<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-9189
CHEYENNE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3175893
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 EXPRESSWAY PLAZA
ROSLYN HEIGHTS, NEW YORK, 11577
(Registrant's principal address, including zip code)
(516) 484-5110
(Registrant's telephone number, including area code)
55 BRYANT AVENUE
ROSLYN, NEW YORK, 11576
(Former Address)
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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of Shares of Registrant's Common Stock outstanding as of April 20,
1995 was 39,159,758.
<PAGE>
INDEX
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--
March 31, 1995 and June 30, 1994 . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings--
Three and Nine Months ended March 31, 1995 and 1994. . . . . . . . 4
Consolidated Statements of Cash Flows--
Nine Months Ended March 31, 1995 and 1994. . . . . . . . . . . . . . 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 1-6 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . .13
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 June 30
ASSETS 1995 1994
-------- ---- ----
(In Thousands)
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,323 $11,629
Short term investments 27,133 57,802
Accounts receivable, less allowance for doubtful accounts of
$1,236,000 and $611,000, respectively 28,995 23,881
Prepaid expenses and other current assets 5,933 3,983
Deferred income taxes 1,431 --
------- -------
Total current assets 74,815 97,295
Long term investments 60,846 --
Investment in Gates/FA -- 9,019
Fixed assets, net 14,839 8,567
Other assets 2,079 1,156
------- -------
Total assets 152,579 116,037
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable 6,874 3,679
Accrued expenses 9,289 3,634
Income taxes payable 11,550 2,604
------- -------
Total current liabilities 27,713 9,917
Deferred income taxes 632 1,030
------- -------
Total liabilities 28,345 10,947
------- -------
Minority interest in subsidiary 19 19
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued -- --
Common stock, par value $.01 per share; 75,000,000 shares authorized;
39,159,758 and 38,785,915 shares issued and outstanding 392 388
Additional paid-in capital 51,590 50,085
Retained earnings 84,068 54,542
Foreign currency translation adjustment 334 56
Net unrealized losses on investments (38) --
Treasury Stock, at cost (12,131) --
------- -------
Total shareholders' equity 124,215 105,071
------- -------
Total liabilities and shareholders' equity 152,579 116,037
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CHEYENNE SOFTWARE, INC.
Consolidated Statements of Earnings
Three and Nine Months Ended March 31, 1995 and 1994**
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $35,636 $28,364 $86,899 $72,602
Cost of Sales 3,577 2,297 8,609 6,330
------- ------- ------- -------
Gross Profit 32,059 26,067 78,290 66,272
------- ------- ------- -------
Operating Expenses:
Research and development and technical support 6,990 3,242 16,487 7,952
Selling and marketing 10,735 6,392 28,223 15,202
General and administrative 2,902 1,591 6,954 5,846
Charge for purchased research and development 704 -- 1,251 --
------- ------- ------- -------
Total operating expenses 21,331 11,225 52,915 29,000
------- ------- ------- -------
Operating income 10,728 14,842 25,375 37,272
Interest income 1,091 360 2,571 1,089
------- ------- ------- -------
Operating and Interest Income 11,819 15,202 27,946 38,361
Equity in Earnings of Gates/FA -- 568 85 1,191
------- ------- ------- -------
Income before gains and income taxes 11,819 15,770 28,031 39,552
Other gains 272 -- 21,125 89
------- ------- ------- -------
Income before income taxes 12,091 15,770 49,156 39,641
Provision for income taxes 4,116 5,512 19,630 13,619
------- ------- ------- -------
Net income $ 7,975 $10,258 $29,526 $26,022
------- ------- ------- -------
------- ------- ------- -------
Per share data*
Net income $ 0.20 $ 0.25 $ 0.74 $ 0.65
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common shares and
equivalents outstanding 39,925 40,237 39,856 39,794
------- ------- ------- -------
------- ------- ------- -------
<FN>
*All per share data have been restated for all periods presented to reflect the
payment on March 29, 1994 of a three-for-two stock split
**Due to the Bit Software, Inc. acquisition on May 19, 1994 accounted for as a
pooling of interests, all periods presented include Bit's results.
</TABLE>
4
<PAGE>
CHEYENNE SOFTWARE, INC.
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
March 31 March 31
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Operating activities:
Net Income $29,526 $26,022
Adjustments to reconcile net income to net cash
provided by operating activities:
Tax benefit from exercise of stock options 914 6,400
Equity in earnings of Gates/FA (85) (1,191)
Depreciation and amortization 2,434 1,287
Gain on exchange of Gates/FA common stock for Arrow Electronics common stock (21,232) --
Loss on sale of Arrow Electronics common stock 11 --
Charge for purchased research and development 1,251 --
Changes in operating assets and liabilities, excluding effects from acquisition:
Accounts receivable (4,865) (7,812)
Prepaid expenses, deferred income taxes, and other current assets (3,372) (2,138)
Other assets (757) (141)
Accounts payable, accrued expenses and income taxes payable 17,331 4,715
Deferred income taxes - non current (871) 510
-------- --------
Net cash provided by operating activities 20,285 27,652
Investing activities:
Purchases of fixed assets (7,946) (3,850)
Purchases of short term investments (12,683) (34,225)
Purchases of long term investments (25,699) --
Proceeds from redemptions and maturities of short term investments 5,353 6,062
Proceeds from redemptions and maturities of long term investments 2,695 --
Net proceeds from sale of Arrow Electronics common stock 30,324 --
Payment for acquisition of NETstor (1,150) --
Payment for acquisition of DataJET Technology (701) --
-------- --------
Net cash used in investing activities (9,807) (32,013)
Financing activities:
Net proceeds from exercise of stock options 1,069 4,974
Purchase of Treasury Stock (12,131) --
-------- --------
Net cash (used in) provided by financing activities (11,062) 4,974
Effect of exchange rate changes on cash 278 2
-------- --------
(Decrease) increase in cash and cash equivalents (306) 615
Cash and cash equivalents at beginning of period 11,629 12,895
-------- --------
Cash and cash equivalents at end of period 11,323 13,510
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CHEYENNE SOFTWARE, INC.
Notes to Consolidated Financial Statements
March 31, 1995
(1) BUSINESS AND BASIS OF PRESENTATION
BUSINESS
Cheyenne Software, Inc. (Cheyenne) is engaged in the development and sale
of software products for use in microcomputers and computer systems in
network applications.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1995. For further information, refer to the financial statements and
footnotes thereto and other information included in the Company's annual
report on Form 10-K for the year ended June 30, 1994.
(2) STOCK SPLIT
On February 10, 1994, the Company's Board of Directors declared a three-
for-two stock split, payable in the form of a 50% stock dividend (Stock
Split) which was distributed on March 29, 1994 to holders of record on
March 1, 1994. All references to number of shares, except shares
authorized, and per share data for the three and nine months ended March
31, 1994 and 1995 have been restated to reflect this stock split.
(3) RECLASSIFICATION
Certain prior year information has been reclassified to conform with the
fiscal 1995 presentation format.
(4) INVESTMENT IN GATES/FA
On August 29, 1994, Cheyenne sold its remaining 1,348,290 shares of
Gates/FA common stock in exchange for 798,996 common shares of Arrow
Electronics, Inc. (Arrow), a public company. The transaction qualified as
a tax-free exchange and resulted in an approximate pre-tax gain of
$21,232,000. As a result of the transaction, Cheyenne acquired
approximately 2% of Arrow's outstanding common stock. Prior to December
31, 1994 Cheyenne sold 145,000 shares of Arrow common stock. Subsequently,
in FQ395 Cheyenne sold its remaining 653,996 shares of Arrow common stock.
(5) ACQUISITION OF NETSTOR
On December 19, 1994, the Company acquired certain assets and assumed
certain liabilities of NETstor, Inc. (NETstor), a developer of Hierarchical
Storage Management software products for the UNIX computer platform in the
network storage management market, for $1,150,000 of cash and $200,000 of
additional future contingent payments. The acquisition has been accounted
for as a purchase and the operating results of NETstor are included in the
consolidated statement of earnings from the date of acquisition. In
connection with the acquisition, the Company in FQ295 recorded a $547,000
expense for purchased research and development. The excess of the
acquisition costs over the fair value of the net assets acquired, amounting
to $110,000, is included in other assets in the accompanying balance sheet
and is being amortized on a straight line basis over five years.
6
<PAGE>
(6) ACQUISITION OF DATAJET TECHNOLOGY
On March 30, 1995, the Company acquired the DataJET product line and
certain other assets and assumed certain liabilities of NetFRAME Systems,
Inc. (NetFRAME). DataJET is an image based, high performance software
backup product for NetWare file servers. Cheyenne made an $701,000 cash
payment for DataJET and will pay royalties to NetFRAME based on sales
results achieved by Cheyenne. Cheyenne will also make an additional
$100,000 cash payment upon the satisfaction of certain conditions. The
acquisition has been accounted for as a purchase. In connection with the
acquisition, the Company in FQ395 recorded a $704,045 expense for purchased
research and development. The technological feasibility of the in-process
technology has not yet been established and the technology has no
alternative use. The excess of the acquisition costs over the fair value
of the net assets acquired, amounting to $39,581, is included in other
assets in the accompanying balance sheet and is being amortized on a
straight line basis over five years.
(7) STOCK REPURCHASE
On February 23, 1995, Cheyenne announced that the Board of Directors had
authorized management to purchase up to 4,000,000 shares of the Company's
outstanding common stock. Purchases are dictated by overall financial and
market conditions and other factors affecting the operations of the
Company. Cheyenne may utilize some of the repurchased shares in
conjunction with employee incentive and stock option programs.
During FQ395, Cheyenne repurchased 750,000 shares of its common stock for
approximately $12,131,000, at prices ranging from approximately $14 to $17
per share.
From April 25, 1995 through May 4, 1995, Cheyenne purchased an additional
1,162,700 shares of its common stock for approximately $16,641,000, at
prices ranging from approximately $13-5/8 to $14-7/8 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - -----------------------------------
Quarter Ended March 31, 1995 compared to Quarter ended March 31, 1994.
In FQ395, based on preliminary data from certain North American
Distributors, end-user demand in North America increased versus FQ295. The
increase was at a slower rate than FQ295 versus FQ195. The Company believes
this may be due to at least the following factors. First, Cheyenne continues to
face competition. Second, the market for networking products is volatile.
Third, OEM sales (which are not measured in POS) increased during the quarter.
It may be that some of the OEM sales were at the expense of distribution sales.
Also, a new OEM only product directed at the entry level market may be taking
away sales from the lower level distribution products.
During FQ395, Cheyenne released a maintenance revision of one of its key
products, ARCserve 5.01, to its customers. This new revision contained
enhancements, certain fixes and updates at no charge. Shortly after its release
the Company discovered that under certain network configurations, the back-up
operation of the revised product did not function as fully as intended. The
Company responded promptly to remedy the situation by releasing a corrected
version of the program to its Distributors, OEM customers, and resellers, and
onto its electronic Bulletin Boards so that customers could download the fix
electronically. Cheyenne believes that the problem has been resolved. While
any product quality issue may affect sales, the Company expects that its prompt
response will minimize the negative effect on the Company.
Cheyenne continues to work diligently to increase end-user demand by adding
more sales and support people and increasing spending on global marketing
programs. We feel confident that our efforts to stimulate end-user demand will
be successful and that the long term market for our products will continue to
expand.
RESULTS OF OPERATIONS
The following tables include a summary of each item from the statements of
earnings as a percentage of revenues. Please refer to these tables while
reading the following discussion.
7
<PAGE>
TABLE 1
<TABLE>
<CAPTION>
COMPARISON FQ395 VS. FQ394**
------------------------------
(Unaudited)
FQ395 FQ394
------- -------
AMOUNT RATIO AMOUNT RATIO
-------- ------- -------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $35,636 100.00% $28,364 100.00%
Cost of sales 3,577 10.04% 2,297 8.10%
------- ------- ------- -------
Gross Profit 32,059 89.96% 26,067 91.90%
Operating Expenses:
R&D and Technical Support 6,990 19.61% 3,242 11.43%
Selling and Marketing 10,735 30.12% 6,392 22.53%
General & Administrative 2,902 8.14% 1,591 5.61%
Charge for purchased research and development 704 1.98% -- 0.00%
------- ------- ------- -------
Total Operating Expenses 21,331 59.85% 11,225 39.57%
------- -------
Operating Income 10,728 30.11% 14,842 52.33%
Interest Income 1,091 3.06% 360 1.27%
------- -------
Operating & Interest Income 11,819 33.17% 15,202 53.60%
Equity in Earnings of Gates/FA -- 568
------- -------
Income Before Gains and Income Taxes 11,819 15,770
Other Gains 272 --
------- -------
Income Before Income Taxes 12,091 15,770
Provision for income taxes 4,116 5,512
------- -------
NET INCOME $7,975 $10,258
------- -------
------- -------
Per share data*:
NET INCOME 0.20 0.25
------- -------
------- -------
<FN>
*All per share data have been restated for all periods presented to reflect the
payment on March 29, 1994 of a three-for-two stock split.
**Due to the Bit Software, Inc. acquisition on May 19, 1994 accounted for as a
pooling of interests, all periods presented include Bit's results.
</TABLE>
8
<PAGE>
TABLE 2
<TABLE>
<CAPTION>
NINE MONTHS 1995 VS. NINE MONTHS 1994**
---------------------------------------
(Unaudited)
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1995 MARCH 31, 1994
-------------- --------------
AMOUNT RATIO AMOUNT RATIO
-------- ------- -------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $86,899 100.00% $72,602 100.00%
Cost of sales 8,609 9.91% 6,330 8.72%
------- ------- ------- -------
Gross Profit 78,290 90.09% 66,272 91.28%
------- -------
Operating Expenses:
R&D and Technical Support 16,487 18.97% 7,952 10.95%
Selling and Marketing 28,223 32.48% 15,202 20.94%
General & Administrative 6,954 8.00% 5,846 8.05%
Charge for purchased research and development 1,251 1.44% -- 0.00%
------- ------- ------- -------
Total Operating Expenses 52,915 60.89% 29,000 39.94%
------- -------
Operating Income 25,375 29.20% 37,272 51.34%
Interest Income 2,571 2.96% 1,089 1.50%
------- -------
Operating & Interest Income 27,946 32.16% 38,361 52.84%
Equity in Earnings of Gates/FA 85 1,191
------- -------
Income Before Gains and Income Taxes 28,031 39,552
Other Gains 21,125 89
------- -------
Income Before Income Taxes 49,156 39,641
Provision for income taxes 19,630 13,619
------- -------
NET INCOME $29,526 $26,022
------- -------
------- -------
Per share data*:
NET INCOME $0.74 $0.65
------- -------
------- -------
<FN>
*All per share data have been restated for all periods presented to reflect the
payment on March 29, 1994 of a three-for-two stock split.
**Due to the Bit Software, Inc. acquisition on May 19, 1994 accounted for as a
pooling of interests, all periods presented include Bit's results.
</TABLE>
9
<PAGE>
REVENUES
Cheyenne's revenues increased 26% in FQ395 versus FQ394 to $35,636,000 from
$28,364,000. The increase is attributable to the expanding market for LAN
products, Cheyenne's broadening product line, increasing network data storage
requirements, more effective sales and marketing programs, plus increased sales
outside the United States and the addition of a few new distributors worldwide.
A breakdown of sales is shown in Table 3.
TABLE 3
Software Sales Breakdown
(in Thousands)
<TABLE>
<CAPTION>
FQ395 % FQ394 %
-------- --- ------- ---
<S> <C> <C> <C> <C>
Distribution:
US $11,062 31.0% $10,970 38.7%
Canada 468 1.3% 622 2.2%
Europe 12,710 35.7% 9,505 33.5%
Rest of World 2,062 5.8% 1,003 3.5%
------- ----- ------- -----
Total Distribution: 26,302 73.8% 22,100 77.9%
Japan 2,332 6.6% 745 2.6%
OEM 4,234 11.9% 4,246 15.0%
Major Accounts 798 2.2% 491 1.7%
Direct (U.S.) 1,970 5.5% 782 2.8%
------- ----- ------- -----
Total $35,636 100% $28,364 100%
</TABLE>
Distribution sales increased 1% in FQ395 versus FQ394, European
Distribution sales increased 34%, Japan sales increased 213%, and OEM sales were
flat. Sequentially, FQ395 versus FQ295, U.S. Distribution sales increased 26%,
European Distribution sales increased 6%, Japan sales increased 68% and OEM
sales increased 38%. Since distributors now offer bundling and value-added
services that compete with OEM's, OEM sales growth over the last year has lagged
behind Distribution sales. Some of the Company's OEM partners have begun to use
non-traditional methods of product distribution like CD-ROM which could improve
their competitive position against Distributors and lead to further growth in
OEM sales.
Please refer to TABLE 1
GROSS PROFIT
The gross profit margin decreased to 89.96% in FQ395 versus 91.90% in
FQ394. Cheyenne has seen a decrease in gross margins due to increases in the
percentages of sales from lower priced products, such as upgrades, which have
higher costs as a percentage of the sales price. In addition, gross margins
have decreased from previous levels due to the inclusion of Bit Software
products that have about a 60% gross margin due to the fact that their products
have average selling prices that are much lower than Cheyenne's products, yet
the costs to produce each product are similar.
10
<PAGE>
RESEARCH & DEVELOPMENT & TECHNICAL SUPPORT.
These expenses increased 116% versus FQ394. Since sales increased only 26%,
Research and Development, as a percentage of sales, increased to 19.61% versus
11.43% in last year's comparable quarter. The increase was due to the Company's
significantly broader product line that must further be developed and supported
by Cheyenne's engineering and technical support personnel. The percentage
increase in Research and Development and Technical Support was much greater than
the percentage sales increase because developing new and enhancing existing
products and supporting customers' network questions is increasingly becoming
more complicated, thus requiring even higher manpower levels. The Company
approximately doubled its worldwide technical support staff since last year to
over 100 professionals. Cheyenne is moving from a centralized staff in New York
to a worldwide decentralized customer support staff. The Company believes this
investment in a large Research and Development and Technical Support staff will
provide a long term competitive advantage.
SELLING AND MARKETING EXPENSES
Selling and Marketing expenses increased 68% in FQ395 versus FQ394. Therefore,
selling expenses increased to 30.12% of sales in FQ395 versus 22.53% last year.
The increase was mainly due to additional sales and marketing personnel,
particularly in Europe, where less sales support from the Company's traditional
distributors is anticipated as changes take place in that market. Cheyenne's
sales in Japan have increased, and the Company continues to invest in that
market. During FY95, Cheyenne has also begun to build a sales, marketing and
support infrastructure in Taiwan, Australia, Singapore and Brazil. Expanded
marketing programs and promotions were a factor in the increase as well. Direct
Marketing expenses also increased.
GENERAL AND ADMINISTRATION EXPENSES ("G&A")
G&A expenses increased 82% in FQ395 versus FQ394. Depreciation expenses which
are included in G&A have increased due to significant investments by the Company
in test equipment, new computers, new communications and MIS equipment on a
worldwide basis. Also, legal expenses associated with the shareholder lawsuit
and the SEC Formal Order of Private Investigation contributed to the increase.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT
On March 30, 1995, Cheyenne purchased certain assets of NetFRAME Systems, Inc.
In connection with the acquisition, Cheyenne took a one time charge of
approximately $704,000 for the write-off of purchased R&D.
TOTAL OPERATING EXPENSES
As a result of the above items, total operating expenses increased to
$21,331,000 or 90% versus last year's comparable quarter.
INTEREST INCOME
Interest income increased to $1,091,000 in FQ395 versus $360,000 in FQ394, due
to higher cash and cash equivalents and investment balances, and also due to
higher interest rates.
OPERATING AND INTEREST INCOME
Based on the 26% increase in revenues in FQ395 versus FQ394 and the 90% increase
in total operating expenses, operating and interest income decreased in FQ395 to
33.17% of sales versus 53.60% in FQ394. The lower operating margin was due
mainly to increased expenditures in the Research and Development and Sales and
Marketing functions, much of which was an investment in the future, and
increases in G&A. The Company continues to invest in its business and build the
infrastructure to support its global customer base and to improve its long term
competitive position. These increased costs have affected and may continue to
affect net margins.
11
<PAGE>
EQUITY IN EARNINGS OF GATES/FA
Cheyenne recorded its approximately 21% share of Gates/FA earnings under the
equity method only through August 29, 1994, the date of the Gates/FA/Arrow
merger. Cheyenne will no longer record any equity earnings. Therefore, there
were no equity earnings in FQ395 but there were $568,000 of such earnings in
FQ394.
OTHER GAINS AND EXPENSES
During FQ395 Cheyenne sold its remaining 653,996 shares of Arrow Electronics,
Inc. common stock. The Company also settled the Coldata lawsuit. These items
resulted in a net pre-tax gain of approximately $272,000.
PROVISION FOR INCOME TAXES
The effective income tax rate on pretax earnings was 34%, which is less than the
statutory rates primarily due to tax benefit from the Company's FSC and tax-
exempt investment income.
PER SHARE DATA
The net income per share from recurring operations was 20 cents versus 25 cents
last year.
NINE MONTHS COMPARISON
The nine months comparison for FY95 versus FY94 is shown in TABLE 2. In
general, the same factors that were discussed in connection with the three
months ended FQ395 versus FQ394 discussion apply to the nine month comparison.
As shown, net income for the first nine months of FY95 was 74 cents versus 65
cents during the same period last year. The 74 cent figure includes a one time
gain of 28 cents per share arising out of the sale by Cheyenne on August 29,
1994 of the remaining 1,348,290 shares of Gates/FA in exchange for 798,996
common shares of Arrow Electronics, Inc.
LIQUIDITY AND CAPITAL RESOURCES
The Company had no debt and $99,302,000 in cash, cash equivalents and
investments as of March 31, 1995. Cash, cash equivalents and investments grew
$18,810,000 in FQ395. Cheyenne received approximately $25,265,000 of cash in
connection with the sale of 653,996 common shares of Arrow Electronics in FQ395.
Cheyenne paid out approximately $12,131,000 of cash in connection with the
repurchase of 750,000 of its shares in FQ395. All accounts payable are current
and accounts receivable are collected on average in 74 days.
Capital expenditures for the nine months were $7,946,000 versus $3,850,000 in
last year's comparable period. The increase is due to purchases of furniture,
as well as computer, telephone and test equipment needed to support the growing
employee base and business. It is anticipated that capital expenditures will be
about $11,000,000 in FY95 versus $5,290,000 in FY94. Further investments in
computers, test equipment and facilities are planned based upon continued growth
in the number of employees to support Cheyenne's growing business and the
partial move to a new 100,000 square foot facility located in Lake Success, New
York, near the current corporate headquarters in Roslyn Heights, New York.
Management believes Cheyenne's current cash, cash equivalents and investments
position coupled with anticipated cash flows from operations, will be more than
adequate to meet its anticipated cash requirements for planned capital
expenditures and operations for the next twelve months and any additional share
repurchases.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither Cheyenne nor any of its subsidiaries is a party to any material pending
legal proceedings, other than routine litigation incidental to the business, and
other than as set forth below:
1) COLDATA, INCORPORATED V. CHEYENNE SOFTWARE, INC.
An action was commenced in July 1991, in the Supreme Court of the State of
New York, County of Nassau, entitled "Coldata, Incorporated v. Cheyenne
Software, Inc." Coldata, Incorporated ("Coldata") alleged, among other things,
that Cheyenne failed to complete the detailed design specifications and
implementation schedule for the development of a particular computer program
(called "CAAMS"), and therefore, breached the agreement between the parties.
Coldata also alleged that Cheyenne breached its fiduciary duties to Coldata by
failing to develop and market CAAMS and by its participation in other unrelated
software projects to the exclusion of Coldata.
On February 17, 1995, the parties settled this lawsuit and Cheyenne, in
connection therewith, paid Coldata $170,000. Neither party admitted any
liability in connection with the settlement.
2) IN RE CHEYENNE SOFTWARE, INC. SECURITIES LITIGATION
Master File No. 94 Civ. 2771 (TCP)
On or about June 11, 1994, a securities fraud class action complaint,
entitled BELL V. CHEYENNE SOFTWARE, INC., ET AL., was filed in the United States
District Court for the Eastern District of New York. The lawsuit names as
defendants the Company and several of its officers and directors. In the
following weeks, several other similar lawsuits were filed in the Eastern
District of New York. The actions allege securities fraud claims under Sections
10(b) and 20 of the Securities Exchange Act of 1934, and seek compensatory
damages on behalf of all the shareholders who purchased shares between
approximately January 24, 1994 and approximately June 17, 1994, as well as
attorneys' fees and costs. The gravamen of the actions is that the Company and
the individual defendants made misrepresentations and omissions to the public,
which caused the Company's stock to be artificially inflated. The suits rely on
what is known as the "fraud on the market" theory of liability.
On July 20, 1994, the Court ordered that all of the actions be consolidated
under the caption of IN RE CHEYENNE SOFTWARE, INC. SECURITIES LITIGATION. On
March 8, 1995, plaintiffs filed an Amended Complaint. On March 23, 1995,
plaintiffs served a Motion for Class Certification. The Company intends to
contest certain aspects of that Motion, which is scheduled to be heard on or
about June 9, 1995. On April 11, 1995, the Company served a Motion to Dismiss
certain of the claims alleged in the Amended Complaint. The Motion to Dismiss
is expected to be heard in June, 1995. On April 5, 1995, Cheyenne filed a
Motion to Stay Discovery, which was heard on April 21, 1995. As of May 3, 1995,
the Court has not ruled on this Motion.
The defendants deny any and all liability and intend to vigorously defend
against the claims.
3) RAND V. OXENHORN, ET AL.
Delaware Chancery Court (New Castle County) No. 13583
On or about June 27, 1994, a shareholder derivative complaint, entitled
RAND V. OXENHORN, ET AL., was filed in the Court of Chancery for the State of
Delaware in and for New Castle County. The lawsuit, purportedly filed
derivatively on behalf of the Company, names as defendants eleven of its present
or former officers and directors. The complaint's factual allegations are
similar to those of IN RE CHEYENNE SOFTWARE, INC. SECURITIES LITIGATION
described above. However, instead of securities fraud claims, the action
alleges that the defendants breached their fiduciary obligations to the Company.
The suit seeks a variety of compensatory damages as well as attorneys fees.
13
<PAGE>
On August 19, 1994, the defendants filed a motion to dismiss on the
grounds that (1) the plaintiff failed to comply with the pleading and demand
requirements of a derivative action and (2) the pleadings fail to state a claim
upon which relief may be granted. On October 14, 1994, and before defendants'
motion to dismiss was ruled on, an amended complaint was filed only naming as
defendants six of Cheyenne's officers or directors. Cheyenne filed a motion to
dismiss the Amended Complaint on the same grounds listed above on February 16,
1995.
The defendants deny any and all liability and intend to vigorously defend
against the claims.
4) SEC FORMAL PRIVATE INVESTIGATION
On June 28, 1994, the SEC commenced an informal inquiry into Cheyenne. On
or about April 14, 1995, the SEC advised the Company that it had issued a Formal
Order of Private Investigation of the Company. The Private Investigation is a
continuation of the informal inquiry which began in June 1994. The Formal
Order, among other things, enables the SEC to utilize its subpoena powers to
obtain relevant information from third parties as well as the Company. The
Private Investigation relates to possible violations of federal securities laws.
The Company has been cooperating and will continue to cooperate fully with the
SEC.
5) JWANCO, INC., ET AL. V. CHEYENNE SOFTWARE, INC. ET AL.
California Superior Court (County of Alameda) No. H-183331-1
On or about May 2, 1995, plaintiffs JWANCO, Inc. (formerly known as Bit
Software, Inc.), Jonathan Wan, Yau Ki Chuck, Norman Chan, David Law and David
Wong filed an action in the Superior Court of California in and for the County
of Alameda against the Company, Cheyenne Communications, Inc., a wholly owned
subsidiary of the Company, and several of its officers, directors and employees.
The action alleges breach of contract, fraud, wrongful termination, negligent
infliction of emotional distress, and a number of other related torts. The
essence of the allegations is that the defendants breached agreements and
defrauded JWANCO, Inc., and the individual plaintiffs in connection with the
Company's acquisition of certain assets and assumption of certain liabilities of
Bit Software, Inc. on May 19, 1994. These allegations are substantially similar
to those IN RE CHEYENNE SOFTWARE, INC. SECURITIES LITIGATION described above.
In addition, the Complaint alleges, on behalf of plaintiff Jonathan Wan only,
wrongful termination and a variety of other causes of action relating to the
employment and termination of the employment of Jonathan Wan by Cheyenne
Communications.
Although the defendants have, as yet, filed no answer or other response to
the pleadings, they deny any and all liability and intend to vigorously defend
against the claims.
Item 2. Changes in Securities
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to Report
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
14
<PAGE>
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, hereunto duly authorized.
Date: May 12, 1995 By: /s/ Elliot Levine
--------------------------------------
Elliot Levine, Executive Vice President,
Senior Financial Officer and Treasurer
(Principal Financial Officer)
15
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS DATED MARCH 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
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<SECURITIES> 87,979
<RECEIVABLES> 30,231
<ALLOWANCES> 1,236
<INVENTORY> 0
<CURRENT-ASSETS> 73,384
<PP&E> 20,892
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0
0
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<SALES> 81,364
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<CGS> 8,609
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<INCOME-TAX> 19,630
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