SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Sept. 30, 1996
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
(Address of principal executive offices)
(516) 465-4000
(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 reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
The number of Shares of Registrant's Common Stock outstanding as
of November 8, 1996 was 38,228,243 (excluding 2,343,900 shares of
treasury stock).
<PAGE> 2
INDEX
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--
September 30, 1996 and June 30, 1995 3
Consolidated Statements of Earnings--
Three Months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows--
Three Months Ended September 30, 1996 and 1995 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
<PAGE> 3
<TABLE>
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and June 30, 1996
<CAPTION>
Sept. 30, June 30,
Assets 1996 1996
------ --------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,487 $ 24,845
Short term investments 22,764 26,621
Accounts receivable, less allowance
for doubtful accounts of$2,240,000
and $1,357,000, respectively 46,927 44,010
Deferred income taxes 2,686 2,901
Prepaid income taxes 4,395 3,664
Prepaid expenses and other current assets 5,101 5,945
------- -------
Total current assets 110,360 107,986
Long term investments 26,653 33,557
Fixed assets, net 28,898 29,024
Other assets 10,118 5,905
-------- --------
Total assets $176,029 $176,472
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 11,722 $ 9,455
Accrued expenses 7,236 5,101
Income taxes payable 277 1,041
Current portion of obligations
under capital leases 2,186 2,186
Current portion of deferred rent 78 58
Other current liabilities 3,000 3,323
------ ------
Total current liabilities 24,499 21,164
Obligations under capital leases 1,486 2,028
Deferred income taxes 556 469
Deferred rent 1,231 1,039
Other liabilities 1,250 1,250
------ ------
Total liabilities 29,022 25,950
------ ------
Minority interest in subsidiary --- ---
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; 40,054,299
and 40,033,589 shares issued and
outstanding 401 400
Additional paid-in capital 61,388 60,994
Retained earnings 121,911 120,274
Foreign currency translation adjustment (670) (626)
Net unrealized gain (loss) on investments 14 (62)
Treasury Stock, at cost; 2,343,900 and
2,035,000 shares (36,037) (30,458)
------- -------
Total shareholders' equity 147,007 150,522
------- -------
Total liabilities and shareholders' equity $176,029 $176,472
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 4
<TABLE>
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1996 1995
---- ----
(In thousands, except per share data)
<S> <C> <C>
Revenues $ 52,246 $ 38,464
Cost of sales 9,732 6,693
-------- --------
Gross profit 42,514 31,771
-------- --------
Operating expenses:
Research and development 7,476 5,166
Selling and marketing 16,623 11,126
General and administrative 5,441 3,277
Charge for purchased research and
development 11,061 1,636
-------- --------
Total operating expenses 40,601 21,205
-------- --------
Operating income 1,913 10,566
Non-operating income expense:
Interest income and other 553 726
Other losses (59) ---
-------- --------
Income before income taxes 2,407 11,292
Provision for income taxes 770 3,896
-------- --------
Net income $ 1,637 $ 7,396
======== ========
Net income per share $ 0.04 $ 0.19
======== ========
Weighted average number of common shares and
equivalents outstanding 38,679 38,829
======== ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 5
<TABLE>
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,637 $ 7,396
Adjustments to reconcile net income to net
cash provided by operating activities:
Tax benefit from exercise of stock
options 87 1,422
Depreciation and amortization 3,433 1,323
Deferred Rent 213 ---
Charge for purchased research
and development 11,061 1,636
Stock Option Expense 119 ---
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Increase in accounts receivable (2,917) (1,584)
Decrease in prepaid expenses and
other current assets 844 324
Increase in other assets (1,189) (705)
Increase in accounts payable,
accrued expenses and income
taxes payable 636 1,515
Deferred income taxes 301 26
------ ------
Net cash provided by operating activities 14,225 11,353
------ ------
Cash flows from investing activities:
Purchases of fixed assets (2,054) (3,809)
Purchases of short term investments (13,683) (25,244)
Purchases of long term investments (1,500) (654)
Proceeds from redemptions and maturities
of short term investments 20,241 11,064
Proceeds from redemptions and maturities
of long term investments 5,785 16
Cash paid for acquisitions (13,396) (718)
Purchase of minority interest --- (236)
------ ------
Net cash used in investing activities (4,607) (19,581)
------ ------
Cash flows from financing activities:
Proceeds from exercise of stock options 188 1,120
Principal payments under capital lease
obligations (542) (132)
Purchase of treasury stock (5,579) ---
------ ------
Net cash (used in) provided by financing
activities (5,933) 988
Effect of exchange rate changes on cash (43) (520)
------ ------
Increase (decrease) in cash and cash
equivalents 3,642 (7,760)
Cash and cash equivalents at beginning
of year 24,845 15,592
------ ------
Cash and cash equivalents at end of period $ 28,487 $ 7,832
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995
(1) Business and Basis of Presentation
----------------------------------
Business
--------
Cheyenne Software, Inc. and its subsidiaries ("Cheyenne" or the
"Company") are engaged in the development, sale and support of
software products for use in desktop and networked personal computer
environments, including Local Area Network ("LAN") and Wide Area
Network ("WAN") 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 adjustments or accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended September 30,
1996 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1997. For further
information, refer to the financial statements and footnotes
thereto and other information included in Cheyenne's annual report
on Form 10-K for the year ended June 30, 1996.
(2) Acquisition of Intelligence Quotient International, Ltd.
--------------------------------------------------------
On July 3, 1996, Cheyenne acquired all the outstanding common stock
of Intelligence Quotient International, Ltd. ("IQ"), a developer of
open file management and partial backup technologies for NetWare and
Windows NT platforms located in the U.K., for approximately
$10,982,000 in cash, the assumption of approximately $136,000 of net
liabilities plus approximately $900,000 of related transaction
costs. The acquisition has been accounted for using the purchase
method of accounting, and accordingly, the purchase price has been
allocated to certain assets purchased and liabilities assumed,
including approximately $2,444,000 for capitalized software. The
excess of the purchase price over the fair value of the net assets
acquired of approximately $1,332,000 has been allocated to goodwill,
which will be amortized on a straight-line basis over three years.
In addition, approximately $8,241,000 has been recorded as an
expense for purchased research and development. The operating
results of IQ have been included in the consolidated statement of
earnings from the date of acquisition. The revenues and earnings of
IQ for the periods prior to the acquisition are insignificant
compared to those of Cheyenne.
(3) Acquisition of Mediatrends, Inc.
--------------------------------
On July 5, 1996, Cheyenne acquired certain assets of Mediatrends,
Inc. ("Mediatrends"), a developer of standards-based computer
telephony software technology, for approximately $1,665,000 in cash
plus $407,500 of related transaction costs. The acquisition has
been accounted for using the purchase method of accounting and the
operations of Mediatrends are included in the consolidated statement
of earnings from the date of acquisition. In connection with the
acqisition, Cheyenne recorded an expense for purchased research and
development of approximately $2,023,000. The revenues and earnings
of Mediatrends for the periods prior to the acquisition were
insignificant compared to those of Cheyenne.
(4) Acquisition of Moniker, Inc.
----------------------------
On August 9, 1996, Cheyenne acquired certain assets of Moniker, Inc.
("Moniker"), a developer of software solutions for CD technology,
for $750,000 in cash plus $75,000 of related transaction costs. The
<PAGE> 7
acquisition has been accounted for using the purchase method of
accounting and the operations of Moniker are included in the
consolidated statement of earning from the date of acquisition. In
connection with the acquisition, Cheyenne recorded an expense for
purchased research and development of approximately $798,000. The
revenues and earnings of Moniker for the periods prior to the
acquisition are insignificant compared to those of Cheyenne.
(5) Stock Repurchase
----------------
On July 19, 1996, Cheyenne announced that the Board of Directors had
reauthorized the purchase of up to 2,000,000 shares of its common
stock over the next 12 months. During Q197, the Company purchased
308,900 shares of its common stock for approximately $5,600,000, at
prices ranging from $16.62 to $19.00 per share.
(6) Subsequent Events
-----------------
On October 7, 1996, Cheyenne and Computer Associates International,
Inc. ("CA") signed an Agreement and Plan of Merger pursuant to which
a wholly-owned subsidiary of CA would acquire all of the outstanding
stock of Cheyenne at $30.50 per share through a cash tender offer
followed by a cash merger. On November 11, 1996, CA and Cheyenne
jointly announced that the offer had expired and that CA has
acquired more than 98% of the outstanding stock of Cheyenne. It is
anticipated that CA's subsidiary will be merged into Cheyenne on
November 30, 1996,at which time Cheyenne will become a wholly owned
subsidiary of CA.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
Quarter ended September 30, 1996 compared to Quarter ended September 30,
1995.
Results of Operations
- ---------------------
The following Tables 1 and 2 include a summary of each item from the
consolidated statements of earnings as a percentage of revenues. Please
refer to these tables while reading the following discussion.
<PAGE> 8
<TABLE>
TABLE 1
-------
<CAPTION>
Comparison FQ197 vs. FQ196
--------------------------
(Unaudited)
FQ197 FQ196
Amount Ratio Amount Ratio
------ ----- ------ -----
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $ 52,246 100.0% $ 38,464 100.0%
Cost of sales 9,732 18.6% 6,693 17.4
-------- ----- -------- -----
Gross profit 42,514 81.4 31,771 82.6
-------- ----- -------- -----
Operating expenses:
Research and development 7,476 14.3 5,166 13.4
Selling and marketing 16,623 31.8 11,126 28.9
General and administrative 5,441 10.4 3,277 8.5
Charge for purchased research
and development 11,061 21.2 1,636 4.3
-------- ----- -------- -----
Total operating expenses 40,601 77.7 21,205 55.1
-------- ----- -------- -----
Operating income 1,913 3.7% 10,566 27.5%
-------- ===== -------- =====
Non-operating income (expenses):
Interest income and other 553 726
Other losses (59) ---
-------- --------
Income before income taxes 2,407 11,292
Provision for income taxes 770 3,896
-------- --------
Net income $ 1,637 $ 7,396
======== ========
Net income per share $ 0.04 $ 0.19
======== ========
Weighted average number of common
shares and equivalents
outstanding 38,679 38,829
======== ========
</TABLE>
<PAGE> 9
Revenues
- --------
Cheyenne's revenues increased 35.8% in FQ197 versus FQ196 to
$52,246,000 from $38,464,000. 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, and a substantial increase in sales in North
America.
As in previous fiscal quarters, substantially all of Cheyenne's
revenues from distribution in North America are from sales to three
large distributors, the largest of which (Ingram Micro) accounted for
38.2% of North America distribution sales and 18% of total sales in
FQ197. Except for United States and Germany, no one country accounted
for more than 10% of the Company's total sales during FQ197.
Cheyenne conducts its business in Japan in Yen. Cheyenne is
therefore exposed to currency risk from exchange rate movement of the US
dollar versus the Yen. The currency risk increases as the level of
business conducted by Cheyenne in Japan grows. Cheyenne also conducts
an insignificant portion of its European business in local currency and
is subject to currency risk in these local currencies. Cheyenne does
not currently hedge against any foreign currency risk.
A breakdown of sales is shown in Table 2.
<TABLE>
TABLE 2
SOFTWARE SALES BREAKDOWN
(in thousands)
<CAPTION>
FQ197 % FQ196 %
----- - ----- -
<S> <C> <C> <C> <C>
Distribution:
North America $ 18,408 35.2% $ 12,285 32.0%
Europe 14,269 27.3 12,241 31.8
Japan 3,924 7.5 2,550 6.6
Rest of World 3,631 7.0 2,121 5.5
-------- ---- -------- ----
Total Distribution: 40,232 77.0 29,197 75.9
OEM 7,070 13.5 5,532 14.4
Major Accounts 3,114 6.0 1,296 3.3
Direct and Other(U.S.) 1,830 3.5 2,439 6.4
-------- ---- -------- ----
Total $ 52,246 100.0% $ 38,464 100.0%
======== ==== ======== ====
</TABLE>
Total distribution sales increased 37.8% in FQ197 versus FQ196,
North America Distribution sales increased 49.8%, European Distribution
sales increased 16.6%, Japan distribution sales increased 53.9%, and OEM
sales increased 27.8% (certain prior year information has been
reclassified to conform with the fiscal 1997 presentation format).
Sequentially (FQ197 versus FQ496), total distribution sales decreased
6.1%, whereas Japan distribution sales increased 30.7% and OEM sales
increased 32.3%.
The Company achieved significant sales growth in the first quarter
in its North America direct sales to major accounts. Revenues in this
category grew approximately 140.2% in FQ197 versus the comparative
quarter last year.
<PAGE> 10
In connection with the end of the quarter buying pattern discussed
below, certain distributors may purchase large amounts to obtain
rebates and incentives offered by the Company at the end of a fiscal
quarter. The level of inventory held by distributors is subject to the
strategies and performance goals of each distributor which change from
time to time. As a result, quarterly fluctuations in revenue could
occur.
Please refer to Table 1
Gross Profit
- ------------
The gross profit margin was 81.4% for FQ197 and 82.6% for FQ196.
The technical support portion of Cost of Sales decreased by 1.7% of
sales and the direct cost of production and other items increased by
about 2.2% of sales. Cheyenne has seen a decrease in gross margins over
the last 2 fiscal years due to increases in the percentages of sales
from lower priced products, which have higher costs as a percentage of
the sales price, and increases in the cost of providing technical
support.
The Company believes that providing a high level of technical
support is necessary to compete effectively and has accordingly invested
and will continue to invest in this area. Since the Company currently
receives only insignificant revenue from its technical support services,
increases in the level of technical support spending have and will
continue to affect gross profit margins. The failure of the Company to
provide high quality and cost-effective technical support also could
materially affect revenues, further decreasing gross profit, especially
in the desktop market where sale prices are lower and volumes are
expected to be higher.
The release of competitive technology or market changes may cause
Cheyenne products to become obsolete more quickly than expected. From
time to time, the Company may incur significant inventory rework costs
to modify computer software and to correct software bugs, including the
cost of replacing inventory in the distribution channel. In either
case, Cost of Sales would be increased and gross margins could be
adversely affected. Historically, this has not been a significant issue
for Cheyenne.
Research & Development Expenses ("R&D")
- ---------------------------------------
R&D expenses increased 44.7% versus FQ196. R&D as a percentage of sales
increased to 14.3% versus 13.4% 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 personnel.
The Company continues to expand its product line by developing versions
of its products to support various operating systems, including Novell
NetWare, Microsoft Windows NT, Windows 3.1 and Windows 95, certain Unix
operating systems, and other operating systems. This effort has
required significant dollar level increases in research and development.
All new products are subject to significant technical risk, based on the
complexity of the software and the required interaction with third party
hardware and software. In the past, the Company has experienced delays
in the development of new products or upgrades. Such delays may occur
in the future. There can be no assurance that significant order
deferrals in anticipation of new products or upgrades will not occur.
In addition, the Company has in the past discovered software bugs
(typical in complex software products) in released products and may have
lost revenues and customers as a result. Despite testing by the
Company, bugs may be found in the future in released products, which
could result in loss or delay of market acceptance. In such event, the
Company's business and results could be adversely affected.
Selling and Marketing Expenses
- ------------------------------
Selling and Marketing expenses increased 49.4% in FQ197 versus FQ196.
Selling and Marketing expenses increased to 31.8% of sales in FQ197
versus 28.9% last year. The dollar increase was mainly due to the
hiring of additional sales and marketing personnel, and the continuation
of Cheyennes efforts to build a sales, marketing and support
infrastructure in non-Japan Asia and South America.
<PAGE> 11
General and Administrative Expenses ("G&A")
- -------------------------------------------
G&A expenses increased 66.0% in FQ197 versus FQ196 and increased only
1.6% from FQ496. The increase from prior year is primarily due to
the reclassification of certain expenses related to MIS from R&D to G&A.
Prior periods have not been adjusted due its immateriality. In
addition, G&A expenses related to the Company s European and Asian
offices have increased 90.8% in FQ197 versus FQ196 due to the growth in
our business in those territories.
Total Operating Expenses
- ------------------------
As a result of the above items, total operating expenses increased to
$40,601,000, or a 91.5% increase over last year's comparable quarter.
Excluding the charges for Purchased Research and Development total
operating expenses increased 51.0% versus last year's comparable
quarter. Operating expenses have also generally increased due to the
Company's acquisitions, and due to the cost of the assimilation of the
sometimes geographically diverse operations and personnel of the
acquired companies. Since the Company's recent acquisitions have not
yet generated significant revenue, operating margins therefore have been
negatively affected.
Operating Income
- ----------------
Operating income, excluding the charges for Purchased Research and
Development in FQ197 and FQ196, changed from $12,974,000, or 24.8% of
sales, in FQ197 from $12,202,000, or 31.7% of sales, in FQ196. 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 margins.
Non-operating Income
- --------------------
Non-operating income decreased from $726,000 in FQ196 to $494,000 in
FQ197. Interest income decreased from $694,000 in FQ196 to $611,000 in
FQ197 due to a reduction in investments related to the Company's
purchase of its common stock and acquisitions.
Provisions for Income Taxes
- ---------------------------
The effective income tax rate on pretax earnings was 32.0% in FQ197. In
FQ296, Cheyenne realigned its operations to obtain efficiencies and to
improve cash flow. The realignment resulted in an approximate 2.5%
decrease in Cheyenne's effective tax rate from FQ196. The Company
obtains tax benefits from its Foreign Sales Corporation and tax-exempt
investment income. Generally, higher foreign income taxes compared to
prior periods offset some of the benefits described above.
Per Share Data
- --------------
The net income per share was 4 cents versus 19 cents for the comparable
quarter last year. Excluding one-time adjustments related to charges
for Purchased Research and Development, net income per share was 24
cents versus 22 cents for the comparable quarter last year.
Liquidity and Capital Resources
- -------------------------------
The Company had no debt and $77,904,000 in cash, cash equivalents and
investments as of September 30, 1996. Cash, cash equivalents and
investments decreased $7,119,000 in FQ197 from FQ496 primarily due to
the purchase of the Company's common stock and certain acquisitions.
Accounts receivable collections are about 83.1 days, versus 78.7 days
for the same period last year (calculated based on accounts receivable
balances at the end of each period). Net accounts receivable increased
<PAGE> 12
51.3% versus September 30, 1996 on a sales increase of 35.8%. One
distributor in FQ197 accounted for 18% of the Company's revenues and as
of September 30, 1996 accounted for 20.8% of outstanding net trade
accounts receivable. The loss of this customer, or any of the other
major distributors of Cheyenne's products or their failure to pay for
products purchased, could have a material adverse effect on Cheyenne's
operating results.
Capital expenditures for the three months ended September 30, 1996 were
$2,054,000 versus $3,809,000 in last year's comparable period. 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.
Management believes Cheyenne's current cash, cash equivalents and
investment positions coupled with anticipated cash flow from operations,
will be adequate to meet its anticipated cash requirements for planned
capital expenditures and operations for the next twelve months.
Cautionary Statements - Additional Important Factors to be Considered
- ---------------------------------------------------------------------
Except for the historical information and statements contained in
Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A"), the matters and items set forth in the MD&A are
forward looking statements that involve uncertainties and risks some of
which are discussed below, including under the caption "Cautionary
Statements - Additional Important Factors to be Considered."
End of Quarter Sales. Historically, a high portion of Cheyenne's
sales have been completed in the last few weeks of each fiscal quarter,
in part because customers are able, or believe that they are able, to
negotiate lower prices and more favorable terms. Cheyenne's competitors
also frequently offer end of the quarter purchase incentives, which
Cheyenne cannot control and which could affect purchases of Cheyenne
products. If Cheyenne determines not to negotiate more favorable terms
at the end of any fiscal quarter, as it has previously done, or expected
sales do not occur, revenues could be adversely affected. Consistent
with its history, Cheyenne received and fulfilled a significant portion
of its FQ197 sales in the last weeks of FQ197 and offered certain of its
distributors and other customers incentives to make purchases at the end
of FQ197. If these customers do not sell through such products at
sufficient levels, reorders and sales in subsequent quarters could be
adversely affected.
Furthermore, this buying pattern results in a significant level of
orders to be processed and fulfilled at the end of each fiscal quarter.
The Company's worldwide order entry system is centralized in New York,
while most orders are fulfilled from a third party production facility
in another state. The inability of the Company to process and fulfill
end of the quarter orders due to time constraints, communication
problems, operational difficulties or factors beyond its control like
electrical problems and weather related shutdowns could have an adverse
effect on revenues in any fiscal quarter. The Company recently began to
upgrade its information management systems in an effort to realize
operational efficiencies and to facilitate future growth. The Company's
operations have been, and may continue to be, disrupted in connection
with the transition to the new system.
Cheyenne's Common Stock. There is no assurance that Cheyenne will
continue to satisfy the listing requirements of the American Stock
Exchange or that there will be a viable market for Cheyenne common stock
after November 8, 1996.
<PAGE> 13
Volatility of Future Results. There are a number of factors and
risks, some beyond Cheyenne's control, which will also affect future
operating results, and increase the volatility of Cheyenne's common
stock, including, without limitation: the ability of Cheyenne to timely
develop, introduce and market new products and upgrades which contain
the functionality expected by customers; the success of the Company's
sales and marketing programs; technological shifts and changes in the
storage management market and the other markets of the Company; the mix
of sales among Cheyenne's various channels, which compete against each
other and result in different gross margins to the Company; deferral or
cancellation of orders in anticipation of new products or upgrades;
personnel changes; general economic factors in the worldwide markets
where Cheyenne products are sold; receipt and fulfillment of expected
orders; the size and timing of significant orders; the level and timing
of returns and exchanges; changes in general business conditions and
seasonality; the growth in computer networking; market volatility
related to the competition between Novell, Microsoft and other network
operating system vendors and other factors; the ability of Cheyenne to
expand successfully into the Windows NT, Unix, Desktop, GroupWare,
Internet and Firewall markets; the ability of Cheyenne to expand
successfully into new geographic regions; the maintenance and expansion
of strategic partnerships; the effectiveness of price and other
competition faced by Cheyenne which has increased over recent periods;
the market acceptance of new products and the timing of such acceptance;
the successful establishment of fee-based technical support; changes in
distributors' and other customers' buying patterns; changes in the
Company's and the industry's sales practices; one-time events and other
factors which may disrupt the Company's business.
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) 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 of the Company between
January 24, 1994 and 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 In Re Cheyenne Software, Inc. Securities
Litigation. On March 8, 1995, plaintiffs filed an Amended Complaint.
On April 16, 1996, the Court certified a class of investors who
purchased Cheyenne's common stock between January 24, 1994 and June 7,
1994. Notification of the members of that class is pending. On May 13,
1996, the Court granted in part and denied in part, the defendants'
Motion to Dismiss certain of the claims alleged in the Amended
Complaint. The Court has lifted the stay of discovery that it had
imposed pending a ruling on the Motion to Dismiss.
The defendants deny any and all liability and intend to vigorously
defend against the claims. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for any
liability that may result upon adjudication has been recognized by the
Company.
2) 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. An Amended
Complaint was filed on or about October 14, 1994. The lawsuit,
purportedly filed derivatively on behalf of the Company, names as
defendant six 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.
<PAGE> 14
On February 16, 1995, defendants moved to dismiss the Amended
Complaint on grounds that (1) the plaintiff failed to comply with the
pleading and demand requirements of a derivative action and (2) the
pleadings failed to state a claim upon which relief may be granted. On
November 4, 1996, defendants filed their opening brief in support of
their motion to dismiss.
The Delaware General Corporation Law requires that, to maintain a
derivative action on behalf of a company, the stockholder must be and
remain a stockholder throughout the course of the litigation. Upon
consummation of the Merger, plaintiff (and other stockholders of the
Company other than Computer Associates) will cease to be a stockholder
of the Company, and therefore will lack standing to pursue the action.
Defendants therefore intend to make a motion to dismiss this suit
promptly following consummation of the Merger.
The defendants deny any and all liability and intend to vigorously
defend against the claims.
3) 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.
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 intends to continue cooperating fully with the SEC.
4) Beier v. Cheyenne Software, Inc., et al.
Master File No. 95 Civ. 2275 (DRH)
On or about September 26, 1995, a Complaint was filed in the
United States District Court for the Eastern District of New York
against the Company and one of its officers alleging fraudulent and
negligent misrepresentation. The plaintiff alleges that
misrepresentations were made to him by one of the Company s officers in
connection with the plaintiffs investment decision in Cheyenne's common
stock in June, 1994. The Company s motion to consolidate this action
with In Re Cheyenne Software, Inc. Securities Litigation described above
was recently denied. On January 26, 1996, the Company served a Motion
to Dismiss all of the claims alleged in the Complaint. On September 6,
1996, the Complaint was dismissed in its entirety, with leave to amend.
The plaintiff has not timely filed an amended complaint and has advised
the Company that it will not seek an extension of time to do so.
5) Certain Other Purported Class Action Lawsuits
The Company and members of the Company s Board of Directors have
been named in (five) purported class action lawsuits filed in April 1996
in the Delaware Court of Chancery that allege that the Company's Board
of Directors breached their fiduciary duties by rejecting a request of
McAfee Associates, Inc. ("McAfee") to negotiate a merger of the Company
and McAfee. On October 18, 1996, one of the purported class action
lawsuits was amended to allege that the Company s directors breached
their fiduciary duties by agreeing to the proposed transaction with CA.
On November 7, 1996, the Delaware Chancery Court denied a motion by such
plaintiffs to preliminary enjoin consummation of the offer by CA. In
the view of the Company's management, these lawsuits are without merit
and, based upon the information available at this time, the outcome of
these lawsuits is not expected to have a material adverse effect on the
results of operations and financial condition of the Company.
Adverse decisions or settlements may occur in one or more of the
above actions. While the final resolution of these actions,
individually or in the aggregate, are not expected to have a material
adverse effect on the financial position of the Company, it is possible
that the Company s future results of operations or cash flows could be
materially adversely affected in future periods.
Item 2. Changes in Securities
Not applicable.
<PAGE> 15
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURE
- ---------
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.
CHEYENNE SOFTWARE, INC.
Date: November 14, 1996 By: /s/ Peter Schwartz
-------------------------
Peter Schwartz
Vice President and Treasurer
(Principal Financial Officer)
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