Geac Computer Corporation Limited.
Geac Announces Third Quarter Results for Fiscal Year 2005
Markham, Canada and Southborough, Massachusetts (ots/PRNewswire)
- Earnings from Operations Increased 17.6% in Q3 FY 2005 Over Q3 FY 2004
- Gross Margin Improved to 62.4% in Q3 FY 2005 from 60.4% a Year Ago
- Diluted Net Earnings Per Share of US$0.34 in Q3 FY 2005 Compared to US$0.16 in Q3 FY 2004
- Note to readers: All references to dollars are to US dollars unless otherwise noted
MARKHAM, Canada and SOUTHBOROUGH, Massachusetts, March 8 /PRNewswire/
Geac Computer Corporation Limited (TSX: GAC and NASDAQ: GEAC), a global enterprise software company dedicated to addressing the needs of CFOs, today announced its third quarter financial results for the three and nine months ended January 31, 2005.
Third Quarter Financial Highlights
US$ thousands Q3 FY2005 Q2 FY2005 Q3 FY2004
Software Revenue US$ 18,211 US$ 15,064 US$ 18,672
Support & Services Revenue US$ 90,596 US$ 88,890 US$ 89,591
Hardware Revenue US$ 5,083 US$ 2,476 US$ 7,912
Total Revenue US$ 113,890 US$ 106,430 US$ 116,175
Net Earnings US$ 29,670 US$ 15,204 US$ 13,755
Diluted Net Earnings Per Share
(not in thousands) US$ 0.34 US$ 0.17 US$ 0.16Geac reported total revenue in the third quarter of fiscal year (FY) 2005 of US$113.9 million, a decrease of US$2.3 million compared to US$116.2 million in total revenue in the third quarter of FY 2004. The decrease was due to a decline in Geac's low-margin hardware revenue of US$2.8 million. Software license revenue was US$18.2 million in the third quarter, down US$0.5 million from a year ago, but up US$3.1 million from the second quarter of FY 2005. The Company's net earnings were US$29.7 million during the third quarter of FY 2005, or US$0.34 per diluted share, compared with US$13.8 million, or US$0.16 per diluted share, in the third quarter of last year. Net earnings were positively impacted by the non-recurring tax benefit in the third quarter of FY 2005, however earnings from operations before income taxes contributed US$0.25 to the US$0.34 earnings per diluted share in the third quarter of FY 2005.
Geac's gross profit increased to 62.4% of revenue in the third quarter of FY 2005 from 60.4% in the third quarter of FY 2004. Gross profit increased to 63.6% of revenue for the nine months ended January 31, 2005 from 59.9% for the nine months ended January 31, 2004. Our continued focus on operating expense management resulted in an increase in earnings from operations of 17.6% over the third quarter of last year. However, gross margin has declined from 63.6% in the second quarter of FY 2005 to 62.4% in the third quarter of FY 2005. As stated in the second quarter announcement, Geac management remains uncertain about whether it can maintain this level of gross profit in future quarters.
"Important to the quarter was the Company's continued focus on successfully strengthening customer retention by delivering increased value through support activities," said Charles S. Jones, Chief Executive Officer of Geac. Helped by an increase in maintenance revenue in Geac Performance Management and continued success in our Value for Maintenance Program, we saw a continued retention rate in excess of 90% of our support revenue for the quarter and only a 3.8% decrease in our year over year current deferred revenue for maintenance which is substantially lower than our historic maintenance attrition rate. Of equal importance was our drive to increase our software license revenue in the third quarter over the second quarter of this year. Although software license revenue is relatively flat year over year, it increased by 20.9% in the third quarter over the second quarter of this year. Contributing to this increase was MPC license revenue, which increased 45.9%, and System21 license revenue, which increased 59.2%, over the second quarter of FY 2005," said Charles S. Jones, Chief Executive Officer of Geac.
Operating expenses were US$49.5 million in the third quarter of FY 2005, a decrease of 4.5% from US$51.9 million in the third quarter of FY 2004. For the nine months ended January 31, 2005, operating expenses decreased 2.5% to US$145.6 million from US$149.3 million for the same period a year ago. Reductions in product development costs and general and administrative expenses contributed to the overall reduction in operating expenses.
"For the fifth consecutive quarter, Geac has been able to increase its cash position through rigorous cost controls, consistent cash collection procedures, ongoing maintenance renewals and the continued generation of cash throughout its many businesses," said Donna de Winter, Chief Financial Officer of Geac. "The Company increased its cash position to US$168.5 million at the end of the third quarter of FY 2005 from US$51.0 million a year ago and US$121.8 million at the end of the second quarter of FY 2005. This strong cash position contributes significantly to Geac's flexibility to execute a transformational acquisition as we look for opportunities to grow our revenue, increase our customer base and expand our product footprint through development and acquisition."
Customers
In the third quarter, Geac closed approximately 470 deals in the Enterprise Applications Systems (EAS) segment of its business. Twenty-eight of these deals each exceeded US$150,000 - a 33% increase over Q2 FY 2005 -- and the average deal size within this group was more than US$350,000, also a significant increase over the previous quarter, in which the deals in excess of US$150,000 averaged US$265,000.
"We continue to execute positive change across our sales force as we train and attract salespeople to succeed in an increasingly competitive and consolidating software market - one which accommodates fewer and larger players every quarter. We see in our customer relationships an increasing convergence of software products with the provision of professional services. Geac's software sales as a percentage of total revenue remained at approximately 16.0% quarter-over-quarter," Mr. Jones continued. "Our sales efforts have required a transition period and an increased expenditure in sales and marketing. Geac attracted 52 new customers in its EAS division in the third quarter, compared to only 11 new customers in the second quarter of FY 2005; the Company has increased its win rate with larger organizations - including an impressive second sale in the third quarter into a global Fortune 10 Company, among others; and we have seen continued success with our focused vertical selling efforts into the government and financial services sectors."
Geac Performance Management - Significant sales included: AARP, for MPC; Callaway Golf, for MPC; Department of Finance, Australia (DOFA), for MPC, sold in partnership with Beacon Government Solutions; Lawrence Livermore National Laboratories, for Expense Management; Sargent & Lundy, for Expense Management; a leading telecommunications company, for MPC; a worldwide manufacturer of consumer products, for Expense Management, ASP; a US foodservice industry distributor, for MPC; and a significant European government agency, for MPC.
Reinforcing Geac's strategy to integrate performance management solutions into its existing product lines and to sell into its established customer base, among the major deals of the quarter, the Company sold Geac Performance Management to three existing Enterprise Server customers: a major New England city government, a western US automobile club and a large, Texas-based oil and gas company. By adding MPC budgeting, planning and forecasting to their back office solutions, Geac is helping customers extend these solutions across their financial value chain, drive performance and extract more value from their existing technology investments.
Vertical Market Focus
To advance its position in the performance management marketplace, Geac is undertaking several industry-specific campaigns that will capitalize on the Company's collective expertise and established customer base and partnerships in the Financial Services and Government sectors.
As institutional investors continue to compete with traditional banking markets, the competitive landscape in the banking industry at the same time broadens and intensifies. Banks are looking for ways to integrate multiple back office silos and front office applications to increase efficiency, regulatory compliance, financial clarity and profitability. Geac Performance Management extends beyond access, reconciliation and reporting of data to more strategic budgeting, analysis and forecasting to help its banking customers meet their shareholder and client needs in this increasingly competitive landscape.
Currently, Geac has more than 100 banks among its sizeable services customer base. Notably, 14 of our banking customers belong to the top twenty- five banks in the world, ranked by assets. Since the last quarter of FY 2004, Geac has successfully sold Geac Performance Management software into four Geac enterprise customers in the banking industry, including, Fortis, a European top 20 banking, insurance and investments group -- and long-time SmartStream user -- which committed to Geac Performance Management as part of its move towards a more uniform global approach to budgeting that Fortis expects will yield significant improvements in quality, speed and transparency. In addition, Geac continues to augment its staff resources with banking industry expertise, and is supplementing its market outreach through its partnership with IPS-Sendero, a global corporate performance management firm that serves the financial services industry exclusively. The third quarter also saw the completion of a sale to one of the world's largest banks.
The other sector Geac is targeting initially in its vertical industry campaign is government at the local, state and federal levels. Under increasing pressure to do more with less, the government vertical is now examining closely technology advantages deployed in the private sector to increase efficiency, accountability and productivity. Since the start of Geac's 2004 fiscal year, Geac has completed approximately 180 separate deals with nearly 100 different government entities worldwide. In the Geac Performance Management business, some of those deals have included the State of Alaska, the City of Charlotte (NC) and a major New England city government. In the UK during this period, Geac MPC sales to London Borough of Bromley, Luton Borough Council and The Learning & Skills Council demonstrate the market traction Geac is gaining. As in banking, Geac is forging partnerships to help it penetrate the government market, such as one with NRJ Consulting, a local government reseller of Geac MPC in the UK, which was instrumental in Geac's recent win at London Borough of Bromley.
Concluding Remarks
Mr. Jones concluded, "The enterprise software market continues to be challenging as major software vendors consolidate and customers manage their IT budgets frugally. In this competitive environment, we are pleased to have closed so many new deals, to have held maintenance attrition rates in the single digits, to have maintained aggressive cost control measures, to have shown an increase in our earnings from operations and to have built an actionably strong cash position. With a continued focus on top-line revenue growth, we are in a solid position to move forward with our internal development and acquisition planning to deliver expanded product suites to existing and new customers."
To understand better this press release and for more in-depth analysis of these financial results, please see our Management Discussion and Analysis, which will be filed today with the Canadian Securities Administrators at www.sedar.com and the United States Securities and Exchange Commission at www.sec.gov. It will also be posted on our website at http://www.geac.com later today.
Earnings Call
Management will discuss the results announced on a conference call scheduled for later today, Tuesday, March 8, 2005, at 5:15 p.m. Eastern Time.
Listeners may access the conference call at +1-416-405-9310 / +1-877-211-7911, or via webcast at http://www.investors.geac.com.
A replay of the conference call will be available from March 8, 2005 at approximately 9:00 p.m. Eastern Time until March 17, 2005 at 11:59 p.m. Eastern Time. The replay can be accessed at +1-416-695-5800 or +1-800-408-3053. The pass code for the replay is 3140943 followed by the number sign.
The conference call will be broadcast over Geac's web site at www.investors.geac.com. Attendees will need to log in at least 15 minutes prior to the call.
About Geac
Geac (TSX: GAC, NASDAQ: GEAC) is a global enterprise software company that addresses the needs of the Chief Financial Officer. Geac's best-in-class technology products and services help organizations do more with less in an increasingly competitive environment, amidst growing regulatory pressure, and in response to other business issues confronting the CFO. Further information is available at http://www.geac.com or through email at info@geac.com.
Geac trades on the Toronto Stock Exchange under the symbol "GAC" and on the NASDAQ National Market under the symbol "GEAC" and had 86,042,840 common shares issued and outstanding at January 31, 2005.
This press release contains forward-looking statements of Geac's intentions, beliefs, expectations and predictions for the future. These forward-looking statements often include use of the future tense with words such as "will," "may," "intends," "anticipates," "expects" and similar conditional or forward-looking words and phrases. These forward-looking statements are neither promises nor guarantees. They are only predictions that are subject to risks and uncertainties, and they may differ materially from actual future events or results. Geac disclaims any obligation to update any such forward-looking statements after the date of this release. Among the risks and uncertainties that could cause a material difference between these forward-looking statements and actual events include, among other things: our ability to increase revenues from new license sales, cross-sell into our existing customer base and reduce customer attrition; whether we can identify and acquire synergistic businesses and, if so, whether we can successfully integrate them into our existing operations; whether we are able to deliver products and services within required time frames and budgets to meet increasingly competitive customer demands and performance guarantees; risks inherent in fluctuating international currency exchange rates in light of our global operations and the unpredictable effect of geopolitical world and local events; whether we are successful in our continued efforts to manage expenses effectively and maintain profitability; our ability to achieve revenue from products and services that are under development; the uncertain effect of the competitive environment in which we operate and resulting pricing pressures; and whether the anticipated effects and results of our new product offerings and successful product implementation will be realized. These and other potential risks and uncertainties that relate to Geac's business and operations are summarized in more detail from time to time in our filings with the United States Securities and Exchange Commission and with the Canadian Securities Administrators, including Geac's most recent quarterly reports available through the website maintained by the SEC at www.sec.gov and through the website maintained by the Canadian Securities Administrators and the Canadian Depository for Securities Limited at www.sedar.com.
Geac is a registered trademark of Geac Computer Corporation Limited. All other marks are trademarks of their respective owners.
Geac's financial statements and the financial information included in this press release have been prepared in accordance with Canadian generally accepted accounting principles. In addition, the financial statements and the financial information included in this press release, as well as this press release itself, have been reviewed and approved by both the Audit Committee and the Board of Directors of the Company.
Geac Computer Corporation Limited
Consolidated Balance Sheets
(Unaudited)
(amounts in thousands of U.S. dollars) January 31, April 30,
2005 2004
------------ ------------
As revised
Assets (see note 2)
Current assets:
Cash and cash equivalents US$ 168,491 US$ 86,050
Restricted cash 6 95
Short-term investments - 26,500
Accounts receivable and other receivables 47,394 49,300
Unbilled receivables 8,656 6,537
Future income taxes 9,125 15,247
Inventory 531 624
Prepaid expenses and other assets 11,467 10,165
------------ ------------
Total current assets 245,670 194,518
Restricted cash 2,499 1,781
Future income taxes 20,674 21,741
Property, plant and equipment 22,231 23,843
Intangible assets 26,130 32,628
Goodwill (note 5) 123,311 128,366
Other assets 3,155 4,026
------------ ------------
Total assets US$ 443,670 US$ 406,903
------------ ------------
------------ ------------
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities US$ 71,723 US$ 79,664
Income taxes payable 22,279 34,538
Current portion of long-term debt 420 391
Deferred revenue 106,130 117,927
------------ ------------
Total current liabilities 200,552 232,520
Deferred revenue 1,929 2,256
Employee future benefits 25,824 23,994
Asset retirement obligations (note 4) 1,709 1,648
Accrued restructuring (note 8) 2,494 5,864
Long-term debt 4,750 4,550
------------ ------------
Total liabilities 237,258 270,832
Shareholders' Equity
Common shares; no par value; unlimited
shares authorized; issued and outstanding
as at January 31, 2005 - 86,042,840
(April 30, 2004 - 85,174,785) 129,400 124,019
Common stock options 12 44
Contributed surplus 4,229 2,368
Retained earnings 92,903 34,517
Cumulative foreign exchange translation
adjustment (20,132) (24,877)
------------ ------------
Total shareholders' equity 206,412 136,071
------------ ------------
US$ 443,670 US$ 406,903
------------ ------------
------------ ------------
Commitments and contingencies (note 9) Geac Computer Corporation Limited
Consolidated Statements of Earnings
(Unaudited)
(amounts in thousands of U.S. dollars, except share and per share data)
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(Revised-see (Revised-see
notes 3 & 4) notes 3 & 4)
Revenue:
Software US$ 18,211 US$ 18,672 US$48,770 US$46,803
Support and services 90,596 89,591 268,956 261,502
Hardware 5,083 7,912 9,462 20,862
---------- ---------- ---------- ----------
Total revenue 113,890 116,175 327,188 329,167
Cost of revenue:
Costs of software 2,278 1,356 6,088 5,492
Costs of support and
services 36,447 37,884 105,450 108,718
Costs of hardware 4,115 6,751 7,528 17,844
---------- ---------- ---------- ----------
Total cost of revenue 42,840 45,991 119,066 132,054
---------- ---------- ---------- ----------
Gross profit 71,050 70,184 208,122 197,113
Operating expenses:
Sales and marketing 20,116 19,017 56,349 55,241
Product development 14,456 15,659 42,755 44,410
General and administrative 13,395 15,840 41,409 48,006
Net restructuring and other
unusual items (note 8) (735) (947) (1,755) (3,754)
Amortization of intangible
assets 2,312 2,332 6,848 5,363
---------- ---------- ---------- ----------
Total costs and expenses 49,544 51,901 145,606 149,266
Earnings from operations 21,506 18,283 62,516 47,847
Interest income 877 313 2,052 899
Interest expense (423) (418) (1,179) (842)
Other income (expense), net 270 (1,006) 482 (1,764)
---------- ---------- ---------- ----------
Earnings from operations
before income taxes 22,230 17,172 63,871 46,140
Income taxes (note 10) 7,440 (3,417) (5,485) (12,754)
---------- ---------- ---------- ----------
Net earnings for the period US$ 29,670 US$13,755 US$58,386 US$33,386
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic net earnings per share US$ 0.35 US$ 0.16 US$ 0.68 US$ 0.39
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted net earnings per
share US$ 0.34 US$ 0.16 US$ 0.67 US$ 0.39
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
common shares used in
computing basic net
earnings per share ('000s) 85,684 84,830 85,318 84,523
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
common shares used in
computing diluted net
earnings per share ('000s) 87,874 86,389 87,462 85,763
---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- Geac Computer Corporation Limited
Consolidated Statement of Shareholders' Equity
(Unaudited)
(amounts in thousands of U.S. dollars, except share data)
Share capital
----------------------- Cumulative
foreign
exchange Total
Common Common Contri- Retained trans- share-
shares stock buted earnings/ lation holders'
('000s) Amount options surplus (deficit) adjustment equity
------- ------- ------- ------- ---------- ----------- --------
Balance -
April 30,
2003 84,136 120,976 163 - (22,649) (22,320) 76,170
Issuance
of common
stock
for cash 763 1,675 - - - - 1,675
Stock-based
compensation
(note 3) - - - 1,398 - - 1,398
Employee
stock
purchase
plan - 17 - (17) - - -
Net earnings - - - - 33,386 - 33,386
Foreign
exchange
translation
adjustment - - - - - (1,636) (1,636)
------- ------- ------- ------- ---------- ----------- --------
Balance -
January 31,
2004 84,899 122,668 163 1,381 10,737 (23,956) 110,993
Issuance
of common
stock
for cash 276 1,232 - - - - 1,232
Exercise
of stock
options
granted in
connection
with
acquisition
of
Extensity - 119 (119) - - - -
Stock-based
compensation
(note 3) - - - 987 - - 987
Net earnings - - - - 23,780 - 23,780
Foreign
exchange
translation
adjustment - - - - - (921) (921)
------- ------- ------- ------- ---------- ----------- --------
Balance -
April 30,
2004 85,175 124,019 44 2,368 34,517 (24,877) 136,071
Issuance
of common
stock
for cash 868 4,039 - - - - 4,039
Exercise
of stock
options
granted in
connection
with
acquisition
of
Extensity - 32 (32) - - - -
Stock-based
compensation
(note 3) - - - 3,171 - - 3,171
Exercise
of stock
options - 826 - (826) - - -
Employee
stock
purchase
plan - 484 - (484) - - -
Net earnings - - - - 58,386 - 58,386
Foreign
exchange
translation
adjustment - - - - - 4,745 4,745
------- ------- ------- ------- ---------- ----------- --------
Balance -
January 31,
2005(US$) 86,043 $129,400 $ 12 $4,229 $ 92,903 $(20,132) $206,412
------- ------- ------- ------- ---------- ----------- --------
------- ------- ------- ------- ---------- ----------- --------
See accompanying notes Geac Computer Corporation Limited
Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands of U.S. dollars)
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(Revised- (Revised-
see notes see notes
2, 3 & 4) 2, 3, & 4)
Cash flows from operating
activities
Net earnings for the period US$29,670 US$13,755 US$58,386 US$33,386
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Amortization of intangible
assets 2,312 2,332 6,848 5,363
Amortization of property,
plant and equipment 1,381 1,913 4,723 5,454
Amortization of deferred
financing costs 236 237 707 372
Stock-based compensation 1,412 876 3,532 1,481
Employee future benefits 825 709 2,095 1,216
Future income tax expense 4,037 14 13,631 6,444
Accrued liabilities and
other provisions (735) (773) (1,763) (3,998)
Other 46 (268) 45 (285)
Changes in operating
assets and liabilities:
Accounts receivable and
other and unbilled
receivables (9,387) (3,350) 2,681 6,754
Inventory 82 184 106 258
Prepaid expenses and
other assets (609) (377) (739) 2,796
Accounts payable and
accrued liabilities 7,120 (2,113) (5,050) (14,088)
Accrued restructuring (2,344) (1,438) (9,411) 472
Asset retirement
obligations (400) - (183) -
Income taxes payable (12,508) 2,577 (12,278) 4,293
Deferred revenue 21,716 16,331 (15,697) (21,878)
Other 196 155 478 (4)
---------- ---------- ---------- ----------
Net cash provided by
operating activities 43,050 30,764 48,111 28,036
---------- ---------- ---------- ----------
Cash flows from investing
activities
Acquisition of Comshare less
cash acquired - (129) - (39,148)
Proceeds from divestiture of
operations less cash divested - 339 - 339
Purchases of investments - (30,703) (4,525) (64,203)
Sales of investments - 16,703 31,025 56,203
Additions to property, plant
and equipment (765) (1,513) (2,379) (3,027)
Disposals of property, plant
and equipment (119) (72) 36 10
Change in restricted cash 51 403 (435) 805
---------- ---------- ---------- ----------
Net cash (used in) provided
by investing activities (833) (14,972) 23,722 (49,021)
---------- ---------- ---------- ----------
Cash flows from financing
activities
Disposals of other assets 138 - 138 -
Deferred financing costs - (24) - (2,828)
Issue of common shares 1,914 279 4,039 1,675
Issuance of long-term debt 48 918 135 918
Repayment of long-term debt (111) (263) (338) (649)
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 1,989 910 3,974 (884)
---------- ---------- ---------- ----------
Effect of exchange rate
changes on cash and cash
equivalents 2,472 1,377 6,634 3,002
---------- ---------- ---------- ----------
Cash and cash equivalents
Net increase (decrease) in
cash and cash equivalents 46,678 18,079 82,441 (18,867)
Cash and cash equivalents -
Beginning of period 121,813 32,873 86,050 69,819
---------- ---------- ---------- ----------
Cash and cash equivalents -
End of period US$168,491 US$ 50,952 US$168,491 US$50,952
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notesGeac Computer Corporation Limited Notes to the Consolidated Financial Statements (Unaudited) (amounts in thousands of US dollars, except share and per share data unless otherwise noted)
1. Basis of presentation
The accompanying unaudited consolidated financial statements have
been prepared in United States ("US") dollars and in accordance with
Canadian generally accepted accounting principles ("GAAP") for
interim financial statements. Accordingly, these unaudited financial
statements do not include certain disclosures normally included in
annual financial statements prepared in accordance with such
principles. These unaudited financial statements were prepared using
the same accounting policies as outlined in note 2 to the annual
financial statements for the year ended April 30, 2004, and should be
read in conjunction with the audited consolidated financial
statements and notes included in the Company's Annual Report for the
year ended April 30, 2004.The preparation of these unaudited consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments (which include only normal, recurring adjustments) necessary to state fairly the results for the periods presented. Actual results could differ from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.
2. Reclassification of investments
The Company has adjusted its consolidated balance sheet as at April 30, 2004, and its consolidated statements of cash flows for the nine months ended January 31, 2005 and the three and nine months ended January 31, 2004. In February 2005, it was determined that the Company's previously issued consolidated balance sheet as at April 30, 2004 required an adjustment to reclassify US$26,500 of auction rate securities from cash and cash equivalents to short-term investments. The auction rate securities were classified as cash and cash equivalents as a result of the Company's intent to liquidate them within a 60-day period, however, the original maturities of the securities exceeded 90 days. The adjustments to the Company's consolidated balance sheet as at April 30, 2004 resulted in a decrease of cash and cash equivalents of US$26,500 and an increase in short-term investments of US$26,500. In addition, adjustments to the Company's consolidated statement of cash flows resulted in a decrease of US$14,000 in cash from investing activities for the three months ended January 31, 2004 as a result of net purchases of the auction rate securities. For the nine months ended January 31, 2005, cash flows from investing activities increased by US$26,500 as a result of net sales of the auction rate securities which occurred in the first quarter of fiscal 2005, and for the nine months ended January 31, 2004, cash from investing activities decreased by US$8,000 as a result of net purchases of these securities. The ending balance for cash and cash equivalents for the three and nine months ended January 31, 2004 was reduced by US$28,000 as a result of the reclassification from cash and cash equivalents to short-term investments. These reclassifications had no impact on the Company's results of operations, net cash provided by operating activities, or total current assets.
As of August 1, 2004 the Company no longer held any auction rate securities and ceased investing in these securities given that interest rates increased on traditional investment vehicles.
Accounting policy for short-term investments
Short-term investments consist of auction rate securities with remaining time to maturity greater than 90 days that are available for sale. The investments are classified in the balance sheet as current assets because they can be readily converted into cash or into securities with a shorter remaining time to maturity and because the Company is not committed to holding the investments until maturity. The Company determines the appropriate classification of its investments at the time of purchase and re-evaluates such designations as of each balance sheet date. Short-term investments are stated at amounts that approximate fair market value, based on quoted market prices.
3. Stock-based compensation
Effective May 1, 2003, the Company adopted the revised
recommendations of CICA Handbook Section 3870, "Stock-Based
Compensation and other Stock-Based Payments" ("Section 3870"), which
requires that a fair value method of accounting be applied to all
stock-based compensation payments to employees. In accordance with
the transitional provisions of Section 3870, the Company has
prospectively applied the fair value method of accounting for stock
option awards granted and for shares issued under its Employee Stock
Purchase Plan ("ESPP") on or after May 1, 2003, and accordingly, has
recorded compensation expense. Prior to May 1, 2003, the Company
accounted for its employee stock options and shares issued under the
ESPP using the settlement method and no compensation expense was
recognized.Since the revised recommendations were adopted in the fourth quarter of fiscal 2004, the consolidated statements of earnings for the three and nine months ended January 31, 2004 have been restated for comparative purposes to include the charges that would have been included had the Company adopted the provisions at the beginning of fiscal 2004. The effect of the change in policy and reclassification on results for the three months ended January 31, 2004 is an increase in cost of sales for services of US$128, an increase in sales and marketing expense of US$334, an increase in product development expense of US$98, an increase in general and administrative expense of US$315, and a decrease in income tax expense of US$238. For the nine months January 31, 2004 the impact is an increase in cost of sales for services of US$213, an increase in sales and marketing expense of US$569, an increase in product development expense of US$183, an increase in general and administrative expense of US$516, and a decrease in income tax expense of US$403.
For awards granted during the year ended April 30, 2003, the standard requires the disclosure of pro forma net earnings and earnings per share information as if the Company had accounted for employee stock options under the fair value method. The pro forma effect of awards granted and shares issued prior to May 1, 2002 has not been included in the pro forma net earnings and earnings per share information.
The pro forma disclosure relating to options granted during the year ended April 30, 2003 is as follows:
The pro forma disclosure relating to options granted during the year
ended April 30, 2003 is as follows:
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net earnings - as reported US$29,670 US$13,755 US$58,386 US$33,386
Pro forma stock-based
compensation expense, net
of tax (77) (835) (329) (1,728)
---------- ---------- ---------- ----------
Net earnings - pro forma US$29,593 US$12,920 US$58,057 US$31,658
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic net earnings per
share - as reported US$ 0.35 US$ 0.16 US$ 0.68 US$ 0.39
Pro forma stock-based
compensation expense
per share - (0.01) - (0.02)
---------- ---------- ---------- ----------
Basic net earnings per
share - pro forma US$ 0.35 US$ 0.15 US$ 0.68 US$ 0.37
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted net earnings
per share - as reported US$ 0.34 US$ 0.16 US$ 0.67 US$ 0.39
Pro forma stock-based
compensation expense
per share - (0.01) - (0.02)
---------- ---------- ---------- ----------
Diluted net earnings
per share - pro forma US$ 0.34 US$ 0.15 US$ 0.67 US$ 0.37
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------The estimated fair value of the stock options is amortized to expense over the vesting period, on a straight-line basis, and was determined using the Black-Scholes pricing model with the following weighted average assumptions:
Assumptions - Stock Options
Weighted average risk-free interest rate 4.20%
Weighted average expected life (in years) 7.0
Weighted average volatility in the market price of
common shares 71.71%
Weighted average dividend yield Nil
Weighted average grant date fair value of options issued US$3.16Weighted average risk-free interest rate 4.20% Weighted average expected life (in years) 7.0 Weighted average volatility in the market price of common shares 71.71% Weighted average dividend yield Nil Weighted average grant date fair value of options issued US$3.16
During the nine months ended January 31, 2005, the Company issued
common stock to employees who participated in the new 2003 Employee
Stock Purchase Plan ("2003 ESPP"). Under the 2003 ESPP, employees
resident in Canada, the United States, the United Kingdom, France and
Australia are entitled to participate with residents of additional
countries to be added over time.The estimated fair value of common shares issued under the 2003 ESPP was determined using the Black-Scholes pricing model with the following weighted average assumptions:
Assumptions - ESPP Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Weighted average risk-free
interest rate 2.21% 2.70% 2.21% 2.94%
Weighted average expected
life (in months) 6 3 6 3
Weighted average volatility
in the market price of
common shares 37.44% 35.90% 37.44% 32.91%
Weighted average dividend yield Nil Nil Nil Nil
Weighted average grant date
fair values of awards or
shares issued US$2.32 US$1.38 US$2.52 US$1.00During the three and nine months ended January 31, 2005, the Company expensed US$1,051 and US$2,687, respectively, relating to the fair value of options granted. For the three and nine months ended January 31, 2004, the Company expensed US$787 and US$1,381, respectively relating to the fair value of options granted. Compensation expense relating to the fair value of shares issued under the 2003 ESPP was US$224 and US$484 for the three and nine months ended January 31, 2005, respectively, and US$6 and US$17 for the three and nine months ended January 31, 2004, respectively. Contributed surplus was credited US$3,171 during the nine months ended January 31, 2005 and US$1,398 during the nine months ended January 31, 2004. These amounts will be credited to share capital along with the proceeds received on exercise of these awards.
The Company also maintains a Directors' deferred share unit plan
("DSU"). Under the plan, the Human Resources and Compensation
Committee of the Board, or its designee, may grant deferred share
units to members of the Company's Board of Directors relating to
compensation for the services rendered to the Company as a member of
the Board. As determined by the Company, units issued under the plan
may be payable in cash or common stock. For the three and nine months
ended January 31, 2005, the Company expensed US$137 and US$361,
respectively, through general and administrative expense relating to
the DSUs. Accrued liabilities were credited US$361 for these awards
for the nine months ended January 31, 2005, and will continue to be
adjusted each quarter based on the market value of the units, which
have vested under the plan.4. Asset retirement obligations
The Company has obligations with respect to the retirement of
leasehold improvements at maturity of facility leases and the
restoration of facilities back to their original condition at the end
of the lease term. For its year ended April 30, 2004, the Company
early adopted the provisions of CICA Handbook Section 3110, "Asset
Retirement Obligations" ("Section 3110"). Section 3110 requires that
the effect of initially applying the Section be treated as a change
in accounting policy. Accordingly, the financial statements of prior
periods presented for comparative purposes are restated
retroactively. The adoption of Section 3110 results in a charge in
the consolidated statement of earnings of US$46 and US$128 for the
three and nine months ended January 31, 2004, respectively.The following table details the changes in the Company's leasehold retirement liability for the nine months ended January 31, 2005:
Asset retirement obligations balance, April 30, 2004 US$ 1,648
Additions to the obligations 60
Accretion charges 23
Foreign exchange impact 17
Asset retirement obligations balance, July 31, 2004 1,748
Additions to the obligations 321
Accretion charges 33
Amounts released due to settlements (96)
Foreign exchange impact 83
Asset retirement obligations balance, October 31, 2004 2,089
Additions to the obligations 13
Accretion charges 23
Amounts released due to settlements (469)
Foreign exchange impact 53
Asset retirement obligations balance, January 31, 2005 US$ 1,7095. Goodwill
Changes in the carrying amount of goodwill for the nine months ended January 31, 2005 are as follows:
Changes in the carrying amount of goodwill for the nine months ended
January 31, 2005 are as follows:
Goodwill balance, April 30, 2004 US$ 128,366
Goodwill adjustment related to acquisition amounts (495)
Foreign exchange impact 689
Goodwill balance, July 31, 2004 128,560
Goodwill adjustment related to acquisition amounts (6,728)
Foreign exchange impact 1,211
Goodwill balance, October 31, 2004 123,043
Goodwill adjustment related to acquisition amounts (306)
Foreign exchange impact 574
Goodwill balance, January 31, 2005 US$ 123,311During the three months ended July 31, 2004 the Company released US$495 related to Comshare premises and severance reserves set-up at acquisition that were no longer required. During the three months ended October 31, 2004 the Company reduced goodwill by US$5,740 related to an increase in future tax assets and US$663 related to the reversal of Comshare tax related reserves that are no longer necessary. Additionally, the Company released US$542 in reserves that were deemed to be no longer required, and reversed US$217 in future tax assets, relating to premises reserves in connection with the Extensity acquisition. During the three months ended January 31, 2005, the Company sublet two facilities, one of which was assumed with the acquisition of Extensity and one that was assumed with the Comshare acquisition. As a result of these sublease agreements, the Company released the premises reserves which had been set-up at acquisition and were deemed to be no longer required. This reduced goodwill by US$306.
6. Credit facility
On September 9, 2003 the Company and certain of its subsidiaries entered into a Loan, Guaranty and Security Agreement (the "Loan Agreement") with Wells Fargo Foothill, Inc., pursuant to which the Company and certain of its subsidiaries obtained a three-year revolving credit facility (the "Facility") with a US$50,000 revolving line of credit, including a US$5,000 letter of credit sub-facility. The interest rate payable on advances under the Facility is, at the Company's option, the prime rate plus 0.50% or LIBOR plus 3.00%. The Facility is collateralized by substantially all of the assets of the Company and certain of its United States and Canadian subsidiaries and guaranteed by certain of its United States, Canadian, United Kingdom and Hungarian subsidiaries. The Facility is available for the working capital needs and other general corporate purposes of the Company and its subsidiaries that are parties to the Loan Agreement. As of January 31, 2005, US$2,185 of the letter of credit sub-facility has been utilized, and the remaining US$47,815 revolving line of credit is available and has not been drawn on.
The financing costs of US$2,828 incurred to close the transaction were recorded as other assets in the second quarter of fiscal 2004 and are being amortized to interest expense on a straight-line basis over the term of the Facility. Amortization related to these financing costs was US$236 and US$707 the three and nine months ended January 31, 2005, respectively. For the three months and nine months ended January 31, 2004, amortization related to these financing costs were US$237 and US$372 respectively.
7. Employee future benefits
The Company recorded employee future benefit expenses as follows:
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Defined contribution
pension plans US$ 595 US$ 709 US$ 1,420 US$ 1,216
Defined benefit pension plan 230 - 675 -
---------- ---------- ---------- ----------
US$ 825 US$ 709 US$ 2,095 US$ 1,216
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------8. Net restructuring and other unusual items
The reversal in net restructuring and other unusual items was US$735 and US$1,755 for the three and nine months ended January 31, 2005 respectively. For the three and nine months ended January 31, 2004, the reversal in net restructuring and other unusual items was US$947 and US$3,754 respectively.
For the three months ended January 31, 2005, the net restructuring and other unusual items credit balance of US$735 was comprised of releases related to previously accrued lease termination costs and other prior acquisition related reserves that are no longer required.
For the three months ended January 31, 2004, the Company recorded a net reversal of US$947 in net restructuring and other unusual items, which included a reversal of US$1,598 of accrued liabilities and other provisions recorded in prior years which were no longer required, partially offset by a charge of approximately US$69 for severance related to the restructuring of the Company's business in North America and a charge of US$825 resulting from adjustments to a lease obligation assumed in the JBA acquisition. In addition, a pre-tax gain of US$243 on the sale of the assets of the NTC Northern Ontario business was recorded in the third quarter of fiscal 2004.
For the nine months ended January 31, 2005, the Company recorded a reversal of US$1,755, as several restructuring accruals relating to severance amounts, lease termination costs and other prior acquisition related reserves were released to adjust the accruals to match the current estimates of the amounts required.
For the nine months ended January 31, 2004 the Company recorded a net reversal of US$3,754 in net restructuring and other unusual items, which included a reversal of US$4,823 of accrued liabilities and other provisions recorded in prior years which were no longer required, partially offset by a charge of US$487 for severance related to the restructuring of the Company's business in North America and a charge of US$825 resulting from adjustments to a lease obligation assumed in the JBA acquisition. In addition, a pre-tax gain of US$243 on the sale of the assets of the NTC Northern Ontario business was recorded in the third quarter of fiscal 2004.
Restructuring accrual
Activity related to the Company's restructuring plans, business rationalization, and integration actions, was as follows:
Premises Workforce
restructuring reductions Total
---------- ---------- ----------
---------- ---------- ----------
April 30, 2003 provision balance US$ 17,658 US$ 5,625 US$23,283
Fiscal year 2004 provision additions 3,101 5,990 9,091
Fiscal year 2004 cash payments (4,860) (8,661) (13,521)
Fiscal year 2004 provision release (3,699) (1,738) (5,437)
---------- ---------- ----------
April 30, 2004 provision balance 12,200 1,216 13,416
First quarter 2005 provision additions 400 865 1,265
First quarter 2005 cash payments (1,467) (1,064) (2,531)
First quarter 2005 provision release (963) (173) (1,136)
---------- ---------- ----------
July 31, 2004 provision balance 10,170 844 11,014
Second quarter 2005 provision additions - 931 931
Second quarter 2005 cash payments (1,038) (1,108) (2,146)
Second quarter 2005 provision release (1,194) (35) (1,229)
---------- ---------- ----------
October 31, 2004 provision balance 7,938 632 8,570
Third quarter 2005 provision additions 135 517 652
Third quarter 2005 cash payments (1,816) (263) (2,079)
Third quarter 2005 provision release (640) (19) (659)
---------- ---------- ----------
January 31, 2005 provision balance US$ 5,617 US$ 867 6,484
---------- ----------
---------- ----------
Less: Current portion included in
accounts payable and accrued liabilities (3,990)
Long-term portion of restructuring accrual US$ 2,494During the quarter ended January 31, 2005, the Company accrued US$517 in severance costs related to the rationalization of the Company's European business locations. For the nine months ended January 31, 2005, the Company accrued a total of US$2,313 in severance and US$535 in lease termination costs that related to the rationalization of the Company's North American and European business locations.
As at January 31, 2005, the Company has a balance of US$5,617 related to accrued premises restructuring cost. Of this amount, approximately US$575 is related to the acquisition of Comshare and a balance of US$2,388 remains related to the acquisition of Extensity. The Company anticipates that the remainder of these balances will be utilized through fiscal 2009.
As at January 31, 2005, a balance of US$867 is remaining for severance, of which the remainder will substantially be paid by the end of the fourth quarter of 2005, and will include employees from the support and services, development and sales and marketing areas.
9. Commitments and contingencies
Customer indemnifications
The Company has entered into license agreements with customers that include limited intellectual property indemnification clauses. The Company generally agrees to indemnify its customers against legal claims that its software products infringe certain third-party intellectual property rights. In the event of such a claim, the Company is generally obligated to defend its customer against the claim and either to settle the claim at the Company's expense or pay damages that the customer is legally required to pay to the third-party claimant. The Company has not made any significant indemnification payments and has not accrued any amounts in relation to these indemnification clauses.
Litigation, Assessments and Claims
Activity related to the Company's legal accruals was as follows:
April 30, 2003 provision balance US$ 3,844
Fiscal year 2004 provision additions 3,587
Fiscal year 2004 cash payments (3,125)
Fiscal year 2004 provision release (109)
April 30, 2004 provision balance 4,197
First quarter 2005 provision additions 284
First quarter 2005 cash payments (2,067)
July 31, 2004 provision balance 2,414
Second quarter 2005 provision additions 162
Second quarter 2005 cash payments (2,072)
Second quarter 2005 provision release (58)
October 31, 2004 provision balance 446
Third quarter 2005 provision additions 11
Third quarter 2005 cash payments (457)
January 31, 2005 provision balance US$ -Extensity, a company acquired by Geac in March 2003, is subject to a class action suit, which alleges that Extensity, certain of its former officers and directors, and the underwriters of its initial public offering in January 2000 violated US securities laws by not adequately disclosing the compensation paid to such underwriters. The class action suit has been consolidated with a number of similar class action suits brought against other issuers and underwriters involved in initial public offerings. The plaintiffs seek an unspecified amount of damages. The plaintiffs and issuer parties have entered into a settlement agreement to settle all claims, which will be funded by the issuers' insurers. On February 15, 2005, the Court issued an opinion granting preliminary approval of the settlement.
In addition, from time to time, Geac is subject to other legal proceedings, assessments and claims in the ordinary course of business. At this time, in the opinion of management, none of these matters is reasonably expected to result in a material adverse effect on Geac's financial position.
10. Income taxes
During the quarter ended January 31, 2005, the Company realized a benefit from income taxes of US$7,440. The total benefit was comprised of a US$13,870 release as a result of income tax provisions established in prior periods that were deemed to be no longer required, offset by US$6,430 of income tax expense. The US$13,870 net release was comprised of the net release of income tax provisions established in prior periods in the aggregate amount of US$22,060, offset by the establishment of US$8,190 in new income tax provisions.
11. Segmented information
The Company reports segmented information according to CICA 1701, "Segment Disclosures." This standard requires segmentation based on the way management organizes segments for monitoring performance.
The Company operates the following business segments, which have been segregated based on product offerings, reflecting the way that management organizes the segments within the business for making operating decisions and assessing performance.
Enterprise Applications Systems (EAS) offer software solutions, which include cross-industry enterprise business applications for financial administration and human resource functions, and enterprise resource planning applications for manufacturing, distribution, and supply chain management.
Industry-Specific Applications (ISA) products include applications for the real estate, construction, banking, hospitality and publishing marketplaces, as well as a range of applications for libraries and public safety administration.
There are no significant inter-segment revenues. Segment assets consist of working capital items, excluding cash and cash equivalents. Cash and cash equivalents are considered to be corporate assets. Property, plant and equipment are typically shared by operating segments and those assets are managed by geographic region, rather than through the operating segments.
For the nine months ended January 31, 2005, included in segment contribution are additional corporate expenses, which have been reallocated to the Company's segments to provide a more accurate portrayal of segment contribution. The additional corporate expenses of US$672 and US$148 have been allocated to the EAS business and ISA business, respectively.
During the year ended April 30, 2004, the Company determined that given the nature of the products offered in its local government product line, the inclusion of the local government business in the EAS segment was no longer appropriate. As a result, the local government business has been reclassified from EAS to ISA. For comparison purposes, the Company has reclassified revenue, contribution margin and segment assets relating to this business in its comparatives. The impact on revenue for the three and nine months ended January 31, 2004 was a reclassification of approximately US$3,213 and US$9,383 respectively from the EAS to the ISA business. For the three and nine months ended January 31, 2004, segmented contribution for the ISA business was reduced by US$13 and was increased by US$958 on a net basis as a result of the local government reclassification and to reclassify costs that were determined to be related to the ISA business. Additionally, expenses of US$358 and US$499 for the three and nine months ended January 31, 2004, respectively, were reclassified to Corporate expenses from the EAS business to more accurately portray segment contribution.
Three months ended Nine months ended
January 31, 2005 January 31, 2005
----------------------------- -----------------------------
EAS ISA Total EAS ISA Total
--------- --------- --------- --------- --------- ---------
Revenue:
Software US$15,927 US$2,284 US$18,211 US$41,402 US$7,368 US$48,770
Support and
services 70,837 19,759 90,596 209,379 59,577 268,956
Hardware 4,076 1,007 5,083 7,261 2,201 9,462
--------- --------- --------- --------- --------- ---------
Total revenue
US$ 90,840 23,050 113,890 258,042 69,146 327,188
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Segment
contribution US$23,684 US$3,571 US$27,255 US$68,881 US$11,151 US$80,032
Three months ended Nine months ended
January 31, 2004 January 31, 2004
----------------------------- -----------------------------
EAS ISA Total EAS ISA Total
--------- --------- --------- --------- --------- ---------
Revenue:
Software US$16,265 US$2,407 US$18,672 US$39,450 US$7,353 US$46,803
Support and
services 69,838 19,753 89,591 201,310 60,192 261,502
Hardware 7,090 822 7,912 17,974 2,888 20,862
--------- --------- --------- --------- --------- ---------
Total revenue 93,193 22,982 116,175 258,734 70,433 329,167
US$ --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Segment
contribution US$20,484 US$3,415 US$23,899 US$53,306 US$6,607 US$59,913
Reconciliation of segment contribution to earnings from operations before
income taxes:
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Segment contribution US$ 27,255 US$23,899 US$80,032 US$59,913
Corporate expenses (4,172) (4,231) (12,423) (10,457)
Amortization of intangible
assets (2,312) (2,332) (6,848) (5,363)
Interest income, net 454 (105) 873 57
Other income (expense), net 270 (1,006) 482 (1,764)
Net restructuring and other
unusual items 735 947 1,755 3,754
---------- ---------- ---------- ----------
Earnings from operations
before income taxes US$ 22,230 US$17,172 US$63,871 US$46,140
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Geographical information:
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Revenue by geographic
location:
Americas US$ 54,268 US$ 56,127 US$165,264 US$166,875
Europe 51,630 51,995 136,588 137,691
Asia 7,992 8,053 25,336 24,601
---------- ---------- ---------- ----------
Total revenue US$ 113,890 US$116,175 US$327,188 US$329,167
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------12. United States generally accepted accounting principles
The consolidated financial statements of the Company have been prepared in accordance with Canadian GAAP; however the Company's accounting policies, as reflected in these consolidated financial statements, do not materially differ from US GAAP except as follows:
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net earnings under Canadian
GAAP as reported US$29,670 US$13,755 US$58,386 US$33,386
Adjustments:
Stock-based compensation(a) (14) (32) (40) (177)
Write off and amortization
of intellectual property
capitalized under Canadian
GAAP in connection with
the Comshare acquisition(b) 75 75 225 (1,383)
Asset retirement
obligation(c) - 46 - 126
Income taxes(d) (30) (30) (90) (40)
---------- ---------- ---------- ----------
Net earnings under U.S. GAAP 29,701 13,814 58,481 31,912
Other comprehensive income:
Foreign currency
translation adjustment 1,583 (64) 4,591 (1,883)
---------- ---------- ---------- ----------
Comprehensive income
under U.S. GAAP US$31,284 US$13,750 US$63,072 US$30,029
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share
under U.S. GAAP:
Basic net earnings per
common share US$ 0.35 US$ 0.16 US$ 0.69 US$ 0.38
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted net earnings per
common share US$ 0.34 US$ 0.16 US$ 0.67 US$ 0.37
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
common shares used in
computing basic net earnings
per share ('000s) 85,684 84,830 85,318 84,523
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
common shares used in
computing diluted net
earnings per share ('000s) 87,874 86,389 87,462 85,763
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------a) Stock-based compensation
Accounting for stock options
The Company has prospectively adopted the new Canadian GAAP recommendations, which require that a fair value method of accounting be applied to all stock-based compensation awards granted to employees granted on or after May 1, 2003. For US GAAP reporting, the Company also adopted the fair value method of accounting prospectively for all awards granted on or after May 1, 2003. Therefore, there is no GAAP difference for stock-based compensation and awards granted in fiscal year 2004, and thereafter.
In fiscal year 2003, the Company did not expense any compensation cost under Canadian GAAP. For US GAAP, the Company elected to measure compensation cost based on the difference, if any, on the date of the grant, between the market value of the Company's shares and the exercise price (referred to as the "intrinsic value method") over the vesting period. As a result, the Company has recorded stock compensation charges under US GAAP for fiscal years 2003 and 2004, and will have additional charges in 2005, 2006 and 2007 for stock-based compensation and awards granted in fiscal year 2003.
Prior to fiscal year 2003, the Company expensed stock-based compensation under US GAAP as a result of the issuance of stock options with an exercise price below market value.
Pro forma disclosures
For awards granted prior to May 1, 2003, US GAAP requires the disclosure of pro forma net earnings and earnings per share information for all outstanding awards as if the Company had accounted for employee stock options under the fair value method.
The following table presents net earnings and earnings per share information following US GAAP for purposes of pro forma disclosures:
Three months ended Nine months ended
January 31, January 31,
--------------------- ---------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net earnings under U.S. GAAP
- as reported above US$29,701 US$13,814 US$58,481 US$31,912
Pro forma stock-based
compensation expense,
net of tax (201) (935) (771) (3,009)
---------- ---------- ---------- ----------
Net earnings - pro forma US$29,500 US$12,879 US$57,710 US$28,903
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic net earnings per share
under U.S. GAAP - as
reported above US$ 0.35 US$ 0.16 US$ 0.69 US$ 0.38
Pro forma stock-based
compensation expense
per share - (0.01) (0.01) (0.04)
---------- ---------- ---------- ----------
Basic net earnings per share
- pro forma US$ 0.35 US$ 0.15 US$ 0.68 US$ 0.34
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted net earnings per share
under U.S. GAAP - as
reported above US$ 0.34 US$ 0.16 US$ 0.67 US$ 0.37
Pro forma stock-based
compensation expense
per share - (0.01) (0.01) (0.03)
---------- ---------- ---------- ----------
Diluted net earnings per share
- pro forma US$ 0.34 US$ 0.15 US$ 0.66 US$ 0.34
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------Fair values
The fair values of awards granted were estimated using the Black-Scholes option-pricing model. The Black-Scholes model was developed to estimate the fair value of traded options and awards, which have no vesting restrictions, and are fully transferable. The Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility and expected time until exercise. Because the Company's employee stock options and stock awards have characteristics significantly different from those of traded options and awards, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, existing models, including the Black-Scholes model, do not necessarily provide a reliable single measure of the fair value of its employee stock options and stock awards.
b) Intangible assets
In connection with the acquisition of Comshare on August 6, 2003, in-process research and development was acquired and capitalized under Canadian GAAP. Under US GAAP, such in-process research and development is charged to expense at the acquisition date. As a result, under US GAAP, the carrying value of the Company's intangible assets on the consolidated balance sheet would be US$24,961 (April 30, 2004 - US$31,320) and the value of the Company's long-term future income tax assets would be US$21,097 (April 30, 2004 - US$22,264).
c) Asset retirement obligation
Under US GAAP, the Company adopted a new accounting standard dealing with accounting for asset retirement obligations during the year ended April 30, 2004. This new accounting standard addresses the financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and associated retirement costs and is relatively consistent with Canadian requirements, which the Company adopted under Canadian GAAP (see note 4). The main difference between the two standards is the method of adoption. US GAAP requires that the adoption be treated as a cumulative effect of an accounting change in fiscal 2004, whereas Canadian GAAP allows the financial statements of prior periods to be restated retroactively. The adoption of the standard for US GAAP resulted in the cumulative effect of an accounting change of US$736 being charged against earnings during the year ending April 30, 2004 and the reversal of charges under Canadian GAAP of US$46 and US$126 charged against earnings for the three and nine months ended January 31, 2005, respectively.
d) Income taxes
Included in "Income taxes" is the tax effect of the adjustments related to intangible assets.
e) Goodwill
Although the new Canadian GAAP section for Income Taxes is substantially harmonized with US GAAP, it was applied prospectively and goodwill was not adjusted, resulting in differing carrying values of goodwill under Canadian and US GAAP. Under US GAAP, the carrying value of goodwill on the consolidated balance sheet would be US$106,027 (April 30, 2004 - US$111,235).
f) Related party transactions
Accounts receivable and other receivables as at January 31, 2005 and April 30, 2004 included US$254 for a loan due from a former officer of the Company in connection with a compensatory arrangement relating to his employment with the Company. The proceeds from the loan were used by the former officer to purchase 250,625 common shares of the Company, which are currently held as collateral. Under Canadian GAAP, the loan is classified as an other receivable. However, under US GAAP, the loan is classified as a reduction of shareholders' equity. As a result, in accordance with US GAAP, current and total assets and shareholders' equity would be reduced by US$254.
13. Recent accounting pronouncements
Canadian GAAP
Financial Instruments, Comprehensive Income, Hedges
On January 27, 2005, the Accounting Standards Board issued
Canadian Institute of Chartered Accountants ("CICA") handbook section
1530 Comprehensive Income ("Section 1530"), handbook Section 3855
Financial Instruments - Recognition and Measurement ("Section 3855")
and handbook section 3865 Hedges ("Section 3865"). Section 3855
expands on CICA handbook section 3860 Financial Instruments-
Disclosure and Presentation by prescribing when a financial
instrument is to be recognized on the balance sheet and at what
amount. It also specifies how instrument gains and losses are to be
presented. Section 3865, Hedges, is optional. It provides alternative
treatments to Section 3855 for entities that choose to designate
qualifying transactions as hedges for accounting purposes and
specifies how hedge accounting is applied and what disclosures are
necessary when it is applied. Section 1530 introduced a new
requirement to temporarily present certain gains and losses outside
net income in a new component of shareholders' equity entitled
Comprehensive Income. These standards are substantially harmonized
with US GAAP and are effective for the Company beginning May 1, 2007.
The Company is currently evaluating the impact of these standards on
its consolidated financial position, results of operations and cash
flows.US GAAP
Share-Based Payment
In December 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which
replaces SFAS No. 123, "Accounting for Stock-Based Compensation,"
("SFAS 123") and supercedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees". SFAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values
beginning with the first interim or annual period after June 15,
2005, with early adoption encouraged. The pro forma disclosures
previously permitted under SFAS 123 no longer will be an alternative
to financial statement recognition.The Company adopted the fair value method of accounting for all stock-based compensation awards to both employees and non-employees granted on or after May 1, 2003. All stock-based compensation related to awards granted prior to April 30, 2003 is included in the pro forma disclosures above. Under SFAS 123R, the Company must utilize one of the transition methods required by the standard to record the fair value of stock-based compensation related to these awards. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated.
The provision of SFAS 123R are required to be adopted by the Company in the second quarter of fiscal 2006, beginning August 1, 2005 utilizing one of the two methods of adoption provided by the standard. The Company is currently evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will have a material impact on its consolidated results of operations and earnings per share.
Exchanges of Nonmonetary Assets
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets--An Amendment of Accounting Principles Board
Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS
153"). SFAS 153 eliminates the exception from fair value measurement
for nonmonetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that
do not have commercial substance. SFAS 153 specifies that a
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result
of the exchange. SFAS 153 is effective for fiscal periods beginning
after June 15, 2005 and is required to be adopted by the Company in
the second quarter of fiscal 2006, beginning on August 1, 2005. The
Company does not believe adoption of Statement 153 will have a
material effect on its consolidated financial position, results of
operations or cash flows.14. Reclassification of comparative figures
Certain prior year's comparative figures in the accompanying interim financial statements have been reclassified to conform to the current year's presentation.
Contact:
For further information: Financial Contact: Donna de Winter, Chief
Financial Officer, Geac, +1(905)-475-0525 ext. 3204,
donna.dewinter@geac.com; Investor and Media Contact: Alys Scott, Vice
President, Corporate Communications, Geac, +1(508)-871-5064,
alys.scott@geac.com