-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O5LN/oRBNLugko4dL9HnXJVbHnXTz+hbQd3DBDN4wZmggh4LVO/cSuUtY3Gu8Weq K5F/A6z/jJ4QX0ZEb/RLpA== 0000891618-97-003463.txt : 19970815 0000891618-97-003463.hdr.sgml : 19970815 ACCESSION NUMBER: 0000891618-97-003463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCAFEE ASSOCIATES INC CENTRAL INDEX KEY: 0000890801 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770316593 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20558 FILM NUMBER: 97662008 BUSINESS ADDRESS: STREET 1: 2710 WALSH AVE STE 200 CITY: SANTA CLARA STATE: CA ZIP: 95051 BUSINESS PHONE: 4089883832 10-Q 1 FORM 10-Q FOR PERIOD ENDING JUNE 30, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________ Commission file number 0-20558 MCAFEE ASSOCIATES, INC. (Exact name of registrant as specified in its charter) Delaware 77-0316593 (State of incorporation) (IRS Employer Identification Number) 2805 Bowers Avenue Santa Clara, California 95051 (408) 988-3832 (Address and telephone number of principal executive offices) Indicate by check mark whether 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, and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- 50,881,368 shares of the registrant's common stock, $0.01 par value, were outstanding as of July 31, 1997. THIS DOCUMENT CONTAINS 38 PAGES. THE EXHIBIT INDEX IS ON PAGE 29. 2 MCAFEE ASSOCIATES, INC. FORM 10-Q, June 30, 1997 C O N T E N T S
Item Number Page - ----------- ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets: June 30, 1997 and December 31, 1996.............................3 Condensed Consolidated Statements of Income: Three months and six months ended June 30, 1997 and 1996........4 Condensed Consolidated Statements of Cash Flows: Six months ended June 30, 1997 and 1996 ........................5 Notes to Consolidated Financial Statements.........................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................8 PART II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.........................................26 SIGNATURES........................................................................28 EXHIBIT INDEX.....................................................................29
2 3 MCAFEE ASSOCIATES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) ASSETS
June 30 December 31 1997 1996 -------- -------- (Unaudited) Current assets: Cash and cash equivalents $117,830 $ 76,363 Marketable securities 40,510 50,368 Accounts receivable, net of allowances for doubtful accounts and returns of $3,580 and $3,027 at June 30, 1997 and December 31, 1996 60,162 25,930 Prepaids and other current assets 6,121 5,097 Prepaid taxes 175 1,869 Deferred taxes 3,912 4,321 -------- -------- Total current assets 228,710 163,948 Long term investments 37,674 14,021 Fixed assets, net 14,626 7,486 Intangibles, net 3,388 1,001 Deferred taxes 6,840 7,719 Other assets 795 310 -------- -------- Total assets $292,033 $194,485 ======== ======== LIABILITIES Current liabilities: Accounts payable $ 10,434 $ 5,379 Accrued liabilities 16,176 15,734 Deferred revenue 27,606 20,182 -------- -------- Total current liabilities 54,216 41,295 Deferred revenue, less current portion 5,420 3,663 -------- -------- Total liabilities 59,636 44,958 -------- -------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; authorized: 5,000,000 shares Common stock, $.01 par value; authorized: 100,000,000 shares; issued and outstanding: 50,675,279 shares at June 30, 1997 and 48,662,489 at December 31, 1996 511 488 Additional paid-in capital 117,554 77,259 Retained earnings 114,332 71,780 -------- -------- Total stockholders' equity 232,397 149,527 -------- -------- Total liabilities and stockholders' equity $292,033 $194,485 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 MCAFEE ASSOCIATES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)
Three Months Six Months Ended June 30, Ended June 30, ---------------------- ---------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Net revenue $86,271 $ 40,767 $159,628 $ 74,612 Operating costs and expenses: Cost of net revenue 6,418 2,450 12,336 4,517 Research and development 11,878 4,752 21,536 8,562 Marketing and sales 25,292 11,596 47,279 21,179 General and administrative 6,300 2,961 11,855 5,674 Amortization of intangibles 213 1,099 317 1,649 Acquisition and other unusual costs -- 2,868 -- 11,165 -------- -------- -------- -------- Total operating costs and expenses 50,101 25,726 93,323 52,746 -------- -------- -------- -------- Income from operations 36,170 15,041 66,305 21,866 Other income 2,014 645 3,646 1,242 -------- -------- -------- -------- Income before income taxes 38,184 15,686 69,951 23,108 Provision for income taxes 14,510 6,286 26,581 12,625 -------- -------- -------- -------- Net income $ 23,674 $ 9,400 $ 43,370 $ 10,483 ======== ======== ======== ======== Net income per share $ 0.44 $ 0.18 $ 0.81 $ 0.20 ======== ======== ======== ======== Shares used in per share calculation 54,158 52,616 53,884 52,206 ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 MCAFEE ASSOCIATES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Six Months Ended June30, 1997 1996 --------- --------- Cash flows from operating activities: Net income $ 43,370 $ 10,483 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 2,276 2,579 Provision for doubtful accounts receivable and allowance for returns 553 540 Unrealized gain on investments (137) -- Deferred taxes 1,288 2,538 Changes in assets and liabilities: Accounts receivable (34,785) 3,308 Prepaids and other assets (1,509) (525) Refundable income taxes 1,694 -- Accounts payable and accrued liabilities 5,497 4,794 Prepaid income taxes -- 4,162 Deferred revenue 9,181 (6,525) --------- --------- Net cash provided by operating activities 27,428 21,354 Cash flows from investing activities: Purchase of Compusul (2,709) -- Purchases of investment securities, net (13,795) (16,059) Additions to fixed assets (9,094) (1,691) Net liabilities of Jade K.K. acquired under pooling transaction (1,122) -- Net assets of SHBV acquired under pooling transaction 925 -- --------- --------- Net cash used in investing activities (25,795) (17,750) --------- --------- Cash flows from financing activities: Effect of exchange rate fluctuations (484) (22) Stock option exercises 15,420 4,368 Tax benefit from exercise of nonqualified stock options 24,898 11,250 --------- --------- Net cash provided by financing activities 39,834 15,596 --------- --------- Net increase in cash and cash equivalents 41,467 19,200 Cash and cash equivalents at beginning of period 76,363 30,299 --------- --------- Cash and cash equivalents at end of period $ 117,830 $ 49,499 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 MCAFEE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation: The accompanying consolidated financial statements have been prepared by the Company without audit in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. The results of operations for the three and six month periods ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year or for any future periods. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 1997. The balance sheet as at December 31, 1996 has been derived from the audited financial statements as of and for the year ended December 31, 1996, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. 2. Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128),"Earnings Per Share", which specifies the computation, presentation and disclosure requirements for earnings per share. SFAS 128 supersedes Accounting Principles Board Opinion No. 15 and is effective for financial statements issued for periods ending after December 15, 1997. SFAS 128 requires restatement of all prior-period earnings per share data presented after the effective date. FAS 128 will not have a material impact on the Company's financial position, results of operations or cash flows. In July 1997, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income", which requires a separate financial statement showing changes in comprehensive income is effective for financial statements issued for fiscal years beginning after December 15, 1997. SFAS 130 requires reclassification of all prior-period financial statements for comparative purposes. In July 1997, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information", which requires companies to report certain information about operating segments, including certain information about their products, services, the geographic areas in which they operate and their major customers. This statement supersedes FASB Statements Nos. 14, 18, 24 and 30. SFAS 131 is effective for financial statements for fiscal years beginning after December 15, 1997. 3. Acquisitions: On April 15, 1997, the Company acquired a controlling interest in its former distributor, Compusul-Consultores de Informatica Ltda. ("Compusul") of Sao Palo, Brazil, for an aggregate purchase price of $3.6 million, represented by an initial payment of $2.6 million and an additional $1.0 million payable upon the achievement of certain earnings targets. The acquisition was accounted for as a purchase transaction. The excess of the purchase price, including transaction costs, over the net assets acquired was $2.7 million and has been recorded as goodwill, which is being amortized on a straight-line basis over 5 years. 6 7 4. Litigation On April 1, 1997, the Company was named as defendant in an action filed by CyberMedia, Inc. ("CyberMedia") in the United States District Court for the Northern District of California. The complaint alleges that the packaging and advertisement of the Company's PC Medic 97 product, which was introduced in March 1997, constitute unfair competition, false advertising and trade libel with respect to CyberMedia's "First Aid 97" product. The complaint seeks unspecified damages and injunctive relief, including a temporary restraining order. On April 9, 1997, the court denied CyberMedia's application for a temporary restraining order. A date has been set in June 1997, for a hearing on plaintiff's request for a preliminary injunction. McAfee has filed an opposition to the request for a preliminary injunction. McAfee has filed an opposition to the request for a restraining order which denies the allegations of CyberMedia's complaint. In May, the parties reached an agreement pursuant to which the complaint was dismissed. On April 24, 1997, the Company received notice that Symantec Corporation ("Symantec") filed suit in the United States District Court, Northern District of California, San Jose Division, alleging copyright infringement and unfair competition by the Company. Symantec alleges that the Company's computer software program called "PC Medic 1997" copied portions of Symantec's computer software program entitled "CrashGuard." Symantec's complaint seeks injunctive relief and unspecified money damages. On July 20, 1997, Symantec sought leave to amend its complaint to include additional allegations of copyright infringement and trade secret misappropriation pertaining to the Company's "VirusScan" product. Symantec seeks injunctive relief and unspecified money damages. The Company is continuing to investigate the facts surrounding Symantec's claims. On May 13, 1997, Trend Micro Inc. ("Trend") filed suit in United States District Court for the Northern District of California. Trend alleges that the Company's "WebShield" and "GroupShield" products infringe a Trend patent which recently was issued on April 22, 1997. Trend's complaint seeks injunctive relief and unspecified money damages. On June 6, 1997, the Company filed its answer denying any infringement. The Company also filed a counterclaim accusing Trend of unfair competition, false advertising, trade libel, and interference with prospective economic advantage. The case is in the initial stages of discovery. The Court has not yet set a trial date. 7 8 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected for the full year or any future periods. This Report on Form 10-Q contains forward-looking statements, including but not limited to those specifically identified as such, that involve risks and uncertainties. The statements contained in this Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this Report on Form 10-Q are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth in "Risk Factors" and elsewhere in this Report on Form 10-Q. OVERVIEW McAfee Associates, Inc. ("McAfee" or the "Company") licenses network security and management products, including help desk and storage management software. Prior to July 1, 1995, net revenue from licenses for anti-virus software was generally recognized ratably over the two year license period because there was no basis for unbundling the separate maintenance portion of the license, while net revenue from licenses for network management software was generally recognized 80% at the time of the licensing transaction with the remaining 20%, representing the maintenance portion of the license fee, recognized ratably over the two year license period. Effective July 1, 1995, the Company established a basis for unbundling the maintenance portion of the anti-virus license and began to generally recognize 80% of license fees for electronically distributed anti-virus software at the time of the licensing transaction. The deferred revenue from anti-virus licenses entered into prior to July 1, 1995, however, has been ratably recognized over the original subscription periods. This change in the Company's revenue recognition policy has resulted in the earlier recognition of revenue over the last eight quarters with a corresponding decrease in the amount of deferred revenue on the Company's balance sheet. 8 9 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ As a result of the change in revenue recognition for anti-virus licenses, period-to-period results are not directly comparable and should not be relied upon as indicative of future performance. In addition, since a decreasing percentage of the Company's net revenue is attributable to the recognition of previously deferred revenue, the Company's net revenue in future periods may be subject to greater fluctuations on a quarter-to-quarter basis. In addition to generating net revenue through licenses, the Company sells its network security and management products with shrink-wrap licenses through traditional distribution channels. The Company recognizes revenue from sales to distributors upon shipment, subject to a reserve for returns. On April 14, 1997, the Company acquired a former Brazilian distributor, Compusul-Consultoria E Comercio de Informatica Ltda. ("Compusul"). This combination was accounted for as purchase transaction. Compusul's results for the quarter ended June 30, 1997 have been included in the Company's consolidated results for that period. The Company's results of operations can fluctuate significantly on a quarterly basis. Causes of such fluctuations may include the volume and timing of new orders and renewals, the introduction of new products, distributor inventory levels and return rates, Company inventory levels, product upgrades or updates released by the Company or its competitors, changes in product prices, the impact of competitive pricing or products, timely availability and acceptance of new products, changes in product mix, changes in the market for anti-virus or network management software, inclusion of network security or management software functionality in system software, failure to manage growth and/or potential acquisitions, seasonality, trends in the computer industry, general economic conditions, extraordinary events such as acquisitions or litigation and the occurrence of unexpected events. Historically, renewals have accounted for a significant portion of the Company's net revenue, however, there can be no assurance that the Company will be able to sustain current renewal rates in the future. The Company's results for any given period should not be relied upon as indicative of future performance. See "Risk Factors -- Variability of Quarterly Operating Results. The Company's future earnings and stock price may be subject to volatility in any period. Any shortfall in various operating results, including licensing activity, product sales, net revenue, operating income, net income or net income per share from historical levels or expectations of securities analysts may have significant adverse effects on the trading price of the Company's stock. Furthermore, other factors such as acquisitions or unforeseen events in the technology or software industry or in the Company's day to day activities can have a material adverse effect on the Company's stock performance. See "Risk Factors -- Volatility of Stock Price" and "Risk Factors - -- Risks Associated with Failure to Manage Growth; Potential Future Acquisitions." 9 10 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of net revenue represented by certain items in the Company's statements of operations for the three and six month periods ended June 30, 1997 and 1996:
Three months ended Six Months Ended June 30 June 30 ------------------- ----------------- 1997 1996 1997 1996 ----- ----- ----- ----- Net revenue 100.0% 100.0% 100.0% 100.0% Operating costs and expenses: Cost of net revenue 7.4 6.0 7.7 6.0 Research and development 13.8 11.7 13.6 11.5 Marketing and sales 29.3 28.4 29.6 28.4 General and administrative 7.3 7.3 7.4 7.6 Amortization of intangibles 0.2 2.7 0.2 2.2 Acquisition and other unusual costs -- 7.0 -- 15.0 ----- ----- ----- ----- Total operating costs and expenses 58.1 63.1 58.5 70.7 ----- ----- ----- ----- Income from operations 41.9 36.9 41.5 29.3 Other income 2.4 1.6 2.3 1.7 ----- ----- ----- ----- Income before income taxes 44.3 38.5 43.8 31.0 Provision for income taxes 16.8 15.5 16.7 17.0 ----- ----- ----- ----- Net income 27.5% 23.0% 27.1% 14.0% ===== ===== ===== =====
Net Revenue. Net revenue increased 112% to $86.3 million in the three months ended June 30, 1997 from $40.8 million in the three months ended June 30, 1996. For the six month period ended June 30, 1997, net revenue increased 114% to $159.6 million from $74.6 million in the same period in 1996. This increase is largely attributable to increased revenue from licenses for anti-virus/security products and renewal of expiring anti-virus licenses and, to a lesser extent, licenses for network management and help desk (McAfee Service Desk) products. Net revenue also increased as a result of increased sales of - -------------------------------------------------------------------------------- * This statement is a forward looking statement reflecting current expectations. There can be no assurance that McAfee's actual future performance will meet McAfee's current expectations. See the Risk Factors on page 17 for a discussion of certain factors that could effect future performance. 10 11 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ shrink-wrapped products through traditional distribution channels. Revenue generated through distribution channels tends to be non-linear and this may cause the Company's revenue to fluctuate in the future. The Company has experienced increased price competition for its products and expects competition to increase in the near term, which may result in reduced average selling prices for the Company's products.* Due to competitive and other factors (such as a maturing client anti-virus market and an increasingly higher base from which to grow), the Company's historic growth rate will be difficult to maintain.* In response to increasing price competition and in an effort to maintain average selling prices, the Company has recently introduced its anti-virus/security product suites. There can be no assurance that this strategy will be successful.* In January 1997, the Company implemented a licensing program with its distribution and corporate channel resellers (such as value added resellers (VARs) and system integrators) in an effort to increase sales through indirect channels. There can be no assurance that this licensing program will be successful.* Net revenue from international sales accounted for approximately 27% and 20% of net revenue for the three months ended June 30, 1997 and 1996, respectively. For the six month periods ended June 30, 1997 and 1996, the percentage of net revenue from international licenses was approximately 26% and 23%, respectively. This increase was due to increased sales through traditional distribution channels as well as the expansion of the Company's international operations in Japan, the Netherlands and Brazil as a result of the acquisition of Jade KK and a former distributor Shuijers Holding B.V. ("SHBV") in February 1997 and Compusul in April 1997. The Company denominates certain international license fees in local currencies, primarily European currencies. As a result, the Company is subject to the risks associated with fluctuations in currency exchange rates. In July 1997, the Company began to manage potential foreign currency fluctuations using non-leveraged forward currency contracts. Risks inherent in the Company's international sales generally include the impact of fluctuating exchange rates, longer payment cycles, greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements, seasonality due to the slowdown in European business activity during the third quarter, and tariffs and other trade barriers. There can be no assurance that these factors will not have a material adverse effect on the Company's future business, financial condition and results of operations. Further, in countries with a high incidence of software piracy, the Company may experience a higher rate of piracy of its products.* In addition, a portion of the Company's international sales are generated through independent agents. Since these agents are not employees of the Company and are not required to offer the Company's products exclusively, there can be no assurance that they will continue to market the Company's products. Also, despite the Company's dependence in certain international markets upon the marketing, sales and customer support of its agents, the Company currently has limited control over its agents. For example, the Company is dependent upon its international agents to provide it with - -------------------------------------------------------------------------------- * This statement is a forward looking statement reflecting current expectations. There can be no assurance that McAfee's actual future performance will meet McAfee's current expectations. See the Risk Factors on page 17 for a discussion of certain factors that could effect future performance. 11 12 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ information regarding licensees and there can be no assurance that the Company will be able to obtain sufficient information to contact such licensees, if necessary, regarding renewal. In addition, the Company may be unaware of the nature and scope of the representations made to customers by these agents. See "Risk Factors -- Risks Related to International License Revenue." Cost of Net Revenue. The Company has historically distributed the majority of its products electronically, and as a result, its cost of net revenue has been low relative to other software vendors. The Company's cost of net revenue includes the cost of media, manuals and packaging for products distributed through traditional distribution channels and third-party royalties. The cost of net revenue does varies among the Company's products, because, in part, products may include third party technology on which royalties are payable. The cost of net revenue also differs between international and domestic sales as international sales are primarily through traditional distribution channels and costs of media, manuals and packaging for products sold internationally tend to be higher. For the three months ended June 30, 1997 and 1996, the Company's cost of net revenue was $6.4 million and $2.5 million, respectively. The cost of net revenue for the six month period ended June 30, 1997 increased to $12.3 million from $4.5 million in the same period in 1996. As a percentage of net revenue, cost of net revenue increased to 7.4% from 6.0% in the three month period ended June 30, 1997 and 1996, respectively and increased to 7.7% from 6.0% in the six month period ended June 30, 1997 and 1996, respectively. The cost of revenue fluctuates slightly on a quarter to quarter basis depending on the percentage of revenue that is distributed electronically versus traditional channels. The increases in cost as a percent of revenue is attributable to an increasing percentage of the Company's products being distributed through traditional distribution channels, partially as a result of the increase in the overall percentage of international sales. To the extent this trend continues, the Company's cost of net revenue would increase and, accordingly, gross margins would decrease.* See "Risk Factors -- Variability of Quarterly Operating Results." Research and Development. Research and development expenses consist primarily of salary and benefits for the Company's software development and technical support staff and to a lesser extent, costs associated with independent contractors. Research and development expenses increased 150% to $11.9 million in the three months ended June 30, 1997 from $4.8 million in same period in 1996. For the six month period ended June 30, 1997, research and development expenditures increased 152% to $21.6 million from $8.6 million in the same period in 1996. These increases were primarily due to growth in the Company's product development staff, increased use of third-party contractors and increased development activity mainly in security products, server based products, McAfee Service Desk, as well as the transition to the Company's VirusScan 3.0 product. As a percentage of net revenue, - -------------------------------------------------------------------------------- * This statement is a forward looking statement reflecting current expectations. There can be no assurance that McAfee's actual future performance will meet McAfee's current expectations. See the Risk Factors on page 17 for a discussion of certain factors that could effect future performance. 12 13 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ research and development expenses increased to 13.8% for the three months ended June 30, 1997 from 11.7% for the same period in 1996 and increased to 13.6% in the six months ended June 30, 1997 from 11.5% for the same period in 1996. These increases primarily reflect the Company's continued investment in new and existing products. The Company anticipates that research and development expenses will continue to increase in absolute dollars but may fluctuate as a percentage of net revenue.* The Company's future success will depend in large part upon its ability to continue to offer a broad range of anti-virus/security and network management/help desk products, to continue to enhance its existing products, to develop and introduce in a timely manner new products that take advantage of technological advances and respond to new customer requirements.* The Company also believes that providing a high level of technical support is key to success in the anti-virus/security and network management/help desk markets.* Furthermore, while the Company updates its products on a regular basis, competitors may announce new products with capabilities or technologies that could have the potential to replace or shorten the life cycles of the Company's existing or new products.* As a result, the Company believes that significant investments in product development and technical support are essential.* The timing and amount of research and development expenses may vary significantly based upon the number of new products and significant upgrades under development during a given period.* See "Risk Factors -- Rapid Technological Change; Risks Associated with Product Development." Marketing and Sales. Marketing and sales expenses consist principally of salary, commissions and benefits for marketing, sales and customer support personnel and costs associated with advertising and promotions. Marketing and sales expenses increased 118% to $25.3 million in the three months ended June 30, 1997 from $11.6 million in the three months ended June 30, 1996. For the six month period ended June 30, 1997, marketing and sales expenditures increased 123% to $47.3 million from $21.2 million in the same period in 1996. These increases principally reflect growth in the Company's sales and marketing staff, including the expansion of the Company's international operations, expanded coverage in indirect channels in an effort to grow indirect sales, and increased advertising and promotional expenses. As a percentage of net revenue, marketing and sales expenses increased to 29.3% in the three months ended June 30, 1997, from 28.4% in the same period in 1996, and increased to 29.6% in the six months ended June 30, 1997 from 28.4% in the same period in 1996. These increases principally reflect greater proportionate growth in the Company's sales and marketing staff and advertising and promotional expenses as compared to revenue growth. The Company is seeking to expand its product line in the future, and such expansion could contribute to an increase in marketing and sales expenses as a percentage of revenue.* - -------------------------------------------------------------------------------- * This statement is a forward looking statement reflecting current expectations. There can be no assurance that McAfee's actual future performance will meet McAfee's current expectations. See the Risk Factors on page 17 for a discussion of certain factors that could effect future performance. 13 14 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ General and Administrative. General and administrative expenses consist principally of salary and benefit costs for administrative personnel, general operating costs and legal, accounting and other professional fees. General and administrative costs increased 113% to $6.3 million in the three months ended June 30, 1997 from $3.0 million in the three months ended June 30, 1996. For the six months ended June 30, 1997, general and administrative expenditures increased 109% to $11.9 million from $5.7 million. These increases are largely a result of a concerted effort to strengthen the infrastructure of the Company both domestically and internationally to accommodate its growth in revenue. As a percentage of net revenue, general and administrative expenses was 7.3% in the three months ended June 30, 1997 and 1996, and decreased to 7.4% in the six months ended June 30, 1997 from 7.6% in the same period in 1996. The Company intends to continue to make investments in its general and administrative infrastructure, and, as a result, expects general and administrative expenses to increase in absolute dollars.* Amortization of Intangibles. The Company expensed $213,000 and $1.1 million of amortization related to intangibles in the three months ended June 30, 1997 and 1996, respectively, and $317,000 and $1.6 million in the six months ended June 30, 1997 and 1996, respectively. Intangibles consist of purchased goodwill and certain technology acquired through acquisitions. Other Income. Other income consists primarily of interest income earned on the Company's cash and short and long term investments and foreign exchange gains. Other income totaled $2.0 million and $645,000 in the three months ended June 30, 1997 and 1996, respectively, and $3.6 million and $1.2 million in the six months ended June 30, 1997 and 1996 respectively. These increases in the Company's other income relate to higher interest income resulting from higher average balances invested. Provision for Income Taxes. The provision for income taxes is recorded at the Company's effective tax rate which, for the three month periods ended June 30, 1997 and 1996, was 38.0% and 40.1%, respectively. For the six month periods ended June 30, 1997 and 1996, the effective tax rate was 38.0% and 54.6%, respectively. The Company's effective tax rate reflects the non-deductibility for tax purposes of $11.2 million in acquisition costs expensed during the six months ended June 30, 1996, of which $8.3 million was expensed in the three months ended March 31, 1996. The Company has not reduced the deferred tax asset by a valuation allowance as it is likely that all of the deferred tax asset will be realized due to sufficient taxable income available through carryback to prior years and to carryforward to future years.* - -------------------------------------------------------------------------------- * This statement is a forward looking statement reflecting current expectations. There can be no assurance that McAfee's actual future performance will meet McAfee's current expectations. See the Risk Factors on page 17 for a discussion of certain factors that could effect future performance. 14 15 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company had $117.8 million in cash and cash equivalents and $78.2 million in marketable securities, for a combined total of $196.0 million. Net cash provided by operating activities was $27.4 million and $21.4 million for the six months ended June 30, 1997 and 1996, respectively. Net cash provided by operating activities for the six months ended June 30, 1997 consisted primarily of net income, an increase in accounts payable and accrued liabilities together with an increase in deferred revenue offset by an increase in accounts receivable. Net cash provided by operating activities for the six months ended June 30, 1996 consisted primarily of net income plus and non-cash expenses plus an increase in accounts payable and accrued liabilities offset by decreases in accounts receivable, prepaid income taxes, deferred taxes and deferred revenue. At June 30, 1997, the Company's accounts receivable balance as a percentage of sales for the quarter then ended meaningfully increased over the prior period. This increase was due to, among other factors, the Company's decision to extend payment terms rather than to reduce prices in response to increasing price competition in the maturing anti-virus market; the Company's increased emphasis on international sales (typically having longer payment terms); a higher percentage of indirect sales through indirect channels; the effect on receivables of the Company's transition to the VirusScan 3.0 product relating to exchanges with resellers of updated inventory for older VirusScan 2.0 inventory; and a shift in the Company's product mix to more server/enterprise based products. Due in part to these trends and to the seasonal nature of the third quarter (where a higher percentage of the Company's sales have historically been, and are expected to be, concentrated in the last month of the quarter), the Company expects this trend to continue into the quarter ended September 30, 1997.* With an increase in business through indirect channels, the Company's receivable collection experience has become more dependent on the longer payment cycle for VARs and system integrators. In addition, to the extent that the Company's receivable balance increases, the Company will be subject to greater general credit risks with respect thereto.* Net cash used in investing activities was $25.8 million in the six months ended June 30, 1997, primarily reflecting purchases of marketable securities and fixed assets as well as goodwill from the acquisition of Compusul. Net cash used by investing activities in the six months ended June 30, 1996 was $17.8 million, primarily reflecting purchases of marketable securities. - -------------------------------------------------------------------------------- * This statement is a forward looking statement reflecting current expectations. There can be no assurance that McAfee's actual future performance will meet McAfee's current expectations. See the Risk Factors on page 17 for a discussion of certain factors that could effect future performance. 15 16 MCAFEE ASSOCIATES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------ Net cash provided by financing activities was $39.8 million and $15.6 million in the six months ended June 30, 1997 and 1996, respectively, consisting primarily of the proceeds and tax benefits associated with the exercise of nonqualified stock options. The Company believes that its available cash and anticipated cash flow from operations will be sufficient to fund the Company's working capital and capital expenditure requirements for at least the next twelve months.* - -------------------------------------------------------------------------------- * This statement is a forward looking statement reflecting current expectations. There can be no assurance that McAfee's actual future performance will meet McAfee's current expectations. See the Risk Factors on page 17 for a discussion of certain factors that could effect future performance. 16 17 RISK FACTORS The following risk factors should be considered in conjunction with the information in this Report on Form 10-Q. Variability of Quarterly Operating Results. McAfee's licensing activity and results of operations can fluctuate significantly on a quarterly basis. Causes of such fluctuations may include the volume and timing of new orders and renewals, the introduction of new products, distributor inventory levels and return rates, McAfee inventory levels, upgrades or updates by McAfee or its competitors, changes in product prices, changes in product mix, seasonality, trends in the computer industry, general economic conditions, extraordinary events such as acquisitions or litigation and the occurrence of unexpected events. Because of the nature of its distribution methods, McAfee generally cannot predict when a user will license its products. Historically, renewals have accounted for a significant portion of McAfee's net revenue; however, there can be no assurance that McAfee will be able to sustain historic renewal rates in the future. Prior to July 1, 1995, McAfee recognized substantially all license revenue ratably over a two-year license period, during which time users generally received all product upgrades, updates and technical support at no additional charge. As a result, quarterly fluctuations in licensing activity have had a reduced quarter-to-quarter impact on McAfee's net revenue and net income. However, since July 1, 1995, McAfee generally recognizes 80% of its revenue from licenses at the time of the initial licensing transaction, which more directly impacts net revenue and net income in the quarters in which the licensing activity occurs. Furthermore, since McAfee's cost of net revenue is low, and operating expenses are relatively fixed, any revenue shortfall in a quarter will result in a substantially similar shortfall in net income. As a result of this change in revenue recognition in July 1995, McAfee believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance. The operating results of many software companies reflect seasonal trends, and McAfee's business, financial condition and results of operations may be affected by such trends in the future. Such trends may include higher net revenue in the fourth quarter as many customers complete annual budgetary cycles, and lower net revenue in the summer months when many businesses experience lower sales, particularly in the European market. The Company has had significant growth in net revenue and net income. The Company has experienced and expects to continue to experience increased price competition for its products and expects competition to increase in the near-term, which may result in reduced average selling prices for the Company's products in the future.* Due to these and other factors (such as a maturing anti-virus market and an increasingly higher base from which to grow), the Company's historic growth rate will be difficult to maintain.* In addition, although the Company has historically experienced greater order growth rates as compared to revenue growth rates in sequential quarters, that was not the case in the quarter ended June 30, 1997 and the Company has seen a general convergence of these growth rates.* In January 1997, the Company implemented a licensing program with its distribution and corporate channel resellers (such as value added resellers (VARs) and system integrators) in an effort to increase sales through indirect channels. There can be no assurance that this licensing program will be successful.* 17 18 The Company has historically distributed the majority of its products electronically, and as a result, its cost of net revenue has been low relative to other software vendors. The Company's cost of net revenue includes the cost of media, manuals and packaging for products distributed through traditional distribution channels and third-party royalties. The cost of revenue fluctuates slightly on a quarter to quarter basis depending on the percentage of revenue that is distributed electronically versus traditional channels. As a percentage of net revenue, cost of net revenue increased to 7.7% from 6.0% in the six month periods ended June 30, 1997 and 1996 respectively. The increase in cost as a percent of revenue is attributable to an increasing percentage of the Company's products being distributed through traditional distribution channels. To the extent this trend continues, the Company's cost of net revenue would increase and, accordingly, gross margins would decrease. See "Results of Operations -- Cost of Net Revenue." Risk of Inclusion of Network Management and Security Functionality in Other Software. In the future, vendors of operating system software or other software (such as firewall or electronic mail software) may continue to enhance their products (including separate products that are bundled together) to include functionality that is currently provided most often by network security and management software. This enhancement could be achieved through the addition of functionality to operating system software or other software or the bundling of network security and management software with operating system software or other products. For example, Microsoft introduced limited anti-virus functionality into MS-DOS versions in 1993. The widespread inclusion of the functionality of McAfee's products, and of the functionality of the network security or management products, as standard features of operating system software or other software could render McAfee's products obsolete and unmarketable, particularly if the quality of such functionality were comparable to that of McAfee's products. Furthermore, even if the network security and/or management functionality provided as standard features by operating systems or other software is more limited than that of McAfee's products, there can be no assurance that a significant number of customers would not elect to accept such functionality in lieu of purchasing additional software. If McAfee was unable to develop new network security and management products to further enhance operating systems or other software and to replace successfully any obsolete products, McAfee's business, financial condition and results of operations would be materially adversely affected. Rapid Technological Change; Risks Associated with Product Development. The network security and management market is highly fragmented and is characterized by ongoing technological developments, evolving industry standards and rapid changes in customer requirements. McAfee's success depends upon its ability to offer a broad range of network security and management software products, to continue to enhance existing products, to develop and introduce in a timely manner new products that take advantage of technological advances, and to respond promptly to new customer requirements. While McAfee believes that it currently offers one of the broadest product lines in the network management and security market, this market is continuing to evolve and customer requirements are continuing to change. As the market evolves and competitive pressures increase, McAfee believes that it will need to further expand its product offerings. McAfee has identified a number of enhancements to its existing product offerings which it believes are important to its continued success in the network security and management market. There can be no assurance that McAfee will be successful in developing and marketing, on a timely basis, enhancements to its existing products or new products, or that its new products will adequately address the changing needs of the marketplace. 18 19 Failure by McAfee in any of these areas could materially and adversely affect its business, financial condition and results of operations. In addition, from time to time, McAfee or its competitors may announce new products with new or additional capabilities or technologies. Such announcements of new products could have the potential to replace or shorten the life cycles of McAfee's existing products and to cause customers to defer purchasing McAfee's existing products. McAfee has in the past experienced delays in software development, and there can be no assurance that McAfee will not experience delays in connection with its current or future product development activities. Software products as complex as those offered by McAfee may contain undetected errors or version compatibility issues, particularly when first introduced or when new versions are released, resulting in loss of or delay in market acceptance. For example, the Company recently experienced compatibility issues in connection with its recent NetShield upgrade, and also McAfee's anti-virus software products have in the past falsely detected viruses that did not actually exist. See "Risk Factors - -- Risk of False Detection of Viruses." Delays and difficulties associated with new product introductions, performance or enhancements could have a material adverse effect on McAfee's business, financial condition and results of operations. In addition to developing new products, McAfee's internal development staff is focused on developing upgrades and updates to existing products and modifying and enhancing acquired products. Future upgrades and updates may, among other things, include additional functionality, respond to user problems or address issues of compatibility with changing operating systems and environments. McAfee believes that the ability to provide these upgrades and updates to users frequently and at a low cost is key to its success. In particular, the proliferation of new and changing viruses makes it imperative to update anti-virus products frequently in order for the products to avoid obsolescence. Failure to release such upgrades and updates on a timely basis could have a material adverse effect on McAfee's business, financial condition and results of operations. There can be no assurance that McAfee will be successful in these efforts. In addition, future changes in Windows 95, Windows NT, NetWare or other popular operating systems may result in compatibility problems with McAfee's products. Further, delays in the introduction of future versions of operating systems or lack of market acceptance of future versions of operating systems would result in a delay or a reduction in the demand for McAfee's future products and product versions which are designed to operate with such future versions of operating systems. McAfee's failure to introduce new products in a timely manner that are compatible with operating systems and environments preferred by desktop computer users would have a material adverse effect on McAfee's business, financial condition and results of operations. McAfee's Dependence on Anti-Virus Product Revenue. McAfee derived a substantial majority of its net revenue in 1996 and the quarter ended June 30, 1997 from licensing its anti-virus software products, and these products are expected to continue to account for a substantial portion of McAfee's net revenue for the foreseeable future. Because of this concentration of revenue, a decline in demand for, or in the prices of, McAfee's anti-virus software products as a result of competition, technological change, the inclusion of anti-virus functionality in operating system or other software or otherwise, or a maturation in the anti-virus software market could have a material adverse effect on McAfee's business, financial condition and results of operations. In addition, while McAfee will continue to focus on growing its anti-virus revenue, factors such as increased competition, technological change or expanded operating system functionality could adversely affect McAfee's future rate of growth. 19 20 Dependence on Emergence of Network Management and Network Security Markets. The markets for McAfee's network management and network security products are evolving, and their growth depends upon broader market acceptance of network management and network security software, including help desk software. Although the number of LAN-attached personal computers ("PCs") has increased dramatically, the network management and network security markets continue to be emerging markets and there can be no assurance that such markets will continue to develop or that further market development will be rapid enough to significantly benefit McAfee. In addition, there are a number of potential approaches to network management and network security, including management and security tools incorporated into network operating systems. Therefore, even if network management and network security tools gain broader market acceptance, there can be no assurance that McAfee's products will be chosen by organizations which acquire network management and network security tools. Furthermore, to the extent that either the network management or network security market does continue to develop, McAfee expects that competition will increase. See "Risk Factors -- Competition" and "Risk Factors -- Risk of Inclusion of Network Security and Management Functionality in Other Software." Competition. The market for McAfee's products is intensely competitive and McAfee expects competition to increase in the future. McAfee believes that the principal competitive factors affecting the market for its products include performance, functionality, quality, customer support, breadth of product line, frequency of upgrades and updates, brand name recognition, company reputation and price. Certain of the criteria upon which the performance and quality of McAfee's anti-virus software products compete include the number and types of viruses detected, the speed at which the products run and ease of use. Certain of McAfee's competitors have been in the network management market longer than McAfee, and other competitors, such as Symantec, Intel and Seagate, are larger and have greater name recognition than McAfee. In addition, certain larger competitors such as Intel, Microsoft and Novell have established relationships with hardware vendors related to their other product lines. These relationships may provide them with a competitive advantage in penetrating the OEM market with their network management products. As is the case in many segments of the software industry, McAfee has been encountering, and expects to further encounter, increasing competition. This could reduce average selling prices and, therefore, profit margins. Competitive pressures could result not only in sustained price reductions but also in a decline in sales volume, which events would materially adversely affect McAfee's business, financial condition and results of operations. In addition competitive pressures will make it difficult for McAfee to maintain its growth rate. The network security and management market is highly fragmented with products offered by many vendors. McAfee's principal competitor is the Peter Norton Group of Symantec in the network security market and Intel's LanDesk in the network management market. Other competitors include Computer Associates/Cheyenne Software, Intel, Seagate, the Dr. Solomon Group and Trend Micro, Inc., as well as numerous smaller companies and shareware authors that may in the future develop into stronger competitors or be consolidated into larger competitors. McAfee also faces competition in the security market from Cisco Systems, Inc., Security Dynamics, Checkpoint and other vendors in the encryption/firewall market. In addition, McAfee faces competition from large and established software companies such as Microsoft, Novell and Hewlett Packard which offer network management products as enhancements to their network operating systems. McAfee believes that as the network management market develops, McAfee may face increased competition from these large companies, as well as other companies seeking to enter the market. The trend toward enterprise-wide network management and 20 21 security solutions may result in a consolidation of the network management and security market around a smaller number of vendors who are able to provide the necessary software and support capabilities. With the acquisition of Vycor Corporation, the Company faces new competition from vendors in the help desk market. The Company's principal competitors in the help desk market are Remedy Corporation and Software Artistry. The Company also faces significant competition in the storage management market. There can be no assurance that McAfee will continue to compete effectively against existing and potential competitors, many of whom have substantially greater financial, technical, marketing and support resources and name recognition than McAfee. In addition, there can be no assurance that software vendors who currently use traditional distribution methods will not in the future decide to compete more directly with McAfee by utilizing electronic software distribution. The competitive environment for anti-virus software internationally is similar to that in North America, although local competitors in specific foreign markets present stronger competition and shareware authors control a more significant portion of the European market. The international market for network management software has developed more slowly than the North American market, although larger competitors such as Intel and Symantec have begun to penetrate European markets. Asian markets have significantly lagged behind North America and Europe in their adoption of networking technology. There can be no assurance that McAfee will be able to compete successfully in international markets. Risks Associated with Acquisitions. McAfee has consummated a series of acquisitions since 1995, including the acquisition of the following: Compusul of Brazil on April 14, 1997, Jade KK of Japan on February 28, 1997, a controlling interest in FSA Corporation of Canada on August 30, 1996, Vycor Corporation in the first quarter of 1996 and Saber Software Corporation, Inc. in the third quarter of 1995. In addition, since 1995 McAfee has acquired a number of its international distributors, including distributors in France, England and the Netherlands. Past McAfee acquisitions have consisted of, and future acquisitions will likely include, acquisitions of businesses, interests in businesses and assets of businesses. McAfee's past acquisitions have presented, and any future acquisitions by McAfee could present, challenges to McAfee's management, such as integration and incorporation of new operations, product lines, technologies and personnel. If McAfee's management is unable to manage these challenges, McAfee's business, financial condition and results of operations could be materially adversely affected. Any acquisition, depending on its size, could result in the use of a significant portion of McAfee's available cash, or if such acquisition is made utilizing McAfee's securities, could result in significant dilution to McAfee's stockholders. McAfee's acquisitions may result in the incurrence or the assumption of liabilities , including liabilities that are unknown or not fully known to McAfee at the time of acquisition, which could have a material adverse effect on McAfee's business, financial condition and results of operations. Furthermore, there can be no assurance that any products acquired in connection with such acquisitions will gain acceptance in McAfee's markets. Also there can be no assurance that McAfee will be able to repatriate funds from these countries. Risks Associated with Failure to Manage Growth. The growth of McAfee has placed, and any further expansion would continue to place, a significant strain on the Company's limited personnel, management and other resources. McAfee's ability to manage any further growth, particularly with the expansion of the Company's international business and growth in indirect channel business, will require it to attract, train, motivate and manage new employees successfully, to effectively integrate new 21 22 employees into its operations and to continue to improve its operational, financial, management and information systems and controls. The failure of McAfee's management team to effectively manage any further growth could have a material adverse effect on McAfee's business, financial condition and results of operations. Reliance on Indirect Channels of Distribution. McAfee markets a significant portion of its products to end-users through distributors. In particular, Ingram Micro Devices has accounted for 17%, 12% and 12% of net revenue in 1996, 1995 and 1994, respectively. In the quarter ended June 30, 1997, Ingram Micro Devices accounted for 19% of net revenue. These distributors also sell other products that are complementary to, or compete with, those of McAfee. While McAfee encourages its distributors to focus on their respective products through marketing and support programs, there can be no assurance that these distributors will not give greater priority to products of other suppliers, including competitors. Distributors have no long-term obligations to purchase products from McAfee. In addition, McAfee has begun to recognize revenue for products sold through distributors upon sales to distributors. Since McAfee's agreements with its distributors provide for a right of return, revenue recognized upon sales to distributors is subject to a reserve for returns. Returns could exceed reserves as a result of distributors holding excessive McAfee product inventory. Such excessive distributor inventories could result from among other things, returns to distributors by end users, inaccurate estimates of end user demand by distributors, increased purchases by distributors in response to sales incentives or transitions to new products or versions of products. There can be no assurance that any future reserves for returns will be adequate. As the Company's help desk, network management and network security products become more complex and require additional customer support, the Company will require distributors, resellers and system integrators to provide a portion of this increasing level of support. There can be no assurance that such third parties will be able or willing to provide additional support services. Moreover, increased reliance on these third parties will reduce the Company's control over the provision of support services. Moreover, increased reliance on these third parties will reduce the Company's control over the provision of support services for its products and place a greater burden on these third parties, which, in turn, could harm the Company's relationships or reputation with such third parties or the end users of its products and result in decreased sales of, or prices for, its products. Proprietary Technology. McAfee's success is heavily dependent upon its proprietary software technology. McAfee relies on a combination of contractual rights, trademarks, trade secrets and copyrights to establish and protect proprietary rights in its software. McAfee has not to date applied for or obtained any patents or registered any of its copyrights and has only registered selected trademarks. SABER is a trademark of a subsidiary of the SABRE Group, Inc. and is licensed to McAfee pursuant to a non-exclusive worldwide, royalty free license. McAfee is not otherwise affiliated with the SABRE Group, Inc. or SABRE Travel Information Network. In the event that the license of the trademark were to expire, or be terminated, McAfee could be required to cease using the trademark on its products, which could involve significant expense and the possibility of customer confusion. Any loss of McAfee's ability to use this trademark could have a material adverse effect on McAfee's business, financial condition and results of operations. 22 23 McAfee does not typically obtain signed license agreements from its corporate, government and institutional customers who license products directly from McAfee. McAfee includes an electronic version of a "shrink-wrap" license in all of its electronically distributed software and a printed license in the box for its products distributed through traditional distribution channels in order to protect its copyrights and trade secrets in those products. Since none of these licenses are signed by the licensee, many authorities believe that they may not be enforceable under many state laws and the laws of many foreign jurisdictions. In addition, the laws of some foreign countries either do not protect McAfee's proprietary rights or offer only limited protection for those rights. Furthermore, McAfee has obtained only one foreign registration of its "McAfee" trademark, and publication in two jurisdictions, due to the significant costs involved. As a result, McAfee may not be able to prevent a third party from using its trademarks in many foreign jurisdictions. There can be no assurance that the steps taken by McAfee to protect its proprietary software technology will be adequate to deter misappropriation of this technology. McAfee is aware that a substantial number of users of its anti-virus products have not paid any registration or license fees to McAfee. Changing legal interpretations of liability for unauthorized use of McAfee's software, or lessened sensitivity by corporate, government or institutional users to avoiding copyright infringement, would have a material adverse effect on McAfee's business, financial condition and results of operations. There has also been substantial industry litigation regarding intellectual property rights of technology companies. McAfee has in the past been subject to litigation related to its intellectual property and, from time to time, McAfee receives claims that it has infringed the intellectual property rights of others. There can be no assurance that infringement claims will not be asserted against McAfee in the future or that the outcome of any such claims would not have a material adverse effect on McAfee's business, financial condition and results of operation. For example, in April 1997, Symantec Corporation ("Symantec") filed a complaint alleging copyright infringement and unfair competition by McAfee. Symantec alleged that McAfee's computer software program called "PC Medic 1997" copied portions of Symantec's computer software program entitled "CrashGuard". On July 20, 1997, Symantec sought leave to amend its complaint to include additional allegations of copyright infringement and trade secret misappropriation pertaining to McAfee's "VirusScan" product. Symantec seeks injunctive relief and unspecified money damages. The Company is continuing to investigate the facts surrounding Symantec's claims. Should further investigation or discovery reveal substantial use by McAfee of Symantec's proprietary or confidential information, such usage could have a material adverse effect on McAfee's business, financial condition and results of operation. In addition, as McAfee may acquire a portion of software included in future products from third parties, its exposure to infringement actions may increase because McAfee must rely upon such third parties as to the origin and ownership of any software being acquired. Similarly, McAfee's exposure to infringement claims exists and will increase to the extent that it currently employs or hires additional software engineers previously employed by its competitors, notwithstanding measures taken by McAfee to prevent usage by these software engineers of intellectual property used or developed by them while employed by a competitor. In the future, litigation may be necessary to enforce and protect trade secrets and other intellectual property rights owned by McAfee. McAfee may also be subject to litigation to defend it against claimed infringement of the rights of others or to determine the scope and validity of the proprietary rights of others. Any such litigation could be costly and cause diversion of management's attention, either of which could have a material adverse effect on McAfee's business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of McAfee's proprietary rights, subject McAfee to significant liabilities, require McAfee to seek licenses from third parties or prevent McAfee from manufacturing or selling its products, any one of which could have a material adverse effect on McAfee's business, financial condition and results of operations. Furthermore, there can be no assurance that any necessary licenses will be available on reasonable terms, or at all. Risks Related to International License Revenue. In 1996, 1995 and 1994 net revenue from international licenses (license revenue from outside the United States and Canada) represented approximately 19%, 29% and 23%, respectively, of McAfee's net revenue. In the six months ended June 30, 1997, net revenue from international licenses represented approximately 26% of McAfee's net revenue. McAfee expects that net revenue from international licenses will continue to account for a 23 24 significant portion of net revenue. A significant portion of McAfee's international revenue in 1997 is expected to be denominated in local currency. In July 1997, the Company began to manage potential foreign currency fluctuations, using non-leveraged forward currency contracts. To date, the Company's results of operations have not been significantly affected by currency fluctuation, however, there can be no assurance that the Company's future results of operations will not be adversely affected by such fluctuations. Risks inherent in McAfee's international revenue generally include the impact of fluctuating exchange rates, longer payment cycles, greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements, seasonality due to the slowdown in European business activity during the third quarter, and tariffs and other trade barriers. There can be no assurance that these factors will not have a material adverse effect on McAfee's future international license revenue. Further, in countries with a high incidence of software piracy, McAfee may experience a higher rate of piracy of its products. In addition, a portion of McAfee's international revenue is generated through independent agents. Since these agents are not employees of McAfee and are not required to offer McAfee's products exclusively, there can be no assurance that they will continue to market McAfee's products. Also, McAfee currently has limited control over its agents. For example, McAfee is dependent upon its international agents to provide it with information regarding licensees and there can be no assurance that McAfee will be able to obtain sufficient information to contact such licensees, if necessary, regarding renewal. In addition, McAfee may be unaware of the nature and scope of the representations made to customers by these agents. For example, independent agents could make representations to customers about McAfee's current and future products which are inaccurate or incomplete, which could result in the products not meeting customers' expectations or requirements. Risk of Sabotage. Given McAfee's high profile in the anti-virus software market, McAfee has been a target of computer "hackers" who have created viruses to sabotage McAfee's products. While to date these viruses have been discovered quickly and their dissemination has been limited, there can be no assurance that similar viruses will not be created in the future, that they will not cause damage to users' computer systems and that demand for McAfee's software products will not suffer as a result. In addition, since McAfee does not control diskette duplication by distributors or its independent agents, there can be no assurance that diskettes containing McAfee's software will not be infected. Risk of False Detection of Viruses. McAfee's anti-virus software products have in the past and may at times in the future falsely detect viruses that do not actually exist. Such "false alarms," while typical in the industry, may impair the perceived reliability of McAfee's products and may therefore adversely impact market acceptance of McAfee's products. In addition, McAfee has in the past been subject to litigation claiming damages related to a false alarm, and there can be no assurance that similar claims will not be made in the future. Product Liability. McAfee's anti-virus software products and network management products are used to protect and manage computer systems and networks that may be critical to organizations and, as a result, the sale and support of these products by the Company may entail the risk of product liability and related claims. The Company's license agreement with its customers typically contain provisions designed to limit the Company's exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in the Company's license agreements may not be 24 25 effective under the laws of certain jurisdictions, particularly given the Company's reliance on unsigned licenses. A product liability claim brought against the Company could have a material adverse effect on its business, financial condition and results of operations. Dependence upon Key Personnel. McAfee's success will depend to a significant extent upon a number of key technical and management employees. While McAfee's employees are required to sign standard agreements concerning confidentiality and ownership of inventions, the employees are generally not otherwise subject to employment agreements and McAfee employees are generally not subject to noncompetition covenants. The loss of the services of any of McAfee's key employees could have a material adverse effect on its business, financial condition and results of operations. McAfee does not maintain life insurance policies on its key employees. McAfee's success also depends in large part upon its ability to attract and retain highly-skilled technical, managerial, sales and marketing personnel. Competition for such personnel is intense. There can be no assurance that McAfee will be successful in retaining its existing key personnel and in attracting and retaining the personnel it requires. Volatility of Stock Price. The trading price of McAfee Common Stock has historically been subject to wide fluctuations in response to quarterly variations in financial performance, shortfalls in revenue or earnings from levels forecast by securities analysts, changes in estimates by such analysts, market conditions in the computer software or hardware industries, product introductions by McAfee or its competitors, announcements of extraordinary events such as acquisitions or litigation or general economic conditions. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. These fluctuations have had a substantial effect on the market prices for many high technology and emerging growth companies, often unrelated to the operating performance of the specific companies. On several occasions during 1995, 1996 and 1997, the closing sales prices for McAfee Common Stock on successive days fluctuated in excess of 10%. There can be no assurance that such fluctuations in McAfee's Common Stock price will not continue in the future. Effect of Certain Provisions; Anti-Takeover Effects of Certificate of Incorporation, Bylaws and Delaware Law; Limitation of Liability of Directors. The McAfee Board of Directors has the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by its stockholders. The rights of the holders of McAfee Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of McAfee. McAfee has no present plans to issue shares of Preferred Stock. Further, certain provisions of Delaware law and McAfee's Certificate of Incorporation and Bylaws, such as a classified board, could delay or make more difficult a merger, tender offer or proxy contest involving McAfee. While such provisions are intended to enable the McAfee Board of Directors to maximize stockholder value, they may have the effect of discouraging takeovers which could be in the best interest of certain stockholders. There is no assurance that such provisions will not have an adverse effect on the market value of McAfee Common Stock in the future. In addition, McAfee's charter provides that its directors shall not be personally liable to McAfee or its stockholders for monetary damages in the event of a breach of fiduciary duty to the extent permitted by Delaware law. 25 26 MCAFEE ASSOCIATES, INC. FORM 10-Q, June 30, 1997 ------ PART II: OTHER INFORMATION Item 3. Legal Proceedings: Information with respect to this item is incorporated by reference to Note 4 of the Notes to the Consolidated Financial Statements included herein on page 7 of this Report on Form 10-Q. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders of the Company was held on June 5, 1997. The following matters were submitted to vote of shareholders. (a) Election of Directors Name: Leslie G. Denend Date of term expiration: 2000 Annual Shareholders Meeting Shares in Favor: 46,266,692 Shares Withheld: 440,556 (b) Adoption of the Company's 1997 Stock Incentive Plan Shares in Favor: 24,721,691 Shares Against: 18,872,031 Shares Abstained: 56,378 No Vote: 3,057,148 (a) Ratification of appointment of Coopers & Lybrand LLP as certified Public Accountants of the Company for next fiscal year ending December 31, 1997. Shares in Favor: 46,671,257 Shares Against: 13,612 Shares Abstained: 22,379 26 27 Item 6. Exhibits and Reports on Form 8-K: (a) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarterly period ended June 30, 1997. (b) Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Report. 27 28 MCAFEE ASSOCIATES, INC. FORM 10-Q, June 30, 1997 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, and the results and regulations promulgated thereunder, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McAFEE ASSOCIATES, INC. ------------------------------------- Date: August 14, 1997 Name: Prabhat K. Goyal Title: Vice President Administration, Chief Financial Officer and Secretary 28 29 McAFEE ASSOCIATES, INC. Form 10-Q, June 30, 1997 EXHIBIT INDEX
Exhibit No. Exhibit Title Page No. ----------- ------------- -------- 3.1 Second Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 of the Company's Report on Form 10Q for the fiscal quarter ended September 31, 1996. 3.2 By-laws, incorporated by reference to Exhibit 3.1 of the Company's Registration Statement No. 33-51042 on Form S-1 (the "S-1"). 3.3 Certificate of Designation of Series A Preferred Stock of the Company, incorporated by reference to Exhibit 3.3 of the Company's form 10-Q for the Quarter ended September 30, 1996. 4.1 See Exhibit 10.44, 10.49 and 10.50. 10.5* 1992 Stock Option Plan, incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 ("1994 Form 10-K"), as amended. 10.7* Outside Directors Stock Option Plan, incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-K for the fiscal year ended December 31, 1992. 10.8 Lease Agreement for the Company's facility at 2710 Walsh Avenue dated May 10, 1993, between the Company and John Arillaga and Richard T. Peery Separate Property Trusts, incorporated by reference to Exhibit 10.8 to the Company's Report on Form 10-Q for the fiscal quarter ended June 30, 1993.
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Exhibit No. Exhibit Title Page No. ----------- ------------- -------- 10.10 Asset Acquisition Agreement among the Company and Brightwork, Jack Bell, Thomas Dolan, Rosemarie Dubrowsky, Greg Gianforte, Kerry Giftos, Roman Michalowski and Philip Raffiani dated March 16, 1994, together with the Escrow Agreement among the Company, Brightwork, BDI Partners, and Silicon Valley Bank as Escrow Agent, dated March 30, 1994 (Exhibit 2.3(b) to the Asset Acquisition Agreement) and the Employment Agreement, dated March 30, 1994 between the Company and Greg Gianforte (Exhibit 8.5 to the Asset Acquisition Agreement) incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K dated March 30, 1994, as filed with the Securities and Exchange Commission on April 12, 1994. 10.11 Asset Acquisition Agreement by and between the Company and ADS dated April 19, 1994, incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K, dated May 6, 1994, as filed with the Securities and Exchange Commission on May 20, 1994. 10.12* Confidential Resignation Agreement and Mutual General Release of Claims between the Company and William S. McKiernan dated April 18, 1994, incorporated by reference from Exhibit 10.12 to the Company's Report on Form 10-Q for the fiscal quarter ended June 30, 1994. 10.14* Employment Agreement between the Company and Gregory Gianforte dated June 30, 1994, as amended September 28, 1994, incorporated by reference to Exhibit 10.14 of the 1994 Form 10-K. 10.15 Lease Agreement between Jerral Office Associates, a New Jersey limited partnership, and Brightwork Development, Inc. dated October 19, 1992, as amended May 26, 1994 to substitute the Company as the tenant, incorporated by reference to Exhibit 10.15 of the 1994 Form 10-K. 10.16* Employee Stock Purchase Plan, as amended. 10.17 Lease Agreement between John Arrillaga, Trustee, UTA dated 7/20/77 (John Arrillaga Separate Property Trust), Richard Peery, Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) and the Company dated November 2, 1994, incorporated by reference to Exhibit 10.17 of the 1994 Form 10-K. 10.18* Offer letter to Richard Kreysar dated December 16, 1994, incorporated by reference to Exhibit 10.18 of the 1994 Form 10-K.
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Exhibit No. Exhibit Title Page No. ----------- ------------- -------- 10.19* Offer letter to Dennis Cline dated September 21, 1994, incorporated by reference to Exhibit 10.19 of the 1994 Form 10-K. 10.20 401(k) Plan, incorporated by reference to Exhibit 10.20 of the 1994 Form 10-K. 10.21* Change in control agreement between McAfee and Robert S. Chappelear dated April 14, 1995, incorporated by reference to Exhibit 10.1 of the Company's Registration Statement No. 33-93296 on Form S-4 ("the S-4"). 10.22* Change in control agreement between McAfee and Dennis Cline dated April 14, 1995, incorporated by reference to Exhibit 10.2 of the S-4. 10.23* Change in control agreement between McAfee and Richard D. Kreysar dated April 14, 1995, incorporated by reference to Exhibit 10.3 of the S-4. 10.24* Change in control agreement between McAfee and Robert J. Schwei dated April 14, 1995, incorporated by reference to Exhibit 10.4 of the S-4. 10.25* Change in control agreement between McAfee and R. Terry Duryea dated May 1, 1995, incorporated by reference to Exhibit 10.5 of the S-4. 10.26* Change in control agreement between McAfee and Peter Watkins dated May 1, 1995, incorporated by reference to Exhibit 10.6 of the S-4. 10.27* Change in control agreement between McAfee and William L. Larson dated April 14, 1995, incorporated by reference to Exhibit 10.7 of the S-4. 10.28 Management Agreement between McAfee and Saber Software Corporation dated July 20, 1995, incorporated by reference to Exhibit 10.8 of the S-4. 10.29 Cross Distribution Agreement between McAfee and Saber Software Corporation dated July 21, 1995, incorporated by reference to Exhibit 10.9 of the S-4. 10.30 Dilg Settlement Agreement and Release and Covenant Not to Sue dated as of October 24, 1995 between Saber Software Corporation and Dilg Properties, Inc. ("Dilg"), ContactPerfect Corporation ("CPC"), Jerry D. Blackburn, J. Robert Dilg, and Alvin D. Gilbert, incorporated by reference to Exhibit 10.30 of the Company's Form 10-Q for the Quarter Ended September 30, 1995 (the "September 30, 1995 10-Q").
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Exhibit No. Exhibit Title Page No. ----------- ------------- -------- 10.31 Sale and Purchase Agreement Relating to 850 shares between Patrick Legranche and the Company dated July 27, 1995, incorporated by reference to Exhibit 10.31 of the Company's September 30, 1995 10-Q. 10.32 Sales and Purchase Agreement Relating to 1,650 shares between Serge Gauthron, Patrick Legranche, Valorisation Informatique de Fichiers and the Company dated July 27, 1995, incorporated by reference to Exhibit 10.32 of the Company's September 30, 1995 10-Q. 10.33 Common Stock Purchase Warrant to purchase 10,000 shares of the Company's Common Stock held by RT Software dated July 27,1995, incorporated by reference to Exhibit 10.33 of the Company's September 30, 1995 10-Q. 10.34 Share Purchase Agreement between International Data Security Limited (an Australian company), the Company and International Data Security Limited (an English company) dated September 13, 1995, incorporated by reference to Exhibit 10.34 of the Company's September 30, 1995 10-Q. 10.35 Agreement and Plan of Merger dated March 6, 1996 and among McAfee McCor Acquisition Corporation and Vycor Corporation, incorporated by reference to Exhibit 10.35 of the Company's Form 10-K filed for the year ended December 31, 1995 (the "1995 10-K"). 10.36* Change of Control Agreement between McAfee and Mark Woodward dated November 10, 1995, incorporated by reference to Exhibit 10.36 of the Company's 1995 10-K. 10.37* Confidential Agreement and Release of Claims between McAfee and Robert Chappelear dated January 30, 1996, incorporated by reference to Exhibit 10.37 of the Company's 1995 10-K. 10.38 Sublease Agreement dated November 15, 1995 between the Company and Digital Video Systems, incorporated by reference to Exhibit 10.38 of the Company's 1995 10-K. 10.39 Amendment No. 1 to Lease dated September 27, 1995 by and between the Company and Arrilliga Family Trust and Richard T. Peery Separate Property Trust, incorporated by reference to Exhibit 10.39 of the Company's 1995 10-K. 10.40 1995 Stock Incentive Plan, incorporated by reference to Exhibit 10.40 of the Company's Form 10-Q for the Quarter ended June 30, 1996.
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Exhibit No. Exhibit Title Page No. ----------- ------------- -------- 10.41 Lease by and between Herndon Associates, a Virginia general partnership and the Company dated July 22, 1996, incorporated by reference to Exhibit 10.41 of the Company's Form 10-Q for the Quarter ended June 30, 1996. 10.42 Purchase contract by and between Interactive Distributed Systems Software GmbH and the Company effective June 30, 1996, incorporated by reference to Exhibit 10.42 of the Company's Form 10-Q for the Quarter ended June 30, 1996. 10.43 Change in control agreement between McAfee and Prabhat K. Goyal incorporated by reference to Exhibit 10.43 of the Company's Form 10-Q for the Quarter ended June 30, 1996. 10.44 Combination Agreement by and among the Company, FSA Combination Corp., FSA Corporation, and Daniel Freedman, the sole shareholder of FSA Corporation, dated August 16, 1996, the Registration Rights Agreement, dated August 30, 1996 by and between the Company and Daniel Freedman, and the Voting and Exchange Trust Agreement, dated August 30, 1996, by and among the Company, FSA Combination Corp. and FSA Corporation, all incorporated by reference to the Company's Report on Form 8-K, as filed with the Securities and Exchange Commission on September 24, 1996. 10.45 Amendment No. 2 to Lease dated May 9, 1996, by and between the Company and Arrilliga Family Trust and Richard T. Peery Separate Property Trust, incorporated by reference to Exhibit 10.45 of the Company's Form 10-K filed for the year ended December 31, 1996 (the "1996 Form 10-K"). 10.46 Lease Agreement for facility at 2855 Bowers Avenue dated October 22, 1996 between the Company and Arrilliga Family Trust and Richard T. Peery Separate Property Trust, incorporated by reference to Exhibit 10.46 of the 1996 Form 10-K. 10.47 Lease Agreement for facility at 4099 McEwen Road, Dallas dated November 14, 1996, between the Company and Blue Lake Partners, Ltd., incorporated by reference to Exhibit 10.47 of the 1996 Form 10-K. 10.48 Resignation Agreement and General Release of Claims, dated November 19, 1996 between the Company and Richard Kreysar, incorporated by reference to Exhibit 10.47 of the 1996 Form 10-K.
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Exhibit No. Exhibit Title Page No. ----------- ------------- -------- 10.49 Stock Exchange Agreement, dated January 13, 1997, by and among the Company, FSA Combination Corp., Kabushiki Kaisha Jade ("Jade") and the shareholders of Jade, and the Registration Rights Agreement, dated January 13, 1997 by and between the Company and the shareholders of Jade, all incorporated by reference to the Company's Report on Form 8-K, as filed with the Securities and Exchange Commission on March 14, 1997, incorporated by reference to Exhibit 10.49 of the 1996 Form 10-K. 10.50 Stock Exchange Agreement, dated February 28, 1997, by and among the Company, FSA Combination Corp., Schuijers Holding B.V. ("Schuijers") and the shareholders of Schuijers, and the Registration Rights Agreement, dated February 28, 1997, by and between the Company and shareholders of Schuijers, incorporated by reference to Exhibit 10.50 of the 1996 Form 10-K. 10.51 Sublease Agreement for facility at 2805 Bowers Avenue, Santa Clara dated February 20, 1997 by and between the Company and National Semiconductor Corporation, incorporated by reference to Exhibit 10.51 of the Company's Form 10-Q for the Quarter ended June 30, 1997. 10.52 Quota Purchase Assignment Agreement, dated April 14, 1997, by and among the Company and McAfee Do Brasil Ltda., Compusul-Consultoria E Comercio De Informatica Ltda., and The Stockholders of Compusul-Consultoria E Comercio De Informatica Ltda. incorporated by reference to Exhibit 10.52 of the Company's Form 10-Q for the Quarter ended June 30, 1997. 11.1 Computation of Net Income Per Share. 27.1 Financial Data Sheet.
- ----------------------------- * Management contracts or compensatory plans or arrangements covering executive officers or directors of McAfee. 34 EX-11.1 2 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 MCAFEE ASSOCIATES, INC. COMPUTATION OF NET INCOME PER SHARE (in thousands, except per share amounts)
Three months ended June 30 Six months ended June 30 -------------------------- ------------------------ 1997 1996 1997 1996 ------- ------- ------- ------- Primary and Fully Diluted Weighted average common shares outstanding for the period 50,699 47,127 50,150 46,848 Dilutive effect of options, net 3,459 5,489 3,734 5,358 ------- ------- ------- ------- Shares used in per share calculation 54,158 52,616 53,884 52,206 ======= ======= ======= ======= Net income $23,674 $ 9,400 $43,370 $10,483 ======= ======= ======= ======= Net income per share $ 0.44 $ 0.18 $ 0.81 $ 0.20 ======= ======= ======= =======
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS DEC-31-1997 DEC-31-1997 JUN-30-1997 JUN-30-1997 117,830 117,830 78,184 78,184 60,162 60,162 0 0 0 0 228,710 228,710 23,155 23,155 (8,529) (8,529) 292,033 292,033 54,216 54,216 0 0 0 0 0 0 511 511 231,886 231,886 232,397 232,397 86,271 159,628 86,271 159,628 6,418 12,336 50,101 93,323 0 0 0 0 0 0 38,184 69,951 0 0 38,184 69,951 0 0 0 0 0 0 23,674 43,370 0.44 0.81 0.44 0.81
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