Geac Computer Corporation Limited
Consolidated Balance Sheets
As at October 31, 2005 and April 30, 2005
(Unaudited)
(amounts in thousands of U.S. dollars)
October April
31, 2005 30, 2005
---------- ----------
Assets (revised -
see note 2)
Current assets:
Cash and cash equivalents $ 226,453 $ 188,134
Restricted cash 2,516 4,808
Accounts receivable and other receivables 37,367 46,922
Unbilled receivables 8,399 8,186
Future income taxes 7,350 8,292
Prepaid expenses and other assets 5,332 7,986
Current assets related to discontinued operations
(note 9) 376 2,097
---------- ----------
Total current assets 287,793 266,425
Restricted cash 2,800 3,039
Future income taxes 20,179 33,529
Property, plant and equipment 20,170 20,882
Intangible assets 19,238 23,841
Goodwill (note 4) 109,255 110,142
Other assets 6,107 6,045
Long-term assets related to discontinued
operations (note 9) - 2,263
---------- ----------
Total assets $ 465,542 $ 466,166
---------- ----------
---------- ----------
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 59,118 $ 71,528
Income taxes payable 26,102 22,997
Current portion of long-term debt 409 424
Deferred revenue 80,465 110,493
Current liabilities related to discontinued
operations (note 9) 376 3,957
---------- ----------
Total current liabilities 166,470 209,399
Deferred revenue 1,804 2,058
Employee future benefits 22,490 26,334
Asset retirement obligations (note 6) 1,221 1,678
Accrued restructuring (note 7) 898 1,769
Long-term debt 4,163 4,630
---------- ----------
Total liabilities 197,046 245,868
Shareholders' Equity
Common shares; no par value; unlimited shares
authorized; issued and outstanding as at
October 31, 2005 - 87,317,871 (April 30,
2005 - 86,377,012) 137,827 131,445
Common shares purchased as at October 31,
2005 - 1,390,112
(April 30, 2005 - 816,598) (note 10) (11,775) (6,979)
Common stock options 12 12
Contributed surplus 12,025 6,353
Retained earnings 156,017 111,541
Cumulative foreign exchange translation adjustment (25,610) (22,074)
---------- ----------
Total shareholders' equity 268,496 220,298
---------- ----------
Total liabilities and shareholders' equity $ 465,542 $ 466,166
---------- ----------
---------- ----------
Commitments and contingencies (note 12)
See accompanying notes
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 Six months ended
October 31 October 31
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Revenue: (revised - (revised -
see note 2) see note 2)
Software $ 18,866 $ 14,962 $ 31,771 $ 30,363
Support and services 81,810 83,036 162,399 166,732
Hardware 2,511 2,476 6,293 4,379
---------- ---------- ---------- ----------
Total revenue 103,187 100,474 200,463 201,474
Cost of revenue:
Costs of software 2,221 1,929 4,103 3,405
Costs of support and
services 30,810 31,130 62,003 61,826
Costs of hardware 1,881 1,877 5,357 3,413
---------- ---------- ---------- ----------
Total cost of revenue 34,912 34,936 71,463 68,644
---------- ---------- ---------- ----------
Gross profit 68,275 65,538 129,000 132,830
Operating expenses:
Sales and marketing 18,003 17,201 36,932 35,040
Research and development 12,982 13,371 27,330 27,275
General and administrative 15,722 13,522 26,610 27,602
Net restructuring and
other unusual items
(note 7) 4,202 (367) 4,169 (1,020)
Amortization of intangible
assets 2,050 2,290 4,344 4,536
---------- ---------- ---------- ----------
Total operating expenses 52,959 46,017 99,385 93,433
Earnings from continuing
operations 15,316 19,521 29,615 39,397
Interest income 1,888 674 3,436 1,176
Interest expense (190) (368) (564) (756)
Other income, net 26 722 605 244
---------- ---------- ---------- ----------
Earnings from continuing
operations before income
taxes 17,040 20,549 33,092 40,061
Income taxes 5,935 5,982 11,820 12,433
---------- ---------- ---------- ----------
Net earnings from continuing
operations 11,105 14,567 21,272 27,628
Discontinued operations, net
of income taxes (note 9) 22,081 637 23,204 1,088
---------- ---------- ---------- ----------
Net earnings $ 33,186 $ 15,204 $ 44,476 $ 28,716
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share
basic (note 11):
Continuing operations $ 0.13 $ 0.17 $ 0.25 $ 0.32
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Discontinued operations $ 0.26 $ 0.01 $ 0.27 $ 0.02
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share $ 0.39 $ 0.18 $ 0.52 $ 0.34
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share
diluted (note 11):
Continuing operations $ 0.12 $ 0.17 $ 0.24 $ 0.32
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Discontinued operations $ 0.25 $ - $ 0.26 $ 0.01
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share $ 0.37 $ 0.17 $ 0.50 $ 0.33
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Geac Computer Corporation Limited
Consolidated Statement of Shareholders' Equity
For the six months ended October 31, 2005 and the year ended
April 30, 2005
(Unaudited)
(in thousands of U.S. dollars, except share date)
Share capital
------------------------------------------------------
Common
Common Shares Common
Shares Purchased Stock
('000s) Amount ('000s) Amount Options
---------- ---------- ---------- ---------- ----------
Balance -
April 30, 2004 85,175 $ 124,019 - $ - $ 44
Issuance of common
stock for cash 443 2,125 - - -
Exercise of stock
options granted
in connection
with acquisition
of Extensity - 28 - - (28)
Stock based
compensation
(note 10) - - - - -
Exercise of stock
option - 320 - - -
Employee stock
purchase plan
(note 10) - 260 - - -
Net earnings - - - - -
Foreign exchange
translation
adjustment - - - - -
---------- ---------- ---------- ---------- ----------
Balance -
October 31, 2004 85,618 126,752 - - 16
Issuance of common
stock for cash 759 3,642 - - -
Exercise of stock
options granted
in connection with
acquisition of
Extensity - 4 - - (4)
Stock based
compensation
(note 10) - - - - -
Exercise of stock
options - 823 - - -
Employee stock
purchase plan
(note 10) - 224 - - -
Restricted share
unit plan (note 10) - - - - -
Stock-based
compensation
expense - - - - -
Purchase of common
shares for cash - - 817 (6,979) -
Net earnings - - - - -
Foreign exchange
translation
adjustment - - - - -
---------- ---------- ---------- ---------- ----------
Balance -
April 30, 2005 86,377 131,445 817 (6,979) 12
Issuance of common
stock for cash 941 5,030 - - -
Stock based
compensation
(note 10) - - - - -
Exercise of stock
options - 1,109 - - -
Employee stock
purchase plan
(note 10) - 243 - - -
Tax impact of
exercise of stock
options - - - - -
Restricted share
unit plan
(note 10)
Stock-based
compensation
expense - - - - -
Purchase of
common shares for
cash - - 573 (4,796) -
Net earnings - - - - -
Foreign exchange
translation
adjustment - - - - -
---------- ---------- ---------- ---------- ----------
Balance -
October 31, 2005 87,318 $ 137,827 1,390 $ (11,775) $ 12
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cumulative
Foreign Total
Exchange Share-
Contributed Retained Translation holders'
Surplus Earnings Adjustment Equity
---------- ---------- ---------- ----------
Balance -
April 30, 2004 $ 2,368 $ 34,517 $ (24,877) $ 136,071
Issuance of common
stock for cash - - - 2,125
Exercise of stock
options granted
in connection
with acquisition
of Extensity - - - -
Stock based
compensation
(note 10) 1,896 - - 1,896
Exercise of stock
option (320) - - -
Employee stock
purchase plan
(note 10) (260) - - -
Net earnings - 28,716 - 28,716
Foreign exchange
translation
adjustment - - 3,126 3,126
---------- ---------- ---------- ----------
Balance -
October 31, 2004 3,684 63,233 (21,751) 171,934
Issuance of common
stock for cash - - - 3,642
Exercise of stock
options granted
in connection with
acquisition of
Extensity - - - -
Stock based
compensation
(note 10) 2,222 - - 2,222
Exercise of stock
options (823) - - -
Employee stock
purchase plan
(note 10) (224) - - -
Restricted share
unit plan (note 10) - - - -
Stock-based
compensation
expense 1,494 - - 1,494
Purchase of common
shares for cash - - - (6,979)
Net earnings - 48,308 - 48,308
Foreign exchange
translation
adjustment - - (323) (323)
---------- ---------- ---------- ----------
Balance -
April 30, 2005 6,353 111,541 (22,074) 220,298
Issuance of common
stock for cash - - - 5,030
Stock based
compensation
(note 10) 2,123 - - 2,123
Exercise of stock
options (1,109) - - -
Employee stock
purchase plan
(note 10) (243) - - -
Tax impact of
exercise of stock
options 1,261 - - 1,261
Restricted share
unit plan
(note 10)
Stock-based
compensation
expense 3,640 - - 3,640
Purchase of
common shares for
cash - - - (4,796)
Net earnings - 44,476 - 44,476
Foreign exchange
translation
adjustment - - (3,536) (3,536)
---------- ---------- ---------- ----------
Balance -
October 31, 2005 $ 12,025 $ 156,017 $ (25,610) $ 268,496
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Cash flows from (revised - (revised -
operating activities see note 2) see note 2)
Net earnings for the
period $ 33,186 $ 15,204 $ 44,476 $ 28,716
Net earnings for the
period from discontinued
operations 22,081 637 23,204 1,088
----------- ----------- ----------- -----------
Net earnings for the
period from continuing
operations 11,105 14,567 21,272 27,628
Less: Adjustments to
reconcile net income to
net cash provided by
operating activities:
Depreciation 987 1,367 2,032 2,782
Amortization of intangible
assets 2,050 2,290 4,344 4,536
Amortization of deferred
financing costs 87 235 323 471
Stock-based compensation 2,841 1,018 5,747 2,120
Employee future benefits 232 220 470 445
Future income tax expense 4,477 4,507 7,994 9,101
Accrued liabilities and
interest write off 1,042 (366) 1,009 (1,027)
Other (51) (59) (98) (54)
Changes in operating
assets and liabilities
(note 3) (21,821) (21,612) (34,839) (41,648)
----------- ----------- ----------- -----------
Net cash provided by
operating activities from
continuing operations 949 2,167 8,254 4,354
Net cash provided by
operating activities from
discontinued operations 834 785 1,525 794
----------- ----------- ----------- -----------
Net cash provided by
operating activities 1,783 2,952 9,779 5,148
Cash flows from investing
activities
Proceeds from divestiture
of Interealty, net of cash
divested 36,292 - 36,292 -
Purchases of investments - - - (4,525)
Sales of investments - - - 31,025
Additions to property, plant
and equipment (1,203) (573) (2,151) (937)
Disposals of property, plant
and equipment 9 7 27 152
Change in restricted cash (2,254) (12) 2,334 (486)
----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities from continuing
operations 32,844 (578) 36,502 25,229
Net cash used in investing
activities from discontinued
operations (495) (348) (609) (674)
----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities 32,349 (926) 35,893 24,555
Cash flows from financing
activities
Additions of other assets (1,974) - (1,974) -
Issue of common shares 2,170 666 5,030 2,125
Purchase of common shares - - (4,796) -
Repayment of long-term debt (106) (117) (212) (227)
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities from continuing
operations 90 549 (1,952) 1,898
Effect of exchange rate
changes on cash and cash
equivalents 107 3,176 (5,401) 4,162
----------- ----------- ----------- -----------
Cash and cash equivalents
Net increase in cash and
cash equivalents 34,329 5,751 38,319 35,763
Cash and cash equivalents
- beginning of period 192,124 116,062 188,134 86,050
----------- ----------- ----------- -----------
Cash and cash equivalents
- end of period $ 226,453 $ 121,813 $ 226,453 $ 121,813
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes
Geac Computer Corporation Limited
Notes to the Consolidated Financial Statements
(Unaudited)
(amounts in thousands of U.S. 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 ("U.S.") dollars and in accordance with
Canadian generally accepted accounting principles ("Canadian 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, 2005, 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, 2005.
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. Revisions to comparative figures
Discontinued operations
On October 1, 2005, the Company sold substantially all the assets of
its Interealty business, the business within Geac that provides Web-based
MLS systems to realtors in North America, to First American Corporation.
The assets and liabilities and the results of operations and cash flows
for Interealty have been reported separately as discontinued operations
in the consolidated balance sheet and the consolidated statements of
earnings and cash flows. Comparative figures for the three and six months
ended October 31, 2004 have been reclassified in order to conform to this
presentation.
Reclassification of investments
The Company has adjusted its consolidated statements of cash flows for
the six months ended October 31, 2004. In February 2005, the Company
determined that its previously issued consolidated balance sheet as at
April 30, 2004 required an adjustment to reclassify $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
$26,500 and an increase in short-term investments of $26,500. In
addition, adjustments to the Company's consolidated statement of cash
flows resulted in an increase of $26,500 in cash from investing
activities for the three months ended July 31, 2004 as a result of net
sales of the auction rate securities. These reclassifications had no
impact on the Company's results of operations.
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.
3. Changes in operating assets and liabilities from continuing
operations
Changes in operating assets and liabilities were as follows:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Changes in operating (revised - (revised -
assets and liabilities: see note 2) see note 2)
Accounts receivable and
other receivables $ (1,831) $ 3,791 $ 5,919 $ 12,496
Prepaid expenses and
other assets 858 165 2,829 306
Accounts payable and
accrued liabilities 5,050 1,628 (10,828) (10,229)
Accrued restructuring (261) (4,480) (872) (7,569)
Employee future benefits (374) (571) (2,379) (406)
Asset retirement obligation (27) 131 (292) 160
Income taxes payable (3,617) (479) (2,482) 230
Deferred revenue (21,290) (21,912) (26,464) (36,773)
Other (329) 115 (270) 137
----------- ----------- ----------- -----------
Total changes in operating
assets and liabilities $ (21,821) $ (21,612) $ (34,839) $ (41,648)
----------- ----------- ----------- -----------
4. Goodwill
The change in the carrying amount of goodwill is as follows:
Goodwill balance, April 30, 2005 $ 110,142
Foreign exchange impact (1,197)
-----------
Goodwill balance, July 31, 2005 108,945
Foreign exchange impact 310
-----------
Goodwill balance, October 31, 2005 $ 109,255
-----------
-----------
5. Employee future benefits
The Company recorded employee future benefit expenses as follows:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Defined contribution
pension plans $ 441 $ 508 $ 911 $ 1,158
Defined benefit pension
plan 232 220 470 445
----------- ----------- ----------- -----------
$ 673 $ 728 $ 1,381 $ 1,603
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
6. 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.
The following table details the changes in the Company's leasehold
retirement liability for the six months ended October 31, 2005:
Asset retirement obligations balance, April 30, 2005 $ 1,678
Additions to the obligations 23
Accretion charges 24
Payments (265)
Amounts released due to settlements (88)
Foreign exchange impact (101)
-----------
Asset retirement obligations balance, July 31, 2005 1,271
Additions to the obligations 98
Accretion charges 22
Payments (27)
Amounts released due to settlements (79)
Foreign exchange impact (64)
-----------
Asset retirement obligations balance, October 31, 2005 $ 1,221
-----------
-----------
7. Net restructuring and other unusual items
The expense (recovery) in net restructuring and other unusual items was
comprised of the following:
Three months ended Six months ended
October 31, October 31,
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Unusual items $ 4,202 $ - $ 4,169 $ -
Restructuring reversals - (367) - (1,020)
----------- ----------- ----------- -----------
Net restructuring and
other unusual items $ 4,202 $ (367) $ 4,169 $ (1,020)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Unusual items
For the three months ended October 31, 2005, the Company recorded $4,202
in unusual items. Of this amount, $1,692 relates to the costs associated
with the termination of the Loan Agreement with Wells Fargo Foothill,
Inc. (see note 8). The remaining balance of $2,510 are associated with
the proxy contest relating to the election of the Board of Directors.
For the six months ended October 31, 2005, the unusual items balance of
$4,169 was substantially comprised of the aforementioned items.
Restructuring expense
For the three months ended October 31, 2004, the net restructuring credit
balance of $367 was comprised of the release of previously accrued lease
termination costs that are no longer required. For the six months ended
October 31, 2004, the Company recorded a reversal of $1,020, as several
smaller restructuring accruals relating to severance amounts and lease
termination costs were released to adjust the accruals to match the
current estimates of the amounts required.
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, 2005 provision balance $ 4,265 $ 538 $ 4,803
Additions to provision - 248 248
Costs charged against provisions (648) (362) (1,010)
Provision release - (13) (13)
Foreign exchange impact (38) (8) (46)
------------- ------------- -------------
July 31, 2005 provision balance 3,579 403 3,982
Additions to provision - 206 206
Costs charged against provisions (570) (477) (1,047)
Foreign exchange impact (7) 3 (4)
------------- ------------- -------------
October 31, 2005 provision
balance $ 3,002 $ 135 3,137
------------- -------------
------------- -------------
Less: Current portion 2,239
--------------
Long-term portion of restructuring accrual $ 898
-------------
-------------
During the three and six months ended October 31, 2005, the Company
accrued $206 and $454, respectively, in severance related to the
rationalization of the Company's North American business locations.
Additionally, during the six months ended October 31, 2005 a severance
accrual of $13 was released through operations to adjust the accrual to
match the current estimates of the amounts required.
As at October 31, 2005, a balance of $135 is remaining for severance, of
which the remainder will substantially be paid by the third quarter of
fiscal 2007 and will include severance relating to employees from the
support and services, development and sales and marketing areas.
The remaining balance for accrued premises restructuring was $3,002 as at
October 31, 2005. Of this balance, the Company has a restructuring
liability of approximately $196 related to the acquisition of Comshare.
This remaining balance relates to lease termination costs and will be
utilized through the first quarter of fiscal 2008. Additionally, a
balance of $1,202 remains related to the acquisition of Extensity and is
expected to be utilized through the second quarter of fiscal 2007. The
remaining balance relates to the rationalization of the Company's North
American and European business locations. The Company anticipates that
the remainder of the balance will be utilized through fiscal 2025.
8. Credit facility
On August 11, 2005 the Company and certain of its subsidiaries entered
into a Credit Agreement (the "Credit Agreement") with a banking syndicate
led by Bank of America, N.A., pursuant to which the Company and certain
of its subsidiaries obtained a five-year, $150 million revolving credit
facility (the "new Facility"). The annual interest rate payable on
advances under the Facility is, at the Company's option, the prime rate
plus 25 to 75 basis points, or LIBOR plus 125 to 175 basis points. The
fee paid on the unused portion of the new Facility will range between 30
and 45 basis points.
The new Facility replaces the Company's previous $50 million, fully-
secured credit facility with Wells Fargo Foothill, Inc. (the "prior
Facility"). The new Facility is secured only by the common stock of
certain of the Company's material subsidiaries and is available for
working capital needs, acquisitions, and other general corporate purposes
of the Company. As of October 31, 2005, none of the new Facility has been
utilized. A balance of $150 million was available to the Company.
Financing costs of $1,960 incurred to close the transaction were recorded
as other assets in the second quarter of fiscal 2006 and are being
amortized to interest expense on a straight-line basis over the term of
the new Facility. Amortization costs related to this financing was $87 in
the quarter ended October 31, 2005. As of October 31, 2005, the remaining
unamortized financing costs were $1,873. For the six months ended
October 31, 2005, interest expense included the amortization of financing
costs of $236 related to the prior Facility and $87 related to the
Company's new Facility. For the three and six months ended October 31,
2004, amortization related to the financing costs on the prior Facility
was $235 and $471, respectively.
Upon termination of the prior Facility on August 11, 2005, the Company
expensed to unusual items the remaining unamortized financing costs of
$1,042, the termination penalty of $541 and closing costs of $109.
The Company is subject to various customary financial covenants under the
new Facility. The Company was in compliance with all such covenants as at
October 31, 2005.
9. Discontinued operations
On October 1, 2005, the Company completed the sale of substantially all
the assets of its Interealty business, the business within Geac that
provides Web-based MLS systems to realtors in North America, to First
American Corporation. The total consideration received was $36,293. The
Company recorded a pre-tax gain of $33,704 ($21,270 net of income tax),
recorded in discontinued operations on the consolidated statement of
earnings.
The assets and liabilities and the results of operations and cash flows
for Interealty have been reported separately as discontinued operations
in the consolidated balance sheet and the consolidated statements of
earnings and cash flows. Comparative figures for the three and six months
ended October 31, 2004 have been reclassified in order to conform to this
presentation. The Interealty business was included in the Company's
Industry Specific Applications segment for its segmented reporting.
The results of discontinued operations presented in the consolidated
statements of operations were as follows:
Three months ended Six months ended
October 31, October 31,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenue $ 4,564 $ 5,956 $ 11,010 $ 11,824
Cost of revenue 2,274 3,819 5,562 7,582
--------- --------- --------- ---------
Gross profit $ 2,290 $ 2,137 $ 5,448 $ 4,242
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings from discontinued
operations before income tax
expense $ 1,237 $ 909 $ 2,964 $ 1,579
Income tax expense 426 272 1,030 491
--------- --------- --------- ---------
Net earnings from discontinued
operations 811 637 1,934 1,088
Gain on divestiture, net of tax
expense of $12,434 21,270 - 21,270 -
--------- --------- --------- ---------
Discontinued operations, net
of income taxes $ 22,081 $ 637 $ 23,204 $ 1,088
--------- --------- --------- ---------
--------- --------- --------- ---------
The consolidated balance sheets as at October 31, 2005 and April 30, 2005
include Interealty balances. A summary of the assets and liabilities
related to the Interealty business is as follows:
October April
31, 2005 30, 2005
--------- ---------
Current assets related to discontinued operations
Cash $ 376 $ 108
Prepaid expenses and other assets - 244
Accounts receivable and other receivables - 1,745
--------- ---------
Total current assets related to discontinued
operations $ 376 $ 2,097
--------- ---------
--------- ---------
Long-term assets related to discontinued operations
Property, plant, and equipment $ - $ 1,123
Other non-current assets - 111
Future income taxes - 1,029
--------- ---------
Total long-term assets related to discontinued
operations $ - $ 2,263
--------- ---------
--------- ---------
Current liabilities related to discontinued
operations
Accounts payable and accrued liabilities $ 376 $ 1,845
Deferred revenue - 2,112
--------- ---------
Total current liabilities related to discontinued
operations $ 376 $ 3,957
--------- ---------
--------- ---------
10. Stock-based compensation
The Company uses the fair value method of accounting to account for all
stock-based compensation payments to employees granted subsequent to
April 30, 2003. Prior to May 1, 2003, the Company accounted for its
employee stock options and shares issued under the Employee Stock
Purchase Plan ("ESPP") using the settlement method and no compensation
expense was recognized.
For awards granted during the year ended April 30, 2003, pro forma net
earnings and earnings per share information is provided 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 fiscal 2003
is as follows:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net earnings - as reported $ 33,186 $ 15,204 $ 44,476 $ 28,716
Pro forma stock-based
compensation expense,
net of income taxes (76) (70) (147) (252)
----------- ----------- ----------- -----------
Net earnings - pro forma $ 33,110 $ 15,134 $ 44,329 $ 28,464
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic net earnings per
common share - as
reported $ 0.39 $ 0.18 $ 0.52 $ 0.34
Pro forma stock-based
compensation expense per
common share - - - -
----------- ----------- ----------- -----------
Basic net earnings per
common share - pro forma $ 0.39 $ 0.17 $ 0.52 $ 0.34
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted net earnings per
common share - as
reported $ 0.37 $ 0.17 $ 0.50 $ 0.33
Pro forma stock-based
compensation expense per
common share - - - -
----------- ----------- ----------- -----------
Diluted net earnings
per common share -
pro forma $ 0.37 $ 0.17 $ 0.50 $ 0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The assumptions used to calculate pro forma stock-based compensation were
as follows:
Assumptions - Stock Options
Weighted average risk-free interest rate 4.54%
Weighted average expected life (in years) 6.6
Weighted average volatility in the market price of common
shares 75.81%
Weighted average dividend yield 0.00%
Weighted average grant date fair values of options issued $ 2.09
For the quarters ended October 31, 2005 and 2004, the Company expensed
$979 and $986, respectively, relating to the fair value of stock options
granted in fiscal 2004 and 2005. For the quarter ended October 31, 2005,
the Company expensed $119 relating to the fair value of shares issued
under the ESPP. No amount was expensed relating to the fair value of
shares issued under the ESPP for the quarter ended October 31, 2004. For
the six months ended October 31, 2005 and 2004, the Company expensed
$1,901 and $1,636, respectively, relating to the fair value of stock
options granted in fiscal 2004 and 2005 and $222 and $260, respectively,
relating to the fair value of shares issued under the ESPP. Contributed
surplus was credited $1,098 and $986 for these awards for the quarters
ended October 31, 2005 and 2004, respectively. For the six months ended
October 31, 2005 and 2004, contributed surplus was credited $2,123 and
$1,896, respectively, for these awards. The remaining balance in
contributed surplus will be reduced as the stock options are forfeited or
exercised. Contributed surplus was reduced by $119 and $260 for the
quarters ended October 31, 2005 and 2004, respectively, relating to
shares issued under the ESPP. For the six months ended October 31, 2005
and 2004, contributed surplus was reduced by $243 and $260, respectively,
relating to shares issued under the ESPP.
The estimated fair values of the stock options and shares issued under
the ESPP are amortized to earnings over the vesting period on a straight-
line basis and were determined using the Black Scholes option pricing
model with the following weighted average assumptions:
Three Six
months months
ended ended
October October
31, 2004 31, 2004
--------- ---------
Assumptions - Stock Options
Weighted average risk free interest rate 4.28% 4.33%
Weighted average expected life (in years) 7.0 7.0
Weighted average volatility in the market price of
common shares 65.14% 66.12%
Weighted average dividend yield 0.00% 0.00%
Weighted average grant date fair values of options
issued $4.38 $4.45
No options were granted during the three and six months ended October 31,
2005.
Three
months
ended Six months ended
October 31, October 31,
--------- -------------------
Assumptions - ESPP 2005 2005 2004
------------------ --------- --------- ---------
Weighted average risk free interest rate 2.88% 2.84% 2.21%
Weighted average expected life (in months) 6.0 6.0 6.0
Weighted average volatility in the market
price of common shares 29.01% 23.11% 37.44%
Weighted average dividend yield 0.00% 0.00% 0.00%
Weighted average grant date fair values of
awards or shares issued $3.14 $2.73 $2.69
Directors' deferred share unit plan
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 as compensation for the services rendered to
the Company as a Board member. As determined by the Company, units issued
under the plan may be payable in cash or common stock. For the three and
six months ended October 31, 2005, the Company had a recovery of $138 and
$12, respectively, in general and administrative expense relating to the
revaluation of the DSUs. For the three and six months ended October 31,
2004, the Company expensed $32 and $224, respectively, to general and
administrative expense relating to the DSUs. Accrued liabilities as at
October 31, 2005 were debited $138 for these awards, and are adjusted
each quarter based on the market value of the units which have vested
under the plan.
Restricted share unit plan
In September 2004, the Board of Directors authorized a restricted share
unit ("RSU") plan. Under the RSU plan, the Human Resources and
Compensation Committee of the Board, or its designee, may grant
restricted share units to employees of the Company as a bonus or similar
payment in respect of services rendered to the Company. Units issued
under the RSU plan are currently subject to vesting conditions as
follows: 20% vest one year subsequent to the grant date, 30% vest two
years subsequent to the grant date, and 50% vest three years subsequent
to the grant date. Each vested restricted share unit gives the employee
the right to receive one share of the Company's common stock. No
additional RSUs were granted during the quarter ended October 31, 2005.
As at October 31, 2005, 1,332,250 units were outstanding under the RSU
plan.
The common shares for which restricted share units may be exchanged are
purchased on the open market by a trustee appointed and funded by the
Company. As no common shares will be issued by the Company pursuant to
the plan, the plan is non-dilutive to existing shareholders. Compensation
expense related to the Company's restricted share unit plan was $1,881
and $3,640, for the three and six months ended October 31, 2005,
respectively. As of May 5, 2005, all of the common shares required for
issuance under the RSU plan were funded through open market purchases of
the Company's shares and are held in trust for the benefit of the RSU
plan participants.
11. Earnings per share
The shares used in the computation of the company's basic and diluted net
earnings per common share were as follows:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Weighted average number of
common shares used in
computing basic net
earnings per share ('000s) 85,574 85,521 85,300 85,251
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
common shares used in
computing diluted net
earnings per share ('000s) 89,424 87,398 89,191 87,372
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
12. 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
Activity related to the Company's legal accruals was as follows:
April 30, 2005 provision balance $ 96
Foreign exchange impact (8)
---------
July 31, 2005 provision balance 88
Foreign exchange impact -
---------
October 31, 2005 provision balance $ 88
---------
---------
Extensity, a subsidiary acquired by Geac in March 2003, is subject to a
class action lawsuit, which alleges that Extensity, certain of its former
officers and directors, and the underwriters of its initial public
offering in January 2000 violated U.S. securities laws by not adequately
disclosing the compensation paid to such underwriters. The class action
lawsuit has been consolidated with a number of similar class action
lawsuits 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. The settlement is still subject to approval by the Court.
In addition, Geac is subject to various other legal proceedings and
claims in the ordinary course of business, arising out of disputes over
contracts, alleged torts, intellectual property, real estate and employee
relations, among other things. In the opinion of management, resolution
of these matters is not reasonably expected to have a material adverse
effect on Geac's financial position, results of operations or cash flows.
However, a materially adverse outcome with respect to such matters may
affect our future financial position, results of operations or cash
flows.
13. 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 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.
Three months ended Six months ended
October 31, 2005 October 31, 2005
----------------------------- -----------------------------
EAS ISA Total EAS ISA Total
--------- --------- --------- --------- --------- ---------
Revenue:
Software $ 16,328 $ 2,538 $ 18,866 $ 27,445 $ 4,326 $ 31,771
Support and
services 68,594 13,216 81,810 136,141 26,258 162,399
Hardware 1,859 652 2,511 5,200 1,093 6,293
--------- --------- --------- --------- --------- ---------
Total revenue $ 86,781 $ 16,406 $103,187 $168,786 $ 31,677 $200,463
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Segment
contribution $ 23,292 $ 3,352 $ 26,644 $ 38,909 $ 2,539 $ 41,448
Three months ended Six months ended
October 31, 2004 October 31, 2004
----------------------------- -----------------------------
(revised - see note 2) (revised - see note 2)
EAS ISA Total EAS ISA Total
--------- --------- --------- --------- --------- ---------
Revenue:
Software $ 12,167 $ 2,795 $ 14,962 $ 25,475 $ 4,888 $ 30,363
Support and
services 68,846 14,190 83,036 138,542 28,190 166,732
Hardware 1,749 727 2,476 3,185 1,194 4,379
--------- --------- --------- --------- --------- ---------
Total revenue $ 82,762 $ 17,712 $100,474 $167,202 $ 34,272 $201,474
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Segment
contribution $ 22,129 $ 3,607 $ 25,736 $ 45,051 $ 6,113 $ 51,164
For the three and six months ended October 31, 2004, certain general and
administrative expenses have been reclassified from corporate expenses to
EAS segment expenses to provide a more accurate portrayal of segment
contribution. In addition, the ISA balances exclude the results of
Interealty.
The reconciliation of segment contribution to earnings from continuing
operations before income taxes is as follows:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(revised - (revised -
see note 2) see note 2)
Segment contribution $ 26,644 $ 25,736 $ 41,448 $ 51,164
Corporate expenses (5,076) (4,292) (3,320) (8,251)
Amortization of intangible
assets (2,050) (2,290) (4,344) (4,536)
Interest income, net 1,698 306 2,872 420
Other income, net 26 722 605 244
Net restructuring and other
unusual items (4,202) 367 (4,169) 1,020
----------- ----------- ----------- -----------
Earnings from continuing
operations before income
taxes $ 17,040 $ 20,549 $ 33,092 $ 40,061
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Geographical information:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(revised - (revised -
see note 2) see note 2)
Revenue by geographic
location:
Americas $ 50,856 $ 47,866 $ 96,642 $ 96,862
Europe 44,720 43,609 88,518 87,238
Asia 7,611 8,999 15,303 17,344
----------- ----------- ----------- -----------
Total revenue $103,187 $100,474 $200,463 $201,474
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
14. 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 U.S. GAAP except as follows:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(revised - (revised -
see note 2) see note 2)
Net earnings from
continuing
operations under
Canadian GAAP
- as reported $ 11,105 $ 14,567 $ 21,272 $ 27,628
Adjustments:
Stock-based
compensation (a) - (14) - (26)
Write off and
amortization of
intellectual property
capitalized under
Canadian GAAP in
connection with the
Comshare acquisition (b) 75 75 150 150
Income taxes (c) (30) (30) (60) (60)
----------- ----------- ----------- -----------
Net earnings from continuing
operations under U.S. GAAP 11,150 14,598 21,362 27,692
Discontinued operations,
net of income taxes 22,081 637 23,204 1,088
----------- ----------- ----------- -----------
Net earnings under U.S. GAAP 33,231 15,235 44,566 28,780
Other comprehensive income:
Foreign currency translation
adjustment (78) 2,530 (3,421) 3,008
----------- ----------- ----------- -----------
Comprehensive income under
U.S. GAAP $ 33,153 $ 17,765 $ 41,145 $ 31,788
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings per share
from continuing
operations under
U.S. GAAP:
Basic net earnings per
common share $ 0.13 $ 0.17 $ 0.25 $ 0.32
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted net earnings per
common share $ 0.12 $ 0.17 $ 0.24 $ 0.32
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings per share from
discontinued operations
under U.S. GAAP:
Basic net earnings per
common share $ 0.26 $ 0.01 $ 0.27 $ 0.02
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted net earnings per
common share $ 0.25 $ - $ 0.26 $ 0.01
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings per share
under U.S. GAAP:
Basic net earnings per
common share $ 0.39 $ 0.18 $ 0.52 $ 0.34
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted net earnings per
common share $ 0.37 $ 0.17 $ 0.50 $ 0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
common shares used in
computing basic net
earnings per share
('000s) 85,574 85,521 85,300 85,251
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
common shares used in
computing diluted net
earnings per share ('000s) 89,424 87,398 89,191 87,372
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Stock-based compensation
a) Accounting for stock options
In fiscal 2004, the Company 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
on or after May 1, 2003 to both employees and non-employees. The
Canadian GAAP recommendations are substantially harmonized with the
existing U.S. GAAP rules, which have also been adopted by the Company
prospectively for all awards granted on or after May 1, 2003.
Therefore, no GAAP difference exists for stock based compensation and
awards granted in fiscal 2004 and thereafter.
In fiscal 2003 and prior periods, the Company did not recognize any
stock-based compensation cost under Canadian GAAP. For U.S. GAAP, the
Company elected to measure stock-based compensation cost based on the
difference, if any, on the date of the grant, between the market
value of the shares and the exercise price (referred to as the
"intrinsic value method") over the vesting period.
Pro forma disclosures
For awards granted prior to May 1, 2003, U.S. 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 U.S. GAAP for purposes of pro forma
disclosures:
Three months ended Six months ended
October 31 October 31
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net earnings under U.S.
GAAP - as reported above $ 33,231 $ 15,235 $ 44,566 $ 28,780
Pro forma stock-based
compensation expense,
net of tax (234) (218) (476) (570)
----------- ----------- ----------- -----------
Net earnings - pro forma $ 32,997 $ 15,017 $ 44,090 $ 28,210
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic net earnings per
common share under
U.S. GAAP - as
reported above $ 0.39 $ 0.18 $ 0.52 $ 0.34
Pro forma stock-based
compensation expense per
common share - - - (0.01)
----------- ----------- ----------- -----------
Basic net earnings per
common share - pro forma $ 0.39 $ 0.18 $ 0.52 $ 0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted net earnings per
share under U.S. GAAP -
as reported above $ 0.37 $ 0.17 $ 0.50 $ 0.33
Pro forma stock-based
compensation expense per
common share - - (0.01) (0.01)
----------- ----------- ----------- -----------
Diluted net earnings per
common share - pro forma $ 0.37 $ 0.17 $ 0.49 $ 0.32
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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-process research and development
In connection with the acquisition of Comshare, in-process research
and development was acquired and capitalized under Canadian GAAP.
Under U.S. GAAP, such in-process research and development is charged
to expense at the acquisition date. As a result, under U.S. GAAP, the
carrying value of the Company's intangible assets on the consolidated
balance sheet would be $18,380 (April 30, 2005 - $22,833) and the
value of the Company's long-term future income tax assets would be
$20,512 (April 30, 2005 - $34,961).
Goodwill
Although the new Canadian GAAP section for Income Taxes is
substantially harmonized with U.S. GAAP, it was applied retroactively
and goodwill was not adjusted, resulting in differing carrying values
of goodwill under Canadian and U.S. GAAP. Under U.S. GAAP, the
carrying value of goodwill on the consolidated balance sheet would be
$92,062 (April 30, 2005 - $92,835).
c) Income taxes
Included in "Income taxes" is the income tax effect of the adjustment
related to amortization of in-process research and development.
15. 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 U.S. 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.
U.S. 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
supersedes 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. In April 2005, the Securities and Exchange Commission (the
"SEC") postponed the effective date of SFAS 123R until the issuer's first
fiscal year beginning after June 15, 2005. Under the current rules, the
Company will be required to adopt SFAS 123R in the first quarter of
fiscal 2007, beginning May 1, 2006. 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.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107
("SAB 107") regarding the SEC's interpretation of SFAS 123R and the
valuation of share-based payments for public companies. The Company is
evaluating the requirements of SFAS 123R and SAB 107 and expects that the
adoption of SFAS 123R on May 1, 2006 will not have a material impact on
its consolidated results of operations and earnings per share. The
Company has not yet determined the method of adoption or the effect of
adopting SFAS 123R, and it has not determined whether the adoption will
result in amounts that are similar to the current pro forma disclosures
under SFAS 123.
Exchanges of Non-monetary Assets
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-monetary Assets - An Amendment of Accounting Principles Board Opinion
No. 29, Accounting for Non-monetary Transactions" ("SFAS 153"). SFAS 153
eliminates the exception from fair value measurement for non-monetary
exchanges of similar productive assets in paragraph 21(b) of APB Opinion
No. 29, "Accounting for Non-monetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance.
SFAS 153 specifies that a non-monetary 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 was adopted by the
Company in the second quarter of fiscal 2006, beginning on August 1,
2005. The adoption of Statement 153 had no effect on its consolidated
financial position, results of operations or cash flows.
Accounting Changes and Error Corrections
On June 7, 2005, the FASB issued Statement No. 154, Accounting Changes
and Error Corrections, a replacement of APB Opinion No. 20, Accounting
Changes, and Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements. Statement 154 changes the requirements for the
accounting for and reporting of a change in accounting principle.
Previously, most voluntary changes in accounting principles required
recognition of a cumulative effect adjustment within net income of the
period of the change. Statement 154 requires retrospective application to
prior periods' financial statements, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of
the change. Statement 154 is effective for accounting changes made in
fiscal years beginning after December 15, 2005; however, the Statement
does not change the transition provisions of any existing accounting
pronouncements. We do not believe adoption of Statement 154 will have a
material effect on our consolidated financial position, results of
operations or cash flows.
Amortization Period for Leasehold Improvements
On June 29, 2005, the FASB ratified the EITF's Issue No. 05-06,
Determining the Amortization Period for Leasehold Improvements.
Issue 05-06 provides that the amortization period used for leasehold
improvements acquired in a business combination or purchased after the
inception of a lease be the shorter of (a) the useful life of the assets
or (b) a term that includes required lease periods and renewals that are
reasonably assured upon the acquisition or the purchase. The provisions
of Issue 05-06 are effective on a prospective basis for leasehold
improvements purchased or acquired in reporting periods beginning after
board ratification (June 29, 2005). We do not believe the adoption of
Issue 05-06 will have a material effect on our consolidated financial
position, results of operations or cash flows.
16. Subsequent event
On November 7, 2005, the Company announced that it reached a definitive
agreement ("the Agreement") with Golden Gate Capital, for Golden Gate
Capital to acquire Geac in an all-cash transaction valued at $11.10 per
share, or approximately $1.0 billion, pursuant to a plan of arrangement.
Both parties anticipate closing the transaction in the first calendar
quarter of 2006. The closing is subject to certain customary closing
conditions, including receipt of required regulatory approvals and Geac
shareholder and court approval of the plan of arrangement.
Under terms specified in the Agreement, Geac or Golden Gate Capital may
terminate the Agreement, and as a result either Geac or Golden Gate
Capital will be required to pay a $25 million termination fee to the
other party. Either Geac or Golden Gate Capital may terminate the
Agreement if the acquisition has not closed by March 16, 2006, as long as
the terminating party has not caused the delay in closing by not
complying with a term of the Agreement.
17. 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.
