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UNITED STATES
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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22044
WONDERWARE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 33-0304677
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
100 Technology Drive, Irvine, California 92618
(714) 727-3200
(Address and telephone number of principal executive offices)
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. [X] Yes [ ] No
As of September 30, 1996, there were 13,789,792 shares of the Registrant's
Common Stock outstanding.
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<PAGE>
WONDERWARE CORPORATION
FORM 10-Q INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Operations (unaudited) for
the Three and Nine Month Periods Ended September 30,
1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited) for
the Nine Month Periods Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
WONDERWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
---------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,742,849 $ 22,637,986
Short-term investments 49,755,660 44,287,316
Accounts receivable, net 9,962,074 10,439,179
Income tax refund receivable 1,545,872
Inventories 1,050,897 460,663
Deferred tax assets 1,809,222 2,139,690
Prepaid expenses and other current assets 1,784,464 948,387
---------------- ----------------
Total current assets
74,651,038 80,913,221
Property and equipment, net 12,326,923 6,272,399
Investments 806,489 800,000
Noncurrent deferred tax assets 2,436,873 1,967,711
Other assets 1,214,284 1,408,265
---------------- ----------------
Total assets $ 91,435,607 $ 91,361,596
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,015,942 $ 1,532,721
Accrued employee incentive compensation 808,592 833,627
Accrued commissions 292,639 450,287
Income taxes payable 438,548
Accrued payroll and related liabilities 2,066,186 2,939,677
Other accrued liabilities 470,980 2,090,756
Deferred revenue 1,333,966 1,234,640
---------------- ----------------
Total current liabilities
$ 7,988,305 $ 9,520,256
================ ================
Commitments
Stockholders' equity:
Common stock, $.001 par value; 50,000,000
shares authorized; 13,789,762 and
13,247,610 shares issued and outstanding
at September 30, 1996 and December 31,
1995, respectively $ 13,790 $ 13,248
Additional paid-in capital 86,815,195 83,331,383
Unrealized gain on short-term investments 39,897 192,698
Accumulated deficit (3,421,580) (1,695,989)
---------------- ----------------
Total stockholders' equity 83,447,302 81,841,340
---------------- ----------------
Total liabilities and
stockholders' equity $ 91,435,607 $ 91,361,596
================ ================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WONDERWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Sept. 30, Nine months ended Sept. 30,
------------------------------- -------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total revenues $ 15,169,435 $ 14,248,175 $ 45,960,255 $ 38,808,656
Cost of sales 990,007 624,797 3,019,347 1,804,284
-------------- -------------- -------------- --------------
Gross profit 14,179,428 13,623,378 42,940,908 37,004,372
Operating expenses:
Research and development 5,298,194 2,984,264 13,796,438 6,930,484
Selling, general and administrative 12,506,908 7,317,878 33,721,496 19,996,710
-------------- -------------- -------------- --------------
Operating income (loss) before acquired
in-process research and development costs (3,625,674) 3,321,236 (4,577,026) 10,077,178
Acquired in-process research and development
costs 33,091,626 33,091,626
-------------- -------------- -------------- --------------
Operating loss (3,625,674) (29,770,390) (4,577,026) (23,014,448)
Other income, net 610,311 699,519 1,962,487 2,114,910
-------------- -------------- -------------- --------------
Loss before provision for
income taxes (3,015,363) (29,070,871) (2,614,539) (20,899,538)
Provision for income taxes (1,025,223) (8,036,687) (888,947) (5,270,211)
-------------- -------------- -------------- --------------
Net loss $ (1,990,140) $(21,034,184) $ (1,725,592) $(15,629,327)
============== ============== ============== ==============
Net loss per common share $ (0.15) $ (1.64) $ (0.13) $ (1.25)
Weighted average common shares 13,690,198 12,833,443 13,589,024 12,466,181
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WONDERWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
--------------------------------
1996 1995
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,725,592) $ (15,629,327)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,643,476 1,445,494
Provision for doubtful accounts 131,550 393,691
Deferred taxes (138,694) (9,760,460)
Compensation costs related to stock
option grants 566,296 157,528
Acquired in-process research and
development costs 33,091,626
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Accounts receivable 345,555 (2,545,131)
Income tax refund receivable (1,545,872) (154,005)
Inventories (590,234) 43,654
Prepaid expenses and other current assets (965,105) (1,404,565)
Accounts payable 1,483,221 427,210
Accrued employee incentive compensation (25,035) (98,038)
Accrued commissions (157,648) (101,223)
Income taxes payable (438,548) (291,275)
Accrued payroll and other accrued
liabilities (2,493,267) (500,675)
Deferred revenue 99,326 28,934
-------------- --------------
Net cash provided by (used in) operating
activities (1,810,571) 5,103,438
Cash flows from investing activities:
Purchases of property and equipment (9,374,990) (3,162,723)
Investment in affiliate (6,489)
Purchases of short-term investments (46,420,521) (66,459,255)
Sales and maturities of short-term investments 40,799,376 56,895,488
Cash paid for acquisitions, net of cash
acquired (54,533)
-------------- --------------
Net cash used in investing activities (15,002,624) (12,781,023)
Cash flows from financing activities:
Proceeds from exercise of stock options 753,610 1,142,911
Tax benefit related to exercise of stock
options 583,071 4,861,802
Payments on bank line of credit and capital
lease obligations (592,989)
Net proceeds from issuance of common stock 1,581,377 969,470
-------------- --------------
Net cash provided by financing activities 2,918,058 6,381,194
-------------- --------------
Net decrease in cash and cash equivalents (13,895,137) (1,296,391)
Cash and cash equivalents, beginning of period 22,637,986 20,147,748
-------------- --------------
Cash and cash equivalents, end of period $ 8,742,849 $ 18,851,357
============== ==============
Supplemental cash flow information:
Interest paid
Income taxes paid $ 1,830
$ 495,168 $ 36,305
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WONDERWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The interim condensed consolidated financial statements included herein have
been prepared by Wonderware Corporation (Wonderware or the Company) without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC). Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such SEC rules
and regulations; nevertheless, the management of the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed with the SEC in March 1996. In the opinion of management, the
condensed consolidated financial statements included herein reflect all
adjustments necessary to present fairly the consolidated financial position of
the Company as of September 30, 1996, and the results of its operations for the
three and nine month periods ended September 30, 1996 and 1995, and its cash
flows for the nine month periods ended September 30, 1996 and 1995. The results
of operations for the interim periods are not necessarily indicative of the
results of operations for the full year.
2. Stockholders' Equity and Net Loss Per Share
Net loss per common share for the three and nine month periods ended September
30, 1996 and 1995 is computed by dividing the net loss by the weighted average
number of common shares outstanding. Common equivalent shares are not included
as the effect would be antidilutive.
3. Stock Plans
Stock Option Plans - The following is a summary of stock option transactions
under the 1989 Stock Option Plan (the 1989 Plan) for the three months ended
September 30, 1996:
Number of
Number of Price per options
shares share exercisable
Balance, June 30, 1996 1,747,482 $ 0.01 to $38.88 454,076
Granted 288,950 $ 8.88 to $10.25
Exercised (44,695) $ 0.03 to $ 7.25
Canceled (327,062) $ 0.13 to $38.88
------------- ------------------
Balance, September 30, 1996 1,664,675 $ 0.01 to $33.75 440,091
============= ==================
In August 1996, the Company's Board of Directors authorized the cancellation and
reissuance of all stock options held by officers of the Company with an exercise
price greater than the closing price of the Company's common stock on August 30,
1996. Pursuant to such authorization, options to purchase 221,900 shares of
common stock were canceled and the Company issued an equal number of replacement
options with an exercise price of $9.75 per share. This option activity is
included in the above table. The replacement options vest 50 percent two years
from the date of grant, and 25 percent for each full year thereafter.
In August 1996, the Company's Board of Directors authorized the repricing of
200,000 stock options held by the President and Chief Executive Officer of the
Company to reflect the closing price of the Company's stock on August 30, 1996.
The options were repriced to an exercise price of $9.75 per share, and the
vesting has been reset to start on the date of the repricing. The repriced
options vest 50 percent two years from the date of repricing, and 25 percent for
each full year thereafter. The minimum gain contract associated with these
options remains in effect.
For the three months ended September 30, 1996 no options were granted, exercised
or canceled under the 1994 Non-Employee Directors' Stock Option Plan (the
Directors' Plan). As of September 30, 1996, options to purchase 12,500 shares
were exercisable under the Directors' Plan.
Employee Stock Purchase Plan - In August 1996, the Company issued 90,761 shares
of common stock in connection with the semi-annual offering under the Employee
Stock Purchase Plan. Proceeds from this offering were approximately $858,000.
4. Legal Proceedings
On July 9, 1996, the Company filed a complaint in the Superior Court of
California for the County of Orange against Constantin S. Delivanis and Vladimir
Preysman, formerly the Vice President and Vice President-Engineering,
respectively, of the Company's Cupertino Development Center. This complaint
alleges fraud, negligent misrepresentation, duress, securities fraud, breach of
the implied covenant of good faith and fair dealing, and breach of fiduciary
duty against Messrs. Delivanis and Preysman. The Cupertino Development Center
was established upon the Company's acquisition of EnaTec Software Systems, Inc.
(EnaTec), in which Messrs. Delivanis and Preysman owned a substantial majority
of the stock (see Note 12, Acquisitions, of Notes to Consolidated Financial
Statements included in the Company's 1995 Annual Report to Stockholders for a
description of the acquisition of EnaTec). The Company is seeking compensatory
and punitive damages with respect to its claims, as well as the costs incurred
in pursuing these claims. Mr. Delivanis and Mr. Preysman's employment with the
Company was terminated. Both Mr. Delivanis and Mr. Preysman answered the
complaint and asserted cross-claims against the Company, alleging breach of
contract, termination in violation of public policy, defamation (slander per
se), intentional infliction of emotional distress, negligent infliction of
emotional distress, negligence, common law fraud and deceit, and civil
conspiracy. Both requested relief in the form of compensatory and punitive
damages as well as the costs incurred in pursuing their cross-claims. In
addition, on September 27, 1996, Mr. Delivanis, Mr. Preysman, and the Delivanis
Family Trust filed a complaint for declaratory judgment and specific
performance, seeking registration of certain Wonderware stock. The company has
demurred to that complaint. It is too early to determine the impact, if any, of
these proceedings on the Company or the results of the Company's operations.
On October 16, 1996, the Company filed an action in the U.S. District Court for
the Central District of California against Cyberlogic Technologies, Inc.
(Cyberlogic) and Intellution, Inc. (Intellution). The Company alleges that
Cyberlogic and Intellution have infringed the copyright in a particular software
program which Cyberlogic originally developed under contract for the Company.
The complaint seeks preliminary and permanent injunctive relief as well as
actual and punitive damages and attorneys fees. A hearing on the Company's
motion for a preliminary injunction is currently scheduled for November 18,
1996. As of the date of this Report, neither of the defendants have filed any
responsive pleadings in the matter.
The Company has entered into a settlement of its legal proceedings involving RWT
Corporation. The specific terms of the settlement agreement are confidential. On
October 28, 1996, the parties agreed to execute a dismissal, with prejudice, of
the action. The District Court formally dismissed the action on October 29,
1996. For further information concerning this matter, see the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and the Company's
Quarterly Reports on Form 10-Q for March 31, 1996 and June 30, 1996. The terms
of the settlement will not have a material financial impact to the Company.
5. Acquisition
In September 1996, the Company signed a letter of intent to acquire its software
distributor in Germany, ICT-Wonderware GmbH (ICT-Wonderware). The Company
acquired a minority interest in ICT-Wonderware in December 1994. Under the terms
of the letter of intent, all of ICT-Wonderware's outstanding shares of capital
stock will be acquired for approximately $4.85 million in cash, subject to
certain adjustments. The transaction is to be accounted for as a purchase. It is
the intention of the Company and ICT-Wonderware to consummate the acquisition no
later than December 31, 1996.
6. Subsequent Event
In October 1996, the Company announced that it will reorganize its Manufacturing
Systems Group. As a part of this reorganization, the Company will close its
development center in Cupertino, California and continue development activities
for the Wonderware InTrack product at its development center in York,
Pennsylvania. The company anticipates that it will incur a restructuring charges
of $1.0 to 2.0 million in the fourth quarter of 1996.
<PAGE>
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
This report contains forward-looking statements that involve risks and
uncertainties. The actual future results of the Company could differ materially
from those statements. Factors that could cause or contribute to such
differences include, but are not limited to, uncertainties regarding market
acceptance of new products and product enhancements, delays in the introduction
of new products or enhancements, size and timing of individual orders,
competition and pricing in the software industry, general economic conditions in
the Company's geographic markets, seasonality of revenues, litigation involving
the Company, and the management of the Company's growth, as well as factors
discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Results of Operations
The following table sets forth the percentage of total revenues represented by
certain consolidated statement of operations data for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 6.5% 4.4% 6.6% 4.6%
------------- ------------- ------------- -------------
Gross profit 93.5% 95.6% 93.4% 95.4%
Operating expenses:
Research and development 34.9% 20.9% 30.0% 17.9%
Selling, general and administrative 82.4% 51.4% 73.4% 51.5%
------------- ------------- ------------- -------------
Operating income (loss) before acquired
in-process research and development costs -23.8% 23.3% -10.0% 26.0%
Acquired in-process research and development
costs 232.3% 85.3%
------------- ------------- ------------- -------------
Operating loss -23.8% -209.0% -10.0% -59.3%
Other income, net 4.0% 4.9% 4.3% 5.4%
------------- ------------- ------------- -------------
Loss before provision for income taxes -19.8% -204.1% -5.7% -53.9%
Provision for income taxes -6.8% -56.4% -1.9% -13.6%
------------- ------------- ------------- -------------
Net loss -13.0% -147.7% -3.8% -40.3%
============= ============= ============= =============
</TABLE>
Total revenues. Total revenues include sales of software licenses and services,
less promotional discounts, refunds and sales returns. The Company's revenues
for the three months ended September 30, 1996 increased 6 percent to $15.2
million from $14.2 million for the comparable quarter of 1995. For the nine
months ended September 30, 1996, revenues increased 18 percent to $46.0 million
from $38.8 million in the comparable period in 1995. The increases were
primarily due to increased unit sales of Wonderware InTouch products. Revenue
increases also reflected to a lesser extent increased sales of the Wonderware
InTrack products and the introduction of Wonderware InBatch. The increase in
unit sales for the third quarter was concentrated in North America, and was
offset slightly by decreases in the unit sales price for Wonderware InTouch
products, and by a decrease in international sales compared to the third quarter
of 1995.
The share of revenues derived from the Wonderware InTouch product line decreased
to approximately 85 percent of the Company's total revenues. The Company expects
that revenues from these products will continue to account for a substantial
portion of the Company's revenues in future periods, but that the share of
revenues derived from other products will increase if new products introduced by
the Company gain market acceptance.
International sales decreased to $5.4 million, or 36 percent of total revenues,
for the three months ended September 30, 1996 from $5.8 million, or 41 percent
of total revenues, for the same quarter of 1995. For the nine months ended
September 30, 1996, international sales increased to $17.9 million from $16.3
million for the comparable period in 1995. Despite overall growth in
international sales for the nine months ended September 30, 1996, international
sales growth has slowed relative to total sales, contributing 39 percent of
total revenues for the nine months ended September 30, 1996 as compared to 42
percent of total revenues for the same period in 1995. The recent decline in
international sales is primarily due to the increased competitive pressures and
recessionary economy in Europe. The Company expects that international sales
will continue to represent a significant portion of its total revenues. The
Company's international operations are subject to various risks, including
seasonality, exposure to currency fluctuations, regulatory requirements,
political and economic instability, and trade restrictions. Although the
Company's sales are typically made in US dollars, a weakening in the value of
foreign currencies relative to the US dollar could have an adverse impact on the
effective price of the Company's products in its international markets. The
Company also expects that it will increasingly be required to transact in local
currencies in order to further its growth internationally and, therefore, will
become more directly exposed to the risk of foreign currency fluctuations.
The life cycles of the Company's products are difficult to estimate due in large
measure to the recent emergence of the Company's market, the future effect of
product enhancements and future competition. Declines in demand for these
products, whether as a result of competition, technological change, price
reductions or otherwise, would have a material adverse effect on the Company's
operating results. There can be no assurance that the Company's historical
growth rates or its operating margins will resume or, if resumed, will be
sustained in the future.
Gross profit. Cost of sales includes the costs of manuals, diskettes and
duplication, packaging materials, assembly, paper goods, third-party software
royalties and shipping. Cost of sales for the three and nine months ended
September 30, 1996 includes the amortization of developed technology acquired as
part of the acquisition of Soft Systems Engineering, Inc. in August 1995. All
internal costs related to research and development of software products and
enhancements to existing products are expensed as incurred.
The Company's gross margin decreased to approximately 93 percent for both the
three and nine month periods ended September 30, 1996 from approximately 95
percent for comparable periods of 1995. The decrease was primarily due to the
increased volume of documentation required as a result of the introduction of
Wonderware InTouch version 5.6 in January 1996, combined with costs associated
with developing the packaging for new Wonderware products. The product
documentation has been converted to an electronic form, and the Company
anticipates that this will result in cost savings, pending the contemplated
acceptance of the electronic documentation format by its customers. Gross margin
is expected to decline over the next fiscal year as new products incorporating
additional third party software royalties begin shipping. Gross profit increased
to $14.2 million for the three months ended September 30, 1996 from $13.6
million for the comparable quarter of 1995, and increased to $42.9 million for
the nine months ended September 30, 1996 from $37.0 million for comparable
period in 1995. The increases were primarily due to increased sales volume.
Research and development expenses. Research and development expenses consist
primarily of personnel, contract programming, and equipment costs required to
conduct the Company's development effort. Such expenses for the three months
ended September 30, 1996 increased 78 percent to $5.3 million from $3.0 million
for the same quarter of 1995 and increased as a percentage of total revenues to
35 percent from 21 percent. Research and development expenses for the nine
months ended September 30, 1996 increased 99 percent to $13.8 million from $6.9
million in the comparable period of 1995 and increased as a percentage of total
revenues to 30 percent from 18 percent. For both periods, approximately half of
the increase is related to the operating expenses of entities acquired during
the latter half of 1995. The remaining increase is primarily attributable to the
addition of development personnel associated with the Company's core product
line. The Company believes that the introduction of new technologies and
products to the industrial automation market in a timely manner will have a
significant impact on its success and, as a consequence, the Company has
increased the absolute amount of its expenditures on research and development.
For the foreseeable future, the Company anticipates that it will continue to
increase spending in absolute dollars on research and development for both the
enhancement of current products and the addition of new product capabilities.
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
is established, any additional costs would be capitalized in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed. Because the Company
believes that its current process for developing software is essentially
completed concurrently with the establishment of technological feasibility, no
internal software development costs were capitalized as of September 30, 1996.
Significant new products developed in the future may require the capitalization
of internal software development expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of administrative, sales and marketing
personnel costs; advertising and promotional expenses; and customer service and
technical support costs. Selling, general and administrative expenses increased
71 percent to $12.5 million for the three months ended September 30, 1996 from
$7.3 million for the same quarter of 1995, and increased as a percentage of
total revenues to 82 percent from 51 percent. Selling, general and
administrative expenses for the nine months ended September 30, 1996 increased
69 percent to $33.7 million from $20.0 million for the same period in 1995, and
increased as a percentage of sales to 73 percent from 52 percent. The increase
in the dollar amount of selling, general and administrative expenses was
primarily due to increased staffing in field sales and marketing required to
further penetrate current and new markets for the Company's products; increased
staffing in technical support to provided service to the Company's new product
lines; increased staffing and other costs in administrative functions to support
the overall growth the Company; and operating costs associated with the
acquisitions that occurred in the second half of 1995. The Company expects that
such expenses will continue to increase in absolute dollars as it expands its
worldwide sales distribution and customer support network to penetrate new
markets for its production management products, as well as to increase worldwide
market penetration for its Wonderware InTouch product line.
Net income or loss. Due to the increasing level of spending in the areas of
research and development, and in selling, general and administrative functions
as discussed above, the Company anticipates that when the Company's operations
return to profitability, net income as a percentage of total revenues will
continue to be lower than historical levels. There can be no assurance as to
when, if ever, the Company will resume profitable operations.
Fluctuations in those quarterly operating results. The Company has a limited
operating history and has experienced significant growth in recent periods.
However, such growth rates are not sustainable and are not indicative of future
operating results. The Company expects to experience significant fluctuations in
quarterly operating results. These fluctuations may be caused by many factors,
including, among others: delays in introduction of products or product
enhancements by the Company, the Company's competitors or other providers of
hardware, software and components for the industrial automation market; costs
associated with product or technology acquisitions; the size and timing of
individual orders; software "bugs" or other product quality problems;
competition and pricing in the software industry; seasonality of revenues;
customer order deferrals in anticipation of new products; market acceptance of
new products; reductions in demand for existing products and shortening of
product life cycles as a result of new product introductions; changes in
distributors' ordering patterns; changes in operating expenses; changes in
Company strategy; personnel changes; foreign currency exchange rates; regulatory
requirements and political and economic instability in foreign markets; mix of
products sold; and general economic conditions. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
Liquidity and Capital Resources
The Company currently finances its operations (including capital expenditures)
primarily through cash flow from operations and its current cash and short-term
investment balances. For the nine months ended September 30, 1996, operating
activities used cash of $1.8 million, primarily related to the net loss,
increases in income taxes receivable and other decreases in accrued liabilities,
offset by depreciation expense and increases in accounts payable. Capital
expenditures totaled $9.4 million for the period.
As of September 30, 1996, the Company had cash, cash equivalents and short-term
investments totaling approximately $58.5 million.
The Company maintains an unsecured bank line of credit expiring in May 1997 that
provides for borrowings up to $5 million at the bank's prime rate. No borrowings
were outstanding under the line of credit at September 30, 1996.
The Company's principal commitments as of September 30, 1996 consisted primarily
of leases on its headquarters facilities. There were no material commitments for
capital expenditures.
The Company believes that its current cash balances and cash flow from
operations will be sufficient to meet its working capital and capital
expenditure requirements for at least the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to this item may be found in Note 4 of Notes
to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report
on Form 10-Q.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
None
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
<PAGE>
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.
WONDERWARE CORPORATION
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(Registrant)
Date: November 12, 1996 /s/ Roy H. Slavin
------------------------- ----------------------------------------------------
Roy H. Slavin
Chairman of the Board, President and Chief
Executive Officer (Principal executive officer)
Date: November 12, 1996 /s/ Sam M. Auriemma
- - -------------------------- ----------------------------------------------------
Sam M. Auriemma
Vice President, Finance and Chief Financial Officer
(Principal financial and accounting officer)
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