-----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, ORlu9LTU5iG6meZ89XaE1mDKDKdTX0cjxDpque7FsLFbpIpMY8AAnvHMYep5CSku jWY0HZBj5pRj4XQiZLgpBQ== 0000356028-96-000001.txt : 19960205 0000356028-96-000001.hdr.sgml : 19960205 ACCESSION NUMBER: 0000356028-96-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960202 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER ASSOCIATES INTERNATIONAL INC CENTRAL INDEX KEY: 0000356028 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132857434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09247 FILM NUMBER: 96510419 BUSINESS ADDRESS: STREET 1: ONE COMPUTER ASSOCIATES PLAZA CITY: ISLANDIA STATE: NY ZIP: 11788 BUSINESS PHONE: 5163425224 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 December 31, 1995 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period ended from _____ to _____ Commission File Number 0-10180 Computer Associates International, Inc. (Exact name of registrant as specified in its charter) Delaware 13-2857434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Computer Associates Plaza Islandia, New York 11788-7000 (Address of principal executive offices) (Zip Code) (516) 342-5224 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) 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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: Title of Class Shares Outstanding Common Stock as of January 30, 1996 par value $.10 per share 241,930,704 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX PART I. Financial Information: Page No. Item 1. Consolidated Condensed Balance Sheets - December 31, 1995 and March 31, 1995 . . . . 1 Consolidated Statements of Income - Three Months Ended December 31, 1995 and 1994 2 Nine Months Ended December 31, 1995 and 1994 3 Consolidated Condensed Statements of Cash Flows - Nine Months Ended December 31, 1995 and 1994 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . 9 PART II. Other Information: Item 6. Exhibits and Reports on Form 8-K. . . . . . . 12
Item 1: Part I. FINANCIAL INFORMATION COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands)
December 31, March 31, 1995 1995 ------------- --------- (Unaudited) ASSETS: Cash and cash equivalents . . . . . . . $ 55,322 $ 116,579 Marketable securities . . . . . . . . . 107,277 184,643 Trade and installment accounts receivable - net. . . . . . . . . . . . 1,147,561 787,684 Other current assets . . . . . . . . . . 67,800 58,660 --------- --------- TOTAL CURRENT ASSETS 1,377,960 1,147,566 Installment accounts receivable, due after one year - net . . . . . . . 1,524,689 1,045,798 Property and equipment - net . . . . . . 425,839 343,953 Purchased software products - net . . . 658,494 342,999 Excess of cost over net assets acquired - net . . . . . . . . . . . . 797,460 300,268 Other noncurrent assets . . . . . . . . 97,239 88,844 --------- --------- TOTAL ASSETS $4,881,681 $3,269,428 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Loans payable - banks . . . . . . . . . $ 495,000 $ 240,000 Other current liabilities . . . . . . . 1,036,829 607,893 Long-term debt and other . . . . . . . 1,146,467 50,489 Deferred income taxes . . . . . . . . . 636,922 460,838 Deferred maintenance revenue . . . . . 344,478 332,083 Stockholders' equity . . . . . . . . . . 1,221,985 1,578,125 --------- --------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $4,881,681 $3,269,428 ========== ========== See Notes to Consolidated Condensed Financial Statements.
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts)
For the Three Months Ended December 31, -------------------- 1995 1994 ---- ---- Product revenue and other related income . . . $ 822,051 $ 535,831 Maintenance fees . . . . . . . . . . . . . . . 182,388 185,201 ------- ------- TOTAL REVENUE 1,004,439 721,032 Costs and expenses: Selling, marketing and administrative . . . 371,006 268,294 Product development and enhancements . . . . 76,148 60,380 Commissions and royalties . . . . . . . . . 51,514 37,294 Depreciation and amortization . . . . . . . 113,946 71,532 Interest expense - net . . . . . . . . . . . 27,236 2,554 ------- ------- TOTAL COSTS AND EXPENSES 639,850 440,054 ------- ------- Income before income taxes . . . . . . . . . . 364,589 280,978 Provision for income taxes . . . . . . . . . . 137,411 106,772 ------- ------- NET INCOME $ 227,178 $ 174,206 ======= ======= NET INCOME PER COMMON SHARE . . . . . . . . . $ .90 $ .69 ======= ======= Weighted average shares used in computation. . 253,714 251,667* *Adjusted for three-for-two stock split declared August 9, 1995. See Notes to Consolidated Condensed Financial Statements.
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts)
For the Nine Months Ended December 31, -------------------- 1995 1994 ---- ---- Product revenue and other related income . . . $ 1,848,959 $1,286,317 Maintenance fees . . . . . . . . . . . . . . . 545,248 534,686 --------- --------- TOTAL REVENUE 2,394,207 1,821,003 Costs and expenses: Selling, marketing and administrative . . . . 960,928 775,979 Product development and enhancements . . . . 204,532 164,764 Commissions and royalties . . . . . . . . . . 118,109 87,705 Depreciation and amortization . . . . . . . . 286,042 185,274 Interest expense - net . . . . . . . . . . . 46,086 4,752 Purchased research and development . . . . . 1,303,280 249,300 --------- --------- TOTAL COSTS AND EXPENSES 2,918,977 1,467,774 --------- --------- (Loss) income before income taxes . . . . . . . ( 524,770) 353,229 Provision for income tax (benefit) expense . . ( 203,317) 134,227 --------- --------- NET (LOSS) INCOME $( 321,453) $ 219,002 ========= ========= NET (LOSS) INCOME PER COMMON SHARE . . . . . . $( 1.33) $ .87 ========= ========= Weighted average shares used in computation . . 241,317 251,982* *Adjusted for three-for-two stock split declared August 9, 1995 See Notes to Consolidated Condensed Financial Statements.
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) For the Nine Months Ended December 31, ------------------- 1995 1994 OPERATING ACTIVITIES: Net (loss) income. . . . . . . . . . . . . . . . . $( 321,453) $ 219,002 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . 286,042 185,274 Provision for deferred income taxes . . . . . . ( 384,606) (29,897) Charge for purchased research and development. . 1,303,280 249,300 Increase in noncurrent installment accounts receivable - net . . . . . . . . . . . . . . . ( 399,111) (206,439) Increase (decrease) in deferred maintenance revenue . . . . . . . . . . . . . . 13,514 ( 20,217) Changes in other operating assets and liabilities, excludes effects of acquisitions . ( 163,187) ( 91,086) ----------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 334,479 305,937 INVESTING ACTIVITIES: Acquisitions, primarily purchased software, marketing rights and intangibles . . . . . . . . (1,772,282) (371,991) Purchases of property and equipment . . . . . . . ( 17,500) (30,589) Decrease in current marketable securities . . . . 79,815 62,498 Capitalized development costs . . . . . . . . . . ( 9,872) (12,203) ----------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,719,839) (352,285) FINANCING ACTIVITIES: Increase (decrease) in long-term debt - net . . . 1,098,498 (84,076) Increase in loans payable-banks - net . . . . . . 255,000 235,000 Dividends paid . . . . . . . . . . . . . . . . . . ( 16,086) (16,172) Exercise of common stock options/other . . . . . . 16,440 12,933 Purchases of treasury stock . . . . . . . . . . . ( 27,106) (161,666) ----------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,326,746 (13,981) DECREASE IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 58,614) (60,329) Effect of exchange rate changes on cash . . . . . . ( 2,643) 6,861 ---------- --------- DECREASE IN CASH AND CASH EQUIVALENTS ( 61,257) (53,468) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 116,579 133,127 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 55,322 $ 79,659 ========= ========
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended December 31, 1995 are not necessarily indicative of the results that may be expected for the year ending March 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in Computer Associates International, Inc.'s (the "Registrant" or the "Company") Annual Report on Form 10-K for the fiscal year ended March 31, 1995. Dividends: In December 1995, the Company's Board of Directors declared its semi-annual cash dividend of $.07 per share. The dividend was paid on January 12, 1996 to stockholders of record on December 22, 1995. Net Income per Share: Net income per common share is computed by dividing net income by the weighted average number of common shares and any dilutive common share equivalents outstanding. Common share equivalents for the nine month period ended December 31, 1995 were excluded because of their anti-dilutive effect. Fully diluted net income per share is the same or not materially different from net income per share. Stock Split: On August 9, 1995 the Company declared a three-for-two stock split in the form of a stock dividend distributed September 5, 1995 to stockholders of record as of August 21, 1995. All per share data and number of common shares, where appropriate, have been adjusted to reflect the stock split. Statements of Cash Flows: For the nine months ended December 31, 1995 and 1994, interest paid was $48 and $16 million, respectively, and income taxes paid were $101 and $158 million, respectively. COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE B -- ACQUISITIONS On August 1, 1995, the Company acquired 98% of the issued and outstanding shares of common stock of Legent Corporation ("Legent"), and on November 6, 1995, merged Legent into one of its wholly owned subsidiaries. The aggregate purchase price of approximately $1.8 billion was funded from drawings under the Company's $2 billion credit agreement dated as of July 24, 1995. Legent was engaged in the design, development, marketing, and support of a broad range of computer software products for the management of information systems used to manage mainframe, midrange, server, workstation and PC systems deployed throughout a business enterprise. The acquisition was accounted for as a purchase. The results of Legent's operations have been combined with those of the Company since the date of acquisition. The Company recorded an $808 million after-tax charge against earnings for the write-off of purchased Legent research and development technology that had not reached the working model stage and has no alternative future use. Had this charge not been taken during the quarter ended September 30, 1995, net income and net income per share for the nine month period ended December 31, 1995 would have been $487 million, or $1.92 per share. On June 22, 1994, the Company acquired 98% of the issued and outstanding common stock of The ASK Group, Inc. ("ASK"), and on September 20, 1994, merged ASK into one of its wholly owned subsidiaries. The aggregate cost of acquiring the common stock of ASK was approximately $314 million. The purchase price was provided from existing cash balances and from a revolving credit agreement with a group of banks. ASK was primarily in the business of developing, marketing and selling relational database management systems, data access and connectivity products, manufacturing and financial software application tools and provided related consulting and support services. The acquisition was accounted for as a purchase. The results of ASK's operations have been combined with those of the Company since the date of acquisition. In conjunction with the purchase of ASK, the Company recorded an after-tax charge against earnings of $154 million relating to the write-off of purchased research and development technology that had not reached the working model stage and has no alternative future use. Had this charge not been taken during the quarter ended June 30, 1994, net income for the nine month period ended December 31, 1994 would have been $374 million, or $1.48 per share. COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE B -- ACQUISITIONS (continued) The following table reflects pro forma combined results of operations (unaudited) of the Company, ASK and Legent on the basis that the acquisition of ASK had taken place at the beginning of fiscal year 1995 and the acquisition of Legent had taken place at the beginning of the fiscal years for all periods presented. The after-tax charges in fiscal years 1995 and 1996 of $154 million and $808 million were recorded at the beginning of the fiscal year for each of the periods presented: (In thousands, except per share amounts)
For the Nine Months For the Three Months Ended December 31, Ended December 31, ------------------- -------------------- 1995 1994 1995 1994 Revenue . . . . . . . $ 2,494,726 $ 2,147,696 $1,018,439 $ 821,715 Net (loss) income . . ( 535,906) ( 759,259) 235,858 142,878 Net (loss) income per common share . . $( 2.22)$( 3.14) $ .93 $ .57 Shares used in computation . 241,317 241,848 253,864 251,667
The following table reflects pro forma combined results of operations (unaudited) of the Company, ASK and Legent on the basis that the acquisition of ASK had taken place at the beginning of fiscal year 1995 and the acquisition of Legent had taken place at the beginning of the fiscal years for all periods presented. It excludes the effect of the after-tax charges in fiscal years 1995 and 1996 of $154 million and $808 million: (In thousands, except per share amounts)
For the Nine Months For the Three Months Ended December 31, Ended December31, ------------------ ------------------- 1995 1994 1995 1994 Revenue . . . . . . $2,494,726 $2,147,696 $1,018,439 $ 821,715 Net income . . . . $ 426,694 $ 203,341 $ 235,858 $ 142,878 Net income per common share . $ 1.68 $ .81 $ .93 $ .57 Shares used in computation 253,805 251,982 253,864 251,667
In management's opinion, the pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of fiscal year 1995 or of future operations of the combined companies under the ownership and operation of the Company. COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE C- THE 1995 KEY EMPLOYEE STOCK OWNERSHIP PLAN Under the 1995 Key Employee Stock Ownership Plan (the "1995 Plan") the Stock Option and Compensation Committee of the Board of Directors (the "Committee") is authorized to grant, subject to the attainment of certain common stock price objectives, up to 9,000,000 shares of the Company's common stock to three key executives. The Committee has initially granted 3,000,000 shares of common stock (the "Initial Grant") and may grant up to an additional 6,000,000 shares (the "Additional Grants") based on the price per share of the common stock achieving target levels. The Initial Grant and Additional Grants are non- transferable and subject to substantial risk of forfeiture during the five year period ending March 31, 2000, and further subject to significant limitations on transfer during the seven years following fiscal year 2000. In January 1996, 600,000 shares of common stock under the Initial Grant vested, subject to the continued employment of the key executives and, accordingly, the Company began accruing compensation expense over the employment period ending March 31, 2000. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue: Total revenue for the quarter ended December 31, 1995 increased by 39%, or $283 million, over the prior year's comparable quarter. This increase reflects the continued demand for enterprise licensing alternatives with less restrictive pricing options, as well as the continued growth of licensing fees for client/server product offerings on the midrange platform. In addition, the inclusion of Legent products for a full fiscal quarter contributed approximately 10% to total revenue. The increase in midrange platform revenue reflects strong growth in our database, manufacturing and UNIX-based systems management products. Maintenance revenues decreased by $3 million, primarily due to the continued trend in site consolidations. Price changes did not have a material impact in either quarter. Costs and Expenses: Selling, marketing and administrative expenses as a percentage of total revenue for the December 1995 quarter was unchanged from the December 1994 quarter, at 37%. Net research and development expenditures increased $16 millon, or 26%, over the December 1994 quarter. The increase was a direct result of the addition of the Legent products and associated development personnel, the focus on expanding the client/server product offerings, in particular the CA-Unicenter products, and continued support and development for the ASK products. Commissions and royalties remained at 5% of revenue for both the December 1995 and 1994 quarters. Depreciation and amortization expense increased $42 million in the December 1995 quarter over the December 1994 quarter, primarily due to the $56 million increase in depreciation and amortization associated with the Legent acquisition offset by the expected decrease of $12 million in ASK purchased software amoritzation. In the December 1995 quarter, net interest expense increased by $25 million over the December 1994 quarter, a direct result of higher debt levels associated with borrowings used to finance the Legent acquisition. Item 2: (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Margins: Pre-tax income for the quarter ended December 1995 exceeded the prior year's comparable quarter by $84 million. However, as a percentage of total revenue pre-tax income decreased to 36% from 39% in the comparable prior year period. This decrease is due to an increase in interest and depreciation expense attributable to the Legent acquisition. The Company's consolidated effective tax rate for the December 1995 quarter decreased to 37.7% from 38% for the December 1994 quarter, primarily as a result of anticipated increases in foreign tax credits. Operations: The Company has traditionally reported lower profit margins in the first two quarters of each fiscal year than those experienced in the third and fourth quarters. As part of the annual budget process, management establishes higher discretionary expense levels in relation to projected revenue for the first half of the year. Historically, the Company's combined third and fourth quarter revenues have been greater than those for the first half of the year, as these two quarters coincide with the clients' calendar year budget periods and the culmination of the Company's annual sales plan. These historically higher second half revenues have resulted in significantly higher profit margins since total expenses have not increased in proportion to revenue. However, past financial performance may not be indicative of future performance, particularly in view of the uncertainties associated with integration of the Legent acquisition, the higher depreciation, amortization and interest expenses noted above and the personnel and infrastructure investments necessary to capitalize on the industry's on going migration to client server technology. The Company's near term operating results may be affected by a number of other factors, including, but not limited to: uncertainties relative to global economic conditions; market acceptance of competing technologies; the availability and cost of new solutions; the Company's ability to successfully maintain or increase market share in its core business while expanding its product base into other markets; the strength of its distribution channels; the Company's ability to manage fixed and variable expense growth relative to revenue growth; and the Company's ability to effectively integrate acquired products and operations. Item 2: (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents and short-term marketable securities decreased by approximately $45 million during the quarter ended December 31, 1995. This decrease was primarily attributable to the repayment of bank debt and payments related to the Legent acquisition, offset by cash generated from operations. Cash from operations, although approximately $30 million higher than that of the prior year, was reduced by approximately $32 million of additional interest payments for the nine months ended December 31, 1995. Additionally, the Company continues to allow clients to finance their purchases of the Company's software over several years. The Company believes that this ability to offer clients attractive financing alternatives provides the Company with a distinct competitive advantage over other software vendors. During the quarter ended September 30, 1995, the Company entered into a new $2 billion credit facility with a group of banks. An initial draw down of $1.8 billion was used to finance the acquisition of 98% of the issued and outstanding of Common Stock of Legent Corporation. This $2 billion facility is a five year reducing revolving credit agreement having a current all-in borrowing cost at the London Interbank Rate ("LIBOR") plus 47.5 basis points. The margin is adjusted upon the Company's achievement of certain financial conditions and ratios. At December 31, 1995, $1.6 billion was drawn under this credit agreement. On December 31, 1995, total purchases under the Company's open market common stock repurchase programs were 47.2 million shares. Approximately 12.8 million shares remain available for repurchase under this program. These figures have been adjusted for the Company's three-for-two stock split. The Company's capital resource requirements as of the end of December 1995 consisted of lease obligations for office space, computer equipment, mortgage or loan obligations and amounts due as a result of product and company acquisitions. It is expected that existing cash, cash equivalents, short-term marketable securities, the availability of borrowings under committed and uncommitted credit lines, as well as cash provided from operations, will be sufficient to meet anticipated cash requirements. PART II. OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMPUTER ASSOCIATES INTERNATIONAL, INC. Dated: February 2, 1996 By:/s/ Sanjay Kumar ---------------------- Sanjay Kumar,President and Chief Operating Officer Dated: February 2, 1996 By:/s/ Peter Schwartz ---------------------- Peter Schwartz Sr. Vice President - Finance (Chief Financial and Accounting Officer) EX-27 2 ART. 5 FDS FOR COMPUTER ASSOCIATES 3RD QTR 10-Q
5 1000 9-MOS MAR-31-1996 APR-01-1995 DEC-31-1995 55322 107277 1147561 0 67800 1377960 425839 0 4881681 1531829 1146467 0 0 0 1221985 4881681 1848959 2394207 0 2918977 0 0 46086 (524770) (203317) (321453) 0 0 0 (321453) (1.33) (1.33)
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