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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 0-21176
WALL DATA INCORPORATED
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1189299
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11332 N.E. 122ND WAY, KIRKLAND, WASHINGTON 98034
(Address of principal executive offices) (Zip Code)
(206) 814-9255
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stocks, as of the latest practicable date.
OUTSTANDING AT
CLASS APRIL 30, 1997
----- --------------
COMMON STOCK 9,184,053
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WALL DATA INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Income Statements for
the three months ended March 31, 1997 and 1996 3
Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALL DATA INCORPORATED
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
------- -------
<S> <C> <C>
Net revenues
License Fees $32,355 $26,735
Services 4,668 3,121
------- -------
Total net revenues 37,023 29,856
Cost of revenues
License Fees 4,927 5,037
Services 1,827 1,691
------- -------
Total cost of revenues 6,754 6,728
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Gross margin 30,269 23,128
Operating expenses:
Product development 5,141 5,806
Sales and marketing 16,268 13,521
General and administrative 3,858 3,317
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Total operating expenses 25,267 22,644
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Operating income 5,002 484
Other income, net 571 340
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Income before income taxes 5,573 824
Provision for income taxes 2,115 313
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Net income $ 3,458 $ 511
======= =======
Net income per share $ 0.35 $ 0.05
======= =======
Weighted average common and common
equivalent shares outstanding 9,744 9,583
===== =====
</TABLE>
See accompanying notes.
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WALL DATA INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 75,619 $ 62,483
Accounts receivable 32,234 38,694
Inventories 830 733
Deferred income taxes 4,116 3,977
Other current assets 2,389 2,262
-------- --------
Total current assets 115,188 108,149
Fixed assets, net 11,698 12,735
Deferred income taxes 155 155
Other assets 6,264 6,115
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$133,305 $127,154
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,809 $ 6,774
Accrued expenses 13,153 13,665
Income taxes payable 8,233 4,722
Deferred revenues 12,290 11,190
-------- --------
Total current liabilities 39,485 36,351
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Shareholders' equity:
Preferred stock -- --
Common stock 54,398 54,357
Retained earnings 39,116 35,791
Cumulative translation adjustment 306 655
-------- --------
Total shareholders' equity 93,820 90,803
-------- --------
$133,305 $127,154
======== ========
</TABLE>
See accompanying notes.
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WALL DATA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,458 $ 511
Adjustments to reconcile net income to net cash
provided by operations:
Deferred income taxes (58) (65)
Depreciation and amortization 2,668 2,155
Other, net -- (130)
Decrease (increase) in operating assets:
Accounts receivable 6,460 4,452
Inventories (97) (91)
Other current assets (127) 431
Increase (decrease) in operating liabilities:
Accounts payable (966) 421
Accrued expenses (512) (1,542)
Income taxes payable 3,511 2,037
Deferred revenues 1,100 (857)
-------- --------
Net cash provided by operating activities 15,437 7,322
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INVESTING ACTIVITIES
Purchases of fixed assets (739) (801)
Other assets (1,255) (1,424)
-------- --------
Net cash used by investing activities (1,994) (2,225)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuances under stock plans 41 7
-------- --------
Net cash provided by financing activities 41 7
-------- --------
Net increase in cash and cash equivalents 13,484 5,104
Effect of exchange rate changes on cash (348) (113)
Beginning cash and cash equivalents 62,483 51,969
-------- --------
Ending cash and cash equivalents $ 75,619 $ 56,960
======== ========
</TABLE>
See accompanying notes.
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WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated balance sheets
and related consolidated statements of income and cash flows include all
adjustments, consisting only of normal and recurring items, necessary for
their fair presentation. The results for the three months ended March 31,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. These financial statements and related
notes should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1996 which are
included in the Company's Annual Report to Shareholders.
2. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
which becomes effective for the Company's 1997 consolidated financial
statements beginning in the fourth quarter of 1997. SFAS No.128 will
eliminate the disclosure of primary earnings per share which includes the
dilutive effect of stock options, warrants and other convertible securities
("Common Stock Equivalents") and instead requires reporting of "basic"
earnings per share, which will exclude Common Stock Equivalents.
Additionally, SFAS No. 128 changes the methodology for fully diluted
earnings per share. The adoption of this new accounting standard will not
have a material effect on the reported earnings per share of the Company.
3. LITIGATION
In April 1995, four individuals who allegedly had purchased Wall Data
common stock filed proposed shareholders' class action lawsuits against
Wall Data and certain of the Company's officers and/or directors in the
U.S. District Court, Western District of Washington. A consolidated
complaint amending the four actions was filed by one of the individuals in
June 1995. On September 13, 1995, the Court granted the Company's motion to
dismiss the complaint, with leave to amend the complaint. The Court also
dismissed all claims against one of the directors with prejudice. On
January 12, 1996, the plaintiffs filed a second amended complaint,
containing the same alleged violations of law and class period as the
previous complaint. The complaint seeks unspecified damages. In June 1996,
the Court denied in part and granted in part the Company's motion to
dismiss the second amended complaint. Trial has been scheduled for November
1997. The Company believes the allegations in the second amended complaint
are without merit and intends to continue to defend against the action
vigorously.
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WALL DATA INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
When used in this report and elsewhere by management from time to time, the
words "believes," "anticipates" and "expects" and similar expressions are
intended to identify forward-looking statements. Certain important factors could
cause the Company's actual results to differ materially from those expressed in
the Company's forward-looking statements. These factors are detailed in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
and include, but are not limited to, fluctuations in quarterly performance,
competitive products and pricing, dependence on a single product line,
dependence on host computing, dependence on Microsoft Windows, risks associated
with new products and technological change, increasing reliance on resellers and
distributors, uncertainties regarding international operations, dependence on
key personnel, ability to manage growth and risks associated with intellectual
property and proprietary rights. Readers are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date
made. The Company undertakes no obligation to publicly release the results of
any revision to the forward-looking statements that may be made to reflect
subsequent events or circumstances or to reflect the occurrence of unanticipated
events.
RESULTS OF OPERATIONS
Net revenues increased 24% in the first quarter of 1997 to $37.0 million from
$29.9 million in the first quarter of 1996. Licenses of RUMBA(R) Mainframe,
RUMBA OFFICE, and revenues from ONESTEP customer support contracts accounted for
most of the net revenues in the first quarter of 1997. A license to one
unaffiliated customer accounted for approximately 22% of the net revenues in the
first quarter of 1997. Most of the increase in net revenues in the first quarter
compared to the first quarter of 1996 resulted from increased sales of RUMBA for
the Mainframe, RUMBA OFFICE, and ONESTEP customer support contracts. Revenue
outside North America represented 23% of net revenues in the first quarter of
1997 compared to 29% of net revenues in the first quarter of 1996. Foreign
currency exchange rate changes did not have a significant effect on net revenues
in the first quarter. Revenue from indirect and OEM distribution channels
equaled 69% of net revenues in the first quarter of 1997 compared to 70% of net
revenues in the first quarter of 1996.
In March 1996, the Company released commercial versions of a number of RUMBA
software products, incorporating the ActiveX component architecture, designed
for the Windows 95 and Windows NT operating systems. In the first quarter of
1997, net revenues from the Company's 32-bit products exceeded net revenues from
16-bit products.
Cost of revenues consists of software publishing costs, which include labor,
product media, packaging and documentation costs, and publishing engineering,
technical support and product quality assurance costs, royalties and licensing
costs, and provisions for obsolete inventory, doubtful accounts and reseller
rebates. The Company's gross margin as a percentage of net revenues increased to
82% in the first quarter of 1997 from 77% primarily due to an increase in net
revenues without a corresponding increase in cost of revenues.
Product development expenses decreased 12% to $5.1 million, or 14% of net
revenues, in the first quarter of 1997, from $5.8 million, or 20% of net
revenues, in the first quarter of 1996.
7
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The $0.7 million decrease resulted primarily from lower staffing levels, arising
from the completion of the initial versions of certain RUMBA and SALSA products.
Sales and marketing expenses increased 20% to $16.3 million, or 44% of net
revenues, in the first quarter of 1997 from $13.6 million, or 45% of net
revenues, in the first quarter of 1996. The $2.7 million increase was due
primarily to higher staffing levels, and increased incentive compensation
arising from increased net revenues.
General and administrative expenses increased 16% to $3.9 million, or 10% of net
revenues, in the first quarter of 1997, from $3.3 million, or 11% of net
revenues, in the first quarter of 1996. The $1.0 million increase resulted
primarily from higher staffing levels, and higher legal fees principally due to
the shareholders' class action lawsuit (see Note 3 of Notes to Consolidated
Financial Statements).
Other income, net of other expenses, increased 68% to $0.6 million in the first
quarter of 1997 from $0.3 million in the first quarter of 1996. The $0.3 million
increase primarily resulted from higher investment income earned, due
principally to higher average cash balances in the first quarter of 1997
compared to the first quarter of 1996, partially offset by changes in the amount
of foreign currency transaction losses; foreign currency transactions resulted
in net exchange losses of approximately $184,000 in the first quarter of 1997
compared to net exchange losses of approximately $90,000 in the first quarter of
1996. To date, the Company has not engaged in currency hedging transactions
against sales denominated in currencies other than U.S. dollars.
The effective income tax rate was 38% in the first quarter of both 1997 and
1996.
Net income equaled $3.5 million, or 9% of net revenues, in the first quarter of
1997 compared to $511,000, or 2% of net revenues, in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and short-term investments totaled $75.6
million, or 57% of total assets, at March 31, 1997, compared to $62.5 million,
or 49% of total assets, at December 31, 1996.
Net cash provided by operating activities totaled $15.4 million in the first
quarter of 1997 compared to $7.3 million in the first quarter of 1996. The
increase was primarily due to higher net income in the first quarter of 1997
compared to the first quarter of 1996 and a larger decrease in accounts
receivable in the first quarter of 1997 compared to the first quarter of 1996.
Expenditures for property and equipment totaled $0.8 million in the first
quarter of 1997 compared to $0.8 million in the first quarter of 1996.
Expenditures for prepaid software technology and other long-term assets totaled
$1.2 million in the first quarter of 1997 compared to $1.4 million in the first
quarter of 1996. The Company will, from time to time consider the acquisition of
additional third party technology through license agreements, acquisitions or
investments in other businesses.
Stockholders' equity increased to $93.8 million at March 31, 1997, from $90.8
million at December 31, 1996. The change primarily resulted from net income in
the first quarter.
Management believes that existing cash and cash equivalents together with funds
from operations will be sufficient to finance the Company's operations over the
near term.
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WALL DATA INCORPORATED
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1995, four individuals who allegedly had purchased Wall Data
common stock filed proposed shareholders' class action lawsuits against
Wall Data and certain of the Company's officers and/or directors in the
U.S. District Court, Western District of Washington. A consolidated
complaint amending the four actions was filed by one of the individuals in
June 1995. On September 13, 1995, the Court granted the Company's motion to
dismiss the complaint, with leave to amend the complaint. The Court also
dismissed all claims against one of the directors with prejudice. On
January 12, 1996, the plaintiffs filed a second amended complaint,
containing the same alleged violations of law and class period as the
previous complaint. The complaint seeks unspecified damages. In June 1996,
the Court denied in part and granted in part the Company's motion to
dismiss the second amended complaint. Trial has been scheduled for November
1997. The Company believes the allegations in the second amended complaint
are without merit and intends to continue to defend against the action
vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1997.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Wall Data Incorporated
Date: May 14, 1997 By:
------------------------------
Richard Van Hoesen, Vice President,
Finance and Chief Financial Officer
(Duly Authorized Officer and Chief
Financial and Accounting Officer)
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WALL DATA INCORPORATED
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
(11) Computation of Earnings Per Share 12
(27) Financial Data Schedule
</TABLE>
11
<PAGE> 1
EXHIBIT (11)
WALL DATA INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
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<S> <C> <C>
PRIMARY
Average shares outstanding 9,137,894 8,993,773
Net effect of dilutive stock options
based on the treasury stock method
using average market price 605,739 588,921
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Total weighted average shares outstanding 9,743,633 9,582,694
========== ==========
Net income $3,458,000 $ 511,000
========== ==========
Net income per share $ 0.35 $ 0.05
========== ==========
FULLY DILUTED
Average shares outstanding 9,137,894 8,993,773
Net effect of dilutive stock options
based on the treasury stock method
using the period-end market price,
if higher than average market price 605,739 597,874
---------- ----------
Total weighted average shares outstanding 9,743,633 9,591,647
========== ==========
Net income $3,458,000 $ 511,000
========== ==========
Net income per share $ 0.35 $ 0.05
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 75,619
<SECURITIES> 0
<RECEIVABLES> 32,234
<ALLOWANCES> 0
<INVENTORY> 830
<CURRENT-ASSETS> 115,188
<PP&E> 28,258
<DEPRECIATION> 16,560
<TOTAL-ASSETS> 133,305
<CURRENT-LIABILITIES> 39,485
<BONDS> 0
0
0
<COMMON> 54,398
<OTHER-SE> 39,422
<TOTAL-LIABILITY-AND-EQUITY> 133,305
<SALES> 37,023
<TOTAL-REVENUES> 37,023
<CGS> 6,754
<TOTAL-COSTS> 6,754
<OTHER-EXPENSES> 25,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 755
<INCOME-PRETAX> 5,573
<INCOME-TAX> 2,115
<INCOME-CONTINUING> 3,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,458
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
