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ANNUAL REPORT AND FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21342
WIND RIVER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2873391
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1010 Atlantic Avenue, Alameda, California 94501
(510) 748-4100
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock by non-affiliates of the
registrant as of March 1, 1997 was $513,215,000. This calculation does not
reflect a determination that persons are affiliates for any other purposes.
Number of shares of common stock outstanding as of March 1, 1997: 25,397,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III - Portions of the registrant's definitive proxy statement to be issued
in conjunction with registrant's annual stockholders' meeting to be held on July
24, 1997.
T A B L E O F C O N T E N T S
Part I Item 1. Business 3
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Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 4A. Executive Officers of the Registrant 12
- --------------------------------------------------------------------------------
Part II Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 20
- --------------------------------------------------------------------------------
Part III Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management 34
Item 13. Certain Relationships and Related Transactions 34
- --------------------------------------------------------------------------------
Part IV Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 35
Signatures 37
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P A R T I
Except for the historical information contained herein, the discussion in this
Form 10-K contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below, as well as under the
captions "Additional Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
I T E M 1.
BUSINESS
Wind River Systems, Inc. ("Wind River" or the "Company") develops, markets and
supports advanced software operating systems and development tools that allow
customers to create complex, robust, real-time software applications for
embedded computers. An embedded computer is a microprocessor that is
incorporated into a larger device and is dedicated to responding to external
events by performing specific tasks quickly, predictably and reliably. Some
examples of such devices are telecommunications products such as PABX, routers,
central office switches and call processing systems; office products such as fax
machines, laser printers and photocopiers; vehicle anti-lock brakes and
navigation systems; consumer products such as camcorders, video games and
set-top boxes; medical instrumentation and imaging systems; and industrial
automation equipment such as robots. Wind River's flagship product, Tornado,
enables customers to enhance product performance, standardize designs across
projects, reduce research and development costs and shorten product development
cycles.
Wind River markets its products and services in North America and Europe
primarily through its own direct sales organization, which consists of
salespersons and field application engineers. Wind River has eight licensed
international distributors principally to serve customers in regions not
serviced by the Company's direct sales force or its Japanese master
distributors. Wind River's customers include 3Com, ABB, Bay Networks, StrataCom
(Cisco Systems), General Motors, Hewlett-Packard, Hitachi, Hughes Network
Systems, Intel, Lockheed-Martin, Mitsubishi, Motorola, NEC, NCI (Oracle),
Northern Telecom, Rockwell, Siemens, Silicon Graphics, Sun Microsystems and
Texas Instruments.
The Company was incorporated in California in 1983 and reincorporated in
Delaware in April 1993. The Company's principal executive offices are located at
1010 Atlantic Avenue, Alameda, California 94501 and its telephone number at that
location is (510) 748-4100.
BACKGROUND
Embedded systems consist of a microprocessor and related software, incorporated
into a larger device, dedicated to performing a specific set of tasks. Embedded
systems provide an immediate, predictable response to an unpredictable sequence
of external events. As more powerful microprocessors have become available and
decreased in price, embedded systems are being used in a wider range of
applications and are facilitating the development of entirely new products.
Today, embedded systems are found in telecommunications products such as PABX,
routers, central office switches and call processing systems; office products
such as fax machines, laser printers and photocopiers; automotive products such
as vehicle anti-lock brakes and navigation systems; consumer products such as
camcorders, video games and set-top boxes; medical products such as
instrumentation and imaging systems; and industrial automation equipment such as
robots. Emerging embedded Internet applications for interactive entertainment,
network computers, remote maintenance and other areas may offer significant
additional opportunities for embedded systems.
To succeed in today's increasingly competitive markets, manufacturers using
embedded computers must bring complex applications for embedded systems to
market rapidly and economically. Developing real-time embedded applications has
evolved from a relatively modest programming task to a complex engineering
effort. As more powerful and affordable 32-bit microprocessors have become
available, products based on them have become richer in features and
functionality. In addition, the complexity of embedded software is increasing
dramatically, while the time available for product development is decreasing.
More sophisticated development tools are required to develop these more complex
applications, frequently including a real-time operating system ("RTOS") that
provides far more functionality, higher performance and greater productivity
than that necessary or feasible for programming prior generations of
microprocessors. Wind River's flexible
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operating systems and powerful development tools allow customers to create and
standardize complex real-time embedded software applications quickly and
efficiently.
As real-time embedded applications increase in complexity, the costs
associated with providing software development, support and training of
engineers are rising rapidly. In addition, time-to-market, conformance to
standards and product reliability have become critical issues for companies
developing real-time embedded applications.
PRODUCTS
Wind River's operating systems and development tools allow customers to create
complex real-time embedded software applications more quickly, more economically
and with less risk than creating such applications using internally-developed
systems and tools. 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 significantly 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.
Tornado
Wind River's flagship product is Tornado, a development environment for embedded
applications available for UNIX, Windows NT and Windows 95 development
platforms. Tornado was introduced in September 1995 and subsequently won the
Electronic Design News award for Innovation of the Year. Tornado is a scalable,
cross-development environment that enables engineers to develop embedded
applications on a host workstation or PC and download the code via a network or
other communications channel to an RTOS that runs on all significant 32- and 64-
bit embedded target microprocessors.
Tornado consists of three integrated components: the Tornado toolset, a set
of cross-development tools and utilities; the VxWorks run-time system, a high
performance, scalable RTOS which executes on the target processor; and a full
range of communications options.
The Tornado development toolset consists of a launcher, a GNU compiler for
C and C++ programs, a remote source level debugger, a user-interface shell, a
browser, and a variety of other software tools that run on the development host.
Tornado also offers a completely open and extensible environment that
facilitates the integration of a wide variety of third-party tools as well as
the customization of Tornado tools by the developer.
A set of application programs interfaces (APIs) is available and published
on the Internet for reference, from the GUI to the connection implementation.
The Company believes that this open environment may make Tornado the development
foundation of choice for embedded and real-time applications.
VxWorks
VxWorks is a high-performance, scalable RTOS based on an object-oriented
microkernel architecture that requires only 8 kilobytes for a minimal
configuration, and also supports large, complex applications. The run-time
system offers over 1,100 functions from real-time kernel functions to networking
to utility routines such as buffer and list management for accelerating
application development. With a wide selection of processors and board support
packages, VxWorks provides broad portability and adheres to a variety of
computing standards, including POSIX 1003.1/1b, ANSI C, and TCP/IP.
For communications, the development toolset can connect to an embedded
target over a variety of options, including Ethernet, serial line, in-circuit
emulator, ROM emulator, or custom. Tornado eliminates many of the dependencies
of a traditional cross-development environment. With Tornado, developers can use
any host-target communications strategy and the available tool functionality is
the same regardless of the target processor resources.
I2O Product Initiative
In January 1996, Intel and Wind River entered into an agreement pursuant to
which Intel has agreed to supply an evaluation copy of Tornado for I2O to each
customer purchasing an Intel i960RP/RD I/O microprocessor and a copy of IxWorks,
a version of VxWorks made specifically for the Intel i960RP/RD microprocessor,
on each such microprocessor sold. I2O is being proposed by a consortium of
leading enterprise computing vendors with the intent of defining and promoting
an open standard set of interface specifications for high-performance I/O
systems. The specification will be used by system, network and peripheral
interface card and operating system vendors to simplify the task of building and
maintaining high-
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performance I/O subsystems. The I2O specification makes it possible for systems
to distribute I/O functions across multiple processors, dramatically improving
I/O and overall system performance. Additionally, the specification allows
vendors of network and peripheral interface cards to write a single device
driver that will be compatible with a comprehensive range of operating systems
(OS), OS releases, and vendor OS implementations. A license for the Company's
IxWorks operating system will be included with every i960RP/RD that Intel ships.
IxWorks provides manufacturers the elements they need to quickly design I2O
specification-complaint intelligent I/O into servers and network and storage
adapter cards. Along with the license for IxWorks, Intel will deliver purchasers
of the Intel i960RP/RD I/O microprocessor a CD-ROM that includes a 30-day
evaluation copy of Tornado for I2O. The Company believes that its relationship
with Intel on the I2O specification project may open up a new, potentially
significant market opportunity for its products. See "Additional Risk Factors."
Embedded Internet-TM- Initiative
Wind River is currently working on various initiatives to capitalize on the
increasing use of the Internet. The Company believes that there may be
significant opportunities to increase the market size and scope for its products
via the Java paradigm and, through its Tornado for Java product, has brought
Java's cross-platform compatibility, Internet readiness and security to the
embedded world. The Company is also customizing many of its applications to
better serve datacommunication and telecommunication customers that are building
the Internet infrastructure.
UNIX, Windows NT and Windows 95 Support.
The Company's Tornado environment supports Unix, Windows NT and Windows 95
development environments, and is the only RTOS to have earned the right to use
Microsoft's "Designed for Windows-Registered Trademark-95" and "Designed for
Windows NT-Registered Trademark-" logos. The Company has maintained a strong
presence in providing development tools and the VxWorks RTOS for the UNIX
operating system. The Company also recognizes the importance of Windows NT and
Windows 95 as potentially dominant network operating systems, and in September
1995 began to support Windows NT and Windows 95 with the introduction of the
Tornado development environment.
Additional Products
In addition to the preceding core products, Wind River offers the following
additional products:
VXWORKS OPTIONS. VxWorks options include VXWindows, the VxVMITM virtual
memory interface, and the VxMPTM multi-processing package. VXWindows, which
includes the X Windows System client software together with OSF-Motif, allows
developers to build graphical VxWorks applications. VxVMI virtual memory
interface provides run-time memory management and debugging facilities and an
application program interface standardized across different microprocessing
architectures. The VxMP multiprocessing package allows applications to be scaled
beyond the performance of single microprocessors by allowing tasks on different
microprocessors to synchronize and communicate.
WINDNET. WindNetTM is Wind River's networking environment, comprising both
core technology from Wind River -- such as TCP/IP, STREAMS, and the WindNet SNMP
network management product -- and numerous integrated products from third party
partners providing various protocols, ATM, network management, and distributed
computing solutions.
VXSIM EMBEDDED SYSTEM SIMULATOR. VxSimTM is a comprehensive prototyping and
simulation tool that provides full VxWorks simulation on a UNIX workstation.
VxSim enables application development to begin before hardware becomes available
and allows software testing to occur early in the development cycle, when errors
are less costly to correct.
WINDVIEW. WindViewTM is a diagnostic and analysis tool that provides
detailed visibility into the dynamic operation of an embedded system. With it,
the user can quickly and easily visualize the complicated interaction among
tasks, interrupt service routines and system objects in an application. This
information is presented through a GUI.
STETHOSCOPE. The Company is a reseller of StethoScope, a real-time data
visualization, profiling and debugging tool that lets the end user examine and
analyze an embedded application while it is running. StethoScope features a
multi-window environment that allows program variables to be plotted dynamically
on a workstation.
WINDC ++ OBJECT-ORIENTED LANGUAGE SUPPORT. WindC++TM provides a
cost-effective basic set of capabilities for real-time C++ development. It
includes the cfront C++ Language System from Centerline Software, an integrated
source
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code debugger, an I/O streams class library for formatted and buffered I/O and a
runtime support library. WindC++ is integrated with Tornado and VxWorks.
WIND FOUNDATION CLASSES. Wind Foundation ClassesTM, designed specifically
to accompany Tornado, provide the C++ programming classes needed by a growing
number of customers.
WINDNAVIGATOR. A multi-language browsing tool, WindNavigatorTM enables
developers to see the relationships between objects and functions, and easily
build programs using existing, proven modules.
WILLOWS RT FOR TORNADO. Willows RT for Tornado enables developers to write
their applications to the standard Win32 application programming interface (API)
and deploy them on top of VxWorks.
BOARD SUPPORT PACKAGE PORTING KIT. The VxWorks operating system can be used
with a wide variety of processor types and target environments. They isolate all
hardware-specific functionality into a special section of code called the Board
Support Package or BSP. The BSP Porting Kit provides assistance to the developer
porting Tornado or VxWorks to custom hardware or to a commercial board not
supported by Wind River. It includes comprehensive documentation, a software
validation suite, project management tools and a template BSP to provide a
convenient starting point. To assist third-party developers, Wind River also
offers a service in which it tests and validates the resulting BSP.
SERVICES AND SUPPORT
Wind River provides comprehensive customer service and support that help
customers realize the value and potential of the Company's products.
TRAINING CLASSES. Wind River offers several training courses and workshops
relating to the use of its products. The courses are provided several times each
month and are taught by Wind River trainers at the Company's training facilities
in Alameda, California and Orlando, Florida. Outside North America, the courses
are given by distributors and training contractors. Training courses can also be
provided at a customer site.
TECHNICAL SUPPORT. The Company's technical support staff assists customers
with problems and questions in the installation and use of the Company's
products. Technical support is provided by Wind River's staff of support
engineers in North America, by staff support engineers and/or local
distributors in Europe and by the Company's Japanese subsidiary. Technical
support is bundled with product updates and maintenance and is offered on an
annual fee basis. Wind River's Tornado includes a tool for submitting problem
reports via the Internet.
ENGINEERING SERVICES. A number of services are provided on a
fee-for-service basis, including BSP validation, application level consulting,
customization, and porting to strategic semiconductor architectures. These are
coordinated and performed by the Engineering Services Group in North America and
Japan, though they may on occasion be supported by engineering or outside
subcontractors in North America and Europe.
STRATEGIC ALLIANCES
The Company believes that strategic relationships with semiconductor
manufacturers and embedded device manufacturers are significant strengths of the
Company and key to future success in the embedded systems marketplace. Wind
River has strategic relationships with most of the major semiconductor companies
including ARM, Hewlett-Packard, Hitachi, Intel, Mitsubishi, Motorola, NEC,
Siemens, Silicon Graphics and Sun Microsystems. This strategy has allowed the
Company to leverage its partners' sales channels to give its products the widest
possible market exposure. The Company also enters into joint marketing and sales
agreements with certain developers of third-party applications as a means to
enhance its products with industry-specific functionality. In January 1996,
Intel and Wind River entered into an agreement pursuant to which Intel has
agreed to supply an evaluation copy of Tornado for I2O to each customer
purchasing an Intel i960RP/RD I/O microprocessor and a copy of IxWorks on each
such microprocessor sold. In addition, Wind River has developed strategic
relationships with NCI (Oracle) and JavaSoft (Sun Microsystems) for Embedded
Internet-TM- devices ranging from handhelds and intelligent phones to network
computers.
CUSTOMERS
The Company's products have been deployed by a broad range of organizations,
ranging from companies in the following industries: telecommunications and
datacommunications; office automation and computers; medical and industrial; and
aerospace, research and defense. No single customer accounted for more than 5%
of the Company's total revenues in fiscal 1997, and the top 10 customers in the
aggregate accounted for less than 15%.
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MARKETING, SALES AND DISTRIBUTION
In North America and Europe, Wind River markets its products and services
primarily through its own direct sales organization which consists of
salespersons and field application engineers. As of January 31, 1997, Wind River
had 70 domestic direct salespersons and field application engineers located
throughout North America, 31 direct salespersons and field application engineers
throughout Europe and 12 sales and marketing employees in Japan.
The Company distributes its products in Japan through Wind River Systems,
K.K.("WRSKK"), a joint venture in which the Company owns a 70% equity interest.
Innotech Corporation ("Innotech"), Kobe Steel Ltd. and Nissin Electric Ltd., the
other partners in the joint venture, each owns a 10% equity interest. The
Company has licensed its products exclusively to WRSKK for distribution in
Japan. WRSKK has in turn entered into master distributor agreements with its
three joint venture partners that provide the right to appoint sub-distributors.
See Note 2 of Notes to Consolidated Financial Statements.
Wind River has licensed eight international distributors principally to
serve customers in regions not serviced by the Company's direct sales force or
its Japanese master distributors. The Company also has established strategic
relationships with computer, semiconductor and software vendors and works
closely with a number of system integrators worldwide that enable Wind River to
further broaden the geographic and market scope for its products.
Revenues from international sales represented approximately 34%, 37% and
33% of the Company's total revenue in fiscal 1997, 1996 and 1995, respectively.
See Note 9 of Notes to Consolidated Financial Statements for a summary of
operations by geographic region.
The Company has experienced, and expects to continue to experience,
significant seasonality resulting primarily from customer buying patterns and
product development cycles. The Company has generally experienced the strongest
demand for its products in the fourth quarter of each fiscal year and the
weakest demand in the first quarter of each fiscal year. Quarterly revenue
levels have increased over the levels for like quarters in the prior fiscal
years but have fallen sharply in the first quarter of each fiscal year from the
fourth quarter of the prior fiscal year.
COMPETITION
The embedded real-time software industry is highly competitive and is
characterized by rapidly advancing technology. The Company believes that the
principal competitive factors in the industry are product functionality,
price/performance characteristics, product portability, ease of use, sales and
marketing strength, financial stability, support services and corporate
reputation. In order to maintain or improve its position in the industry, the
Company must continue to enhance its current products and develop new products
and product extensions rapidly. The Company believes that its principal
competition comes from companies that develop real-time embedded software
development systems in-house rather than purchasing such systems from
independent software vendors such as the Company. Many of these organizations
have substantial internal programming resources with the capability to develop
specific products for their needs. The Company also competes with other
independent software vendors, including Integrated Systems, Inc., Mentor
Graphics, Inc. (through acquisition of Microtec/Ready Systems), Microware
Systems Corporation, and Microsoft Corporation. In addition, hardware or other
software vendors could seek to expand their product offerings by designing and
selling products that directly compete with or adversely affect sales of the
Company's products. Many of the Company's existing and potential competitors
have substantially greater financial, technical, marketing and sales resources
than the Company. In addition, the Company is aware of ongoing efforts by
competitors to emulate the performance and functionality of the Company's
products and there can be no assurance that competitors will not develop
equivalent or superior technology to that of the Company. There can be no
assurance that the Company will be able to compete effectively against its
current and future competitors. If the Company is unable to compete
successfully, its business, financial condition and results of operations would
be materially and adversely affected.
The Company believes that it competes favorably in its markets on the basis
of product functionality, price/performance characteristics, product
portability, ease of use, sales and marketing strength, financial stability,
support services and corporate reputation.
PRODUCT DEVELOPMENT AND ENGINEERING
Wind River believes that its success will depend in large part on its ability to
maintain and enhance its current product line, develop new products, maintain
technological competitiveness and meet an ever-expanding range of customer
requirements.
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The Company's product development and engineering group includes 81 full-time
employees. During fiscal 1997, 1996 and 1995, product development and
engineering expenses were $7.7 million, $5.5 million and $4.7 million,
respectively, excluding capitalized software development costs. Capitalized
software development costs for these periods were $707,000, $490,000 and
$506,000, respectively. The Company anticipates that it will continue to commit
substantial resources to research and product development in the future.
The Company's success depends and will continue to depend upon its ability
to continue to develop and introduce in a timely manner new products that take
advantage of technological advances, to identify and adhere to emerging
standards, to continue to improve the functionality of its Tornado development
environment and the scalability and functionality of the VxWorks product, to
offer its products across a spectrum of microprocessor families used in the
embedded systems market and to respond promptly to customers' requirements. The
Company has from time to time experienced delays in the development of new
products and the enhancement of existing products. Such delays are commonplace
in the software industry. There can be no assurance that the Company will be
successful in developing and marketing, on a timely basis or at all, competitive
products, product enhancements and new products that respond to technological
change, changes in customer requirements and emerging industry standards, or
that the Company's enhanced or new products will adequately address the changing
needs of the marketplace.
As a result of their complexity, software products may contain undetected
errors or compatibility issues, particularly when first introduced or as new
versions are released. There can be no assurance that, despite testing by the
Company and testing and use by current and potential customers, errors will not
be found in new products after commencement of commercial shipments. The
occurrence of such errors could result in loss of or delay in market acceptance
of the Company's products, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The
increasing use of the Company's products for applications in systems that
interact directly with the general public, particularly applications in
transportation, medical systems and other markets where the failure of the
embedded system could cause substantial property damage or personal injury,
could expose the Company to significant product liability claims. In addition,
the Company's products may be used for applications in mission-critical business
systems where the failure of the embedded system could be linked to substantial
economic loss. Although the Company has not experienced any product liability or
economic loss claims to date, the sale and support of the Company's products
entails the risk of such claims.
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary technology. To
protect its proprietary rights, the Company relies on a combination of
copyright, trade secret, patent and trademark laws, nondisclosure and other
contractual restrictions on copying, distribution and technical measures. The
Company seeks to protect its software, documentation and other written materials
through trade secret and copyright laws, which provide only limited protection.
In addition, the Company has two United States patent applications pending.
There can be no assurance that patents will issue from the Company's pending
applications or that any claims allowed will be of sufficient scope or strength
(or be issued in all countries where the Company's products can be sold) to
provide meaningful protection or any commercial advantage to the Company. As a
part of its confidentiality procedures, the Company generally enters into
nondisclosure agreements with its employees, consultants, distributors and
corporate partners and limits access to and distribution of its software,
documentation and other proprietary information. End user licenses of the
Company's software are frequently in the form of shrink wrap license agreements,
which are not signed by licensees, and therefore may be unenforceable under the
laws of many jurisdictions. Despite the Company's efforts to protect its
proprietary rights, it may be possible for unauthorized third parties to copy
the Company's products or to reverse engineer or obtain and use information that
the Company regards as proprietary. There can be no assurance that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technologies. Policing unauthorized use
of the Company's products is difficult, and while the company is unable to
determine the extent to which software piracy of its products exists, software
piracy can be expected to be a persistent problem. In addition, effective
protection of intellectual property rights may be unavailable or limited in
certain countries. Wind River believes that, due to the rapid pace of innovation
within its industry, factors such as the technological and creative skills of
its personnel are more important to establishing and maintaining a technology
leadership position within the industry than are the various legal protections
of its technology.
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As the number of patents, copyrights, trademarks and other intellectual
property rights in the Company's industry increases, products based on its
technology may increasingly become the subject of infringement claims. There can
be no assurance that third parties will not assert infringement claims against
the Company in the future. Any such claims with or without merit could be time
consuming, result in costly litigation, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, or at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company may initiate claims or litigation against third parties for
infringement of the Company's proprietary rights or to establish the validity of
the Company's proprietary rights. Litigation to determine the validity of any
claims, whether or not such litigation is determined in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from productive tasks.
MANUFACTURING AND BACKLOG
The Company's manufacturing operation consists of assembling, packaging and
shipping the software products and documentation needed to fulfill each order.
All manufacturing is currently performed in the Company's Alameda, California
facility. Outside vendors provide tape and CD duplication, printing of
documentation and manufacturing of packaging materials.
The Company does not believe that backlog is a meaningful indicator of
sales that can be expected in future periods, particularly in view of the fast
pace of technological change in the software industry. The Company's order
fulfillment process is intended to efficiently manage the flow of products to
customers, often resulting in a number of weeks of backlog. Backlog at January
31, 1997 was approximately 9 to 13 weeks of sales. Backlog includes orders that
may be filled at various times throughout the fiscal year.
EMPLOYEES
The Company has 308 employees, including 168 in sales, marketing and support
activities, 81 in product development and engineering and 59 in management,
operations, finance and administration. Of these employees, 247 were located in
North America and 61 were located outside of North America. None of the
Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. Wind River has never experienced a work
stoppage. See "Additional Risk Factors."
ADDITIONAL RISK FACTORS
Revenue from sales of the Tornado and VxWorks family of products and services
accounted for a significant majority of the Company's revenues in each of the
fiscal years ended January 31, 1997 and 1996. The Company's future results
depend heavily on continued market acceptance of these products in the Company's
current markets and successful application in new markets. Any factor adversely
affecting the market for the Tornado and VxWorks family of products and services
could have a material adverse affect on the Company's business, financial
condition and results of operations. Because in certain instances the Company
receives a royalty based on the number of VxWorks operating systems sold by its
customers, the Company is also dependent upon its customers' success in
developing and introducing new products and systems that incorporate VxWorks. To
the extent that such customers are not successful, the Company may not be able
to meet its objectives, and its business, financial condition and results of
operations could be materially and adversely affected.
The Company is continuously engaged in product development for new or
changing markets. In particular, the Company has invested significant time and
effort, together with a consortium of industry participants, in the development
of I2O, a new specification that is intended to create an open standard set of
interface specifications for high performance I/O systems. The specification is
intended to be used by system, network and peripheral interface card and
operating systems vendors to simplify the task of building and maintaining
high-performance I/O subsystems. The Company also has developed IxWorks, an RTOS
for use in conjunction with the I2O specification. The success of the I2O
specification and the IxWorks product line depends heavily on its adoption by a
broad segment of the industry. The Company also is expending substantial time
and financial resources to develop embedded operating software and development
tools for Internet applications. The commercial Internet market has only
recently begun to develop, is rapidly changing and is characterized by an
increasing number of new entrants with competitive products. Moreover, there is
an increasing number of new Internet protocols to which the
9
Company's products must be ported. It is unclear which of these competing
protocols ultimately will achieve market acceptance. It is difficult to predict
with any assurance whether demand for any of these products will develop or
increase in the future.
The Company has experienced significant period-to-period fluctuations in
revenues and operating results and anticipates that such fluctuations will
continue. These fluctuations may be attributable to a number of factors,
including the volume and timing of orders received during the quarter, the
timing and acceptance of new products and product enhancements by the Company or
its competitors, unanticipated sales and buyouts of run-time licenses, stages of
product life cycles, purchasing patterns of customers and distributors, market
acceptance of products sold by the Company's customers, competitive conditions
in the industry, business cycles affecting the markets in which the Company's
products are sold, extraordinary events, such as acquisitions, including related
charges, and economic conditions generally or in specific geographic areas. The
future operating results of the Company may fluctuate as a result of these and
other factors, including the Company's ability to continue to develop innovative
and competitive products. In addition, the Company has not entered into
long-term agreements with its customers, and the timing of license fees is
difficult to predict. The procurement process of the Company's customers is
often several months or longer from initial inquiry to order and may involve
competing considerations. Further, as licensing of the Company's products
increasingly becomes a more strategic decision made at higher management levels,
there can be no assurance that sales cycles for the Company's product will not
lengthen. Product revenue in any quarter depends on the volume and timing of
orders received in that quarter. Because the Company's staffing and operating
expenses are based on anticipated total revenue levels and a high percentage of
the Company's costs are fixed in the short term, small variations between
anticipated orders and actual orders, as well as non-recurring or large orders,
could cause disproportionate variations in the Company's operating results from
quarter to quarter. Revenues also are typically higher in the fourth quarter
than in other quarters of the fiscal year, which ends on January 31, primarily
as a result of purchases by customers prior to the calendar year end, as well as
by customers who purchase at the commencement of a new calendar year. These
trends are expected to continue.
A number of additional factors may in the future cause the Company's
revenues and operating results to vary significantly from period to period.
These factors include: software "bugs" or other product quality problems;
changes in operating expenses; changes in Company strategy; personnel changes;
foreign currency exchange rates; and mix of products sold. Although the Company
has been profitable for the last several years on an annual basis, there can be
no assurance that the Company will be able to continue its growth in revenue or
sustain its profitability on a quarterly or annual basis. Due to all of the
foregoing factors, the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as an indication of future performance. It is possible that, in some future
quarters, the Company's operating results could be below the expectations of
stock market analysts and investors. In such event, the price of the Common
Stock could be materially and adversely affected.
A significant amount of the Company's revenues historically has been
derived from sales of systems built to the VME (versabus module eurocard)
standard. These systems typically are used in high cost, low volume
applications, including military, telecommunications, space and research
applications. Although the Company believes that revenues from sales of products
designed for embedded systems applications will account for an increasing
percentage of the Company's revenues in the future, the Company expects revenues
from the VME market to continue to be significant for the foreseeable future.
Academic institutions and defense industry participants, which generate a
significant portion of the Company's VME revenues, are dependent on government
funding, the continued availability of which is uncertain. Any unanticipated
termination of government funding of VME customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has experienced, and expects to continue to experience,
significant growth in the number of employees, the scope and complexity of its
operating and financial systems and the geographic area of its operations. The
Company's continued success will depend significantly on its ability to
integrate new operations and new personnel. There can be no assurance that the
Company will be successful in achieving such integration efficiently. In
addition, the Company anticipates the need to relocate its management,
engineering, marketing, sales and customer support operation to a new facility
within the next several years. There can be no assurance that any such
relocation will be accomplished efficiently, or that the Company's operations
will not be materially and adversely affected by such relocation. The Company's
future performance depends to a significant degree upon the continued
contributions of its key management, product development, marketing, sales,
customer support and operations personnel, several of whom have joined the
Company only recently. In addition, the
10
Company believes its future success will depend in large part upon its ability
to attract and retain highly-skilled managerial, product development, marketing,
sales, customer support and operations personnel, many of whom are in great
demand. Competition for such personnel is particularly intense in the San
Francisco Bay Area, where the Company is headquartered, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The failure of the Company to attract, integrate and retain the
necessary personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's success is heavily dependent upon its proprietary technology.
To protect its proprietary rights, the Company relies on a combination of
copyright, trade secret, patent and trademark laws, nondisclosure and other
contractual restrictions on copying, distribution and technical measures. The
Company seeks to protect its software, documentation and other written materials
through trade secret and copyright laws, which provide only limited protection.
In addition, the Company has two United States patent applications pending.
There can be no assurance that patents will issue from the Company's pending
applications or that any claims allowed will be of sufficient scope or strength
(or be issued in all countries where the Company's products can be sold) to
provide meaningful protection or any commercial advantage to the Company. As a
part of its confidentiality procedures, the Company generally enters into
nondisclosure agreements with its employees, consultants, distributors and
corporate partners and limits access to and distribution of its software,
documentation and other proprietary information.
As a result of their complexity, software products may contain undetected
errors or compatibility issues, particularly when first introduced or as new
versions are released. There can be no assurance that, despite testing by the
Company and testing and use by current and potential customers, errors will not
be found in new products after commencement of commercial shipments. The
occurrence of such errors could result in loss of or delay in market acceptance
of the Company's products, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
In the fiscal years ended January 31, 1997, 1996 and 1995, the Company
derived approximately 34%, 37%, and 33%, respectively, of its total revenue from
sales outside of North America. The Company expects that international sales
will continue to generate a significant percentage of its total revenue in the
foreseeable future. The Company also expects to make substantial investments to
expand further its international operations and to increase its direct sales
force in Europe and Asia. There can be no assurance that these investments will
result in commensurate increases in the Company's international sales.
International operations are subject to certain risks, including foreign
government regulation; more prevalent software piracy; longer payment cycles;
unexpected changes in, or imposition of, regulatory requirements, tariffs,
import and export restrictions and other barriers and restrictions; greater
difficulty in accounts receivable collection; potentially adverse tax
consequences; the burdens of complying with a variety of foreign laws; staffing
and managing foreign operations; political and economic instability; changes in
diplomatic and trade relationships; possible recessionary environments in
economies outside the United States; and other factors beyond the control of the
Company. Sales by the Company's foreign subsidiaries are denominated in the
local currency, and an increase in the relative value of the dollar against such
currencies would reduce the Company's revenues in dollar terms or make the
Company's products more expensive and, therefore, potentially less competitive
in foreign markets. There can be no assurance that the Company's future results
of operations will not be adversely affected by currency fluctuations. The
Company relies on distributors for sales of its products in certain foreign
countries and, accordingly, is dependent on their ability to promote and support
the Company's products and, in some cases, to translate them into foreign
languages. The Company's international distributors generally offer products of
several different companies, including in some cases products that are
competitive with the Company's products, and such distributors are not subject
to any minimum purchase or resale requirements. There can be no assurance that
the Company's international distributors will continue to purchase the Company's
products or provide them with adequate levels of support.
The market price of the Company's common stock has fluctuated in the past,
and is likely to fluctuate in the future. The Company believes that various
factors, including quarterly fluctuations in results of operations,
announcements of new products by the Company or by its competitors, and changes
in the software industry in general cause, and may continue to cause, the market
price of the common stock to fluctuate, perhaps substantially. In addition, in
recent years the stock market in general, and the shares of technology companies
in particular, have experienced extreme price fluctuations. This volatility has
had a substantial effect on the market prices of securities issued by the
Company and other high technology companies, often for reasons unrelated to the
operating performance of the specific companies. The market prices of many high
technology companies stocks, including the stock of the Company, are at or near
their historical highs and reflect
11
price/earning ratios substantially above historical norms. There can be no
assurance that the market price of the common stock will remain at or near its
current level. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against that company. Such litigation, if instituted against the
Company, could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and results of operation, even if the
Company is successful in such suits. These market fluctuations, as well as
general economic, political and market conditions such as recessions, may
adversely affect the market price of the common stock.
I T E M 2.
PROPERTIES
The Company's principal administrative, sales, marketing, product development
and engineering facilities are located in leased buildings providing
approximately 74,000 square feet of office space in Alameda, California. Rental
expenses in fiscal 1997 amounted to approximately $885,000 for these facilities.
The leases expire on various dates from August 1998 through December 1999. The
Company leases seventeen other domestic sales offices in the United States. The
Company leases international sales and/or service facilities in Canada, the
United Kingdom, France, Germany, Sweden, Israel, Italy, Korea and Japan. Wind
River believes that its existing facilities are adequate for its current needs;
however, the Company anticipates the need to relocate its management,
engineering, marketing, sales and customer support operation to a new facility
within the next several years. There can be no assurance that any such
relocation will be accomplished efficiently, or that the Company's operations
will not be materially and adversely affected by such relocation.
I T E M 3.
LEGAL PROCEEDINGS
No lawsuits or proceedings are pending against the Company.
I T E M 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I T E M 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and certain information about them as of
March 1, 1997, are as follows:
Name Age Position with the Company
- --------------------------------------------------------------------------------
Jerry L. Fiddler 45 Chairman of the Board
Ronald A. Abelmann 59 President, Chief Executive
Officer and Director
David N. Wilner 43 Chief Technical Officer
and Director
Robert L. Wheaton 50 Senior Vice President of Sales
David G. Fraser 33 Vice President of Engineering
Richard W. Kraber 55 Vice President of Finance,
Chief Financial Officer and
Secretary
David R. Larrimore 45 Vice President of Marketing
Graham Shenton 57 Managing Director of
European Operations
12
Mr. Fiddler co-founded the Company in February 1983 and currently serves
as Chairman of the Board. From February 1983 to March 1994 he served as Chief
Executive Officer of the Company. Prior to founding the Company, he was a
computer scientist in the Real-Time Systems Group at Lawrence Berkeley
Laboratory. Mr. Fiddler holds a B.A. in music and photography and an M.S. in
computer science from the University of Illinois.
Mr. Abelmann joined the Company in March 1994 as President and Chief
Executive Officer and Director. From 1987 to 1993 he served as the founding
Chief Executive Officer of Vantage Analysis Systems, a developer of VHDL-based
simulation software for design automation. Prior to then, he served as Group
Vice President and General Manager for the Instrument Division of Varian
Associates. Mr. Abelmann holds B.S. and M.S. degrees in applied physics from the
University of California at Los Angeles, and an M.B.A. from Stanford University.
Mr. Wilner co-founded the Company in February 1983 and currently serves as
Chief Technical Officer and Director. Prior to founding the Company, he was a
senior staff scientist in the Real-Time Systems Group at Lawrence Berkeley
Laboratory. Mr. Wilner holds a B.S. in computer science from the University of
California at Berkeley.
Mr. Wheaton joined the Company in March 1992 and currently serves as Senior
Vice President of Sales. From 1989 to 1991, he served as the Vice President of
Marketing for ShareBase Corporation, a relational database hardware and software
company. From 1988 to 1989, he served as the Western Regional Manager of
Powersoft Corporation, a computer software company. Mr. Wheaton holds a B.S. in
automotive engineering from Western Michigan University.
Mr. Fraser joined the Company in September 1991 and currently serves as
Vice President of Engineering. From 1988 to 1991, he served as a product
marketing manager at Unisys/Convergent. From 1985 to 1988, he was a software
engineer at Hewlett-Packard in England. Mr. Fraser holds a B.S. in computing
science from Glasgow University, Scotland.
Mr. Kraber joined the company in August 1995 and currently serves as Vice
President of Finance, Chief Financial Officer and Secretary. From 1991 to
1995, he served as Chief Operating Officer and Chief Financial Officer of
Peerless Lighting, an industrial lighting products company. Prior to then, he
was Chief Financial Officer for GardenAmerica and a consultant and engagement
manager for McKinsey & Company. Mr. Kraber has a B.S. in mathematics from
Stanford University and an M.B.A. from Harvard University.
Mr. Larrimore joined the company in May 1995 and currently serves as Vice
President of Marketing. From 1991 to 1995, he was Vice President of Marketing
for Destiny Technology, a computer software company. Prior to then, he held a
consulting position with McKinsey & Company and a management position with Dow
Chemical. Mr. Larrimore holds a B.S. in chemical engineering from the Georgia
Institute of Technology and an M.B.A from Stanford.
Mr. Shenton joined the Company in July 1994 and currently serves as
Managing Director of European Operations. From 1990 to 1994, he was Managing
Director of Vantage Analysis Systems Europe, Ltd., a developer of VHDL-based
simulation software for design automation. From 1986 to 1989, he was Managing
Director of IMP Europe, Ltd., a semiconductor design and application firm. Mr.
Shenton holds a B.E. degree from Sydney University, Australia and an M.E. degree
from the University of New South Wales, Australia.
P A R T II
I T E M 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Wind River's common stock is traded on the Nasdaq National Market under the
symbol WIND. On April 25, 1996, the Board of Directors declared a three-for-two
common stock split in the form of a stock dividend, payable May 24, 1996, to
stockholders of record on May 10, 1996. In addition, on February 13, 1997, the
Board of Directors declared a three-for-two stock split in the form of a stock
dividend, payable March 10, 1997, to stockholders of record on February 24,
1997. All share and per share amounts have been adjusted to give effect to these
stock splits.
13
The closing price of the Company's common stock as reported by the Nasdaq
National Market as of April 1, 1997 was $23.38 per share. The price per share in
the following table sets forth the low and high prices in the Nasdaq National
Market for the quarter indicated:
LOW HIGH
- --------------------------------------------------------------------------------
Fiscal 1996
First quarter ended April 30,1995 $3.78 $6.72
Second quarter ended July 31,1995 4.78 7.83
Third quarter ended October 31,1995 6.89 12.22
Fourth quarter ended January 31,1996 10.72 13.61
LOW High
- --------------------------------------------------------------------------------
Fiscal 1997
First quarter ended April 30,1996 $12.56 $18.00
Second quarter ended July 31,1996 16.89 25.67
Third quarter ended October 31,1996 21.83 31.00
Fourth quarter ended January 31,1997 26.33 35.83
The Company has not paid dividends and does not plan to pay dividends on
its common stock in the foreseeable future. The Company presently intends to
reinvest earnings to fund future growth.
At March 1, 1997, there were approximately 338 stockholders of record of
the Company. Certain record holders are represented by brokers and other
institutions on behalf of stockholders. The Company has estimated the total
number of such stockholders to be 3,400.
YEARS ENDED JANUARY 31,
In thousands, except per share data 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Revenues $ 64,000 $ 44,000 $ 32,100 $ 27,341 $ 25,053
Net income 11,280 5,383 2,460 332 1,721
Earnings per share .41 .23 .11 .02 .11
Working capital 55,346 27,817 24,220 21,486 5,637
Total assets 128,661 45,480 39,183 33,880 14,712
Long-term debt -- -- 73 583 1,068
Stockholders' equity $108,749 $ 32,813 $ 28,345 $ 24,612 $ 6,671
I T E M 6.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented above should be read in
conjunction with the more detailed financial statements presented in Item 8 of
this Form 10-K. The consolidated financial data for periods prior to the
financial statements presented in Item 8 of this Form 10-K are derived from
audited consolidated financial statements.
I T E M 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 here.
Factors that
14
could cause or contribute to such differences include, but are not limited to,
those discussed in this section, as well as under the captions "Business" and
"Additional Risk Factors."
Wind River was founded in 1983 to provide consulting and custom software
development services for a variety of business clients. From its inception, the
Company directed its development efforts towards real-time and embedded system
applications and released its first commercial product, VxWorks, in 1987. Wind
River has subsequently broadened its product offerings and has become a leading
provider of operating systems and development tools for the real-time embedded
system marketplace. During the past five years, the Company has invested heavily
in the development and introduction of its products and in the establishment of
a worldwide sales, distribution and customer support capability. The Company
markets its products on a worldwide basis through its direct sales force,
distributors and value-added resellers. The Company provides sales, marketing,
and product support for foreign customers through wholly-owned subsidiary
companies in Europe and a majority-owned joint-venture company in Japan.
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
significantly 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.
Because the software industry is intensely competitive, software vendors
have from time to time experienced price erosion on their products. As is
typical in the software industry, the Company's fixed costs as a percentage of
revenues are high, and significant price erosion could have a material adverse
effect on the Company's revenues and operations.
RESULTS OF OPERATIONS
The Company experienced a higher level of profits for fiscal 1997 with net
income of $11.3 million, an increase of $5.9 million or 110% over the previous
year. This increase was the result of 45% revenue growth over the previous year,
an increase in gross margins, a reduction in operating expenses as a percentage
of revenues, an increase in non-operating other income, and a reduction in the
effective tax rate.
The growth in net income in fiscal 1996 to $5.4 million was an increase of
$2.9 million, or 119%, over the previous year. These results were achieved with
a 37% revenue growth over the previous year, a reduction in operating expenses
as a percentage of revenues which were offset by a slight reduction in gross
margins. These results were achieved while making significant investments in the
marketing and customer support organizations and the launch of Tornado, a
significant new product undertaking.
15
The following table sets forth certain consolidated income statement data
and its percentage of revenues for the periods indicated.
YEARS ENDED JANUARY 31,
In thousands 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Revenues:
Products $46,354 72% $31,200 71% $23,196 72%
Services 17,646 28 12,800 29 8,904 28
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 64,000 100 44,000 100 32,100 100
- ---------------------------------------------------------------------------------------------------------------------
Costs of revenues:
Products 4,580 7 3,746 9 2,336 7
Services 6,960 11 5,530 12 3,656 11
- ---------------------------------------------------------------------------------------------------------------------
Total cost of revenues 11,540 18 9,276 21 5,992 18
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 52,460 82 34,724 79 26,108 82
- ---------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling and marketing 23,900 37 17,905 41 14,614 46
Product development and engineering 7,722 12 5,531 13 4,656 14
General and administrative 5,021 8 3,158 7 3,386 11
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses 36,643 57 26,594 61 22,656 71
- ---------------------------------------------------------------------------------------------------------------------
Operating income 15,817 25 8,130 18 3,452 11
- ---------------------------------------------------------------------------------------------------------------------
Other income 2,140 3 661 2 453 1
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 17,957 28 8,791 20 3,905 12
Provision for income taxes 6,677 10 3,408 8 1,445 4
- ---------------------------------------------------------------------------------------------------------------------
Net income $11,280 18% $5,383 12% $2,460 8%
- ---------------------------------------------------------------------------------------------------------------------
REVENUES
The Company's overall revenue growth rate was 45% from fiscal 1996 to 1997 and
37% from fiscal 1995 to 1996. The Company's revenue results primarily from fees
for licenses of its software products, fees from run-time licenses and fees for
customer support, training, maintenance and engineering services. Product
revenues accounted for approximately 72%, 71% and 72% of the total revenues in
fiscal 1997, 1996 and 1995, respectively, with service revenues accounting for
the balance of total revenue over this period.
Product revenues increased 49% from fiscal 1996 to 1997 and 35% from fiscal
1995 to 1996. These increases were attributable primarily to increased market
acceptance of the Company's products, expansion of the Company's sales and
marketing efforts, and introduction of new products. Tornado, the Company's
flagship product, was first introduced in fiscal 1996 and began selling
immediately. In fiscal 1997, sales continued to grow as Tornado became available
for use with more host platforms and microprocessor targets. In addition, demand
grew for Tornado in Windows-based customer development environments. Staffing in
sales, marketing, and customer support has grown each year to support new sales
offices worldwide. Run-time license revenue has increased each year in
conjunction with growing shipments of customers' products and systems that
incorporate the VxWorks operating system.
International revenues represented 34%, 37% and 33% of total revenues in
fiscal 1997, 1996 and 1995, respectively. Revenues from European sources
increased 41% from fiscal 1996 to 1997 while revenues from Asia Pacific sources
increased 32% over the same period. Revenues derived from indirect sales
channels worldwide represented 17%, 19% and 19% of total revenues in fiscal
1997, 1996 and 1995, respectively. A significant portion of these indirect
revenues are attributable to the contribution of the Company's majority-owned
joint-venture company in Japan, Wind River Systems K.K. ("WRSKK").
16
International operations are subject to certain risks, including foreign
government regulation; more prevalent software piracy; longer payment cycles;
unexpected changes in, or imposition of, regulatory requirements, tariffs,
import and export restrictions and other barriers and restrictions; greater
difficulty in accounts receivable collection; potentially adverse tax
consequences; the burdens of complying with a variety of foreign laws; staffing
and managing foreign operations; political and economic instability; changes in
diplomatic and trade relationships; possible recessionary environments in
economies outside the United States; and other factors beyond the control of the
Company. Sales by the Company's foreign subsidiaries are denominated in the
local currency, and an increase in the relative value of the dollar against such
currencies would reduce the Company's revenues in dollar terms or make the
Company's products more expensive and, therefore, potentially less competitive
in foreign markets. There can be no assurance that the Company's future results
of operations will not be adversely affected by currency fluctuations.
Service revenues increased 38% from fiscal 1996 to 1997 and 44% from fiscal
1995 to 1996. The increases were due primarily to increases in maintenance and
training resulting from increases in the installed customer base, as well as a
significant increase in the engineering services consulting business.
Maintenance contracts are generally prepaid, with the revenue recognized ratably
over the period of the contract. The deferred software support and development
revenue balance, amounting to approximately $6.3 million at January 31, 1997
relates primarily to customer prepayments under software maintenance agreements
which will be recognized ratably over the life of the agreements as revenue in
fiscal 1998.
FOREIGN OPERATIONS AND RELATED PARTY TRANSACTIONS
Product and service revenues in Europe are derived primarily from the Company's
wholly owned subsidiaries located in France, Germany, Italy and the United
Kingdom. Revenues from European sources increased to $12.3 million in fiscal
1997 from $8.7 million in fiscal 1996 and $6.0 million in fiscal 1995.
All product in Japan is sold through WRSKK's three master distributors.
Revenues derived from master distributor transactions in Japan amounted to $9.1
million, $6.7 million and $4.0 million in fiscal 1997, 1996 and 1995,
respectively. The percentage of Japan revenues from Innotech in fiscal year
1997, 1996 and 1995 was 58%, 26%, 13%, respectively. The percentage of Japan
revenues from Kobe Steel Ltd. in fiscal year 1997, 1996 and 1995 was 24%, 56%,
and 67%, respectively. The percentage of Japan revenues from Nissin Electric
Ltd. in fiscal year 1997, 1996, and 1995 was 18%, 18%, and 20%, respectively.
COST OF PRODUCTS
Cost of products includes direct and indirect costs for the production and
duplication of manuals and media for software products, as well as those
relating to the packaging, shipping and delivery of the products to the
customer. Product costs also include license and other direct purchase costs of
third-party software that is distributed by or integrated into the Company's
products and the amortization of capitalized software costs. During the past
three years, the cost of products has remained relatively constant. As a result,
gross profit margins for products have also remained constant at 88% to 90%.
Amortization of capitalized software development costs included in cost of
products amounted to $600,000, $360,000 and $349,000 in fiscal 1997, 1996 and
1995, respectively. The unamortized portion of capitalized software costs was
$828,000 at January 31, 1997.
COST OF SERVICES
Cost of services includes engineering services consulting, customer technical
support, maintenance and training. The gross margin was higher at 61% in fiscal
1997 as compared to 57% and 58% in fiscal 1996 and 1995, respectively. The
improvement during this period is due primarily to the more efficient
utilization of resources as the Company's maintenance base grew, as well as to
improved margins in the Company's engineering services contracts.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 33% from fiscal 1996 to 1997 and 23% from
fiscal 1995 to 1996. The increase in costs in fiscal 1997 and 1996 resulted
primarily from increases in sales and marketing personnel both domestically and
worldwide and increased advertising and third-party marketing costs for product
introductions and promotions. Sales and marketing costs as a percentage of
revenues continued to decrease to 37% in fiscal 1997 from the 41% and 48%
experienced
17
in fiscal 1996 and 1995, respectively. This decrease was attributable to a
growing revenue base and more effective utilization of personnel, as well as
adjustments in compensation and commission plans.
PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES
Product development and engineering expenses have grown by 40% from fiscal 1996
to 1997 and 19% from fiscal 1995 to 1996, but decreased as a percentage of
revenues to 12% as compared to 13% and 15% in fiscal 1996 and 1995,
respectively. Over this period of time, the Company has made a concerted effort
to migrate its products across a wide range of system architectures and to
improve its technological capabilities and systems. While the Company has taken
measures to improve the efficiency of its product development and engineering
efforts and to reduce its reliance on third-party providers for key components
of new products, the Company expects that it will be necessary to continue to
make significant investments in engineering and product development for the
foreseeable future. The majority of product development costs have been charged
to expense as incurred with the capitalization of software development costs
amounting to an average of 1.3% of total revenues over the past three fiscal
years.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses are related primarily to finance and
administrative functions and have increased slightly as a percentage of revenues
from 7% in fiscal 1996 to 8% in fiscal 1997. This increase is attributable to
worldwide investment in information systems and finance staffing and
infrastructure. The reduction in general and administrative expenses as a
percentage of revenues from 11% in fiscal 1995 to 7% in fiscal 1996 resulted
primarily from increased revenue levels and from increased efficiencies in the
Company's finance and administrative operations.
OTHER INCOME AND EXPENSE
Other income and expense includes interest income derived from investment of
excess cash and income or loss related to the 30% minority interest held by the
Japanese participants in WRSKK. The increase in other income in fiscal 1997 was
due to the investment of excess cash received in a public offering of common
stock in July 1996.
The Company sells products to WRSKK at discount rates which approximate
those offered to other independent distributors of the Company's products.
PROVISION FOR TAXES
The Company's effective consolidated tax rates amounted to 37.2%, 38.8% and
37.0% in fiscal 1997, 1996 and 1995, respectively. The overall changes in the
effective tax rates result primarily from the difference between foreign and
domestic tax rates and the ratio of foreign taxable income to domestic taxable
income, varying levels of available research and development credits, and
varying levels of tax-exempt interest income.
QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly results have historically been subject to fluctuations
and, as a result, the operating results for any quarter are not necessarily
indicative of results for any future period. Operating income has fluctuated
significantly from quarter to quarter as a result of quarterly revenue
fluctuations and uneven changes in sales and marketing costs.
The following table sets forth selected unaudited quarterly information for
the Company's last eight fiscal quarters. The Company believes that this
information has been prepared on the same basis as the audited consolidated
financial statements appearing in Item 8 of this Form 10-K and believes that all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below and present fairly the results of such
periods when read in conjunction with the audited consolidated financial
statements and notes thereto.
The Company has experienced, and expects to continue to experience,
significant seasonality resulting primarily from customer buying patterns and
product development cycles. The Company has generally experienced the strongest
demand for its products in the fourth quarter of each fiscal year and the
weakest demand in the first quarter of each fiscal year. Quarterly revenue
levels have increased over the levels for like quarters in the prior fiscal
years but have fallen sharply in the first quarter of each fiscal year from the
fourth quarter of the prior fiscal year.
Quarterly operating results are also influenced by various other factors,
including delays in the introductions of new products and releases of existing
products operating under new microprocessor architectures. In addition, volume
purchases
18
by customers of run-time licenses for embedded software can result in revenues
being concentrated in a single period with no assurances that the customers'
purchase levels will be consistent or predictable in future periods. A
significant component of operating expenses relates to the maintenance of a
highly skilled work force and is thus relatively fixed over the short term and
it is difficult to effect reductions in operating expenses to maintain desired
profit levels when unanticipated changes in revenue rates are encountered.
Planned expenditures, especially those relating to marketing and promotion of
new and existing products, are based on revenue forecasts and, as a result, if
revenue forecasts do not reach expected levels in any quarter or annual period,
the Company's operating results and financial condition could be adversely
affected. The Company also manages discretionary expenditures based upon
quarterly revenue forecasts, but there can be no assurance that the Company will
be profitable in any given quarter.
On May 24, 1996, a three-for-two stock split was effected by a stock
dividend with respect to all holders of the Company's common stock outstanding
on May 10, 1996. On March 10, 1997, a three-for-two stock split was effected by
a stock dividend to all holders of the Company's common stock outstanding on
February 24, 1997. All share numbers and prices in this Annual Report on Form
10-K have been adjusted to give effect to these stock splits.
QUARTERS ENDED
APR. 30 JUL. 31 OCT. 31 JAN. 31 APR. 30 JUL. 31 OCT. 31 JAN. 31
In thousands 1995 1995 1995 1996 1996 1996 1996 1997
- ----------------------------------------------------------------------------------------------------------
Revenues:
Products $6,032 $7,002 $ 7,995 $10,171 $ 8,531 $10,700 $12,297 $14,826
Services 2,668 3,098 3,405 3,629 4,069 4,300 4,303 4,974
- ----------------------------------------------------------------------------------------------------------
Total revenues 8,700 10,100 11,400 13,800 12,600 15,000 16,600 19,800
- ----------------------------------------------------------------------------------------------------------
Cost of revenues:
Products 674 749 797 1,526 1,089 1,246 1,126 1,119
Services 1,187 1,233 1,550 1,560 1,561 1,744 1,676 1,979
- ----------------------------------------------------------------------------------------------------------
Total cost of revenues 1,861 1,982 2,347 3,086 2,650 2,990 2,802 3,098
- ----------------------------------------------------------------------------------------------------------
Gross profit 6,839 8,118 9,053 10,714 9,950 12,010 13,798 16,702
- ----------------------------------------------------------------------------------------------------------
Operating expenses:
Selling and marketing 3,935 4,234 4,369 5,367 5,139 5,767 6,133 6,861
Product development and
engineering 1,234 1,332 1,410 1,555 1,595 1,913 1,883 2,331
General and
administrative 756 819 831 752 1,018 1,133 1,224 1,646
- ----------------------------------------------------------------------------------------------------------
Total costs and expenses 5,925 6,385 6,610 7,674 7,752 8,813 9,240 10,838
- ----------------------------------------------------------------------------------------------------------
Operating income 914 1,733 2,443 3,040 2,198 3,197 4,558 5,864
Other income 162 213 55 231 192 193 835 920
- ----------------------------------------------------------------------------------------------------------
Income before income taxes 1,076 1,946 2,498 3,271 2,390 3,390 5,393 6,784
Provision for income taxes 409 739 961 1,299 920 1,300 1,933 2,524
- ----------------------------------------------------------------------------------------------------------
Net income $ 667 $1,207 $ 1,537 $ 1,972 $ 1,470 $ 2,090 $ 3,460 $ 4,260
- ----------------------------------------------------------------------------------------------------------
Net income per share $ 0.03 $ 0.05 $0.07 $ 0.08 $0.06 $0.08 $ 0.12 $0.15
Shares used in computing net
income per share 22,598 23,184 23,517 23,639 23,988 24,728 27,986 28,229
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, the Company had working capital in excess of $55 million
and cash and investments in excess of $99 million, which include investments
with maturities of greater than one year of $43 million.
19
Net cash provided by operating activities in fiscal 1997, 1996 and 1995 was
$12.3 million, $12.6 million and $1.6 million, respectively. In fiscal 1997, net
income and increases in allowances for receivables, depreciation and
amortization, accounts payable, accrued compensation, and deferred revenue were
partially offset by increases in accounts receivable and prepaids, deposits and
other assets. In fiscal 1996, net income and increases in depreciation, accounts
receivable, prepaid assets, deposits and other assets, accounts payable, accrued
compensation, and income tax payable were partially offset by decreases in
deferred income tax liabilities. In fiscal 1995, net income and increases in
depreciation, income tax payable and deferred revenue were offset by an increase
in accounts receivable.
Net cash used in investing activities in fiscal 1997, 1996 and 1995 was
$76.6 million, $5.3 million and $627,000, respectively. In each fiscal year,
capital expenditures, capitalization of software development costs and purchases
of investments were partially offset by sales of investments.
Net cash provided by financing activities in fiscal 1997 totaled $65.2
million primarily as a result of proceeds from a public offering of common
stock, partially offset by purchases of treasury stock. Net cash used in
financing activities in fiscal 1996 totaled $672,000 primarily as a result of
purchases of treasury stock offset by proceeds from the sale of common stock
through stock-based compensation plans. Net cash provided by financing
activities in fiscal 1995 totaled $18,000 primarily as a result of payments of
bank and lease line-of-credit obligations offset by proceeds from the sale of
common stock through stock-based compensation plans.
Management believes that the Company's working capital and cash flow
generated from operations are sufficient to meet its working capital
requirements for planned expansion, product development and capital expenditures
at least through fiscal 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
and No. 129, "Disclosure of Information About Capital Structure" ("SFAS No.
129"). SFAS No. 128 establishes financial accounting and reporting standards for
calculation of basic earnings per share and diluted earnings per share. SFAS No.
128 supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share"
and is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. SFAS No. 129 establishes standards
for disclosing information about an entity's capital structure. SFAS No. 129 is
effective for financial statements for periods ending after December 15, 1997.
The Company will adopt the new standards in the year ending January 31, 1998 and
has not yet determined the effect of adoption.
I T E M 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Financial Statements:
- --------------------------------------------------------------------------------
Report of Independent Accountants 22
Consolidated Statements of Income
for the years ended January 31, 1997, 1996 and 1995 23
Consolidated Balance Sheets
at January 31, 1997 and 1996 24
Consolidated Statements of Cash Flows
for the years ended January 31, 1997, 1996, and 1995 25
Consolidated Statements of Changes
in Stockholders' Equity for the three years
ended January 31, 1997. 26
Notes to Consolidated Financial Statements 27
Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts 36
20
All other schedules have been omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
I T E M 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF WIND RIVER SYSTEMS, INC.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Wind
River Systems, Inc. and its subsidiaries at January 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
March 10, 1997
22
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JANUARY 31,
In thousands, except per share amounts 1997 1996 1995
- -----------------------------------------------------------------------------------------------
Revenues:
Products $46,354 $31,200 $23,196
Services 17,646 12,800 8,904
- -----------------------------------------------------------------------------------------------
Total revenues 64,000 44,000 32,100
- -----------------------------------------------------------------------------------------------
Cost of revenues:
Products 4,580 3,746 2,336
Services 6,960 5,530 3,656
- -----------------------------------------------------------------------------------------------
Total cost of revenues 11,540 9,276 5,992
- -----------------------------------------------------------------------------------------------
Gross profit 52,460 34,724 26,108
- -----------------------------------------------------------------------------------------------
Operating expenses:
Selling and marketing 23,900 17,905 14,614
Product development and engineering 7,722 5,531 4,656
General and administrative 5,021 3,158 3,386
- -----------------------------------------------------------------------------------------------
Total costs and expenses 36,643 26,594 22,656
- -----------------------------------------------------------------------------------------------
Operating income 15,817 8,130 3,452
- -----------------------------------------------------------------------------------------------
Other income (expense):
Interest income 2,465 847 609
Interest expense & other - (199) (232)
Minority interest in consolidated subsidiary company (325) 13 76
- -----------------------------------------------------------------------------------------------
Total other income 2,140 661 453
- -----------------------------------------------------------------------------------------------
Income before income taxes 17,957 8,791 3,905
Provision for income taxes 6,677 3,408 1,445
- -----------------------------------------------------------------------------------------------
Net income $11,280 $ 5,383 $ 2,460
- -----------------------------------------------------------------------------------------------
Net income per share $ .41 $ .23 $ .11
- -----------------------------------------------------------------------------------------------
Weighted average common and common equivalent shares 26,232 23,237 21,450
- -----------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
In thousands 1997 1996
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,848 $ 9,205
Short-term investments 46,895 20,632
Accounts receivable, net of allowances of $1,204 and $378 13,296 9,216
Prepaid and other current assets 4,780 1,108
- --------------------------------------------------------------------------------------------------------------------
Total current assets 74,819 40,161
Investments 43,004 -
Equipment and furniture, net of accumulated depreciation of $7,328 and $5,048 8,426 4,059
Computer software development costs, net of accumulated amortization of
$2,382 and $1,782 828 721
Deposits and other assets 1,584 539
- --------------------------------------------------------------------------------------------------------------------
Total assets $128,661 $ 45,480
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,340 $ 1,345
Accrued liabilities 5,530 2,374
Accrued compensation 4,391 2,642
Income taxes payable 1,941 1,769
Deferred revenue 6,271 4,214
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 19,473 12,344
Deferred rent 127 116
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 19,600 12,460
- --------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 312 207
- --------------------------------------------------------------------------------------------------------------------
Commitments (Note 8)
Stockholders' equity:
Common stock, par value $.001, 75,000 and 45,000 shares authorized, 25,382
and 21,175 issued, and 25,269 and 20,837 shares outstanding 25 21
Additional paid in capital 89,890 24,793
Cumulative translation adjustments (310) (74)
Unrealized loss on securities (353) -
Retained earnings 22,618 11,338
Less treasury stock, 113 and 338 shares at cost (3,121) (3,265)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 108,749 32,813
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $128,661 $45,480
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31,
In thousands 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $11,280 $ 5,383 $ 2,460
Adjustments to reconcile net income to net cash
provided (used) by operations:
Allowance for receivables 826 132 19
Depreciation 2,280 1,449 1,207
Amortization of capitalized software 600 360 349
Unrealized loss on securities (353) - -
Deferred rent 11 (20) (20)
Deferred income taxes (780) (652) 134
Minority interest in consolidated subsidiary 105 (13) (76)
Change in assets and liabilities:
Accounts receivable (4,906) 2,889 (4,718)
Prepaids, deposits and other assets (4,435) 529 (322)
Accounts payable and accrued liabilities 3,151 854 464
Accrued compensation 1,749 770 370
Income taxes payable 670 571 700
Deferred revenue 2,057 392 859
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,255 12,644 1,426
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (6,647) (2,180) (1,293)
Capitalized software development costs (707) (490) (506)
Purchases of investments (79,031) (68,437) (41,942)
Sales of investments 9,764 65,796 43,114
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (76,621) (5,311) (627)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments of bank obligations - - (451)
Payments of lease line-of-credit obligations, net - (73) (251)
Issuance of common stock, net 65,101 2,666 877
Purchase of treasury stock (7,050) (3,265) -
Sales of treasury stock 7,194 - -
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 65,245 (672) 175
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (236) (316) 396
- ----------------------------------------------------------------------------------------------------------
Net increase in cash 643 6,345 1,370
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 9,205 2,860 1,490
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 9,848 $ 9,205 $ 2,860
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest - $ 19 $ 232
- ----------------------------------------------------------------------------------------------------------
Cash paid for income taxes $ 2,285 $ 1,682 $ 890
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
25
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CUMULATIVE UNREALIZED TOTAL
COMMON TRANSLATION LOSS ON RETAINED TREASURY STOCK STOCKHOLDERS'
In thousands, except share amounts SHARES AMOUNT ADJUSTMENTS SECURITIES EARNINGS SHARES AMOUNT EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1994 19,869 $21,271 $(154) $ - $ 3,495 - $ - $24,612
Common stock issued upon
exercise of stock options 335 111 111
Common stock issued under
stock purchase plan 172 365 365
Tax benefits from stock plans 157 157
Sale of common stock to employee 112 244 244
Currency translation adjustments 396 396
Net income 2,460 2,460
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1995 20,488 22,148 242 - 5,955 - - 28,345
Common stock issued upon
exercise of stock options 488 612 612
Common stock issued under
stock purchase plan 199 779 779
Tax benefit from stock plans 1,175 1,175
Sale of warrants 100 100
Purchase of treasury stock (338) (3,265) (3,265)
Currency translation adjustments (316) (316)
Net income 5,383 5,383
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1996 21,175 24,814 (74) - 11,338 (338) (3,265) 32,813
Common stock issued pursuant to
public offering, net 3,142 55,589 563 7,194 62,783
Common stock issued upon
exercise of stock options 980 2,594 2,594
Common stock issued under
stock purchase plan 85 1,178 1,178
Tax benefit from stock plans 5,740 5,740
Purchase of treasury stock (338) (7,050) (7,050)
Unrealized loss on securities (353) (353)
Currency translation adjustments (236) (236)
Net income 11,280 11,280
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1997 25,382 $89,915 $(310) $(353) $22,618 (113) $(3,121) $108,749
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N O T E 1: O P E R A T I O N S A N D S U M M A R Y O F
S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Wind River Systems, Inc. (the "Company") is engaged in developing and marketing
operating systems and software development tools for creating real-time and
embedded applications.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries: Wind River Systems International, Inc., a U.S.
corporation; Wind River Systems, E.C., S.A.R.L., a French corporation; Wind
River Systems GmbH, a German corporation; Wind River Systems Italia, S.r.l, an
Italian corporation; Wind River Systems UK, Ltd., a United Kingdom corporation;
and its majority-owned subsidiary Wind River Systems K.K. (WRSKK), a Japanese
corporation, (the Subsidiaries). All significant intercompany accounts and
transactions have been eliminated.
The Company maintains a fiscal year end of January 31. The Subsidiaries
maintain fiscal year-ends of December 31. The consolidated financial statements
include the Subsidiaries' accounts as of December 31.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted highly liquid investments with a maturity
of three months or less when acquired to be cash equivalents.
INVESTMENTS
Short-term investments in debt and equity securities are classified as
"held-to-maturity," "trading" or "available for sale." As of January 31, 1997
and 1996, all of the Company's investments are categorized as available-for-sale
and are carried at market value as of the balance sheet date. Unrealized holding
gains and losses on such investments are reported net of related taxes as a
separate component of stockholders' equity. Management determines the
appropriate categorization of short-term investment at the time of purchase and
reassesses the categorization at each reporting date. As of January 31, 1997 and
1996, all short-term investments had maturities of less than one year. The
amortized cost of debt securities are adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. Realized gains and losses are based on the carrying value of specific
securities sold and were immaterial during fiscal 1997, 1996 and 1995.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash, cash equivalents, short-term and long-term
investments, and accounts receivable. The Company's investments consist of
investment grade securities placed with major financial institutions. The
investment policy limits the Company's exposure to concentration of credit risk.
The Company's accounts receivable result primarily from software operations and
reflect a broad customer base both domestically and internationally. As a
consequence, concentrations of credit risk are limited.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from one to ten years. Leasehold improvements are amortized over the term of the
related lease. Repairs and maintenance are charged to expense while major
improvements are capitalized.
SOFTWARE DEVELOPMENT COSTS
Costs incurred to establish the technological feasibility of a computer software
product are considered research and development costs and are expensed as
incurred. When the technological feasibility of a software product has been
established, development costs are capitalized. Capitalization of these costs
ceases when the product is considered available for general release to
customers. Amortization of capitalized software development costs is provided on
a product-by-
27
product basis at the greater of the amount computed using either the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues or the straight-line method over the remaining estimated
economic life of the product. Generally, an original estimated economic life of
eighteen months is assigned to capitalized software development costs.
REVENUE RECOGNITION
Product revenues consist of licensing fees from operating system and software
development tool products, fees from embedded system run-time licenses, and fees
from software porting and development contracts. Service revenues are derived
from customer maintenance, support, training and consulting services.
Maintenance contracts are generally sold separately from the products. The
Company's customers consist of end users, distributors, original equipment
manufacturers, system integrators and value-added resellers.
Product revenues are recognized at the time of shipment or upon the
delivery of a product master in satisfaction of noncancellable contractual
obligations under agreements where the customer has software reproduction and
distribution rights provided that no significant vendor obligations remain and
collection of the resulting receivable is deemed probable by management. Service
revenue from software maintenance, support and update fees (post-contract
support) is charged separately and recognized ratably over the contract period.
Revenues from training and consulting are recognized when services are provided.
Revenue from engineering services contracts is recognized on the
percentage-of-completion basis.
INCOME TAXES
The provisions for income taxes include federal, state and foreign taxes
currently payable and deferred taxes arising from temporary differences in
determining income for financial statement and tax purposes using the asset and
liabilities approach.
FOREIGN CURRENCY TRANSLATION
The functional currency of foreign subsidiaries is the local currency. Assets
and liabilities of the subsidiaries are translated at current exchange rates,
while income and expense are translated at average rates for the period. The
resulting cumulative translation adjustments are reported as a separate
component of stockholders' equity. The net gains and losses resulting from
foreign currency transactions were not significant for any of the periods
presented.
STOCK-BASED COMPENSATION PLANS
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25") and related Interpretations. Under APB
25, compensation cost is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the exercise price of the
option granted. Compensation cost for stock options, if any, is recognized
ratably over the vesting period. The Company's policy is to grant options with
an exercise price equal to the quoted market price of the Company's stock on the
grant date. Accordingly, no compensation has been recognized for its stock
option plans. The Company provides additional pro forma disclosures as required
under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No.123"). See Note 7.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding. Dilutive common equivalent shares
are calculated using the treasury stock method and consist of common stock
issuable upon the exercise of stock options and warrants.
STOCK SPLITS
On April 25, 1996, the Board of Directors declared a three-for-two split of
common stock effected in the form of a stock dividend, payable May 24, 1996, to
stockholders of record on May 10, 1996. In addition, on February 13, 1997, the
Board of Directors declared a three-for-two split of common stock effected in
the form of a stock dividend, payable March 10, 1997, to stockholders of record
on February 24, 1997. All share and per share amounts have been adjusted to give
retroactive effect to these stock splits.
28
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the fiscal 1995 and fiscal 1996 financial statements have
been reclassified to conform to the fiscal 1997 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
and No. 129, "Disclosure of Information About Capital Structure" ("SFAS No.
129"). SFAS No. 128 establishes financial accounting and reporting standards for
calculation of basic earnings per share and diluted earnings per share. SFAS No.
128 supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share"
and is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. SFAS No. 129 establishes standards
for disclosing information about an entity's capital structure. SFAS No. 129 is
effective for financial statements for periods ending after December 15, 1997.
The Company will adopt the new standards in the year ending January 31, 1998 and
has not yet determined the effect of adoption.
N O T E 2: R E L A T E D P A R T Y T R A N S A C T I O N S
The Company entered into distributor agreements with three of the minority
interest owners of WRSKK, Innotech Corporation, Kobe Steel, Ltd., and Nissin
Electric Ltd., in March 1993, October 1991, and October 1991, respectively. The
Innotech agreement was amended in December 1995 to provide for an extended
contract term and to issue to Innotech a warrant to purchase 225,000 shares of
the Company's Common Stock for $4.93 per share. The warrant was valued at
$100,000 and charged to cost of sales in fiscal 1996. The warrant is exercisable
from January 25, 1999 to July 25, 1999.
All product in Japan is sold through WRSKK's three master distributors.
Revenues derived from master distributor transactions in Japan amounted to $9.1
million, $6.7 million and $4.0 million in fiscal 1997, 1996 and 1995,
respectively. The percentage of Japan revenues from Innotech in fiscal year
1997, 1996 and 1995 was 58%, 26%, 13%, respectively. The percentage of Japan
revenues from Kobe Steel Ltd. in fiscal year 1997, 1996 and 1995 was 24%, 56%,
and 67%, respectively. The percentage of Japan revenues from Nissin Electric
Ltd. in fiscal year 1997, 1996, and 1995 was 18%, 18%, and 20%, respectively.
Amounts due from the joint venture partners were approximately $2,392,000 and
$100,000 at January 31, 1997 and 1996, respectively.
N O T E 3: E Q U I P M E N T A N D F U R N I T U R E
Equipment and furniture consist of the following (in thousands):
JANUARY 31,
1997 1996
- --------------------------------------------------------------------------------
Computer equipment $12,430 $ 7,589
Furniture and equipment 2,176 1,028
Leasehold improvements 1,148 490
- --------------------------------------------------------------------------------
15,754 9,107
Less accumulated depreciation (7,328) (5,048)
- --------------------------------------------------------------------------------
$ 8,426 $ 4,059
- --------------------------------------------------------------------------------
29
N O T E 4: M A R K E T A B L E S E C U R I T I E S
The carrying value of the Company's portfolio of marketable securities
approximated fair value. The portfolio consisted of the following:
JANUARY 31,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Money market funds $ 52 $ 260
Municipal bonds 79,095 15,372
U.S. government and agency obligations 2,551 -
Corporate bonds 1,000 5,000
Other debt securities 7,201 -
- --------------------------------------------------------------------------------
$89,899 $20,632
- --------------------------------------------------------------------------------
At January 31, 1997 and 1996, the net unrealized holding losses on
securities, net of related taxes, were $353,000 and $0, respectively.
N O T E 5: P R O V I S I O N F O R I N C O M E T A X E S
The provision for income taxes consists of the following
(in thousands):
YEARS ENDED JANUARY 31,
1997 1996 1995
- --------------------------------------------------------------------------------
Current:
Federal $5,139 $3,040 $1,151
State 1,151 733 60
Foreign 1,167 287 100
- --------------------------------------------------------------------------------
7,457 4,060 1,311
- --------------------------------------------------------------------------------
Deferred:
Federal (736) (574) 226
State 14 (59) (122)
Foreign (58) (19) 30
(780) (652) 134
- --------------------------------------------------------------------------------
$6,677 $3,408 $1,445
- --------------------------------------------------------------------------------
Deferred tax liabilities (assets) which result from temporary differences
in the recognition of certain revenues and expenses for financial and income tax
reporting purposes consist of the following (in thousands):
JANUARY 31,
1997 1996
- --------------------------------------------------------------------------------
Foreign deferred revenues $ 786 $ 771
Depreciation 224 225
Other 323 283
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 1,333 1,279
- --------------------------------------------------------------------------------
Employee benefit accruals (329) (255)
Accounts receivable reserves (357) -
Accrued expenses and other (929) (526)
- --------------------------------------------------------------------------------
Gross deferred tax assets (1,615) (781)
- --------------------------------------------------------------------------------
Net deferred tax liabilities (assets) $ (282) $498
- --------------------------------------------------------------------------------
Deferred tax assets are included in the consolidated balance sheets
within other assets. Deferred tax liabilities are included within income
taxes payable.
30
In fiscal 1997, 1996 and 1995, respectively, tax benefits resulting from the
exercise of employee stock options amounting to $5,740,000, $1,175,000 and
$157,000, respectively, were credited to stockholders' equity. The provision for
income taxes differs from the amount computed using the statutory federal income
tax rate of 34% as follows:
YEARS ENDED JANUARY 31,
1997 1996 1995
- --------------------------------------------------------------------------------
Expected rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 4.1 5.4 6.1
Foreign taxes 5.0 3.0 .1
Research and development, net (1.0) - (1.8)
Tax exempt interest (4.5) (2.7) (4.8)
Other (0.4) (.9) 3.4
- --------------------------------------------------------------------------------
37.2% 38.8% 37.0%
- --------------------------------------------------------------------------------
N O T E 6: C O M M O N S T O C K O F F E R I N G
In July 1996, the Company completed a public offering of 3,705,000 shares of
common stock at a price of $18.00 per share. The proceeds of the common stock
offering, after deducting all associated costs, were $62.8 million.
N O T E 7: S T O C K B A S E D C O M P E N S A T I O N P L A N S
As of January 31, 1997, the Company had three stock-based compensation plans
which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its two fixed stock option plans and its stock purchase
plan.
The Equity Incentive Plan allows for the issuance of options to Company
employees and consultants to purchase a maximum of 9,450,000 shares of common
stock. Individuals owning more than 10% of the Company's stock are not eligible
to participate in the Plan unless the option's price is at least 110% of the
fair market value of the common stock at the date of grant and the term of the
option does not exceed five years from the date of grant. Options issued to
holders of less than 10% of the Company's stock may be granted at prices of at
least 85% of the fair market value of the stock at the grant date and with
expirations to not exceed ten years from the grant date. Under the terms of the
Plan, option vesting provisions are established by the Board of Directors when
options are granted (generally over four years beginning at the date of grant),
and unexercised options are automatically canceled three months after
termination of the optionee's employment with the Company.
In April 1995, the Company adopted the 1995 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to be administered by the Board of
Directors. The Directors' Plan provides for the grant of options to purchase
common stock of the Company to directors of the Company who are not employees
of, or consultants to, the Company or any affiliate of the Company
("Non-Employee Directors"). The Directors' Plan allows for the issuance of
options to Non-Employee Directors to purchase a maximum of 225,000 shares of
common stock. Options issued are granted at prices of 100% of the fair market
value of the common stock at the date of grant and with expirations of ten years
from the grant date. Initial options granted to each Non-Employee Director
become vested over a period of four years from the date of grant ratably in
equal installments, commencing on the date one year after the date of grant of
the initial options. Subsequent options shall become 100% vested at the end of
the one-year period following the date of grant. Unexercised options will
terminate six months after such optionee's termination of all service with the
Company and its affiliates.
31
The number of shares for which options under these two plans were
exercisable was approximately 1,369,000, 1,282,500 and 895,500 at January 31,
1997, 1996 and 1995, respectively. Activity under the Equity Incentive Plan and
the Directors' Plan is summarized as follows (in thousands except per share
amounts):
FISCAL 1997 FISCAL 1996 FISCAL 1995
NUMBER OPTION NUMBER OPTION NUMBER OPTION
OF PRICE PER OF PRICE PER OF PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
- ---------------------------------------------------------------------------------------------------------------------
Beginning
balance 3,911 $ .02-11.00 3,265 $ .02-4.16 1,541 $.02-4.16
Granted 741 10.96-35.50 1,412 3.21-11.00 2,466 1.84-3.26
Exercised (1,004) .11-11.00 (488) .02-3.19 (447) .04-2.67
Canceled (99) .11-17.85 (278) .11-4.68 (295) .11-4.16
- ---------------------------------------------------------------------------------------------------------------------
Ending
balance 3,549 $.02-35.50 3,911 $.02-11.00 3,265 $.02-4.16
- ---------------------------------------------------------------------------------------------------------------------
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes model with the following assumptions used
for grants during fiscal 1997 and 1996: risk free interest rates of 6.33% and
5.36%, respectively; expected volatility of 65.63% and 67.55%, respectively; an
expected option life of 6.35 years and 5.91 years, respectively; and no expected
dividends for both years. The weighted average fair value of stock options
granted under the Equity Incentive Plan and the Directors' Plan for the years
ended January 31, 1997 and 1996, were $17.57 and $7.19, respectively.
The following table summarizes information about fixed stock options
outstanding at January 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
RANGE OF NUMBER WEIGHTED- AVERAGE WEIGHTED- NUMBER WEIGHTED-
EXERCISE PRICES OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT 1/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 1/31/97 EXERCISE PRICE
(IN THOUSANDS) (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
$0.01-$3.05 1,444 6.7 1.88 909 1.77
$3.05-$10.95 1,340 8.3 6.46 453 5.94
$10.95-$35.50 765 9.2 16.48 7 13.62
- -------------------------------------------------------------------------------------------------------------------
3,549 7.8 6.76 1,369 3.21
- -------------------------------------------------------------------------------------------------------------------
In March 1993, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 450,000 shares of common stock. The
Purchase Plan was amended in April 1995 to increase the number of shares
authorized for issuance by 450,000 to a total of 900,000 shares. Under the
Purchase Plan, The Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the commencement
of the Purchase Plan. Employees who participate in an offering can have up to
15% of their earnings withheld pursuant to the Purchase Plan. The amount
withheld is used to purchase shares of common stock on specified dates
determined by the Board. The price of common stock purchased under the Purchase
Plan is equal to 85% of the lower of the fair market value of the common stock,
determined by the closing price on the Nasdaq National Market System, at the
commencement date or the ending date of each six month offering period.
Sales under the Purchase Plan in fiscal 1997, 1996 and 1995 were 85,000,
199,000 and 171,000 shares of common stock, respectively, at an average price of
$14.67, $3.92 and $2.50, respectively. At January 31, 1997, 380,419 shares of
common stock were available for future purchase.
Compensation cost for the Purchase Plan (included in proforma net income
and net income per share amounts) is recognized for the fair value of the
employee's purchase rights, which was estimated using the Black-Scholes model
with the following assumptions used for grants during fiscal 1997 and 1996: risk
free interest rates of 6.0% and 5.1%, respectively; expected volatility of
55.85% and 56.50%, respectively; an expected option life of 6 months for both
years, and no expected dividends for both years. The weighted average fair value
of stock purchased under the Purchase Plan for the years ended January 31, 1997
and 1996, was $5.08 and $1.36, respectively.
The Company applies the provisions of APB 25 and related Interpretations in
accounting for compensation expense under the Equity Incentive Plan, the
Directors' Plan and the Purchase Plan. Had compensation expense under these
plans
32
been determined pursuant to SFAS No. 123, the Company's net income and net
income per share for the years ended January 31, 1997 and 1996 would have been
as follows (in thousands except per share amounts):
FISCAL 1997 FISCAL 1996
- --------------------------------------------------------------------------------
Net income:
As reported $11,280 $5,383
Pro Forma 7,296 4,248
Net income per share:
As reported $ 0.41 $ 0.23
Pro Forma 0.28 0.18
- --------------------------------------------------------------------------------
The Pro Forma amounts include compensation expense related to fiscal 1997 and
1996 stock option grants and sales of common stock under the Purchase Plan only.
In future years, the annual compensation expense will increase relative to the
fair value of stock options granted in those future years.
N O T E 8: L E A S E C O M M I T M E N T S
The Company leases certain property consisting of corporate and Subsidiary
headquarters, sales facilities, equipment and furniture. The Company occupies
its principal facilities under non-cancelable operating leases which expire from
1997 through 2000. The facility lease agreements provide for rental abatement
periods varying from five to six months and one contains a three year renewal
option.
Future minimum rental payments under noncancelable operating leases
subsequent to fiscal 1997 amounting to $2,925,000 are: 1998 - $1,154,000; 1999 -
$1,040,000; and 2000 - $731,000.
Rental expense for fiscal 1997, 1996 and 1995 was $1,968,000, $1,666,000
and $1,478,000, respectively.
N O T E 9: S E G M E N T A N D G E O G R A P H I C I N F O R M A T I O N
The Company operates in one industry segment.
The distribution of revenues, operating income (loss) and assets by
geographic location is as follows (in thousands):
NORTH WESTERN
AMERICA EUROPE JAPAN CONSOLIDATED
- ----------------------------------------------------------------------------------------------------
Fiscal year ended January 31, 1997
Total revenues $ 42,590 $12,306 $9,104 $ 64,000
- ----------------------------------------------------------------------------------------------------
Operating income $ 14,626 $ 551 $ 640 $ 15,817
- ----------------------------------------------------------------------------------------------------
Identifiable assets $109,359 $ 9,562 $9,740 $128,661
- ----------------------------------------------------------------------------------------------------
Fiscal year ended January 31, 1996
- ----------------------------------------------------------------------------------------------------
Total revenues $ 28,542 $ 8,709 $6,749 $ 44,000
- ----------------------------------------------------------------------------------------------------
Operating income (loss) $ 8,332 $ (198) $ (4) $ 8,130
- ----------------------------------------------------------------------------------------------------
Identifiable assets $ 38,763 $ 3,746 $2,971 $ 45,480
- ----------------------------------------------------------------------------------------------------
Fiscal year ended January 31, 1995
- ----------------------------------------------------------------------------------------------------
Total revenues $ 22,093 $ 6,007 $4,000 $ 32,100
- ----------------------------------------------------------------------------------------------------
Operating income (loss) $ 3,041 $ 829 $(418) $ 3,452
- ----------------------------------------------------------------------------------------------------
Identifiable assets $ 34,071 $ 2,015 $3,097 $ 39,183
- ----------------------------------------------------------------------------------------------------
Included in revenues from North America are direct export sales to the Asia
Pacific area amounting to $662,000, $656,000 and $656,000 in fiscal 1997, 1996
and 1995.
33
P A R T I I I
I T E M 1 0.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
Company's proxy statement related to the annual stockholders' meeting to be held
on July 24, 1997, to be filed by the Company with the Securities and Exchange
Commission ("Proxy Statement").
I T E M 1 1.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Proxy Statement.
I T E M 1 2.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Proxy Statement.
I T E M 1 3.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Proxy Statement.
34
P A R T I V
I T E M 1 4.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Financial Statement
Schedules - See Index to Consolidated Financial Statements at Item 8 on
page 20 of this report.
All other schedules are omitted because they were not required or the
required information is included in the Consolidated Financial
Statements or Notes thereto.
2. Exhibits
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission:
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------------------------------------------------------------------
3.1 (i) Certificate of Incorporation of Wind River.
3.2 (i) By-laws of Wind River.
10.1* (i) Form of Indemnity Agreement entered into between the
Registrant and its officers and directors.
10.2* (iv) 1987 Equity Incentive Plan, as Amended to date.
10.3* (i) Form of Incentive Stock Option Grant under the Equity
Incentive Plan.
10.4* (i) Form of Non-qualified Stock Option Grant under the Equity
Incentive Plan.
10.5* (iv) 1993 Employee Stock Purchase Plan, as amended to date.
10.6 (i) Master Technology License Agreement between the Registrant
and Wind River Systems, K.K., dated as of September 11,
1990.
10.7 (i) Amended Joint Venture Agreement for Wind River Systems, K.K.
between the Registrant and the parties named herein, dated
as of October 1, 1991.
10.8 (i) Master Distributor Agreement between Wind River Systems,
K.K. and Innotech Corporation, dated as of July 29, 1992
(with certain confidential portions deleted) (v).
10.9 (i) Marina Village Industrial Gross Lease between the Registrant
and Alameda Real Estate Investments, dated as of March 15,
1990, as amended.
10.10 * Employment Agreement between the Registrant and Ronald A.
Abelmann, dated as of March 4, 1994.
10.11 * Stock Purchase Agreement between the Registrant and Ronald
A. Abelmann, dated as of March 4, 1994.
10.12* (ii) Amended and restated Deferred Compensation Agreement between
the Registrant and Ronald A. Abelmann.
10.13 (iii) Amendment dated January 25, 1995 to Master Distributor
Agreement between Wind River Systems, KK and Innotech
Corporation.
10.14* (iv) 1995 Non-Employee Directors' Stock Option Plan.
10.15 * Form of Non-Qualified Stock Option Exercise under the Non-
Employee Director's Stock Option Plan.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
- -------------------------------------------------------------------------------
(i) Incorporated by reference from the Company's Registration
Statement on Form S-1 (No. 33-59146), filed with the
Commission on March 5, 1993, as amended through the date
hereof.
(ii) Filed as an exhibit to Form 10-Q/A, Amendment No. 2, for
the quarterly period ended April 30, 1996 and incorporated
herein by reference.
(iii) Filed as an exhibit to Form 10-Q/A, Amendment No. 1, for
the quarterly period ended April 30, 1996 and incorporated
herein by reference.
(iv) Incorporated by reference from the Company's Registration
Statement on Form S-8 (No. 333-06921) filed with the
Commission on June 18, 1996.
(v) Certain confidential portions deleted pursuant to Order
Granting Application Under the Securities Act of 1933 and
Rule 406 Thereunder Respecting Confidential Treatment
dated April 14, 1993.
* Indicates management contracts or compensatory
arrangements filed pursuant to Item 601(b)(10) of
Regulations S-K.
(b) Reports on Form 8-K
None.
35
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO END OF
(In thousands) THE YEAR EXPENSES WRITE-OFFS THE YEAR
- --------------------------------------------------------------------------------
1997:
Allowance for doubtful accounts $378 $300 $ (89) $ 589
Reserve for sales returns -- 615 -- 615
- --------------------------------------------------------------------------------
$378 $915 $ (89) $1,204
- --------------------------------------------------------------------------------
1996:
Allowance for doubtful accounts $246 $196 $ (64) $ 378
Reserve for sales returns -- -- -- --
- --------------------------------------------------------------------------------
$246 $196 $ (64) $ 378
- --------------------------------------------------------------------------------
1995:
Allowance for doubtful accounts $227 $277 $(258) $ 246
Reserve for sales returns -- -- -- --
- --------------------------------------------------------------------------------
$227 $277 $(258) $ 246
- --------------------------------------------------------------------------------
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Wind River Systems, Inc.
Dated: April 18, 1997 \s\ RICHARD W. KRABER
---------------------
Richard W. Kraber
Vice President of Finance and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on April 18, 1997.
NAME TITLE
\s\ JERRY L. FIDDLER Chairman of the Board
- -----------------------------------
Jerry L. Fiddler
\s\ RONALD A. ABELMANN President, Chief Executive Officer and
- ----------------------------------- Director (principal executive
Ronald A. Abelmann officer)
\s\ DAVID N. WILNER Chief Technical Officer and Director
- -----------------------------------
David N. Wilner
\s\ RICHARD W. KRABER Vice President of Finance, Chief
- ----------------------------------- Financial Officer and Secretary
Richard W. Kraber (principal financial officer)
\s\ DANIEL LEE Controller
- ----------------------------------- (principal accounting officer)
Daniel Lee
\s\ WILLIAM B. ELMORE Director
- -----------------------------------
William B. Elmore
\s\ DAVID PRATT Director
- -----------------------------------
David Pratt
37