FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended DECEMBER 31, 1993
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 at January 31, 1994
par value $.10 per share 164,332,941
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information: Page No.
Item 1. Consolidated Condensed Balance Sheets -
December 31, 1993 and March 31, 1993 . . . . . . . . . 1
Consolidated Statements of Income -
Three Months Ended December 31, 1993 and 1992. . . . . 2
Nine Months Ended December 31, 1993 and 1992 . . . . . 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended December 31, 1993 and 1992 . . . . . 4
Notes to Consolidated Condensed Financial Statements. . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 6
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 9
Item 1:
Part I. FINANCIAL INFORMATION
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
December 31, March 31,
1993 1993
------------- --------------
(Unaudited)
ASSETS:
Cash and cash equivalents . . . . . $ 66,086 $ 79,483
Marketable securities . . . . . . . 251,154 149,017
Trade and installment accounts
receivable - net . . . . . . . . . 527,107 596,608
Inventories and other current
assets . . . . . . . . . . . . . . 41,573 43,812
TOTAL CURRENT ASSETS 885,920 868,920
Installment accounts receivable,
due after one year - net . . . . 533,017 410,009
Property and equipment - net . . . . 306,653 310,592
Purchased software products - net. . 291,627 404,106
Excess of cost over net assets
acquired - net . . . . . . . . . . 232,791 243,085
Investments and other noncurrent
assets . . . . . . . . . . . . . 111,362 112,107
TOTAL ASSETS $2,361,370 $2,348,819
LIABILITIES AND STOCKHOLDERS' EQUITY:
Loans payable - banks . . . . . . . $ 50,000 $ 25,000
Other current liabilities . . . . . 494,550 503,226
Long-term debt and other . . . . . 82,104 166,714
Deferred income taxes . . . . . . . 287,544 256,577
Deferred maintenance revenue . . . 310,775 342,772
Stockholders' equity . . . . . . . . 1,136,397 1,054,530
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,361,370 $2,348,819
<FN>
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,
--------------------
1993 1992
---- ----
Product revenue and other related income . . . $ 399,326 $ 326,984
Maintenance fees . . . . . . . . . . . . . . . 175,054 174,541
TOTAL REVENUE 574,380 501,525
Costs and expenses:
Selling, marketing and administrative . . . 257,964 246,415
Product development and enhancements . . . . 52,132 51,738
Commissions and royalties . . . . . . . . . 27,295 27,035
Depreciation and amortization . . . . . . . 42,884 52,098
Interest (income) expense - net . . . . . . ( 51) 2,710
TOTAL COSTS AND EXPENSES 380,224 379,996
Income before income taxes . . . . . . . . . . 194,156 121,529
Provision for income taxes . . . . . . . . . . 69,968 41,320
NET INCOME $ 124,188 $ 80,209
Net income per share of Common Stock . . . . . $ .72 $ .48
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 171,936 167,661
<FN>
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,
-------------------
1993 1992
---- ----
Product revenue and other related income . . . $ 994,235 $ 798,132
Maintenance fees . . . . . . . . . . . . . . . 520,495 502,815
TOTAL REVENUE 1,514,730 1,300,947
Costs and expenses:
Selling, marketing and administrative . . . . 745,293 698,064
Product development and enhancements . . . . 153,706 148,541
Commissions and royalties . . . . . . . . . . 70,505 68,922
Depreciation and amortization . . . . . . . . 164,080 153,186
Interest expense - net . . . . . . . . . . . 2,166 3,877
TOTAL COSTS AND EXPENSES 1,135,750 1,072,590
Income before income taxes . . . . . . . . . . 378,980 228,357
Provision for income taxes . . . . . . . . . . 136,505 81,915
NET INCOME $ 242,475 $ 146,442
Net income per share of Common Stock . . . . . $ 1.41 $ .86
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 171,907 171,191
<FN>
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,
--------------------
1993 1992
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $ 242,475 $146,442
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 164,080 153,186
Provision for deferred income taxes . . . . . . 25,464 33,706
Increase in noncurrent installment accounts
receivable - net . . . . . . . . . . . . . . . (152,657) ( 92,393)
(Decrease) increase in deferred maintenance
revenue . . . . . . . . . . . . . . . . . . . . ( 26,486) 4,405
Foreign currency transaction loss
before taxes . . . . . . . . . . . . . . . . . 19,188 8,898
Changes in other operating assets and
liabilities, excludes effects of acquisitions . 39,811 16,885
NET CASH PROVIDED BY OPERATING ACTIVITIES 311,875 271,129
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles . . . . . . . . ( 3,092) ( 61,809)
Purchase of property and equipment . . . . . . . . ( 15,148) (220,692)
Purchase of noncurrent marketable securities . . . ( 317) ( 386)
(Increase) decrease in current marketable
securities . . . . . . . . . . . . . . . . . . . (102,137) 61,890
Capitalized development costs . . . . . . . . . . ( 11,370) ( 13,378)
NET CASH USED IN INVESTING ACTIVITIES (132,064) (234,375)
FINANCING ACTIVITIES:
(Decrease) increase in long-term debt - net . . . ( 99,400) 186,362
Increase (decrease) in loans payable - banks . . . 25,000 (100,000)
Dividends Paid . . . . . . . . . . . . . . . . . . ( 11,643) ( 8,765)
Exercise of common stock options/other . . . . . . 20,162 3,231
Purchases of treasury stock . . . . . . . . . . . (121,524) (132,229)
NET CASH USED IN FINANCING ACTIVITIES (187,405) ( 51,401)
DECREASE IN CASH AND CASH EQUIVALENTS
BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 7,594) ( 14,647)
Effect of exchange rate changes on cash . . . . . . ( 5,803) ( 4,219)
DECREASE IN CASH AND CASH EQUIVALENTS ( 13,397) ( 18,866)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 79,483 74,281
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 66,086 $ 55,415
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1993
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, 1993 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1994. 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, 1993.
Net Income per Share: Net income per share of Common Stock is computed by
dividing net income by the weighted average number of common shares and any
dilutive common share equivalents outstanding. Fully diluted net income per
share is the same or not materially different from net income per share.
Statements of Cash Flows: For the nine months ended December 31, 1993,
interest paid was approximately $10 million, and income taxes paid were
approximately $93 million. For the nine months ended December 31, 1992,
interest paid was approximately $9 million and income taxes paid were
approximately $30 million. In December 1993, the Company's Board of
Directors declared its semi-annual cash dividend of $.07 per share. The
dividend was paid on January 6, 1994 to stockholders of record on December
20, 1993.
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue:
The Company's total revenue in the third quarter ended December 31, 1993
increased by 15%, or $73 million, over the comparable prior year's quarter.
The increase was attributable to product revenue growth in the mainframe and
midrange platforms of $82 million, offset by a decrease of $9 million in
micro and other product related revenue. Maintenance revenues rose by $1
million primarily due to the additional prior year product sales. This
increase was net of normal attrition, consolidation of client sites and
foreign currency translation. Price changes did not have a material impact
during either quarter.
Costs and Expenses:
Selling, marketing and administrative expenses increased from $246 million
in the third fiscal quarter of 1993 to $258 million for the third fiscal
quarter of 1994. The growth in selling, marketing and administrative
expenses between the two comparable quarters is largely a function of
continued investments in enhanced service and support personnel as well as
incremental value-added reseller training costs; only partially offset by
the strengthening of the US dollar against foreign currencies. Development
expenditures in the December 1993 quarter on a year-over-year basis were
virtually unchanged. Development expenditures capitalized during the fiscal
1994 quarter totaled $4 million, and a like amount of previously capitalized
software development expenditures was amortized. Commissions and royalties
as a percentage of revenue decreased in the December 1993 quarter over the
prior year's comparable period, primarily as a result of the shift from
direct marketing specialists to client service representatives. The
latter's compensation is more heavily weighted to a fixed salary than the
marketing specialists. Depreciation and amortization expense in the
December 1993 quarter decreased by $9 million over the December 1992 quarter
due to the expiration of the five year amortization period related to the
Company's ADR acquisition, and the reassessment of the current carrying
value of certain purchased software products, both of which occurred in
September 1993. In the quarter ended December 1993, net interest expense
decreased by $3 million as a result of decreases in long-term debt and
increases in investments in marketable securities.
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 1993 exceeded the prior year's
comparable quarter by $73 million due to the higher revenue achievement and
with virtually unchanged total costs and expenses. Similarly, pre-tax and
after-tax margins as a percentage of total revenue increased to 34% and 22%,
respectively, from 24% and 16%. The consolidated effective tax rate
increased from 34% in the December 1992 quarter to 36% in the current
quarter due to the recognition of foreign tax credits on a year-to-date
basis during the December 1992 quarter.
Operations:
The Company has traditionally reported lower profit margins for 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 revenue for
the first half of the year. Historically, the Company's combined third and
fourth quarter revenues have been greater than 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 should not be considered
to be a reliable indicator of future performance.
The Company's near term operating results may be affected by a number of
factors, including, but not limited to: uncertainties relative to global
economic conditions; industry factors; the availability and cost of new
products; the Company's ability to develop, manufacture, and license its
products profitably; the Company's ability to successfully increase its
market share in its core business while expanding its product base into
other markets; the strength of its distribution channels; and the Company's
ability to effectively manage expense growth relative to revenue growth.
Item 2: (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term marketable securities
increased by $28 million, or 10%, to $317 million during the quarter ended
December 1993. This increase was primarily attributable to cash generated
from operations of $122 million offset by purchases of approximately $53
million of treasury stock and $45 million of reductions in long-term debt
and loans payable. In connection with the net reduction of $45 million in
long-term debt and loans payable during the quarter, the Company repaid its
4-year collateralized term loan ($142 million) and replaced it with a $51
million 2-year unsecured term loan and drawings of $50 million against its
credit facility. The 2-year term loan is subject to interest primarily at
the prevailing London interbank rate plus 3/8% and is payable in quarterly
installments. The Company has a committed credit facility with a group of
banks providing for borrowings of up to $250 million. As noted above, $50
million was drawn against this facility at December 31, 1993. It is
expected that existing cash, cash equivalents, short-term marketable
securities, the availability of short-term borrowings under committed and
uncommitted credit lines as well as cash provided from operations will be
sufficient to meet anticipated cash requirements.
During the quarter ended December 31, 1993, the Company repurchased 1.4
million shares of Common Stock for its treasury in open market transactions.
The Company's Board of Directors has authorized it to repurchase an
additional 16 million shares.
The Company's capital resource requirements as of the end of December 1993
consisted of lease obligations for office space, computer equipment,
mortgage or loan obligations and amounts due as a result of product and
company acquisitions. The Company intends to meet these commitments and
other foreseeable needs from its available cash as outlined above.
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits.
Unsecured Term Loan Agreement dated
December 20, 1993.
(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 9, 1994 By: Charles B. Wang
---------------------
Charles B. Wang, Chairman
and Chief Executive Officer
Dated: February 9, 1994 By: Peter Schwartz
---------------------
Peter Schwartz
Sr. Vice President - Finance
(Chief Financial and
Accounting Officer)
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits.
Unsecured Term Loan Agreement dated
December 20, 1993.
(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 9, 1994 By: s/ Charles B. Wang
---------------------
Charles B. Wang, Chairman
and Chief Executive Officer
Dated: February 9, 1994 By: s/ Peter Schwartz
---------------------
Peter Schwartz
Sr. Vice President - Finance
(Chief Financial and
Accounting Officer)