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 June 30, 1994
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 PALZA
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 July 27, 1994
par value $.10 per share 161,780,913
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information: Page No.
Item 1. Consolidated Condensed Balance Sheets -
June 30, 1994 and March 31, 1994 . . . . . . . . . . . 1
Consolidated Statements of Income -
Three Months Ended June 30, 1994 and 1993. . . . . . . 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 30, 1994 and 1993. . . . . . . 3
Notes to Consolidated Condensed Financial Statements. . 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 7
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 10
Item 1:
Part I. FINANCIAL INFORMATION
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 30, March 31,
1994 1994
------------- --------------
(Unaudited)
ASSETS:
Cash and cash equivalents . . . . . $ 117,455 $ 133,127
Marketable securities . . . . . . . 243,139 235,071
Trade and installment accounts
receivable - net. . . . . . . . . . 594,565 594,854
Inventories and other current
assets . . . . . . . . . . . . . . 56,180 36,169
TOTAL CURRENT ASSETS 1,011,339 999,221
Installment accounts receivable,
due after one year - net . . . . . 680,510 626,923
Property and equipment - net . . . . 368,324 304,590
Purchased software products - net . 481,455 259,290
Excess of cost over net assets
acquired - net . . . . . . . . . . 302,203 201,665
Investments and other noncurrent
assets . . . . . . . . . . . . . . 98,690 99,916
TOTAL ASSETS $2,942,521 $2,491,605
LIABILITIES AND STOCKHOLDERS' EQUITY:
Loans payable - banks . . . . . . . $ 380,000 $ 50,000
Other current liabilities . . . . . 706,090 498,622
Long-term debt and other . . . . . 68,685 71,381
Deferred income taxes . . . . . . . 368,524 298,914
Deferred maintenance revenue . . . 305,030 329,555
Stockholders' equity . . . . . . . . 1,114,192 1,243,133
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,942,521 $2,491,605
<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 June 30,
--------------------
1994 1993
---- ----
Product revenue and other related income . . . $ 306,488 $ 251,446
Maintenance fees . . . . . . . . . . . . . . . 170,143 171,936
TOTAL REVENUE 476,631 423,382
Costs and expenses:
Selling, marketing and administrative . . . 251,571 251,706
Product development and enhancements . . . . 50,238 49,830
Commissions and royalties . . . . . . . . . 20,346 20,177
Depreciation and amortization . . . . . . . 43,933 52,223
Interest (income) expense - net . . . . . . ( 726) 1,400
Purchased research and development . . . . . 249,300
TOTAL COSTS AND EXPENSES 614,662 375,336
(Loss) income before income taxes . . . . . . ( 138,031) 48,046
Provision for income tax (benefit) expense . . ( 52,452) 17,297
NET (LOSS) INCOME $( 85,579) $ 30,749
Net (loss) income per share of Common Stock . $( .53) $ .18
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 161,894 171,777
<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 Three Months
Ended June 30,
--------------------
1994 1993
---- ----
OPERATING ACTIVITIES:
Net (loss) income . . . . . . . . . . . . . . . . $( 85,579) $ 30,749
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 43,933 52,223
Provision for deferred income taxes . . . . . . 11,332 1,627
Charge for purchased research and development. . 154,500
Increase in noncurrent installment accounts
receivable - net . . . . . . . . . . . . . . . ( 33,967) ( 47,961)
Decrease in deferred maintenance revenue . . . . ( 35,019) ( 30,908)
Foreign currency transaction loss
before taxes . . . . . . . . . . . . . . . . . 1,974 12,548
Changes in other operating assets and
liabilities, excludes effects of acquisitions . 34,158 69,314
NET CASH PROVIDED BY OPERATING ACTIVITIES 91,332 87,592
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles . . . . . . . . (293,600) ( 63)
Purchase of property and equipment . . . . . . . . ( 28,723) ( 23,658)
Purchase of noncurrent marketable securities . . . ( 90)
Increase in current marketable securities . . . . ( 10,519) ( 56,208)
Capitalized development costs . . . . . . . . . . ( 3,229) ( 3,567)
NET CASH USED IN INVESTING ACTIVITIES (336,071) ( 83,586)
FINANCING ACTIVITIES:
(Decrease) Increase in long-term debt - net . . . ( 42,845) 6,016
Increase in loans payable - banks, net . . . . . . 330,000
Exercise of common stock options/other . . . . . . 5,361 13,227
Purchases of treasury stock . . . . . . . . . . . ( 64,356) ( 53,583)
NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 228,160 ( 34,340)
DECREASE IN CASH AND CASH EQUIVALENTS
BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 16,579) ( 30,334)
Effect of exchange rate changes on cash . . . . . . 907 ( 1,400)
DECREASE IN CASH AND CASH EQUIVALENTS ( 15,672) ( 31,734)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 133,127 79,483
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 117,455 $ 47,749
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1994
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 three months
ended June 30, 1994 are not necessarily indicative of the results that may
be expected for the year ending March 31, 1995. 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,
1994.
Dividends: In May 1994, the Company's Board of Directors declared its
semi-annual cash dividend of $.10, an increase of 43% from the prior dividend
of $.07 per share. The dividend was paid on July 5, 1994 to stockholders of
record at June 20, 1994.
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. Common share equivalents for
the quarter ended June 30, 1994 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.
Statements of Cash Flows: For the three months ended June 30, 1994 and 1993,
interest paid was $2.2 and $3.4 million, respectively, and income taxes paid
were $62 and $48 million, respectively.
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1994
NOTE B -- ACQUISITIONS
On June 22, 1994, the Company acquired 98% of the issued and outstanding
Common Stock of The Ask Group, Inc. ("ASK"). The aggregate cost of acquiring
the Common Stock of ASK was approximately $308 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 computer-based 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 one-time
charge not been taken during the quarter ended June 30, 1994, net income
would have been $69 million, or $.41 per share.
The following pro forma combined results of operations (unaudited) of the
Company and ASK on the basis that the acquisition had taken place and the
related one-time charge, noted above, was recorded at the beginning of each
of the periods presented:
(In thousands, except per share amounts)
For the Three Months
Ended June 30,
--------------------
1994 1993
---- ----
Revenue . . . . . . . . . . . . . . . . $ 510,344 $ 523,627
Net loss . . . . . . . . . . . . . . . $(125,734) $(145,842)
Net loss per
Common Share . . . . . . . . . . . . . $( .78) $( .88)
Shares used in computation . . . . . . 161,894 166,439
NOTE B -- ACQUISITIONS (continued)
The following table reflects pro forma combined results of operations
(unaudited) of the Company and ASK on the basis that the acquisitions had
taken place at the beginning of the periods presented and excludes the effect
of the one-time after-tax charge of $154 million:
(In thousands, except per share amounts)
For the Three Months
Ended June 30,
--------------------
1994 1993
---- ----
Revenue . . . . . . . . . . . . . . . . $ 510,344 $ 523,627
Net Income . . . . . . . . . . . . . . $ 28,766 $ 8,658
Net Income per
Common Share . . . . . . . . . . . . . $ .17 $ .05
Shares used in computation . . . . . . 167,894 171,777
In management's opinion, the pro forma combined results of operations are not
indicative of the actual results that would have occurred had the acquisition
been consummated at the beginning of fiscal year 1994 or of future operations
of the combined companies under the ownership and operation of the Company.
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue:
Total revenue in the quarter ended June 30, 1994 increased by 13%, or $53
million, over the prior year's comparable quarter. The increase was
attributable to product revenue growth primarily in the midrange platform,
particularly for the CA-Unicenter for UNIX products on several operating
systems. The revenue contribution from ASK, acquired at the end of the
June 1994 quarter was immaterial. Maintenance revenues decreased by $2
million, primarily due to normal attrition, the continued trend of client
site consolidation and increasing Value Added Reseller ("VAR") midrange sales
whereby ongoing maintenance and support service is performed by the VAR.
Price changes did not have a material impact during either quarter.
Costs and Expenses:
Selling, marketing and administrative expenses as a percent of total revenue
in the June 1994 quarter decreased to 53% from 59% in the June 1993 quarter.
This reduction between the two comparable quarters reflects the higher
revenue achievement without a proportionate increase in total fixed and
variable operating and administrative costs. Development expenditures
capitalized during the fiscal 1994 quarter totaled $3 million, while $5
million of previously capitalized software development expenditures was
amortized in the quarter. Commissions and royalties as a percentage of
revenue decreased slightly in the June 1994 quarter over the prior year's
comparable period. This was attributable primarily to the continued staffing
shift from direct marketing specialists to client service representatives.
The latter's compensation is more heavily weighted to a fixed salary than
that of the marketing specialists. Depreciation and amortization expense in
the June 1994 quarter decreased by $8 million over the June 1993 quarter due
to the expiration of the five year amortization period related to the
Company's ADR acquisition and the reassessment and write-off of the current
carrying value of certain purchased software products, all of which occurred
in the latter part of the prior fiscal year. During the June 1994 quarter,
the impact of amortization of purchased software and excess cost over net
assets acquired associated with the acquisition of ASK was immaterial since
the acquisition occurred at the end of the quarter. However, the
incremental charge during the remainder of fiscal year 1995 will approximate
$29 million per quarter. In the quarter ended June 1994, net interest
expense changed by $2 million as a result of decreases in long-term debt,
increases in marketable securities investments and slightly higher interest
rates.
Item 2: (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating Margins:
The net loss for the quarter ended June 1994 was $86 million, or $.53 per
share, compared to net income for the previous year quarter of $31 million,
or $.18 a share. This change from positive net income to a net loss was due
entirely to the $154 million non-recurring after-tax charge for the write-off
of purchased research and development associated with CA's recently
completed acquisition of The ASK Group, Inc. Pre-tax income excluding the
one-time charge was $111 million, an increase of 131% over the comparable
prior year period. The consolidated effective tax rate increased to 38% from
36% in the June 1993 quarter, primarily as a result of reduced foreign tax
credits.
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 may not be indicative of future
performance, particularly in view of the uncertainties associated with the
ASK acquisition.
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; industry factors; the availability and cost of
new products; 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; the Company's ability to effectively
manage 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, cash equivalents and short-term marketable securities
decreased by $7 million to $361 million during the quarter ended June 1994.
This decrease was primarily attributable to expenditures of $294 million
related to: the acquisition of 98% of the issued and outstanding Common Stock
of ASK; $29 million for property and equipment; $64 million for the purchase
of Treasury Stock; and $43 million related to the repayment of long-term
debt primarily assumed with the ASK acquisition partially offset by $91
million of cash generated from operations and borrowings of $330 million
under the Company's renegotiated revolving credit agreement. During the
quarter, the Company restructured its credit agreement with a group of banks
to increase its borrowing capacity to $500 million. Borrowings under this
agreement are subject to interest, primarily at the prevailing London
Interbank Rate plus 25 basis points and is payable at maturity or in
quarterly installments whichever is sooner. At June 30, 1994, $380 million
was outstanding under this agreement. 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 June 30, 1994, the Company added 2.1 million shares
of Common Stock to its treasury stock under its open market repurchase
program. The Company's Board of Directors has authorized it to repurchase
an additional 11.5 million shares.
The Company's capital resource requirements as of the end of June 1994
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.
None.
(b) Reports on Form 8-K.
The registrant filed a Report on Form 8-K.
on or about June 10, 1994, reporting an
event under Item 5, announcing a favorable
jury verdict for the Registrant and its
officers regarding the consolidated class
action complaint by a group of shareholders.
The date fo such report was June 1, 1994.
The registrant filed a Report on Form 8-K
on or about July 1, 1994, reporting an event
under Item 2, providing financial statements
and pro forma financial information in
accordance with Items 7(a) and (b) and
furnishing exhibits under Item 7(c). The date
of such report was June 23, 1994.
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: July 29, 1994 By:/s/Charles B. Wang
------------------
Charles B. Wang, Chairman
and Chief Executive Officer
Dated: July 29, 1994 By:/s/Peter A. Schwartz
--------------------
Peter Schwartz
Sr. Vice President - Finance
(Chief Financial and
Accounting Officer)