<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 June 30, 1996
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 July 31, 1996
--------------------- -------------
$0.01 par value 14,247,279 shares
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
FORM 10-Q
June 30, 1996
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I. FINANCIAL INFORMATION
1 FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets .................................. 1-2
Consolidated Statements of Operations ........................ 3
Consolidated Statements of Cash Flows ........................ 4
Notes to Consolidated Financial Statements ................... 5-7
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......................... 8-14
PART II. OTHER INFORMATION
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......... 15
6 EXHIBITS AND REPORTS ON FORM 8-K ............................. 15
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
June 30 December 31
------------------ -------------
1996 1995 1995
-------- -------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents ............. $ 12,183 $ 30,123 $ 13,641
Short-term investments ................ -- 6,000 --
Accounts receivable, less allowance
for doubtful accounts of $970 at
June 30, 1996, $708 at June 30, 1995,
and $608 at December 31, 1995 ........ 18,354 10,739 26,615
Current deferred taxes ................ 2,110 2,013 2,093
Other current assets .................. 4,478 1,342 1,584
-------- -------- --------
Total current assets ................ 37,125 50,217 43,933
-------- -------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land .................................. 2,584 3,077 2,584
Buildings and improvements ............ 16,857 16,788 16,787
Data processing equipment ............. 34,837 31,338 32,010
Furniture, fixtures, and equipment .... 8,553 8,106 8,608
-------- -------- --------
62,831 59,309 59,989
Less accumulated depreciation ......... 41,423 38,412 39,527
-------- -------- --------
Net property and equipment .......... 21,408 20,897 20,462
-------- -------- --------
OTHER NONCURRENT ASSETS:
Software, net of accumulated amortiza-
tion of $24,066 at June 30, 1996,
$19,828 at June 30, 1995, and
$21,874 at December 31, 1995 ......... 23,985 15,984 20,087
Intangibles and other assets, net of
accumulated amortization of $6,817
at June 30, 1996, $4,749 at
June 30, 1995, and $5,219
at December 31, 1995 ................. 18,038 9,979 14,578
-------- -------- --------
Total other noncurrent assets ....... 42,023 25,963 34,665
-------- -------- --------
Total assets ...................... $100,556 $ 97,077 $ 99,060
======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
1
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
June 30 December 31
------------------ -------------
1996 1995 1995
-------- -------- -------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt ..... $ 750 $ 750 $ 750
Accounts payable ...................... 1,723 1,569 1,549
Accrued compensation, payroll taxes,
and benefits ......................... 6,887 5,176 8,634
Deferred revenue ...................... 14,420 8,790 10,296
Accrued support ....................... 1,837 1,298 2,133
Income taxes payable .................. -- 3,107 29
Other current liabilities ............. 4,938 2,505 4,708
-------- -------- --------
Total current liabilities ........... 30,555 23,195 28,099
-------- -------- --------
NONCURRENT LIABILITIES:
Long-term debt ........................ 563 1,313 937
Other liabilities ..................... 4,757 813 3,270
Deferred income taxes ................. 1,446 3,913 1,205
-------- -------- --------
Total noncurrent liabilities ........ 6,766 6,039 5,412
-------- -------- --------
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;
15,057 shares issued at June 30,
1996, 14,851 shares issued at
June 30, 1995, and 14,942
shares issued at December 31, 1995 ... 150 148 149
Capital in excess of par value ........ 34,206 32,640 33,271
Retained earnings ..................... 34,145 40,321 37,395
Treasury stock at cost, 810 shares .... (5,266) (5,266) (5,266)
-------- -------- --------
Total shareholders' equity .......... 63,235 67,843 65,549
-------- -------- --------
Total liabilities and shareholders'
equity ........................... $100,556 $ 97,077 $ 99,060
======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
2
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues ......................... $ 26,886 $ 21,123 $ 62,733 $ 53,356
-------- -------- -------- --------
Costs and expenses:
Cost of revenues ................ 14,149 11,569 32,844 26,548
Selling, general, and
administrative ................. 14,722 8,777 27,309 17,182
Charge for purchased research
and development ................ -- -- 3,498 --
-------- -------- -------- --------
Total costs and expenses ...... 28,871 20,346 63,651 43,730
-------- -------- -------- --------
Operating income (loss) .......... (1,985) 777 (918) 9,626
Interest income .................. 186 393 351 659
Interest expense ................. 26 -- 50 8
Gain (loss) on disposals of
property and equipment .......... 2 (42) (17) (54)
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes .. (1,823) 1,128 (634) 10,223
Provision (benefit) for income
taxes ........................... (638) 344 (222) 3,254
-------- -------- -------- --------
Income (loss) from continuing
operations ...................... (1,185) 784 (412) 6,969
Discontinued operations:
Income (loss) from discontinued
operations, net of tax ......... -- (15) -- 76
Gain on disposal of discontinued
operations, net of tax ......... -- 4,720 -- 4,720
-------- -------- -------- --------
Net income (loss) ................ $ (1,185) $ 5,489 $ (412) $ 11,765
======== ======== ======== ========
Earnings (loss) per share from
continuing operations ........... $ (0.08) $ 0.05 $ (0.03) $ 0.49
Earnings per share from
discontinued operations ......... -- 0.33 -- 0.33
-------- -------- -------- --------
Earnings (loss) per share ........ $ (0.08) $ 0.38 $ (0.03) $ 0.82
======== ======== ======== ========
Dividends per share .............. $ 0.10 $ 0.10 $ 0.20 $ 0.20
======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding ..................... 14,214 14,323 14,182 14,358
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
3
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30
------------------
1996 1995
-------- --------
OPERATING ACTIVITIES:
Income (loss) from continuing operations ............... $ (412) $ 6,969
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation and amortization ........................ 8,915 5,973
Loss on disposals of property and equipment .......... 17 54
Charge for purchased research and development ........ 3,498 --
Changes in assets and liabilities, net of effect
of acquisitions ..................................... 5,621 9,877
-------- --------
Net cash provided by operating activities ......... 17,639 22,873
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ................................... (3,866) (2,774)
Additions to software .................................. (3,998) (3,654)
Cash paid for acquisitions ............................. (8,979) (4,280)
Net proceeds from sale of discontinued operations ...... -- 3,297
Purchases of short-term investments .................... -- (160)
Proceeds from sale of short-term investments ........... -- 10,821
Disposals of property and equipment .................... 22 176
-------- --------
Net cash provided by (used in) investing
activities ....................................... (16,821) 3,426
-------- --------
FINANCING ACTIVITIES:
Payments on long-term debt ............................. (374) (187)
Proceeds from exercise of common stock options ......... 936 555
Payments of dividends .................................. (2,838) (2,796)
-------- --------
Net cash used in financing activities ............. (2,276) (2,428)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .... (1,458) 23,871
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 13,641 6,252
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 12,183 $ 30,123
======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
4
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not
include all of the information and footnote disclosure required by
generally accepted accounting principles for complete financial statements.
During interim periods, the Company follows the accounting policies set
forth in its Annual 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 on Form 10-K 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 six-
month period ended June 30, 1996, 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. ACQUISITIONS
Since December 31, 1995, the Company has completed six acquisitions at a
total cost of approximately $13.2 million, which consisted of $9.0 million
in cash paid at closing and accruals of $4.2 million for miscellaneous
payables, and noncompetes and employment bonuses agreed upon by certain
owners and key employees of the acquired businesses.
Based on appraised value, a portion of the combined purchase price was
allocated to purchased research and development ("R&D") which had not
reached technological feasibility and had no alternative future use. The
allocation resulted in a $3.5 million charge to the Company's operations in
the first quarter of 1996. The remainder of the combined purchase price
was allocated $1.6 million to accounts receivable and other assets, $3.6
million to software, and $4.5 million to intangibles.
All acquisitions are being financed from the Company's cash flow and have
been accounted for using the purchase method of accounting. The results of
their operations have been included in the Company's Consolidated Financial
Statements since their respective acquisition dates.
The following acquisitions were made for the Company's Fast-Tax business:
On January 5, 1996, the Company acquired substantially all of the assets of
E. F. Haskell & Associates, Inc., a privately held Arizona corporation
marketing practice management and write-up software to the accounting
industry.
5
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1996
(Unaudited)
On March 19, 1996, the Company acquired substantially all of the assets of
Axtell, Inc., a privately held Arizona based corporation that provides
Windows(REGISTERED)-based client/server fixed asset management software and
services to corporations.
The following acquisitions were completed by the Company's wholly-owned
subsidiary, Rent Roll, Inc. ("Rent Roll"):
On January 4, 1996, Rent Roll acquired the capital stock of Credit
Interfaces, Inc., a privately held California corporation, which provides
applicant screening and other information services to the apartment housing
market.
On January 22, 1996, Rent Roll acquired substantially all of the assets of
Project Data Systems, Inc., a California business which supplies software
and services for the compliance, tracking, and reporting requirements of
the affordable housing market.
On March 18, 1996, Rent Roll acquired substantially all of the assets of
Renter Index, Inc., a privately held Dallas based corporation which
provides applicant screening and other information services to the
apartment housing market in Texas.
As of March 29, 1996, Rent Roll acquired substantially all of the assets of
Crystal Solutions, LLC, a South Carolina limited liability company, which
sells residential property management software and services to the
multifamily housing market.
The following unaudited pro forma summary presents the consolidated results
of operations for the six months ended June 30, 1996, and 1995, as if the
above acquisitions had occurred as of the beginning of each period
presented, after giving effect to certain adjustments which include
amortization of assets acquired, decreased interest income due to
acquisition costs, and the related income tax effects. The results of both
periods presented include the $3.5 million charge for purchased R&D. In
order to provide meaningful pro formas, the results include not only those
acquisitions made during the first quarter of 1996, but also include
comparative financial information for the Sequel McGladrey, Rent Roll,
Inc., and TMS business acquisitions made in April, June, and December 1995,
respectively. These pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of what the actual results
of operations would have been had the acquisitions been made as of those
dates, nor does it purport to represent future operations of the Company.
6
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
June 30, 1996
(Unaudited)
(In thousands, except per share amounts) 1996 1995
---------------------------------------- -------- --------
Revenue $ 63,791 $ 63,995
Loss from continuing operations $ (673) $ (1,075)
Net income (loss) $ (673) $ 3,721
Loss per share from continuing operations $ (0.05) $ (0.07)
Earnings (loss) per share $ (0.05) $ 0.26
3. DISCONTINUED OPERATIONS
In June 1995, the Company sold substantially all of the assets of its
wholly-owned subsidiary, Electronic Form Systems Incorporated ("EFS"). As
consideration for the sale, the Company received cash of $3.8 million and
shares of the buyer's common stock valued at $6.0 million, which were
subsequently sold on the open market with an immaterial gain. The sale
resulted in a gain of $4.7 million, net of taxes.
4. INCOME TAXES
Income tax expense for the six months ended June 30, 1996, is approximately
35.0% of income before taxes compared to 32.0% in 1995. The lower tax rate
in 1995 is due to the Research and Experimentation Credit regulation in
effect in 1995. The Company determined that some of its research
activities qualified as Research and Experimentation under these
regulations. Congress has reinstated the research tax credit effective
August 1996, but the benefit is expected to be lower than in 1995.
5. DIVIDENDS
On May 30, 1996, the Company paid a $1.4 million dividend at the rate of
$0.10 per share to shareholders of record on May 15, 1996. There were 14.2
million shares issued and outstanding on May 15, 1996.
7
<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 Six Months Ended
June 30 June 30
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
Revenues .................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses:
Cost of revenues ........... 52.6 54.8 52.4 49.8
Selling, general, and
administrative ............ 54.8 41.5 43.5 32.2
Charge for purchased
research and development .. -- -- 5.6 --
----- ----- ----- -----
Total costs and expenses . 107.4 96.3 101.5 82.0
----- ----- ----- -----
Operating income (loss)...... (7.4) 3.7 (1.5) 18.0
Interest income ............. 0.7 1.8 0.6 1.2
Interest expense ............ 0.1 -- 0.1 --
Loss on disposals of property
and equipment .............. -- (0.2) -- (0.1)
----- ----- ----- -----
Income (loss) from continuing
operations before taxes .... (6.8) 5.3 (1.0) 19.1
Provision (benefit) for
income taxes ............... (2.4) 1.6 (0.3) 6.0
----- ----- ----- -----
Income (loss) from continuing
operations ................. (4.4) 3.7 (0.7) 13.1
Discontinued operations:
Income from discontinued
operations ................ -- -- -- 0.1
Gain on disposal of dis-
continued operations ...... -- 22.3 -- 8.9
----- ----- ----- -----
Net income (loss) ........... (4.4)% 26.0% (0.7)% 22.1%
===== ===== ===== =====
COMPANY ACTIVITIES
Since December 31, 1995, the Company, together with its wholly-owned subsidiary,
Rent Roll, Inc., have completed six acquisitions at a total cost of
approximately $13.2 million. Four of the acquisitions enhance Rent Roll's
existing apartment housing software and services. The remainder were acquired
for the tax business. For additional details see Note 2 in the Notes to
Consolidated Financial Statements.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
These acquisitions, as well as acquisitions made in 1994 and 1995, have a
significant impact on the comparability of financial results. Effects from
these acquisitions tend to adversely distort reported performance and may span
more than one year before more normalized operating results become evident. The
more important of these effects are as follows:
o Charge for in-process research and development ("R&D") costs.
o Amortization of purchase price related to the acquired business (see
additional details below).
o Deferral of revenue. This is particularly acute where a significant
component of revenues from an acquired business is reported ratably (e.g.,
annual maintenance contracts). It generally takes a full year following
acquisition for there to be a full year of revenue to offset a full year of
operating expenses.
o Lost revenue and additional expense incurred during the adjustment period
in which the new business is being assimilated.
o Increased product development costs of maintaining and integrating the
acquired products.
RESULTS OF OPERATING INCOME (LOSS)
Year-to-date operating income for the Fast-Tax business, before acquisition
charges ($2.4 million), was $10.3 million, a decrease of $3.1 million compared
to 1995. The year-to-date operating loss for the Rent Roll business, before
acquisition charges ($5.5 million), was $0.7 million, a decrease of $0.8 million
compared to 1995.
These decreases are primarily attributable to a significant increase in
operating expenses related to the newly acquired businesses without the benefit
of comparable offsetting revenues. Current year revenues are higher than the
corresponding periods of 1995, which is attributable to acquisitions, but the
growth has occurred at a lower rate than the increase in operating costs and
expenses related to acquired companies. These expenses include a higher level
of expenditures necessary to achieve a smooth assimilation of the nine
acquisitions which have been completed in 1995 and 1996.
As discussed in more detail below, results presented were below Company
expectations, due to lower than expected revenues from both the Fast-Tax and
Rent Roll businesses. The Company expects current year revenue growth of 20% -
25%, and anticipates that operating income for 1996, excluding amortization and
other acquisition related charges, will be approximately the same as 1995 (see
the Safe Harbor statement below). We expect third quarter operating income to
be better than the second quarter, but we expect the real improvement to occur
in the fourth quarter.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
REVENUES AND EXPENSES
Total revenues for the second quarter ended June 30, 1996, increased by $5.8
million or 27.3% to $26.9 million from $21.1 million for the same period in
1995. Year-to-date revenues for 1996 have increased $9.3 million or 17.6% to
$62.7 million from $53.4 million in 1995. The acquisitions discussed above are
responsible for the growth in revenue.
Cost of revenues was $14.2 million or 52.6% of revenues in the second quarter of
1996 compared to $11.5 million or 54.8% of revenues in 1995. Selling, general,
and administrative expenses were $14.7 million or 54.8% of revenues for the
second quarter of 1996 compared to $8.8 million or 41.5% of revenues in 1995.
Year-to-date cost of revenues increased from $26.5 million or 49.8% of revenues
in 1995 to $32.8 million or 52.4% of revenues in 1996. Year-to-date selling,
general, and administrative expenses increased from $17.2 million or 32.2% of
revenues in 1995 to $27.3 million or 43.5% of revenues in 1996. The higher
costs and expenses in 1996 are solely attributable to acquisitions made in 1995
(see additional details below).
FAST-TAX BUSINESS
Revenues from the tax business increased in the second quarter by $2.5 million
(12.0%) from $20.6 million in 1995 to $23.1 million in 1996. Year-to-date
revenues increased $3.6 million (6.9%) from $52.3 million in 1995 to $55.9
million in 1996.
Operating expenses increased in the second quarter by $3.9 million (21.0%) from
$18.5 million in 1995 to $22.4 million in 1996. Year-to-date operating expenses
increased $7.8 million (19.6%) from $40.2 million in 1995 to $48.0 million in
1996.
The resulting decrease in profit, for both the second quarter and year-to-date,
is due to the acquisition effects which are discussed above, primarily the
operating loss from the tax compliance software business which was acquired from
Price Waterhouse LLP in December 1995 (TMS acquisition), combined with the
amortization of its purchase price and other acquisition related charges.
Currently, revenue from the tax business is not meeting the Company's
expectations with some of the revenue expected to be recognized in the third and
fourth quarters.
During the second quarter of 1996, total tax software development costs were
$7.3 million, of which the Company capitalized $1.9 million. For the first six
months of 1996, total costs were $15.5 million, of which the Company capitalized
$3.6 million. Amortization of capitalized software development costs for the
first six months was $1.5 million, resulting in net tax software development
costs of $13.4 million compared to $11.6 million for the same period in 1995.
Increased development costs are attributable to Windows(REGISTERED)
client/server development and expenses incurred to maintain and integrate
products marketed by acquired companies.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RENT ROLL BUSINESS
Revenues from the apartment housing software and services business increased
$3.3 million from $0.5 million in the second quarter of 1995 to $3.8 million for
the same period in 1996. Year-to-date revenues increased $5.7 million from $1.1
million in 1995 to $6.8 million in 1996. Increased revenue was primarily
attributable to acquisitions. Currently, revenue is not meeting the Company's
expectations primarily due to delays in releasing certain Windows-based
products. The Company plans to release the Windows products in the third and
fourth quarters.
Operating expenses increased $4.6 million from $0.6 million in the second
quarter of 1995 to $5.2 million in the second quarter of 1996. Year-to-date
operating expenses increased $11.7 million from $1.3 million in 1995 to $13.0
million in 1996. Of the year-to-date increase, $5.2 million is related to the
amortization of capitalized acquisition costs and the write-off of in-process
R&D (see Note 2 in the Notes to Consolidated Financial Statements). The
remaining portion of the increase is attributable to the increase in operating
expenses related to the integration of acquisitions and new product development.
During the first six months of 1996 total software development costs were $1.1
million compared to $0.4 million for the same period in 1995. The Company is
currently expensing all software development costs incurred by the apartment
housing software and services business since this business is newer and
technological feasibility is less certain than development undertaken in the
more mature tax business. Increased development costs are attributable to
Windows client/server development and expenses incurred to maintain and
integrate products marketed by acquired companies.
BUSINESS RESULTS
2nd Quarter
--------------------------------------------------------
Fast-Tax Real Estate Corporate Total
----------- ----------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenues $23.1 $20.6 $ 3.8 $ 0.5 $ -- $ -- $26.9 $21.1
---- ---- ---- ---- ---- ---- ---- ----
Operations 21.2 17.8 4.2 0.4 1.3 1.2 26.7 19.4
Acquisition related 1.2 0.7 1.0 0.2 -- -- 2.2 0.9
---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses 22.4 18.5 5.2 0.6 1.3 1.2 28.9 20.3
---- ---- ---- ---- ---- ---- ---- ----
Operating income
(loss) $ 0.7 $ 2.1 $(1.4) $(0.1) $(1.3) $(1.2) $(2.0) $ 0.8
==== ==== ==== ==== ==== ==== ==== ====
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Year-to-Date
----------------------------------------------------------
Fast-Tax Real Estate Corporate Total
----------- ----------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenues $55.9 $52.3 $ 6.8 $ 1.1 $ -- $ -- $62.7 $53.4
---- ---- ---- ---- ---- ---- ---- ----
Operations 45.6 38.9 7.5 1.0 2.6 2.3 55.7 42.2
Acquisition related 2.4 1.3 5.5 0.3 -- -- 7.9 1.6
---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses 48.0 40.2 13.0 1.3 2.6 2.3 63.6 43.8
---- ---- ---- ---- ---- ---- ---- ----
Operating income
(loss) $ 7.9 $12.1 $(6.2) $(0.2) $(2.6) $(2.3) $(0.9) $ 9.6
==== ==== ==== ==== ==== ==== ==== ====
PROVISION (BENEFIT) FOR TAXES
Estimated income tax expense (benefit) for the first six months of 1996
increased to 35.0% of income before taxes from 32.0% in 1995. The lower tax
rate in 1995 is due to the Research and Experimentation Credit regulation in
effect in 1995. The Company determined that some of its research activities
qualified as Research and Experimentation under these regulations. Congress has
reinstated the research tax credit effective August 1996, but the benefit is
expected to be lower than in 1995.
NET RESULTS FROM CONTINUING OPERATIONS
The impact on the Company of all of the above was to decrease second quarter
income from continuing operations by $2.0 million from $0.8 million income or
$0.05 per share in 1995 to a $1.2 million loss or $(0.08) per share in 1996.
The second quarter results brought the 1996 year-to-date earnings to a loss from
continuing operations of $0.4 million or $(0.03) per share, a decrease of $7.4
million from the 1995 income from continuing operations of $7.0 million or $0.49
per share.
The decrease in income from continuing operations is primarily attributable to:
(i) the increase in amortization and other charges related to acquisitions of
$0.9 million, net of tax, ($0.06 per share) for the quarter and $4.1 million,
net of tax, ($0.29 per share) for the year, and (ii) a significant increase in
operating expenses related to the newly acquired businesses without the benefit
of comparable offsetting revenue.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
DISCONTINUED OPERATIONS
On June 23, 1995, the Company sold substantially all of the assets of its
wholly-owned subsidiary, Electronic Form Systems Incorporated, reported
previously as the electronic form systems business segment.
LIQUIDITY AND CAPITAL RESOURCES
The first six months of 1996 saw a net decrease in cash and cash equivalents of
approximately $1.5 million, compared with a net increase of $23.9 million for
the same period of 1995. The decrease is primarily due to a $20.2 million
increase in cash used in investing activities combined with a $5.2 million
decrease in net cash provided by operating activities.
The decrease in net cash provided by operating activities is primarily due to
net working capital fluctuations in the ordinary course of business. The
increase in net cash used by investing activities is due to an increase in cash
paid for acquisitions of $4.7 million, the absence of $3.3 million in proceeds
from the sale of discontinued operations, an increase in capital expenditures
and software additions of $1.4 million, and in 1995 the Company sold $10.8
million in short-term investments. The decrease in cash used in financing
activities was negligible.
The Company made investments in property and equipment of $3.9 million in the
first six months of 1996 compared to $2.8 million for the same period in 1995.
The Company anticipates that investments in property and equipment will be
approximately $7.0 million for the year ended December 31, 1996.
On December 21, 1995, the Company entered into a $20.0 million revolving
credit/term facility which will expire in December 1997 and replaced the
existing $12.0 million line of credit commitment. At June 30, 1996, there were
no borrowings outstanding under the facility and the entire $20.0 million was
available to the Company. The availability of this line of credit, together
with funds generated from operations, is expected to be sufficient for liquidity
requirements and capital needs of the Company.
Long-term debt, including the current portion, decreased to $1.3 million at June
30, 1996, compared to $2.1 million at June 30, 1995. The debt is an unsecured
promissory note executed in connection with the software acquisition completed
in April 1995.
On May 30, 1996, the Company paid a $1.4 million dividend at the rate of $0.10
per share to shareholders of record on May 15, 1996. At its August 9, 1996,
meeting, the Board of Directors declared a dividend for the third quarter of
1996 at a rate of $0.10 per share. The dividend is payable September 10, 1996,
to shareholders of record on August 26, 1996.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
SAFE HARBOR
The Company's 1996 outlook and all other statements other than historical facts
are forward-looking statements and are subject to risks and uncertainties which
may cause actual future results or events to vary materially. A description of
some of the risks and uncertainties that could occur, is provided in the
Company's annual report on Form 10-K - Item 7.
IMPACT OF ACQUISITION RELATED AMORTIZATION AND CHARGES
The Company has made numerous acquisitions since 1991, and the portion of the
purchase prices that was allocated to intangibles is being amortized over
periods of 1-9 years. As discussed above, these acquisitions have a significant
impact on the comparability of financial results. Amortization for the first
six months of 1996 was $2.4 million for the Fast-Tax business and $2.0 million
for the Rent Roll business, and the charge for purchased R&D related to the Rent
Roll business was $3.5 million, totaling $7.9 million for the Company. For the
first six months of 1995, the amortization was $1.3 million for Fast-Tax and
$0.3 million for Rent Roll totaling $1.6 million, a net increase of $6.3
million.
Amortization and other acquisition related charges for the year 1995, and for
each of the next five years and thereafter (based on existing acquisitions), are
as follows (in millions):
Amortization R&D Write-off
--------------------- ---------------------
Year Fast-Tax Rent Roll Fast-Tax Rent Roll Total
-------- --------- -------- --------- ---------
1995 $ 4.7 $ 0.9 $ 5.6 $ -- $ 11.2
1996 4.8 4.1 -- 3.5 12.4
1997 4.5 2.4 -- -- 6.9
1998 4.1 2.1 -- -- 6.2
1999 3.7 1.7 -- -- 5.4
2000 2.3 1.0 -- -- 3.3
Thereafter 0.3 0.1 -- -- 0.4
-------- --------- -------- --------- ---------
Total $ 24.4 $ 12.3 $ 5.6 $ 3.5 $ 45.8
======== ========= ======== ========= =========
14
<PAGE>
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 April 30, 1996,
for the purpose of electing a board of directors. 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K - none.
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: August 14, 1996 By M. Brian Healy
------------------------------------------------
M. Brian Healy
Group Vice President, Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS PRESENTED IN THE 2ND QUARTER 1996 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 12,183
<SECURITIES> 0
<RECEIVABLES> 19,324
<ALLOWANCES> 970
<INVENTORY> 0
<CURRENT-ASSETS> 37,125
<PP&E> 62,831
<DEPRECIATION> 41,423
<TOTAL-ASSETS> 100,556
<CURRENT-LIABILITIES> 30,555
<BONDS> 1,313
0
0
<COMMON> 150
<OTHER-SE> 63,085
<TOTAL-LIABILITY-AND-EQUITY> 100,556
<SALES> 62,733
<TOTAL-REVENUES> 62,733
<CGS> 32,844
<TOTAL-COSTS> 32,844
<OTHER-EXPENSES> 3,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> (634)
<INCOME-TAX> (222)
<INCOME-CONTINUING> (412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
