<PAGE>
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 March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-12311
COMPUTER LANGUAGE RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1297386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2395 Midway Road, Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
(214) 250-7000
(Registrant's telephone number, including area code)
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
--- ---
Outstanding at
Class of Common Stock April 30, 1995
--------------------- --------------
$0.01 par value 13,976,630 shares
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COMPUTER LANGUAGE RESEARCH, INC.
FORM 10-Q
March 31, 1995
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I. FINANCIAL INFORMATION
1 FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets ..................................... 1-2
Consolidated Statements of Income ............................... 3
Consolidated Statements of Cash Flows ........................... 4
Notes to Consolidated Financial Statements ...................... 5-6
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................. 7-9
PART II. OTHER INFORMATION
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. 10
6 EXHIBITS AND REPORTS ON FORM 8-K ................................ 10
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands, except for per share amounts)
March 31 December 31
------------------ -------------
1995 1994 1994
-------- -------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents ............. $ 15,517 $ 16,921 $ 6,252
Short-term investments ................ 10,774 8,000 10,661
Accounts receivable, less allowance for
doubtful accounts of $706 at March 31,
1995, $1,164 at March 31, 1994, and
$662 at December 31, 1994 ............ 17,433 20,592 20,731
Other current assets .................. 3,812 4,687 4,610
-------- -------- --------
Total current assets ................ 47,536 50,200 42,254
-------- -------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land .................................. 3,077 3,100 3,077
Buildings and improvements ............ 16,786 16,070 16,910
Data processing equipment ............. 32,295 37,391 34,161
Machinery and equipment ............... 5,961 6,596 6,176
Furniture and fixtures ................ 2,413 2,466 2,423
-------- -------- --------
60,532 65,623 62,747
Less accumulated depreciation ......... 39,151 43,239 41,198
-------- -------- --------
Net property and equipment .......... 21,381 22,384 21,549
-------- -------- --------
OTHER NONCURRENT ASSETS:
Software, net of accumulated amortiza-
tion of $18,825 at March 31, 1995,
$15,476 at March 31, 1994, and
$17,620 at December 31, 1994 ......... 13,976 7,313 13,780
Intangibles and other assets, net of
accumulated amortization of $4,185
at March 31, 1995, $2,779 at
March 31, 1994, and $3,879
at December 31, 1994 ................. 5,884 6,470 6,510
-------- -------- --------
Total other noncurrent assets ....... 19,860 13,783 20,290
-------- -------- --------
Total assets ....................... $ 88,777 $ 86,367 $ 84,093
======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
1
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except for per share amounts)
March 31 December 31
------------------ -------------
1995 1994 1994
-------- -------- -------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations ............ $ -- $ 5,756 $ --
Accounts payable ...................... 1,387 1,401 3,052
Accrued compensation, payroll taxes,
and benefits ......................... 5,518 3,564 6,846
Deferred revenue ...................... 7,018 6,703 4,221
Accrued support ....................... 1,862 713 2,787
Income taxes payable .................. 2,900 3,251 --
Other current liabilities ............. 2,111 3,319 4,220
-------- -------- --------
Total current liabilities ........... 20,796 24,707 21,126
-------- -------- --------
NONCURRENT LIABILITIES:
Long-term debt ........................ -- 2,000 --
Deferred income taxes and other
liabilities .......................... 4,639 3,782 4,648
-------- -------- --------
Total noncurrent liabilities ........ 4,639 5,782 4,648
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1 per share par
value, 10,000 shares authorized;
none outstanding ..................... -- -- --
Common stock, $0.01 per share par
value, 40,000 shares authorized;
14,779 shares issued at March 31,
1995, 14,685 shares issued at
March 31, 1994, and 14,756
shares issued at
December 31, 1994 .................... 148 147 147
Capital in excess of par value ........ 32,229 31,723 32,086
Retained earnings ..................... 36,231 29,272 31,352
Treasury stock at cost, 810 shares .... (5,266) (5,264) (5,266)
-------- -------- --------
Total shareholders' equity .......... 63,342 55,878 58,319
-------- -------- --------
Total liabilities and shareholders'
equity ............................ $ 88,777 $ 86,367 $ 84,093
======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
2
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share amounts)
(Unaudited)
Three Months Ended
March 31
------------------
1995 1994
-------- --------
Revenues ............................................. $ 33,957 $ 32,466
-------- --------
Costs and expenses:
Cost of revenues .................................... 15,715 15,405
Selling, general, and administrative ................ 9,252 8,942
-------- --------
Total costs and expenses .......................... 24,967 24,347
-------- --------
Operating income ..................................... 8,990 8,119
Interest income ...................................... 269 199
Interest expense ..................................... 10 169
(Loss) gain on disposals of property and equipment ... (20) 538
-------- --------
Income before income taxes ........................... 9,229 8,687
Provision for income taxes ........................... 2,953 3,322
-------- --------
Net income ........................................... $ 6,276 $ 5,365
======== ========
Earnings per share ................................... $ 0.44 $ 0.38
======== ========
Dividends per share .................................. $ 0.10 $ 0.08
======== ========
Weighted average number of common and common
equivalent shares outstanding ....................... 14,392 14,276
======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
3
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31
------------------
1995 1994
-------- --------
OPERATING ACTIVITIES:
Net income .......................................... $ 6,276 $ 5,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 2,924 2,760
Loss (gain) on disposals of property and equipment 20 (538)
Changes in assets and liabilities, net of effect
of acquisition:
Decrease in accounts receivable ................. 3,298 715
Decrease in other current assets ................ 798 658
Decrease in other assets ........................ 320 275
Decrease in accounts payable .................... (1,665) (776)
Decrease in accrued compensation, payroll taxes,
and benefits ................................... (1,328) (1,152)
Increase in deferred revenue .................... 2,797 3,144
Decrease in accrued support ..................... (925) --
Increase in income taxes payable ................ 2,900 2,930
Decrease in other current liabilities ........... (1,420) (1,135)
Decrease in deferred income taxes and other
liabilities .................................... (9) (3)
-------- --------
Net cash provided by operating activities ..... 13,986 12,243
-------- --------
INVESTING ACTIVITIES:
Purchases of short-term investments ................. (113) (8,098)
Proceeds from sale of short-term investments ........ -- 12,361
Disposals of property and equipment ................. 77 868
Capital expenditures ................................ (1,342) (281)
Additions to software ............................... (1,401) (904)
Cash paid for acquisition ........................... (689) --
-------- --------
Net cash (used) provided by investing activities (3,468) 3,946
-------- --------
FINANCING ACTIVITIES:
Payments on long-term debt and capital lease
obligations ........................................ -- (738)
Proceeds from issuance of common stock .............. 144 155
Payment of dividends ................................ (1,397) (1,109)
-------- --------
Net cash used by financing activities ......... (1,253) (1,692)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............ 9,265 14,497
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 6,252 2,424
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 15,517 $ 16,921
======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
4
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COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
During interim periods, the Company follows the accounting policies set
forth in its Annual Report and its Report on Form 10-K filed with the
Securities and Exchange Commission. Users of financial information
produced for interim periods are encouraged to refer to the footnotes
contained in the Annual Report when reviewing interim financial results.
In the opinion of management, the accompanying financial statements include
all material adjustments necessary (consisting only of normal recurring
accruals) for a fair presentation of the Company's consolidated financial
position and results of operations. The results of operations for the
three-month period ended March 31, 1995, are not necessarily indicative of
the results to be expected for the full year. Certain prior period amounts
have been reclassified to be consistent with the presentation in the
current period statements.
2. RELATED PARTY GUARANTEE
The Company is currently guarantor for repayment of up to $2.0 million
related to a four-year bank loan made to the Company's President effective
September 24, 1993. In this regard the Company has caused to be issued a
letter of credit in favor of the lender for the amount of the guarantee
under its own bank line of credit. The President is obligated to reimburse
the Company for any amount it may be required to pay in honoring the
guarantee. He has collateralized that obligation with shares of the
Company's common stock with a market value, at March 31, 1995,
substantially in excess of the Company's guarantee.
3. EARNINGS PER SHARE
Earnings per share for the three-month period ended March 31, 1995, was
computed based upon the weighted average number of shares of common stock
and common stock equivalents outstanding.
4. INCOME TAXES
Income tax expense for the three months ended March 31, 1995, is
approximately 32.0% of income before taxes compared to 38.2% in 1994. The
lower tax rate in 1995 is due to the issuance of final regulations under
the Research and Experimentation Credit. The Company has undergone a
study and has determined that more of its research activities will qualify
as Research and Experimentation under these regulations.
5
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
March 31, 1995
(Unaudited)
5. SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash equivalents are considered to be
temporary cash investments purchased with a maturity of three months or
less.
Supplemental schedules of cash payments are provided below (in thousands):
Three Months Ended
----------------
March 31
--------
1995 1994
------ ------
Interest (net of amounts capitalized) ............. $ 8 $ 157
Income taxes (net of refunds) ..................... 341 591
6. DIVIDENDS
On March 27, 1995, the Company paid a $1.4 million dividend at the rate of
$0.10 per share to shareholders of record on March 10, 1995. There were
14.0 million shares outstanding on March 10, 1995.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Consolidated Statements of Income expressed as a percentage of revenues.
Percentage of
Total Revenues
------------------
Three Months Ended
------------------
March 31
------------------
1995 1994
------ ------
Revenues .............................................. 100.0 % 100.0 %
----- -----
Costs and expenses:
Cost of revenues ..................................... 46.3 47.4
Selling, general, and administrative ................. 27.2 27.6
----- -----
Total costs and expenses ............................ 73.5 75.0
----- -----
Operating income ...................................... 26.5 25.0
Interest income ....................................... 0.8 0.6
Interest expense ...................................... -- 0.5
(Loss) gain on disposals of property and equipment .... (0.1) 1.7
----- -----
Income before income taxes ............................ 27.2 26.8
Provision for income taxes ............................ 8.7 10.2
----- -----
Net income ............................................ 18.5 % 16.6 %
===== =====
REVENUES AND EXPENSES: FIRST QUARTER OF 1995 COMPARED TO FIRST QUARTER OF 1994
Revenues for the quarter ended March 31, 1995, increased by $1.5 million or 4.6%
to $34.0 million from $32.5 million for the same period in 1994.
Trade revenues from the tax business segment increased to $32.3 million in 1995
from $29.7 million in 1994 due to the acquisition discussed below, increased
revenues from accounting firms and banks offset by lower revenues from
corporations. Revenue from accounting firms increased in 1995 reversing the
downward revenue trend experienced in prior years primarily due to competitive
pricing pressures.
The Company's 1995 tax business revenues include revenues of approximately $1.6
million from the former Prentice-Hall Professional Software, Inc. operation
("PHPS") which was acquired effective December 1, 1994.
Trade revenues from the electronic form systems business segment decreased to
$1.7 million in 1995 from $2.8 million in 1994 due to significantly lower
systems sales.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Cost of revenues were $15.7 million or 46.3% of revenues in 1995 compared to
$15.4 million or 47.4% of revenues in 1994. Selling, general, and
administrative expenses were $9.3 million or 27.2% of revenues in 1995 compared
to $8.9 million or 27.6% of revenues in 1994. As anticipated, higher costs and
expenses in 1995 were primarily due to the PHPS acquisition and increased
expenditures for product development. Partially offsetting the increase in
total costs and expenses was a decline in costs due to lower systems sales since
the Company's cost of revenues are substantially greater on systems sales than
on service and software sales.
In March 1995, the Company entered into a five-year equipment maintenance
agreement with Halifax Corporation (the "Agreement") in order to reduce the
costs of providing personal computer maintenance. As called for by the
Agreement, Halifax Corporation purchased the Company's spare parts inventory and
will provide nationwide services for the Company's customers' computer systems
covered by maintenance contracts as well as the Company's own internal computer
systems.
Operating profits in the tax business segment increased to $9.9 million in 1995
from $9.3 million in 1994. The increase in revenues in the tax business segment
was partially offset by increased costs and expenses. Operating profits in the
electronic form systems business segment were approximately $100,000 in both
1995 and 1994 because this segment's lower revenues were offset by lower costs
and expenses.
INTEREST, DISPOSALS OF PROPERTY AND EQUIPMENT, AND PROVISION FOR TAXES
Interest income increased in the first quarter of 1995 compared to the same
quarter in 1994 due to higher balances of cash equivalents and short-term
investments as well as higher interest rates in 1995. Interest expense declined
in 1995 due to reduced debt levels. Gain on disposals of property and equipment
decreased from 1994 due to the sale of land and equipment in 1994.
The estimated income tax expense for the first three months of 1995 declined to
32.0% of income before taxes from 38.2% in 1994 due to the issuance of final
regulations under the Research and Experimentation Credit. The Company has
undergone a study and has determined that more of its research activities will
qualify as Research and Experimentation under these regulations.
NET RESULTS
The impact on the Company of all the changes described above was to increase net
income by $900,000 or 17.0% to $6.3 million or $0.44 per share in 1995 from $5.4
million or $0.38 per share in 1994.
The Company's second and third quarter operating results are expected to be
lower than last year due to seasonal revenue changes and higher overall product
development expenses. However, the Company's operating results for the full
year are expected to improve in line with the rate of improvement achieved in
the first quarter.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
LIQUIDITY AND CAPITAL RESOURCES
The net increase in cash and cash equivalents was $5.2 million lower at the end
of the first quarter of 1995 compared to the same period in 1994 due to
increased net cash used by investing activities of $7.4 million offset by
increased net cash provided by operating activities of approximately $1.8
million and decreased net cash used by financing activities of $400,000. Net
cash used by investing activities increased primarily due to net proceeds of
$4.3 million from the sale of short-term investments in 1994 (there were no
sales of short-term investments in the first quarter of 1995), increased capital
expenditures, increased additions to software, and the final PHPS acquisition
payment in 1995. The increase in net cash from operations was primarily
attributable to net working capital fluctuations in the ordinary course of
business. Net cash used by financing activities decreased in 1995 due to debt
payments in 1994 (there were none in 1995) offset by increased dividend payments
in 1995.
The Company made investments in property and equipment of $1.3 million in the
first three months of 1995 compared to $300,000 for the same period in 1994. It
is anticipated that investments in property and equipment will be approximately
$5.5 million for the year ended December 31, 1995.
During the first three months of 1995, the Company capitalized $1.2 million of
software development costs compared to $800,000 for the same period in 1994. As
anticipated, capitalized software development costs increased in 1995 due to the
accelerated development of Microsoft(REGISTERED) Windows(TM) applications.
At March 31, 1995, the Company had a maximum line of credit commitment from two
banks of $12.0 million. Availability under the $12.0 million credit facility is
reduced by the $2.0 million letter of credit referred to in Note 2 in the Notes
to Consolidated Financial Statements. Applying the availability formula
contained in the loan agreement, a maximum of $7.2 million was available to the
Company as of March 31, 1995. There were no borrowings outstanding under the
credit line at March 31, 1995, March 31, 1994, or December 31, 1994. The $12.0
million facility expires in June 1996. The availability of this line of credit,
together with funds generated from operations, is expected to be sufficient for
seasonal liquidity requirements and capital needs of the Company.
The Company had no long-term debt or capital lease obligations at March 31,
1995, or December 31, 1994. Long-term debt and capital lease obligations,
including the current portion, was $7.8 million at March 31, 1994.
On March 27, 1995, the Company paid a $1.4 million dividend at the rate of $0.10
per share to shareholders of record on March 10, 1995. At its May 2, 1995,
meeting, the Board of Directors declared a dividend for the second quarter of
1995 at a rate of $0.10 per share. The dividend is payable June 5, 1995, to
shareholders of record on May 18, 1995.
9
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PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 2, 1995, for
the purpose of electing a board of directors and voting on a proposal to approve
the Computer Language Research, Inc. Non-Employee Directors' 1994 Stock Option
Plan and to authorize issuance of an aggregate of 250,000 shares of the
Company's common stock for the plan. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was
no solicitation in opposition to management's solicitations. All of
management's nominees for directors as listed in the proxy statement were
elected.
The proposal to approve the Computer Language Research, Inc. Non-Employee
Directors' 1994 Stock Option Plan was passed by the following vote:
Shares Voted Shares Voted Shares Voted
"FOR" "AGAINST" "ABSTAINING"
- ------------ ------------ ------------
13,291,925 91,209 7,390
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27. Financial Data Schedule
(b) During the quarter ended March 31, 1995, the Company was not required to
file a Form 8-K with the Securities and Exchange Commission.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER LANGUAGE RESEARCH, INC.
DATE: May 8, 1995 By M. Brian Healy
--------------------------------------------
M. Brian Healy
Group Vice President, Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS PRESENTED IN THE 1ST QUARTER 1995
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 15,517
<SECURITIES> 10,774
<RECEIVABLES> 18,139
<ALLOWANCES> 706
<INVENTORY> 0
<CURRENT-ASSETS> 47,536
<PP&E> 60,532
<DEPRECIATION> 39,151
<TOTAL-ASSETS> 88,777
<CURRENT-LIABILITIES> 20,796
<BONDS> 0
<COMMON> 148
0
0
<OTHER-SE> 63,194
<TOTAL-LIABILITY-AND-EQUITY> 88,777
<SALES> 33,957
<TOTAL-REVENUES> 33,957
<CGS> 15,715
<TOTAL-COSTS> 15,715
<OTHER-EXPENSES> 9,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 9,229
<INCOME-TAX> 2,953
<INCOME-CONTINUING> 6,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,276
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
