<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 October 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: 16,780,415 SHARES OUTSTANDING AS OF OCTOBER 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 three and nine months ended October 31, 1996, are not
necessarily indicative of the results to be expected for the entire year.
2
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WIND RIVER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
------------------------------ -----------------------------
1996 1995 1996 1995
------------ ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Product $ 12,297 $ 7,995 $ 31,527 $ 21,029
Services 4,303 3,405 12,673 9,171
----------- ----------- ----------- -----------
Total revenues 16,600 11,400 44,200 30,200
----------- ----------- ----------- -----------
Costs and expenses:
Cost of product 1,126 797 3,461 2,220
Cost of services 1,676 1,550 4,981 3,970
Selling and marketing 6,133 4,369 17,039 12,538
Product development and engineering 1,883 1,410 5,391 3,977
General and administrative 1,224 831 3,375 2,406
----------- ----------- ----------- -----------
Total costs and expenses 12,042 8,957 34,247 25,111
----------- ----------- ----------- -----------
Operating income 4,558 2,443 9,953 5,089
----------- ----------- ----------- -----------
Other income (expense):
Interest income 872 192 1,315 580
Interest expense - (137) - (161)
Minority interest in consolidated subsidiary
and other (37) - (95) 11
----------- ----------- ----------- -----------
Total other income 835 55 1,220 430
----------- ----------- ----------- -----------
Income before income taxes 5,393 2,498 11,173 5,519
Provision for income taxes 1,933 961 4,153 2,109
----------- ----------- ----------- -----------
Net income $ 3,460 $ 1,537 $ 7,020 $ 3,410
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $ 0.19 $ 0.10 $ 0.41 $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares 18,657 15,678 17,045 15,399
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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WIND RIVER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1996 1996
-------------- ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Currents assets:
Cash $ 6,042 $ 9,205
Short-term investments 57,809 20,632
Accounts receivable, net of allowance for
doubtful accounts of $487 and $378,
respectively 11,734 9,216
Prepaids and other current assets 2,888 1,108
------------ -------------
Total current assets 78,473 40,161
Investments 27,645 -
Equipment and furniture, net of
accumulated depreciation of $6,604 and $5,048,
respectively 7,280 4,059
Computer software development costs, net of
accumulated amortization of $2,232 and $1,782,
respectively 798 721
Deposits and prepaid assets 538 539
------------ -------------
$ 114,734 $ 45,480
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,065 $ 1,345
Accrued liabilities 3,603 2,374
Accrued compensation 3,582 2,642
Accrued taxes 3,552 1,271
Deferred tax liabilities, net 535 498
Deferred software support and development revenue 4,269 4,214
------------ -------------
Total current liabilities 16,606 12,344
Deferred rent 130 116
------------ -------------
Total liabilities 16,736 12,460
------------ -------------
Minority interest in consolidated subsidiary 304 207
------------ -------------
Stockholders' equity:
Common stock, par value $.001, 75,000 and
20,000 shares authorized, respectively,
16,780 and 14,117 shares issued, respectively,
and 16,705 and 13,892 shares outstanding,
respectively 17 14
Additional paid in capital 82,975 24,800
Cumulative translation adjustments (535) (74)
Retained earnings 18,358 11,338
Less treasury stock, 75 and 225 shares, at cost,
respectively (3,121) (3,265)
------------ -------------
Total stockholders' equity 97,694 32,813
------------ -------------
$ 114,734 $ 45,480
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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WIND RIVER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
----------------------------------------
1996 1995
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,020 $ 3,410
Adjustments to reconcile net income to
net cash provided (used) by operations:
Depreciation 1,556 1,056
Amortization of capitalized software 450 270
Deferred rent 14 (18)
Deferred income taxes 37 (414)
Minority interest in consolidated subsidiary 97 (21)
Change in assets and liabilities:
Accounts receivable (2,518) 5,630
Prepaids and other current assets (1,779) 370
Accounts payable and accrued liabilities 949 242
Accrued compensation 940 150
Accrued taxes 2,281 -
Deferred revenue 55 (499)
---------- -----------
Net cash provided by operating activities 9,102 10,176
---------- -----------
Cash flows from investing activities:
Capital expenditures (4,777) (1,548)
Capitalized computer software development costs (527) (375)
Sales of investments 50,743 -
Purchases of investments (115,565) (3,550)
---------- -----------
Net cash used in investing activities (70,126) (5,473)
---------- -----------
Cash flows from financing activities:
Payments of bank and lease line-of-credit
obligations - (156)
Issuance of common stock 55,840 1,987
Purchases of treasury stock (7,050) (1,889)
Sales of treasury stock 9,532 -
---------- -----------
Net cash provided (used) by financing
activities 58,322 (58)
---------- -----------
Effect of exchange rate changes on cash (461) (156)
---------- -----------
Net increase (decrease) in cash (3,163) 4,489
Cash and cash equivalents at beginning of period 9,205 3,964
---------- -----------
Cash and cash equivalents at end of period $ 6,042 $ 8,453
---------- -----------
---------- -----------
Supplemental disclosures of cash flow information:
Cash paid for interest - $ 15
---------- -----------
---------- -----------
Cash paid for income taxes $ 2,421 $ 1,292
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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WIND RIVER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDING OCTOBER 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 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.
Certain reclassifications have been made to prior year balances to conform to
current classifications.
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
The Company repurchased and held as treasury stock 75,000 shares at a cost of
$1.5 million, 75,000 shares at a cost of $2.4 million, and 75,000 shares at a
cost of $3.1 million in the first, second and third quarters of fiscal year
1997, respectively.
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 document
have been adjusted to give effect to the stock split.
6
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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
THREE MONTHS AND NINE MONTHS OF FISCAL YEAR 1997 COMPARED
TO THREE MONTHS AND NINE MONTHS OF FISCAL YEAR 1996
REVENUES
Total revenues increased 46% to $16.6 million for the third quarter of fiscal
year 1997 from $11.4 million in the third quarter of fiscal year 1996.
Comparing nine-month results for the same fiscal years, total revenue
increased the same percentage to $44.2 million from $30.2 million. Product
revenue increases of $4.3 million and $10.5 million for the three- and
nine-month periods, respectively, resulted primarily from incremental
increases in revenue from run-time licenses and continued advancement in
market acceptance of the Company's flagship product, Tornado.
Service revenues for the third quarter of fiscal year 1997 increased $0.9
million, which represents an increase of 26% over the comparable quarter in
fiscal year 1996. For the first nine months of fiscal year 1997, service
revenues increased $3.5 million, or 38%, over the comparable period in fiscal
year 1996. Increases in service revenues were due to an increased number of
customers under maintenance agreements and to increases in consulting and
custom software design services.
7
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COSTS AND EXPENSES
The overall cost of products and services as a percentage of total revenues
decreased to 17% in the third quarter of fiscal year 1997 from 21% in the
same period of fiscal year 1996. This decrease was primarily the result of an
increase in product revenues as a percentage of total revenues.
Selling and marketing expenses in the third quarter of fiscal 1997 decreased
as a percentage of revenues to 37% from 38% in the third quarter of fiscal
1996. These expenses also decreased as a percentage of revenues in the first
nine months of fiscal 1997 to 39% from 42% in the first nine months of fiscal
year 1996. However, in gross dollars, selling and marketing expenses
increased $1.8 million in the third quarter, and increased $4.5 million in
the first nine months of fiscal years 1997 over the comparable periods in the
prior year. 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, decreased slightly as a percentage of revenues. These
expenses were 11% and 12% for the third quarter of fiscal years 1997 and
1996, respectively, and 12% and 13% for the first nine months of the same
fiscal years, respectively. In gross dollars, product development and
engineering expenses increased $0.5 million in the third quarter of fiscal
year 1997 over the comparable quarter of fiscal year 1996. The same expenses
increased $1.4 million for the nine-month period of fiscal year 1997 over the
comparable period in 1996. The Company believes it will continue to 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
8
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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 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 October 31, 1996, the Company had working capital in excess of $61
million, and approximately $64 million in cash and short-term investments.
The Company also had long-term investments in excess of $27 million.
Capital expenditures increased $1.8 million in the first nine months of
fiscal year 1997 over the comparable period in 1996. The Company continued
to invest in capital resources in order to support its revenue growth.
The Company repurchased and held as treasury stock 75,000 shares at a cost of
$1.5 million, 75,000 shares at a cost of $2.4 million, and 75,000 shares at a
cost of $3.1 million in the first, second and third quarters of fiscal year
1997, respectively.
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 document
have been adjusted to give effect to the stock split.
Management believes that the Company's working capital, cash flow
9
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generated from operations, and borrowing capacity are sufficient to meet its
working capital requirements for planned expansion, product development and
capital expenditures through fiscal 1998.
10
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PART II - OTHER INFORMATION
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
October 31, 1996.
No other items.
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: December 16, 1996 RICHARD W. KRABER
----------------------------------
Richard W. Kraber
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 6,042
<SECURITIES> 57,809
<RECEIVABLES> 12,221
<ALLOWANCES> 487
<INVENTORY> 0
<CURRENT-ASSETS> 78,473
<PP&E> 13,884
<DEPRECIATION> 6,604
<TOTAL-ASSETS> 114,734
<CURRENT-LIABILITIES> 16,606
<BONDS> 0
0
0
<COMMON> 82,992
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 114,734
<SALES> 12,297
<TOTAL-REVENUES> 16,600
<CGS> 2,802
<TOTAL-COSTS> 12,042
<OTHER-EXPENSES> 37
<LOSS-PROVISION> 68
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,393
<INCOME-TAX> 1,933
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,460
<EPS-PRIMARY> 0
<EPS-DILUTED> .19
</TABLE>
