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 September 30, 1997 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.)
100Cooper 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 September 30, 1997
Common Stock
$.001 par value 13,310,331
This is page 1 of 16 pages
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CAERE CORPORATION
INDEX
PART I. Financial Information
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Page
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations -- Three Months
and Nine Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
Exhibit 11 Statement Regarding Computation of Net Earnings
Per Share 16
Exhibit 27 Financial Data Schedule
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<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CAERE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<S> <C> <C>
September 30, December 31,
1997 1996
ASSETS
Cash and cash equivalents $ 2,429 $ 11,663
Short-term investments 44,580 32,627
Receivables 7,723 6,888
Inventories 2,000 2,779
Deferred income taxes 2,474 2,474
Other current assets 1,186 768
----------- ----------
Total current assets 60,392 57,199
Property and equipment, net 4,919 4,742
Other assets 1,358 1,213
----------- -------------
Total assets $ 66,669 $ 63,154
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other payables $ 6,027 $ 7,406
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 13,310,331 and 13,283,224
shares 13 13
Additional paid-in capital 59,370 55,399
Retained earnings 1,259 336
----------- -------------
Total stockholders' equity 60,642 55,748
----------- -------------
Total liabilities and stockholders' equity $ 66,669 $ 63,154
=========== =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<CAPTION>
CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- --------------------
Net revenues $ 14,069 $ 13,403 $ 39,392 $ 40,948
Cost of revenues 3,448 4,273 10,517 13,045
----- ----- ------ ------
10,621 9,130 28,875 27,903
------ ----- ------ ------
Operating expenses:
Research and development 2,592 1,655 6,798 5,276
Selling, general and administrative 6,605 6,495 19,600 19,497
Merger related costs - - 2,935 90
------ ------ ----- ------
9,197 8,150 29,333 24,863
----- ----- ------ ------
Operating earnings (loss) 1,424 980 (458) 3,040
Interest income, net 692 711 1,867 2,104
------ ------ ------ ------
Earnings before income taxes 2,116 1,691 1,409 5,144
Income tax expense 264 169 486 847
------ ------ ----- -----
Net earnings $ 1,852 $ 1,522 $ 923 $ 4,297
====== ====== ====== =====
Net earnings per common and
common equivalent share $ 0.14 $ 0.11 $ 0.07 $ 0.32
======== ======== ========= ========
Shares used in per share calculation 13,402 13,342 13,224 13,507
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net earnings $ 923 $ 4,297
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,265 1,962
In-process research and development 2,935 -
Merger related costs - (930)
Amortization of capitalized software development costs 373 431
Changes in operating assets and liabilities:
Receivables, net (835) (394)
Income tax receivable - 613
Inventories 779 51
Other current assets (418) (401)
Accrued expenses and other payables (1,379) 610
---------- ---------
Net cash provided by operations 4,643 6,239
---------- ---------
Cash flows from investing activities:
Short-term investments, net (11,953) (3,399)
Capital expenditures (2,085) (1,306)
Capitalized software development costs (708) (429)
Other assets 3 (21)
--------- ----------
Net cash used for investing activities (14,743) (5,155)
---------- ----------
Cash flows from financing activities:
Proceeds from issuances of common stock, net 866 1,730
Repurchase of stock - (9,233)
--------- ----------
Net cash provided by (used for) financing activities 866 (7,503)
--------- ----------
Net change in cash and cash equivalents (9,234) (6,419)
Cash and cash equivalents, beginning of period 11,663 10,664
--------- ---------
Cash and cash equivalents, end of period $ 2,429 $ 4,245
========= =========
Supplemental disclosures:
Cash paid for income taxes $ 1,117 $ 66
========= =========
Common stock issued for business acquisition $ 3,105 $ -
========= =========
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CAERE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A) Basis of Presentation
The accompanying unaudited condensed consolidated balance sheets,
statements of operations and statements of cash flows reflect all adjustments
(consisting of only normal recurring adjustments) which are, in the opinion of
management, necessary to fairly present the financial position of Caere
Corporation (the "Company") as of September 30, 1997, 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, 1996, 1995, and 1994 in its annual report on Form 10-K for the year
ended December 31, 1996 ("the Form 10-K"). These condensed consolidated
financial statements should be read in conjunction with the financial statements
contained in the Company's Form 10-K. The results of operations for the interim
periods ended September 30, 1997, are not necessarily indicative of the results
to be expected for the full year. <TABLE> <CAPTION>
B) Inventories
<S> <C> <C> <C> <C>
September 30, 1997 December 31, 1996
(In thousands)
A summary of inventories follows:
Raw materials $ 1,106 $ 1,540
Work in process 152 348
Finished goods 742 891
-------- - ---------
$ 2,000 $ 2,779
======== =========
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(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.
The Financial Accounting Standards Board (FASB) recently issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 replaces the presentation of primary earnings per share and
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex capital structures or potentially dilutive securities, such as
convertible debt, options and warrants, diluted EPS. SFAS No. 128 is effective
for annual and interim periods ending after December 15, 1997, and requires
restatement of all prior period earnings per share data presented after the
effective date. Had SFAS No. 128 been effective for the quarter ended September
30, 1997, basic EPS and diluted EPS would not have been significantly different
from the reported net earnings per share.
<PAGE>
D. Business Acquisition
On March 31, 1997, the Company acquired Formonix, Inc. ("Formonix"), a
software developer located in Colorado. The total value of the acquisition was
approximately $3,188,000. The Company issued 550,000 shares of Common Stock in
exchange for all of the capital stock of Formonix. Using the closing price of
the Company's Common Stock on the closing date of acquisition, the valuation of
the shares issued was approximately $3,105,000. Acquisition costs associated
with the transaction totaled approximately $83,000 and consisted mainly of
professional fees. The business combination was accounted for under the purchase
method of accounting. Accordingly, the consolidated financial statements of the
Company do not include Formonix until after the date of acquisition.
Acquired technology was valued using a risk-adjusted cash flow model,
under which future expected cash flows were discounted taking into account risks
related to existing markets, the technology's life expectancy, future target
markets and potential changes thereto, and the competitive outlook for the
technology. The analysis resulted in an allocation of approximately $253,000 to
purchased software and the balance of approximately $2,935,000 to in-process
technology which had not yet reached technological feasibility and had no
alternative future use, and accordingly, was charged to expense.
The following summarized, pro forma results of operations assume the
acquisition took place at the beginning of the respective periods and excludes
the $2,935,000 charge for acquired in-process technology.
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<CAPTION>
<S> <C> <C>
Nine months ended September 30, in thousands, except per share amounts 1997 1996
---- ----
Net revenues $39,392 $40,954
Net earnings $ 3,715 $ 4,253
Earnings per share $ .28 $ .30
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<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company notes that, except for the historical information contained
herein, the matters discussed below are forward-looking statements subject to
risks and uncertainties that may cause the Company's actual results to differ
materially. These risks and uncertainties include, but are not limited to,
various technological and competitive factors, including competitive products,
market acceptance of future products of the Company, and pricing pressures;
success of the "bundle and upgrade" business model, including the Company's
maintaining its relationships with scanner manufacturers and customers' opting
to upgrade to newer or more fully featured products; changes in customer order
patterns, including the maintenance of relationships with retail distributors
and dealers; manufacturing considerations, including the maintenance of margins
in a declining-price environment, as well as risk of inventory obsolescence due
to shifts in market demand and new product introductions; and other risk factors
listed from time to time in the Company's SEC reports, including but not limited
to the Company's report on Form 10-K for the year ended December 31, 1996
(Certain Trends and Risk Factors sections).
Results of Operations
The following chart summarizes net revenues, cost of revenues, and
gross margins for the Company's products categorized between hardware and
software. Software products consist of the OmniPage, WordScan, OmniForm, and
PageKeeper lines of products. Hardware products consist of transaction
processing OCR and bar code products, and the M/Series line of production OCR
products. <TABLE> <CAPTION>
Business Line Analysis
----------------------------------------------- ----------------------------------------------
Three Months Sept. 30, 1997 Sept. 30, 1996
Ending:
----------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Software Hardware Software Hardware
Products Products Combined Products Products Combined
Net revenues $11,458 $2,611 $14,069 $11,407 $1,996 $13,403
Cost of revenues 2,343 1,105 3,448 3,336 937 4,273
----- ----- ----- ----- --- -----
9,115 1,506 $10,621 $8,071 $1,059 $9,130
Gross margin % 79.6% 57.7% 75.5% 70.8% 53.1% 68.1%
-------------- --------------- ---------------- ------------- --------------- ----------------
----------------------------------------------- ----------------------------------------------
Nine Months Ending: Sept. 30, 1997 Sept. 30, 1996
----------------------------------------------- ----------------------------------------------
Software Hardware Software Hardware
Products Products Combined Products Products Combined
Net revenues $33,674 $5,718 $39,392 $34,284 $6,664 $40,948
Cost of revenues 7,605 2,912 10,517 10,134 2,911 13,045
----- ----- ------ ------ ----- ------
26,069 2,806 $28,875 $24,150 $3,753 $27,903
Gross margin % 77.4% 49.1% 73.3% 70.4% 56.3% 68.1%
-------------- --------------- ---------------- ------------- --------------- ----------------
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Net revenues for software products increased during the third quarter of
1997 to $11,458,000 from $11,407,000 in 1996, due to the initial shipment of
OmniPage Professional 8.0 for Windows 95/NT, which began shipping in September
1997. This increase was somewhat offset by a decline in both Macintosh product
sales and revenues derived from bundling arrangements. Software unit shipments
increased 50% in the third quarter of 1997 compared to the same period in 1996,
due primarily to increased bundled units. The results for the quarter ending
September 30, 1997, did not include any significant one-time payment of
royalties as was reported for the previous quarter ending June 30, 1997. For the
nine month period ending September 30, 1997, net revenues for software products
decreased 2% to $33,674,000, compared to $34,284,000 during the same period in
1996. The primary reason for this decline was a reduction in sales of Macintosh
software products.
Net revenues for hardware products increased 31% to $2,611,000 in the
third quarter of 1997 compared to $1,996,000 during the same period in 1996. The
increase was primarily the result of the receipt of a large, one-time order for
transaction processing OCR products. It is common in this line of business for
the Company to receive large, one time orders for products. This ordering
pattern has historically resulted in significant fluctuations in quarterly
hardware revenues. This trend is expected to continue. For the nine months
ending September 30, 1997, net revenues for hardware products decreased 15% to
$5,718,000 from $6,664,000 during the same period in 1996, due primarily to a
reduction in revenues associated with the Company's M/Series line of production
OCR products. This hardware product line is undergoing a transition to a
"software-only" solution, as the computing power available on today's personal
computers continues to increase. To a lesser extent, the decline in hardware
revenues on a year-to-date basis was also attributable to reduced unit shipments
of transaction processing OCR and barcode products.
International sales decreased 8% to $3,751,000, or 27% of net revenues,
during the third quarter of 1997, compared to $4,090,000, or 31% of net
revenues, in the same period of 1996. The decrease was primarily a result of the
time lag associated with introducing foreign language versions of OmniPage
Professional 8.0. These new versions are expected to ship in the fourth quarter
of 1997. On a year-to-date basis, international sales increased 6% to
$12,434,000, or 32% of net revenues, compared to $11,757,000, or 29% of net
revenues, in the same period in 1996. The primary reason for this increase was
the inclusion of operations for the Company's Hungarian subsidiary, Recognita
Rt. ("Recognita"), which was acquired in December 1996.
Gross Margins
Gross margins for software products increased from 70.8% in the third
quarter of 1996 to 79.6% in the third quarter of 1997, primarily due to the
shift in production of significant quantities of bundled products to the
Company's scanner partners. Beginning in the fourth quarter of 1996, the Company
began to change the bundling arrangement with certain of its partners. Prior to
the fourth quarter of 1996, the Company sold bundled products to partners at
prices approximating cost. Commencing in the fourth quarter of 1996, certain
partners agreed to manufacture their product requirements on a much reduced
royalty basis. The effect of the change upon the Company's financial statements
has been to reduce net revenues and cost of revenues previously associated with
bundled products by a similar amount, creating an improvement in overall gross
margins. For the nine months ended September 30, gross margins for software
products in 1997 improved to 77.4% from 70.4% during the same period in 1996.
Gross margins for hardware products increased to 57.7% in the third
quarter of 1997 from 53.1% in the same period in 1996, due to increased
shipments of transaction processing OCR products, with fixed manufacturing costs
being spread over higher unit volumes. A majority of the Company's manufacturing
overhead is fixed in nature. As hardware product revenues increase, the level of
manufacturing overhead does not necessarily increase in the same proportion. For
the nine months ended September 30, 1997, gross margins for hardware products
declined to 49.1% from 56.3% during the same period in 1996, due primarily to
reduced shipments of M/Series hardware products and the fixed nature of the
Company's manufacturing overhead.
The primary factors affecting gross margins in the future are likely to
be shifts in product mix between fully priced, non-upgrade software, bundled
software, upgrade products, and royalty revenue, as well as overall shifts 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 become obsolete rapidly, necessitating
increased inventory write-offs or reserves and a corresponding decrease in gross
margins.
Operating Expenses
Research and development (R&D) expenses increased 57% to $2,592,000 in
the third quarter of 1997, from $1,655,000 during the same period in 1996. The
increase in spending from 1996 to 1997 was primarily the result of development
expenses of the Company's recently acquired subsidiaries, Recognita in Hungary,
which was acquired in December 1996, and Formonix in Colorado, which was
acquired in March 1997. To a lesser extent, the increase in R&D expenses was
also attributable to increased staffing associated with the Company's ongoing
software development projects. As a percentage of revenue, R&D expense increased
to 18% of revenue in the third quarter of 1997, from 12% during the same period
in 1996. This increase was attributable to higher R&D expenses between the
comparable periods. For the nine months ended September 30, 1997, R&D expenses
increased 29% to $6,798,000, or 17% of net revenues, from $5,276,000, or 13% of
net revenues, during the comparable period in 1996. The increases in spending
and R&D expenses as a percentage of revenue were due primarily to the same
reasons.
The Company is committed to providing continued enhancements to current
products, as well as developing new technologies for the future. This commitment
will result in the Company's continuing to invest heavily in R&D during 1997 and
in the future. In accordance with Statement of Financial Accounting Standards
No. 86, the Company capitalized $150,000 of software development costs during
the third quarter of 1997, compared to $132,000 in the same period of 1996. For
the nine months ended September 30, 1997, capitalized software development costs
totaled $455,000, compared to $429,000 during the same period in 1996. In
addition to this capitalization of internal R&D expenses, in connection with the
Company's acquisition of Formonix, the Company capitalized approximately
$253,000 of the acquisition cost during the first quarter of 1997. The costs
capitalized related to the portion of the Formonix acquisition valuation which
was allocated to existing products acquired. Amortization of capitalized
software development costs was $130,000 in the third quarter of 1997, versus
$137,000 for the comparable period in 1996. On a year-to-date basis,
amortization of capitalized software development costs totaled $373,000,
compared to $431,000 during the comparable period in 1996.
Selling, general and administrative (S,G&A) expenses increased 2% in
the third quarter of 1997 to $6,605,000 from $6,495,000 during the same period
in 1996. The increase in S,G&A spending was primarily related to increased
service and support expenses related to the Company's growing customer base
resulting from the high volume business being generated by the "bundle and
upgrade" model. To a lesser extent, the increase in S,G&A expenses was
attributable to sales and marketing costs of Recognita during 1997. As a
percentage of net revenues, S,G&A expense decreased to 47% in the third quarter
of 1997 from 48% during the same period in 1996. This decrease was attributable
to only slightly higher S,G&A expenses, together with higher net revenues during
the comparable periods. For the nine months ended September 30, 1997, S,G&A
spending increased 1% to $19,600,000, compared to $19,497,000 in the same period
in 1996. This relative consistency resulted from increased service and support
costs' being offset by savings related to the streamlining of management and
promotional costs between the OmniPage and OmniForm product line marketing
areas. As a percentage of revenue on a year-to-date basis, S,G&A expense
increased to 50% of net revenue in 1997 from 48% of net revenue in 1996. This
increase was attributable to lower net revenues during the comparable periods.
The Company expects that S,G&A expense may increase in dollar terms in 1997, as
efforts to expand sales and marketing activities continue in the OCR, forms, and
desktop document management areas.
During the first quarter of 1997, a $2,935,000 one-time charge for
in-process research and development was taken related to the Company's
acquisition of Formonix in March 1997. This charge related to the portion of the
Formonix acquisition valuation represented by the present value of estimated
cash flows expected to be generated by Formonix-related technology which, at the
acquisition date, had not yet reached the point of technological feasibility and
did not have an alternative future use.
Interest Income
Interest income decreased 3% in the third quarter of 1997 to $692,000
from $711,000 during the same period in 1996. For the nine months ended
September 30, 1997, interest income decreased 11% to $1,867,000, from $2,104,000
during the same period in 1996. The decrease in interest income was attributable
to a reduction in total cash and short-term investment balances between the
comparable periods. The Company's one million share repurchase during the third
quarter of 1996, its acquisition of Recognita in December 1996, and its
acquisition of Formonix in March 1997 were the primary reasons for the decline
in total cash and short-term investment balances since the third quarter of
1996.
Income Taxes
The Company's effective income tax rate in 1997 is expected to be
between 10% and 20%, which is less than statutory rates primarily due to the use
of its foreign sales corporation and increased utilization of net operating loss
carryforwards acquired in its 1994 merger with Calera Recognition Systems, Inc.
("Calera"). In the first nine months of 1996, the effective income tax rate was
16%, due primarily to the use of the Company's foreign sales corporation and to
utilization of the Calera net operating loss carryforwards in the 1996 fiscal
year.
Net Earnings and Earnings Per Share
Net earnings for the third quarter of 1997 were $1,852,000, compared to
$1,522,000 during the same period in 1996. Earnings per share were $.14 in the
third quarter of 1997, versus $.11 in the comparable period in 1996. For the
nine months ended September 30, 1997, net earnings were $923,000, or $.07 per
share, compared to $4,297,000, or $.32 per share, in 1996. The primary reason
for the decline in net earnings in the first nine months of 1997 was the
$2,935,000 one-time in-process research and development charge related to the
Formonix acquisition recorded during the first quarter. Excluding this one-time
charge, net earnings for the first nine months of 1997 would have been
$3,858,000, or $.29 per share.
Certain Trends
The Company's future operating results may be affected by various
uncertain trends and factors which are beyond the Company's control. These
include but are not limited to adverse changes in general economic conditions
and rising costs, or the occasional unavailability of needed components. The
industry is characterized by rapid changes in the technologies affecting optical
character recognition, forms, and document management . The industry has also
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 competitors to gain or retain market share.
During 1994, the Company began to bundle versions of its OmniPage and
WordScan software recognition products with scanners from various manufacturers.
The Company's objective in bundling its software products with scanners was to
expand the overall market for OCR software by providing a larger number of
scanner purchasers with experience in the advantages of optical character
recognition. The success of this model, compared to Caere's former model of
selling its software primarily through retail distribution, depends upon the
Company's maintaining or expanding its existing relationships with scanner
manufacturers and on a significant proportion of customers who first receive OCR
software in a bundled product deciding to upgrade to a newer or more fully
featured version of the software. Such an upgrade is typically at a
substantially lower price than the retail price of the newer or fully featured
product.
Bundled products incorporating OmniPage and WordScan began shipping in
significant quantities in the fourth quarter of 1994. Because of the lower
per-unit revenue to the Company that results from the combined sale of a bundled
product plus an upgrade, compared to the retail sale of a fully featured version
of the software, the success of the "bundle and upgrade" program relies on
increasing unit sales of upgrades. There can be no assurance that Caere's
transition to the "bundle and upgrade" business model will be successful and
provide sufficient increase in unit volume in the future to offset reduced
per-unit revenue. In addition, customers using the bundled product may defer or
forego purchase of the Company's more fully featured versions of OmniPage and
WordScan products if they find that the bundled products satisfy their
recognition needs.
A significant portion of the Company's net revenues is attributable to
sales through its distribution channels. The Company's future operating results
are dependent to a certain extent on its ability to maintain existing
relationships with distributors, dealers, and resellers.
The Company's future earnings and stock price may be subject to
significant volatility, particularly on a quarterly basis. The Company's
revenues and earnings on a quarterly basis are unpredictable, in part 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 has occurred 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 the results for that quarter to fall
significantly short of anticipated levels. Due to analysts' expectations of
continued growth, any such shortfall in earnings could have a very significant
adverse 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 which may arise
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
Caere's financial position remains strong at September 30, 1997.
Working capital increased 9% to $54,365,000 from $49,793,000 at December 31,
1996. The Company has no long-term debt. The Company's cash and short-term
investments totaled $47,009,000 at September 30, 1997. The Company believes that
current cash balances and internally generated funds will be sufficient to meet
its cash requirements through 1997.
Caere generated cash for operating activities of $4,643,000 during the
nine months ended September 30, 1997. Uses of cash included $11,953,000 to
purchase short-term investments, in addition to a $2,085,000 investment in
capital equipment. During the first nine months of 1996, the Company generated
cash from operating activities of $6,239,000. Uses of cash during that period
included $3,399,000 to purchase short-term investments and $1,306,000 of
expenditures for capital equipment. The primary reason for the decline in cash
generated by operating activities was the $2,935,000 charge for in-process
research and development related to the Company's acquisition of Formonix in the
first quarter of 1997.
The Company offers credit terms to qualifying customers and also sells
on a prepaid, credit card and cash-on-delivery basis. With respect to credit
sales, the Company attempts to control its bad debt exposure through the
monitoring of customers' creditworthiness and, where practicable, through
participation in credit associations that provide credit rating information
about its customers. The Company has also purchased credit insurance for certain
key accounts to reduce the potential for catastrophic losses.
<PAGE>
Item 6
Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Net Earnings
Per Share
Exhibit 27 - Financial Data Schedule
(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: November 12, 1997
/S/ Blanche M. Sutter
Blanche M. Sutter, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
CAERE CORPORATION
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS PER SHARE
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Net earnings $1,852,000 $1,522,000 $923,000 $4,297,000
============== ============== ============== ==============
Weighted average shares outstanding during
the period 13,309,577 13,146,906 13,092,852 13,295,704
Common equivalent shares using the
treasury stock method 92,333 195,108 131,533 211,564
-------------- -------------- -------------- --------------
Common and common equivalent shares
outstanding for purposes of calculating
net earnings per share 13,401,910 13,342,014 13,224,385 13,507,268
========== ============== ========== ==============
Net earnings per common and common
equivalent share $0.14 $0.11 $0.07 $0.32
============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,429
<SECURITIES> 44,580
<RECEIVABLES> 7,723
<ALLOWANCES> 1,672
<INVENTORY> 2,000
<CURRENT-ASSETS> 60,392
<PP&E> 15,850
<DEPRECIATION> 10,931
<TOTAL-ASSETS> 66,669
<CURRENT-LIABILITIES> 6,027
<BONDS> 0
0
0
<COMMON> 59,383
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 66,669
<SALES> 39,392
<TOTAL-REVENUES> 39,392
<CGS> 10,517
<TOTAL-COSTS> 29,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,867
<INCOME-PRETAX> 1,409
<INCOME-TAX> 486
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
