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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 0-24347
THE ULTIMATE SOFTWARE GROUP, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 65-0694077
-------- ----------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
2000 Ultimate Way, Weston, FL 33326
----------------------------- -----
(Address of principal executive offices) (Zip Code)
(954) 331 - 7000
----------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former fiscal year, if changed since
last report)
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 [_]
As of July 29, 2002, there were 16,479,193 shares of the Registrant's
Common Stock, par value $.01, outstanding.
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page(s)
-------
Part I - Financial Information:
Item 1 - Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001 3
Condensed Consolidated Statements of Operations for the Three Months
And Six Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-17
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 17
Part II-Other Information:
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities and Use of Proceeds 18
Item 3 - Defaults upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18-19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
2
PART 1--FINANCIAL INFORMATION
ITEM 1--Financial Statements
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
As of As of
June 30, December 31,
ASSETS 2002 2001
---------- -----------
Current assets: (Unaudited)
Cash and cash equivalents $ 8,819 $ 8,464
Accounts receivable, net 10,928 14,006
Prepaid expenses and other current assets 936 836
--------- -----------
Total current assets 20,683 23,306
Property and equipment, net 6,852 5,786
Capitalized software, net 3,634 4,545
Other assets 514 614
--------- -----------
Total assets $ 31,683 $ 34,251
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,811 $ 1,901
Accrued expenses 3,780 5,548
Deferred revenue 16,271 12,162
Current portion of capital lease obligations 1,246 1,589
Current portion of long term debt 203 -
--------- -----------
Total current liabilities 23,311 21,200
Deferred revenue 10,446 8,053
Capital lease obligations, net of current portion 639 408
Long term debt, net of current portion 384 -
--------- -----------
Total liabilities 34,780 29,661
--------- -----------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 2,000,000 shares authorized,
no shares issued or outstanding in 2002 and 2001 - -
Series A Junior Participating Preferred Stock, $.01 par value,
500,000 shares authorized, no shares issued or outstanding
in 2002 and 2001, respectively - -
Common Stock, $.01 par value, 50,000,000 shares authorized,
16,610,790 and 16,105,665 shares issued in 2002
and 2001, respectively 166 161
Additional paid-in capital 67,856 65,808
Accumulated deficit (70,065) (60,516)
--------- -----------
(2,043) 5,453
Treasury stock, at cost, 257,647 and 211,497 shares in 2002
and 2001, respectively (1,054) (863)
--------- -----------
Total stockholders' equity (deficit) (3,097) 4,590
--------- -----------
Total liabilities and stockholders' equity (deficit) $ 31,683 $ 34,251
========= ===========
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
3
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousand, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ------------------------
2002 2001 2002 2001
-------- ------- -------- --------
Revenues, net:
License $ 4,299 $ 4,450 $ 5,694 $ 9,777
Recurring 4,031 3,626 7,964 6,767
Services 4,915 6,936 10,542 14,859
------- ------- -------- -------
Total revenues, net 13,245 15,012 24,200 31,403
------- ------- -------- -------
Cost of revenues:
License 383 326 523 638
Recurring 1,965 1,380 3,915 2,769
Services 4,295 4,850 8,853 9,872
------- ------- -------- -------
Total cost of revenues 6,643 6,556 13,291 13,279
------- ------- -------- -------
Operating expenses:
Sales and marketing 4,497 4,879 9,035 9,506
Research and development 4,335 2,331 8,666 6,597
General and administrative 1,566 1,848 2,695 3,233
------- ------- -------- -------
Total operating expenses 10,398 9,058 20,396 19,336
------- ------- -------- -------
Operating loss (3,796) (602) (9,487) (1,212)
Interest expense (79) (42) (151) (92)
Interest and other income 49 136 89 256
------- ------- -------- -------
Net loss $(3,826) $ (508) $ (9,549) $(1,048)
======= ======= ======== =======
Net loss per share -- basic and diluted $ (0.24) $ (0.03) $ (0.60) $ (0.07)
======= ======= ======== =======
Weighted average shares outstanding:
Basic and diluted 15,907 15,938 15,896 15,978
======= ======= ======== =======
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
4
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Six Months
Ended June 30,
-------------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net loss $ (9,549) $ (1,048)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,900 2,000
Provision for doubtful accounts 367 992
Non-cash issuance of stock options for board fees and services 42 62
Changes in operating assets and liabilities:
Accounts receivable 2,711 (281)
Prepaid expenses and other current assets (100) (988)
Other assets (6) (215)
Accounts payable (90) 176
Accrued expenses (1,768) (1,342)
Deferred revenue 6,502 9,916
-------- --------
Net cash provided by operating activities 1,009 9,272
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,943) (923)
Additions to capitalized software - (2,065)
-------- --------
Net cash used in investing activities (1,943) (2,988)
-------- --------
Cash flows from financing activities:
Repurchase of treasury stock (191) (638)
Principal payments on capital lease obligations (1,119) (1,151)
Net proceeds from borrowings under Credit Facility 587 -
Net proceeds from issuances of Common Stock 2,012 13
-------- --------
Net cash provided by (used in) financing activities 1,289 (1,776)
-------- --------
Net increase in cash and cash equivalents 355 4,508
Cash and cash equivalents, beginning of period 8,464 7,572
-------- --------
Cash and cash equivalents, end of period $ 8,819 $ 12,080
======== ========
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid for interest $ 122 $ 96
======== ========
Supplemental disclosure of non-cash financing activities:
- ---------------------------------------------------------
- The Company entered into capital lease obligations to acquire new equipment
totaling $628 and $513 in the six months ended June 30, 2002 and 2001,
respectively.
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
5
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of The
Ultimate Software Group, Inc. and subsidiary (the "Company") have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in financial statements in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. The information in this report
should be read in conjunction with the Company's audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 filed with the SEC on April 1, 2002 (the
"Form 10-K").
The unaudited condensed consolidated financial statements included
herein reflect all adjustments (consisting only of normal, recurring
adjustments) which are, in the opinion of the Company's management, necessary
for a fair presentation of the information for the periods presented. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Interim
results of operations for the three and six months ended June 30, 2002 and 2001
are not necessarily indicative of operating results for the full fiscal years or
for any future periods.
Reclassifications
Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
2. SIGNIFICANT TRANSACTIONS
On April 24, 2002, the Company dismissed its independent public
accountants, Arthur Andersen LLP ("Andersen"), and retained KPMG LLP ("KPMG") as
its new independent public accountants. As part of their quarterly review
process, KPMG reviewed, among other things, the Company's revenue recognition
policies, including the co-branding agreement signed with Ceridian Corporation
("Ceridian") on March 9, 2001, as amended from time to time (the "Ceridian
Agreement"). Based upon consultations with KPMG as a result of their review of
the Ceridian Agreement, the Company reassessed its original conclusion regarding
the timing of the revenue recognition to be applied to the Ceridian Agreement.
As more fully disclosed in the Company's Form 10-K, Ceridian is
obligated to pay to Ultimate Software a minimum of approximately $42.1 million,
including $16.0 million received to date, over the minimum term of the Ceridian
Agreement, which is expected to be 7 years (the "Minimum Term"). The effect of
the change in revenue recognition for the Ceridian Agreement was to modify the
date at which revenue recognition would begin--changing the onset of the revenue
recognition process from February 5, 2002, which was the date the Company
completed a successful transfer of technology to Ceridian, to the earlier of (i)
the delivery of a general release known as Evolution, or (ii)
6
January 1, 2003. Instead of recognizing recurring revenue of approximately
$550,000 per month, beginning February 5, 2002 and ending in March 2008, as
previously disclosed in the Form 10-K, the Company expects to begin recognizing
recurring revenue of approximately $640,000 per month, beginning on the earlier
of (i) the date Evolution is delivered, or (ii) January 1, 2003, and ending in
March 2008. The Company believes that it will deliver Evolution to Ceridian
before September 30, 2002. The change in the timing of revenue recognition
applied to the Ceridian Agreement does not impact Ceridian's payment obligations
to the Company over the Minimum Term nor does it impact the nature of the
underlying business transaction.
The Ceridian Agreement includes the provision to receive future updates
to the Company's product, UltiPro, which is a standard contract provision for
the Company's software products. On February 5, 2002, Ultimate Software signed
an agreement with Ceridian for the delivery of Evolution (the "Evolution Release
Agreement"). Under the terms of the Evolution Release Agreement, Ceridian will
pay Ultimate Software $500,000 in the event the Evolution release is delivered
by August 30, 2002. To the extent Ultimate Software delivers Evolution to
Ceridian beyond September 30, 2002, Ultimate Software is obligated to pay
Ceridian $500,000 per month up to a maximum of $1.5 million, with a daily
pro-ration of the obligation to be applied to the extent the delivery occurs
during one of the three months of October, November and December 2002.
3. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," establishes standards for the reporting and
display of comprehensive income and its components in a full set of financial
statements. The objective of SFAS No. 130 is to report a measure (comprehensive
income) of all changes in equity of an enterprise that result from transactions
and other economic events in a period other than transactions with owners.
Comprehensive loss is equal to net loss for all periods presented.
4. EARNINGS PER SHARE
The following is a reconciliation of the shares used in the computation
of basic and diluted net income (loss) per share (in thousands):
For the three months For the six months
ended June 30, ended June 30,
2002 2001 2002 2001
----------- ------------ ----------- ----------
Weighted average shares outstanding 15,907 15,938 15,896 15,978
Effect of dilutive stock options - - - -
----------- ------------ ----------- ----------
Dilutive shares outstanding 15,907 15,938 15,896 15,978
=========== ============ =========== ==========
Options outstanding which are not included in the
calculation of diluted loss per share because
their impact is antidilutive 4,651 4,622 4,651 4,622
=========== ============ =========== ==========
5. RECENT ACCOUNTING LITERATURE
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets," which addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes Accounting
Principles Board ("APB") Opinion No. 17, "Intangible Assets." SFAS No. 142
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted
7
for in financial statements upon their acquisition. With the adoption of SFAS
No. 142, goodwill is no longer subject to amortization. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a fair
value-based test. The adoption of SFAS No. 142 did not have an impact on the
Company's unaudited financial position, results of operations or cash flows.
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," which addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets and supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the accounting and
reporting provisions of APB No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment. The adoption of SFAS No. 144 did not have an impact on the Company's
unaudited financial position, results of operations or cash flows.
Effective January 1, 2002, the Company adopted Financial Accounting
Standards Board Emerging Issues Task Force No. 01-14, "Income Statement
Characterization of Reimbursements Received for `Out-of-Pocket' Expenses
Incurred," ("EITF 01-14"). EITF 01-14 requires companies to characterize
reimbursements received for out-of-pocket expenses incurred as revenue and to
reclassify prior period financial statements to conform to current year
presentation for comparative purposes. Reimbursable out-of-pocket expenses,
which are included in services revenues and cost of services revenues in the
Company's accompanying unaudited condensed consolidated statements of
operations, were $0.2 million and $0.6 million for the three months ended June
30, 2002 and 2001, respectively, and $0.4 million and $1.2 million for the six
months ended June 30, 2002 and 2001, respectively. Prior to the adoption of EITF
01-14, the Company's historical consolidated financial statements offset these
amounts within cost of services revenues. The adoption of EITF 01-14 did not
have a significant impact on the services gross margin percentage and had no
impact on net results.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"),
which will be effective for the Company beginning January 1, 2003. SFAS No. 143
addresses the financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. The adoption of SFAS No. 143 is not expected to have a material impact on
the unaudited consolidated financial statements of the Company.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"), which will be effective for the Company beginning
January 1, 2003. SFAS No. 145 rescinds FASB Statement No. 4, 44, 64 and amends
SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects similar to
sale-leaseback transactions. The adoption of SFAS No. 145 is not expected to
have a material impact on the unaudited consolidated financial statements of the
Company.
6. CAPITAL RESOURCES
The Company believes that cash and cash equivalents, potential cash
generated from operations and available borrowings under the existing revolving
line of credit with Silicon Valley Bank will be sufficient to fund its
operations for at least the next 12 months. However, the Company may seek to
raise additional funds during such period through the sale of additional shares
of the Company's common stock, par value $0.01, or other securities.
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of The Ultimate Software Group, Inc. ("Ultimate Software" or the
"Company") should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-Q. This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those contained in the forward-looking statements. Factors that may cause such
differences include, but are not limited to, those discussed below and in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001, including Exhibit 99.1 thereto. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
Ultimate Software designs, markets, implements and supports
technologically advanced cross-industry payroll and workforce management
solutions. The Company's mission is to become the premier infrastructure
provider of Internet payroll and workforce management solutions.
Ultimate Software's flagship product suite is known as UltiPro
Workforce Management (collectively "UltiPro"). UltiPro's Web-based functionality
includes, but is not limited to, eEmployee Administration, eManagement,
eEmployee Self-Service, eBenefits Enrollment, and eTraining. UltiPro is
supported by a client/server backoffice engine that includes features for
payroll processing, company setup, rules management, security management and
basic functionality for human resource and payroll administrators. UltiPro
enables customers to empower their entire workforce - executives, managers,
administrators and employees - to improve communications and efficiencies.
UltiPro is used by some customers as a workforce portal that can function as a
gateway for collaborative information sharing. UltiPro ships with dynamic
business intelligence reports for analyzing workforce trends, reporting to
streamline daily business processes, compliance reporting for ready digital or
paper filing, some signature-ready forms, and features for custom report
writing. UltiPro enables businesses to manage the employee life cycle
strategically and cost effectively, from inception of employment through
retirement.
Ultimate Software reaches its customer base through its direct sales
force and a network of business service providers ("BSPs") that market to their
customers. The Company's direct sales force markets UltiPro as an in-house
HRMS/payroll solution and alternatively as an application hosting offering
branded as "Intersourcing". The Intersourcing brand underscores the idea that
the customer has the convenience of outsourcing, coupled with direct, in-house
control over their own data (the "Intersourcing Offering"). Pursuant to an
agreement entered into during June 1999 with International Business Machines
Global Services, Inc. ("IBM"), IBM hosts UltiPro for certain Ultimate Software
customers (the "IBM Agreement"). Under the terms of the IBM Agreement, IBM
provides the installation, ongoing maintenance and backup services at an IBM
Data Hosting Center. The IBM Agreement has terminated as to the addition of new
customers. In 2002, the Company developed a hosting program of its own in which
Ultimate Software provides the installation, ongoing maintenance and backup
services at an alternative data center.
In April 2000, the Company announced a co-branding alliance program to
target primarily those businesses with under 500 employees and to provide the
opportunity for Ultimate Software to generate recurring revenues to supplement
the license and services revenues, including recurring maintenance revenues,
received primarily from its mid-sized customers, those with 500 to 15,000
employees. The program offers BSPs the opportunity to co-brand UltiPro and to
price their offerings on a per employee per month basis. As of the date of this
Form 10-Q, Ultimate Software had 12 co-branding alliances in force.
9
On April 24, 2002, the Company dismissed its independent public
accountants, Arthur Andersen LLP ("Andersen"), and retained KPMG LLP ("KPMG") as
its new independent public accountants. As part of their quarterly review
process, KPMG reviewed, among other things, the Company's revenue recognition
policies, including the co-branding agreement signed with Ceridian Corporation
("Ceridian") on March 9, 2001, as amended from time to time (the "Ceridian
Agreement"). Based upon consultations with KPMG as a result of their review of
the Ceridian Agreement, the Company reassessed its original conclusion regarding
the timing of the revenue recognition to be applied to the Ceridian Agreement.
As more fully disclosed in the Company's Form 10-K, Ceridian is
obligated to pay to Ultimate Software a minimum of approximately $42.1 million,
including $16.0 million received to date, over the minimum term of the Ceridian
Agreement, which is expected to be 7 years (the "Minimum Term"). The effect of
the change in revenue recognition for the Ceridian Agreement was to modify the
date at which revenue recognition would begin--changing the onset of the revenue
recognition process from February 5, 2002, which was the date the Company
completed a successful transfer of technology to Ceridian, to the earlier of (i)
the delivery of a general release known as Evolution, or (ii) January 1, 2003.
Instead of recognizing recurring revenue of approximately $550,000 per month,
beginning February 5, 2002 and ending in March 2008, as previously disclosed in
the Form 10-K, the Company expects to begin recognizing recurring revenue of
approximately $640,000 per month, beginning on the earlier of (i) the date
Evolution is delivered, or (ii) January 1, 2003, and ending in March 2008. The
Company believes that it will deliver Evolution to Ceridian before September 30,
2002. The change in the timing of revenue recognition applied to the Ceridian
Agreement does not impact Ceridian's payment obligations to the Company over the
Minimum Term nor does it impact the nature of the underlying business
transaction.
The Ceridian Agreement includes the provision to receive future updates
to UltiPro, which is a standard contract provision for the Company's software
products. On February 5, 2002, Ultimate Software signed an agreement with
Ceridian for the delivery of Evolution (the "Evolution Release Agreement").
Under the terms of the Evolution Release Agreement, Ceridian will pay Ultimate
Software $500,000 in the event the Evolution release is delivered by August 30,
2002. To the extent Ultimate Software delivers Evolution to Ceridian beyond
September 30, 2002, Ultimate Software is obligated to pay Ceridian $500,000 per
month up to a maximum of $1.5 million, with a daily pro-ration of the obligation
to be applied to the extent the delivery occurs during one of the three months
of October, November and December 2002.
The Company is a Delaware corporation formed in April 1996 to assume
the business and operations of The Ultimate Software Group, Ltd. (the
"Partnership"), a limited partnership founded in 1990. Ultimate Software's
headquarters are located at 2000 Ultimate Way, Weston, Florida 33326 and its
telephone number is (954) 331-7000. To date, the Company derives no revenue from
customers outside of the United States and has no assets located outside of the
United States.
10
Results of Operations
The following table sets forth the Statement of Operations data of the
Company, as a percentage of total revenues, for the periods indicated.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ---------------------
2002 2001 2002 2001
------- -------- -------- --------
Revenues:
License 32.5 % 29.6 % 23.5 % 31.1 %
Recurring 30.4 24.2 32.9 21.6
Services 37.1 46.2 43.6 47.3
------ ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
------ ------- ------- -------
Cost of revenues:
License 2.9 2.2 2.1 2.0
Recurring 14.9 9.2 16.2 8.8
Services 32.4 32.3 36.6 31.5
------ ------- ------- -------
Total cost of revenues 50.2 43.7 54.9 42.3
------ ------- ------- -------
Operating expenses:
Sales and marketing 34.0 32.5 37.3 30.3
Research and development 32.7 15.5 35.8 21.0
General and administrative 11.8 12.3 11.2 10.3
------ ------- ------- -------
Total operating expenses 78.5 60.3 84.3 61.6
------ ------- ------- -------
Operating loss (28.7) (4.0) (39.2) (3.9)
Interest expense (0.6) (0.3) (0.7) (0.2)
Interest and other income 0.4 0.9 0.4 0.8
------ ------- ------- -------
Net loss (28.9)% (3.4) % (39.5) % (3.4) %
======= ======= ======== =======
Revenues
The Company's revenues are derived from three principal sources:
software licenses ("license revenues"), recurring revenues and services
revenues.
License revenues include revenues from software license agreements for
the Company's products, entered into between the Company and its customers in
which the license fees are noncancellable. License revenues are generally
recognized upon the delivery of the related software product when all
significant contractual obligations have been satisfied. Until such delivery,
the Company records amounts received when contracts are signed as customer
deposits that are included with deferred revenues in the condensed consolidated
balance sheets.
Recurring revenues include maintenance revenues derived from
maintaining, supporting and providing periodic updates for the Company's
software and, to a lesser extent, subscription revenues principally derived from
per employee per month ("PEPM") fees earned through the BSP sales channel and
the Intersourcing Offering. Maintenance revenues are recognized ratably over the
service period, generally one year. Subscription revenues are recognized ratably
over the term of the related contract upon the delivery of the product and
services. All of the Company's customers that purchased software during 2002 and
2001 also purchased maintenance and support service contracts. Maintenance and
support fees are generally priced as a percentage of the initial license fee for
the underlying products.
Service revenues include revenues from fees charged for the
implementation of the Company's software products and training of customers in
the use of such products, fees for other services, including the provision of
payroll-related forms and the printing of Form W-2's for certain
11
customers, as well as fees from the hosted models and certain reimbursable
out-of-pocket expenses. Service revenues are recognized as services are
performed and delivered.
Total revenues, consisting of license, recurring and service revenues,
decreased 11.8 % to $13.2 million for the three months ended June 30, 2002 from
$15.0 million for the three months ended June 30, 2001. Total revenues decreased
22.9 % to $24.2 million for the six months ended June 30, 2002 from $31.4
million for the six months ended June 30, 2001.
License revenues decreased 3.4 % to $4.3 million for the three months
ended June 30, 2002 from $4.5 million for the three months ended June 30, 2001.
License revenues decreased 41.8% to $5.7 million for the six months ended June
30, 2002 from $9.8 million for the six months ended June 30, 2001. The decreases
in license revenues for both the three-month and six-month periods were
primarily due to lower sales generated by the Company's direct sales channel
which management believes is partly due to unfavorable economic conditions,
which it believes contributed to delays in the spending decisions of prospective
clients during the six months ended June 30, 2002, partially offset by increased
sales of UltiPro to existing clients using its Dos-based product, UltiPro for
Lan ("Dos Clients"). Ultimate Software introduced UltiPro for Lan in July 1993
as its first proprietary software product. The Company no longer markets this
DOS-based product and expects to discontinue support for UltiPro for Lan by
approximately December 31, 2002. The Company is actively marketing the UltiPro
product to Dos Clients as part of a loyalty program designed to encourage these
clients to purchase UltiPro before support for UltiPro for Lan is discontinued.
Recurring revenues increased 11.2% to $4.0 million for the three months
ended June 30, 2002 from $3.6 million for the three months ended June 30, 2001.
Recurring revenue increased 17.7% to $8.0 million for the six months ended June
30, 2002 from $6.8 million for the six months ended June 30, 2001. The increases
in both the three-month and six-month periods were primarily due to an increase
in maintenance revenue generated from incremental licenses sold in 2001 and the
first quarter of 2002.
Services revenues decreased 29.1 % to $4.9 million for the three months
ended June 30, 2002 from $6.9 million for the three months ended June 30, 2001.
Services revenues decreased 29.1% to $10.5 million for the six months ended June
30, 2002 from $14.9 million for the six months ended June 30, 2001. Lower
license sales in the first quarter of 2002 had a delayed impact on services
revenues during the second quarter of 2002, particularly in relation to
implementation revenues as the total billable hours decreased as a result of the
reduced utilization of service consultants implementing UltiPro. Management
expects that the increase in license revenues from the first quarter of 2002 to
the second quarter of 2002 should improve services revenues for the third
quarter of 2002 (as compared to second quarter 2002 services revenues), due to
the effect of the delayed impact of license sales on services to be performed in
relation to those license sales.
Cost of Revenues
Cost of revenues consists of the cost of license, recurring and
services revenues. Cost of license revenues primarily consists of fees payable
to a third party for software products distributed by the Company and, to a
lesser degree, amortization of capitalized software costs. Capitalized software
is amortized using the straight-line method over the estimated useful life of
the related asset, which is typically three years. Cost of recurring revenues
consists of costs to provide maintenance and technical support to the Company's
customers, the cost of periodic updates and the costs of subscription revenues,
including amortization of capitalized software. Cost of service revenues
primarily consists of costs to provide implementation services and training to
the Company's customers and, to a lesser degree, costs associated with revenues
generated from the hosted models,
12
costs related to sales of payroll-related forms and costs associated with
reimbursable out-of-pocket expenses, discussed below.
Effective January 1, 2002, the Company adopted Financial Accounting
Standards Board Emerging Issues Task Force No. 01-14, "Income Statement
Characterization of Reimbursements Received for `Out-of-Pocket' Expenses
Incurred," ("EITF 01-14"). EITF 01-14 requires companies to characterize
reimbursements received for out-of-pocket expenses incurred as revenue and to
reclassify prior period financial statements to conform to current year
presentation for comparative purposes. Reimbursable out-of-pocket expenses,
which are included in services revenues and cost of services revenues in the
Company's accompanying unaudited condensed consolidated statements of
operations, were $0.2 million and $0.6 million for the three months ended June
30, 2002 and 2001, respectively, and $0.4 million and $1.2 million for the six
months ended June 30, 2002 and 2001, respectively. Prior to the adoption of EITF
01-14, the Company's historical consolidated financial statements offset these
amounts within cost of services revenues.
Total costs of revenues, consisting of license, recurring and service
revenues of $6.6 million for the three months ended June 31, 2002 and $13.3
million for the six months ended June 30, 2002 were consistent with the costs of
revenues for the comparable periods of the prior year.
Cost of license revenues increased 17.5% to $0.4 million for the three
months ended June 30, 2002 from $0.3 million for the three months ended June 30,
2001 primarily due to an increase in the amortization of capitalized software in
2002. Cost of license revenues decreased 18.0% to $0.5 million for the six
months ended June 30, 2002 from $0.6 million for the six months ended June 30,
2001 primarily due to lower third party license fees resulting from decreased
licensing activity, partially offset by an increase in the amortization of
capitalized software in 2002. Cost of license revenues, as a percentage of
license revenues, increased to 8.9% for the three months ended June 30, 2002 as
compared to 7.3% for the three months ended June 30, 2001 and increased to 9.2%
for the six months ended June 30, 2002 from 6.5% for the six-month period ended
June 30, 2001. The increases in both the three-month and six-month periods were
primarily due to an increase in the amortization of capitalized software for
UltiPro and a decrease in license revenues. Cost of license revenues, as a
percentage of license revenues, generally fluctuates from period to period
principally due to the mix of sales of software products which generate third
party license fees in each period and fluctuations in revenues contrasted with
fixed expenses such as the amortization of capitalized software.
Cost of recurring revenues increased 42.4% to $2.0 million for the
three months ended June 30, 2002 from $1.4 million for the three months ended
June 30, 2001. Cost of recurring revenues increased 41.4% to $3.9 million for
the six months ended June 30, 2002 from $2.8 million for the six months ended
June 30, 2001. The increases in both the three-month and six-month periods were
primarily attributable to increased costs of maintenance revenues principally
due to higher labor costs to support the Company's customer base and an increase
in costs of subscription revenues primarily from the amortization of capitalized
software, which began in November 2001 when the related product was available
for general release. Cost of recurring revenues, as a percentage of recurring
revenues, increased to 48.8% for the three months ended June 30, 2002 as
compared to 38.1% for the three months ended June 30, 2001 and increased to
49.2% for the six months ended June 30, 2002 from 40.9 % for the six-month
period ended June 30, 2001. The increases in both the three-month and six-month
periods were primarily as a result of the amortization of capitalized software.
Cost of services revenues decreased 11.4% to $4.3 million for the three
months ended June 30, 2002 from $4.9 million for the three months ended June 30,
2001. Cost of services revenues decreased 10.3 % to $8.9 million for the six
months ended June 30, 2002 from $9.9 million for the six months ended June 30,
2001. The decreases in both the three-month and six-month periods were
13
primarily due to lower out-of-pocket reimbursed expenses from services, tied to
lower license sales and reduced travel, as well as reduced internal training
costs. Cost of services revenues, as a percentage of services revenues, for the
three months ended June 30, 2002 increased to 87.4% from 69.9% for the three
months ended June 30, 2001 and to 84.0% for the six months ended June 30, 2002
from 66.4% from June 30, 2001. The increases in both the three-month and
six-month periods were primarily as a result of the absorption of these expenses
in a decreased services revenue base.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, sales
commissions, travel and promotional expenses, and facility and communication
costs for direct sales offices, as well as advertising and marketing costs.
Sales and marketing expenses decreased 7.8% to $4.5 million for the three months
ended June 30, 2002 from $4.9 million for the three months ended June 30, 2001
primarily due to lower advertising and marketing costs as well as reduced travel
costs. Sales and marketing costs decreased 5.0% to $9.0 million for the six
months ended June 30, 2002 from $9.5 million for the six months ended June 30,
2001 primarily due to lower sales commissions related to the decrease in license
sales in the first quarter of 2002 and lower travel costs, partially offset by
an increase in advertising and marketing costs. Sales and marketing expenses, as
a percentage of total revenues, increased to 34.0% from 32.5 % for the three
months ended June 30, 2002 and 2001, respectively, and to 37.3% for the six
months ended June 30, 2002 from 30.3% for the six months ended June 30, 2001.
The increases in both the three-month and six-month periods were primarily as a
result of increases in advertising and marketing costs partially offset by a
reduction in travel expenses.
Research and Development
Research and development expenses consist primarily of software
development personnel costs. Research and development expenses increased 86.0%
to $4.3 million for the three months ended June 30, 2002 from $2.3 million for
the three months ended June 30, 2001. Research and development expenses
increased 31.4% to $8.7 million for the six months ended June 30, 2002 from $6.6
million for the six months ended June 30, 2001. The increases in research and
development expenses for the three-month and six-month periods were primarily
attributable to the capitalization during the three months ended June 30, 2001
of $2.1 million in costs, principally software development personnel costs,
associated with the development of certain major products which were released in
the second half of 2001. Such capitalized software costs are being amortized
ratably to cost of license revenues and cost of recurring revenues, on a
product-by-product straight-line basis over the estimated life (which is
typically three years) following the general release of the underlying software
products. There was no additional software capitalized during the three-month
and six-month periods ended June 30, 2002. Research and development expenses, as
a percentage of total revenues, increased to 32.7% for the three months ended
June 30, 2002 from 15.5% for the period ended June 30, 2001 and to 35.8% for the
six months ended June 30, 2002 from 21.0% for the six months ended June 30,
2001.
General and Administrative
General and administrative expenses consist primarily of salaries and
benefits of executive, administrative and financial personnel, as well as
external professional fees and the provision for doubtful accounts. General and
administrative expenses decreased 15.3% to $1.6 million for the three months
ended June 30, 2002 from $1.8 million for the three months ended June 30, 2001.
General and administrative expenses decreased 16.6% to $2.7 million for the six
months ended June 30, 2002 from $3.2 million for the six months ended June 30,
2001. The decreases in general and administrative expenses were primarily due to
a reduction in the provision for doubtful accounts. General and
14
administrative expenses, as a percentage of total revenues, decreased to 11.8%
for the three months ended June 30, 2002 from 12.3% for the three months ended
June 30, 2001 and increased to 11.1% for the six months ended June 30, 2002 from
10.3% for the six months ended June 30, 2001.
Interest Expense
Interest expense increased 88.1% to $79,000 for the three months ended
June 30, 2002 from $42,000 for the three months ended June 30, 2001. Interest
expense increased 64.1% to $151,000 for the six months ended June 30, 2002 from
$92,000 for the six months ended June 30, 2001. The increases in interest
expense for the three-month and six-month periods were due to borrowings under
the Credit Facility, defined below, during the three months ended June 30, 2002.
Interest and Other Income
Interest and other income decreased 64.0% to $49,000 for the three
months ended June 30, 2002 from $136,000 for the three months ended June 30,
2001. Interest and other income decreased 65.2% to $89,000 for the six months
ended June 30, 2002 from $256,000 for the six months ended June 30, 2001. The
decreases in interest and other income for the three-month and six-month periods
were primarily due to the reduction of funds available for investment in 2002.
Provision for Income Taxes (Benefit)
No provision or benefit for federal, state or foreign income taxes was
made for the three months or six months ended June 30, 2002 or 2001 due to the
operating losses and operating loss carryforwards from prior periods incurred in
the respective periods. Net operating loss carryforwards available at December
31, 2001, which expire at various times through the year 2021 are available to
offset future taxable income. The timing and levels of future profitability may
result in the expiration of net operating loss carryforwards before utilization.
Additionally, utilization of such net operating losses may be limited as a
result of cumulative ownership changes in the Company's equity instruments.
Liquidity and Capital Expenditures
The Company has historically funded operations primarily through the
private and public sale of equity securities and, to a lesser extent, equipment
financing and borrowing arrangements.
As of June 30, 2002, the Company had $8.8 million in cash and cash
equivalents, reflecting a net increase of $0.4 million since December 31, 2001.
The working capital deficit as of June 30, 2002 was $2.6 million as compared to
working capital of $2.1 million as of December 31, 2001. The decrease in working
capital resulted primarily from (i) the decrease in accounts receivable
principally due to lower license sales and (ii) the increase in the short-term
portion of deferred revenue related to $6.0 million received from Ceridian in
February 2002, representing the prepayment of 2003 minimum guaranteed royalties
under the Ceridian Agreement, partially offset by (iii) the decrease in accrued
expenses primarily related to lower sales commissions.
Net cash provided by operating activities was $1.0 million for the six
months ended June 30, 2002 as compared to $9.3 million for the six months ended
June 30, 2001. The decrease in net cash provided by operating activities was
primarily attributable to (i) a reduction in the amount received from Ceridian
pursuant to the Ceridian Agreement--from $10.0 million received in March 2001 to
$6.0 million received in February 2002 and (ii) to funding the loss on
operations in 2002, partially offset by (iii) increased collections from
accounts receivable.
15
Net cash used in investing activities was $1.9 million for the six
months ended June 30, 2002 as compared to $3.0 million for the six months ended
June 30, 2001. The decrease in net cash used in investing activities was
primarily due to a decrease in software capitalization in 2002, partially offset
by increased purchases of computer equipment during 2002.
Net cash provided by financing activities for the six months ended June
30, 2002 was $1.3 million as compared to $1.8 million used in financing
activities for the six months ended June 30, 2001. The increase in net cash
provided by financing activities was primarily due to the proceeds from the
issuance of Common Stock, as discussed below, proceeds from borrowings under the
Credit Facility, defined below, and by the reduction of treasury stock purchases
in 2002.
During the second quarter of 2002, the Company raised $2.0 million of
capital through the private sale of 500,000 shares of the Company's common
stock, par value $0.01 ("Common Stock") and a warrant to purchase 50,000 shares
of Common Stock at $4 per share to a shareholder of the Company. During July
2002, the Company raised an additional $0.5 million of capital through the
private sale of 125,000 shares of the Company's Common Stock and a warrant to
purchase 12,500 shares of Common Stock at $4 per share. The Company believes the
capital raised will benefit its strategic business model which focuses on
recurring revenue. As the revenue mix shifts from license revenue to recurring
revenue, particularly through the Intersourcing Offering, and cash inflow
consequently shifts from relatively large, one-time upfront payments to
recurring monthly payments, the Company may seek to raise additional funds
through the sale of additional shares of Common Stock or other securities.
The capital raised in July 2002 included the sale of 100,000 shares of
Common Stock and a warrant to purchase 10,000 shares of Common Stock at $4 per
share to an irrevocable trust established by a member of the Company's Board of
Directors (the "Director"). The Director has informed the Company that he has no
voting or investment power or other controlling interest in this irrevocable
trust.
The Company has a revolving line of credit (the "Credit Facility") with
Silicon Valley Bank, which is secured by all of the Company's assets, including
a negative pledge on intellectual property, and bears interest at a rate equal
to Prime Rate plus 1.0% per annum (reduced to Prime Rate plus 0.5% per annum
upon two consecutive quarters of net profitability). The Credit Facility
provides working capital financing for up to 75% of the Company's eligible
accounts receivable, as defined, financing for eligible equipment purchases for
up to $2.5 million with additional limits for software purchases, and stand-by
letters of credit for up to $0.5 million. The maximum amount available under the
Credit Facility is $5.0 million. The Credit Facility expires on November 28,
2003. The Company had $0.6 million outstanding under the Credit Facility as of
June 30, 2002. Under the terms of the Credit Facility, no dividends may be paid
on the Company's Common Stock without the consent of Silicon Valley Bank.
The Ceridian Agreement includes the provision to receive future updates
to the Company's product, UltiPro, which is a standard contract provision for
the Company's software products. On February 5, 2002, Ultimate Software signed
an agreement with Ceridian for the delivery of Evolution (the "Evolution Release
Agreement"). Under the terms of the Evolution Release Agreement, Ceridian will
pay Ultimate Software $500,000 in the event the Evolution release is delivered
by August 30, 2002. To the extent Ultimate Software delivers Evolution to
Ceridian beyond September 30, 2002, Ultimate Software is obligated to pay
Ceridian $500,000 per month up to a maximum of $1.5 million (the "Evolution
Obligation"), with a daily pro-ration of the obligation to be applied to the
extent the delivery occurs during one of the three months of October, November
and December 2002. The Company believes it will deliver Evolution to Ceridian
before September 30, 2002.
16
The Company believes that cash and cash equivalents, potential cash
generated from operations and available borrowings under the Credit Facility
will be sufficient to fund its operations for at least the next 12 months.
However, as discussed above, the Company may seek to raise additional funds
during such period through the sale of additional shares of Common Stock or
other securities.
Quarterly Fluctuations
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company's operating results may fluctuate as a result
of a number of factors, including, but not limited to, increased expenses
(especially as they relate to product development and sales and marketing),
timing of product releases, increased competition, variations in the mix of
revenues, announcements of new products by the Company or its competitors and
capital spending patterns of the Company's customers. The Company establishes
its expenditure levels based upon its expectations as to future revenues, and,
if revenue levels are below expectations, expenses can be disproportionately
high. A drop in near term demand for the Company's products could significantly
affect both revenues and profits in any quarter. Operating results achieved in
previous fiscal quarters are not necessarily indicative of operating results for
the full fiscal years or for any future periods. As a result of these factors,
there can be no assurance that the Company will be able to establish or, when
established, maintain profitability on a quarterly basis. The Company believes
that, due to the underlying factors for quarterly fluctuations, period-to-period
comparisons of its operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance.
Forward-Looking Statements
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's expectations or beliefs,
including, but not limited to, statements concerning the Company's operations
and financial performance and condition. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and similar expressions
are intended to identify such forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict. The Company's actual
results could differ materially from those contained in the forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those discussed in the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations as well as those discussed in the
Company's Form 10-K, including Exhibit 99.1 thereto. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
In the ordinary course of its operations, the Company is exposed to
certain market risks, primarily interest rates. Uncertainties that are either
non-financial or non-quantifiable, such as political, economic, tax, other
regulatory or credit risks are not included in the following assessment of the
Company's market risks.
Interest rates. Cash equivalents consist of money market accounts with
original maturities of less than three months. Interest on the Credit Facility,
which expires on November 28, 2003, is based on Prime Rate plus 1.0% per annum.
As of June 30, 2002, $0.6 million was outstanding under the
17
Credit Facility and the interest rate was 5.75% per annum. Changes in interest
rates could impact the Company's anticipated interest income from
interest-bearing cash accounts, or cash equivalents, as well as interest expense
on current and future borrowings under the Credit Facility.
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not currently a party to any legal proceedings the adverse outcome of which,
individually or in the aggregate, the Company believes could reasonably be
expected to have a material adverse effect on the Company's business,
consolidated operating results and consolidated financial position.
ITEM 2. Changes in Securities and Use of Proceeds
On June 21, 2002, the Company issued 500,000 shares of Common Stock and a
warrant to purchase 50,000 shares of Common Stock to Michael Feinberg, a
shareholder of the Company. Mr. Feinberg paid the Company aggregate
consideration of $2.0 million for the Common Stock and warrant. The warrant is
fully vested and may be exercised in whole or in part at any time prior to its
expiration at an exercise price of $4.00 per share. The warrant expires on June
21, 2006. The exercise price and number of shares subject to the warrant may be
adjusted under certain circumstances, including upon a merger, consolidation,
reorganization or recapitalization of the Company and upon a dividend, split or
combination of the Common Stock. The Company issued the Common Stock and the
warrant pursuant to Section 4(2) of the Securities Act of 1933, as amended, in a
transaction not involving a public offering.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 10, 2002. The
principal business of the meeting was to (i) elect two directors to serve for
three-year terms or until their respective successors are duly elected and
qualified and (ii) approve The Ultimate Software Group, Inc. Amended and
Restated Nonqualified Stock Option Plan. No other business came before the
meeting.
The names of the two nominees for director whose terms expired at the 2002
Annual Meeting of Stockholders of the Company and who were elected to serve as
directors until the 2005 Annual Meeting of Stockholders are as follows:
Nominee For Withheld Vote
------------------------- --------------- ----------------------
Robert A. Yanover 13,604,132 187,113
LeRoy A. Vander Putten 13,604,132 187,113
18
The names of each other director whose term of office as a director
continues after the 2002 Annual Meeting of Stockholders and their respective
term expirations are as follows:
Term Expires in 2003:
Marc D. Scherr
James A. FitzPatrick, Jr.
Term Expires in 2004:
Scott Scherr
Alan Goldstein, M.D.
The results of the approval of The Ultimate Software Group, Inc.
Amended and Restated Nonqualified Stock Option Plan are as follows:
For Against Abstain Broker Non-Votes:
-------------- ---------- --------- -------------------
4,569,739 1,418,445 16,621 7,786,440
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On May 1, 2002, the Company filed a Current Report on Form 8-K
with the SEC announcing a change in independent public accountants from
Arthur Andersen, LLP to KPMG, LLP, effective April 24, 2002.
19
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Ultimate Software Group, Inc.
Date: August 13, 2002 By: /s/ Mitchell K. Dauerman
------------------------
Executive Vice President, Chief Financial
Officer and Treasurer (Authorized Signatory
and Principal Financial and Accounting
Officer)
20
Exhibit Index
Exhibit
Number Description
99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, Scott Scherr
99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, Mitchell K.
Dauerman