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 June 30, 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 July 31, 1995
par value $.10 per share 160,913,238
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information:
Page No.
Item 1. Consolidated Condensed Balance Sheets -
June 30, 1995 and March 31, 1995 . . . . . . . . . . . 1
Consolidated Statements of Income -
Three Months Ended June 30, 1995 and 1994 . . . . . . . 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 30, 1995 and 1994 . . . . . . . 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
1
Item 1:
Part I. FINANCIAL INFORMATION
OMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 30, March 31,
1995 1995
------------- ---------------
(Unaudited)
ASSETS:
Cash and cash equivalents . . . . . $ 65,149 $ 116,579
Marketable securities . . . . . . . 181,794 184,643
Trade and installment accounts
receivable - net. . . . . . . . . . 664,861 787,684
Inventories and other current
assets . . . . . . . . . . . . . . 60,049 58,660
TOTAL CURRENT ASSETS 971,853 1,147,566
Installment accounts receivable,
due after one year - net . . . . . 1,150,708 1,045,798
Property and equipment - net . . . . 334,462 343,953
Purchased software products - net. . 328,386 342,999
Excess of cost over net assets
acquired - net . . . . . . . . . . 295,707 300,268
Investments and other noncurrent
assets . . . . . . . . . . . . . . 87,219 88,844
TOTAL ASSETS $3,168,335 $3,269,428
LIABILITIES AND STOCKHOLDERS' EQUITY:
Loans payable - banks . . . . . . . $ 105,000 $ 240,000
Other current liabilities . . . . . 580,807 607,893
Long-term debt and other . . . . . 48,140 50,489
Deferred income taxes . . . . . . . 466,906 460,838
Deferred maintenance revenue . . . 302,366 332,083
Stockholders' equity . . . . . . . . 1,665,116 1,578,125
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $3,168,335 $3,269,428
<FN>
See Notes to Consolidated Condensed Financial Statements.
2
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
For the Three Months
Ended June 30,
--------------------
1995 1994
---- ----
Product revenue and other related income . . . $ 396,802 $ 306,488
Maintenance fees . . . . . . . . . . . . . . . 180,650 170,143
TOTAL REVENUE 577,452 476,631
Costs and expenses:
Selling, marketing and administrative . . . 277,279 251,571
Product development and enhancements . . . . 60,940 50,238
Commissions and royalties . . . . . . . . . 26,081 20,346
Depreciation and amortization . . . . . . . 71,222 43,933
Interest expense (income) - net . . . . . . 1,376 ( 726)
Purchased research and development . . . . . 249,300
TOTAL COSTS AND EXPENSES 436,898 614,662
Income (loss) before income taxes . . . . . . 140,554 (138,031)
Provision for income tax expense (benefit) . . 52,005 ( 52,452)
NET INCOME $ 88,549 $( 85,579)
Net income (loss) per share of Common Stock . $ .53 $( .53)
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 168,446 161,894
<FN>
See Notes to Consolidated Condensed Financial Statements.
3
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months
Ended June 30,
--------------------
1995 1994
OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . $ 88,549 $( 85,579)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 71,222 43,933
Provision for deferred income taxes . . . . . . 8,186 ( 83,468)
Charge for purchased research and development. . 249,300
Increase in noncurrent installment accounts
receivable - net . . . . . . . . . . . . . . . (101,985) ( 33,967)
Decrease in deferred maintenance revenue . . . . ( 29,493) ( 35,019)
Foreign currency transaction loss
before taxes . . . . . . . . . . . . . . . . . 1,974
Changes in other operating assets and
liabilities, excludes effects of acquisitions . 63,830 34,158
NET CASH PROVIDED BY OPERATING ACTIVITIES 100,309 91,332
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles . . . . . . . . ( 11,039) (293,600)
Purchase of property and equipment . . . . . . . . ( 1,640) ( 28,723)
Decrease (increase) in current marketable
securities . . . . . . . . . . . . . . . . . . . 5,034 ( 10,519)
Capitalized development costs . . . . . . . . . . ( 3,322) ( 3,229)
NET CASH USED IN INVESTING ACTIVITIES ( 10,967) (336,071)
FINANCING ACTIVITIES:
Decrease in long-term debt - net . . . . . . . . . ( 1,482) ( 42,845)
(Decrease) increase in loans payable-banks net . . (135,000) 330,000
Exercise of common stock options/other . . . . . . 10,133 5,361
Purchases of treasury stock . . . . . . . . . . . ( 13,205) ( 64,356)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (139,554) 228,160
DECREASE IN CASH AND CASH EQUIVALENTS
BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 50,212) ( 16,579)
Effect of exchange rate changes on cash . . . . . . ( 1,218) 907
DECREASE IN CASH AND CASH EQUIVALENTS ( 51,430) ( 15,672)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 116,579 133,127
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 65,149 $ 117,455
4
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 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 three months ended June 30, 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 May 1995, the Company's Board of Directors
declared its regular, semi-annual cash dividend of $.10 per
share. The dividend was paid on July 5, 1995 to stockholders
of record on June 20, 1995.
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,
1995 and 1994, interest paid was $4.3 million and $2.2 million,
respectively, and income taxes paid were $35 million and $62
million, respectively.
5
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE B -- ACQUISITIONS
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 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 charge not been taken
during the quarter ended June 30, 1994, net income for the
quarter ended June 30, 1994 would have been $69 million, or $.41
per share.
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 and the related one-time
charge, noted above, was recorded at the beginning of the fiscal
year 1995:
(In thousands, except per share amounts)
For the Three Months
Ended June 30,
1995 1994
Revenue . . . . . . . . . $ 577,452 $ 510,344
Net income (loss) . . . . 88,549 ( 125,734)
Net income (loss) per
Common Share . . . . . . $ .53 $( .78)
Shares used in
computation . . . . . . 168,446 161,894
6
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE B -- ACQUISITIONS (continued)
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 1995 or of future operations of the
combined companies under the ownership and operation of the
Company.
NOTE C - SUBSEQUENT EVENT
On August 1, 1995, the Company, through its wholly owned
subsidiary, VR126, Inc., completed its tender offer for all of
the outstanding shares of Legent Corporation ("Legent") common
stock at a price of $47.95 per share in cash. Approximately 98%
of the issued and outstanding shares, or 37.9 million shares,
were validly tendered. The purchase price of these shares was
funded from the Company's general corporate funds and drawings
under its new $2 billion Credit Agreement dated as of July 24,
1995.
Legent and VR126, Inc. will be merged as soon as practicable
after the satisfaction of the conditions set forth in, and
subject to the terms of, the Agreement and Plan of Merger among
Legent, VR126, Inc. and the Company, but in no event earlier
than November 6, 1995. Once the pending merger becomes
effective, Legent will become a wholly owned subsidiary of the
Company.
The purchase price and associated charges will be allocated
among the identifiable tangible and intangible assets of Legent
based on their fair market value at the acquisition date under
the purchase method of accounting for business combinations.
The costs of purchased research and development for that portion
of the acquired technology that has not reached the working
model stage and has no alternative future use will be written
off against the Company's earnings in its second quarter ending
September 30, 1995. The after-tax charge against earnings is
initially projected to be approximately $800 million, or
approximately $5.00 per share.
On August 9, 1995, the Company declared a three-for-two split, in
the form of a stock dividend, of its outstanding common stock. The
record date will be Monday, August 21, 1995 and the payment date will
be Tuesday, September 5, 1995. There are currently approximately
160,000,000 shares of CA common stock outstanding, and this number
will increase to approximately 240,000,000 shares by reason of the
stock split. The Board also indicated that it anticipates that the
annual dividend will be $.14 per annum on a new share basis. None of
the share or per share amounts presented herein reflect the split.
7
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue:
Total revenue for the quarter ended June 30, 1995 increased by
21%, or $101 million, over the prior year's comparable quarter.
The growth was attributable to greater revenue derived from
licensing fees on the midrange platform and the continued
demand for enterprise licensing alternatives and less
restrictive pricing options. The increase in midrange platform
revenue was led by the Company's pioneer UNIX-based systems
management product, CA-Unicenter. Maintenance revenues
increased $10 million, or 6%, primarily due to the acquisition
of ASK. 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 June 1995 quarter decreased to 48%
from 53% for the June 1994 quarter. The percentage reduction
reflects a higher revenue achievement without a proportionate
increase in total fixed and variable administrative costs. Net
research and development expenditures increased $10 million, or
21%, over the June 1994 quarter. The increase was the result
of continued support and enhancements of the ASK products, as
well as the focus on further enhancing client/server product
offerings. Commissions and royalties as a percentage of
revenue for the June 1995 quarter increased slightly over the
prior year's comparable period. The nominal percentage
increase is due to the ASK royalties not present in the June
1994 quarter. Depreciation and amortization expense increased
$27 million in the June 1995 quarter over the June 1994
quarter, primarily due to the additional purchased software
product amortization associated with the ASK acquisition. In
the June 1995 quarter, net interest expense increased by $2
million over the June 1994 quarter, as a result of higher debt
levels associated with borrowings used to finance the ASK
acquisition.
8
Item 2: (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating Margins:
Net income for the June 1995 quarter was $89 million, or $.53
per share, compared to a net loss of $86 million and a loss of
$.53 per share for the June 1994 quarter. The net loss for the
June 1994 quarter reflects the $154 million after-tax charge
for the write-off of ASK purchased research and development
technology, that had not reached the working model stage and
had no alternative future use. Excluding this charge, the pre-
tax income in the June 1994 quarter would have been $111
million compared to that of the June 1995 quarter ($140
million), a 26% increase. The Company's consolidated effective
tax rate for the June 1995 quarter decreased to 37% from 38%
for the June 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 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 and the
personnel/infrastructure investments necessary to capitalize on
the ongoing 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.
9
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 at June 30, 1995
decreased by approximately $50 million from the March 31, 1995
fiscal year end balance. This decrease was primarily
attributable to expenditures of $135 million for repayment of
bank debt and $13 million for the purchase of Treasury Stock,
partially offset by approximately $100 million of cash
generated from operations. At June 30, 1995, $105 million
remained drawn under the Company's $500 million revolving
credit agreement.
On May 25, 1995, the Company entered into a definitive
agreement providing for the acquisition of Legent for
approximately $1.8 billion. In August 1995, the Company
financed the acquisition with cash and marketable securities,
as well as a portion of the new $2 billion credit facility
which replaced the existing $500 million facility. The $2
billion facility is a five-year reducing revolving credit
agreement initially having a borrowing cost at LIBOR plus 5/8%.
The agreement calls for the maintenance of certain financial
conditions and ratios.
At June 30, 1995, the total purchased under the Company's open
market Common Stock repurchase program was 16.3 million shares.
Almost 9 million shares remain available for repurchase under
this program. Previously, the Company had completed a 15
million share repurchase program, for a total of 31.3 million
shares purchased to date.
The Company's capital resource requirements as of the end of
June 30, 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 including
the obligation to purchase Legent as outlined above. 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.
10
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits.
Credit Agreement dated July 24, 1995.
(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: August 9, 1995 By: /s/Sanjay Kumar
---------------------
Sanjay Kumar, President
and Chief Operating Officer
Dated: August 9, 1995 By: /s/Peter Schwartz
----------------------
Peter Schwartz
Sr. Vice President - Finance
(Chief Financial and
Accounting Officer)