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 June 30, 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 0-18090
CAERE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2250509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Cooper Court, Los Gatos, California, 95030
(Address of principal executive offices)
(408) 395-7000
(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock.
Outstanding
Class June 30, 1995
Common Stock
$.001 par value 13,206,378
This is page 1 of 13 pages
<PAGE>
<TABLE>
<CAPTION>
CAERE CORPORATION
INDEX
PART I. Financial Information
<S> <C> <C>
Page
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1995
and December 31, 1994 3
Condensed Consolidated Statements of Earnings -- Three Months
and Six Months Ended June 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Exhibit 11 Statement Regarding Computation of Net Earnings
Per Share 11
PART II. Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CAERE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30, December 31,
1995 1994
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,588 $ 3,995
Short-term investments 42,122 47,104
Receivables 7,198 6,040
Income tax receivable 1,100 --
Inventories (Note B) 2,304 2,555
Other current assets 3,747 3,459
--------- ---------
Total current assets 66,916 63,153
Property and equipment, net 5,559 3,615
Other assets 1,298 1,134
--------- ---------
Total assets $ 66,916 $ 67,902
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other payables $ 6,240 $ 7,882
Accrued merger related costs 970 2,267
--------- ---------
Total current liabilities 7,210 10,149
Preferred stock, $.001 par value: authorized 2,000,000
shares; none issued or outstanding -- --
Common stock, $.001 par value: authorized 30,000,000
shares; issued and outstanding 13,206,378 and 13,046,419
shares 13 13
Additional paid-in capital 61,295 60,597
Notes receivable from stockholders (400) (400)
Accumulated deficit (1,202) (2,457)
--------- ---------
Total stockholders' equity 59,706 57,753
--------- ---------
Total liabilities and stockholders' equity $ 66,916 $ 67,902
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 13,172 $ 13,540 $ 25,396 $ 25,293
Cost of revenues 4,040 3,882 7,582 7,325
-------- -------- -------- --------
9,132 9,658 17,814 17,968
-------- -------- -------- --------
Operating expenses:
Research and development 2,159 2,507 4,483 4,956
Selling, general and
administrative 6,360 6,553 12,591 12,934
Merger related costs 297 -- 297 --
8,816 9,060 17,371 17,890
-------- -------- -------- --------
Operating earnings 316 598 443 78
Interest income 495 307 1,033 594
Earnings before income taxes 811 905 1,476 672
Income tax expense 55 287 221 213
Net earnings $ 756 $ 618 $ 1,255 $ 459
======== ======== ======== ========
Net earnings per common and
common equivalent share (Note C) $ 0.06 $ 0.05 $ 0.09 $ 0.04
======== ======== ======== ========
Shares used in per share calculation 13,385 12,851 13,556 12,929
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,255 $ 459
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,038 1,010
Merger related costs (1,297) --
Amortization of capitalized software development costs 309 240
Changes in operating assets and liabilities:
Receivables (1,158) 2,342
Income tax receivable (1,100) 1,002
Inventories 251 (737)
Other current assets (288) 57
Accrued expenses and other payables (1,642) 252
-------- --------
Net cash provided by (used for) operations (2,632) 4,625
-------- --------
Cash flows from investing activities:
Short-term investments, net 4,982 8,009
Capital expenditures (2,879) (427)
Capitalized software development costs (240) (240)
Other assets (336) 60
-------- --------
Net cash provided by investing activities 1,527 7,402
-------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock 698 188
-------- --------
Net increase (decrease) in cash and cash equivalents (407) 12,215
Cash and cash equivalents, beginning of period 3,995 20,671
-------- --------
Cash and cash equivalents, end of period $ 3,588 $ 32,886
======== ========
Supplemental disclosures:
Cash paid for income taxes $ 596 $ 544
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
CAERE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A) Basis of Presentation
The accompanying unaudited condensed consolidated balance sheets,
statements of earnings and statements of cash flows reflect all adjustments
(consisting of only normal recurring adjustments) which are, in the opinion of
management, necessary to present the financial position of the Company as of
June 30, 1995, and the results of operations and cash flows for the periods
indicated.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions for Form 10-Q and
therefore certain information and footnote disclosure normally contained in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company filed audited financial
statements with the Securities and Exchange Commission which included all
information and footnotes necessary for a complete presentation of the Company's
financial position, results of operations and cash flows for the years ended
December 31, 1994, 1993 and 1992, in its report on Form 10-K for the year ended
December 31, 1994 ("the Form 10-K"). It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements contained in the Company's Form 10-K dated March 24, 1995. The
results of operations for the interim periods ended June 30, 1995, are not
necessarily indicative of the results to be expected for the full year.
B) Inventories June 30, 1995 December 31, 1994
------------ ------------- -----------------
(In thousands)
A summary of inventories follows:
Raw materials $1,256 $1,235
Work in process 432 520
Finished goods 616 800
------ ------
$2,304 $2,555
====== ======
C) Net Earnings Per Share
Net earnings per common and common equivalent share are computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of options to
purchase common stock calculated using the treasury stock method. Fully diluted
earnings per share for all periods presented were not materially different from
primary earnings per share.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues
Net revenues for the second quarter of 1995 were $13,172,000 compared
to $13,540,000 for the second quarter of 1994. For the six months ending June
30,1995, net revenues were $25,396,000 compared to $25,293,000. The revenue
breakdown between Desktop Products and Business Products was as follows:
<TABLE>
<CAPTION>
Second Quarter Year to Date
<S> <C> <C> <C> <C>
1995 1994 1995 1994
------ ------ ------ ------
Business Products 1,836 1,557 3,492 3,315
Desktop Products 11,336 11,983 21,904 21,978
------ ------ ------ ------
Total 13,172 13,540 25,396 25,293
====== ====== ====== ======
</TABLE>
The decrease in Desktop Products revenue for both the second quarter of 1995 and
the six months ending June 30,1995, was caused by the continuing shift in the
business model brought about by the bundling of OCR software with scanners. The
effect of this shift is to lower the average unit selling price for the OmniPage
and WordScan lines of software. Unit sales of the bundled (OEM) and upgrade
versions of the OmniPage and WordScan lines were up approximately 250% during
the second quarter of 1995 compared to the second quarter of 1994. During the
same period, unit sales for fully priced retail versions of Desktop Products
software, which consist of the OmniPage, WordScan, PageKeeper, and OmniForm
products, decreased approximately 16%. The Company expects that this trend in
the business model will continue throughout 1995.
The increase in the Company's transaction processing Business Products net
revenues for both the second quarter and year-to-date comparisons was due
primarily to an increase in unit sales of OCR products. The Company has not
experienced any uniform seasonality patterns with these products, and quarterly
revenues fluctuate throughout the year.
Gross Margins
Gross margins were 69.3% for the second quarter, compared to 71.3% for the
second quarter of 1994. For the six-month period, gross margins were 70.1% in
1995 compared to 71.0% in 1994. The decrease in gross margins is caused by the
reduction in average selling prices of OCR software products related to the
bundling business. The primary factors affecting gross margins in the future are
likely to be continuing shifts in product mix between bundled, upgrade, and
retail software as well as changes in product mix between software and hardware
products.
The microcomputer software market has been subject to rapid changes, including
significant price competition, which can be expected to continue. Future
technology or market changes may cause certain products to rapidly become
obsolete, necessitating increased inventory write-offs or reserves and a
corresponding decrease in gross margins.
Operating Expenses
Research and Development (R&D) expense for the second quarter of 1995 was
$2,159,000, a 14% decrease compared to the second quarter of 1994 R&D expense of
$2,507,000. Included in the second quarter R&D expense was approximately
$106,000 of costs associated with the merger of the Company with Calera
Recognition Systems (Calera). The Company acquired Calera in December 1994. For
the six months ending June 30, 1995, R&D expense was down 10% to $4,483,000 from
$4,956,000 in 1994. The decrease in both the second quarter and year-to-date R&D
spending on a comparative basis was the result of synergies related to the
Calera acquisition. The Company expects to continue significant investment in
R&D during 1995.
Selling, general and administrative (SG&A) expenses decreased approximately 3%
to $6,360,000 for the second quarter of 1995 compared to $6,553,000 for the
comparable quarter of 1994. Included in SG&A for the second quarter of 1995 was
approximately $161,000 of merger-related costs for transitional employees. For
the six months ended June 30, 1995, SG&A was down 3% to $12,591,000 compared to
$12,934,000 for the same period in 1994. The decrease in 1995 SG&A for both the
second quarter and year-to-date comparisons was also a result of synergies
realized from the Calera acquisition.
In addition to the merger costs that were included in R&D and SG&A in operating
expenses during the second quarter, the Company incurred an additional
integration charge of $297,000. These merger related costs are shown as a
separate line item in operating expenses in the accompanying Statements of
Earnings. This charge included severance payments, legal, and other transactions
costs and were somewhat offset by a savings resulting from an early buyout of
the lease for the building that Calera occupied prior to the acquisition.
Interest Income
Interest income was $495,000 for the second quarter of 1995 compared to $307,000
for the second quarter of 1994. For the six months ending June 30, 1995,
interest income was $1,033,000 compared to $594,000 for the first half of 1994.
The increases were the result of higher average cash balances and higher
interest rates earned on the Company's short-term investments.
Income Taxes
The effective income tax rate for the year is expected to be approximately 15%,
based on utilization of net operating loss carryforwards assumed with the
acquisition of Calera, the Company's Foreign Sales Corporation, and the tax-free
nature of most interest earned on the Company's short-term investments . As a
result, the tax rate used for the second quarter of 1995 was adjusted to reflect
a 15% annual rate.
Net Earnings and Earnings Per Share
Net earnings increased 22% to $756,000 for the second quarter of 1995 compared
to $618,000 for the second quarter of 1994. For the six months ending June 30,
1995, net earnings increased 173% to $1,255,000 from $459,000 for the comparable
period of 1994. The primary reason for the increases was the synergy resulting
from the Calera acquisition. Earnings per share were $.06 for the second quarter
of 1995 compared to $.05 for the second quarter of 1994. For the first six
months of 1995, earnings per share were $.09 compared to $.04 for the same
period of 1994. The effect of the merger related costs commingled in R&D and
SG&A in operating expenses, along with the additional integration charge, was to
reduce earnings per share by $.03 and $.07, during the second quarter of 1995
and the six months ending June 30, 1995, respectively.
Certain Trends
The Company's future operating results may be affected by various uncertain
trends and factors beyond the Company's control. These include adverse changes
in general economic conditions, rapid or unexpected changes in the technologies
affecting optical character recognition, rising costs, or the unavailability of
needed components. The industry has become increasingly competitive, and
accordingly, the Company's results may also be adversely affected by the actions
of existing or future competitors, including the development of new
technologies, the introduction of new products, and the reduction of prices by
such competitors to gain or retain market share.
During 1994, the Company began to bundle versions of its OmniPage and WordScan
software recognition products with various scanner manufacturers. These bundled
products began shipping in quantities during the fourth quarter of 1994. While
the Company expects to aggressively market upgrade products to these customers,
and believes that these bundles will provide a greater number of scanner
purchasers with experience in the advantages of optical character recognition,
there is no assurance that the Company will be successful in this new business
model. In addition, use of the bundled products may cause deferral of the
purchase of the Company's fully priced retail version of OmniPage and WordScan
products for a period of time or may adversely impact the Company's results of
operations.
Future operating results of the Company are dependent upon the ability of the
combined Company to realize the synergies expected to result from the merger
with Calera Recognition Systems, Inc., consummated in the fourth quarter of
1994. The Company intends to seek to reduce operating costs over time by
eliminating duplicative facilities, repositioning competitive product lines, and
reducing overall the number of employees that would have otherwise been required
by each of the two companies operating separately. There can be no assurance
that these steps will reduce costs to the extent, or as quickly, as planned. The
Company anticipates that the combined revenues of the two companies after the
merger may be less than the sum of their respective revenues before the merger,
at least in the short term, as a result of potential disruption in the market
place and competitive responses to the merger.
The Company's future earnings and stock price could be subject to significant
volatility, particularly on a quarterly basis. The Company's revenues and
earnings are unpredictable due to the Company's shipment patterns. As is common
in the software industry, the Company's experience has been that a
disproportionately large percentage of shipments occur in the third month of
each fiscal quarter, and shipments tend to be concentrated in the latter half of
that month. Because the Company's backlog early in a quarter is not generally
large enough to assure that it will meet its revenue targets for any particular
quarter, quarterly results are difficult to predict until the end of the
quarter. A shortfall in shipments at the end of any particular quarter may cause
operating results for that quarter to fall significantly short of anticipated
levels. Due to analysts' expectations of continued growth, any such shortfall in
operating results could have a very significant effect on the trading price of
the Company's common stock in any given period.
As a result of the foregoing factors and other factors arising in the future,
the market price of the Company's common stock may be subject to significant
fluctuations over a short period of time. These fluctuations may be due to
factors specific to the Company, to changes in analysts' earnings estimates, or
to factors affecting the computer industry or the securities markets in general.
Liquidity and Capital Resources
The Company's financial position remains strong, with working capital of
$59,706,000 and no long-term debt. Cash and short-term investments aggregated
approximately $45,710,000 at June 30, 1995. The Company believes that existing
cash balances will be sufficient to meet its cash requirements for the
foreseeable future.
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
CAERE CORPORATION
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS PER SHARE
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
Net earnings $ 756,000 $ 618,000 $ 1,255,000 $ 459,000
=========== =========== =========== ===========
Weighted average shares outstanding during
the period 13,145,069 10,587,313 13,118,498 10,580,031
Common equivalent shares using the treasury
stock method
239,628 2,263,760 437,745 2,349,462
----------- ----------- ----------- -----------
Common and common equivalent shares
outstanding for purposes of calculating net
earnings per share
13,384,697 12,851,073 13,556,243 12,929,493
=========== =========== =========== ===========
Net earnings per common and common
equivalent share $ 0.06 $ 0.05 $ 0.09 $ 0.04
=========== =========== =========== ===========
</TABLE>
<PAGE>
Item 4
Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on May 5,
1995
(b) Management's nominees to the Board of Directors of Class III Directors
(for a three-year term expiring at the 1998 Annual Meeting) were
elected by the following votes:
For Withhold
Robert Teresi (Class III) 11,099,440 116,878
Wayne Rosing (Class III) 11,074,208 142,110
The following are persons whose term of office as Directors of the
Company continued after the meeting:
Director Class Term Expires
Sidney S. Kahn I 1996
James K. Dutton II 1997
Frederick W. Zuckerman II 1997
(c) The other matters presented and the voting of stockholders with respect
thereto are as follows:
<TABLE>
<CAPTION>
(i) Approval of amendment to the 1992 Non-Employee Directors Stock Option
Plan to increase the number of shares which may be issued:
<S> <C> <C> <C> <C> <C> <C> <C>
For: 10,287,892 Against: 753,736 Abstain: 66,137 No Vote: 108,553
(ii) Ratification of selection of KPMG Peat Marwick as the
Company's independent auditors for the fiscal year ending
December 31, 1995:
For: 11,086,441 Against: 90,926 Abstain: 38,951 No Vote: 0
</TABLE>
<PAGE>
Item 6
Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Net Earnings Per Share -
page 11
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period covered by this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAERE CORPORATION
Date: August 11, 1995
/S/ Blanche M. Sutter
Blanche M. Sutter, Vice President
Finance and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,588
<SECURITIES> 42,122
<RECEIVABLES> 8,412
<ALLOWANCES> 1,214
<INVENTORY> 2,304
<CURRENT-ASSETS> 3,747
<PP&E> 15,785
<DEPRECIATION> 10,226
<TOTAL-ASSETS> 66,916
<CURRENT-LIABILITIES> 7,210
<BONDS> 0
<COMMON> 61,308
0
0
<OTHER-SE> 400
<TOTAL-LIABILITY-AND-EQUITY> 66,916
<SALES> 25,396
<TOTAL-REVENUES> 25,396
<CGS> 7,582
<TOTAL-COSTS> 7,582
<OTHER-EXPENSES> 17,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,033
<INCOME-PRETAX> 1,476
<INCOME-TAX> 221
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,255
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
