CUPERTINO, Calif., Oct. 17 /PRNewswire-FirstCall/ --
Rational Software Corporation (Nasdaq: RATL) today announced results for the
second fiscal quarter ended September 30, 2002.
(Photo: http://www.newscom.com/cgi-bin/prnh/20010417/RATLLOGO )
Revenue for the second quarter and six months ended September 30, 2002 was
$154.5 million and $307.0 million, respectively, compared to $163.7 million
and $339.5 million, respectively, for the same periods last year. This
reflects a decrease in second quarter and year-to-date revenues of 6 percent
and 10 percent, respectively, compared to the same periods last year.
Rational reported pro forma net income and earnings per share on a diluted
basis for the second quarter of fiscal 2003 of $7.1 million and $0.04,
respectively, compared to pro forma net income and earnings per share of $9.5
million and $0.05, respectively, for the same period last year. This reflects
a decrease in second quarter pro forma net income of 26 percent compared to
the same period last year.
Rational reported pro forma net income and earnings per share on a diluted
basis for the six months ended September 30, 2002 of $14.3 million and $0.07,
respectively, compared to pro forma net income and earnings per share of $25.7
million and $0.12, respectively, for the same period last year. This reflects
a decrease in year-to-date pro forma net income of 44 percent compared to the
same period last year.
Pro forma net income and earnings per share for the periods reported
exclude one-time charges for acquired in-process research and development,
amortization of goodwill and purchased intangibles, amortization of stock-
based compensation related to recent acquisitions, and restructuring and other
charges.
As reported net loss and loss per share on a diluted basis for the second
quarter ended September 30, 2002 was $19.4 million and $0.10, respectively,
compared to as reported net loss and loss per share on a diluted basis of
$21.6 million and $0.11, respectively, for the same period last year. The
non-cash charges related to amortization of goodwill and intangibles, net of
tax, dropped from $20.4 million in the quarter ended September 30, 2001 to
$3.4 million in the quarter ended September 30, 2002, primarily resulting from
the adoption of Statement of Financial Accounting Standards No. 142 as of
April 1, 2002.
As reported net loss and loss per share on a diluted basis for the six
months ended September 30, 2002 was $25.8 million and $0.14, respectively,
compared to as reported net loss and loss per share on a diluted basis of
$46.4 million and $0.24, respectively, for the same period last year. The
non-cash charges related to amortization of goodwill and intangibles, net of
tax, dropped from $40.0 million in the six months ended September 30, 2001 to
$6.3 million in the six months ended September 30, 2002, primarily resulting
from the adoption of Statement of Financial Accounting Standards No. 142 as of
April 1, 2002.
In addition, Rational recorded restructuring and other charges in the
amount of $12.4 million in the quarter ended September 30, 2002. Of this
amount, $4.1 million was related to our decision to discontinue investment in
our hosted development service - which we had previously estimated at $5.0
million to $15.0 million. In addition, during the quarter we recorded $8.3
million in restructuring and other charges as a result of updating our
estimates associated with unused facilities reflecting the continued weakness
in lease rates and sublease activity.
Business Outlook
For the quarter ending December 31, 2002, management currently expects
revenue to be in the range of between $155.0 and $165.0 million, and pro forma
earnings per share on a diluted basis to be in the range of $0.04 to $0.07.
For the full fiscal year ending March 31, 2003, management currently expects
revenue to be in the range of between $625.0 million and $650.0 million, and
pro forma earnings per share on a diluted basis to be in the range of $0.20 to
$0.25.
Management will host the quarterly conference call today to discuss the
results beginning at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time.
Interested parties may listen to the conference call via live broadcast on
Rational's Investor Relations Web site (http://investor.rational.com).
Domestic callers can dial in to the conference call at 1-888-276-0006 and
international callers can listen at 1-612-326-1003. The password is Rational.
For those unable to participate in the live call, replays will be
available approximately two hours after the earnings call ends. The replay
numbers are 1-800-475-6701 for domestic callers and 1-320-365-3844 for
international callers. The access code for the replay is 655033, and it will
be available to callers until approximately 11:00 p.m. Pacific Time on October
24, 2002. The conference call will also be archived on Rational's Investor
Relations Web site.
Rational Software provides a software development platform that improves
the speed, quality, and predictability of software projects. This integrated,
full lifecycle solution combines software engineering best practices, market-
leading tools, and professional services. Ninety-eight of the Fortune 100 rely
on Rational tools and services to build better software, faster. This open
platform is extended by partners who provide more than 500 complementary
products and services. Founded in 1981, Rational is one of the world's largest
software companies, with revenues of $657.3 million in its twelve months ended
September 30, 2002, and over 3,400 employees worldwide. Rational is a member
of the S&P 500 Index and a component of the Nasdaq-100 Index(R). Additional
information is available at http://www.rational.com and http://www.therationaledge.com, the
monthly e-zine for the Rational community.
This press release contains certain "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are based on management's current expectations and are subject to
uncertainty and changes in circumstances. Actual results may vary materially
from the expectations contained herein. The forward-looking statements
contained herein include statements relating to future revenue and pro forma
earnings per share on a diluted basis, future restructuring charges, and our
ability to utilize and/or sublease our facilities. Factors that could cause
actual results to differ materially from those described herein include, among
other factors, adverse changes in general economic conditions, increased
competition, adverse changes in the market for sophisticated development tools
and Rational's ability to manage expenses associated with its real property
leasing activities. More detailed information about these factors is set
forth in the reports filed by Rational with the Securities and Exchange
Commission. Rational Software is under no obligation to (and expressly
disclaims any such obligation to) update or alter its forward-looking
statements, whether as a result of new information, future events or
otherwise.
Rational Software Corporation
Pro Forma Statements of Operations
(in thousands, except percentage figures and per share data)
Three months ended September 30
(unaudited)
2002 % 2001 %
Net product revenue $60,919 39 $71,709 44
Consulting and support revenue 93,600 61 92,025 56
Total revenue 154,519 100 163,734 100
Cost of product revenue 5,518 4 7,113 4
Cost of consulting and support
revenue 17,717 11 18,778 12
Total cost of revenue 23,235 15 25,891 16
Gross margin 131,284 85 137,843 84
Operating expenses:
Product research and
development expenses 41,110 27 43,245 27
Sales and marketing expenses 69,847 45 72,249 44
General and administrative
expenses 11,332 7 13,401 8
Total operating expenses 122,289 79 128,895 79
Operating income 8,995 6 8,948 5
Other income, net 799 - 4,656 3
Income before income taxes 9,794 6 13,604 8
Provision for income taxes 2,743 1 4,057 2
Net income $7,051 5 $9,547 6
NOTE: PRO FORMA ONLY
Net income per common share:
Basic $0.04 $0.05
Diluted $0.04 $0.05
Shares used in computing per
share amounts:
Basic 190,085 195,184
Diluted 194,890 204,340
Six months ended September 30
(unaudited)
2002 % 2001 %
Net product revenue $120,398 39 $155,023 46
Consulting and support revenue 186,585 61 184,504 54
Total revenue 306,983 100 339,527 100
Cost of product revenue 10,875 4 11,612 3
Cost of consulting and support
revenue 35,300 11 39,177 12
Total cost of revenue 46,175 15 50,789 15
Gross margin 260,808 85 288,738 85
Operating expenses:
Product research and development
expenses 83,020 27 90,905 26
Sales and marketing expenses 138,771 45 145,813 43
General and administrative
expenses 22,579 8 26,365 8
Total operating expenses 244,370 80 263,083 77
Operating income 16,438 5 25,655 8
Other income, net 3,489 1 11,048 3
Income before income taxes 19,927 6 36,703 11
Provision for income taxes 5,580 1 10,986 3
Net income $14,347 5 $25,717 8
NOTE: PRO FORMA ONLY
Net income per common share:
Basic $0.08 $0.13
Diluted $0.07 $0.12
Shares used in computing per share
amounts:
Basic 190,071 196,028
Diluted 195,976 207,855
The above pro forma statements of operations have been adjusted to present
Rational's operating results excluding one-time charges for acquired in-
process research and development, amortization of goodwill and purchased
intangibles, amortization of stock-based compensation related to recent
acquisitions, and restructuring and other charges.
The following table reflects the differences between pro forma and as-
reported net income (loss) (in thousands):
Three months ended Six months ended
September 30 September 30
(unaudited) (unaudited)
2002 2001 2002 2001
As reported net loss ($19,363) ($21,630) ($25,847) ($46,438)
Amortization of goodwill and
purchased intangibles, net of
tax, relating to recent
acquisitions 3,352 20,398 6,289 40,035
Amortization of stock based
compensation, net of tax 11,109 10,779 21,952 21,721
Charges for acquired in-
process research and
development 4,524 - 4,524 -
Restructuring and other charges,
net of tax 7,429 - 7,429 10,399
Pro forma net income $7,051 $9,547 $14,347 $25,717
Rational Software Corporation
Condensed Consolidated Statements of Operations
(in thousands, except percentage figures and per share data)
Three months ended September 30
(unaudited)
2002 % 2001 %
Net product revenue $60,919 39 $71,709 44
Consulting and support revenue 93,600 61 92,025 56
Total revenue 154,519 100 163,734 100
Cost of product revenue 10,774 7 11,872 7
Cost of consulting and support
revenue 17,717 11 18,778 12
Total cost of revenue 28,491 18 30,650 19
Gross margin 126,028 82 133,084 81
Operating expenses:
Product research and
development expenses 41,110 27 43,245 27
Sales and marketing expenses 69,847 45 72,249 44
General and administrative
expenses 11,332 7 13,401 8
Amortization of goodwill and
purchased intangibles 330 1 18,107 11
Amortization of stock-based
compensation 18,516 12 17,966 11
Charges for acquired in-
process research and
development 4,524 3 - -
Restructuring and other charges 12,382 8 - -
Total operating expenses 158,041 103 164,968 101
Operating loss (32,013) (21) (31,884) (20)
Other income, net 799 - 4,656 3
Loss before income taxes (31,214) (21) (27,228) (17)
Benefit from income taxes (11,851) (8) (5,598) (4)
Net loss ($19,363) (13) ($21,630) (13)
Net loss per common share:
Basic ($0.10) ($0.11)
Diluted ($0.10) ($0.11)
Shares used in computing per
share amounts:
Basic 190,085 195,184
Diluted 190,085 195,184
Rational Software Corporation
Condensed Consolidated Statements of Operations
(in thousands, except percentage figures and per share data)
Six months ended September 30
(unaudited)
2002 % 2001 %
Net product revenue $120,398 39 $155,023 46
Consulting and support revenue 186,585 61 184,504 54
Total revenue 306,983 100 339,527 100
Cost of product revenue 20,720 7 20,057 5
Cost of consulting and support
revenue 35,300 11 39,177 12
Total cost of revenue 56,020 18 59,234 17
Gross margin 250,963 82 280,293 83
Operating expenses:
Product research and development
expenses 83,020 27 90,905 26
Sales and marketing expenses 138,771 45 145,813 43
General and administrative
expenses 22,579 8 26,365 8
Amortization of goodwill and
purchased intangibles 637 - 36,094 11
Amortization of stock-based
compensation 36,587 12 36,203 11
Charges for acquired in-process
research and development 4,524 1 - -
Restructuring and other charges 12,382 4 17,331 5
Total operating expenses 298,500 97 352,711 104
Operating loss (47,537) (15) (72,418) (21)
Other income, net 3,489 1 11,048 3
Loss before income taxes (44,048) (14) (61,370) (18)
Benefit from income taxes (18,201) (6) (14,932) (4)
Net loss ($25,847) (8) ($46,438) (14)
Net loss per common share:
Basic ($0.14) ($0.24)
Diluted ($0.14) ($0.24)
Shares used in computing per share
amounts:
Basic 190,071 196,028
Diluted 190,071 196,028
Rational Software Corporation
Condensed Consolidated Balance Sheets
(in thousands)
September 30, March 31,
2002 2002
(unaudited)
Assets
Current assets:
Cash and cash equivalents and
short-term investments $1,000,306 $960,383
Accounts receivable, net 106,252 149,896
Prepaid expenses and other
assets 19,854 24,525
Deferred tax asset 19,714 19,714
Total current assets 1,146,126 1,154,518
Property and equipment, net 84,384 91,254
Goodwill and purchased
intangibles, net 240,161 228,030
Other assets, net 26,218 29,417
Total assets $1,496,889 $1,503,219
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $8,863 $11,575
Accrued employee benefits 41,609 46,145
Income taxes payable 28,191 29,192
Other accrued expenses 43,688 42,445
Accrued merger and integration
expenses 12,392 11,511
Deferred revenue 169,682 181,903
Total current liabilities 304,425 322,771
Convertible subordinated notes 500,000 500,000
Long term deferred tax
liabilities 141 11,921
Other noncurrent liabilities 27,560 30,551
Total liabilities 832,126 865,243
Stockholders' equity:
Common stock 755,113 702,479
Accumulated deficit (90,350) (64,503)
Total stockholders' equity 664,763 637,976
Total liabilities and
stockholders' equity $1,496,889 $1,503,219
Rational, the Rational logo, Rational Software Corporation, among
others, are trademarks or registered trademarks of Rational Software
Corporation in the United States and/or in other countries. All other
names are used for identification purposes only and are trademarks or
registered trademarks of their respective companies.
For more information contact:
Rational Software Corporation, 18880 Homestead Road, Cupertino, CA 95014
Tel. (408) 863-9900 or (800) 728-1212; Fax (408) 863-4133
Fax-on-demand: 1-800-758-5804 Pin: 113375
E-mail: info@rational.com; Web: http://www.rational.com
Contacts:
Press:
Bill Durling, Director of Corporate Communications
(781) 372-5886
bdurling@rational.com
Financial:
David Henshall, Chief Financial Officer
(408) 863-4500
ir@rational.com
SOURCE Rational Software Corporation
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Related links:
http://www.rational.com
Photo Notes:Newscom:
http://www.newscom.com/cgi-bin/prnh/20010417/RATLLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, 888-776-6555 or 201-369-3467
CONTACT:
Press: Bill Durling, Director of Corporate
Communications, +1-781-372-5886, bdurling@rational.com; or
Financial: David Henshall, Chief Financial Officer,
+1-408-863-4500, ir@rational.com, both of Rational Software
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