<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 September 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)
(972) 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 October 31, 1996
--------------------- -----------------
$0.01 par value 14,266,811 shares
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COMPUTER LANGUAGE RESEARCH, INC.
FORM 10-Q
September 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 .......................... 8-13
PART II. OTHER INFORMATION
6 EXHIBITS AND REPORTS ON FORM 8-K ............................. 14
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
September 30 December 31
------------------ -------------
1996 1995 1995
-------- -------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents ............. $ 5,925 $ 32,130 $ 13,641
Accounts receivable, less allowance
for doubtful accounts of $910 at
September 30, 1996, $602 at
September 30, 1995, and $608
at December 31, 1995 ................. 16,053 8,074 26,615
Income taxes receivable ............... 3,832 -- --
Current deferred taxes ................ 2,110 2,013 2,093
Other current assets .................. 1,396 1,139 1,584
-------- -------- --------
Total current assets ................ 29,316 43,356 43,933
-------- -------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land .................................. 2,584 3,077 2,584
Buildings and improvements ............ 16,861 16,787 16,787
Data processing equipment ............. 33,382 32,258 32,010
Furniture, fixtures, and equipment .... 8,937 8,044 8,608
-------- -------- --------
61,764 60,166 59,989
Less accumulated depreciation ......... 40,250 39,540 39,527
-------- -------- --------
Net property and equipment .......... 21,514 20,626 20,462
-------- -------- --------
OTHER NONCURRENT ASSETS:
Software, net of accumulated amortiza-
tion of $26,230 at September 30, 1996,
$20,997 at September 30, 1995, and
$21,874 at December 31, 1995 ......... 24,715 17,152 20,087
Intangibles and other assets, net of
accumulated amortization of $7,685
at September 30, 1996, $5,368 at
September 30, 1995, and $5,219
at December 31, 1995 ................. 20,286 9,357 14,578
-------- -------- --------
Total other noncurrent assets ...... 45,001 26,509 34,665
-------- -------- --------
Total assets ....................... $ 95,831 $ 90,491 $ 99,060
======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
1
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COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
September 30 December 31
------------------ -------------
1996 1995 1995
-------- -------- -------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt ..... $ 750 $ 750 $ 750
Accounts payable ...................... 1,116 1,155 1,549
Accrued compensation, payroll taxes,
and benefits ......................... 7,590 6,294 8,634
Deferred revenue ...................... 11,006 4,358 10,296
Accrued support ....................... 1,709 1,039 2,133
Income taxes payable .................. -- 1,259 29
Other current liabilities ............. 5,977 1,960 4,708
-------- -------- --------
Total current liabilities ........... 28,148 16,815 28,099
-------- -------- --------
NONCURRENT LIABILITIES:
Long-term debt ........................ 375 1,125 937
Other liabilities ..................... 4,950 818 3,270
Deferred income taxes ................. 1,446 3,807 1,205
-------- -------- --------
Total noncurrent liabilities ........ 6,771 5,750 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;
15,077 shares issued at September 30,
1996, 14,911 shares issued at
September 30, 1995, and 14,942 shares
issued at December 31, 1995 .......... 150 149 149
Capital in excess of par value ........ 34,333 33,030 33,271
Retained earnings ..................... 31,699 40,013 37,395
Treasury stock at cost, 810 shares .... (5,270) (5,266) (5,266)
-------- -------- --------
Total shareholders' equity .......... 60,912 67,926 65,549
-------- -------- --------
Total liabilities and shareholders'
equity ............................ $ 95,831 $ 90,491 $ 99,060
======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
2
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COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues ......................... $ 27,434 $ 22,441 $ 90,167 $ 75,797
-------- -------- -------- --------
Costs and expenses:
Cost of revenues ................ 14,400 12,253 47,244 38,801
Selling, general, and
administrative ................. 14,723 9,071 42,032 26,253
Charge for purchased research
and development ................ -- -- 3,498 --
-------- -------- -------- --------
Total costs and expenses ...... 29,123 21,324 92,774 65,054
-------- -------- -------- --------
Operating income (loss) .......... (1,689) 1,117 (2,607) 10,743
Interest income .................. 150 526 501 1,185
Interest expense ................. 16 -- 66 8
Loss on disposals of property
and equipment .................. (12) (3) (29) (57)
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes .. (1,567) 1,640 (2,201) 11,863
Provision (benefit) for income
taxes ........................... (548) 542 (770) 3,796
-------- -------- -------- --------
Income (loss) from continuing
operations ...................... (1,019) 1,098 (1,431) 8,067
Discontinued operations:
Income from discontinued opera-
tions, net of tax .............. -- -- -- 76
Gain on disposal of discontinued
operations, net of tax ......... -- -- -- 4,720
-------- -------- -------- --------
Net income (loss) ................ $ (1,019) $ 1,098 $ (1,431) $ 12,863
======== ======== ======== ========
Earnings (loss) per share from
continuing operations ........... $ (0.07) $ 0.08 $ (0.10) $ 0.56
Earnings per share from dis-
continued operations ............ -- -- -- 0.33
-------- -------- -------- --------
Earnings (loss) per share ........ $ (0.07) $ 0.08 $ (0.10) $ 0.89
======== ======== ======== ========
Dividends per share .............. $ 0.10 $ 0.10 $ 0.30 $ 0.30
======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding ..................... 14,257 14,455 14,207 14,391
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
3
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COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30
------------------
1996 1995
-------- --------
OPERATING ACTIVITIES:
Income (loss) from continuing operations ............... $ (1,431) $ 8,067
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation and amortization ........................ 13,750 9,252
Loss on disposals of property and equipment .......... 29 57
Charge for purchased research and development ........ 3,498 --
Changes in assets and liabilities, net of effect
of acquisitions ..................................... 4,120 6,489
-------- --------
Net cash provided by operating activities .......... 19,966 23,865
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ................................... (5,210) (4,045)
Additions to software .................................. (6,211) (5,954)
Cash paid for acquisitions ............................. (12,508) (4,686)
Net proceeds from sale of discontinued operations ...... -- 3,484
Purchases of short-term investments .................... -- (160)
Proceeds from sale of short-term investments ........... -- 16,821
Disposals of property and equipment .................... 15 184
-------- --------
Net cash provided by (used in) investing activities (23,914) 5,644
-------- --------
FINANCING ACTIVITIES:
Payments on long-term debt ............................. (562) (375)
Proceeds from exercise of common stock options ......... 1,059 946
Payments of dividends .................................. (4,265) (4,202)
-------- --------
Net cash used in financing activities .............. (3,768) (3,631)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .... (7,716) 25,878
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 13,641 6,252
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 5,925 $ 32,130
======== ========
See accompanying Notes to Consolidated Financial Statements (unaudited).
4
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine-
month period ended September 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 eight acquisitions at a
total cost of approximately $17.8 million, which consisted of $12.5 million
in cash paid at closing and accruals of $5.3 million for miscellaneous
payables, and noncompete 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 $1.9 million to accounts receivable and other assets, $4.5 million
to software, and $7.9 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)
September 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 apartment
housing market.
On August 29, 1996, Rent Roll acquired substantially all of the assets of
A&M Software, Inc., a privately held Vermont corporation, which provides
software and services for the compliance, tracking, and reporting
requirements of the affordable housing market.
On September 19, 1996, Rent Roll acquired substantially all of the assets of
Automated Research Technology, Inc., a privately held California
corporation, which markets eviction database services to the apartment
housing market.
The following unaudited pro forma summary presents the consolidated results
of operations for the nine months ended September 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
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COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
September 30, 1996
(Unaudited)
(In thousands, except per share amounts) 1996 1995
- ------------------------------------------ -------- --------
Revenue $ 94,186 $ 95,787
Loss from continuing operations $ (2,398) $ (2,570)
Net income (loss) $ (2,398) $ 2,226
Loss per share from continuing operations $ (0.17) $ (0.18)
Earnings (loss) per share $ (0.17) $ 0.15
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 (benefit) for the nine months ended September 30, 1996,
is approximately 35.0% of income (loss) 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 July 1996, but the benefit is expected to be lower than in 1995.
5. DIVIDENDS
On September 10, 1996, the Company paid a $1.4 million dividend at the rate
of $0.10 per share to shareholders of record on August 26, 1996. There were
14.3 million shares issued and outstanding on August 26, 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SELECTED 3RD QUARTER RESULTS EXPRESSED AS A PERCENTAGE OF REVENUES:
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1996 1995 Chg 1996 1995 Chg
------ ------ ------ ------ ------ ------
Cost of revenues ............ 52.5 % 54.6 % (2.1)% 52.4 % 51.2 % 1.2 %
Selling, general, and
administrative ............. 53.7 % 40.4 % 13.3 % 46.6 % 34.6 % 12.0 %
Charge for purchased research
and development ............ -- -- -- 3.9 % -- 3.9 %
Total costs and expenses .... 106.2 % 95.0 % 11.2 % 102.9 % 85.8 % 17.1 %
Operating income (loss) ..... (6.2)% 5.0 % (11.2)% (2.9)% 14.2 % (17.1)%
Provision (benefit) for
income taxes ............... (2.0)% 2.4 % (4.4)% (0.8)% 5.0 % (5.8)%
Income (loss) from continuing
operations ................. (3.7)% 4.9 % (8.6)% (1.6)% 10.7 % (12.3)%
COMPANY ACTIVITIES
Since January 1, 1996, the Company, together with its wholly-owned subsidiary,
Rent Roll, Inc., has completed eight acquisitions at a total cost of
approximately $17.8 million. Six of the acquisitions were made to enhance Rent
Roll's business, with the remainder acquired to enhance the Fast-Tax business.
For additional details see Note 2 in the Notes to Consolidated Financial
Statements.
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 an
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.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATING INCOME (LOSS)
Year-to-date operating income for the Fast-Tax business was $10.2 million
compared to operating income of $14.4 million in 1995. The year-to-date
operating loss for the Rent Roll business was $9.1 million compared to an
operating loss of $0.4 million in 1995.
These decreases are primarily attributable to increased acquisition charges of
$1.6 million for Fast-Tax and $6.1 million for Rent Roll, coupled with 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 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
approximately 20%, and anticipates that operating income for 1996, excluding
amortization and other acquisition related charges, will be in line with or
slightly lower than 1995 results and will rebound strongly in 1997 (see the Safe
Harbor statement below).
REVENUES AND EXPENSES
Business Results (in millions):
- -------------------------------
3rd Quarter
-----------------------------------------------------------------
Fast-Tax Rent Roll Corporate Total
----------------- ----------------- ----------- -----------------
1996 1995 Chg 1996 1995 Chg 1996 1995 1996 1995 Chg
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Revenues $23.7 $21.4 $ 2.3 $ 3.7 $ 1.0 $ 2.7 $ -- $ -- $27.4 $22.4 $ 5.0
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Operations 20.2 18.4 1.8 5.5 0.9 4.6 1.0 1.0 26.7 20.3 6.4
Acquisition
related 1.2 0.7 0.5 1.2 0.3 0.9 -- -- 2.4 1.0 1.4
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Total opera-
ting ex-
penses 21.4 19.1 2.3 6.7 1.2 5.5 1.0 1.0 29.1 21.3 7.8
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Operating in-
come (loss) $ 2.3 $ 2.3 $ -- $(3.0)$(0.2)$(2.8)$(1.0)$(1.0)$(1.7)$ 1.1 $ (2.8)
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ======
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Year-to-Date
------------------------------------------------------------------
Fast-Tax Rent Roll Corporate Total
----------------- ----------------- ----------- ------------------
1996 1995 Chg 1996 1995 Chg 1996 1995 1996 1995 Chg
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Revenues $79.6 $73.7 $ 5.9 $10.6 $ 2.1 $ 8.5 $ -- $ -- $90.2 $75.8 $ 14.4
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Operations 65.8 57.3 8.5 13.0 1.9 11.1 3.7 3.3 82.5 62.5 20.0
Acquisition
related 3.6 2.0 1.6 6.7 0.6 6.1 -- -- 10.3 2.6 7.7
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Total opera-
ting ex-
penses 69.4 59.3 10.1 19.7 2.5 17.2 3.7 3.3 92.8 65.1 27.7
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Operating in-
come (loss) $10.2 $14.4 $(4.2)$(9.1)$(0.4)$(8.7)$(3.7)$(3.3)$(2.6)$10.7 $(13.3)
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ======
FAST-TAX BUSINESS
- -----------------
Third quarter revenues for 1996 increased by $2.3 million (10.6%) compared to
1995. Year-to-date revenues increased $5.9 million (8.0%). Third quarter
operating expenses in 1996 increased by $2.3 million (11.8%) compared to 1995.
Year-to-date operating expenses increased $10.1 million (17.1%).
The lack of operating income growth in the third quarter and decrease in profit
for the year-to-date is due to the acquisition effects which are discussed in
Company Activities above, primarily the operating loss from the tax compliance
software business acquired from Price Waterhouse LLP in December 1995 (TMS
acquisition), combined with the amortization of its purchase price and other
acquisition related charges. TMS acquisition related activity (including
acquisition charges) accounts for losses of approximately $1.0 million and $5.5
million for the third quarter and year-to-date, respectively.
Increased product development costs noted in the following table are
attributable to Windows(REGISTERED) client/server development and expenses
incurred to maintain and integrate products acquired through the TMS
acquisition.
Product Development 3rd Quarter Year-to-Date
-------------------- --------------------
(in millions) 1996 1995 Chg 1996 1995 Chg
------------------- ----- ----- ----- ----- ----- -----
Costs $ 7.3 $ 6.7 $ 0.6 $22.8 $19.6 $ 3.2
Portion capitalized (2.0) (2.2) 0.2 (5.7) (5.1) (0.6)
Amortization 1.1 0.7 0.4 2.6 2.3 0.3
----- ----- ----- ----- ----- -----
Net expense $ 6.4 $ 5.2 $ 1.2 $19.7 $16.8 $ 2.9
===== ===== ===== ===== ===== =====
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RENT ROLL BUSINESS
- ------------------
Third quarter revenues for 1996 from the apartment business segment increased
$2.7 million compared to 1995. Year-to-date revenues increased $8.5 million.
Increased revenue was primarily attributable to the acquisitions discussed above
under Company Activities. Revenue is not meeting Company expectations primarily
due to delays in releasing certain Windows-based products. The Company released
two small products in the third quarter with plans to release additional
products in the fourth quarter and throughout 1997.
Third quarter operating expenses increased $5.5 million in 1996 compared to
1995. Year-to-date operating expenses increased $17.2 million. Of the year-to-
date increase, $6.1 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 increase is attributable
to the increase in operating expenses related to acquired companies, the
integration of these acquisitions, and product development.
During the first nine months of 1996 total software development costs were $1.8
million compared to $0.7 million for the same period in 1995. The Company is
currently expensing all software development costs incurred by Rent Roll 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 and Internet development and
expenses incurred to maintain and integrate products marketed by acquired
companies.
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 has an average amortization
life of 4.5 years. As discussed above, these acquisitions have a significant
impact on the comparability of financial results. Amortization for the third
quarter and year-to-date periods is shown in the Business Results schedule
above.
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 4.6 -- 3.5 12.9
1997 4.5 3.7 -- -- 8.2
1998 4.1 2.9 -- -- 7.0
1999 3.7 2.4 -- -- 6.1
2000 2.3 1.7 -- -- 4.0
Thereafter 0.3 0.7 -- -- 1.0
------ ------ ------ ------ ------
Total $ 24.4 $ 16.9 $ 5.6 $ 3.5 $ 50.4
====== ====== ====== ====== ======
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
The net impact on the Company of all of the above was to decrease third quarter
and year-to-date income from continuing operations before taxes. Following are
the primary items accounting for this decrease:
3rd Quarter YTD
------------- -------------
(i) Increase in acquisition related
amortization and other charges ..... $ 1.4 million $ 7.7 million
(ii) Increase in operating losses
related to newly acquired
businesses (before acquisition
charges)
- Rent Roll ....................... $ 1.9 million $ 2.6 million
- TMS ............................. $ 0.5 million $ 4.1 million
------------- -------------
Total of above .......................... $ 3.8 million $14.4 million
Total decrease in income from continuing
operations before taxes ................ $3.2 million $14.1 million
PROVISION (BENEFIT) FOR TAXES
Estimated income tax expense (benefit) for the first nine months of 1996
increased to 35.0% of income (loss) 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 July 1996, but the benefit is
expected to be lower than in 1995.
DISCONTINUED OPERATIONS
On June 23, 1995, the Company sold substantially all of the assets of its
wholly-owned subsidiary, Electronic Form Systems Incorporated ("EFS"), reported
previously as the electronic form systems business segment.
LIQUIDITY AND CAPITAL RESOURCES
The first nine months of 1996 saw a net decrease in cash and cash equivalents of
approximately $7.7 million, compared with a net increase of $25.9 million for
the same period of 1995. The decrease is primarily due to:
(i) an increase in cash paid for acquisitions of $7.8 million
(ii) the 1995 conversion of $16.8 million in short-term investments to cash,
and
(iii) the 1995 receipt of $3.5 million in net proceeds from sale of the EFS
subsidiary (see above).
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
The Company anticipates (consistent with 1995 year-end disclosure) 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 September 30, 1996, there
were no borrowings outstanding under the facility and the entire $20.0 million
was available to the Company.
On September 10, 1996, the Company paid a $1.4 million dividend at the rate of
$0.10 per share to shareholders of record on August 26, 1996. At its October
29, 1996, meeting, the Board of Directors declared a dividend for the fourth
quarter of 1996 at a rate of $0.10 per share. The dividend is payable
December 2, 1996, to shareholders of record on November 13, 1996.
The funds generated from operations together with the availability of the line
of credit, is expected to be sufficient for liquidity requirements and capital
needs of the Company.
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.
13
<PAGE>
PART II. OTHER INFORMATION
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: November 5, 1996 By M. Brian Healy
--------------------------------------------
M. Brian Healy
Group Vice President, Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<PAGE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS PRESENTED IN THE 3RD QUARTER 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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<RECEIVABLES> 16,963
<ALLOWANCES> 910
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<PP&E> 61,764
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<SALES> 90,167
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<INCOME-PRETAX> (2,201)
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