<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 July 31, 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 0-21342
WIND RIVER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2873391
(State of incorporation) (I.R.S. Employer Identification No.)
1010 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501
(Address of principal executive office)
(510) 748-4100
(Telephone number)
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
-------- ---------
Indicate the number of shares outstanding of each of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK: 16,485,487 SHARES OUTSTANDING AS OF JULY 31, 1996
<PAGE>
WIND RIVER SYSTEMS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying financial information is unaudited but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary for a fair presentation of the results for the periods
shown. The unaudited financial statements and analyses should be read in
conjunction with the audited financial statements and notes thereto for the year
ended January 31, 1996 included in the Form 10-K Annual Report previously filed
with the Securities and Exchange Commission.
The results for the quarter ended July 31, 1996, are not necessarily indicative
of the results to be expected for the entire year.
2
<PAGE>
WIND RIVER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Product $10,700 $ 7,002 $19,231 $13,034
Services 4,300 3,098 8,369 5,766
------- ------- ------- -------
Total revenues 15,000 10,100 27,600 18,800
------- ------- ------- -------
Costs and expenses:
Cost of product 1,246 749 2,335 1,423
Cost of services 1,744 1,233 3,305 2,420
Selling and marketing 5,767 4,234 10,906 8,169
Product development and engineering 1,913 1,332 3,508 2,567
General and administrative 1,133 819 2,151 1,575
------- ------- ------- -------
Total costs and expenses 11,803 8,367 22,205 16,154
------- ------- ------- -------
Operating income 3,197 1,733 5,395 2,646
------- ------- ------- -------
Other income (expense):
Interest income 263 196 464 388
Interest expense (8) (11) (19) (24)
Minority interest in consolidated subsidiary and other (62) 28 (60) 11
------- ------- ------- -------
Total other income 193 213 385 375
------- ------- ------- -------
Income before income taxes 3,390 1,946 5,780 3,021
Provision for income taxes 1,300 739 2,220 1,148
------- ------- ------- -------
Net income $ 2,090 $ 1,207 $ 3,560 $ 1,873
------- ------- ------- -------
------- ------- ------- -------
Net income per share $ 0.13 $ 0.08 $ 0.22 $ 0.12
------- ------- ------- -------
------- ------- ------- -------
Weighted average common and common equivalent shares 16,485 15,456 16,239 15,261
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
WIND RIVER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1996 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash $ 7,484 $ 9,205
Short-term investments 57,240 20,632
Accounts receivable, net of allowance for
doubtful account of $473 and $378, respectively 10,526 9,216
Prepaids and other current assets 1,298 1,108
----------- -----------
Total current assets 76,548 40,161
Investments 27,676 0
Equipment and furniture, net
accumulated depreciation of $5,977 and $5,048,
respectively 6,107 4,059
Computer software development costs, net of
accumulated amortization of $2,095 and $1,782,
respectively 768 721
Deposits and prepaid assets 718 539
----------- -----------
$111,817 $45,480
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,211 $ 1,345
Accrued liabilities 3,464 2,374
Accrued compensation 2,911 2,642
Accrued taxes 1,650 1,271
Deferred tax liabilities, net 484 498
Deferred software support and development revenue 5,077 4,214
----------- -----------
Total current liabilities 14,797 12,344
Deferred rent 128 116
----------- -----------
Total liabilities 14,925 12,460
----------- -----------
Minority interest in consolidated subsidiary 273 207
----------- -----------
Stockholders' equity:
Common stock, par value $.001, 75,000 and
20,000 shares authorized, respectively,
16,556 and 14,117 shares issued, respectively,
and 16,556 and 13,892 shares outstanding,
respectively 17 9
Additional paid in capital 82,123 24,805
Cumulative translation adjustments (419) (74)
Retained earnings 14,898 11,338
Less treasury stock, 0 and 225 shares, at cost,
respectively 0 (3,265)
----------- -----------
Total stockholders' equity 96,619 32,813
----------- -----------
$111,817 $45,480
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
WIND RIVER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
-------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,560 $ 1,873
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation 929 721
Amortization of capitalized software 313 180
Deferred rent 12 (13)
Deferred income taxes (14) 249
Minority interest in consolidated subsidiary 66 (21)
Change in assets and liabilities:
Accounts receivable (1,310) 4,410
Prepaids, deposits and other (369) 317
Accounts payable and accrued liabilities 956 124
Accrued compensation 269 (61)
Accrued taxes 379 (400)
Deferred revenue 863 (612)
----------- -----------
Net cash provided (used) by operating
activities 5,654 6,767
----------- -----------
Cash flows from investing activities:
Capital expenditures (2,977) (1,188)
Capitalized computer software development costs (360) (260)
Purchase of investments (64,284) 0
----------- -----------
Net cash used in investing activities (67,621) (1,448)
----------- -----------
Cash flows from financing activities:
Payments of bank and lease line-of-credit
obligations 0 (124)
Issuance of common stock 54,988 1,158
Purchase of treasury stock (3,929) 0
Sales of treasury stock 9,532 (286)
----------- -----------
Net cash provided by financing activities 60,591 748
----------- -----------
Effect of exchange rate changes on cash (345) 353
----------- -----------
Net increase (decrease) in cash (1,721) 6,420
Cash and cash equivalents at beginning of period 9,205 20,851
----------- -----------
Cash and cash equivalents at end of period $ 7,484 $ 27,271
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 3 $ 11
----------- -----------
----------- -----------
Cash paid for income taxes $ 2,286 $ 776
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
WIND RIVER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING JULY 31, 1996 AND 1995, UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with the rules and regulations of the Securities and Exchange
Commission, the preceding unaudited financial statements omit or condense
certain information and footnote disclosure normally required for complete
financial statements prepared in accordance with generally accepted accounting
principles.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding. Dilutive common equivalent
shares are calculated using the treasury stock method and consist of common
stock issuable upon the exercise of stock options and warrants.
3. ISSUANCE OF COMMON STOCK
In July 1996, the Company sold in a public offering, 2,095,000 newly issued
shares and 375,000 shares held as treasury stock, at a price of $27.00 per share
in connection with an offering of the Company's common shares. The net proceeds
to the Company, after the issuance costs, were approximately $62.8 million, and
will be used for general corporate purposes.
On May 24, 1996, the Company effected a three-for-two stock split by means of a
stock dividend payment, with respect to all of the Company's Common Stock
outstanding on May 10, 1996. All share numbers and prices in this report have
been adjusted to give effect to the stock dividend.
6
<PAGE>
WIND RIVER SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the following discussion
may contain forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as in the Company's Form
10-K Annual Report for the fiscal year ended January 31, 1996 and its
Registration Statement on Form S-3 (Securities and Exchange Commission file No.
333-06169).
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 1997 COMPARED TO THE SECOND QUARTER OF FISCAL 1996
REVENUES
Total revenues of $15.0 million for the second quarter of fiscal 1997 increased
49% over revenues of $10.1 million in the second quarter of fiscal 1996.
Product revenue increases of $3.7 million, which represents an increase of 53%,
resulted primarily from increased product sales generated by the addition of
sales representatives since the second quarter of fiscal year 1996 and
increasing market acceptance of the Company's new flagship product, Tornado.
Increases in service revenues for the second quarter of fiscal 1997 compared to
the second quarter of fiscal 1996 amounting to approximately $1.2 million, which
represents an increase of 39%, were due to an increased number of customers
under maintenance agreements and to increases in consulting and custom software
design services.
7
<PAGE>
COSTS AND EXPENSES
The overall cost of products and services as a percentage of total revenues was
consistent at 20% for both the second quarter of fiscal year 1996 and the same
period for fiscal year 1997.
Selling and marketing expenses decreased as a percentage of sales from 42% in
the second quarter of fiscal 1996 to 39% in the second quarter of fiscal 1997.
However, in gross dollars, selling and marketing expenses for the same periods
increased $1.5 million. The decrease in the percentage was due to revenue
increasing at a faster rate than sales and marketing costs. The increase in
overall dollar costs resulted primarily from increases in sales personnel and
increases in marketing and advertising programs. The Company has expanded
geographical efforts which include a new distributor agreement in China and
branch offices in Italy and Korea. Management expects to continue investing
heavily in sales and marketing over the current year to expand its customer base
and introduce new products.
Product development and engineering expenses, which consist primarily of
personnel costs, were consistent as a percentage of sales at 13% for the second
quarters of both fiscal years 1996 and 1997; however, in gross dollars, product
development and engineering expenses for the same periods increased $0.6
million. The Company believes it will be necessary to make significant
investments in engineering and product development for the foreseeable future.
SIX MONTHS YEAR-TO-DATE COMPARED TO PRIOR SIX MONTHS YEAR-TO-DATE
REVENUES
Total revenues for the first half of fiscal 1997 of $27.6 million increased 47%
over revenues of $18.8 million in the first half of fiscal 1996. Product
revenues increases of $6.2 million, which represents an increase of 48%,
resulted primarily from the increase in sales and marketing activities generated
by the addition of sales representatives since the second quarter of fiscal year
1996 and increasing market acceptance of the Company's new flagship product,
Tornado.
8
<PAGE>
Increases in service revenues for the first half of fiscal 1997 compared to the
first half of fiscal 1996 amounting to approximately $2.6 million, which
represents an increase of 45%, were due to an increased number of customers
under maintenance agreements and to increases in consulting and custom software
design services.
COSTS AND EXPENSES
The overall cost of products and services as a percentage of total revenues was
consistent at 20% for both first halves fiscal years 1996 and 1997.
Selling and marketing expenses decreased as a percentage of sales from 43% in
the second of quarter of fiscal 1996 to 40% in the first half of fiscal 1997.
However, in gross dollars, selling and marketing expenses for the same periods
increased $2.7 million. The decrease in the percentage was due to revenue
increasing at a faster rate than sales and marketing costs. The increase in
overall dollar costs resulted primarily from increases in sales personnel and
commissions and increases in marketing and advertising programs. The Company has
expanded geographical efforts which include a new distributor agreement in China
and branch offices in Italy and Korea. Management expects to continue investing
heavily in sales and marketing over the current year to expand its customer base
and successfully introduce new products.
Product development and engineering expenses, which consist primarily of
personnel costs, decreased slightly as a percentage of sales from 14% to 13% for
first half of fiscal year 1996 and 1997, respectively; however, in gross
dollars, product development and engineering expenses for the same periods
increased $0.9 million. The decrease in percentage is due to revenue increasing
at a higher rate than engineering expenses. The Company believes it will be
necessary to make significant investments in engineering and product development
for the foreseeable future.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company typically charges a one-time fee for a development license and a
run-time license fee for each copy of the Company's operating system embedded in
the customer's product. A key component of the Company's strategy is to
increase revenue through run-time license fees. Any increase in the percentage
of revenues attributable to run-time licenses will depend on the Company's
successful negotiation of run-time license agreements and on the successful
commercialization by the Company's customers of the underlying products. In
addition, the Company has experienced significant period-to-period fluctuations
in revenues and operating results and anticipates that such
9
<PAGE>
fluctuations will continue. These fluctuations have been caused by a number of
factors, including customer buying patterns, product development cycles, delays
in shipments of new products and the timing of significant sales of the
Company's products.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations may not be meaningful and should not be
relied upon as an indication of future performance. It is likely that, in some
future quarters, the Company's operating results will be below the expectations
of stock market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1996, the Company had working capital in excess of $61 million, and
approximately $65 million in cash and short-term investments.
In the first quarter of fiscal year 1997, the Company repurchased and held as
treasury stock 75,000 shares at a cost of $1.5 million. On May 24, 1996, the
Company effected a three-for-two stock split by means of a stock dividend
with respect to all of the Company's Common Stock outstanding on May 10,
1996. All share numbers and prices in this report have been adjusted to give
effect to the stock dividend.
In the second quarter of fiscal year 1997, the Company repurchased and held as
treasury stock 75,000 shares at a cost of $2.4 million. In July 1996, 375,000
shares of treasury stock were sold as part of a public offering.
Management believes that the Company's working capital, cash flow generated from
operations and borrowing capacity are sufficient to meet its working capital
requirements for planned expansion, product development and capital expenditures
through fiscal 1997.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual meeting of Stockholders held July 23, 1996, the stockholders
elected directors of the Company with the following nominees receiving the votes
indicated:
Name For Withheld
- ---- --- --------
Jerry L. Fiddler 11,964,336 91,401
Ronald A. Abelmann 11,964,336 91,401
David Wilner 11,964,336 91,401
William B. Elmore 11,964,336 91,401
David B. Pratt 11,964,336 91,401
The stockholders approved an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock from
20,000,000 shares to 75,000,000 shares by a vote of 9,710,902 for, 2,207,724
against, 30,911 abstaining, and 1,314,584 broker non-votes.
The stockholders approved the Company's amended and Restated 1987 Equity
Incentive Plan, as amended to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 1,350,000 shares by a
vote of 7,787,290 for, 2,181,517 against, 26,045 abstaining, and 3,269,269
broker non-votes.
The stockholders ratified the selection of Price Waterhouse LLP as independent
auditors of the Company for its fiscal year ending January 31, 1997 by a vote of
12,033,774 for, 2,437 against, and 19,526 abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - none
(b) No reports on form 8-K have been filed for the quarter ended July 31,
1996.
No other items.
11
<PAGE>
SIGNATURE
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto authorized.
WIND RIVER SYSTEMS, INC.
Date: September 16, 1996 RICHARD W. KRABER
----------------------------------------
Richard W. Kraber
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 7484
<SECURITIES> 57240
<RECEIVABLES> 10999
<ALLOWANCES> 473
<INVENTORY> 0
<CURRENT-ASSETS> 76548
<PP&E> 12084
<DEPRECIATION> 5977
<TOTAL-ASSETS> 111817
<CURRENT-LIABILITIES> 14797
<BONDS> 0
0
0
<COMMON> 82140
<OTHER-SE> 14479
<TOTAL-LIABILITY-AND-EQUITY> 111817
<SALES> 10700
<TOTAL-REVENUES> 15000
<CGS> 2990
<TOTAL-COSTS> 11803
<OTHER-EXPENSES> 62
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 3390
<INCOME-TAX> 1300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2090
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.13
</TABLE>
