UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 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 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 January 30, 1995
par value $.10 per share 160,006,061
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information: Page No.
Item 1. Consolidated Condensed Balance Sheets -
December 31, 1994 and March 31, 1994 . . . . . . . . . 1
Consolidated Statements of Income -
Three Months Ended December 31, 1994 and 1993 . . . . . 2
Nine Months Ended December 31, 1994 and 1993. . . . . . 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended December 31, 1994 and 1993. . . . . . 4
Notes to Consolidated Condensed Financial Statements . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 8
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
<PAGE>
<TABLE>
Item 1:
Part I. FINANCIAL INFORMATION
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
(In thousands)
December 31, March 31,
1994 1994
------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents . . . . . $ 79,659 $ 133,127
Marketable securities . . . . . . . 167,726 235,071
Trade and installment accounts
receivable - net. . . . . . . . . . 717,486 594,854
Inventories and other current
assets . . . . . . . . . . . . . . 47,322 36,169
TOTAL CURRENT ASSETS 1,012,193 999,221
Installment accounts receivable,
due after one year - net . . . . . 852,531 626,923
Property and equipment - net . . . . 351,056 304,590
Purchased software products - net. . 384,809 259,290
Excess of cost over net assets
acquired - net . . . . . . . . . . 304,033 201,665
Investments and other noncurrent
assets . . . . . . . . . . . . . . 99,560 99,916
TOTAL ASSETS $3,004,182 $2,491,605
LIABILITIES AND STOCKHOLDERS' EQUITY:
Loans payable - banks . . . . . . . $ 285,000 $ 50,000
Other current liabilities . . . . . 630,979 498,622
Long-term debt and other . . . . . 51,930 71,381
Deferred income taxes . . . . . . . 404,934 298,914
Deferred maintenance revenue . . . 312,779 329,555
Stockholders' equity . . . . . . . . 1,318,560 1,243,133
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $3,004,182 $2,491,605
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
(In thousands, except per share amounts)
For the Three Months
Ended December 31,
--------------------
1994 1993
---- ----
<S> <C> <C>
Product revenue and other related income . . . $ 535,831 $ 399,326
Maintenance fees . . . . . . . . . . . . . . . 185,201 175,054
TOTAL REVENUE 721,032 574,380
Costs and expenses:
Selling, marketing and administrative . . . 268,294 257,964
Product development and enhancements . . . . 60,380 52,132
Commissions and royalties . . . . . . . . . 37,294 27,295
Depreciation and amortization . . . . . . . 71,532 42,884
Interest expense (income) - net . . . . . . 2,554 ( 51)
TOTAL COSTS AND EXPENSES 440,054 380,224
Income before income taxes . . . . . . . . . . 280,978 194,156
Provision for income taxes . . . . . . . . . . 106,772 69,968
NET INCOME $ 174,206 $ 124,188
Net income per share of Common Stock . . . . $ 1.04 $ .72
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 167,778 171,936
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
(In thousands except per share amounts)
For the Nine Months
Ended December 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Product revenue and other related income . . . $1,286,317 $ 994,235
Maintenance fees . . . . . . . . . . . . . . . 534,686 520,495
TOTAL REVENUE 1,821,003 1,514,730
Costs and expenses:
Selling, marketing and administrative . . . . 775,979 745,293
Product development and enhancements . . . . 164,764 153,706
Commissions and royalties . . . . . . . . . . 87,705 70,505
Depreciation and amortization . . . . . . . . 185,274 164,080
Interest expense - net . . . . . . . . . . . 4,752 2,166
Purchased research and development . . . . . 249,300
TOTAL COSTS AND EXPENSES 1,467,774 1,135,750
Income before income taxes . . . . . . . . . . 353,229 378,980
Provision for income taxes . . . . . . . . . . 134,227 136,505
NET INCOME $ 219,002 $ 242,475
Net income per share of Common Stock . . . . . $ 1.30 $ 1.41
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 167,988 171,907
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
(In thousands)
For the Nine Months
Ended December 31,
--------------------
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . $ 219,002 $242,475
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 185,274 164,080
Provision for deferred income taxes . . . . . . 64,903 25,464
Charge for purchased research and development. . 154,500
Increase in noncurrent installment accounts
receivable - net . . . . . . . . . . . . . . . (206,439) (152,657)
Decrease in deferred maintenance revenue . . . . ( 20,217) ( 26,486)
Foreign currency transaction loss
before taxes . . . . . . . . . . . . . . . . . 4,619 19,188
Changes in other operating assets and
liabilities, excludes effects of acquisitions . ( 95,705) 39,811
NET CASH PROVIDED BY OPERATING ACTIVITIES 305,937 311,875
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles . . . . . . . . (371,991) ( 3,092)
Purchase of property and equipment . . . . . . . . ( 30,589) ( 15,148)
Purchase of noncurrent marketable securities . . . ( 317)
Decrease (increase) in current marketable
securities . . . . . . . . . . . . . . . . . . . 62,498 (102,137)
Capitalized development costs . . . . . . . . . . ( 12,203) ( 11,370)
NET CASH USED IN INVESTING ACTIVITIES (352,285) (132,064)
FINANCING ACTIVITIES:
Decrease in long-term debt - net . . . . . . . . . ( 84,076) ( 99,400)
Increase in loans payable-banks - net . . . . . . 235,000 25,000
Dividends Paid . . . . . . . . . . . . . . . . . . ( 16,172) ( 11,643)
Exercise of common stock options/other . . . . . . 12,933 20,162
Purchases of treasury stock . . . . . . . . . . . (161,666) (121,524)
NET CASH USED IN FINANCING ACTIVITIES ( 13,981) (187,405)
DECREASE IN CASH AND CASH EQUIVALENTS
BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 60,329) ( 7,594)
Effect of exchange rate changes on cash . . . . . . 6,861 ( 5,803)
DECREASE IN CASH AND CASH EQUIVALENTS ( 53,468) ( 13,397)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 133,127 79,483
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 79,659 $ 66,086
</TABLE>
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 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 nine months ended December 31, 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 December 1994, the Company's Board of Directors declared its
semi-annual cash dividend of $.10 per share. The dividend was paid on
January 9, 1995 to stockholders of record on December 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. 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, 1994 and
1993, interest paid was $16 and $10 million, respectively, and income taxes
paid were $158 and $93 million, respectively.
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE B -- ACQUISITIONS
On June 22, 1994, the Company acquiried 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 one-time charge not been
taken during the quarter ended June 30, 1994, net income for the nine month
period ended December 31, 1994 would have been $374 million, or $2.22 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 for each of the periods presented:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
For the Nine Months For the Three Months
Ended December 31, Ended December 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . $1,868,656 $ 1,771,099 $ 727,137 $ 663,409
Net income (loss) . . . . 187,488 7,649 177,991 97,301
Net income (loss) per
Common Share . . . . . . $ 1.12 $ .04 $ 1.06 $ .57
Shares used in
computation . . . . . . 167,988 171,907 167,778 171,936
</TABLE>
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1994
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 fiscal year for each of the periods presented and
excludes the effect of the one-time after-tax charge of $154 million:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
For the Nine Months For the Three Months
Ended December 31, Ended December 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . $1,868,656 $ 1,771,099 $ 727,137 $ 663,409
Net income . . . . . . . . 341,988 162,149 177,991 97,301
Net income per
Common Share . . . . . . . $ 2.04 $ .94 $ 1.06 $ .57
Shares used in
computation . . . . . . . 167,988 171,907 167,778 171,936
</TABLE>
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.
<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue:
Total revenue in the quarter ended December 31, 1994 increased by 26%, or $147
million, over the prior year's comparable quarter. The increase continues to
be attributable to product revenue growth, especially in the midrange platform.
The midrange environment experienced strong year over year growth due to
increased sales of CA-Unicenter, now available on several platforms as well as
the integration of the ASK/Ingres products. Maintenance revenues increased by
$10 million, 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
decreased to 37% in the December 1994 quarter from 45% in the December 1993
quarter. This percentage reduction between the two comparable quarters
reflects the higher revenue achievement without a proportionate increase in
total fixed, variable and administrative costs, and to a lesser extent
operating efficiencies realized from the acquisition of ASK. Development
expenditures in the December 1994 quarter increased by $8 million over the
same period last year due to the additional technical staff associated with
recent acquisitions. Development expenditures capitalized during the fiscal
1995 quarter totaled $4 million, and $5 million of previously capitalized
software development expenditures was amortized in the quarter. Commissions
and royalties as a percentage of total revenue remained constant in the
December 1994 quarter over the prior year's comparable period. Depreciation
and amortization expense in the December 1994 quarter increased by $29 million
over the December 1993 quarter, due primarily to increased amortization of
purchased software and excess cost over net assets acquired
(approximately $27 million) associated with the ASK acquisition. This
incremental quarterly charge will continue for the remainder of fiscal
year 1995. In the quarter ended December 1994, net interest expense increased
by over $2 million, primarily as a result of increases in the level of loans
payable to banks and higher average interest rates.
<PAGE>
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 1994 exceeded the prior year's
comparable quarter by $87 million, or 45%, due to the higher revenue
achievement (26% increase), while costs and expenses increased by only 16%.
Similarly, pre-tax income as a percentage of total revenue increased to 39%
from 34% in the comparable prior year period as a result of reduced expense
growth and higher revenue achievement. The reduced availability of foreign
tax credits was primarily responsible for the increase in the consolidated
effective tax rate to 38% from 36% in the December 1993 quarter.
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 ASK acquisition
and the personnel and infrastructure investments necessary to capitalize on the
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 integrate acquired products and
operations.
<PAGE>
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 $30 million to $247 million during the quarter ended December
31, 1994. This decrease was primarily attributable to expenditures of $15
million for various shutdown costs related to the ASK acquisition, purchases of
$53 million of common stock under the Company's open market repurchase plan and
repayments of $107 million in bank debt offset by $145 million of cash
generated from operations. At December 31, 1994, $285 million was outstanding
under the Company's revolving credit 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
operating requirements. During the quarter ended December 31, 1994, the
Company added 1.2 million shares of Common Stock to its treasury, leaving an
additional nine million shares available for purchase under its current
program.
The Company's capital resource requirements as of the end of December 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.
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
Dated: January 31, 1995 By: Sanjay Kumar
----------------------
Sanjay Kumar, President
and Chief Operating Officer
Dated: January 31, 1995 By: Peter Schwartz
----------------------
Peter Schwartz
Sr. Vice President - Finance
(Chief Financial and
Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 79659
<SECURITIES> 167726
<RECEIVABLES> 717486
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0
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