-----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, CgcHd5VlWMaZ1BEScVwksuCjYT8QOFwogPhRa9YesvezRg/M/+d0MgtJ7SshP81x PHuvNGOQhRg4wNR9uSITog== 0000930661-97-001951.txt : 19970814 0000930661-97-001951.hdr.sgml : 19970814 ACCESSION NUMBER: 0000930661-97-001951 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING SOFTWARE INC CENTRAL INDEX KEY: 0000716714 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 751873956 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08465 FILM NUMBER: 97659679 BUSINESS ADDRESS: STREET 1: 300 CRESCENT COURT STREET 2: SUITE 1200 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2149811000 MAIL ADDRESS: STREET 1: 300 CRESCENT COURT STREET 2: SUITE 1200 CITY: DALLAS STATE: TX ZIP: 75201 8-K/A 1 FORM 8-K AMENDMENT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): JUNE 30, 1997 STERLING SOFTWARE, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 1-8465 75-1873956 (State of (Commission (IRS Employer Incorporation) File Number) Identification No.) 300 CRESCENT COURT, SUITE 1200, DALLAS, TEXAS 75201 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (214) 981-1000 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K dated June 30, 1997: ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. On June 30, 1997, Sterling Software, Inc. (the "Company") and certain of its subsidiaries completed the acquisition (the "Acquisition") of certain assets (including the capital stock of certain foreign subsidiaries) of Texas Instruments Incorporated ("Texas Instruments") pursuant to an Asset Purchase Agreement, dated April 18, 1997, as amended pursuant to Amendment Nos. 1 and 2 thereto. Such assets constitute substantially all of the assets formerly used by Texas Instruments' Software Division ("TI Software") in connection with its business of developing, marketing, licensing, supporting and maintaining applications development software and providing related consulting services. The financial statements required to be filed by Item 7(a) of Form 8-K are filed herewith as Exhibit 99.1. (b) Pro Forma Financial Information. The pro forma financial information required to be filed by Item 7(b) of Form 8-K is filed herewith as Exhibit 99.2. (c) Exhibits: Exhibit Number Exhibit ------- ------- 23 Consent of Ernst & Young LLP. 99.1 Financial Statements of the Software Business of Texas Instruments Incorporated as of the three months ended March 31, 1997 and 1996 (unaudited) and the year ended December 31, 1996 with Report of Independent Auditors. 99.2 Unaudited Pro Forma Combined Condensed Balance Sheet of the Company and TI Software as of March 31, 1997; and Unaudited Pro Forma Combined Condensed Statements of Operations of the Company and TI Software for the six months ended March 31, 1997 and for the year ended September 30, 1996. - 2 - 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, hereunto duly authorized. STERLING SOFTWARE, INC. By: /s/ R. Logan Wray --------------------------------------------- R. Logan Wray Senior Vice President and Chief Financial Officer Dated: August 13, 1997 - 3 - INDEX TO EXHIBITS ----------------- EXHIBIT NUMBER EXHIBIT - ------- ------- 23 Consent of Ernst & Young LLP. 99.1 Financial Statements of the Software Business of Texas Instruments Incorporated as of the three months ended March 31, 1997 and 1996 (unaudited) and the year ended December 31, 1996 with Report of Independent Auditors. 99.2 Unaudited Pro Forma Combined Condensed Balance Sheet of the Company and TI Software as of March 31, 1997; and Unaudited Pro Forma Combined Condensed Statements of Operations of the Company and TI Software for the six months ended March 31, 1997 and the year ended September 30, 1996. - 4 - EX-23 2 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-13303, No. 33-71706, No. 33-54961, No. 33-56685, No. 33- 56677, No. 33-32699, No. 33-56683, No. 33-62057 and No. 33-64073) and in the Registration Statements on Form S-8 (File No. 33-65402, No. 33-69926, No. 33- 56681, No. 33-53833 and No. 33-62059) of Sterling Software, Inc., and in the related Prospectuses of our report dated June 12, 1997, with respect to the financial statements of the Software Business of Texas Instruments Incorporated included in this Current Report (Form 8-K) of Sterling Software, Inc., filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Dallas, Texas August 11, 1997 EX-99.1 3 FINANCIAL STATEMENT OF THE SOFTWARE BUSINESS OF TI EXHIBIT 99.1 Financial Statements Software Business of Texas Instruments Incorporated Three Months Ended March 31, 1997 and 1996 (unaudited) and Year Ended December 31, 1996 with Report of Independent Auditors Software Business of Texas Instruments Incorporated Financial Statements Three Months Ended March 31, 1997 and 1996 (unaudited) and Year ended December 31, 1996 CONTENTS Report of Independent Auditors...................................... 3 Audited Financial Statements Statements of Assets to be Acquired and Liabilities to be Assumed... 4 Statements of Operations............................................ 5 Statements of Cash Flows............................................ 6 Notes to Financial Statements....................................... 7 2 Report of Independent Auditors The Board of Directors Texas Instruments Incorporated We have audited the accompanying statements of assets to be acquired and liabilities to be assumed of the Software Business of Texas Instruments Incorporated (the "Software Business" as defined in Note 1) as of December 31, 1996, and the related statements of operations and cash flows for the year ended December 31, 1996. These financial statements are the responsibility of the management of Texas Instruments Incorporated. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets to be acquired and liabilities to be assumed of the Software Business at December 31, 1996, and the results of its operations and its cash flows for the year ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP June 12, 1997 3 Software Business of Texas Instruments Incorporated Statements of Assets to be Acquired and Liabilities to be Assumed (In thousands of dollars)
MARCH 31 DECEMBER 31 1997 1996 ------------------------ (Unaudited) ASSETS Current assets: Accounts receivable, less allowance for doubtful accounts of $966 in 1997 and $986 in 1996 59,647 56,014 Prepaid expenses 4,384 3,837 ----------------------- Total current assets 64,031 59,851 Equipment, at cost 15,574 17,847 Less accumulated depreciation (9,146) (11,136) ----------------------- Equipment, net 6,428 6,711 Capitalized software development costs, net 17,261 18,951 Other assets, net 24,773 30,115 ----------------------- Total assets 112,493 115,628 ----------------------- LIABILITIES Current liabilities: Accounts payable and accrued expenses 23,814 30,853 Deferred revenue 33,173 16,622 ----------------------- Total current liabilities 56,987 47,475 ----------------------- Net assets 55,506 68,153 =======================
See accompanying notes. 4 Software Business of Texas Instruments Incorporated Statements of Operations (In thousands of dollars)
THREE MONTHS ENDED YEAR ENDED MARCH 31 DECEMBER 31 1997 1996 1996 ------------------------------------ (unaudited) Net revenues: Products 11,715 21,035 83,612 Product support 14,445 15,465 62,178 Services 23,158 28,511 113,135 ------------------------------------ 49,318 65,011 258,925 Costs and expenses: Cost of sales: Products and product support 14,289 10,596 51,596 Services 18,944 21,503 90,939 ------------------------------------ 33,233 32,099 142,535 Marketing, general, and administrative 31,385 33,433 133,540 Research and development 2,252 2,529 10,362 Write-off of goodwill and intangibles 4,326 - - ------------------------------------ Total 71,196 68,061 286,437 ------------------------------------ Loss from operations (21,878) (3,050) (27,512) Other expense (net) 1,820 594 1,628 ------------------------------------ Loss before provision for income taxes (23,698) (3,644) (29,140) Provision for income taxes 280 1,232 2,179 Net loss (23,978) (4,876) (31,319) ====================================
See accompanying notes. 5 Software Business of Texas Instruments Incorporated Statements of Cash Flows (In thousands of dollars)
THREE MONTHS ENDED YEAR ENDED MARCH 31 DECEMBER 31 1997 1996 1996 ------------------------------------- (Unaudited) Cash flows from operating activities: Net loss (23,978) (4,876) (31,319) Depreciation and amortization 4,211 3,460 13,948 Write-off of goodwill and intangibles 4,326 - - Write-off of capitalized software - - 757 (Increase) decrease in working capital: Accounts receivable (3,633) 10,105 21,106 Prepaid expenses (547) (801) (705) Deferred revenue 16,551 15,953 (1,730) Accounts payable and accrued expenses (7,039) (4,539) (3,517) ----------------------------------- Net cash provided by (used in) operating activities (10,109) 19,302 (1,460) Cash flows from investing activities: Additions to equipment (439) (972) (2,776) Capitalized software development costs (783) (2,772) (13,656) Other - (133) (61) ---------------------------------- Net cash used in investing activities (1,222) (3,877) (16,493) Cash flows from financing activities: Net transfers (to) from Texas Instruments 11,331 (15,425) 17,953 ---------------------------------- Net cash (used in) provided by financing activities 11,331 (15,425) 17,953 ---------------------------------- Net change in cash and cash equivalents - - - Cash and cash equivalents at beginning of period - - - ---------------------------------- Cash and cash equivalents at end of period - - - ==================================
See accompanying notes. 6 Software Business of Texas Instruments Incorporated Notes to Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Texas Instruments Incorporated ("TI") and Sterling Software Inc. (the "Buyer") entered into an Asset Purchase Agreement (the "Agreement") on April 18, 1997 under which, on the contractually designated closing date, the Buyer will acquire certain assets and assume certain liabilities of the Texas Instruments Software Division and TI's non-U.S. Assigning Subsidiaries (as defined in the Agreement), and the Buyer will acquire all issued and outstanding shares of capital stock in TI's non-U.S. Transferred Subsidiaries (as defined in the Agreement) (such division and subsidiaries of TI together are referred to as the "Software Business"). The financial statements present the assets to be acquired and liabilities to be assumed and results of operations and cash flows of the Software Business based upon the structure of the transaction as described in the Agreement, and this transaction is herein referred to as the Acquisition. The financial statements are not intended to be a complete presentation of the financial position, results of operations and cash flows as if the Software Business had operated as a stand-alone company. The financial statements have been prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. The statements of income and cash flows for the three months ended March 31, 1997 and 1996, and the statement of assets to be acquired and liabilities to be assumed at March 31, 1997, are not audited but reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary to a fair statement of the results of the periods shown. Intercompany balances and transactions within the Software Business have been eliminated. The Software Business engages in the design, development, marketing, sale, licensing, and maintenance of applications development software, and it provides related consulting services. The principal markets served include large corporations and certain governmental agencies, primarily located in the United States, Europe, and Asia. TI provides various services to the Software Business including, but not limited to, facilities management, data processing, security, payroll and employee benefits administration, insurance administration, duplicating and telecommunications services. TI allocates these expenses and all other central operating costs, first on the basis of direct usage when identifiable, with the remainder allocated among TI's businesses on the basis of their respective revenues, headcount, or other measures. In the opinion of management 7 Software Business of Texas Instruments Incorporated Notes to Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) of TI, these methods of allocating costs are reasonable. These expenses totaled $23.5 million in 1996 and $4.5 million for the three months ended March 31, 1997. See also Note 5 for occupancy charges included in these expenses. The Software Business participates in a centralized cash management system wherein cash receipts are transferred to and cash disbursements are funded by TI. Since cash and cash equivalents related to the Software Business operations will not be acquired by the Buyer, they are excluded from the statements of assets to be acquired and liabilities to be assumed. Revenue Revenue from license fees for standard software products is recognized when the software is delivered, provided no significant future vendor obligations exist and collection is probable. Service revenue is recognized as the services are performed. Product support contracts entitle the customer to telephone support, bug fixing and the right to receive software updates as they are released. Revenue from product support contracts, including product support included in initial license fees, is recognized ratably over the contract period. All significant costs and expenses associated with product support contracts are expensed as incurred. Such costs are generally incurred ratably over the contract period. If sales contracts include the right to receive future products, a portion of the software product revenue is deferred and recognized as products are delivered. When products, product support, and services are billed prior to the time the related revenue is recognized, deferred revenue is recorded and related costs paid in advance are deferred. In 1996, sales directly to agencies of the U.S. Government comprised approximately 13% of total revenues. 8 Software Business of Texas Instruments Incorporated Notes to Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Software Development Costs The Software Business capitalizes the costs of developing and testing new or significantly enhanced software products in accordance with the provisions of Statement of Financial Accounting Standard No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Research and development costs are expensed as incurred. Depreciation and Amortization Equipment is depreciated primarily using the 150% declining balance method over five years. Fully depreciated assets are written off against accumulated depreciation. Capitalized software development costs are amortized on a product-by-product basis using the straight-line method over three years. Goodwill is amortized using the straight-line basis over 15 years, and other intangibles are amortized using the straight-line basis over 4 to 15 years. Depreciation and amortization consists of the following for the year ended December 31, 1996 (in thousands of dollars):
Equipment 2,930 Capitalized software development costs 7,619 Goodwill 1,172 Other intangibles 2,227 ------ 13,948 ======
Income Taxes The operations of the Software Business are included in the consolidated income tax returns of TI. Pursuant to the Agreement, TI will retain substantially all income tax liabilities and rights to all tax refunds relating to operations prior to the closing date of the Acquisition. Accordingly, the statements of assets to be acquired and liabilities to be assumed do not reflect current or prior period income tax receivables or payables. The income tax provisions included in the statements of operations have been determined as if the Software Business were a separate taxpayer. 9 Software Business of Texas Instruments Incorporated Notes to Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Foreign Currency Translation The assets and liabilities of non-U.S. operations are translated into U.S. dollars at exchange rates in effect as of the respective balance sheet dates. Revenue and expense accounts of these operations are translated at average exchange rates prevailing during the period the transactions occur. 2. OTHER ASSETS
MARCH 31 DECEMBER 31 1997 1996 ------------------------ (Unaudited) (In thousands of dollars) Goodwill 9,065 11,040 Other intangibles 15,677 18,879 Other assets 31 196 ------------------------- 24,773 30,115 =========================
Goodwill and other intangibles are associated with the acquisition of JMA Information Engineering Limited and its subsidiaries (collectively "JMA") in 1991. The total cost for acquiring JMA was $47.6 million. Amounts assigned to other intangibles recorded at acquisition were based on appraised values. During the first quarter of 1997, the Software Business disposed of three European subsidiaries originally acquired under the JMA transaction. A charge of $4.3 million was taken to write off goodwill and other intangibles associated with these subsidiaries. 10 Software Business of Texas Instruments Incorporated Notes to Financial Statements 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
MARCH 31 DECEMBER 31 1997 1996 ------------------------ (Unaudited) (In thousands of dollars) Accounts payable - trade 6,355 10,614 Customer deposits 1,589 2,508 Accrued payroll and benefits 6,624 8,811 Accrued non-income taxes 3,476 4,876 Accrued severance 4,311 1,787 Other 1,459 2,257 ------------------------ 23,814 30,853 ========================
4. RISK CONCENTRATION Financial instruments which subject the Software Business to concentrations of credit risk primarily relate to accounts receivable. Contracts involving the U.S. Government do not require collateral or other security. The Software Business conducts ongoing credit evaluations of domestic non-U.S. Government customers and generally does not require collateral or other security from these customers. The Software Business generally requires international customers to furnish letters of credit or make advance payments in amounts sufficient to limit the Software Business' credit risk to a minimal level. Historically, the Software Business has not incurred any significant credit-related losses. 5. RENTAL EXPENSE AND LEASE COMMITMENTS The Software Business occupies various facilities which are either owned or leased by TI. The statement of income includes occupancy charges from TI of $11.1 million in 1996 and $1.6 million and $2.9 million, respectively, for the three months ended March 31, 1997 and 1996. These charges include depreciation, rent, and taxes (as applicable) incurred by TI and allocated to the Software Business based on the square footage of facilities occupied. The occupancy charges historically allocated to the Software Business do not necessarily represent current market rates to lease such facilities. TI will execute lease agreements with the Buyer at agreed-upon rates in connection with TI-owned facilities that will be utilized by the Buyer after the Acquisition is completed. 11 Software Business of Texas Instruments Incorporated Notes to Financial Statements 5. RENTAL EXPENSE AND LEASE COMMITMENTS (CONTINUED) The Software Business also directly leases certain facilities and equipment from third parties under operating leases, many of which contain renewal options and escalation clauses. Total rental expense on such operating leases amounted to $1.1 million in 1996. The following indicates minimum rental commitments in succeeding years under these Software Business leases at December 31, 1996 (in millions): 1997 - $1.5; 1998 - $1.6; 1999 - $1.5; 2000 - $1.3; 2001 - $.9; later years - $5.2. In connection with the Acquisition, TI will assign to the Buyer certain non- cancelable operating lease commitments with third parties. The following indicates minimum rental commitments in succeeding years under these TI leases as of December 31, 1996 (in millions): 1997 - $ 2.1; 1998 - $2.1; 1999 - $1.6; 2000 - $1.5; 2001 - $1.5; later years - $6.4. 6. INCOME TAXES The provision for income taxes represents current tax expense for non-U.S. entities. The effective tax rate for the year ended December 31, 1996 was different from the United States statutory rate for the reasons set forth below (in thousands of dollars):
Computed tax at statutory rate (10,199) Unbenefited losses 15,407 Effect of non-U.S. rates (1,739) Utilization of net operating losses (1,491) Other 201 --------- Provision for income taxes 2,179 =========
At December 31, 1996, net operating loss carryforwards of $20.1 million were available for certain non-U.S. subsidiaries to be acquired by the Buyer and expire in years 1997-2006. 12 Software Business of Texas Instruments Incorporated Notes to Financial Statements 6. INCOME TAXES (CONTINUED) Deferred income taxes at December 31, 1996 included the following (in thousands of dollars):
Net operating losses 7,679 Accrued expenses 1,609 -------- 9,288 Less: valuation allowance (9,288) -------- -- ========
7. RETIREMENT PLANS The Software Business offers defined contribution pension plans to employees at certain European subsidiaries. Employer contributions are generally made to such plans on a discretionary basis. During 1996, the Software Business incurred expenses of $2.8 million for contributions to these plans. Employees of the Software Business also participate in certain defined benefit pension plans and retiree health care benefit plans offered by TI. The costs of such plans attributed to the Software Business are included in the statements of operations. However, the liabilities for the plans are not reflected in the statements of assets to be acquired and liabilities to be assumed as the Agreement stipulates that TI will retain such liabilities as of the closing date of the Acquisition. 8. SPECIAL ACTIONS Income before provision for income taxes for 1996 and the first quarter of 1997 include pretax charges of $3.2 million and $5.8 million, respectively, for voluntary and involuntary severance actions. These actions affected approximately 70 employees of the Software Business in each period. Under the terms of the Agreement, only accrued severance liabilities as they pertain to Transferred Subsidiaries will be assumed by the Buyer. 13 Software Business of Texas Instruments Incorporated Notes to Financial Statements 9. GEOGRAPHIC AREA DATA The following geographic area data include revenues, costs and expenses generated by and assets employed in operations located in each area in 1996 (in thousands of dollars):
NET LOSS BEFORE IDENTIFIABLE REVENUES TAXES ASSETS --------------------------------------------- United States 115,363 (29,294) 70,167 Europe 124,190 (1,222) 40,921 Other Areas 19,372 1,376 4,540 ------------------------------------------ 258,925 (29,140) 115,628 ==========================================
In 1996, sales to unaffiliated non-U.S. customers comprised approximately 56% of total revenues. 14 EX-99.2 4 UNAUDITED PRO FROMA COMBINED CONDENSED BALANCE SHEET EXHIBIT 99.2 ------------ UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The Acquisition will be accounted for as a purchase business combination by the Company. The pro forma combined condensed financial statements are based on the historical financial statements of the Company and TI Software. This exhibit to the Company's Current Report on Form 8-K/A includes the following unaudited pro forma combined condensed financial statements: (i) Unaudited Pro Forma Combined Condensed Balance Sheet of the Company and TI Software as of March 31, 1997; (ii) Unaudited Pro Forma Combined Condensed Statements of Operations of the Company and TI Software for the six months ended March 31, 1997 and the year ended September 30, 1996; and (iii) related notes thereto. The unaudited pro forma combined condensed balance sheet assumes the Acquisition had been consummated on March 31, 1997. The unaudited pro forma combined condensed statements of operations assume the Acquisition had been consummated on October 1, 1995. The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been reported if the Acquisition had been consummated as presented in the accompanying unaudited pro forma combined condensed financial statements, nor is it necessarily indicative of the Company's future financial position or results of operations. The pro forma adjustments and the assumptions on which they are based are described in the accompanying notes to unaudited pro forma combined condensed financial statements. These unaudited pro forma combined condensed financial statements are based on and should be read in conjunction with the historical consolidated financial statements and related notes thereto of the Company and the financial statements and notes thereto of TI Software for the year ended December 31, 1996. - 1 - STERLING SOFTWARE, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET MARCH 31, 1997 (IN THOUSANDS)
PURCHASE TI ACCOUNTING STERLING SOFTWARE ADJUSTMENTS PRO FORMA HISTORICAL HISTORICAL (NOTE 2) COMBINED ---------- ---------- ----------- ---------- Current assets: Cash and cash equivalents.............. $ 571,501 $(165,000) (a) $ 406,501 Marketable securities.................. 183,649 183,649 Accounts and notes receivable, net..... 117,730 $ 59,647 177,377 Income tax receivable.................. 6,100 6,100 Prepaid expenses and other current assets................................ 17,998 4,384 (2,147) (c) 20,235 ---------- ---------- ----------- ---------- Total current assets.................. 896,978 64,031 (167,147) 793,862 Property and equipment, net............. 50,315 6,428 (1,705) (c) 47,858 (7,180) (d) Computer software, net.................. 62,217 17,261 6,793 (c) 68,680 (17,591) (d) Excess cost over net assets acquired, net.................................... 66,621 24,742 31,009 (c) 83,417 (38,955) (d) Noncurrent deferred income taxes........ 28,232 (c) 48,561 20,329 (d) Other assets............................ 15,498 31 15,529 Investment in TI Software Division...... 214,774 (a) (55,506) (b) (159,268) (c) ---------- ---------- ----------- ---------- Total assets............................ $1,091,629 $112,493 $(146,215) $1,057,907 ========== ========== =========== ========== Current liabilities: Notes payable and current portion of long term debt........................ $ 1,352 $ 1,352 Accounts payable and accrued liabilities........................... 65,927 $ 23,814 $ 47,896 (a) 185,781 12,531 (c) 35,613 (d) Deferred revenue....................... 70,796 33,173 103,969 ---------- ---------- ----------- ---------- Total current liabilities............. $ 138,075 56,987 96,040 291,102 Other noncurrent liabilities and deferred revenue....................... 45,326 1,878 (a) 53,902 6,698 (d) Stockholders' equity: Preferred stock........................ Common stock........................... 3,989 3,989 Additional paid-in capital............. 805,640 805,640 Retained earnings...................... 157,365 55,506 (55,506) (b) (37,960) (109,617) (c) (85,708) (d) Less treasury stock................... (58,766) (58,766) ---------- ---------- ----------- ---------- Total stockholders' equity............. 908,228 55,506 (250,831) 712,903 ---------- ---------- ----------- ---------- Total liabilities and stockholders' equity................................. $1,091,629 $112,493 $(146,215) $1,057,907 ========== ========== =========== ==========
See accompanying notes. - 2 - STERLING SOFTWARE, INC UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
TI Software -------------------------------------------------------- Sterling Deduct Add Historical Historical Historical Pro Forma Six Months Historical Nine Months Three Months Six Months Purchase Ended Year Ended Ended Ended Ended Accounting March 31, December 31, September March 31, March 31, Adjustments Pro Forma 1997 1996 30, 1996 1997 1997 (Note 3) Combined ---------- ------------ ----------- ------------ ---------- ----------- --------- Revenue: Products.................. $ 84,135 $ 83,612 $ 62,953 $ 11,715 $ 32,374 $116,509 Product support........... 59,515 62,178 45,660 14,445 30,963 90,478 Services.................. 60,235 113,135 85,837 23,158 50,456 110,691 --------- ---------- --------- ---------- --------- --------- Total revenue............ 203,885 258,925 194,450 49,318 113,793 317,678 Costs and expenses: Cost of sales: Products and product support................. 35,520 51,596 36,571 14,289 29,314 $ (2,979) (a) 59,042 (2,666) (b) (147) (c) Services.................. 52,364 90,939 67,307 18,944 42,576 (1,426) (b) 93,435 (79) (c) --------- ---------- --------- ---------- --------- --------- --------- 87,884 142,535 103,878 33,233 71,890 (7,297) 152,477 Selling, general and administrative........... 84,292 133,540 96,688 31,385 68,237 (5,013) (a) 147,516 Product development and enhancement.............. 9,817 10,362 6,544 2,252 6,070 15,887 Write-off of goodwill and intangibles.............. 4,326 4,326 (4,326) (a) --------- ---------- --------- ---------- --------- --------- --------- Total costs and expenses. 181,993 286,437 207,110 71,196 150,523 (16,636) 315,880 --------- ---------- --------- ---------- --------- --------- --------- Income (loss) before other income(expense) and income taxes ............ 21,892 (27,512) (12,660) (21,878) (36,730) 16,636 1,798 Other income (expense)..... 21,104 (1,628) (835) (1,820) (2,613) 18,491 --------- ---------- --------- ---------- --------- --------- --------- Income (loss) before income taxes................... 42,996 (29,140) (13,495) (23,698) (39,343) 16,636 20,289 Provision for income taxes. 14,932 2,179 224 280 2,235 (10,120) (d) 7,047 --------- ---------- --------- ---------- --------- --------- --------- Net income (loss).......... $ 28,064 $(31,319) $(13,719) $(23,978) $(41,578) $ 26,756 $ 13,242 ========= ========== ========= ========== ========= ========= ========= Income per common share (Note 4): Net income: Primary................. $.72 $.34 ========= ========= Fully diluted........... $.72 $.34 ========= ========= Shares used to compute per share data: Primary................. 39,006 39,006 ========= ========= Fully diluted........... 39,006 39,006 ========= =========
See accompanying notes. - 3 - STERLING SOFTWARE, INC UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
TI Software --------------------------------------------------------- Deduct Add Sterling Historical Historical Historical Historical Three Months Three Months Pro Forma Purchase Year Ended Year Ended Ended Ended Year Ended Accounting September 30, December 31, December 31, December 31, September 30, Adjustments Pro Forma 1996 1996 1996 1995 1996 (Note 3) Combined ------------- ------------ ------------ ------------ ------------- ----------- ---------- Revenue: Products.................. $192,464 $ 83,612 $ 20,659 $ 33,931 $ 96,884 $289,348 Product support........... 123,401 62,178 16,518 14,130 59,790 183,191 Services.................. 123,306 113,135 27,298 27,978 113,815 237,121 ------------ ------------ ----------- ----------- ---------- ----------- --------- Total revenue............ 439,171 258,925 64,475 76,039 270,489 709,660 Costs and expenses: Cost of sales: Products and product support.................. 72,201 51,596 15,025 14,980 51,551 $(1,000) (a) 117,003 (5,449) (b) (300) (c) Services.................. 110,038 90,939 23,632 23,019 90,326 (2,734) (b) 197,479 (151) (c) ------------ ------------ ------------ ------------ ----------- --------- --------- 182,239 142,535 38,657 37,999 141,877 (9,634) 314,482 Selling, general and administrative........... 175,237 133,540 36,852 46,953 143,641 (8,500) (a) 310,378 Product development and enhancement.............. 20,921 10,362 3,818 3,189 9,733 30,654 ------------ ------------ ------------ ------------ ----------- --------- --------- Total costs and expenses. 378,397 286,437 79,327 88,141 295,251 (18,134) 655,514 ------------ ------------ ------------ ------------ ----------- --------- --------- Income (loss) from continuing operations before other income (expense) and income taxes 60,774 (27,512) (14,852) (12,102) (24,762) 18,134 54,146 Other income (expense)..... 24,112 (1,628) (793) 50 (785) 23,327 ------------ ------------ ------------ ------------ ----------- --------- --------- Income (loss) from continuing operations before income taxes....... 84,886 (29,140) (15,645) (12,052) (25,547) 18,134 77,473 Provision for income taxes. 24,288 2,179 1,955 426 650 1,750 (d) 26,688 ------------ ------------ ------------ ------------ ----------- --------- --------- Income (loss) from continuing operations..... $ 60,598 $(31,319) $(17,600) $(12,478) $(26,197) $ 16,384 $ 50,785 ============ ============ ============ ============ =========== ========= ========= Income per common share (Note 4): Income from continuing operations: Primary................. $1.78 $1.49 ============ ========= Fully diluted........... $1.73 $1.46 ============ ========= Shares used to compute per share data: Primary................. 34,071 34,071 ============ ========= Fully diluted........... 36,045 36,045 ============ =========
See accompanying notes. - 4 - NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. GENERAL The Acquisition will be accounted for as a purchase business combination by the Company. The accompanying unaudited pro forma combined condensed financial statements reflect an aggregate purchase price of approximately $214.8 million, consisting of cash paid to Texas Instruments plus costs directly related to the Acquisition as follows (in thousands): Cash paid to Texas Instruments.......... $165,000 Investment advisor, legal, accounting and other professional fees and expenses...................... 4,904 TI Software employee severance and benefits............................... 28,696 Elimination of duplicate facilities and leases of TI Software............................... 10,578 Other costs related to the Acquisition............................ 5,596 -------- $214,774 ========
For purposes of the accompanying unaudited pro forma combined condensed balance sheet, the aggregate purchase price has been allocated to the net assets acquired, with the remainder recorded as excess cost over net assets acquired on the basis of preliminary estimates of fair values. These preliminary estimates of fair value were determined by the Company's management based primarily on information furnished by management of TI Software and an independent valuation of acquired software and research and development. The final allocation of the purchase price will be based on a complete evaluation of the assets and liabilities of TI Software. Accordingly, the information presented herein may differ from the final purchase price allocation. The Company also expects to incur costs of approximately $106.0 million primarily related to the reorganization of the Company's operations in connection with the Acquisition, including the write-down of certain software and excess cost over net assets acquired recorded in connection with previous acquisitions and, to a lesser extent, to the termination of the Company's International Distributor Agreement with a subsidiary of Sterling Commerce, Inc., as more fully described in Item 5 of the Company's Current Report on Form 8-K dated June 30, 1997, and the write-down of certain excess cost over net assets acquired related to the Company's federal systems business. - 5 - 2. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET The accompanying unaudited pro forma combined condensed balance sheet assumes the Acquisition was consummated on March 31, 1997 and reflects the following pro forma adjustments: (a) To record the aggregate cost of the Acquisition described in Note 1 above. (b) To eliminate TI Software's historical equity balances. (c) To record the allocation of the purchase price for the Acquisition to the assets and liabilities acquired as follows (in thousands): Working capital (deficit).................... $ (7,634) Property and equipment....................... 4,723 Software..................................... 24,054 Purchased research and development costs charged to expense in the third quarter of fiscal 1997................. 137,849 Other assets................................. 31 Excess cost over net assets acquired......... 55,751 -------- $214,774 ========
(d) To record additional costs primarily related to the reorganization of the Company's operations in connection with the Acquisition, including the write-down of certain software and excess cost over net assets acquired in connection with previous acquisitions and, to a lesser extent, to the termination of the Company's International Distributor Agreement with a subsidiary of Sterling Commerce, Inc. and the write- down of certain excess cost over net assets acquired related to the Company's federal systems business, net of the related deferred income tax benefit. The components of the reorganization charge are as follows (in thousands): Employee termination costs........... $ 18,539 Write-down of software products which will no longer be actively marketed........................... 17,591 Write-down of excess cost over net assets acquired................ 38,955 Elimination of duplicate facilities and equipment........... 19,993 Out of pocket costs related to the reorganization................. 5,109 Other costs.......................... 5,850 -------- $106,037 ========
- 6 - 3. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS The accompanying unaudited pro forma combined condensed statements of operations have been prepared as if the Acquisition was consummated as of October 1, 1995 and reflect the following pro forma adjustments: (a) To eliminate nonrecurring restructuring costs and write-down of goodwill and other intangibles incurred by TI Software in periods prior to the Acquisition. (b) To record amortization of software acquired in the Acquisition computed using the straight-line method over its remaining estimated economic life (five years), less the historical amortization related to certain software written down by the Company related to the reorganization of the Company's operations in connection with the Acquisition. (c) To record amortization of excess cost over net assets acquired over ten years, less amortization related to certain excess cost over net assets acquired recorded in connection with previous acquisitions written down by the Company related to the reorganization of the Company's operations in connection with the Acquisition. (d) To adjust the provision for income taxes to reflect the impact of the results of operations of the Acquisition and related pro forma adjustments. 4. UNAUDITED PRO FORMA COMBINED EARNINGS PER COMMON SHARE DATA The unaudited pro forma combined primary earnings per common share data is computed by dividing pro forma combined income per share by the weighted average number of common shares and common share equivalents represented by stock options and warrants, if the exercise of such stock options and warrants would have a dilutive effect in the aggregate. For purposes of this computation, pro forma combined income applicable to common stockholders is adjusted to reflect the assumed use of net cash proceeds on the assumed exercise of stock options and warrants treated as common share equivalents to purchase outstanding long term debt or government securities. The pro forma combined fully diluted earnings per common share data reflect, in addition to the foregoing, the assumed conversion of the Company's 5 3/4% Convertible Subordinated Debentures due 2003 into common shares, if such conversion would have a dilutive effect, including an adjustment to reflect the elimination of after-tax interest expense attributable to such debentures. - 7 - -----END PRIVACY-ENHANCED MESSAGE-----