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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT DECEMBER 2, 1995
(Date of earliest event reported)
COMPUTER LANGUAGE RESEARCH, INC.
(Exact name of registrant as specified in its charter)
TEXAS 0-12311 75-1297386
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) 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)
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COMPUTER LANGUAGE RESEARCH, INC.
FORM 8-K/A
DECEMBER 2, 1995
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
2 Acquisition or Disposition of Assets ........................ 1
5 Other Events ................................................ 1
7 (a) FINANCIAL STATEMENTS
Independent Auditor's Report ................................ 2
Statements of Assets Acquired and Liabilities Assumed ....... 3
Statements of Net Revenues and Direct Operating Costs ....... 4
Notes to Financial Statements ............................... 5-7
7 (b) PRO FORMA FINANCIAL INFORMATION (Unaudited)
Pro Forma Condensed Consolidated Balance Sheet .............. 8
Pro Forma Condensed Consolidated Statements of Operations ... 9-10
Notes to Pro Forma Condensed Consolidated Financial
Statements .................................................. 11-12
7 (c) Exhibits ...................................................... 13
Signatures .................................................... 14
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 2, 1995, Computer Language Research, Inc. (the "Company") acquired
substantially all of the assets of the corporate tax compliance software
business of Price Waterhouse LLP ("PW"). Such assets include software, customer
lists, research and development ("R&D"), a trained work force, and similar
intangible assets. The purchase price consists of $11.5 million of cash paid at
closing, the assumption of obligations associated with the purchased assets, and
an agreement by the Company to provide certain software support and maintenance
services on behalf of PW to certain PW licensees pursuant to software licenses
not purchased by the Company. (See Item 7(b) - Note 2 for the purchase price
allocation detail.) The Company paid the cash due at closing out of its current
cash balance. A portion of the purchase price was allocated to purchased
R&D that had not reached technological feasibility and had no alternative future
use. The allocated amount ($5.6 million) was charged to operations at the
acquisition date. The R&D write-off coupled with other losses from the acquired
business will reduce pre-tax operating results in the fourth quarter of 1995 by
several million dollars.
The acquisition was the result of arms-length negotiations with unrelated
parties and will be treated as a business combination under the purchase method
of accounting.
Item 5. OTHER EVENTS.
Also on December 2, 1995, the Company entered into (1) a five-year sole source
agreement to license its GoSystem and related software to PW for their internal
use, and (2) a multi-year consulting agreement with PW whereby certain PW
partners will be made available to the Company on a full-time basis to assist it
in integrating the newly acquired business and otherwise assisting the Company's
corporate tax software compliance business.
1
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Item 7. (a) FINANCIAL STATEMENTS
Report of Independent Auditors
Board of Directors
Computer Language Research, Inc.
We have audited the accompanying statement of assets acquired and liabilities
assumed of the TMS Business of Price Waterhouse LLP at June 30, 1995, and the
related statement of net revenues and direct operating costs for the year then
ended. These statements are the responsibility of the management of TMS. Our
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the accompanying statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the accompanying statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the
accompanying statements. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 1, the accompanying statement of assets acquired and
liabilities assumed was prepared solely to present the assets and liabilities of
the TMS Business of Price Waterhouse LLP acquired by Computer Language Research,
Inc. ("CLR") and the accompanying statement of net revenues and direct operating
costs was prepared solely to present the net revenues and direct operating costs
of the TMS Business of Price Waterhouse LLP for the purpose of CLR's filing of
Form 8-K/A with the Securities and Exchange Commission. As discussed in Note 1,
TMS was a part of Price Waterhouse LLP and has no separate legal status or
existence.
In our opinion, the accompanying statements referred to above present fairly, in
all material respects, the assets acquired and liabilities assumed by CLR of the
TMS Business of Price Waterhouse LLP at June 30, 1995, and the net revenues and
direct operating costs of the TMS Business of Price Waterhouse LLP for the year
ended June 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
January 12, 1996
2
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THE TMS BUSINESS OF PRICE WATERHOUSE LLP
STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
June 30, 1995 September 30,1995
------------- -----------------
(Unaudited)
Assets Acquired:
Furniture, at cost $ 355,000 $ 355,000
Less: accumulated depreciation 243,000 251,000
---------- ----------
Net furniture $ 112,000 $ 104,000
========== ==========
Liabilities Assumed:
Accrued vacation $ 208,000 $ 213,000
Unearned revenue 23,421,000 20,305,000
---------- ----------
Total Liabilities Assumed $23,629,000 $20,518,000
========== ==========
See accompanying notes.
3
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THE TMS BUSINESS OF PRICE WATERHOUSE LLP
STATEMENTS OF NET REVENUES AND DIRECT OPERATING COSTS
Fiscal Year Ended Three Months Ended
June 30, 1995 September 30,1995
----------------- ------------------
(Unaudited)
Net revenues $ 19,823,000 $ 5,192,000
Direct operating costs:
Product support 3,890,000 883,000
Product development 2,942,000 668,000
Selling, general, and
administrative 12,900,000 2,928,000
------------ ------------
Net revenues less direct
operating costs $ 91,000 $ 713,000
============= ============
See accompanying notes.
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THE TMS BUSINESS OF PRICE WATERHOUSE LLP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1. BASIS OF PRESENTATION
TMS provides tax software products and related training and maintenance services
to assist customers in managing their tax planning and reporting processes. TMS
primarily serves large corporations across a broad range of industries within
the United States.
TMS has operated as a portion of a division of Price Waterhouse LLP ("PW"). The
accompanying statements of net revenues and direct operating costs were prepared
to present the net revenues and direct operating costs of TMS and are not
intended to be a complete presentation of the results of operations of TMS. Net
revenues and direct operating costs include transactions related to those
products of the TMS business of PW, acquired by Computer Language Research, Inc.
("CLR"), pursuant to an Agreement for the Purchase and Sale of Certain Assets
(the "Agreement") with PW dated December 2, 1995. The accompanying statements
of assets acquired and liabilities assumed were prepared to present the assets
acquired and liabilities assumed by CLR of the TMS business of PW pursuant to
the Agreement.
TMS has no separate legal status as it was an integral part of PW's overall
operations. As a result, separate financial statements have not been maintained
for these operations. The accompanying statements of net revenues and direct
operating costs have been prepared from the historical accounting records of PW
and do not purport to reflect the net revenues and direct operating costs that
would have resulted if TMS had operated as an unaffiliated independent entity.
Since only certain assets of TMS are being acquired and only certain liabilities
are being assumed, statements of financial position and cash flows are not
applicable.
The accounting records of TMS were maintained on a modified cash basis of
accounting. Appropriate adjustments have been made between the accounting
records and the accompanying financial statements in order to present the
accompanying financial statements in accordance with generally accepted
accounting principles. TMS's fiscal year ends on June 30.
NOTE 2. ACCOUNTING POLICIES
REVENUE RECOGNITION
Substantially all revenues are generated from site-license agreements for tax
software products with terms from one to seven years. These fees include
software, training, maintenance and support for the client throughout the term
of the agreement and are recognized ratably over the contract period.
ALLOCATION OF EXPENSES
PW provides various administrative services to TMS including, but not
necessarily limited to, data processing and personnel services. No allocations
5
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THE TMS BUSINESS OF PRICE WATERHOUSE LLP
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2. ACCOUNTING POLICIES (Concluded)
for these services have been included in the statements of net revenues and
direct operating costs. Rent expense for office space occupied by TMS employees
within other PW offices was allocated based on square footage used.
TMS provides various administrative services to CATS and PFP including, but not
necessarily limited to, data processing, record keeping, personnel services, and
occupancy costs. TMS charged these expenses first on the basis of direct usage
when identifiable, with the remainder allocated among TMS, CATS, and PFP on the
basis of headcount or level of effort.
In addition to their other duties, three PW partners have direct responsibility
for managing TMS. Approximately 50% of their compensation has been attributed
to the selling, general, and administrative cost of TMS.
PRODUCT DEVELOPMENT
Product development costs are expensed as incurred. Included in product support
and product development costs is approximately $1.6 million which has been
expended on the development of software. Since PW's software development
process does not establish formal technological feasibility to permit the
capitalization of any significant amounts, none have been capitalized.
ESTIMATES
The preparation of the statements requires the use of management's estimates,
which may vary from actual results.
FURNITURE
Furniture is recorded at cost and depreciated using the 200% declining balance
method with an estimated useful life of seven years. Depreciation expense was
approximately $542,000 in 1995 which includes depreciation on assets not
acquired by CLR.
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of September 30, 1995, and for the
three months ended September 30, 1995, are unaudited and, in the opinion of
management, reflect all adjustments that are necessary for a fair presentation
of the net revenues and direct operating costs for the period then ended and
assets acquired and liabilities assumed as of such date. All such adjustments
are of a normal and recurring nature. The net revenues and direct operating
costs for the three months ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the entire year ending June
30, 1996.
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THE TMS BUSINESS OF PRICE WATERHOUSE LLP
NOTES TO FINANCIAL STATEMENTS (Concluded)
NOTE 3. LEASES
TMS leases office space, data processing and other equipment under operating
leases. Rental expense for such leases was approximately $1,813,000 in 1995.
NOTE 4. UNEARNED REVENUE
Unearned revenue represents amounts billed and collected by PW under customer
contracts for which CLR has assumed a liability to fulfill certain related
performance obligations which are estimated by CLR to be approximately
$2.5 million.
7
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Item 7. (b) PRO FORMA FINANCIAL INFORMATION
COMPUTER LANGUAGE RESEARCH, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(In thousands)
(Unaudited)
Company
Pro Forma Pro Forma
Company Adjustments Consolidated
------- ----------- ------------
(Note 2)
ASSETS:
Cash and cash equivalents .... $ 32,130 $(11,500)(a) $ 20,630
Accounts receivable, net ..... 8,074 -- 8,074
Other current assets ......... 3,152 -- 3,152
------- ------- -------
Total current assets ..... 43,356 (11,500) 31,856
------- ------- -------
Property and equipment, net .. 20,626 550 (b) 21,176
Software, net ................ 17,152 2,400 (c) 19,552
Intangibles and other assets . 9,357 5,835 (d) 15,192
------- ------- -------
Total assets ............... $ 90,491 $ (2,715) $ 87,776
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current portion of long-term
debt ........................ $ 750 $ -- $ 750
Accounts payable and accrued
liabilities ................. 16,065 2,995 (e) 19,060
------- ------- -------
Total current liabilities .. 16,815 2,995 19,810
------- ------- -------
Long-term debt ............... 1,125 -- 1,125
Deferred income taxes and
other liabilities ........... 4,625 -- 4,625
Shareholders' equity ......... 67,926 (5,710)(f) 62,216
------- ------- -------
Total liabilities and
shareholders' equity .... $ 90,491 $ (2,715) $ 87,776
======= ======= =======
8
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COMPUTER LANGUAGE RESEARCH, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share amounts)
(Unaudited)
Company
Pro Forma Pro Forma
Company PW Adjustments Consolidated
------- -- ----------- ------------
(Note 3)
Revenues ............... $ 99,068 $ 19,034 $(10,106)(a) $107,996
------- ------- ------- -------
Costs and expenses:
Cost of revenues ...... 49,608 7,074 (869)(b) 55,533
(280)(c)
Selling, general, and
administrative ....... 32,348 12,828 773 (b) 46,149
(653)(c)
(950)(d)
1,803 (e)
------- ------- ------- -------
Total costs and
expenses ........... 81,956 19,902 (176) 101,682
------- ------- ------- -------
Operating income ....... 17,112 (868) (9,930) 6,314
Interest, net .......... 690 -- (523)(f) 167
Gain on disposal of
property and
equipment ............. 315 -- -- 315
------- ------- ------- -------
Income before income
taxes ................. 18,117 (868) (10,453) 6,796
Provision for income
taxes ................. 7,095 -- (4,445)(g) 2,650
------- ------- ------- -------
Income from continuing
operations ............ $ 11,022 $ (868) $ (6,008) $ 4,146
======= ======= ======= =======
Earnings per share ..... $ 0.77 $ 0.29
======= =======
Weighted average number
of common and common
equivalent shares
outstanding ........... 14,280 14,280
======= =======
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COMPUTER LANGUAGE RESEARCH, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(In thousands, except per share amounts)
(Unaudited)
Company
Pro Forma Pro Forma
Company PW Adjustments Consolidated
------- -- ----------- ------------
(Note 3)
Revenues ............... $ 75,797 $ 15,149 $ (2,767)(a) $ 88,179
------- ------- ------- -------
Costs and expenses:
Cost of revenues ...... 38,801 5,036 (231)(b) 43,439
(167)(c)
Selling, general, and
administrative ....... 26,253 8,977 531 (b) 35,935
(391)(c)
(713)(d)
1,278 (e)
------- ------- ------- -------
Total costs and
expenses ........... 65,054 14,013 307 79,374
------- ------- ------- -------
Operating income ....... 10,743 1,136 (3,074) 8,805
Interest, net .......... 1,177 -- (26)(f) 1,151
Loss on disposal of
property and
equipment ............. (57) -- -- (57)
------- ------- ------- -------
Income before income
taxes ................. 11,863 1,136 (3,100) 9,899
Provision for income
taxes ................. 3,796 -- (628)(g) 3,168
------- ------- ------- -------
Income from continuing
operations ............ $ 8,067 $ 1,136 $ (2,472) $ 6,731
======= ======= ======= =======
Earnings per share ..... $ 0.56 $ 0.47
======= =======
Weighted average number
of common and common
equivalent shares
outstanding 14,391 14,391
======= =======
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COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The unaudited pro forma financial statements present the historical financial
statements of Computer Language Research, Inc. (the "Company") adjusted for the
acquisition discussed in Item 2. The accompanying Pro Forma Condensed
Consolidated Balance Sheet assumes the transaction was completed on September
30, 1995. The accompanying Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1994, and the nine months ended
September 30, 1995, assume the transaction was completed on January 1, 1994.
These pro forma financial statements should be read in conjunction with the
consolidated financial statements and notes of the Company as previously filed
with the Securities and Exchange Commission, and the financial statements of the
TMS Business of Price Waterhouse ("PW") included in this Form 8-K/A. In
management's opinion, all adjustments necessary to reflect the effects of the
acquisition have been made.
These pro forma financial statements are not necessarily indicative of what the
actual financial position would have been had the acquisition occurred on
September 30, 1995, or what the actual results of operations would have been had
the acquisition occurred on January 1, 1994, nor does it purport to represent
the future financial position or operations of the Company.
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The purchase price was allocated and recorded as follows (in thousands):
Amount paid at closing .......................... $ 11,500
Accrued severance and vacation .................. 259
Accrued vacation carryover ...................... 151
Accrued support ................................. 2,475
-------
Total Purchase Price .......................... $ 14,385
=======
Furniture and fixtures .......................... $ 550
Software ........................................ 2,400
In process research and development ............. 5,600
Noncompete agreement ............................ 400
Trained workforce ............................... 2,500
Customer list and cost in excess of fair
value of assets acquired ....................... 2,935
-------
$ 14,385
=======
(a)To reflect cash paid at closing.
(b)To reflect furniture and fixtures acquired, at estimated fair value.
11
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COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Concluded)
(c)To reflect software acquired, at appraised value.
(d)To reflect intangibles, at appraised value, and the customer list and cost
in excess of fair value of assets acquired.
(e)To reflect accrued support, other liabilities assumed, and to accrue
professional fees associated with the acquisition.
(f)To recognize the impact of the write-off of research and development and
accrued professional fees associated with the acquisition.
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In connection with the acquisition, the Company incurred accounting and legal
costs of approximately $110,000, and wrote off $5.6 million of purchased
research and development. These nonrecurring items have not been included in
the Pro Forma Condensed Consolidated Statements of Operations.
The pro forma adjustments to the historical statements of operations are as
follows:
(a)To reflect the reduction of PW recognizable revenue which will occur
subsequent to, and as a result of, the acquisition, less revenue recognized
from the GoSystem contract (See Item 5. Other Events). The reduction of
recognizable revenue is a result of the Company's inability to recognize
revenue from customer contracts which, in accordance with generally accepted
accounting principles, was unearned, but previously collected, by PW at
December 31, 1993. The earnings impact of this revenue reduction is
lessened by the liability the Company accrued at acquisition for estimated
support obligations in connection with these contracts, because the costs
the Company incurs to support PW deferred revenue will be charged to the
product support liability instead of expense (see (b) below). The combined
company will recognize revenue from contracts executed or renewed subsequent
to the acquisition date.
(b)To reflect a reduction of the support liability accrued at acquisition,
offset by the amortization and depreciation of the excess of the assigned
fair values over PW historic cost of assets and other intangibles acquired,
over the following lives:
Years
-----
Furniture and fixtures ................. 5
Software ............................... 5
Noncompete agreement ................... 5
Trained workforce ...................... 5
Customer list and cost in excess of
fair value of assets acquired ......... 5
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COMPUTER LANGUAGE RESEARCH, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Concluded)
(c)To reflect a decrease in compensation expense related to employees dismissed
upon acquisition.
(d)To reflect a decrease in rent expense in accordance with the sub-lease
executed at acquisition.
(e)To reflect the estimated effect of the consulting service agreement executed
with PW at acquisition.
(f)To reflect a decrease in interest income due to the cash effect of the
acquisition.
(g)To reflect the tax benefit at the Company's effective tax rate.
Item 7. (c) EXHIBITS
23.01 Consent of Ernst & Young LLP, independent auditors.
The agreement for the Purchase and Sale of Certain Assets was
filed with the original 8-K on December 18, 1995.
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SIGNATURES
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: February 16, 1996 By: M. Brian Healy
----------------------------------
M. Brian Healy
Group Vice President, Finance and
Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8, No. 2-86308 and No. 33-41048) pertaining to the 1982 Stock Option
Plan of Computer Language Research, Inc. of our report dated January 12, 1996,
with respect to the financial statements of the TMS Business of Price Waterhouse
included in the Form 8-K/A filed on February 16, 1996.
ERNST & YOUNG LLP
Dallas, Texas
February 16, 1996
