-----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, SMM2ngBF/L/wN4McpPS39gBOR7RnfVgyIHQpBos3J4Axg3Bd6+5V8oJNgIwYEa9g vsNYzkktyjvOF6US0p3gNQ== 0000950135-97-002458.txt : 19970520 0000950135-97-002458.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950135-97-002458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY DYNAMICS TECHNOLOGIES INC /DE/ CENTRAL INDEX KEY: 0000932064 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 042916506 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25120 FILM NUMBER: 97606648 BUSINESS ADDRESS: STREET 1: ONE ALEWIFE CENTER CITY: CAMBRIDGE STATE: MA ZIP: 02140 BUSINESS PHONE: 6175477820 10-Q 1 SECURITY DYNAMICS TECHNOLOGIES, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-25120 SECURITY DYNAMICS TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-2916506 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
20 CROSBY DRIVE BEDFORD, MA 01730 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 687-7000 ------------------------ INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS: Yes X No --- --- AS OF APRIL 30, 1997, THERE WERE 35,031,136 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE PER SHARE, OUTSTANDING. ================================================================================ 2 SECURITY DYNAMICS TECHNOLOGIES, INC. FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997 TABLE OF CONTENTS
PAGE -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements..................................................... 3 Condensed Consolidated Balance Sheets as of March 31, 1997 (unaudited) and December 31, 1996.................................................... 3 Condensed Consolidated Statements of Income for the three months ended March 31, 1997 and 1996 (unaudited)...................................... 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited)................................ 5 Notes to Condensed 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......................................... 13 Signature................................................................ 14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 1997 1996 --------- ------------ (UNAUDITED) ASSETS Current assets: Cash and equivalents............................................. $ 14,310 $ 9,512 Marketable securities............................................ 89,208 95,320 Accounts receivable (less allowance for doubtful accounts of $546 in 1997 and $507 in 1996)..................................... 13,593 13,293 Inventory........................................................ 2,798 2,606 Prepaid expenses and other....................................... 5,416 4,204 Deferred taxes................................................... 248 -- -------- -------- Total current assets........................................ 125,573 124,935 -------- -------- Property and equipment -- net...................................... 10,534 10,108 -------- -------- Other: Investments...................................................... 2,187 2,924 Capitalized software costs, net and purchased technology......... 168 197 Deferred taxes................................................... 1,089 1,026 Other............................................................ 1,026 752 -------- -------- Total Other................................................. 4,470 4,899 -------- -------- Total.............................................................. $140,577 $139,942 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................. $ 3,090 $ 5,119 Accrued payroll and related benefits............................. 3,565 4,465 Accrued expenses and other....................................... 1,944 2,187 Income taxes payable............................................. -- 51 Deferred revenue................................................. 4,145 4,877 Deferred taxes................................................... -- 603 -------- -------- Total current liabilities................................... 12,744 17,302 -------- -------- Minority Interest.................................................. 1,686 1,194 -------- -------- Commitments and Contingencies Stockholders' equity: Common stock, $.01 par value; authorized, 80,000,000 shares; issued, 35,016,440 and 34,389,593 shares in 1997 and 1996; outstanding, 35,016,144 and 34,389,297 shares in 1997 and 1996.......................................................... 350 344 Additional paid-in capital....................................... 102,909 101,424 Retained earnings................................................ 21,150 16,420 Deferred stock compensation...................................... (157) (174) Treasury stock, common, at cost, 296 shares in 1997 and 1996..... -- -- Cumulative translation adjustment................................ (287) (48) Unrealized gain on marketable securities -- net.................. 2,182 3,480 -------- -------- Total stockholders' equity.................................. 126,147 121,446 -------- -------- Total.............................................................. $140,577 $139,942 ======== ========
See notes to condensed consolidated financial statements. 3 4 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, --------------------- 1997 1996 ------- ------- Revenue................................................................ $26,436 $14,862 Cost of revenue........................................................ 6,041 3,514 ------- ------- Gross profit........................................................... 20,395 11,348 ------- ------- Costs and expenses: Research and development............................................. 3,481 2,045 Marketing and selling................................................ 7,818 4,440 General and administrative........................................... 2,798 2,728 ------- ------- Total........................................................... 14,097 9,213 ------- ------- Income from operations................................................. 6,298 2,135 Interest and other income.............................................. 1,273 1,269 ------- ------- Income before provision for income taxes............................... 7,571 3,404 Provision for income taxes............................................. 2,842 1,236 ------- ------- Net income............................................................. $ 4,729 $ 2,168 ======= ======= Net income per common and common equivalent share...................... $ .13 $ .06 ======= ======= Weighted average number of common and common equivalent shares outstanding.......................................................... 36,558 36,274 ======= =======
See notes to condensed consolidated financial statements. 4 5 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------------------- 1997 1996 -------- -------- Cash flows from operating activities: Net income......................................................... $ 4,729 $ 2,168 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Deferred taxes.................................................. (24) (265) Depreciation and amortization................................... 631 410 Stock compensation.............................................. 17 48 Increase (decrease) in cash from changes in: Accounts receivable........................................... (263) (672) Inventory..................................................... (193) 123 Prepaid expenses and other.................................... (998) (549) Accounts payable.............................................. (2,017) 697 Accrued payroll and related benefits.......................... (880) (595) Accrued expenses and other.................................... (243) (375) Income taxes payable.......................................... (58) 1,475 Deferred revenue.............................................. (731) (887) -------- -------- Net cash provided by (used for) operating activities....... (30) 1,578 -------- -------- Cash flows from investing activities: Purchases of marketable securities................................. (22,351) (37,537) Proceeds from sales and maturities of marketable securities........ 27,019 8,949 Purchases of property and equipment................................ (1,296) (1,018) Investments and other.............................................. (277) (229) -------- -------- Net cash provided by (used for) investing activities....... 3,095 (29,835) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options............................ 1,496 354 Minority interest.................................................. 492 -- -------- -------- Net cash provided by financing activities.................. 1,988 354 -------- -------- Effects of exchange rate changes on cash and equivalents............. (255) (23) -------- -------- Net increase (decrease) in cash and equivalents...................... 4,798 (27,926) Cash and equivalents, beginning of period............................ 9,512 49,285 -------- -------- Cash and equivalents, end of period.................................. $ 14,310 $ 21,359 ======== ========
See notes to condensed consolidated financial statements. 5 6 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Security Dynamics Technologies, Inc. (the "Company") and its wholly owned subsidiaries and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year. In July 1996, the Company completed a merger (the "Merger") with RSA Data Security, Inc. ("RSA"). The Merger has been accounted for as a pooling of interests, and therefore the consolidated financial statements for all periods prior to the Merger have been restated to include the accounts and operations of RSA with those of the Company. 2. INCOME PER COMMON SHARE Income per common share is computed using the weighted average number of common and common equivalent shares outstanding during each period presented. In February 1997, The Financial Accounting Standards Board issued Statement No. 128 ("SFAS No. 128"), "Earnings per Share", which is required to be adopted in the fourth quarter of 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15 and is intended to simplify the computation of earnings per share and to make the U.S. computations more comparable with the international computations. The pro forma basic and diluted earnings per share (as defined by SFAS No. 128) for the three months ended March 31, 1997 would have been $0.14 and $0.13, respectively, and for the three months ended March 31, 1996 would have been $0.06 and $0.06, respectively. 3. INCOME TAXES The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full year. Cumulative adjustments to the tax provision are recorded in the interim period in which a change in the estimated annual effective rate is determined. Cash payments for income taxes were approximately $3,139 and $1,025 for the three months ended March 31, 1997 and 1996, respectively. 4. CONTINGENCIES The Company has been named as a defendant in legal actions arising from its normal business activities. The Company carries insurance against liability for certain types of risks. Although the amount of liability that could result from any litigation cannot be predicted, in the opinion of management, the Company's potential liability on all known claims would not have a material adverse effect on the consolidated financial position or results of operations of the Company. 6 7 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INVESTMENTS In April 1997, an amendment to Rule 144 under the Securities Act of 1933, as amended, became effective, which, among other things, shortened the holding periods for sales of restricted securities under Rule 144. As a result of this amendment, the Rule 144 holding period requirements for certain restricted securities (consisting of certain shares of common stock of other companies which completed initial public offerings in 1996) currently held by the Company will be met in 1997. Accordingly, these restricted securities, which have a cost of $738, have been reclassified from investments to marketable securities as of March 31, 1997. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS) OVERVIEW This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors that May Affect Future Results." RESULTS OF OPERATIONS The following table sets forth income and expense items as a percentage of total revenue, and the percentage change in dollar amounts of such items, for the three months ended March 31, 1997 and 1996.
PERCENTAGE OF PERIOD-TO-PERIOD TOTAL REVENUE CHANGE ----------------- ---------------- THREE MONTHS ENDED MARCH 31, ------------------------------------ 1997 1996 ----- ----- Revenue...................................................... 100.0% 100.0% 77.9% Cost of revenue.............................................. 22.9 23.6 71.9 ----- ----- ----- Gross profit................................................. 77.1 76.4 79.7 ----- ----- ----- Costs and expenses: Research and development................................... 13.2 13.8 70.2 Marketing and selling...................................... 29.5 29.9 76.1 General and administrative................................. 10.6 18.3 2.6 ----- ----- ----- Total.............................................. 53.3 62.0 53.0 ----- ----- ----- Income from operations....................................... 23.8 14.4 195.0 Interest income and other.................................... 4.9 8.5 0.3 ----- ----- ----- Income before provision for income taxes..................... 28.7 22.9 122.4 Provision for income taxes................................... 10.8 8.3 129.9 ----- ----- ----- Net income................................................... 17.9% 14.6% 118.1% ===== ===== =====
REVENUE The Company's revenue is derived principally from the sales of SecurID tokens, software license fees from ACE/Server and ACM software products and licensing of developer toolkit products and patent license fees, sales of ACM hardware products; and sales of maintenance services and royalty income. Total revenue increased 77.9% in the first quarter of 1997 to $26,436 from $14,862 in the first quarter of 1996. This increase in revenue reflected increases in unit sales of all of the Company's products, except ACM/400 and ACM/1600 hardware products. Approximately 40% of the increase in revenue was attributable to increased sales of SecurID tokens. Approximately 25% of the increase in revenue was attributable to increased toolkit licensing. Approximately 24% of the increase in revenue was attributable to increased sales of ACE/Server and ACM software products. The balance of the increase in revenue resulted from increased revenue from patent license fees and maintenance fees offset in part by decreased hardware revenue. The Company believes that the overall increase in sales was attributable in part to growth of the information security market, with the Internet and corporate intranets continuing to play significant roles in developing new opportunities for the Company's business. 8 9 International revenue (excluding Canada and Latin America) increased 88.6% in the first quarter of 1997 to $4,366 from $2,315 in the first quarter of 1996 and accounted for 16.5% and 15.6% of total revenue in the first quarters of 1997 and 1996, respectively. This increase in international revenue was primarily attributable to the continuing expansion of the Company's international direct sales force and increased market penetration of the Company's products in foreign markets. COST OF REVENUE AND GROSS PROFIT The Company's cost of revenue consists primarily of costs associated with the manufacture and delivery of SecurID tokens and hardware products. The Company's utilizes assembly contractors for most manufacturing. Cost of revenue also includes royalty fees incurred on the sale of ACE/Server software and royalty fees payable on the licensing of patent technology. Cost of revenue includes customer support costs and production costs, which include labor costs associated with the programming of SecurID tokens, inspection and quality control functions and shipping costs. The Company's gross profit increased 79.7% in the first quarter of 1997 to $20,395, or 77.1% of revenue, from $11,348, or 76.4% of revenue, in the first quarter of 1996. Approximately 38% of the increase in gross profit was attributable to increased unit sales of SecurID tokens. Approximately 34% of the increase in gross profit was attributable to increased licensing sales of RSA's toolkit technology. Approximately 27% of the increase in gross profit was attributable to increased licensing sales of ACE/Server software. In addition, gross profit increased due to increased patent licensing sales, royalties and maintenance revenues, offset in part by reduced sales of ACM/400 and ACM/1600 hardware units. Gross profit as a percentage of revenue increased due to increased sales of software products, which have higher margins, relative to sales of hardware products. In the future, gross profit may continue to be affected by several factors, including changes in product mix and distribution channels (for example, the Company's SecurVAR program), price reductions (resulting from volume discounts or otherwise), competition, increased costs of revenue (including increases in material costs associated with the manufacture of SecurID tokens and hardware products) and other factors. RESEARCH AND DEVELOPMENT Research and development expenses consist primarily of personnel costs as well as fees for development services provided by consultants. Research and development expenses increased 70.2% in the first quarter of 1997 to $3,481 from $2,045 in the first quarter of 1996, and decreased as a percentage of revenue to 13.2% from 13.8%. Approximately 88.0% of the increase in research and development expenses in the first quarter of 1997 resulted from employment of additional staff. The remainder of the increase was attributable to purchases of computer equipment resulting in higher depreciation charges, occupancy expenses and consulting expenses. MARKETING AND SELLING Marketing and selling expenses consist primarily of salaries, commissions and travel expenses of direct sales and marketing personnel and marketing program expenses. Marketing and selling expenses increased 76.1% in the first quarter of 1997 to $7,818 from $4,440 in the first quarter of 1996, but decreased as a percentage of revenue to 29.5% from 29.9%. Approximately 47.1% of the increase in marketing and selling expenses was attributable to the employment of additional staff. Approximately 22% of the increase in marketing and selling expenses resulted from increased travel expenses and marketing program expenses. Approximately 15% of the increase in marketing and selling expenses was attributable to sales commissions on increased revenues. GENERAL AND ADMINISTRATIVE General and administrative expenses consist primarily of personnel costs for administration, finance, human resources and general management as well as legal and accounting expenses. 9 10 General and administrative expenses increased 2.6% in the first quarter of 1997 to $2,798, or 10.6% of revenue, from $2,728, or 18.3% of revenue, in the first quarter of 1996. The increase in general and administrative expenses was due primarily to the employment of additional staff offset in part by a reduction in legal expenses. Legal expenses decreased approximately $750 from the first quarter of 1996 compared to the first quarter of 1997 due to the settlement in 1996 of the legal proceedings between RSA and Cylink. INTEREST AND OTHER INCOME Interest and other income consists primarily of interest earned on the Company's cash balances and marketable securities. Interest income increased 0.3% in the first quarter of 1997 to $1,273 from $1,268 in the first quarter of 1996. PROVISION FOR INCOME TAXES The provision for income taxes increased to $2,842 during the first quarter of 1997 from $1,236 in the first quarter of 1996. This increase was primarily the result of higher, pre-tax income and a higher effective tax rate during the first quarter of 1997. The Company's estimated effective tax rate increased to 37.5% in the first quarter of 1997 from 36.3% in the first quarter of 1996 due to higher tax rates associated with foreign income, which increased relative to domestic income. NET INCOME As a result of the above factors, net income in the first quarter of 1997 increased to $4,729, or 17.9% of revenue, from $2,168, or 14.6% of revenue, in the first quarter of 1996. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had cash and marketable securities of $103,518 and working capital of $112,829. The Company has generally funded its operations primarily from cash generated from its operating activities. During the first quarter of 1996 and 1997, the Company used the cash provided by operations principally for working capital needs. The Company's capital expenditures for the first quarter of 1997 were $1,296. Capital expenditures for the first quarter of 1997 related primarily to additional leasehold improvements, office furniture and equipment, as well as computer equipment for product development, testing and support to accommodate the Company's continued growth. The Company generated $1,496 of cash from the exercise of stock options and generated $492 in cash from the sale of a minority interest in RSA, Japan subsidiary, in the quarter ended March 31, 1997. In March 1996, the Company entered into a noncancelable operating lease expiring in 2006 for new corporate offices in Bedford, Massachusetts. The Company commenced its tenancy in August 1996. The new facility consists of approximately 75,000 square feet of office space, and the annual base rent for the first year is $956, increasing annually up to $1,180 for years five through ten. In November 1996, the Company amended its agreement with Progress Software for the right to use certain of its software to enhance the functionality of the Company's ACE/Server software. In order to obtain favorable pricing, the Company pre-paid $1,500 and $1,250 during the first and fourth quarters of 1996, respectively, and pre-paid $2,500 during the first quarter of 1997. The Company intends to seek acquisitions of businesses, products and technologies that are complementary to those of the Company. The Company is continuing to identify and prioritize additional security technologies which it may wish to develop, either internally or through the licensing or acquisition of products from first parties. While the Company engages from time to time in discussions with respect to potential acquisitions, there can be no assurances that any such acquisitions will be made or that the Company will be able to successfully integrate any acquired business. In order to finance such acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financings, 10 11 if available at all, may be on terms which are not favorable to the Company and, in the case of equity financings, may result in dilution to the Company's stockholders. The Company believes that working capital will be sufficient to meet its anticipated cash requirements through at least 1998. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time. A number of uncertainties exist that could affect the Company's future operating results, including, without limitation, general economic conditions, the Company's continued ability to develop and introduce products, the introduction of new products by competitors, pricing practices of competitors, expansion of the Company's sales distribution capability, the cost and availability of components and the Company's ability to control costs. The Company's success is dependent in part on its ability to complete its integration of the operations of RSA in an efficient and effective manner. The successful combination of the Company and RSA in a rapidly changing high technology industry may be more difficult to accomplish than in other industries. The combination of the two companies will require, among other things, integration of the companies' respective product offerings and coordination of their sales and marketing and research and development efforts. There can be no assurance that such integration will be accomplished smoothly or successfully. The difficulties of such integration may be increased by the necessity of coordinating geographically separated organizations. The integration of certain operations will require the dedication of management resources which may temporarily distract attention from the day-to-day business of the combined company. The inability of management to successfully integrate the operations of the two companies could have a material adverse effect on the business and results of operations of the Company. The Company's success is also dependent on the success of its Enterprise Security Services, which is a security solution being developed by the Company that would enable organizations to support and manage the growing use of public and private keys, digital signatures and digital certificates for assuring confidentiality and privacy on an enterprise-wide scale. The success of Enterprise Security Services is dependent on a number of factors, including without limitation delays in product development, undetected software errors or bugs, competitive pressures, technical difficulties, market acceptance of new technologies, including without limitation the use and implementation of various certificate management and key management technologies, changes in customer requirements and government regulations, delays in developing strategic partnerships and general economic conditions. The Company's success is highly dependent on its ability to enhance its existing products and to develop and introduce new products in a timely manner. If the Company were to fail to introduce new products on a timely basis, the Company's operating results could be adversely affected. To date, substantially all of the Company's revenues have been attributable to sales of its computer and network security products and related services, all of which are currently used with the Company's SecurID token technology and the licensing of toolkits and patent technology. As a result, any factor adversely affecting sales of these products and services could have a material adverse effect on the Company's financial condition and results of operations. Certain components of the Company's products are currently purchased from sole or limited sources and any interruption in the supply of such components could adversely affect the Company's operating results. The Company's quarterly operating results may vary significantly depending on a number of factors, including the timing of the introduction or enhancement of products by the Company or its competitors, the sizes, timing and shipment of individual orders, market acceptance of new products, changes in the Company's operating expenses, personnel changes, mix of products sold, changes in product pricing, development of the Company's direct and indirect distribution channels and general economic conditions. 11 12 International sales have represented a significant portion of the Company's sales. The international business and financial performance of the Company may be affected by fluctuations in foreign exchange rates, difficulties in managing accounts receivable, tariff regulations and difficulties in obtaining export licenses. 12 13 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed as part of this Quarterly Report on Form 10-Q. b) Reports on Form 8-K: None. 13 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SECURITY DYNAMICS TECHNOLOGIES, INC. /s/ ARTHUR W. COVIELLO, JR. -------------------------------------------- Arthur W. Coviello, Jr. Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: May 14, 1997 14 15 EXHIBIT INDEX ITEM DESCRIPTION 11 Computation of Income Per Common and Common Equivalent Share. 27 Financial Data Schedule. EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) - -----------------------------------------------
1997 1996 ------- ------- PRIMARY Weighted average number of common and common equivalent shares outstanding: Common stock 34,865 33,710 Common equivalent shares resulting from stock options (treasury stock method) 1,693 2,564 ------- ------- Total 36,558 36,274 ======= ======= Net income $ 4,729 $ 2,168 ======= ======= Net income per common and common equivalent share $ .13 $ .06 ======= ======= FULLY DILUTED Weighted average number of common and common equivalent shares outstanding: Common stock 34,865 33,710 Common equivalent shares resulting from stock options (treasury stock method) 1,693 2,564 ------- ------- Total 36,558 36,274 ======= ======= Net income $ 4,729 $ 2,168 ======= ======= Net income per common and common equivalent share $ .13 $ .06 ======= =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 0000932064 SECURITY DYNAMICS TECHNOLOGIES, INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 14,310 89,208 14,139 546 2,798 125,573 14,515 3,981 140,577 12,744 0 0 0 350 125,797 140,577 26,436 26,436 6,041 20,138 0 30 0 7,571 2,842 4,729 0 0 0 4,729 0.13 0.13 INCOME-PRETAX INCLUDES $1,273 INTEREST & OTHER INCOME TOTAL-LIABILITY-AND-EQUITY INCLUDES $1,686 MINORITY INTEREST.
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