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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 March 31, 1997
[ ] 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 0-22044
WONDERWARE CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 33-0304677
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(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
100 Technology Drive, Irvine, California 92618
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(Address of principal executive offices) (Zip Code)
(714) 727-3200
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(Registrant's telephone number, including area code)
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 March 31, 1997, there were 14,026,441 shares of the Registrant's Common
Stock outstanding.
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WONDERWARE CORPORATION
FORM 10-Q INDEX
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 product 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 those
factors discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations (unaudited)
for the Three Month Periods Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited) for the
Three Month Periods Ended March 31, 1997 and 1996 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
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
WONDERWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
---------------- ------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,109,993 $ 26,487,553
Short-term investments 30,969,002 25,681,766
Accounts receivable, net 11,984,858 12,377,041
Inventories 865,140 1,100,056
Deferred tax assets 2,184,687 2,184,687
Prepaid expenses and other current assets 3,274,539 2,796,136
---------------- ------------------
Total current assets 67,388,219 70,627,239
Property and equipment, net 13,067,888 13,395,833
Goodwill, net 4,708,542 4,829,792
Noncurrent deferred tax assets 3,736,296 3,736,296
Other assets 1,176,783 1,099,703
---------------- ------------------
Total assets $ 90,077,728 $ 93,688,863
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 498,134 $ 289,446
Accounts payable 3,309,107 5,210,079
Accrued employee incentive compensation 721,887 977,793
Accrued commissions 355,317 309,845
Income taxes payable 426,214 80,247
Accrued payroll and related liabilities 1,895,785 2,845,333
Other accrued liabilities 1,509,019 3,728,163
Deferred revenue 2,240,664 1,641,605
---------------- ------------------
Total current liabilities 10,956,127 15,082,511
Commitments
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares
authorized; 14,026,441 and 13,865,896 shares
issued and outstanding at March 31, 1997 and
December 31, 1996, respectively 14,027 13,866
Additional paid-in capital 87,151,646 86,424,172
Unrealized loss on short-term investments (57,539) (14,905)
Accumulated translation loss (241,354)
Accumulated deficit (7,745,179) (7,816,781)
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Total stockholders' equity 79,121,601 78,606,352
---------------- ------------------
Total liabilities and stockholders' equity $ 90,077,728 $ 93,688,863
================ ==================
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
WONDERWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31,
-----------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Total revenues $ 18,303,408 $ 15,922,876
Cost of sales 1,152,758 1,029,037
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Gross profit 17,150,650 14,893,839
Operating expenses:
Research and development 4,655,572 4,133,667
Selling, general and administrative 12,943,162 9,157,121
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Operating income (loss) (448,084) 1,603,051
Other income, net 546,846 664,810
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Income before provision for income taxes 98,762 2,267,861
Provision for income taxes 27,160 771,192
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Net income $ 71,602 $ 1,496,669
============ ============
Net income per common and
common equivalent share $ 0.01 $ 0.11
Weighted average common and
common equivalent shares 14,214,689 14,022,459
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
WONDERWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
----------------------------------------
1997 1996
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 71,602 $ 1,496,669
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,673,996 855,950
Provision for doubtful accounts 82,450
Deferred taxes 262,916
Compensation costs related to stock option grants 47,497 325,728
Changes in operating assets and liabilities:
Accounts receivable 102,351 (760,657)
Income tax refund receivable (113,968)
Inventories 210,489 (142,793)
Prepaid expenses and other current assets (650,343) 44,006
Accounts payable (1,871,049) 1,676,937
Accrued employee incentive compensation (245,581) (490,703)
Accrued commissions 45,472 (149,245)
Income taxes payable 370,523 (438,548)
Accrued payroll and other accrued liabilities (3,107,545) (1,732,062)
Deferred revenue 599,059 449,104
------------------ ------------------
Net cash provided by (used in) operating activities (2,753,529) 1,365,784
Cash flows from investing activities:
Purchases of property and equipment (1,171,442) (3,701,912)
Purchases of short-term investments (11,723,526) (15,135,195)
Sales and maturities of short-term investments 6,393,656 16,012,795
Net cash used in investing activities (6,501,312) (2,824,312)
Cash flows from financing activities:
Proceeds from exercise of stock options 148,901 484,968
Tax benefit related to exercise of stock options 583,070
Borrowings on bank line of credit 233,247
Net proceeds from issuance of common stock 531,237 723,109
------------------ ------------------
Net cash provided by financing activities 913,385 1,791,147
Effect of exchange rate changes on cash (36,104)
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Net increase (decrease) in cash and cash equivalents (8,377,560) 332,619
Cash and cash equivalents, beginning of period 26,487,553 22,637,986
------------------ ------------------
Cash and cash equivalents, end of period $ 18,109,993 $ 22,970,605
================== ==================
Supplemental cash flow information:
Interest paid $ 11,109
Income taxes paid $ 68,844 $ 459,000
</TABLE>
See accompanying notes to consolidated financial statements.
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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, 1996 filed with the SEC in March 1997. 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 March 31, 1997, and the results of its operations and its cash
flows for the three month periods ended March 31, 1997 and 1996. 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 Earnings Per Share
Net income per common and common equivalent share is computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding. For the three month periods ended March 31, 1997 and 1996 weighted
average common and common equivalent shares include common shares and stock
options using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Early adoption of the statement is not permitted. The
Company has determined that the adoption of this statement would not have had a
material impact on the earnings per share calculation for the periods presented.
3. Legal Proceedings
In 1995, The Foxboro Company ("Foxboro") initiated litigation against Soft
Systems Engineering, Inc. ("SSE") in the U.S. District Court for the District of
Massachusetts to delay the acquisition of SSE by the Company and subsequently
amended its complaint to assert additional claims with respect to Foxboro's
ownership interest in certain software developed by SSE, which interest is
subject to a repurchase right in favor of SSE. Following the completion of the
acquisition of SSE by the Company, Foxboro withdrew its initial claims related
directly to the acquisition. SSE has tendered payment to Foxboro for the
repurchase of Foxboro's asserted ownership interest in the subject software,
which Foxboro has rejected. In 1996, SSE filed its answer and counterclaim to
Foxboro's amended complaint, seeking damages based upon SSE's allegation that
Foxboro breached its contractual obligation to sell its interest in the subject
software. In January 1997, the parties negotiated an agreement for the mutual
dismissal, without prejudice, of the claims asserted in the litigation. Further
proceedings in the litigation have been stayed pending execution of the written
agreement of dismissal.
In July 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 in 1995
upon the Company's acquisition of EnaTec Software Systems, Inc., in which
Messrs. Delivanis and Preysman
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owned a substantial majority of the stock. 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, in September 1996, Mr. Delivanis, Mr. Preysman, and the Delivanis
Family Trust filed a complaint for declaratory judgment and specific
performance, seeking registration of certain Wonderware common stock. The
Company has filed an answer and cross-complaint in response. Further, in
December 1996, Mr. Delivanis, Mr. Preysman and the Delivanis-Kibrick Family
Trust filed a complaint in the U.S. District Court for the Northern District of
California. This complaint was served on the Company in January 1997, and
alleges securities law violations, fraud and deceit, and negligent
misrepresentation. The Company also intends to file an answer and
cross-complaint in this action. The Company intends to vigorously defend the
allegations made against it; however, it is too early to determine the impact,
if any, of these proceedings on the Company, its financial condition or the
results of the Company's operations.
In October 1996, the Company filed a complaint in the U.S. District Court for
the Central District of California (the "California Action") against Cyberlogic
Technologies, Inc. (Cyberlogic) and Intellution, Inc. (Intellution). The
complaint alleges that Cyberlogic and Intellution have infringed the copyright
of particular software programs which Cyberlogic originally developed under
contract for the Company, and seeks preliminary and permanent injunctive relief
as well as actual and punitive damages and attorneys fees. In October 1996, the
Court issued a temporary restraining order against Cyberlogic and Intellution,
and pursuant to the Court's order, U.S. Marshals seized and copied certain
materials at the offices of Cyberlogic and Intellution. In January 1997, the
Court entered its preliminary injunction which generally bars Cyberlogic and
Intellution from marketing or otherwise distributing any infringing copies of
the computer software at issue in the proceeding. In February 1997, Intellution
filed its appeal of the preliminary injunction to the U.S. Court of Appeals for
the Ninth Circuit, and the Court denied the defendants' requests to stay the
injunction pending appeal. Cyberlogic has also appealed the injunction.
In December 1996, Cyberlogic submitted a demand for arbitration of the
underlying contractual issues involved in these proceedings. The U.S. District
Court for the Central District of California has ordered the case to arbitration
in Michigan before the American Arbitration Association. Dates for hearing the
arbitration and other related events have not yet been set. The Company intends
to vigorously prosecute its claims in the arbitration. It is too early to
determine the impact, if any, of these proceedings on the Company, its financial
condition or the results of the Company's operations.
In January 1997, the Company received a copy of a complaint which Cyberlogic
filed in the U.S. District Court for the Eastern District of Michigan (the
"Michigan Action"). Among other claims, this complaint purports to claim damages
in excess of $40 million and injunctive relief for the Company's alleged
infringement of certain software programs which Cyberlogic contends it owns. The
Company believes the allegations in Cyberlogic's complaint to be without merit
and intends to vigorously defend itself against these claims. Further, the
Company believes that these claims arise out of or relate to the proceeding
pending in the U.S. District Court of the Central District of California and the
anticipated arbitration proceeding, where they should be adjudicated. The
Company intends to ask the court in the Michigan Action to send these claims to
arbitration. It is too early to determine the impact, if any, of this proceeding
on the Company, its financial condition or the results of the Company's
operations.
In December 1996, the Company was notified that a complaint had been filed in
the U.S. District Court for the Eastern District of Pennsylvania by Otto M.
Voit, III. In the complaint, Mr. Voit purports to be acting on behalf of all
former holders of common stock, or options to acquire common stock, of SSE. Mr.
Voit alleges in the complaint that the Company and certain of its officers made
false and misleading statements and concealed material information in connection
with the Company's acquisition of SSE. In the complaint, Mr. Voit claims that
these alleged misrepresentations and omissions constitute violations of various
federal and state securities laws, fraud,
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negligence and inducement to enter into a contract by material
misrepresentation, and he requests relief in the form of compensatory and
punitive damages as well as the costs incurred in pursuing his claims. In
January 1997, the Company filed a motion to dismiss the complaint on several
grounds. No hearing date has been set on the motion. The case is in a
preliminary stage and no discovery has been conducted to date. The Company
believes the allegations in the complaint to be without merit and intends to
vigorously defend itself and the other defendants, each of whom has been
previously indemnified by the Company in connection with his employment as an
officer of the Company, against the claims stated in the complaint. It is too
early to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.
8
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Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
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:
Three months ended March 31,
------------------------------
1997 1996
------------- -------------
(Unaudited) (Unaudited)
Total revenues 100.0% 100.0%
Cost of sales 6.3% 6.5%
------------- -------------
Gross profit 93.7% 93.5%
Operating expenses:
Research and development 25.4% 26.0%
Selling, general and administrative 70.7% 57.5%
------------- -------------
Operating income (loss) -2.4% 10.0%
Other income, net 2.9% 4.2%
------------- -------------
Income before provision for income taxes 0.5% 14.2%
Provision for income taxes 0.1% 4.8%
------------- -------------
Net income 0.4% 9.4%
============= =============
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 March 31, 1997 increased 15 percent to $18.3 million
from $15.9 million for the comparable quarter of 1996. The increase was
primarily due to increased unit sales prices of Wonderware InTouch products,
enhanced by increased unit sales of newer product lines such as Wonderware
InTrack and Wonderware InBatch. The Company completed the acquisition of its
distributor in Germany in December 1996. Revenues subsequent to the close of the
acquisition reflect higher unit sales prices because there is no longer a
distributor discount associated with such sales. Revenues from the Wonderware
InTouch product line represented approximately 90 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 as new
products are introduced.
International sales increased to $8.9 million, or 49 percent of total revenues,
for the three months ended March 31, 1997 from $7.1 million, or 45 percent of
total revenues, for the same quarter of 1996. The increase in international
sales resulted primarily from sales growth in Asia and the elimination of the
distributor discount on certain sales in Europe as a result of the Company's
recent acquisition of its German distributor. 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, regulatory requirements, political and economic
instability, and trade restrictions. Although the Company's sales have typically
been made in US dollars, the Company's German subsidiary conducts its operations
in German marks. Therefore, a portion of the Company's revenues is directly
subject to the risk of currency fluctuations in that market. In addition, 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.
In April 1997, the Company began shipment of the Wonderware FactorySuite. This
product line bundles together the development versions of most of the Company's
products into a single package. The Wonderware FactorySuite is being sold at a
reduced price as compared to buying each of the Company's current products
separately. The discount available to customers that purchase the Wonderware
FactorySuite could have a material adverse impact
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on the Company's future revenues from its other products. The Company also
expects that some of its competitors will offer similar suites of products.
There can also be no assurance that the Wonderware FactorySuite will gain market
acceptance.
The life cycles of the Company's products are difficult to estimate due in large
measure to the recent emergence of some of the Company's markets, 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 cost of manuals, diskettes and
duplication, packaging materials, assembly, paper goods, third-party software
royalties, amortization of acquired technology and shipping. All internal costs
related to research and development of software products and enhancements to
existing products are expensed as incurred.
The Company's consolidated gross margin remained constant at approximately 94
percent for the three months ended March 31, 1997 and 1996. Gross profit
increased to $17.2 million for the three months ended March 31, 1997 from $14.9
million for the comparable quarter of 1996, primarily due to increased sales
volume and the elimination of the distributor discount on certain sales as a
result of the Company's acquisition of its distributor in Germany. The increase
in margin attributable to the German operation offset a small decline in the
gross margin in the first quarter of 1997 as compared to the first quarter of
1996. This decline was the result of increased manufacturing costs associated
with product enhancements, combined with a slight increase in third party
royalties. Gross margin is expected to decline in future periods as sales of new
products incorporating additional third party royalties commence or increase.
Research and development expenses. Research and development expenses consist
primarily of personnel and equipment costs required to conduct the Company's
development effort. Such expenses for the three months ended March 31, 1997
increased 13 percent to $4.7 million from $4.1 million for the same quarter of
1996 while decreasing as a percentage of total revenues to 25 percent from 26
percent. The spending increase is primarily attributable to the addition of
development personnel and depreciation on fixed asset purchases made during 1996
in support of the development effort. This increase was offset by reduced
operating expenses resulting from the closure of the Company's development
center in Cupertino, California during February 1997. The Company believes that
the introduction of new technologies and products to the industrial automation
market in a timely manner is critical to 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 the enhancement of current products, the addition of new product
capabilities and the integration efforts associated with the Wonderware
FactorySuite.
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 March 31, 1997.
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 compensation costs of
administrative, sales and marketing personnel; advertising and promotional
expenses; and customer service and technical support costs. Selling, general and
administrative expenses increased 41 percent to $12.9 million for the three
months ended March 31, 1997 from $9.2 million for the same quarter of 1996, and
increased as a percentage of total revenues to 71 percent from 58 percent. The
increase in the dollar amount of selling, general and administrative expenses
was primarily due to increased staffing in field sales and marketing
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required to further penetrate current and new markets for the Company's
products; increased staffing in technical support to provide service to the
Company's new product lines; and increased staffing and other costs in
administrative functions to support the overall growth of the Company. The
Company expects that such expenses will continue to increase in absolute
dollars, although at a slower rate than in prior quarters, as it expands its
worldwide sales distribution and customer support network to penetrate new
markets for the Wonderware FactorySuite products, as well as to increase
worldwide market penetration for its Wonderware InTouch product line.
Provision for income taxes. The Company's effective tax rate for the first
quarter of 1997 was 28 percent as compared to 34 percent for the same quarter of
1996. The decrease was primarily the result of the utilization of operating loss
and tax credit carryforwards.
Net income. Net income for the three months ended March 31, 1997 declined to
approximately $72,000, or $.01 per share, from $1.5 million, or $.11 per share,
for the comparable quarter in 1996. 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 net
income as a percentage of total revenues will continue to be lower than
historical levels. There can be no assurance that the Company will sustain
profitable operations in the future.
Fluctuations in quarterly operating results
Many software companies experience seasonal variations in revenues, with soft
domestic sales in the first quarter and soft European sales in the third
quarter. Although the significant growth in the Company's total revenues over
the past several years may have masked seasonal variations in the Company's
operating results, the Company believes that its results of operations are
subject to similar quarterly variations.
The Company has experienced significant fluctuations in its quarterly operating
results. The Company expects to experience significant fluctuations in future
quarterly operating results that 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 and the integration of such 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; litigation expenses and
judgments resulting from litigation involving the Company; 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.
Because the Company ships software within a short period after receipt of an
order, the Company typically does not have a material backlog of unfilled orders
and revenues in any quarter are substantially dependent on orders booked in that
quarter. The Company's expense levels are based in part on its expectations as
to future revenues and the Company may be unable to adjust spending in a timely
manner to compensate for any revenue shortfall. Accordingly, operating results
would be adversely affected by a reduction in revenues in that quarter since the
majority of the Company's expenses are fixed. Any significant weakening in
demand would have an almost immediate adverse impact on the Company's operating
results and on the Company's ability to achieve profitability. Fluctuations in
operating results may also result in volatility in the price of the Company's
common stock.
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 three months ended March 31, 1997,
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operating activities used cash of $2.8 million, primarily related to decreases
in accounts payable and accrued liabilities, offset by increases in deferred
revenue and depreciation and amortization expense.
During the three months ended March 31, 1997, investing activities used cash of
$6.5 million, primarily related to net purchases of short-term investments and
capital expenditures. The issuance of capital stock through the Employee Stock
Purchase Plan and borrowings on the German bank line of credit provided cash
from financing activities of $913,000.
As of March 31, 1997, the Company had cash, cash equivalents and short-term
investments totaling approximately $49.1 million.
The Company maintains an unsecured bank line of credit expiring in May 1997 that
provides for borrowings of up to $5 million at the bank's prime rate. The
Company anticipates that it will be able to renew the line of credit on terms
comparable to the current line. No borrowings were outstanding under this line
of credit at March 31, 1997. The Company's German subsidiary maintains a
separate bank line of credit in Germany which expires in February 1998. This
line of credit provides for maximum borrowings of 2.5 million German marks at
the German bank's prime rate. Approximately $498,000 (DM834,000) of borrowings
against the German credit line were outstanding as of March 31, 1997.
The Company's principal commitments as of March 31, 1997 consisted primarily of
leases on its headquarters and other facilities, and there were no material
commitments for capital expenditures.
The Company believes that its cash and short-term investment balances and
availability under its bank line of credit as of March 31, 1997, and cash flow
from operations will be sufficient to meet its working capital and capital
expenditure requirements for at least the next twelve months.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to this item may be found in Note 3 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
Exhibit 11 Statement Regarding Computation of Net Income Per
Share.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
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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
-----------------------------------------------
(Registrant)
Date: May 15, 1997 /s/ Roy H. Slavin
-------------------- ------------------------------------------------
Roy H. Slavin
Chairman of the Board, President and Chief
Executive Officer
(Principal executive officer)
Date: May 15, 1997 /s/ Sam M. Auriemma
-------------------- ------------------------------------------------
Sam M. Auriemma
Vice President, Finance and Chief Financial
Officer
(Principal financial and accounting officer)
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WONDERWARE CORPORATION
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
Three months ended March 31,
-------------------------------
1997 1996
-------------- --------------
Weighted average common shares
outstanding during period 13,948,435 13,434,112
Exercise of outstanding stock options
(including "cheap stock" options), less
shares assumed repurchased 266,254 588,347
-------------- --------------
Weighted average common and common
equivalent shares 14,214,689 14,022,459
============== ==============
Net income $ 71,602 $ 1,496,669
============== ==============
Net income per share $ 0.01 $ 0.11
============== ==============
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