728 $ 2,330
======== ======= =======
The provision for income taxes on a pro forma basis is as follows:
Year Ended September 30,
------------------------
1994
-------
Liability Method (in thousands)
Current taxes:
Federal ............................................. 1,188
State ............................................... 317
Foreign ............................................. 345
Foreign withholding taxes ........................... 266
-------
$ 2,116
=======
Deferred taxes:
Federal ........................................... (53)
State ............................................. 4
Foreign ........................................... (23)
(72)
-------
Total .......................................... $ 2,044
=======
44
46
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The reconciliation of the Company's historical income tax provision to the
statutory federal tax rate is as follows:
Year Ended September 30,
------------------------
1996 1995 1994
---- ---- ----
Statutory federal tax rate ........... 35.0% 34.0% 34.0%
State taxes, net of federal tax
benefit .............................. 4.3 5.0 4.6
Foreign withholding taxes ............ 1.4 0.4 5.8
Utilization of net operating loss
carryforwards ........................ (0.3) (1.3) (3.7)
Effect of termination of S
corporation status ................... -- -- 6.2
Other ................................ (1.3) 1.7 3.3
---- ---- ----
39.1% 39.8% 50.2%
==== ==== ====
The components of the historical deferred tax provision are:
Year Ended September 30,
------------------------
(in thousands) 1996 1995
---- ----
Depreciation ................................. $ 47 $ (69)
Allowance for Doubtful Accounts .............. (283) (188)
Software Capitalization ...................... (121) (434)
Net Operating Losses ......................... (564) --
Other ........................................ 16 (80)
----- -----
$(905) $(771)
===== =====
45
47
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The components of the deferred tax assets and liabilities are as follows:
Year Ended September 30,
------------------------
(in thousands) 1996 1995
------- -----
Deferred Tax Assets:
Deferred Revenue ......................... $ 112 $ 157
Allowance for Doubtful Accounts .......... 633 350
Accrued Vacation ......................... 101 61
Other .................................... 157 198
Net Operating Loss Carryforwards ......... 585 451
Valuation Allowance ...................... (21) (451)
------- -----
$ 1,567 $ 766
======= =====
Deferred Tax Liabilities:
Software Capitalization .................. $ 141 $ 262
Other Liabilities ........................ 32 15
------- -----
$ 173 $ 277
------- -----
Net Deferred Tax Asset ................... $ 1,394 $ 489
======= =====
At September 30, 1996, the Company had approximately $397,000 of net
operating loss carryforwards and $94,000 of credit carryforwards in certain
foreign jurisdictions. The foreign net operating loss carryforwards have an
indefinite life. Domestic net operating loss carryforwards at September 30,
1996, were approximately $862,000 and will expire in the year 2011.
The French tax authorities are examining the French income tax returns for
the fiscal years ended 1989 through 1991. The French tax authorities have
proposed an adjustment for which the Company is in disagreement and has
protested. Management does not believe that any additional tax liability for
such periods which might arise out of such examination would have a material
adverse effect on the results of operations or financial position of the
Company.
C. ACQUISITIONS:
On December 27, 1995, the Company acquired the shares of its Swedish
distributor, Planneringssystem och Datorer I Norden AB for the sum of $517,000.
In addition, the Company is obligated to pay the seller an earnout based on
revenue target achievement for the fiscal year ended September 30, 1996. The
total earnout at September 30, 1996 was $147,000. The transaction was accounted
for using the purchase method of accounting. The resulting goodwill is being
amortized on a straight-line basis over 5 years. This acquisition was deemed to
be immaterial for presentation of pro forma information.
On March 1, 1996, the Company acquired certain assets and assumed specific
liabilities of the HIS department of debis Systemhaus Standard - Software -
Produkte GmbH for the sum of $646,000. In addition, the Company will pay an
earnout based on
46
48
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
revenue target achievement for the twelve months ended December 31, 1996. The
earnout is estimated to be $260,000 at September 30, 1996. The transaction was
accounted for using the purchase method of accounting. The resulting goodwill is
being amortized on a straight-line basis over 5 years. This acquisition was
deemed to be immaterial for presentation of pro forma information.
On March 1, 1996, the Company acquired the outstanding common stock of
Maintenance Automation Corporation ("MAC"), a developer of PC-based maintenance
management software, in exchange for the issuance of 368,946 shares of common
stock. The transaction has been accounted for as a pooling-of-interests. Costs
of the acquisition were $965,000. The Company's consolidated financial
statements for all periods presented have been restated to include MAC. MAC's
fiscal year for financial reporting purposes was changed from December 31 to
September 30 for the period ended September 30, 1995. MAC's results of
operations for the nine-month period ended September 30, 1995 and twelve-months
ended December 31, 1994 have been included in the Company's 1995 and 1994
results, respectively. Accordingly, MAC's operations for the months ended
October through and including December 1994 have not been included in the
Company's September 30, 1995 results. Revenues and net income for MAC for
October through and including December 1994 were $1,083,000 and $78,300,
respectively, and have been included in the Company's September 30, 1994
results.
The following information shows revenue and net income of the separate
companies during the periods preceding the combination. Adjustments recorded to
conform the accounting policies of the companies were not material to the
consolidated financial statements.
Quarter
Ended Year Ended
December September 30,
31,
-------- ------------------------
(in thousands) 1995 1995 1994
-------- -------- --------
Revenue:
PSDI ....................... $ 14,215 $ 46,293 $ 33,604
MAC ........................ 1,972 4,079 3,149
-------- -------- --------
Combined .............. $ 16,187 $ 50,372 $ 36,753
-------- -------- --------
Historical Net Income (loss):
PSDI ..................... $ 2,402 $ 6,322 $ 2,706
MAC ...................... (275) (693) (391)
-------- -------- --------
Combined .............. $ 2,127 $ 5,629 $ 2,315
-------- -------- --------
47
49
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
D. LEASED EQUIPMENT OBLIGATION:
The Company acquired computer equipment and vehicles under capital lease
agreements which expire at various dates through December 31, 1996. The
capitalized cost of the leased equipment and vehicles was $199,000 and $279,000
with related accumulated amortization of $183,000 and $239,000 at September 30,
1996 and 1995, respectively.
E. MARKETABLE SECURITIES:
Marketable equity and debt securities available for current operations are
classified in the balance sheet as current assets. It is the Company's intention
that all securities held at the balance sheet date will be sold within one year
based upon historical experience to date. Dividend and interest income,
including amortization of premium and discount arising at acquisition, are
included in other income. The unrealized holding gains and (losses) for the year
ended September 30, 1996 were $359,000 and $(275,000), respectively. The
unrealized holding gains and (losses) for the year ended September 30, 1995 were
$80,000 and $(8,000), respectively. As of September 30, 1996, all marketable
securities were classified as available for sale and include the following:
Fair
Amortized Market
(in thousands) Cost Value
------- -------
1996:
U.S. Government securities $17,000 $17,412
Tax exempt municipal securities 19,267 19,186
Corporate debt securities 200 200
------- -------
$36,467 $36,798
======= =======
Fair
Amortized Market
(in thousands) Cost Value
------- -------
1995:
U.S. Government securities $15,987 $16,116
Tax exempt municipal securities 11,164 11,209
Corporate debt securities 200 200
Repurchase agreement 8,500 8,500
------- -------
$35,851 $36,205
======= =======
48
50
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
F. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and consist of the following:
Year Ended September 30,
--------------------------
(in thousands) 1996 1995
-------- --------
Computer equipment ......................... $ 8,686 $ 6,712
Vehicles ................................... 397 397
Furniture and fixtures ..................... 3,372 2,317
Leasehold improvements ..................... 1,980 1,907
-------- --------
14,435 11,333
Less accumulated depreciation and
amortization............................... (10,261) (8,942)
-------- --------
$ 4,174 $ 2,391
======== ========
Depreciation and amortization expense was $1,459,000, $1,149,000 and
$866,000 for 1996, 1995 and 1994, respectively.
G. GOODWILL
The Company's excess of purchase cost over the fair value of net assets
purchased of businesses acquired was $2,100,000 for 1996. Amortization expense
was $268,000 for 1996. There were no businesses acquired in 1995 or 1994.
H. ACCRUED COMPENSATION:
A summary of accrued compensation consists of the following:
Year Ended September
30,
-----------------------
(in thousands) 1996 1995
------ ------
Accrued bonus ................................ $1,778 $1,884
Accrued 401(k) Company contribution .......... 133 201
Accrued payroll .............................. 140 11
Accrued sales commissions .................... 2,547 1,333
Accrued vacation pay ......................... 409 285
------ ------
$5,007 $3,714
====== ======
I. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under operating lease agreements
which expire at various dates through September 30, 2006. The Company pays all
insurance, utilities, and pro rated
49
51
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
portions of any increase in certain operating expenses and real estate taxes.
The Company has an option to extend the lease for its headquarters for two
successive five-year periods. Rent expense under these leases aggregated
$3,033,000, $2,649,000 and $2,662,000 for 1996, 1995 and 1994 respectively.
The operating leases provide for minimum aggregate future rentals as of
September 30, 1996 as follows:
(in thousands)
1997 .......................... $2,557
1998 .......................... 1,120
1999 .......................... 538
2000 .......................... 358
2001 and thereafter ........... 1,547
------
$6,120
======
At September 30, 1996, the Company is also obligated to pay $480,000 in
1997 under guaranteed royalty arrangements.
The Company is not party to any legal proceedings the outcome of which, in
the opinion of management, would have a material adverse effect on the Company's
operations or financial condition.
J. EMPLOYEE BENEFITS:
Cash or Deferred Plan
The PSDI Cash or Deferred Plan (the "Plan") is a defined contribution plan
available to substantially all of PSDI's domestic employees. The Plan was
established in 1988 under Section 401(a) of the Internal Revenue Code. Under the
Plan, employees may make voluntary contributions based on a percentage of their
pretax earnings.
Effective January 1, 1993, the Plan was amended to provide for both a
guaranteed and a discretionary contribution made by PSDI. Amounts charged to
expense for this Plan in 1996, 1995 and 1994 were $40,000, $237,000, and
$107,000, respectively.
Incentive and Nonqualified Stock Option Plan
On March 10, 1994, the Board of Directors of the Company adopted the 1994
Incentive and Nonqualified Stock Option Plan (the "Option Plan") that provided
for the grant of 900,000 nonqualified and incentive stock options to directors
and employees. On January 25, 1996, the Board of Directors of the Company voted
to increase the number of shares of Common Stock that may be issued from 900,000
to 1,800,000. The exercise price of Incentive Options must be at least equal to
the fair market value on the date of grant. The exercise price of Nonqualified
Options must not be less than 85% of the fair market value on the date of grant.
These options vest in equal annual installments over periods of two to four
years, commencing on December 31, 1994.
50
52
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock option activity is summarized as follows:
Number of
Shares Price Range
------ -----------
1994
Granted 541,500 $ 5.67 - $ 6.33
Canceled (8,100) $ 5.67 - $ 6.33
Outstanding at September 30,
1994 533,400 $ 5.67 - $ 6.33
Available for grant at
September 30, 1994 366,600
1995
Granted 303,750 $15.50 - $18.00
Canceled (17,820) $ 5.67 - $18.00
Exercised (75,200) $ 5.67 - $ 6.33
Outstanding at September 30,
1995 744,130 $ 5.67 - $18.00
Exercisable at September 30,
1995 70,450 $ 5.67 - $ 6.33
Available for grant at
September 30, 1995 80,670
1996
Granted 322,850 $23.75 - $31.00
Canceled (10,868) $ 5.67 - $31.00
Exercised (126,708) $ 5.67 - $18.00
Outstanding at September 30,
1996 929,404 $ 5.67 - $31.00
Exercisable at September 30,
1996 167,812 $ 5.67 - $18.00
Available for grant at
September 30, 1996 668,688
Employee Stock Purchase Plan
On March 10, 1994, the Board of Directors of the Company adopted the 1994
Employee Stock Purchase Plan that provides for a maximum issuance of 225,000
shares of Common Stock for purchase by eligible employees at 85% of the lower of
the fair market value of the Company's Common Stock on either the first or last
day of the annual offering period. No compensation expense is recorded in
connection with the plan. During fiscal year ended 1996, employees purchased
9,129 shares at a price of $14.73. During fiscal year ended 1995, employees
purchased 10,800 shares at a price of $5.81.
51
53
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
K. STOCKHOLDERS' EQUITY:
Preferred Stock
On March 11, 1994, the issuance of up to 1,000,000 shares of preferred
stock, $0.01 par value was authorized. The Board of Directors has the authority
to issue the preferred stock in one or more series and to fix rights,
preferences, privileges and restrictions, including dividends, and the number of
shares constituting any series and the designation of such series.
Stock Splits
On March 11, 1994, the Company effected a 3.5-for-1 stock split of its
outstanding Common Stock and the authorized number of Common Stock was increased
to 15,350,000. On June 15, 1995, the Company's Board of Directors declared a
3-for-2 stock split in the form of a stock dividend, which was paid on July 6,
1995 to holders of a record on June 26, 1995. All share and per share data has
been restated to reflect these stock splits as though they had occurred at the
beginning of the initial period presented.
Common Stock
On April 28, 1994, the Company completed its initial public offering
("IPO") and sold 2,250,000 shares of Common Stock, receiving net proceeds of
approximately $11,000,000, after underwriting discounts and other expenses of
the offering. Simultaneously with the closing of the IPO, all outstanding
warrants were exercised for 299,250 shares of Common Stock.
On July 18, 1995, the Company completed a public offering of 1,207,500
shares of Common Stock at a price of $21.00 per share. The net proceeds of the
offering to the Company, after underwriting discounts and other expenses, were
approximately $23,550,000.
L. DEBT AND CREDIT AGREEMENTS:
In March 1996, the Company extended its $5,000,000 unsecured line of
credit agreement with Chase Manhattan Bank, N.A. which will expire on March 31,
1997. There was no outstanding balance on this line of credit at September 30,
1996.
PSDI UK Limited has a line of credit agreement authorized to a limit of
pounds sterling 200,000, payable upon demand with interest at the bank's base
rate plus 2 1/4%. The line of credit is collateralized by all business assets of
PSDI UK Limited. There was no outstanding balance on the PSDI UK Limited line of
credit at September 30, 1996 and 1995.
During 1995, Maintenance Automation Corporation had a line of credit
agreement with a bank which provided for borrowings up to a maximum of $475,000
with interest payable at the prime rate plus 2%. The amounts outstanding on this
line of credit at September 30, 1995 was $325,000. The Company paid all
outstanding amounts
52
54
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
due on this line in March 1996 and terminated this line of credit agreement.
M. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest and taxes were as follows:
Year Ended September 30,
------------------------------------
(in thousands) 1996 1995 1994
---- ---- ----
Interest ........... $ 38 $ 49 $ 303
Income taxes ....... 6,175 3,393 1,141
During 1994, included in interest expense is $105,000 of prepayment penalty
related to the subordinated notes.
Non-cash financing activities were as follows:
Year Ended September 30,
------------------------------
(in thousands) 1996 1995 1994
---- ---- ----
Capital lease obligations .......... $ -- $395 $ 402
Warrants exercised in exchange for
subordinated notes ............... -- -- 1,083
Exercise of mandatorily redeemable
warrants ......................... -- -- 21
Acquisitions of businesses were as follows:
Year Ended September 30,
----------------------------------
(in thousands) 1996 1995 1994
---- ---- ----
Fair value of assets acquired ... $2,729 $ -- $ --
Fair value of liabilities assumed 892
------
Net cash payments ............... $1,837 $ -- $ --
------
53
55
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
N. GEOGRAPHIC DATA AND MAJOR CUSTOMERS:
A summary of the Company's operations by geographical area was as follows:
Year Ended September 30,
----------------------------------------
(in thousands) 1996 1995 1994
-------- -------- --------
Revenues:
The Americas
US .................... $ 43,595 $ 31,032 $ 22,177
Canada ................ 2,089 1,615 1,372
Export sales .......... 3,091 2,307 1,452
Intercompany revenues . 8,676 5,878 3,259
-------- -------- --------
$ 57,451 $ 40,832 $ 28,260
Europe ..................... 20,224 13,138 9,724
Asia/Pacific ............... 4,330 2,280 2,028
Consolidating eliminations.. (8,676) (5,878) (3,259)
-------- -------- --------
$ 73,329 $ 50,372 $ 36,753
-------- -------- --------
Income (loss) from operations:
US ......................... 13,671 7,338 3,484
Canada ..................... 56 361 254
Europe ..................... 756 659 954
Asia/Pacific ............... 147 19 (121)
Consolidating eliminations . (24) 61 131
-------- -------- --------
$14,606 $ 8,438 $ 4,702
-------- -------- --------
Cash and cash equivalents:
US ......................... 3,657 6,764 13,135
Canada ..................... 151 483 136
Europe ..................... 4,846 1,747 905
Asia/Pacific ............... 443 352 431
-------- -------- --------
$ 9,097 $ 9,346 $ 14,607
-------- -------- --------
Accounts receivable, net:
US ......................... 13,940 8,939 5,237
Canada ..................... 498 414 375
Europe ..................... 10,207 4,002 3,311
Asia/Pacific ............... 2,385 567 413
-------- -------- --------
$ 27,030 $ 13,922 $ 9,336
-------- -------- --------
Identifiable assets:
US ......................... 60,979 56,593 22,388
Canada ..................... 662 922 532
Europe ..................... 18,828 6,398 4,866
Asia/Pacific ............... 3,005 1,045 933
Consolidated eliminations .. 2 2 (7)
-------- -------- --------
$ 83,476 $ 64,960 $ 28,712
======== ======== ========
54
56
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company operates in one business segment: software business
applications. The Company has subsidiaries in foreign countries which sell the
Company's products and services in their respective geographic areas from which
the sales are made. Intercompany revenues primarily represent shipments of
software to international subsidiaries and are eliminated from consolidated
revenues. Income (loss) from operations excludes interest income, interest
expense, provision for income taxes and transaction gains and losses.
No single customer accounted for 10% or more of total revenues in the year
ended September 30, 1996, 1995 and 1994.
O. RELATED PARTY TRANSACTIONS:
The Company leases its corporate headquarters pursuant to a 13 year lease
which expires on December 31, 1997, from a partnership in which the Founder and
Director of the Company has a 1.69% limited partnership interest. Rent payments
to the partnership for 1996, 1995 and 1994 totaled $1,650,000 $1,480,000 and
$1,661,000, respectively. The base rent payable under this lease currently is
substantially in excess of market rates. The Company believes that the base rent
payable under the lease represented a market rent at the time the lease was
established.
P. COMPUTER SOFTWARE COSTS:
Computer software costs consists of the following:
Year Ended September 30,
--------------------------
(in thousands) 1996 1995
------- -------
Purchased software ......................... $ 480 $ 301
Purchased and licensed software for
development................................. 494 223
Internally developed software .............. 5,012 4,378
------- -------
5,986 4,902
Less accumulated amortization .............. (5,199) (4,113)
------- -------
. $ 787 $ 789
------- -------
Amortization expense for 1996, 1995 and 1994 was $1,078,000, $1,239,000 and
$1,130,000, respectively.
55
57
PROJECT SOFTWARE & DEVELOPMENT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
------ ------ -------------------------------- ------ ------
ADDITIONS
--------------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO END OF
OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
---------- -------- -------------- ---------- ------
YEAR ENDED SEPTEMBER 30, 1996 $1,346,000 $1,040,000 $432,000 $1,954,000
Allowance for doubtful accounts
YEAR ENDED SEPTEMBER 30, 1995
Allowance for doubtful accounts $ 854,000 $1,409,000 $917,000 $1,346,000
YEAR ENDED SEPTEMBER 30, 1994
Allowance for doubtful accounts $ 430,000 $ 802,000 $378,000 $ 854,000
56
58
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
--- ----------- ----
3.1 Amended and Restated Articles of
Organization of the Company (included
as Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No.
33-76420, and incorporated herein
by reference)
3.2 Restated By-Laws of the Company, as amended
9.1 1996 Daniels Voting Trust Agreement dated
August 19, 1996 among Susan H. Daniels,
Robert L. Daniels and Robert L. Daniels, as
Trustee
10.1 Underwriting Agreement, dated July 13, 1995,
by and among the Company, Robertson, Stephens &
Company, L.P., Montgomery Securities and First
Albany Corporation, as representatives of the
several underwriters and certain shareholders of
the Company named in Schedule B thereto.
(included as Exhibit 10.1 to the Company's
Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein
by reference)
10.2 Forms of Lock-Up Agreements (included as
Exhibit 10.4 to the Company's Registration
Statement on Form S-1, Registration
No. 33-76420, and incorporated herein by reference)
10.3 1996 Executive Bonus Plan (included as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1995, Commission File No.
0-23852 and incorporated herein by reference)
10.5 Amended and Restated 1994 Incentive and
Nonqualified Stock Option Plan, as approved by the
stockholders of the Company by written consent
dated April 15, 1994 (included as Exhibit 10.16 to
the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein
by reference)
10.6 1994 Employee Stock Purchase Plan, as
amended
10.7 Agreement and Plan of Merger, dated as of
March 1, 1996, by and among the Company, Toolbox
Acquisition Corp., Maintenance Automation
Corporation, Johnson Controls, Inc., Eli G. Katz,
Phyllis S. Katz, Mitchell B. Knecht, Heidi D.
Knecht, Nicholas E. Meola, Naomi R. Meola, Johnson
Controls, Inc. and Eli G. Katz, as agent (included
as Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996,
59
File No. 0-23852, and incorporated herein by
reference)
10.8 Escrow Agreement, dated as of
March 1, 1996, by and among the Company, Toolbox
Acquisition Corp., Maintenance Automation
Corporation, Johnson Controls, Inc., Eli G. Katz,
Phyllis S. Katz, Mitchell B. Knecht, Heidi D.
Knecht, Nicholas E. Meola, Naomi R. Meola, Johnson
Controls, Inc. and Eli G. Katz, as agent (included
as Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996,
File No. 0-23852, and incorporated herein by
reference)
10.9 Registration Rights Agreement, dated as of
March 1, 1996, by and among the Company,
Toolbox Acquisition Corp., Maintenance Automation
Corporation, Johnson Controls, Inc., Eli G. Katz,
Phyllis S. Katz, Mitchell B. Knecht, Heidi D.
Knecht, Nicholas E. Meola, Naomi R. Meola, Johnson
Controls, Inc. and Eli G. Katz, as agent (included
as Exhibit 10.6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996,
File No. 0-23852, and incorporated herein by
reference)
10.10 Directors and Officers Liability and
Company Reimbursement Policy for the Company
issued by Lexington Insurance Company for the
period of March 18, 1996 through March 18, 1997
(included as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, File No. 0-23852, and
incorporated herein by reference)
10.11 Directors and Officers Liability and
Company Reimbursement Policy for the Company
issued by Zurich Insurance Company for the period
of March 18, 1996 through March 18, 1997 (included
as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996,
File No. 0-23852, and incorporated herein by
reference)
10.12 Form of PSDI 1994 Authorized Value Added
Reseller Agreement (included as Exhibit 10.22 to
the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein
by reference)
10.13 Reseller Agreement dated May 20, 1994 between the Company and
Oracle Corporation (included as Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, Commission File No. 0-23852, and incorporated herein
by reference)
10.14 Employee Separation Agreement dated as of July 31, 1996
between the Company and Dean F. Goodermote
60
11.1 Statement re computation of per share
earnings
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
99. Certain Factors