SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31, 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 0-21342
WIND RIVER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2873391
(State of incorporation) (I.R.S. Employer Identification No.)
1010 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501
(Address of principal executive office)
(510) 748-4100
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock: 25,997,137 shares outstanding as of November 30, 1997
WIND RIVER SYSTEMS, INC.
FORM 10-Q
QUARTER ENDED OCTOBER 31, 1997
INDEX
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Income Statements for the three
and nine month periods ended October 31,
1997 and October 31, 1996
Consolidated Balance Sheets at October 31,
1997 and January 31, 1997
Consolidated Cash Flows Statements for the
nine month periods ended October 31, 1997
and October 31, 1996
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II: OTHER INFORMATION
Item 6. Exhibits
Signature
2
WIND RIVER SYSTEMS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying consolidated financial information is unaudited but, in the
opinion of management, reflects all adjustments (which include only normally
recurring adjustments) necessary for a fair presentation of the results for
the periods shown. The unaudited consolidated financial statements and
analyses should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended January 31, 1997
included in the Annual Report on Form 10-K previously filed with the
Securities and Exchange Commission.
The results for the three months and nine months ended October 31, 1997, are
not necessarily indicative of the results to be expected for the entire year.
3
WIND RIVER SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(unaudited)
Three months ended Nine months ended
------------------------ ------------------------
October 31, October 31,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Products $ 16,932 $ 12,297 $ 46,115 $ 31,527
Services 7,068 4,303 18,285 12,673
----------- ----------- ----------- -----------
Total revenues 24,000 16,600 64,400 44,200
----------- ----------- ----------- -----------
Cost of revenues:
Products 1,564 1,126 4,571 3,461
Services 2,664 1,676 6,964 4,981
----------- ----------- ----------- -----------
Total cost of revenues 4,228 2,802 11,535 8,442
----------- ----------- ----------- -----------
Gross profit 19,772 13,798 52,865 35,758
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 8,153 6,133 23,753 17,039
Product development 2,877 1,883 8,316 5,391
General and administrative 1,531 1,224 4,634 3,375
----------- ----------- ----------- -----------
Total operating expenses 12,561 9,240 36,703 25,805
----------- ----------- ----------- -----------
Operating income 7,211 4,558 16,162 9,953
----------- ----------- ----------- -----------
Other income (expense):
Interest income 910 872 2,608 1,315
Minority interest in consolidated subsidiary 20 (37) 28 (95)
----------- ----------- ----------- -----------
Total other income 930 835 2,636 1,220
----------- ----------- ----------- -----------
Income before income taxes 8,141 5,393 18,798 11,173
Provision for income taxes 2,931 1,933 6,768 4,153
----------- ----------- ----------- -----------
Net income $ 5,210 $ 3,460 $ 12,030 $ 7,020
----------- ----------- ----------- -----------
Net income per share $ 0.18 $ 0.12 $ 0.43 $ 0.27
----------- ----------- ----------- -----------
Weighted average common and common equivalent
shares 28,276 27,986 28,208 25,568
----------- ----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
4
WIND RIVER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
(unaudited)
October 31, January 31,
1997 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,218 $ 9,848
Short-term investments 154,566 46,895
Accounts receivable, net of allowances
of $1,241 and $1,204 13,569 13,296
Prepaid and other current assets 6,089 4,780
------------ ------------
Total current assets 190,442 74,819
Investments 64,259 43,004
Land and equipment, net of
accumulated depreciation of $9,897 and $7,328 23,819 8,426
Capitalized software costs, net of
accumulated amortization of $2,862 and $2,382 713 828
Deposits and other assets 9,702 1,584
------------ ------------
Total assets $ 288,935 $ 128,661
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,390 $ 1,340
Accrued liabilities 7,990 5,657
Accrued compensation 5,534 4,391
Income taxes payable 6,300 1,941
Deferred revenue 13,249 6,271
------------ ------------
Total current liabilities 35,463 19,600
Long-term debt 140,000 --
------------ ------------
Total liabilities 175,463 19,600
------------ ------------
Minority interest in consolidated subsidiary 284 312
------------ ------------
Stockholders' equity:
Common stock, par value $.001, 75,000
shares authorized, 25,983 and 25,382
shares issued, and 25,570 and 25,269
shares outstanding 26 25
Additional paid in capital 92,590 89,890
Cumulative translation adjustments (1,414) (310)
Unrealized gain (loss) on securities 323 (353)
Retained earnings 34,648 22,618
Treasury stock, 413 and 113 shares, at cost (12,985) (3,121)
------------ ------------
Total stockholders' equity 113,188 108,749
------------ ------------
Total liabilities and stockholders' equity $ 288,935 $ 128,661
------------ ------------
See accompanying notes to the consolidated financial statements.
5
WIND RIVER SYSTEMS, INC.
CONSOLIDATED CASH FLOWS STATEMENTS
(In thousands)
(Unaudited)
Nine months ended
--------------------------------
October 31,
--------------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 12,030 $ 7,020
Adjustments to reconcile net income to net cash
provided by operations:
Provision for doubtful accounts receivable 37 109
Depreciation and amortization 2,569 1,556
Amortization of capitalized software costs 480 450
Amortization of debt issuance costs 257 --
Deferred income taxes -- 37
Minority interest in consolidated subsidiary (28) 97
Change in assets and liabilities:
Accounts receivable (310) (2,627)
Prepaid and other assets (4,609) (1,779)
Accounts payable 1,050 (280)
Accrued liabilities 2,333 1,243
Accrued compensation 1,143 940
Income taxes payable 4,359 2,281
Deferred revenue 6,978 55
------------ ------------
Net cash provided by operating activities 26,289 9,102
------------ ------------
Cash flows from investing activities:
Capital expenditures (17,962) (4,777)
Capitalized software costs (365) (527)
Investment sales 74,455 50,743
Investment purchases (202,705) (115,565)
------------ ------------
Net cash used in investing activities (146,577) (70,126)
------------ ------------
Cash flows from financing activities:
Common stock issuances, net 2,701 55,840
Treasury stock purchases (9,864) (7,050)
Sales of treasury stock -- 9,532
Long-term debt issuance, net 134,925 --
------------ ------------
Net cash provided by financing activities 127,762 58,322
------------ ------------
Effect of exchange rate changes on cash (1,104) (461)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 6,370 (3,163)
------------ ------------
Cash and cash equivalents at beginning of period 9,848 9,205
------------ ------------
Cash and cash equivalents at end of period $ 16,218 $ 6,042
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 3,037 $ 2,421
------------ ------------
See accompanying notes to the consolidated financial statements.
6
WIND RIVER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with the rules and regulations of the Securities and Exchange
Commission, the unaudited consolidated financial statements omit or condense
certain information and footnote disclosures normally required for complete
financial statements prepared in accordance with generally accepted
accounting principles.
Certain amounts in the fiscal 1997 consolidated financial statements have
been reclassified to conform to the fiscal 1998 presentation.
2. EARNINGS PER SHARE
Earnings per share is computed under the treasury stock method using the
weighted average number of common shares and dilutive common stock equivalent
shares outstanding during the period. The 5% Convertible Subordinated Notes
(see Note 5) are not common stock equivalents and, therefore, have been
excluded from the computation of earnings per share. The 5% Convertible
Subordinated Notes presently have an anti-dilutive effect on the three-month
and nine-month computations of fully diluted earnings per share.
3. COMMON STOCK TRANSACTIONS
On March 10, 1997, the Company effected a three-for-two stock split by means
of a stock dividend to holders of the Company's Common Stock on February 24,
1997. All share numbers and prices in this document have been retroactively
adjusted to give effect to the stock split.
The Company repurchased and held as treasury stock 100,000 shares of common
stock in each of the first, second and third quarters of fiscal year 1998, at
a cost of $2.3 million, $3.6 million and $4.0 million, respectively.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings per Share". The statement simplifies the
standards for computing earnings per share (EPS) previously found in APB
Opinion No. 15, "Earnings per Share", and makes them more comparable to
international EPS standards. The Standard replaces the presentation of
primary EPS with a
7
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the financial statements for all entities with
complex capital structures. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS is computed
similarly to fully diluted EPS under APB Opinion No. 15. FAS 128 must be
adopted in connection with the Company's annual financial statements for the
year ending January 31, 1998. The following table represents unaudited, pro
forma disclosures of basic and diluted earnings per share in accordance with
FAS 128 assuming the standard was applied during all periods presented below:
- -------------------------------------------------------------------------------------------
Three months ended Nine months ended
- -------------------------------------------------------------------------------------------
October 31, October 31,
1997 1996 1997 1996
------- ------- ------- -------
Net income per common share, as reported $ 0.18 $ 0.12 $ 0.43 $ 0.27
Basic net income per common share, pro forma $ 0.20 $ 0.14 $ 0.48 $ 0.31
Diluted net income per common share, pro forma $ 0.18 $ 0.12 $ 0.43 $ 0.27
- -------------------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards
No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and
Related Information". The adoption of both statements is required for
fiscal years beginning after December 15, 1997.
FAS 130 establishes standards of disclosure and financial statement display
for reporting total comprehensive income and its individual components. FAS
131 changes current practice under FAS 14, "Financial Reporting of Segments
of a Business Enterprise", by establishing a new framework on which to base
segment reporting (referred to as the management approach) and also requires
interim reporting of segment information.
The Company is studying the implications of these new statements and the
impact of their implementation will have on its consolidated financial
statements.
In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" (the SOP).
This SOP is effective for transactions entered into in fiscal years beginning
after December 15, 1997. Retroactive application of the provisions of this
SOP is prohibited. The Company has reviewed the SOP and believes that, given
its current policies, the application of this SOP will not have a material
impact on the recording of future revenues.
8
5. LONG-TERM DEBT
In July 1997, the Company issued $140 million of 5.0% Convertible
Subordinated Notes (the "Notes"), due 2002. The Notes are subordinated to all
existing and future senior debt and, commencing 90 days following original
issuance, are convertible into shares of the Company's common stock at a
conversion price of $48.50 per share. The Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after August
2, 2000 at 102% initially, and thereafter at prices declining to 100% at
maturity, in each case plus accrued interest. Each holder of these Notes has
the right, subject to certain conditions and restrictions, to require the
Company to offer to repurchase all outstanding Notes, in whole or in part,
owned by such holder, at specified repurchase prices plus accrued
interest upon the occurrence of certain events. The costs incurred in
connection with the offering of $5.1 million are included in the prepaid
and other assets balance. These costs are being amortized over the 5-year
term of the Notes using the straight-line method, which approximates the
effective interest method. Interest on the Notes began accruing July 31, 1997
and is payable semi-annually on February 1 and August 1, commencing February
1, 1998.
6. LAND ACQUISITION
On October 24, 1997, the Company purchased real property in the City of
Alameda, California for $11.1 million. The property is being developed to
construct the Company's new headquarters facility. The purchase was
primarily financed by the Company's existing liquid resources.
On September 12, 1997, the Company entered into a $35 million operating lease
agreement for the purpose of financing construction costs of its new
headquarters facility. The operating lease payments will commence on
completion of construction in 1998. The lease provides the Company with the
option at the end of the lease of either acquiring the building at its
original cost or arranging for the building to be acquired. If the Company
does not purchase the building at end of the lease, the Company will be
contingently liable to the lessor for a residual value that is a significant
percentage of the original cost. The Company is also required, periodically
during the construction period, to deposit funds with a custodian as an
interest bearing security deposit to secure the performance of its
obligations under the lease.
9
WIND RIVER SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well
as in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the three and nine months ended October 31, 1997 were
$24.0 million and $64.4 million, respectively, compared to $16.6 million and
$44.2 million for the same periods in fiscal 1997.
Revenue from the sale of products increased 38% and 46% to $16.9 million and
$46.1 million for the three-month and nine-month periods in fiscal 1998,
compared to $12.3 million and $31.5 million for the same periods in fiscal
1997. These increases were due primarily to the continued market acceptance
of the Company's flagship product, Tornado-TM- and increased sales to the
telecommunication and computer equipment manufacturing industries.
Service revenues for the three and nine months ended October 31, 1997
increased $2.8 million and $5.6 million, respectively, representing increases
of 64% and 44%, respectively, over the comparable periods in fiscal 1997.
Increases in service revenues were due to an increased number of customers
requiring consulting and custom software design services. In addition,
increased sales of the Tornado-TM- software development environment has
generated additional revenue from maintenance support agreements.
COSTS OF REVENUES
The overall cost of products and services as a percentage of total revenues
increased to 18% in the three months ended October 31, 1997, from 17% in the
comparable period in fiscal 1997. The same percentages for the nine months
ended October 31, 1997 and 1996 were 18% and 19%, respectively.
Product-related cost of sales as a percentage of product revenues remained at
9% in the three-month period ended
10
October 31, 1997 from the same period of fiscal 1997. The same percentage
decreased to 10% from 11% in the nine-month period ended October 31, 1997.
These decreases were due to increases in sales of products which did not
carry royalty costs. Service-related cost of revenues decreased as a
percentage of service revenues to 38% for the three-month and nine-month
periods of fiscal 1998, from 39% in the same periods in fiscal 1997. The
cost of service revenues as a percentage of total revenues slightly increased
in the three month period from the prior fiscal year. The Company believes
it will be necessary to make significant investments in support-related
services for its customers in the future. Accordingly, the Company expects
such percentage may continue to increase as a result of these increased
investments.
OPERATING EXPENSES
Sales and marketing expenses decreased as a percentage of total revenues to
34% and 37% for the three and nine months ended October 31, 1997,
respectively. The same expenses constituted 37% and 39% of total revenues in
the same periods of fiscal 1997. In overall dollars, sales and marketing
expenses increased $2.0 million and $6.7 million, or 33% and 39%, in the
three-month and nine-month periods of fiscal 1998, respectively, over
comparable periods in the prior fiscal year. The growth in total revenues
continued to increase at a faster rate than sales and marketing costs in both
the three-month and nine-month periods of fiscal year 1998. The increase in
overall dollars resulted primarily from increases in sales personnel and
increases in expenses related to marketing and advertising programs.
Management expects to continue investing heavily in sales and marketing over
the current year to expand its customer base and introduce new products.
Product development expenses, which consist primarily of personnel costs,
increased to 12% of total revenues for the third quarter of fiscal 1998, from
11% for the same period in fiscal 1997. Such expenses, as a percentage of
total revenues, increased to 13% for the first nine months of fiscal 1998
from 12% for the same period in fiscal 1997. In overall dollars, product
development expenses increased $1.0 million and $2.9 million, or 53% and 54%,
for the third quarter and first nine months of fiscal 1998, respectively,
over the comparable periods in fiscal 1997. The Company believes it will
continue to be necessary to make significant investments in product
development for the foreseeable future.
General and administrative expenses decreased to 6% of total revenues for the
third quarter of fiscal 1998 from 7% for the same period in fiscal 1997.
Such expenses, as a percentage of total revenues, decreased to 7% for the
first nine months of fiscal year 1998 from 8% for the same period of fiscal
1997. In overall dollars, these expenses increased $307,000 and $1.3 million
for the three-month and nine-month periods of fiscal 1998, respectively,
compared to the same periods of fiscal 1997. This increase was primarily due
to the growth in worldwide staff and infrastructure investments in the areas
of information systems, finance and administration.
11
The effective tax rate in the third quarter of both fiscal 1998 and 1997
remained at 36%. The effective tax rate for the first nine months of fiscal
1998 decreased to 36% from 37% for the same period of fiscal 1997. The
provision for income taxes is an estimate based on the Company's anticipated
effective tax rate at the end of the fiscal year. The decrease in the
effective tax rate between the first quarters of fiscal 1998 and 1997 was due
to increased income from tax-free investment instruments.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company typically charges a one-time fee for a development license and a
run-time license fee for each copy of the Company's operating system embedded
in the customer's product. A key component of the Company's strategy is to
increase revenue through run-time license fees. Any increase in the
percentage of revenues attributable to run-time licenses will depend on the
Company's successful negotiation of run-time license agreements and on the
successful commercialization by the Company's customers of the underlying
products. In addition, the Company has experienced significant
period-to-period fluctuations in revenues and operating results and
anticipates that such fluctuations will continue. These fluctuations have
been caused by a number of factors, including customer buying patterns,
product development cycles, delays in shipments of new products and the
timing of significant sales of the Company's products.
In connection with the sale of Convertible Subordinated Notes, the Company
incurred $140 million in debt which resulted in an increase in its ratio of
long-term debt to total capitalization. As a result of this additional
indebtedness, the Company's principal and interest obligations have increased
substantially. The degree to which the Company will be leveraged could
materially and adversely affect the Company's ability to obtain financing for
working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service obligations will be dependent upon the
Company's future performance, which will be subject to financial, business
and other factors affecting operations of the Company, many of which are
beyond its control.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations may not be meaningful and should not
be relied upon as an indication of future performance. It is likely that, in
some future quarters, the Company's operating results will be below the
expectations of stock market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 (FAS 128), "Earnings per Share". The statement simplifies the standards
for
12
computing earnings per share (EPS) previously found in APB Opinion No. 15,
"Earnings per Share", and makes them more comparable to international EPS
standards. The Standard replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the financial statements for all entities with
complex capital structures. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS is computed
similarly to fully diluted EPS under APB Opinion No. 15. FAS 128 must be
adopted in connection with the Company's annual financial statements for the
year ending January 31, 1998.
The following table represents unaudited, pro forma disclosures of basic and
diluted earnings per share in accordance with FAS 128 assuming the standard
was applied during all periods presented below:
- -------------------------------------------------------------------------------------------
Three months ended Nine months ended
- -------------------------------------------------------------------------------------------
October 31, October 31,
1997 1996 1997 1996
------- ------- ------- -------
Net income per common share, as reported $ 0.18 $ 0.12 $ 0.43 $ 0.27
Basic net income per common share, pro forma $ 0.20 $ 0.14 $ 0.48 $ 0.31
Diluted net income per common share, pro forma $ 0.18 $ 0.12 $ 0.43 $ 0.27
- -------------------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards
No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and
Related Information". The adoption of both statements is required for
fiscal years beginning after December 15, 1997.
FAS 130 establishes standards of disclosure and financial statement display
for reporting total comprehensive income and its individual components. FAS
131 changes current practice under FAS 14, "Financial Reporting of Segments
of a Business Enterprise", by establishing a new framework on which to base
segment reporting (referred to as the management approach) and also requires
interim reporting of segment information.
13
The Company is studying the implications of these new statements and the
impact of their implementation will have on its consolidated financial
statements.
In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" (the SOP).
This SOP is effective for transactions entered into in fiscal years beginning
after December 15, 1997. Retroactive application of the provisions of this
SOP is prohibited. The Company has reviewed the SOP and believes that, given
its current policies, the application of this SOP will not have a material
impact on the recording of future revenues.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, the Company had working capital in excess of
approximately $155 million, and approximately $171 million in cash and
short-term investments. The Company also had long-term investments in excess
of $64 million.
Net cash provided by operating activities in the first nine months of fiscal
years 1998 and 1997 totaled $26.0 million and $9.1 million, respectively. In
the first nine months of fiscal 1998, net income, depreciation and
amortization, amortization of software costs, and changes in accounts
payable, accrued liabilities, accrued compensation, accrued income taxes
payable, and deferred revenue were partially offset by the change in accounts
receivable and prepaid and other assets. Deferred revenue increased because
of the increases in maintenance agreement sales and in prepaid distributor
purchase commitments. The increase in prepaid and other assets was due
primarily to deposits relating to the purchase of land. Income tax payable
increased due to increased operating income. In the same period of fiscal
1997, net income, depreciation and amortization, amortization of software
costs and changes in accrued liabilities and accrued income taxes payable
were partially offset by a change in accounts receivable and prepaid and
other assets.
Net cash used in investing activities in the first nine months of fiscal
years 1998 and 1997 totaled $146.6 million and $70.1 million, respectively.
In the first nine months of fiscal 1998, uses of cash in capital
expenditures, capitalized software costs, and purchases of security
investments were partially offset by cash provided from the sales of security
investments. In the same period of fiscal 1997, uses of cash in purchases of
security investments, capital expenditures and capitalized software cost were
partially offset by cash provided from the sales of security investments.
Capital expenditures were $18.0 million in the first nine months of fiscal
1998 compared to $4.8 million in the same period of fiscal 1997. The
increase was primarily due to the purchase of land for the Company's new
headquarters which was executed in October 1997.
Net cash provided by financing activities in the first nine months of fiscal
years 1998 and 1997 totaled $128.1 million and $58.3 million, respectively.
In July 1997, the Company sold $140 million of 5% Convertible Subordinated
Notes due 2002, realizing $134.9 million in proceeds after deducting
offering expenses. The Notes are convertible into common stock at a price of
$48.50 per share (see Note 5 of Notes
14
to Consolidated Financial Statements). In the first nine months of fiscal
1998, the Company also repurchased and held as treasury stock 300,000 shares
of common stock at a cost of $9.9 million. The purchases of treasury stock
were partially offset by the issuance of common stock for employee stock
option exercises and for the employee stock purchase program in the first
nine-month period of fiscal year 1998. In the same period of fiscal 1997,
the sale of treasury stock and issuance of common stock as part of a public
offering were partially offset by the repurchase of common shares held as
treasury stock.
On March 10, 1997, the Company effected a three-for-two stock split by means
of a stock dividend to all holders of the Company's Common Stock on February
24, 1997. All share numbers and prices in this document have been
retroactively adjusted to give effect to the stock split.
On October 24, 1997, the Company purchased real property in the City of
Alameda, California for $11.1 million. The property is being developed to
construct the Company's new headquarters facility. The purchase was
primarily financed by the Company's existing liquid resources.
On September 12, 1997, the Company entered into a $35 million operating lease
agreement for the purpose of financing construction costs of its new
headquarters facility. The operating lease payments will commence on
completion of construction in 1998. The lease provides the Company with the
option at the end of the lease of either acquiring the building at its
original cost or arranging for the building to be acquired. If the Company
does not purchase the building at end of the lease, the Company will be
contingently liable to the lessor for a residual value that is a significant
percentage of the original cost. The Company is also required, periodically
during the construction period, to deposit funds with a custodian as an
interest bearing security deposit to secure the performance of its
obligations under the lease.
Management believes that the Company's working capital and the cash flow
generated from operations are sufficient to meet its working capital
requirements for planned expansion, product development and capital
expenditures for at lease the next twelve months.
15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
10.19 Lease Agreement between Deutsche Bank AG, New York Branch,
and Wind River Systems, Inc., dated as of September 12, 1997.
11 Computation of Earnings per Share
27 Financial Data Schedule
No other items.
SIGNATURE
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto authorized.
WIND RIVER SYSTEMS, INC.
Date: December 15, 1997 \s\ RICHARD W. KRABER
---------------------------
Richard W. Kraber
Chief Financial Officer
16