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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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)
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 Par Value
(Title of class)
---------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at February 28, 1997, was $48,658,736. This number was derived using
beneficial ownership of affiliates.
On February 28, 1997, there were 14,274,061 shares outstanding of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
(a) Selected portions of the Registrant's Definitive Proxy Statement for the
Annual Meeting to be held May 1, 1997 -- Part III
(b) Selected portions of the Registrant's Registration Statement on Form S-1,
Registration No. 2-83286 -- Part IV
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COMPUTER LANGUAGE RESEARCH, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 1996
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I.
1 Business ................................................... 1
2 Properties ................................................. 8
3 Legal Proceedings .......................................... 9
4 Submission of Matters to a Vote of Security Holders ........ 9
PART II.
5 Market for Registrant's Common Equity and
Related Stockholder Matters ............................... 9
6 Selected Financial Data .................................... 10
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 12
8 Financial Statements and Supplementary Data ................ 22
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ....................... 40
PART III.
10 Directors and Executive Officers of the Registrant ......... 40
11 Executive Compensation ..................................... 42
12 Security Ownership of Certain Beneficial Owners
and Management ............................................ 43
13 Certain Relationships and Related Transactions ............. 43
PART IV.
14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ................................... 43
14(a) Index to Financial Statements and Financial Statement
Schedules ................................................. 46
Financial Statement Schedule II -- Valuation and
Qualifying Accounts ....................................... 47
Signatures ................................................. 48
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The company was founded in 1964 and incorporated in Texas in February 1969 as
Computer Language Research, Inc. (CLR), known together with all subsidiaries as
the "Company." Headquartered in Carrollton, Texas (a suburb of Dallas, Texas),
the Company also maintains sales and support facilities throughout the United
States. In May 1983, the Company made its initial public offering of common
stock which trades on the Nasdaq National Market under the symbol: CLRI. Based
upon the products and services provided today, the Company's Standard Industrial
Classification is 7372 - Prepackaged Software.
In its beginning, the Company's primary business was processing federal
individual income tax returns for tax preparers as a computer service bureau.
Since that time, the Company has expanded its product offerings to include
almost every type of tax return available. The Company has also been on the
leading edge of technological advances in the computer industry providing five
generations of computer automation technology. See also (c) Products and
Services below.
In 1994, the Company undertook a new strategy: to provide software and services
that generate recurring revenue in vertical market segments, leveraging the
Company's technological, marketing, and sales expertise. This strategy has led
the Company into new and specialized markets with the Company making significant
progress toward its goals through acquisitions completed during the period from
December 1994 through October 1996.
In December 1994, the Company completed an acquisition from Prentice-Hall
Professional Software, Inc. (PHPS) and acquired audit and practice management
software for accounting firms and property management software for the
multifamily housing industry. Then in April 1995, the Company expanded the
professional audit software through the acquisition of the ACE (Automated Client
Engagement)(R) software line from Sequel/McGladrey Software. In January 1996,
the Company acquired additional practice management and write-up software from
E.F. Haskell & Associates, Inc. Since the acquisitions, the Company has
integrated, expanded, and upgraded the line and in April 1996, launched a suite
of fully-integrated, easy-to-use Windows(R) software (see also (e) Product
Development, below). The software is marketed through the unincorporated ACE
division of the Company and its financial results are included in the Fast-Tax
business.
In June 1995, the Company expanded on the property management software that it
acquired from PHPS with the acquisition of the property management software from
the Dallas-based company, Rent Roll, Inc. In December 1995, CLR incorporated
its own wholly-owned subsidiary, Rent Roll, Inc. (Rent Roll). Then in 1996,
Rent Roll completed seven strategic acquisitions (see list below) which have
added product functionality and increased market share. Rent Roll is now an
industry leading provider of multifamily property management software, able to
offer the most complete line of property management tools available.
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In December 1995, the Company expanded its tax business through the acquisition
of the tax compliance software business (formerly known as TMS) of the Tax
Technology Group of Price Waterhouse LLP. The Company is in the process of
integrating the products to develop a "best-of-the-best" combination of features
found in TMS and in its own Windows-based tax product, InSource(R). See also
(e) Product Development, below.
Over the past few years, the Company has evolved into a business application
software company expanding well beyond providing the original tax automation
systems upon which the Company was founded.
1996 Acquisitions: (For additional details see Item 8 - Note 3 in the Notes to
Consolidated Financial Statements)
January - practice management and write-up software for the accounting
industry, from E.F. Haskell & Associates, Inc.
January - applicant screening and other information services, and the capital
stock of Credit Interfaces, Inc.
January - affordable housing property management software, from Project Data
Systems, Inc.
March - fixed asset management software for corporations, from Axtell
Development Corporation
March - applicant screening and other information services, from Renter
Index, Inc.
March - bar code scanning and information processing technology, from
Crystal Solutions, LLC
August - affordable housing property management software, from A&M Software,
Inc.
September - eviction database service, from Automated Research Technology Inc.
October - rural housing software, from Castle Lake Software, Inc.
(b) FUNCTIONAL BUSINESS GROUPS
FAST-TAX BUSINESS
- - -----------------
The Company, through its unincorporated ACE division, offers accounting software
to public accounting firms throughout the United States which range in size from
the large regional and national firms to sole practitioners.
The Company offers its tax products and services to four primary groups of
clients, ranked in order of relative revenue concentration: Accounting,
Corporate, Bank, and Government.
ACCOUNTING: Public accounting firms in the United States and abroad comprise
this group. These firms have complex tax processing needs and range in size
from the largest multinational accounting firms to sole practitioners.
CORPORATE: Clients consist of corporations that process complex, consolidated
federal tax returns and a variety of state and local tax returns. The
corporations range in size from the Fortune 500 multinational corporations to
small corporations with small internal tax departments. In addition, the
Company has two sub-groups which market specialized software products that fit
the unique requirements of insurance and utility companies. The Company also
provides automated tax processing services to partnerships, primarily large
syndications and master limited partnerships.
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BANK: Large- and medium-sized banks and trust companies that offer trust
services use the Company's tax return processing products and services to
process both federal (1041) and state fiduciary income tax returns, 1099s, and
other beneficiary information.
GOVERNMENT: The Company's wholly-owned subsidiary, Electronic Tax Systems,
Inc., provides an automated international tax audit and review system to the
U.S. Internal Revenue Service (IRS). The system, called STAR (System for Tax
Audit and Review), is designed to assist IRS international examiners in
reviewing the international tax compliance activities of American corporations.
Rent Roll Business
- - ------------------
Rent Roll provides multifamily property management software to a client group of
property management and owner/operator companies ranging in size from the
largest publicly and privately held in the industry to the smallest of companies
managing a single property. The client group provides management for both
conventional and government-subsidized affordable housing properties.
(c) PRODUCTS AND SERVICES
SOFTWARE AND SYSTEMS: Since 1965, the Company has successively implemented five
generations of software technology:
First Generation: Service Bureau Tax Processing
Second Generation: On-Line Tax Processing
Third Generation: Client Data Input and Print Tax Processing
Fourth Generation: Client In-House, Microcomputer-based Tax Processing
Fifth Generation: Microsoft(R) Windows-based Tax Automation Systems
The Company has evolved to become primarily a supplier of microcomputer-based
software and related services, although all five generations of technology are
still offered today. The systems available today enable clients to use the
Company's software (tax, accounting, and property management) while performing
the tasks in their own offices.
The fifth generation of technology for automating tax-related activities for
accounting firms, corporate tax departments, and bank trust tax departments is
reflected in products such as GoSystem(R) for Windows, InSource(R), and
TrustEase(R), respectively. It is also reflected in the ACE suite of accounting
software released this year and in the Windows-based property management
software that is currently being developed. These products are intended to
improve the efficiency and productivity of the tasks performed and will continue
to evolve as the technology and needs of the clients do. For example, the
Company is currently in the process of developing Windows client/server-based
versions of many of its tax products.
TAX PROCESSING OPERATIONS: The Company's tax processing operations consist of
tax return production (including data entry), computing, printing, data
communications, and distribution.
ELECTRONIC FORMS MANAGEMENT: ACE Forms (formerly known as E-Form), initially
introduced in 1992, is the first complete tax form service available on a single
CD-ROM disk. ACE Forms was incorporated into the ACE suite of products which
were introduced in 1996. ACE Forms includes more than 25,000 pages of tax-
related forms and instructions. With ACE Forms, forms can be viewed and filled
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in on-screen, and then printed either blank or completed. ACE Forms is
available in both Microsoft Windows and DOS formats. The Company also has a
contract to supply a private label electronic form product to a major supplier
of tax information.
PROPERTY MANAGEMENT SYSTEMS AND SERVICES: The software systems currently
offered by Rent Roll are DOS-based with Windows-based products currently under
development. In addition to the software provided by Rent Roll, they also
provide applicant screening services (background checks including eviction,
criminal history, and subsidy compliance) to multifamily property management
companies.
(d) SALES AND MARKETING
Company-employed sales personnel located throughout the United States market the
Company's products and services. The Company also markets its products through
advertising in trade publications, direct mail, trade shows, telemarketing, road
show campaigns, and public relations activities. The Company has entered into a
number of joint marketing agreements whereby companies and partnerships have
agreed to market the Company's products and services to their clients and
customers.
Tax processing and ACE products for accounting firms are generally licensed to
individual offices rather than on a multiple-office basis; however, some
national and large local accounting firms traditionally enter into firm-wide
site-licenses for all of their offices. Tax processing products for
corporations are generally licensed for use in corporate tax departments.
Property management software products are generally licensed to the property
owner or a fee management company who then installs them at the individual
property site. However, some products are licensed to the corporate office on a
multiple-user basis when utilized for the evaluation of a portfolio or multiple
properties rather than a single site.
The Company maintains, at its headquarters, a support center to support the
Company's tax software and services with assistance and support for the tax
activities available through a toll free number and also available at Fast-Tax
locations throughout the country. Support for the ACE accounting software is
available through a toll free number with staff located in our offices in
Atlanta, Ga., while support for the multifamily property management products is
available through toll free numbers on the East Coast (Atlanta, Ga. and
Burlington, Vt.), Centrally (Carrollton, Texas), and on the West Coast
(Petaluma, Calif.). The real estate applicant screening center provides the
necessary support and services to clients and is located at the Company's
headquarters.
The Company's World Wide Web site is an important vehicle for communicating
product information to clients and prospective clients. The site is located at
http://www.clr.com, and includes general company information as well as detailed
information about its products.
(e) PRODUCT DEVELOPMENT
The software business requires a continuing high level of expenditures for the
development, maintenance, and updating of systems and services due to the rapid
technological changes and changes in accounting and government regulations
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(federal, state, and local). The Company also incurs substantial expenditures
to update, enhance, and maintain its existing systems and products by adding
features and functions. Due to these changes, there is no assurance that the
Company's development efforts will always result in successful products. Risks
exist in developing new products, adopting new technology, and converting new
products into profitable operations.
For details of the Company's expenditures related to product development, see
Item 7 - Management Discussion and Analysis of Financial Condition and Results
of Operations.
Among the new products and services developed and acquired by the Company during
the year were:
InSource CS. InSource CS, announced in 1995 and released in the fourth
quarter of 1996, is an advanced 32-bit Windows-based tax processing system
available today for corporate tax departments. Designed to take full advantage
of the client/server platform, InSource CS offers greater levels of performance
and flexibility. The server side of InSource CS operates on a Windows NT
server, while the client side operates on Windows 95 or Windows NT Workstation.
InSource CS currently offers client/server applications for Property Tax,
Domestic Income Tax, 1099 processing, and Fixed Asset Management. Plans for
including other products in the CS family during 1997 include software for
Provisions, Insurance Income Tax, International Income Tax , and Utility Fixed
Asset Management.
Corporate Domestic Income Tax Options. As a result of the December 1995
acquisition of TMS software from Price Waterhouse LLP, a variety of options (all
part of the InSource family) are now available for processing of domestic income
tax returns. InSource, the original file server-based Windows product, uses a
tax accounting methodology. InSource TMS, also a file server-based Windows
product, is the successor to TMS for Windows and uses the workpaper-based
methodology pioneered in the Price Waterhouse system. InSource Express remains
the system of choice for tax departments requiring a return-preparation-only
system without the more sophisticated features of InSource and InSource TMS.
InSource CS -- Domestic Income Tax, discussed above, will evolve during 1997 to
become the "best-of-the-best" product envisioned at the time of the TMS
acquisition.
Utility Industry Group. In 1996 the Company announced the formation of a
new specialized industry sub-group within the Corporate group of the tax
business. This new group will develop and market software products designed to
meet the unique requirements of the utility industry. This approach was highly
successful in developing income tax, premium tax, and 1099 compliance products
specifically designed for the insurance industry. The utility company group
will begin by releasing InSource CS - Utility Fixed Asset Management Systems
(UFAMS) software in 1997.
ACE. In April 1996, the Company announced the formation of a new division
called Automated Client Engagement, or "ACE" to develop, market, and support a
fully-integrated, easy-to-use Windows-based accounting software product. The
released product line incorporates software acquired from PHPS,
Sequel/McGladrey, and E.F. Haskell and includes applications for accounting,
client write-up, trial balance, time and billing, practice management, document
management, and electronic forms. In 1997, all ACE applications will be
enhanced to provide a uniform interface and tighter integration which will
automate the flow of information between applications, including Fast-Tax
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GoSystem software. In addition, beginning in late 1997, ACE products will be
available over the Internet.
Rent Roll. Rent Roll is a comprehensive property management tool, which
successfully combines the administrative needs of a multifamily management
company with the requirements of accounts receivable reporting, and it puts
these functions out on the property site. Rent Roll is also well known for its
user-definable security settings. The Company released an enhanced version of
its leading DOS-based product in the third quarter of 1996 providing greater
functionality for invoice processing, budget management, purchase order control,
traffic measuring, and added over 35 new reports to the program. The program
was also enhanced to address century clock calculations for date awareness
beyond the year 2000.
Improvement of Screening Services. The Company combined the databases of
information that were acquired with Credit Interfaces, Renter Index, and
Automated Research Technologies, and thereby has been able to improve the amount
and quality of information provided regarding eviction records, previous address
information, and criminal background investigations.
InSite. During 1997, the Company will begin releasing a product that is
currently under development. InSite is a Windows-based integrated suite of
property management tools that will allow users to share and report information
in a way never before possible. It will enable them to perform more functions
at property sites and use the information to manage their properties more
effectively. In addition, direct links to the home office will make reporting
easy, fast and foolproof.
(f) COPYRIGHTS, TRADEMARKS AND TRADE SECRETS
The Company believes that its software products and attendant intellectual
property rights related to the software products are proprietary in nature and
of substantial value. Thus, it relies on protection of its computer programs
through use of copyright law, trademark law, common law trade secret law, trade
secret statutes, internal and external nondisclosure safeguards, as well as
restrictions on disclosure, reverse engineering, and transfer that are
incorporated into software license agreements. Employees and outside
programmers and consultants are required to execute agreements protecting the
secrecy and ownership of the Company's intellectual property.
The Company, to date, has had no indication of any material infringement of any
of its intellectual property rights. Notwithstanding this, enforcement of
intellectual property rights against infringement and unauthorized use is
difficult, and the Company can offer no assurances that such infringement or
unauthorized use has not occurred. In the event of infringement or unauthorized
use, the Company will vigorously defend and enforce its intellectual property
rights.
The Company's tax compliance and tax practice management software products are
licensed under trademarks such as Fast-Tax(R), GoSystem(R), EasyGo(R), System
5(R), InSource(R), ACE (Automated Client Engagement)(R), SmartBridge(R),
TrustEase(R). The Company's real estate software products are licensed under
trademarks such as Rent Roll(TM), OnSite(TM), MicroRENT(TM), MicroHUD(R),
HUDManager(R), and InSite(TM). (Please note, this is not meant to be a complete
list of all Company trademarks.)
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On May 10, 1996, the IRS served a summons on the Company in the matter of Caltex
Petroleum Corporation. The summons sought production of the Company's computer
software programs (which had formerly been owned by Price Waterhouse LLP, "PW")
that had computed Caltex's foreign tax credit limitations for its federal income
tax returns for the calendar tax years ended December 31, 1987, 1988, 1989, and
1990. The summons also requested a printed copy and a machine readable copy of
the source code for such computer software along with a long list of ancillary
materials. The summons was based on the government's contention that the
summoned materials were taxpayer books, records and other data under Section
7602 of the Internal Revenue Code. The Company did not concur in this theory
and declined to comply with the summons, while continuing to discuss the matter
with the Internal Revenue Service. On September 27, 1996, the IRS initiated
United States of America v. Caltex Petroleum Corp., Price Waterhouse, LLP, and
Computer Language Research, Inc. (Civil Action No. 3:96-CV-2726-X, in the United
States District Court for the Northern District of Texas, Dallas Division) by
filing a Petition to Enforce Internal Revenue Service Summonses against Caltex,
PW and the Company. On September 30, 1996, the IRS obtained, on an ex parte
basis, an Order to Show Cause showing why Caltex, PW and the Company should not
be compelled to comply with prior IRS summonses, including the summons served on
the Company. The United States Magistrate to whom the case had been assigned
ordered mediation for February 13 and 14, 1997. The mediation occurred and
produced an Agreed Partial Judgment and Protective Order Regarding Software
Access pursuant to which the Internal Revenue Service will have access to the
PW/Caltex software subject to certain restrictions on use, copying and
dissemination. Whether an arrangement regarding the summoned source code can be
worked out prior to the Hearing of the matter was not known as of the date of
filing this document, nor is it possible to assess the likely outcome of the
Hearing on an issue of first impression in the federal or state courts.
(g) SEASONALITY
This information is set forth in Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.
(h) WORKING CAPITAL
Working capital requirements of the Company are financed primarily from
operations.
(i) CUSTOMERS
During the years ended December 31, 1996, 1995, and 1994, no single customer
accounted for 10% or more of the Company's consolidated revenues. The Company
provides tax processing services, software, and support to each of the six
largest accounting firms in the United States. While the loss of any one of
these customers would not have a material adverse consequence to the Company,
the loss of more than one of these customers could.
(j) BACKLOG
Because the Company generally ships a major portion of its tax software products
prior to the beginning of "tax season" and performs a major portion of its
processing services during "tax season," backlog is not meaningful. Backlog is
not a material factor for real estate software products as the supply and
shipping are able to keep pace with the demand.
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(k) GOVERNMENT CONTRACTS
No material portion of the Company's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
government.
(l) COMPETITION
The Company cannot precisely determine its relative position in applicable
software markets as reliable information is not available as to the total number
of tax returns processed, installations of tax, accounting or multifamily
property management software, or total revenue derived from licensing such
software. The Company's primary competitors are national, regional, and local
software publishers which license their tax and accounting software products to
individuals, professional firms, and large companies/corporations; and license
their property management software products to individual property owners,
institutions, corporations, real estate investment trusts, and professional
property management companies. In addition, as producers of "low-end" products
seek to market more sophisticated products, they can become competitors of the
Company.
Some competitors are larger than the Company and have greater financial,
marketing, and personnel resources. There are also a number of larger software
companies that may have the technological ability to develop products similar to
those offered by the Company. Competition is on the basis of price, service,
support, reliability, product capability, technology, experience, and commitment
to automation. The Company believes that it competes effectively in all of
these respects and that it is a leading supplier of: (1) tax automation
software and related services to national public accounting firms, corporations,
and the banking industry, and (2) multifamily property management software and
related services to national, regional, and local entities which engage in the
ownership and/or management of multifamily properties.
(m) RESEARCH AND DEVELOPMENT
This information is set forth in Note 2 in the Notes to Consolidated Financial
Statements in Item 8.
(n) ENVIRONMENTAL CONTROL
Compliance with environmental regulations does not materially affect the
Company's capital expenditures, earnings, or competitive position.
(o) EMPLOYEES
At December 31, 1996, the Company employed 1,095 regular full-time employees.
The Company also employs more than 100 temporary employees in operations and
customer service functions during its peak tax processing season. None of the
Company's employees is represented by a union. The Company considers the
relations with its employees to be good.
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Item 2. PROPERTIES
The Company owns approximately 41 acres of land in Carrollton, Texas, where its
corporate office is located. The facility presently occupies approximately 27
acres and contains approximately 403,000 square feet, which provides for the
Company's current and foreseeable future usage requirements.
The Company also owns 19 acres of undeveloped land in Mesquite, Texas.
The Company leases office space in approximately 11 cities throughout the United
States, primarily for sales and service personnel. The Company believes that
all its facilities are suitable for the types of activities performed. The
leases run for various terms with the longest term expiring in 2000.
Item 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
Note: The information provided pursuant to Item 10 of this Report is deemed to
be also included in Part I hereof to the extent required by the rules and
regulations of the Securities and Exchange Commission.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICES OF COMMON STOCK
The Company's common stock trades on the Nasdaq National Market under the symbol
CLRI. The following stock prices reflect high and low sales prices for 1996 and
1995 as reported by The Nasdaq Stock Market.
- - --------------------------------------------------------------------
1996 1995
- - --------------------------------------------------------------------
High Low High Low
- - --------------------------------------------------------------------
First quarter $ 17 1/2 $ 13 1/4 $ 12 $ 7 1/2
Second quarter 17 12 10 1/2 7 1/4
Third quarter 13 9 1/2 12 3/8 9 1/4
Fourth quarter 13 9 1/2 15 11 1/4
- - --------------------------------------------------------------------
There were 423 and 445 shareholders of record of common stock as of February 28,
1997, and February 23, 1996, respectively.
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CASH DIVIDENDS
The Board of Directors of the Company, at its February 1997 meeting, declared a
dividend for the first quarter of 1997 at a rate of $0.10 per share. Future
dividends may vary depending upon the Company's profit levels and capital
requirements as well as financial and other conditions existing at the time.
- - ---------------------------------------------
1996 1995
- - ---------------------------------------------
First quarter $ 0.10 $ 0.10
Second quarter 0.10 0.10
Third quarter 0.10 0.10
Fourth quarter 0.10 0.10
- - ---------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL INFORMATION
Years Ended December 31
- - -------------------------------------------------------------------------------
(In thousands, except
per share amounts) 1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------
INCOME STATEMENT DATA:
Revenues $129,243 $110,703 $ 99,068 $ 98,852 $ 97,675
Costs and expenses:
Cost of revenues 64,933 56,109 49,608 50,840 57,448
Selling, general, and
administrative 59,707 41,162 32,348 33,513 30,866
Charge for purchased research
and development 3,498 5,600 -- -- --
- - -------------------------------------------------------------------------------
Total costs and expenses 128,138 102,871 81,956 84,353 88,314
- - -------------------------------------------------------------------------------
Operating income 1,105 7,832 17,112 14,499 9,361
Interest income 567 1,925 1,020 562 334
Interest expense 93 8 330 736 1,159
Other, net (39) (626) 315 (202) (1,876)
- - -------------------------------------------------------------------------------
Income from continuing opera-
tions before income taxes 1,540 9,123 18,117 14,123 6,660
Provision for income taxes 499 2,264 7,095 5,401 1,964
- - -------------------------------------------------------------------------------
Income from continuing
operations 1,041 6,859 11,022 8,722 4,696
Discontinued operations:
Income (loss) from dis-
continued operations,
net of tax -- 76 321 (176) 812
Gain on disposal of dis-
continued operations,
net of tax -- 4,720 -- -- --
- - -------------------------------------------------------------------------------
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CONSOLIDATED FINANCIAL INFORMATION (Continued)
Years Ended December 31
- - -------------------------------------------------------------------------------
(In thousands, except
per share amounts) 1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------
Income before extraordinary
item and cumulative effect
of accounting change 1,041 11,655 11,343 8,546 5,508
Extraordinary gain, net of tax -- -- -- -- 1,084
Cumulative effect of
accounting change -- -- -- -- 5,694
- - -------------------------------------------------------------------------------
Net income $ 1,041 $ 11,655 $ 11,343 $ 8,546 $ 12,286
===============================================================================
Earnings per share from
continuing operations $ 0.07 $ 0.48 $ 0.77 $ 0.62 $ 0.34
Earnings (loss) per share
from discontinued
operations -- 0.33 0.02 (0.01) 0.06
- - -------------------------------------------------------------------------------
Earnings per share before
extraordinary item and
and cumulative effect
of accounting change 0.07 0.81 0.79 0.61 0.40
- - -------------------------------------------------------------------------------
Earnings per share $ 0.07 $ 0.81 $ 0.79 $ 0.61 $ 0.89
===============================================================================
Dividends per share $ 0.40 $ 0.40 $ 0.36 $ 0.28 $ 0.16
- - -------------------------------------------------------------------------------
Weighted average number of
common and common equiva-
lent shares outstanding 14,564 14,434 14,280 14,066 13,796
- - -------------------------------------------------------------------------------
December 31
- - -------------------------------------------------------------------------------
(In thousands) 1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets $ 98,937 $ 99,060 $ 84,093 $ 79,686 $ 73,077
Long-term debt, including
current portion $ 938 $ 1,687 $ -- $ 8,494 $ 7,883
Shareholders' equity $ 62,002 $ 65,549 $ 58,319 $ 51,467 $ 46,522
- - --------------------------------------------------------------------------------
See Item 7 - Management's Discussion and Analysis and Item 8 - Financial
Statements and Supplementary Data.
11
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - -------------------------------------------------------------------------------
SELECTED RESULTS EXPRESSED AS A PERCENTAGE OF REVENUES
- - -------------------------------------------------------------------------------
Years Ended December 31
-----------------------------
1996 1995 1994
- - -------------------------------------------------------------------------------
Cost of revenues 50.2% 50.7% 50.1%
Selling, general, and administrative 46.2% 37.2% 32.6%
Charge for purchased research and development 2.7% 5.0% --%
Total costs and expenses 99.1% 92.9% 82.7%
Operating income 0.9% 7.1% 17.3%
Provision for income taxes 0.4% 2.0% 7.2%
Income from continuing operations 0.8% 6.2% 11.1%
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
COMPANY ACTIVITIES
- - -------------------------------------------------------------------------------
In 1995 and 1996 the Company, together with its wholly-owned subsidiary, Rent
Roll, Inc., completed twelve acquisitions at a total cost of $39.6 million.
Eight of the acquisitions were made to enhance Rent Roll's business, with the
remainder made for the Fast-Tax business. For additional details see Note 3 in
the Notes to Consolidated Financial Statements.
These acquisitions have a significant impact on the comparability of financial
results. Effects of 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 purchased 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 period in which the
new business is being assimilated.
o Increased product development costs of maintaining and integrating the
acquired products.
- - -------------------------------------------------------------------------------
1996 COMPARED WITH 1995
- - -------------------------------------------------------------------------------
RESULTS OF OPERATING INCOME
Operating income for the Fast-Tax business was $17.6 million compared with
operating income of $13.5 million in 1995. The operating loss for the Rent Roll
business was $11.7 million compared with an operating loss of $0.6 million in
1995.
12
<PAGE>
The changes in operating income are partially attributable to the changes in
acquisition charges, including the charge for purchased R&D, with the Fast-Tax
charges decreasing $5.6 million and Rent Roll increasing $7.5 million (see
additional details below). Additionally, the Company is experiencing 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 1995, due 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.
The Company currently anticipates that revenue will increase in excess of 10% in
1997 and that operating margins will trend toward more historical levels (see
Safe Harbor Statement below).
Business Results (in millions):
- - -------------------------------
Fast-Tax Rent Roll Corporate
--------------------- --------------------- ------------
1996 1995 Chg 1996 1995 Chg 1996 1995
------ ------ ----- ------ ----- ------ ----- -----
Revenues $113.2 $107.1 $ 6.1 $ 16.0 $ 3.6 $ 12.4 $ -- $ --
------ ------ ----- ------ ----- ------ ----- -----
Operations 90.9 83.3 7.6 19.3 3.3 16.0 4.8 5.1
Acquisition
related 4.7 10.3 (5.6) 8.4 0.9 7.5 -- --
------ ------ ----- ------ ----- ------ ----- -----
Total operating
expenses 95.6 93.6 2.0 27.7 4.2 23.5 4.8 5.1
------ ------ ----- ------ ----- ------ ----- -----
Operating income
(loss) $ 17.6 $ 13.5 $ 4.1 $(11.7) $(0.6) $(11.1) $(4.8) $(5.1)
====== ====== ====== ====== ===== ====== ===== =====
Total
---------------------
1996 1995 Chg
------ ------ -----
Revenues $129.2 $110.7 $18.5
------ ------ -----
Operations 115.0 91.7 23.3
Acquisition
related 13.1 11.2 1.9
------ ------ -----
Total operating
expenses 128.1 102.9 25.2
------ ------ -----
Operating income
(loss) $ 1.1 $ 7.8 $(6.7)
====== ====== =====
13
<PAGE>
Fast-Tax Business
- - -----------------
The increase in profit for the year is primarily due to the acquisition of the
tax compliance software business acquired from Price Waterhouse LLP in December
1995 (TMS acquisition). Revenue related to TMS increased by $8.6 million with
operating expenses, including acquisition and consulting agreement charges,
increasing $5.3 million. The acquisition charges related to TMS decreased $5.8
million mostly due to the 1995 charge for purchased R&D of $5.6 million.
The increase in operating income is also due in part to an increase in profit
from both the bank and accounting tax businesses totaling approximately $1.5
million. The bank business revenue increased due to new contracts and continued
product success and the accounting tax business was able to decrease operating
expenses.
Increased product development costs noted in the following table are
attributable to Windows client/server and remote/server development and expenses
incurred to maintain and integrate products acquired through the TMS
acquisition.
Product Development
(in millions)
------------------- 1996 1995 Chg
------ ------ ------
Costs $ 32.2 $ 28.5 $ 3.7
Portion capitalized (7.1) (7.1) --
Amortization 3.7 3.1 0.6
------ ------ ------
Net expense $ 28.8 $ 24.5 $ 4.3
====== ====== ======
Rent Roll Business
- - ------------------
Increased revenue of $12.4 million was primarily attributable to the
acquisitions discussed above under Company Activities and in Note 3 of the
Notes to Consolidated Financial Statements.
Increased operating expenses of $23.5 million is partially due to the $7.5
million increase in amortization of capitalized acquisition costs and the
charge for purchased R&D (see Note 3 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.
Total software development costs were $2.5 million compared with $1.0 million
for 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.
14
<PAGE>
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 4.9 years. As discussed above, these acquisitions have a significant
impact on the comparability of financial results. Amortization of intangibles
(including software) and other acquisition related charges for the years 1995
through 2000 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 4.7 4.9 -- 3.5 13.1
1997 4.5 3.7 -- -- 8.2
1998 4.1 3.0 -- -- 7.1
1999 3.7 2.5 -- -- 6.2
2000 2.3 1.8 -- -- 4.1
Thereafter 0.3 0.7 -- -- 1.0
-------- --------- -------- --------- ------
Total $ 24.3 $ 17.5 $ 5.6 $ 3.5 $ 50.9
======== ========= ======== ========= ======
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
The net impact on the Company of all of the above was to decrease income from
continuing operations before income taxes. Following are the primary items
accounting for this decrease (in millions):
(i) Increase in acquisition related amortization and
other charges ............................................. $ 1.9
(ii) Increase in operating losses related to newly acquired
businesses (before acquisition charges)
- Rent Roll ............................................... 3.6
- TMS ..................................................... 0.6
(iii) Accrual related to TMS consulting services contract ........ 1.9
(iv) Increased profit from the bank and accounting tax
businesses ................................................ (1.5)
(v) Decrease in interest income due to lower levels of
cash equivalents .......................................... 1.4
(vi) Decrease in expense due to less property and equipment
sales/write-offs .......................................... (0.6)
------
Total of above ............................................. $ 7.3
======
Total decrease in income from continuing operations
before income taxes ....................................... $ 7.6
======
PROVISION FOR TAXES
The income tax provision for 1996 was $0.5 million compared to $2.3 million in
1995. For an analysis of income taxes, see Note 9 in the Notes to Consolidated
Financial Statements.
15
<PAGE>
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. For additional
information, see Note 11 in the Notes to Consolidated Financial Statements.
- - -------------------------------------------------------------------------------
1995 COMPARED WITH 1994
- - -------------------------------------------------------------------------------
Revenues increased $11.6 million or 12% to $110.7 million in 1995 from $99.1
million in 1994. Acquisitions, which are discussed below, accounted for
approximately 80% of the increase accompanied by an 8% increase in bank market
revenues due to continued product success. The increases were offset by a
decrease in revenue from: (i) national accounting firms due to competitive
pressures and continued price erosion, and (ii) the government business, because
the renewal options of a contract awarded in 1994, affected revenues to a lesser
extent in the current year.
Cost of revenues were $56.1 million or 50.7% of revenues in 1995 compared to
$49.6 million or 50.1% of revenues in 1994. The increase is primarily
attributable to acquisitions made in 1995, along with increases in net product
development (see below). The increases were offset by a decrease in maintenance
expense from outsourcing the maintenance service, as previously discussed in the
1995 first quarter Form 10-Q.
Total product development expenditures increased by $6.9 million to $29.5
million in 1995 from $22.6 million in 1994. Approximately 40% of the increase
was capitalized, with the net expense increasing by $4.1 million. The increase
is due to the Company's commitment to increase its product development related
to InSource and the conversion of certain tax applications to a Microsoft
Windows client/server platform.
Selling, general and administrative expenses were $41.2 million or 37.2% of
revenues in 1995 compared to $32.3 million or 32.6% of revenues in 1994. As
with cost of revenues, the increase is primarily attributable to acquisitions
made in 1995, along with a comparative increase in administrative expenses as a
result of the allocation of certain administrative expenses to the EFS business
segment in 1994.
Acquisitions accounted for 95% of the increase in cost of revenues and selling,
general, and administrative expenses from 1994 to 1995.
In December 1995, the Company expensed a $5.6 million charge for purchased R&D
identified from the TMS acquisition. It was determined that the R&D had not
reached technological feasibility and had no alternative future use; therefore,
it was charged to operations at the time of acquisition.
The TMS business acquired in the fourth quarter of 1995 reduced operating
profits by a total of $10.7 million, of which $5.1 million is a result of the
deferral of TMS revenue into 1996 pursuant to the Company's revenue recognition
practices, and the accrual of certain fees associated with the acquisition. The
remaining $5.6 million is related to the charge for purchased R&D described
above.
16
<PAGE>
Operating profits decreased by $9.3 million to $7.8 million in 1995 from $17.1
million in 1994. The decrease is primarily due to the $10.7 million of losses
and charges from the TMS business as described above. To a lesser extent, the
decrease was affected by the inability to allocate administrative expenses to
the EFS segment, decreased profit from a government contract, and from
corporations. These decreases were offset by increased profits from banks and
regional accounting firms and profits from other acquisitions made in 1994 and
1995.
Interest income increased from 1994 primarily due to higher balances of cash
equivalents and short-term investments. Interest expense declined due to the
reduced average debt level.
The income tax provision for 1995 was $2.3 million compared to $7.1 million in
1994. For an analysis of income taxes, see Note 9 in the Notes to Consolidated
Financial Statements.
The Company's operating results from discontinued operations, net of income tax
effect, was income of $76,000 for 1995, as compared to $321,000 for 1994. A
portion of the operating expenses allocated to this business segment in the past
continue to be reported by the Company. A gain of $4.7 million, net of income
taxes, on the sale of EFS was recorded during the second quarter of 1995. For
additional information, see Note 11 in the Notes to Consolidated Financial
Statements.
- - -------------------------------------------------------------------------------
OTHER INFORMATION
- - -------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash flow for 1996 saw a net decrease in cash and cash equivalents of $10.7
million, compared with a net increase of $7.4 million for 1995. The decrease is
primarily due to (in millions):
(i) the 1995 conversion of short-term investments to cash ..... $ 16.8
(ii) the 1995 net proceeds from sale of the EFS subsidiary ..... 3.5
(iii) a decrease in cash paid for acquisitions .................. (3.4)
(iv) the change in cash provided by operating activities,
which is due to acquisition related activity and
other working capital changes in the ordinary
course of business ....................................... 2.1
(v) an increase in capital expenditures and software .......... 0.7
(vi) the Company's draw on the line of credit netted
with payments on long-term debt .......................... (1.8)
------
Total of above ............................................ $ 17.9
======
Total variance ............................................ $ 18.1
======
The Company made investments in property and equipment of $6.4 million during
1996 compared to $5.4 million during 1995 and $4.2 million in 1994. At December
31, 1996, the Company had no material capital commitments and it is anticipated
that investments in property and equipment will be approximately $6.5 million in
1997.
17
<PAGE>
During 1996 the Company capitalized $7.1 million of software development costs
compared to $7.1 million in 1995 and $4.2 million in 1994. The Company expects
capitalized software development costs to decrease slightly in 1997. The
capitalization is due to the conversion and integration of acquired software
products along with the ongoing Windows client/server and Internet development.
On December 21, 1995, the Company entered into a $20.0 million revolving
credit/term facility which will expire in December 1997 and may be extended at
the lender's option. At December 31, 1996, the Company had a $2.0 million note
payable outstanding against the credit/term facility, which was repaid by
February 10, 1997.
At its February 27, 1997, meeting, the Board of Directors declared a dividend
for the first quarter of 1997 at a rate of $0.10 per share totaling $1.4
million. The dividend is payable March 28, 1997, to shareholders of record on
March 13, 1997.
The funds generated from operations together with the availability of the line
of credit, are expected to be sufficient for liquidity requirements and capital
needs of the Company.
SEASONALITY
The Company's revenues from tax products and services are seasonal, with a
larger percentage realized in the first and fourth quarters, as shown in the
table at the end of this section. This seasonality is attributable to the
nature of the tax business, since the primary tax filing dates are in the first
half of the year, and clients are preparing for the upcoming tax season in the
fourth quarter. Though the Company has continued to transition its clients to
site-license agreements under which revenue is recognized evenly over the annual
contract period, there continues to be some seasonal variation.
The Company's revenues from real estate software are not materially affected by
seasonality.
INFLATION
Certain costs incurred by the Company, such as labor and financing costs, are
significantly affected by inflationary factors. Historically, the Company has
been able to offset inflationary cost increases through production efficiencies
and technological advances.
SAFE HARBOR STATEMENT
Statements in the Company's Securities and Exchange Commission filings which are
not historical facts are forward looking statements that are subject to risks
and uncertainties which may cause actual future results or events to vary
materially from such forward looking statements. Such risks and uncertainties,
include, but are not limited to, the following:
o the ability and willingness of licensees of the Company's products to
substitute other products for the products of the Company;
o a change in the perceived absolute overall value or comparative relative
value (including features, quality and pricing) of the Company's products
by current and/or potential licensees;
18
<PAGE>
o the acquisition of electronic tax compliance products by huge,
multinational conglomerates such as The Thomson Corporation (SCS Compute)
and Wolters Kluwer NV (CCH Incorporated) and the continued publication of
electronic tax compliance products by massive international accounting
firms;
o the pricing and technology strategies of these and other competitors;
o changes in generally accepted accounting principals and practices;
o difficulties in obtaining and recognizing revenue from clients added
through acquisitions;
o changes in tax rates applicable to the Company;
o changes in the Internal Revenue Code and various state tax laws and
practices which reduce the complexity of the tax return preparation
process, including, without limitation, the risk that one of various "flat
tax" proposals will be enacted, could have a negative effect on demand for
electronic tax compliance products such as those produced by the Company;
o difficulties in obtaining labor, equipment, supplies, power, and natural
resources needed to produce and distribute the Company's products;
o general difficulties, delays, and cost overruns associated with the design,
development, testing, and distribution of the Company's new and existing
products and changes in platform, including, but not limited to, a failure
to complete, test, and ship new products when anticipated;
o the Company's strategic decision to undertake a higher than historical
number of acquisitions and the related risks and uncertainties associated
with merging business cultures, merging technologies, retaining key
employees and consultants, retaining licensees, controlling expenses
associated with integrating previously separate businesses, and discovery
of unanticipated obligations and liabilities;
o the Company's ability to identify attractive acquisition targets, to
negotiate mutually acceptable terms, conditions and purchase prices, and to
obtain the funds necessary to effectuate a transaction;
o the costs and other potential effects associated with legal and
administrative proceedings and cases brought by or against the Company; and
o developments or assertions by or against the Company relating to
intellectual property rights and intellectual property licenses, including,
but not limited to, the ability of the Company to obtain appropriate
software patents and the need for the Company to obtain software patent
licenses in order to produce its products.
19
<PAGE>
- - -------------------------------------------------------------------------------
SELECTED CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
- - -------------------------------------------------------------------------------
1996 (A)
- - -------------------------------------------------------------------------------
First Second Third Fourth
(In thousands, except Quarter Quarter Quarter Quarter Total
per share amounts) (B)
- - -------------------------------------------------------------------------------
Revenues $35,847 $26,886 $27,434 $39,076 $129,243
Percent of 1996 total
revenues 28% 21% 21% 30% 100%
Operating income (loss) 1,067 (1,985) (1,689) 3,712 1,105
Net income (loss) 773 (1,185) (1,019) 2,472 1,041
Earnings (loss) per share $ 0.05 $ (0.08) $ (0.07) $ 0.17 $ 0.07
- - -------------------------------------------------------------------------------
1995
- - -------------------------------------------------------------------------------
First Second Third Fourth
(In thousands, except Quarter Quarter Quarter Quarter Total
per share amounts) (C) (C) (D) (E)
- - -------------------------------------------------------------------------------
Revenues $32,233 $21,123 $22,441 $34,906 $110,703
Percent of 1995 total
revenues 29% 19% 20% 32% 100%
Operating income (loss) 8,849 777 1,117 (2,911) 7,832
Discontinued operations 91 4,705 -- -- 4,796
Net income (loss) 6,276 5,489 1,098 (1,208) 11,655
Earnings (loss) per share $ 0.44 $ 0.38 $ 0.08 $ (0.09) $ 0.81
- - -------------------------------------------------------------------------------
SEE DISCUSSION AT SEASONALITY ABOVE.
(A) During the first quarter of 1996, the Company completed six acquisitions,
and completed three more during the rest of 1996. The results of
operations related to these acquisitions is included in the Company's
Consolidated Financial Statements beginning at their respective acquisition
dates. Acquisition related expenses for all acquisitions (including (D)
and (E) below) was $13.1 million for 1996, which includes a $3.5 million
charge for purchased R&D in the first quarter. For additional details
regarding acquisition activity see Note 3 in the Notes to Consolidated
Financial Statements.
(B) In the fourth quarter of 1996, the Company accrued $1.9 million reflecting
its decision to exercise its option to terminate certain consulting
services pursuant to the TMS consulting agreement. See Note 8 in the Notes
to Consolidated Financial Statements.
(C) During the second quarter of 1995, the Company sold substantially all of
the assets of a wholly-owned subsidiary (Electronic Form Systems
Incorporated). The operating results of the subsidiary have been treated
as discontinued operations, and previously issued financial statements have
been restated to conform to this presentation. Included in second quarter
discontinued operations is a gain of $4.7 million, net of taxes. See Note
11 in the Notes to Consolidated Financial Statements.
20
<PAGE>
(D) During the second quarter of 1995, the Company made two acquisitions
(Sequel/McGladrey and Rent Roll, Inc.) totaling $6.8 million. The results
of their operations have been included in the Company's Consolidated
Financial Statements beginning at their respective acquisition dates. See
Note 3 in the Notes to Consolidated Financial Statements.
(E) During the fourth quarter of 1995, the Company acquired substantially all
of the assets of the corporate tax compliance software business of Price
Waterhouse LLP, and accordingly, the results of its operations have been
included in the Company's Consolidated Financial Statements beginning in
November 1995. The 1995 total operating losses and other acquisition
related charges incurred in connection with this acquisition were $10.7
million which includes a $5.6 million charge for purchased R&D. See Note 3
in the Notes to Consolidated Financial Statements.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
- - -------------------------------------------------------------------------------
(In thousands) 1996 1995
- - -------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,928 $ 13,641
Accounts receivable, less allowance for doubtful
accounts of $800 and $608 at December 31, 1996,
and 1995, respectively 27,104 26,615
Current deferred taxes 2,421 2,093
Other current assets 2,621 1,584
- - -------------------------------------------------------------------------------
Total current assets 35,074 43,933
- - -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST:
Land 2,584 2,584
Buildings and improvements 16,866 16,787
Data processing equipment 33,933 32,010
Furniture, fixtures, and equipment 9,086 8,608
- - -------------------------------------------------------------------------------
62,469 59,989
Less accumulated depreciation 41,581 39,527
- - -------------------------------------------------------------------------------
Net property and equipment 20,888 20,462
- - -------------------------------------------------------------------------------
OTHER NONCURRENT ASSETS:
Software, net of accumulated amortization of
$28,694 and $21,874 at December 31, 1996,
and 1995, respectively 23,868 20,087
Intangibles and other assets, net of accumulated
amortization of $8,952 and $5,219 at December 31,
1996, and 1995, respectively 19,107 14,578
- - -------------------------------------------------------------------------------
Total other noncurrent assets 42,975 34,665
- - -------------------------------------------------------------------------------
Total assets $ 98,937 $ 99,060
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31
- - -------------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995
- - -------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable $ 2,000 $ --
Accounts payable 3,124 1,549
Accrued compensation, payroll taxes, and benefits 7,950 8,634
Deferred revenue 9,619 10,296
Accrued support 1,264 2,133
Other current liabilities 5,634 4,737
Current portion of long-term debt 750 750
- - -------------------------------------------------------------------------------
Total current liabilities 30,341 28,099
- - -------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 188 937
Other liabilities 5,700 3,270
Deferred income taxes 706 1,205
- - -------------------------------------------------------------------------------
Total noncurrent liabilities 6,594 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; 15,084 shares issued and
14,942 shares issued at December 31, 1996,
and 1995, respectively 150 149
Capital in excess of par value 34,378 33,271
Retained earnings 32,744 37,395
Treasury stock at cost, 810 shares at
December 31, 1996, and 1995 (5,270) (5,266)
- - -------------------------------------------------------------------------------
Total shareholders' equity 62,002 65,549
- - -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 98,937 $ 99,060
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
- - -------------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994
- - -------------------------------------------------------------------------------
Revenues $129,243 $110,703 $ 99,068
Costs and expenses:
Cost of revenues 64,933 56,109 49,608
Selling, general, and administrative 59,707 41,162 32,348
Charge for purchased research and
development 3,498 5,600 --
- - -------------------------------------------------------------------------------
Total costs and expenses 128,138 102,871 81,956
- - -------------------------------------------------------------------------------
Operating income 1,105 7,832 17,112
Interest income 567 1,925 1,020
Interest expense 93 8 330
Other, net (39) (626) 315
- - -------------------------------------------------------------------------------
Income from continuing operations
before income taxes 1,540 9,123 18,117
Provision for income taxes 499 2,264 7,095
- - -------------------------------------------------------------------------------
Income from continuing operations 1,041 6,859 11,022
Discontinued operations:
Income from discontinued operations,
net of tax -- 76 321
Gain on disposal of discontinued
operations, net of tax -- 4,720 --
- - -------------------------------------------------------------------------------
Net income $ 1,041 $ 11,655 $ 11,343
===============================================================================
Earnings per share from continuing
operations $ 0.07 $ 0.48 $ 0.77
Earnings per share from discontinued
operations -- 0.33 0.02
- - -------------------------------------------------------------------------------
Earnings per share $ 0.07 $ 0.81 $ 0.79
===============================================================================
Weighted average number of common and
common equivalent shares outstanding 14,564 14,434 14,280
- - -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended 1996, 1995, and 1994
- - -------------------------------------------------------------------------------
Common Stock
------------
Capital in
(In thousands, except Number of Par Excess of Retained Treasury
per share amounts) Shares Value Par Value Earnings Stock Total
- - -------------------------------------------------------------------------------
Balance at
December 31, 1993 14,655 $147 $ 31,559 $ 25,016 $(5,255) $51,467
Net income -- -- -- 11,343 -- 11,343
Dividends ($0.36
per share) -- -- -- (5,007) -- (5,007)
Shares exercised under
stock options 101 -- 527 -- (11) 516
- - -------------------------------------------------------------------------------
Balance at
December 31, 1994 14,756 147 32,086 31,352 (5,266) 58,319
Net income -- -- -- 11,655 -- 11,655
Dividends ($0.40
per share) -- -- -- (5,612) -- (5,612)
Shares exercised under
stock options 186 2 1,185 -- -- 1,187
- - -------------------------------------------------------------------------------
Balance at
December 31, 1995 14,942 149 33,271 37,395 (5,266) 65,549
Net income -- -- -- 1,041 -- 1,041
Dividends ($0.40
per share) -- -- -- (5,692) -- (5,692)
Shares exercised under
stock options 142 1 1,107 -- (4) 1,104
- - -------------------------------------------------------------------------------
Balance at
December 31, 1996 15,084 $150 $ 34,378 $ 32,744 $(5,270) $62,002
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- - -------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- - -------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Income from continuing operations $ 1,041 $ 6,859 $ 11,022
Adjustments to reconcile income to net
cash provided by operating activities:
Depreciation expense 6,407 5,717 6,589
Amortization expense 12,816 7,140 4,047
Other, net 39 626 (315)
Charge for purchased research and
development 3,498 5,600 --
Changes in assets and liabilities, net
of effect of acquisitions and sale of
discontinued operations:
Decrease (increase) in accounts
receivable 858 (6,510) 250
Increase in current deferred taxes (328) (80) (584)
Decrease (increase) in other current
assets (967) 131 1,409
Decrease in other assets 272 142 194
Increase (decrease) in accounts
payable 1,513 (1,503) 875
Increase (decrease) in accrued
compensation, payroll taxes,
and benefits (818) 1,378 2,130
Increase (decrease) in deferred revenue (677) 6,531 662
Decrease in accrued support (1,469) (2,124) (114)
Decrease in other current liabilities (2,887) (2,200) (1,244)
Increase (decrease) in deferred income
taxes (1,162) (2,708) 678
Increase in other liabilities 1,181 1,094 185
Cash provided by discontinued operations -- 1,318 1,599
- - -------------------------------------------------------------------------------
Net cash provided by operating
activities 19,317 21,411 27,383
- - -------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (6,353) (5,426) (4,188)
Additions to software (7,627) (7,809) (4,693)
Cash paid for acquisitions (12,746) (16,186) (4,300)
Net proceeds from sale of discontinued
operations -- 3,497 --
Purchases of short-term investments -- (160) (16,771)
Proceeds from sale of short-term investments -- 16,821 18,373
Disposals of property and equipment 33 229 1,009
- - -------------------------------------------------------------------------------
Net cash used in investing activities (26,693) (9,034) (10,570)
- - -------------------------------------------------------------------------------
26
<PAGE>
COMPUTER LANGUAGE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31
- - -------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- - -------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of line of
credit note payable 2,000 -- --
Payments on long-term debt (749) (563) (8,494)
Proceeds from exercise of common
stock options 1,104 1,187 516
Payments of dividends (5,692) (5,612) (5,007)
- - -------------------------------------------------------------------------------
Net cash used in financing
activities (3,337) (4,988) (12,985)
- - -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (10,713) 7,389 3,828
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 13,641 6,252 2,424
- - -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,928 $ 13,641 $ 6,252
===============================================================================
See accompanying Notes to Consolidated Financial Statements.
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Years Ended December 31
- - -------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- - -------------------------------------------------------------------------------
Cash payments for:
Interest (net of amounts capitalized) $ -- $ 8 $ 399
Income taxes (net of refunds) $ 3,400 $ 6,851 $ 7,583
===============================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - -----------------------
NOTE 1. ORGANIZATION
The Company, headquartered in Carrollton, Texas, maintains sales and support
facilities throughout the United States and develops and provides tax and
accounting software and services to accounting firms, banks, corporations, and
partnerships under the trade name Fast-Tax. The Company also develops and
markets residential real estate property management software and services to
large property management firms and owners of multifamily properties under the
trade name Rent Roll.
27
<PAGE>
- - -----------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Computer Language Research, Inc. and all wholly-owned subsidiaries
(combined, the "Company"). All intercompany transactions and balances have been
eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS - Certain amounts for the prior years have been reclassified
to conform to the current year's presentation.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents. The
Company had no cash equivalents at December 31, 1996, and $12.6 million and $4.6
million at December 31, 1995, and 1994, respectively.
DEPRECIATION - Property and equipment are recorded at cost, and depreciation is
computed using the straight-line method over the following estimated useful
lives:
Buildings and improvements ............ 5-30 years
Data processing equipment ............. 1-5 years
Furniture, fixtures, and equipment .... 5-10 years
Amortization reported in the Consolidated Statements of Cash Flows includes
amortization of software, intangible assets, and assets recorded under capital
leases.
SOFTWARE COSTS - Internally developed software costs are capitalized after the
establishment of technological feasibility and are amortized over their
estimated economic life, generally three years, commencing when each product is
available for general release. Internally developed software costs capitalized,
including interest, were $7.1 million, $7.1 million, and $4.2 million, in 1996,
1995, and 1994, respectively.
Amortization is based on the greater of a percentage of current product revenues
to total estimated product revenues or straight-line over the expected life of
the product. The Company recognized amortization expense applicable to
internally developed software of $3.7 million, $3.1 million, and $2.6 million,
during 1996, 1995, and 1994, respectively.
INTANGIBLE ASSETS - Intangible assets primarily represent costs allocated to
customer lists, noncompete agreements, and other specifically identifiable
intangibles arising from acquisitions (see Notes 3 and 6). Intangible assets
also include cost in excess of fair values of net assets acquired (goodwill) in
connection with these acquisitions. These assets are carried at cost less
accumulated amortization which is calculated on a straight-line basis over the
estimated useful lives of the assets which range from 2.5 to 9 years.
28
<PAGE>
- - -----------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Amortization of intangible assets was $4.3 million, $2.3 million, and $1.5
million, for the years ended December 31, 1996, 1995, and 1994, respectively.
The Company periodically reviews intangible assets to assess recoverability, and
impairments would be recognized in operating results if a permanent reduction in
value were to occur.
INCOME TAXES - The liability method is used in accounting for income taxes.
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and the tax bases of assets and liabilities, and are
measured using the currently enacted tax rates and laws. See also Note 9.
REVENUE RECOGNITION - The Company provides tax and accounting information
software and services, and residential real estate property management software
and services. Revenues from contracts based on a per return/report charge are
recognized during the month in which the services are provided. Revenues from
site-license agreements are based on annual fees which include tax processing,
software, and support for the client throughout the year. These fees are
recognized ratably over the annual contract period. Sales of software and tax
processing systems are recognized when shipped. Revenues for maintenance
contracts are recognized ratably over the respective contract period.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed as
incurred and consist principally of certain software development costs incurred
prior to achieving technological feasibility. Research and development expenses
were $6.2 million, $3.8 million, and $5.1 million in 1996, 1995, and 1994,
respectively.
EARNINGS PER SHARE - Earnings per share are computed based upon the weighted
average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents represent the dilutive effect of the
assumed exercise of outstanding stock options using the treasury stock method.
No difference exists between primary and fully diluted earnings per share.
- - -----------------------
NOTE 3. ACQUISITIONS
During 1996 the Company completed nine acquisitions at a total cost of $18.4
million, which consisted of $12.7 million in cash paid at closing and
liabilities of $5.7 million.
The acquisitions completed in the first quarter of 1996 were: (i) E.F. Haskell
& Associates, Inc. - practice management software, (ii) Axtell Development
Corporation - fixed asset management software, (iii) Credit Interfaces, Inc. and
Renter Index, Inc. - applicant screening and other information services, (iv)
Project Data Systems, Inc. - affordable housing property management software,
and (v) Crystal Solutions, LLC - apartment asset management software.
In the third quarter of 1996 the acquisitions completed were: (i) A&M Software,
Inc. - affordable housing property management software, and (ii) Automated
Research Technology Inc. - apartment eviction database. In the fourth quarter
of 1996 the Rural Housing Services assets of Castle Lake Software, Inc. were
acquired.
29
<PAGE>
- - -----------------------------------
NOTE 3. ACQUISITIONS (Continued)
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 to software,
goodwill, and other intangibles of $4.6 million, $3.0 million, and $5.3 million,
respectively, with the balance allocated to miscellaneous assets. The software,
goodwill, and other intangibles will be amortized over weighted-average lives of
2.4 years, 5.0 years, and 4.6 years, respectively.
During 1995 the Company completed three acquisitions at a total cost of $21.2
million, which consisted of $15.5 million in cash paid at closing, an unsecured
note payable of $2.2 million, and liabilities of $3.5 million.
The asset acquisitions completed in April, June, and December 1995,
respectively, were: (i) Sequel/ McGladrey Software - auditing software product
line, (ii) Rent Roll, Inc. - residential property management software, and (iii)
the corporate tax compliance software business of Price Waterhouse, LLP (PW).
Based on appraised value, a portion of the PW purchase price was allocated to
purchased R&D which had not reached technological feasibility and had no
alternative future use. This allocation resulted in a $5.6 million charge to
the Company's operations in the fourth quarter of 1995. The remaining combined
purchase price of the 1995 acquisitions was allocated to software, goodwill, and
other intangibles of $4.0 million, $3.8 million, and $6.7 million, respectively,
with $1.1 million allocated to miscellaneous assets. The software, goodwill,
and other intangibles will be amortized over weighted-average lives of 4.4
years, 5.0 years, and 5.0 years, respectively.
All acquisitions were financed from the Company's cash flow (except as noted
above) and have been accounted for under 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 unaudited pro forma summary presents the consolidated results of
operations as if the 1996 acquisitions discussed above had occurred as of the
beginning of each year presented. In order to provide meaningful pro forma
results, comparative financial information for the 1995 acquisitions has also
been included. The pro forma results give effect to certain adjustments,
including amortization of assets acquired, a reduction of support costs, an
increase in consulting expense, reductions in compensation and rent expense,
decreased interest income due to acquisition costs, and the related income tax
effects. The results do not include the $5.6 million and $3.5 million charges
for purchased R&D. 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.
30
<PAGE>
- - -----------------------------------
NOTE 3. ACQUISITIONS (Continued)
- - ----------------------------------------------------------------------
(In thousands, except per
share amounts) 1996 1995
- - ----------------------------------------------------------------------
Pro forma
Revenue $133,311 $137,234
Net income from continuing operations 2,233 2,545
Net income 2,233 7,341
Earnings per share from continuing operations $ 0.15 $ 0.18
Earnings per share $ 0.15 $ 0.51
- - ----------------------------------------------------------------------
- - --------------------------------
NOTE 4. MARKETABLE SECURITIES
The Company's cash equivalents were classified as available-for-sale securities.
At December 31, 1995, cash equivalents were invested in a money market mutual
fund. The investments were carried at fair value as determined by a quoted
market price. The cost of securities sold is based on the average cost method.
Gross sale proceeds from available-for-sale securities were $91.0 million,
$175.0 million, and $103.3 million in 1996, 1995, and 1994, respectively.
Realized and unrealized gains/losses were not significant for 1996, 1995, or
1994.
- - -----------------------------
NOTE 5. RISK CONCENTRATION
The Company maintains cash and cash equivalents with various high quality
financial institutions. Cash equivalents are invested in a money market mutual
fund. The Company's investment policy limits the Company's exposure to
concentrations of credit risk. The Company has not incurred losses related to
these investments.
The Company has clients that are dispersed across different geographic areas and
to a lesser extent among different industries. The Company has a heavy
concentration of clients in accounting firms nationwide and maintains an
allowance for losses based upon the expected collectibility of all accounts
receivable.
No single customer accounted for 10% or more of the Company's consolidated
revenues in 1996, 1995, or 1994. The Company provides tax processing services,
software, and support to each of the six largest accounting firms in the United
States. While the loss of any one of these customers would not have a material
adverse consequence to the Company, the loss of more than one of these customers
could.
31
<PAGE>
- - ---------------------------------------
NOTE 6. INTANGIBLES AND OTHER ASSETS
- - ---------------------------------------------------------------------
(In thousands) 1996 1995
- - ---------------------------------------------------------------------
Customer lists $ 7,675 $ 7,675
Cost in excess of fair values of net assets
acquired (Goodwill) 7,656 4,223
Noncompete agreements 5,449 3,445
Trained workforce 3,997 3,686
Other intangibles 2,000 500
Other assets 1,282 268
- - ---------------------------------------------------------------------
28,059 19,797
Less accumulated amortization 8,952 5,219
- - ---------------------------------------------------------------------
$ 19,107 $ 14,578
- - ---------------------------------------------------------------------
For a discussion related to additions, see Note 3.
- - -------------------------------------------
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE
During 1995 the Company had an unsecured loan agreement which provided a $12.0
million revolving credit loan and letter of credit facility. The available
funds were based on eligible receivables and inventory.
On December 21, 1995, the Company entered into an unsecured $20.0 million
revolving credit/term facility (the "Facility") which replaced the agreement
discussed above. The Facility will be fully revolving for two years, after
which time the Company must begin quarterly principal payments equal to one-
sixteenth of the outstanding principal balance with all outstanding principal
and interest due and payable in full on December 21, 2000. The Facility requires
that if the outstanding balance exceeds $10.0 million at the end of a quarter, a
$10.0 million portion will convert to a term loan and fully amortize over four
years. The Facility also provides for the Company to elect term loan
conversions with a $5.0 million minimum, which will fully amortize over four
years. The rate of interest payable is the lesser of, at the Company's option,
the prime rate or the interbank offering rate plus a margin, which is dependent
on the Company's fixed charge coverage ratio and can range from 0.875% to 1.5%.
The Company had borrowings of $2.0 million outstanding under the Facility at
December 31, 1996. The rate of interest payable on 1996 borrowings was 8.25%
per annum.
At the lender's option, the revolving credit termination date and the Facility
expiration date may be extended. The agreement includes customary financial
covenants requiring a minimum net worth, debt-to-net worth, debt coverage and
current ratios. The agreement also includes customary restrictions upon
investments, indebtedness, and the sale of certain assets.
The long-term debt reflected on the balance sheet at December 31, 1996, and
1995, consists of the unsecured note payable executed in connection with the
Sequel/McGladrey software acquisition (see Note 3). Under the terms of the
32
<PAGE>
- - -------------------------------------------------------
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE (Continued)
note, the Company is obligated to make quarterly principal payments of $187,500,
plus interest at 9% per annum. The loan is due and payable in full on March 31,
1998.
The carrying amount of the note payable and long-term debt approximates fair
value, as the interest rates are not materially different from the prime rate at
December 31, 1996, and 1995.
- - ----------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENCIES
Aggregate annual rental commitments at December 31, 1996, under operating leases
with initial or remaining noncancelable lease terms greater than one year are:
- - ----------------------------------------
(In thousands)
- - ----------------------------------------
1997 $ 1,636
1998 1,336
1999 882
2000 618
2001 302
Thereafter 36
- - -----------------------------------------
Total minimum lease payments $ 4,810
- - -----------------------------------------
Rent expense was $2.7 million, $2.0 million, and $1.9 million in 1996, 1995, and
1994, respectively.
In December 1995, the Company entered into a five-year consulting services
agreement with Price Waterhouse LLP (PW). Under the terms of the agreement,
certain PW partners will be made available to the Company on a full-time basis
to assist it in integrating the Company's corporate tax software compliance
business (see Note 3). At December 31, 1996, the Company is committed to pay PW
$5.0 million over the remaining four years of the contract. The Company has
accrued a total of $3.1 million ($1.9 million during the fourth quarter of 1996)
as a result of its decisions to exercise options allowing for the early
termination of a portion of the consulting services.
The Company is from time to time subject to litigation. Management believes
that the probable resolution of current litigation will not materially affect
the financial position of the Company.
33
<PAGE>
- - -----------------------
NOTE 9. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1996, and 1995, are as follows (in thousands):
- - ---------------------------------------------------------------------
1996 1995
- - ---------------------------------------------------------------------
Deferred tax assets:
Book depreciation in excess of
tax depreciation $ 769 $ --
Tax basis in excess of book basis
in land 730 730
Cash basis adjustments for reserves 2,689 2,788
Amortization of intangibles 4,162 3,125
Other 512 348
- - ---------------------------------------------------------------------
Total deferred tax assets 8,862 6,991
Valuation allowance for deferred tax assets (833) (833)
- - ---------------------------------------------------------------------
Deferred tax assets 8,029 6,158
- - ---------------------------------------------------------------------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation -- 456
Software development costs capitalized for book 5,361 4,144
Other 953 670
- - ---------------------------------------------------------------------
Deferred tax liabilities 6,314 5,270
- - ---------------------------------------------------------------------
Net deferred tax assets $ 1,715 $ 888
- - ---------------------------------------------------------------------
Income tax expense has been allocated to:
- - ---------------------------------------------------------------------
1996 1995 1994
- - ---------------------------------------------------------------------
Income from continuing operations $ 499 $ 2,264 $ 7,095
Income from discontinued operations -- 36 197
Gain on disposal of discontinued
operations -- 3,052 --
- - ---------------------------------------------------------------------
Total $ 499 $ 5,352 $ 7,292
- - ---------------------------------------------------------------------
34
<PAGE>
- - -----------------------------------
NOTE 9. INCOME TAXES (Continued)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
- - ---------------------------------------------------------------------
1996 1995 1994
- - ---------------------------------------------------------------------
Current:
Federal $ 2,149 $ 3,990 $ 6,014
State (180) 956 959
- - ---------------------------------------------------------------------
Total current 1,969 4,946 6,973
- - ---------------------------------------------------------------------
Deferred:
Federal (1,296) (2,271) 109
State (174) (411) 13
- - ---------------------------------------------------------------------
Total deferred (1,470) (2,682) 122
- - ---------------------------------------------------------------------
Total current and deferred $ 499 $ 2,264 $ 7,095
- - ---------------------------------------------------------------------
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense is:
- - ---------------------------------------------------------------------
1996 1995 1994
- - ---------------------------------------------------------------------
Tax at U.S. statutory rates $ 539 $ 3,193 $ 6,325
State taxes (230) 342 597
Purchased R&D with no future
tax benefit 476 -- --
R&D tax credit (557) (1,353) --
Meals and entertainment 228 191 131
Goodwill 66 32 9
Increase in valuation allowance -- 203 --
Other (23) (344) 33
- - ---------------------------------------------------------------------
Income tax expense $ 499 $ 2,264 $ 7,095
- - ---------------------------------------------------------------------
- - ------------------------
NOTE 10. Stock Options
In 1982, the shareholders of the Company adopted a stock option plan which
provides for options to be granted to members of management and key
nonmanagement employees of the Company for the purchase of common stock. The
term of each option is determined at grant by the Board of Directors'
Compensation Committee. The plan, as amended in April 1993, provides that a
maximum of 1,500,000 shares are available for grant, and terminates on December
31, 2002.
35
<PAGE>
- - ------------------------------------
NOTE 10. Stock Options (Continued)
In February 1997, the Board of Directors adopted the 1997 Stock Incentive Plan
for the Company under which 1,000,000 shares of common stock are available for
future grants. The Board of Directors also approved the 1997 Stock Incentive
Plan for the Company's wholly-owned subsidiary, Rent Roll, Inc. (Rent Roll), and
recommended that the Rent Roll Board of Directors adopt such Plan under which
2,000,000 shares of Rent Roll's common stock are available for future grants.
The plans are subject to shareholder approval at the Company's annual meeting of
shareholders on May 1, 1997.
In May 1995, the shareholders of the Company approved a stock option plan which
provides for options to be granted to non-employee directors of the Company for
purchase of common stock. The plan provides that a maximum of 250,000 shares
are available for the grant of options and terminates on August 4, 2004.
The exercise price of the options (under the current plans) is determined by the
fair market value of the Company's common stock on the date of grant. Stock
options currently outstanding under both plans become exercisable in 20% annual
installments beginning in the year following the grant. Total options out-
standing which were exercisable amounted to 338,353 at December 31, 1996,
270,383 at December 31, 1995, and 260,582 at December 31, 1994.
Information with respect to these plans follows:
Management and Key Nonmanagement Employees
- - ---------------------------------------------------------------
Price per Number of
Options Share Shares
- - ---------------------------------------------------------------
Balance at Dec. 31, 1993 $ 3.56 - $ 6.25 917,300
1994 Activity:
Granted $ 8.25 - $ 9.00 125,000
Canceled $ 3.56 - $ 4.50 57,800
Exercised $ 3.56 - $ 4.50 100,918
- - ---------------------------------------------------------------
Balance at Dec. 31, 1994 $ 3.56 - $ 9.00 883,582
1995 Activity:
Granted $ 8.00 - $10.25 303,350
Canceled $ 3.56 - $10.25 52,000
Exercised $ 3.56 - $ 9.00 185,499
- - ---------------------------------------------------------------
Balance at Dec. 31, 1995 $ 3.56 - $10.25 949,433
1996 Activity:
Granted $15.63 - $16.00 160,000
Canceled $ 3.63 - $16.00 197,600
Exercised $ 3.56 - $ 9.00 142,650
- - ---------------------------------------------------------------
Balance at Dec. 31, 1996 $ 3.56 - $16.00 769,183
- - ---------------------------------------------------------------
Shares reserved for options
outstanding and future options
at Dec. 31, 1996 906,988
- - ---------------------------------------------------------------
36
<PAGE>
- - ------------------------------------
NOTE 10. Stock Options (Continued)
Non-Employee Directors
- - ---------------------------------------------------------------
Price per Number of
Options Share Shares
- - ---------------------------------------------------------------
Balance at Dec. 31, 1994 -- --
1995 Activity:
Granted $ 8.00 - $ 9.75 50,000
- - ---------------------------------------------------------------
Balance at Dec. 31, 1995 $ 8.00 - $ 9.75 50,000
1996 Activity:
Granted $15.75 12,500
- - ---------------------------------------------------------------
Balance at Dec. 31, 1996 $ 8.00 - $15.75 62,500
- - ---------------------------------------------------------------
Shares reserved for options outstanding
and future options at Dec. 31, 1996 250,000
- - ---------------------------------------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(SFAS123). The new accounting standards prescribed are optional, and the
Company has elected to continue accounting for its stock option plans under APB
Opinion No. 25, and has adopted the disclosure-only provisions of SFAS123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost been determined based on the fair value of the
options at the grant date for awards in 1995 and 1996, consistent with the
provisions of SFAS123, the Company's net earnings and earnings per share would
have been the pro forma amounts indicated below:
- - ---------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995
- - ---------------------------------------------------------------------
Pro forma net income $ 896 $ 11,601
Pro forma earnings per share $ 0.06 $ 0.81
- - ---------------------------------------------------------------------
Because SFAS123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1999.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
- - ---------------------------------------------------------------------
1996 1995
- - ---------------------------------------------------------------------
Risk-free interest rate 6.2% 6.3%
Expected dividend yield 2.5% 3.9%
Expected volatility 35.9% 37.2%
Expected lives 5.0 yrs 5.0 yrs
Weighted average remaining contractual life 5.0 yrs 5.8 yrs
- - ---------------------------------------------------------------------
37
<PAGE>
- - ------------------------------------
NOTE 10. Stock Options (Continued)
The weighted average fair value of options granted in 1996 and 1995 was $5.23
and $3.04, respectively.
Weighted average exercise prices are as follows:
- - ---------------------------------------------------------------------
1996 1995 1994
- - ---------------------------------------------------------------------
Outstanding at Jan. 1 $ 6.84 $ 4.89 $ 4.19
Granted 15.93 10.06 8.72
Canceled 10.13 5.33 4.03
Exercised 4.57 4.10 3.82
Outstanding at Dec. 31 8.33 6.84 4.89
Excercisable at Dec. 31 5.77 4.62 4.02
- - ---------------------------------------------------------------------
Certain information is being presented based on a range of exercise prices as
follows:
- - ---------------------------------------------------------------------
$ 3.56- $ 8.00- $ 15.63-
$ 6.25 $ 12.00 $ 16.00
- - ---------------------------------------------------------------------
Number of shares outstanding 324,833 394,350 112,500
Weighted-average exercise price
of shares outstanding $ 4.09 $ 9.66 $ 15.89
Weighted-average remaining
contractual life 3.5 yrs 6.0 yrs 6.0 yrs
Number of shares exercisable 226,083 109,770 2,500
Weighted-average exercise price
of shares exercisable $ 3.94 $ 9.33 $ 15.75
- - ---------------------------------------------------------------------
- - ----------------------------------
NOTE 11. DISCONTINUED OPERATIONS
In June 1995, the Company sold substantially all of the assets of its wholly-
owned subsidiary, Electronic Form Systems Incorporated (EFS), to Vanier Graphics
Corporation, a wholly-owned subsidiary of American Business Products, Inc.
(ABP). The operating results of EFS were treated as discontinued operations.
As consideration for the sale, the Company received cash of $3.0 million, shares
of ABP common stock valued at $6.0 million and a receivable for $0.8 million,
which was paid in full by October 1995. The sale resulted in a gain of $4.7
million, net of taxes of $3.1 million.
The ABP common stock received was subsequently sold on the open market with an
immaterial gain, and the proceeds are included in proceeds from sale of short-
term investments on the Consolidated Statements of Cash Flows.
38
<PAGE>
Report of Ernst & Young LLP,
Independent Auditors
To the Board of Directors and Shareholders
of Computer Language Research, Inc.
We have audited the accompanying consolidated balance sheets of Computer
Language Research, Inc. (the "Company") as of December 31, 1996, and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1996, and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
February 14, 1997
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Directors of the Company is incorporated herein by
reference to the Company's Definitive Proxy Statement for the Company's Annual
Meeting of Shareholders. It is expected such Proxy Statement will be filed with
the Securities and Exchange Commission no later than 120 days subsequent to
December 31, 1996.
Information concerning the executive officers of the Company is as follows:
EXECUTIVE
OFFICER
AGE OFFICE SINCE
--- -------------------------- ---------
Charles A. Cappiccille 50 Group Vice President 1996
Bank Market
James J. Charles 50 Group Vice President 1996
Core Technology
Robert H. Dilworth 50 Vice President, 1995
Business Development
and Investor Relations
Lynn J. Finlinson 49 President 1996
Rent Roll, Inc.
Douglas H. Gross 53 Vice President, 1990
Secretary, and
General Counsel
G. Allen Harris 46 Group Vice President 1996
Corporate Tax Market
M. Brian Healy 53 Group Vice President, 1989
Finance and Administration
and Chief Financial Officer
Charles W. Hill 57 Controller and Treasurer 1987
William T. Lynch 50 Group Vice President 1996
Accounting Tax Market
Francis W. Winn 79 Chairman of the Board 1969
Stephen T. Winn 50 President, Chief Executive 1971
Officer, and Director
40
<PAGE>
Mr. Cappiccille is the Group Vice President of the bank segment with
responsibility for sales, marketing, product development, and support. He
joined the Company in July 1992 with the acquisition of FTS Corporation. He had
been associated with FTS since its inception in 1981 and was with CCH Computax
from 1986 until 1992.
Mr. Charles joined the Company in 1983 and has served as the leader of various
business units of the Company including bank, corporate, partnership, and
product development. Prior to joining the Company (1979 to 1983), he was a
founder, partner, and senior vice president of operations for Just Technical
Associates (JTA), which provided systems programming and strategic planning to
technology related industries. Prior to joining JTA, he was employed by
Electronic Data Systems where he served in various technical and managerial
positions. Currently he serves on the technical advisory councils of Lotus
Development and Sybase Corporations.
Mr. Dilworth joined the Company in May 1975 as a salesman serving in various
sales and sales management positions and led the sales and marketing department
of the Company's bank segment from June 1982 until January 1993. Mr. Dilworth
was elected Vice President of the bank segment in January 1992. In January
1993, Mr. Dilworth became the Vice President of Business Development and began
the Company's strategic acquisition program and, in 1994, also assumed Investor
Relations responsibilities. Prior to joining the Company, Mr. Dilworth served
in various sales and sales management positions in other companies, including
ATV Manufacturing, the Sauter Labs division of Hoffmann La-Roche, and EDS.
Mr. Finlinson serves as President of Rent Roll, Inc., which was acquired by CLR
in June of 1995 and later incorporated as a wholly-owned subsidiary in December
of that year. Mr. Finlinson has over 17 years of experience in the real estate
industry including management, property development, investment, and software
development. Prior to joining CLR, he was a founding owner and CEO of Rent
Roll, Inc., a software and services provider to the multifamily housing
management industry, for over eight years.
Mr. Gross joined the Company as General Counsel and was elected Secretary in
March 1990; in February 1993, he was elected a Vice President. From September
1987 until joining the Company, he served as General Counsel to Redman
Industries, the country's second largest builder of manufactured housing and a
manufacturer of building products. From January 1986 until September 1987, he
served as General Counsel to MidSouth Pepsi Bottling, Inc., the country's
largest, privately held Pepsi-Cola franchisee. Prior to 1986 Mr. Gross served
in the law departments of Westinghouse Electric Corporation and PepsiCo, Inc.
Mr. Harris joined the Company in February 1994 and serves as the Group Vice
President of the corporate segment with responsibility for product development,
sales, marketing, and support for all products delivered to the corporate
marketplace. Mr. Harris has more than 23 years of experience in the information
technology industry. He was formerly a management consulting partner with Ernst
& Young and held a key position with Dun & Bradstreet Software, formerly MSA
Software.
Mr. Healy, a Certified Public Accountant, joined the Company in August 1989 as
Group Vice President of Finance and Administration and Chief Financial Officer.
Prior to joining the Company, he was Senior Vice President and Chief Financial
Officer at the Talent Tree Corporation, a temporary help firm, from 1988 to
1989. From 1985 to 1988, Mr. Healy was Vice President, Finance, and Chief
Financial Officer for Redman Industries, the country's second largest builder of
41
<PAGE>
manufactured housing and a manufacturer of building products. For eleven years
prior to 1985 he held various executive positions with Anthony Industries, Inc.,
a California-based manufacturer of recreational and industrial products.
Mr. Hill, a Certified Public Accountant, joined the Company in 1987. Prior to
joining the Company, he was Senior Vice-President, Finance and Administration,
with Peer Services, Inc., a banking data services company, for six years. He
has served in various financial management positions in other companies
including Audit Partner with Main, Hurdman and Co.
Mr. Lynch joined the Company in October 1978 in a sales and operations position.
Since joining the Company, he has served in various sales, marketing, and
operational capacities. Prior to joining the Company, he was employed by CCH
Computax, Inc. for 10 years in various technical and managerial positions.
Francis W. Winn, the founder of the Company and a Director since 1969, served as
its Chairman of the Board and President from February 1969 until May 1977, and
continues to serve as Chairman of the Board. Prior to founding the Company, Mr.
Winn was employed by various petroleum or petroleum-related companies in
research management. Mr. Winn is the father of Stephen T. Winn and Dr. David L.
Winn and the father-in-law of James R. Dunaway, Jr., all Directors of the
Company.
Stephen T. Winn has served as a Director since 1969 and as President and Chief
Executive Officer since May 1977. Mr. Winn served as Executive Vice President
from 1971 until his election as President in 1977. Mr. Winn was selected as a
Sloan Fellow at Stanford University in 1980 and holds an M.M.S. degree in
Management Science from Stanford. He has served as a member of the Stanford
University Sloan Advisory Board, American Business Conference, and the American
Electronics Association.
All directors hold office until the next annual meeting of the shareholders of
the Company and until their successors are elected and qualified. The executive
officers are elected annually by the Board of Directors following the annual
meeting of the shareholders and serve until their successors are duly elected
and qualified.
Based solely on the review of the copies of such forms furnished to the Company,
or written representations that no Forms 5 were required, the Company believes
that during 1996 all Section 16 (a) filing requirements applicable to its
greater than 10% beneficial owners, directors, and officers were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's Definitive Proxy Statement
for the Company's Annual Meeting of Shareholders except as set forth in such
Proxy Statement. It is expected such Proxy Statement will be filed with the
Securities and Exchange Commission no later than 120 days subsequent to
December 31, 1996.
42
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's Definitive Proxy Statement
for the Company's Annual Meeting of Shareholders except as set forth in such
Proxy Statement. It is expected such Proxy Statement will be filed with the
Securities and Exchange Commission no later than 120 days subsequent to
December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's Definitive Proxy Statement
for the Company's Annual Meeting of Shareholders except as set forth in such
Proxy Statement. It is expected such Proxy Statement will be filed with the
Securities and Exchange Commission no later than 120 days subsequent to
December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The consolidated financial statements included in Item 8, Financial
Statements and Supplementary Data, are set forth in the Index to
Financial Statements and Financial Statement Schedules listed on page
46 of this report.
2. Financial Statement Schedules
The consolidated financial statement schedule is set forth in the
Index to Financial Statements and Financial Statement Schedules listed
on page 46 of this report.
3. Exhibits
The following documents are filed or incorporated by reference as
exhibits to this report. The exhibit numbers in the exhibit list
correspond to the numbers assigned to such exhibits in the Exhibit
Table of Item 601 of Regulation S-K:
2.01 Asset Purchase Agreement dated June 23, 1995, between
Electronic Form Systems Incorporated, a wholly-owned
subsidiary of Registrant, and Vanier Graphics Corporation, a
wholly-owned subsidiary of American Business Products, Inc.,
(incorporated herein by reference to Registrant's Current
Report on Form 8-K dated June 30, 1995, filed with the
Securities and Exchange Commission).
2.02 Agreement for the Purchase and Sale of Certain Assets dated
December 2, 1995, between Registrant and Price Waterhouse LLP,
(incorporated herein by reference to Exhibit 2.01 to
Registrant's Current Report on Form 8-K dated December 18,
1995, filed with the Securities and Exchange Commission).
43
<PAGE>
3.01 Articles of Incorporation of Registrant filed with the State
of Texas on February 26, 1969, (incorporated herein by
reference to Exhibit 3.01 to Registrant's Amendment No. 1 to
Registration Statement on Form S-1, Registration No. 2-83286,
filed with the Securities and Exchange Commission).
3.02 Amendment to Articles of Incorporation of Registrant filed
with the State of Texas on September 14, 1982, (incorporated
herein by reference to Exhibit 3.02 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993,
filed with the Securities and Exchange Commission).
3.03 Amendment to Articles of Incorporation of Registrant filed
with the State of Texas on September 14, 1982, (incorporated
herein by reference to Exhibit 3.03 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993,
filed with the Securities and Exchange Commission).
3.04 Amendment to Articles of Incorporation of Registrant filed
with the State of Texas on April 22, 1983, (incorporated
herein by reference to Exhibit 3.04 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993,
filed with the Securities and Exchange Commission).
3.05 Amendment to Articles of Incorporation of Registrant filed
with the State of Texas on May 25, 1983, (incorporated herein
by reference to Exhibit 3.05 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993, filed with the
Securities and Exchange Commission).
3.06 Amendment to Articles of Incorporation of Registrant filed
with the State of Texas on June 24, 1988, (incorporated herein
by reference to Exhibit 3.06 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993, filed with the
Securities and Exchange Commission).
3.07 Amended and restated Bylaws of Registrant, effective February
22, 1996, and included herewith.
4.01 Definitive Specimen Stock Certificate representing shares of
Common Stock (incorporated herein by reference to Exhibit 4.01
to Registrant's Amendment No. 1 to Registration Statement on
Form S-1, Registration No. 2-83286, filed with the Securities
and Exchange Commission).
10.01 Registrant's 1982 Stock Option Plan (incorporated herein by
reference to Exhibit 10.05 to Registrant's Registration
Statement on Form S-1, Registration No. 2-83286, filed with the
Securities and Exchange Commission).
10.02 Amendment to Registrant's 1982 Stock Option Plan as of April
28, 1988, (incorporated herein by reference to Exhibit 10.06 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988, filed with the Securities and Exchange
Commission).
44
<PAGE>
10.03 Second Amendment to Registrant's 1982 Stock Option Plan as of
April 27, 1993, (incorporated herein by reference to Exhibit
10.03 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993, filed with the Securities and Exchange
Commission).
10.04 Registrant's Non-Employee Directors' 1994 Stock Option Plan
(incorporated herein by reference to Exhibit 99.1 to
Registrant's Registration Statement on Form S-8, Registration
No. 33-61457, filed with the Securities and Exchange
Commission).
10.05 Registrant's 1989 Annual Incentive Plan (incorporated herein by
reference to Exhibit 10.05 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989, filed with the
Securities and Exchange Commission).
10.06 Amendment 1 to Registrant's 1989 Annual Incentive Plan as of
February 21, 1989, (incorporated herein by reference to Exhibit
10.06 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, filed with the Securities and Exchange
Commission).
10.07 Amendment 2 to Registrant's 1989 Annual Incentive Plan as of
February 27, 1992, (incorporated herein by reference to Exhibit
10.06 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993, filed with the Securities and Exchange
Commission).
10.08 Employment, Confidentiality & Noncompete Agreement dated June
16, 1995, between Registrant and Lynn J. Finlinson
(incorporated herein by reference to Exhibit 10.09 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Securities and Exchange
Commission).
21.01 Subsidiaries of Computer Language Research, Inc.
23.01 Consent of Ernst & Young LLP, independent auditors.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the fourth
quarter of 1996.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ITEM 14 (a)
Page
----
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1996 and 1995 ........ 22
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995, and 1994 ................................ 24
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995, and 1994 .................... 25
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995, and 1994 .......................... 26
Notes to Consolidated Financial Statements ........................ 27
Report of Independent Auditors .................................... 39
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts ................... 47
All other schedules are omitted as the required information is inapplicable.
46
<PAGE>
SCHEDULE II
COMPUTER LANGUAGE RESEARCH, INC.
VALUATION AND QUALIFYING ACCOUNTS
For Each of the Three Years in the Period Ended December 31, 1996
(In thousands)
Allowance for Doubtful Accounts
-------------------------------
Charged to
Beginning Costs and Deductions Ending
Year Balance Expenses and Other Balance
---- --------- ---------- ---------- -------
1994 $ 989 $ 278 $ 662 $ 605
1995 $ 605 $ 271 $ 268 $ 608
1996 $ 608 $ 187 $ (5) $ 800
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMPUTER LANGUAGE RESEARCH, INC.
By: M. Brian Healy
----------------------------------
M. Brian Healy
Group Vice President, Finance and
Administration and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
Date: March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated on March 21, 1997.
Francis W. Winn Max D. Hopper
- - ---------------------------------- ----------------------------------
Francis W. Winn Max D. Hopper
Chairman of the Board Director
Stephen T. Winn Merle J. Volding
- - ---------------------------------- ----------------------------------
Stephen T. Winn Merle J. Volding
President, Chief Executive Director
Officer, and Director
(Principal Executive Officer)
M. Brian Healy David L. Winn
- - ---------------------------------- ----------------------------------
M. Brian Healy David L. Winn
Group Vice President, Finance Director
and Administration and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
James R. Dunaway
- - ----------------------------------
James R. Dunaway
Director
48
<PAGE>
BYLAWS
OF
COMPUTER LANGUAGE RESEARCH, INC.
AS RESTATED TO REFLECT ALL AMENDMENTS THROUGH FEBRUARY 22, 1996
ARTICLE ONE. OFFICES
The Corporation may have, in addition to its registered office, offices and
places of business at such places, both within and without the State of Texas,
as the Board of Directors may from time to time determine or the business and
affairs of the Corporation may require.
ARTICLE TWO. STOCKHOLDERS MEETINGS
SECTION 1. ANNUAL MEETINGS. An annual meeting of the stockholders,
commencing with the year 1984, shall be held at a date and time as may be
designated by the Board of Directors, at which they shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation or by these Bylaws, may be called by the Chairman of
the Board, the President, the Board of Directors, or the holders of not less
than one-tenth in number of all the shares entitled to vote at the meetings.
SECTION 3. PLACE OF MEETINGS. Meetings of stockholders shall be held at
such places, within or without the State of Texas as may from time to time be
fixed by the Board of Directors or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 4. VOTING LIST. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the Corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder during the whole time
of the meeting. The original stock transfer books shall be prima facie evidence
as to who are the stockholders entitled to examine such list or transfer books
or to vote at any meeting of stockholders.
SECTION 5. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of each meeting of the stockholders and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, by or at the direction of the
President, the Secretary or the body, officer or person calling the meeting, to
each stockholder of record entitled to vote at the meeting.
<PAGE>
SECTION 6. QUORUM OF STOCKHOLDERS. The holders of a majority of the
shares entitled to vote thereat, present in person or represented by proxy,
shall be requisite to and shall constitute a quorum at each meeting of
stockholders for the transaction of business, except as otherwise provided by
statute, by the Articles of Incorporation or by these Bylaws. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified. When a quorum is present at any meeting,
the vote of the holders of a majority of the shares entitled to vote, and
present in person or represented by proxy, shall be the act of the stockholders
meeting, unless the vote of a greater number is required by statute, by the
Articles of Incorporation or by these Bylaws, in which case the vote of such
greater number shall be requisite to constitute the act of the meeting. The
stockholders present or represented at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 7. VOTING OF SHARES. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders, except as and to the extent otherwise provided by statute or by
the Articles of Incorporation. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote either in person
or by proxy executed in writing by such stockholder or by his duly authorized
attorney in fact. No proxy shall be valid after eleven (11) months from the
date of its execution unless otherwise provided in the proxy. Each proxy shall
be revocable unless expressly provided therein to be irrevocable, and unless
otherwise made irrevocable by law. Each proxy shall be filed with the Secretary
of the Corporation prior to or at the time of the meeting.
ARTICLE THREE. BOARD OF DIRECTORS
SECTION 1. MANAGEMENT OF THE CORPORATION. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors, who may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Articles of Incorporation
or by these bylaws directed or required to be exercised or done by the
stockholders.
SECTION 2. NUMBER AND QUALIFICATIONS. The Board of Directors shall
consist of a maximum of nine (9) and a minimum of six (6) directors, the precise
number being set within such range from time to time by resolution of the Board
of Directors without amendment to these Bylaws; provided, that no decrease in
the number of directors shall have the effect of shortening the term of any
incumbent director. None of the directors need be stockholders of the
Corporation or residents of the State of Texas. A director, except founding-
director Francis W. Winn, may not stand for re-election to the Board after
attaining his 72nd birthday, unless and until the Board of Directors shall, in
its annual nominating resolution, have resolved it to be in the best interests
of the Corporation for an affected Director to so stand.
<PAGE>
SECTION 3. ELECTION AND TERM OF OFFICE. At each annual meeting of
stockholders, the stockholders shall elect directors to hold office until the
next succeeding annual meeting. At each election, the nominees receiving the
affirmative vote of holders of a majority of the shares of the common stock
present at the meeting electing directors, either in person or by proxy, shall
be elected directors. Each director elected shall hold office for the term for
which he is elected and until his successor shall have been elected and
qualified or until his earlier death, resignation, retirement, disqualification
or removal.
SECTION 4. REMOVAL AND FILLING OF VACANCIES. Any director may be removed
either for or without cause at any special meeting of stockholders by the
affirmative vote of a majority in number of shares of the stockholders present
in person or represented by proxy at such meeting and entitled to vote for the
election of such director, if notice of the intention to act upon such matter
shall have been given in the notice calling such meeting. Any vacancy occurring
in the Board of Directors, resulting from the death, resignation, retirement,
disqualification or removal from office of any director, or as the result of an
increase in the number of directors, may be filled by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, or may be filled by election at any annual meeting of the
stockholders or at a special meeting of the stockholders called for that
purpose.
SECTION 5. PLACE OF MEETINGS. Meetings of the Board of Directors, annual,
regular or special, may be held either within or without the State of Texas.
SECTION 6. ANNUAL MEETINGS. The first meeting of each newly elected Board
of Directors shall be held for the purpose of organization and the transaction
of any other business, without notice, immediately following the annual meeting
of stockholders, and at the same place, unless by unanimous consent of the
directors then elected and serving such time or place shall be changed.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors,
of which no notice shall be necessary shall be held at such times and places as
may be fixed from time to time by resolution adopted by the Board and
communicated to all directors. Except as otherwise provided by statute, the
Articles of Incorporation, or by these Bylaws, any and all business may be
transacted at any regular meeting.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on twenty-four (24)
hours' notice to each director, either personally, or by telephone, or by mail
or by telegram. Special meetings shall be called by the President or Secretary
in like manner and on like notice on the written request of two (2) directors.
Except as may be otherwise expressly provided by statute or by the Articles of
Incorporation or by these Bylaws, neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 9. QUORUM AND MANNER OF ACTING. At all meetings of the Board of
Directors the presence of a majority of the number of directors fixed by the
Board of Directors pursuant to Article 3, Section 2, as amended, shall be
necessary and sufficient to constitute a quorum for the transaction of business
except as otherwise provided by statute, by the Articles of Incorporation or by
these Bylaws. The act of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors unless the
<PAGE>
act of a greater number shall be required by statute, by the Articles of
Incorporation or by these Bylaws, in which case the act of such greater number
shall be requisite to constitute the act of the Board. If a quorum shall not be
present at any meeting of the directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present. At any such adjourned meeting any
business may be transacted which might have been transacted at the meeting as
originally convened.
SECTION 10. DIRECTORS' COMPENSATION. The Board of Directors shall have
authority to determine, from time to time, the amount of compensation, if any,
which shall be paid to its members for their services as directors and as
members of standing or special committees. The Board of Directors shall also
have power in its discretion to provide for and to pay to directors rendering
services to the Corporation not ordinarily rendered by directors as such,
special compensation appropriate to the value of such services as determined by
the Board of Directors from time to time. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE FOUR. NOTICES
SECTION 1. MANNER OF GIVING NOTICE. Whenever, under the provisions of the
statutes or the Articles of Incorporation or of these Bylaws, notice is required
to be given to any committee member, director or stockholder of the Corporation,
and no provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing
by mail, postage prepaid, addressed to such member, director or stockholder at
his address as it appears on the records or (in the case of stockholders) the
stock transfer books of the Corporation. Any notice required or permitted to be
given by mail shall be deemed to be delivered at the time when the same shall be
thus deposited in the United States mails, as aforesaid.
SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be given
to any committee member, director or stockholder of the Corporation under the
provisions of the statutes or of the Articles of Incorporation or of these
Bylaws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance of a director at a meeting
of the Board of Directors shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
ARTICLE FIVE. EXECUTIVE COMMITTEE
SECTION 1. CONSTITUTION AND POWERS. The Board of Directors, by resolution
adopted by affirmative vote of a majority of the number of directors fixed by
these Bylaws, may designate two or more directors (with such alternates, if any,
as may be deemed desirable) to constitute an Executive Committee, which
Executive Committee shall have and may exercise, when the Board of Directors is
not in session, all of the authority and powers of the Board of Directors in
business and affairs of the Corporation, even though such authority and powers
be herein provided or directed to be exercised by a designated officer of the
Corporation; provided, that the foregoing shall not be construed as authorizing
<PAGE>
action by the Executive Committee with respect to any action which by statute,
the Articles of Incorporation or these Bylaws is required to be taken by vote of
a specified proportion of the number of directors fixed by these Bylaws, or any
other action required or specified by the Texas Business Corporation Act or
other applicable law or by these Bylaws or by the Articles of Incorporation to
be taken by the Board of Directors, as such. The designation of the Executive
Committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors or any member thereof of any responsibility imposed upon
it or him by law. So far as practicable, members of the Executive Committee and
their alternates (if any) shall be appointed by the Board of Directors at its
first meeting after each annual meeting of stockholders and, unless sooner
discharged by affirmative vote of a majority of the number of directors fixed by
these Bylaws, shall hold office until their respective successors are appointed
and qualify or until their earlier respective deaths, resignations, retirements
or disqualifications.
SECTION 2. MEETINGS. Regular meetings of the Executive Committee, of
which no notice shall be necessary, shall be held at such times and places as
may be fixed from time to time by resolution adopted by affirmative vote of a
majority of the whole Committee and communicated to all the members thereof.
Special meetings of the Executive Committee may be called by the Chairman of the
Board, the President or any two members thereof at any time on twenty-four (24)
hours' notice to each member, either personally or by mail or telegram. Except
as may be otherwise expressly provided by statute or by the Articles of
Incorporation or by these Bylaws, neither the business to be transacted at, nor
the purpose of, any meeting of the Executive Committee need be specified in the
notice or waiver of notice of such meeting. A majority of the Executive
Committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at any meeting at which a quorum is present shall
be the act of the Executive Committee. The members of the Executive Committee
shall act only as a committee, and the individual members shall have no power as
such. The Committee, at each meeting thereof, may designate one of its members
to act as chairman and preside at the meeting or, in its discretion, may appoint
a chairman from among its members to preside at all its meetings held during
such period as the Committee may specify.
SECTION 3. RECORDS. The Executive Committee shall keep a record of its
acts and proceedings and shall report the same, from time to time, to the Board
of Directors. The Secretary of the Corporation, or, in his absence, an
Assistant Secretary, shall act as secretary of the Executive Committee, or the
Committee may, in its discretion, appoint its own secretary.
SECTION 4. VACANCIES. Any vacancy in the Executive Committee may be
filled by affirmative vote of a majority of the number of directors fixed by
these Bylaws.
ARTICLE SIX. OTHER COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors may, by resolution adopted by affirmative vote of a
majority of the number of Directors fixed by these Bylaws, designate two or more
directors with such alternates, if any, as may be deemed desirable to constitute
another committee or committees for any purpose provided, that any such other
committee or committees shall have and may exercise only the power of
recommending action to the Board of Directors and Executive Committee and of
carrying out and implementing any instructions or any policies, plans and
programs theretofore approved, authorized and adopted by the Board of Directors.
<PAGE>
ARTICLE SEVEN. OFFICERS, EMPLOYEES AND AGENTS POWERS AND DUTIES
SECTION 1. ELECTED OFFICERS. The elected officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice Presidents as
may be determined from time to time by the Board (and in case of each such Vice
President, with such descriptive title, if any , as the Board of Directors shall
deem appropriate), a Secretary and a Treasurer. None of the elected officers,
with the exception of the Chairman of the Board, need be a member of the Board
of Directors.
SECTION 2. ELECTION. So far as is practicable, all elected officers shall
be elected by the Board of Directors at its first meeting after each annual
meeting of stockholders.
SECTION 3. APPOINTIVE OFFICERS. The Board of Directors may also appoint
one or more Assistant Secretaries and Assistant Treasurers and such other
officers and assistant officers and agents (none of whom need be a member of the
Board) as it shall from time to time deem necessary, who shall exercise such
powers and perform such duties as shall be set forth in these Bylaws or
determined from time to time by the Board or by the Executive Committee.
SECTION 4. TWO OR MORE OFFICES. Any two (2) or more offices may be held
by the same person, except that the President and Secretary shall not be the
same person.
SECTION 5. COMPENSATION. The compensation of Board members, the Chairman
of the Board and the President shall be fixed from time to time by the Board of
Directors. The Board of Directors or the Executive Committee may from time to
time delegate to the President the authority to fix the compensation of any or
all of the other officers of the Corporation; however, the Board of Directors or
the Executive Committee will approve officer compensation.
SECTION 6. TERM OF OFFICE; REMOVAL; FILLING OF VACANCIES. Each elected
officer of the Corporation shall hold office until his successor is chosen and
qualified in his stead or until his earlier death, resignation, retirement,
disqualification or removal from office. Each appointive officer shall hold
office at the pleasure of the Board of Directors without the necessity of
periodic reappointment. Any officer or agent elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors whenever in
its judgment the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
when present at all meetings of the stockholders and the Board of Directors. He
shall advise and counsel the President and other officers of the Corporation and
shall exercise such powers and perform such duties as shall be assigned to or
required of him from time to time by the Board of Directors or the Executive
Committee.
SECTION 8. PRESIDENT. The President shall be the chief executive officer
of the Corporation and, subject to the provisions of these Bylaws, shall have
general supervision of the affairs of the Corporation and shall have general and
active control of all its business. In the absence of the Chairman of the Board
or if such officer shall not have been elected or be serving, the President
<PAGE>
shall preside when present at meetings of the stockholders and the Board of
Directors. He shall have general authority to execute bonds, deeds and
contracts in the name of the Corporation and to affix the corporate seal
thereto; to sign stock certificates; to cause the employment or appointment of
such employees and agents of the Corporation as the proper conduct of operations
may require and to fix their compensation, subject to the provisions of these
Bylaws; to remove or suspend any employee or agent who shall have been employed
or appointed under his authority or under authority of an officer subordinate to
him; to suspend, pending final action by the authority which shall have elected
or appointed him, any officer subordinate to the President, and in general to
exercise all the powers usually appertaining to the office of president of a
corporation, except as otherwise provided by statute, the Articles of
Incorporation or these Bylaws. In the absence or disability of the President,
his duties shall be performed and his powers may be exercised by the Vice
Presidents in the order of their seniority, unless otherwise determined by the
President, the Executive Committee or the Board of Directors.
SECTION 9. VICE PRESIDENTS. Each Vice President shall generally assist
the President and shall have such powers and perform such duties and services as
shall from time to time be prescribed or delegated to him by the President, the
Executive Committee or the Board of Directors.
SECTION 10. SECRETARY. The Secretary shall see that notice is given of
all meetings of the stockholders and special meetings of the Board of Directors
and shall keep and attest true records of all proceedings at all meetings
thereof. He shall have charge of the corporate seal and have authority to
attest any and all instruments or writings to which the same may be affixed. He
shall keep and account for all books, documents, papers and records of the
Corporation except those for which some other officer or agent is properly
accountable. He shall have authority to sign stock certificates and shall
generally perform all duties usually appertaining to the office of secretary of
a corporation. In the absence or disability of the Secretary, his duties shall
be performed and his powers may be exercised by the Assistant Secretaries in the
order of their seniority, unless otherwise determined by the Secretary, the
President, the Executive Committee or the Board of Directors.
SECTION 11. ASSISTANT SECRETARIES. Each Assistant Secretary shall
generally assist the Secretary and shall have such powers and perform such
duties and services as shall from time to time be prescribed or delegated to him
by the Secretary, the President, the Executive Committee or the Board of
Directors.
SECTION 12. TREASURER. The Treasurer shall be the chief accounting and
financial officer of the Corporation and shall have active control of and shall
be responsible for all matters pertaining to the accounts and finances of the
Corporation. He shall audit all payrolls and vouchers of the Corporation and
shall direct the manner of certifying the same; shall supervise the manner of
keeping all vouchers for payments by the Corporation and all other documents
relating to such payments; shall receive, audit and consolidate all operating
and financial statements of the Corporation and its various departments; shall
have supervision of the books of account of the Corporation, their arrangement
and classification; shall supervise the accounting and auditing practices of the
Corporation, their arrangement and classification; shall supervise the
accounting and auditing practices of the Corporation and shall have charge of
all matters relating to taxation. The Treasurer shall have the care and custody
of all monies, funds and securities of the Corporation; shall deposit or cause
to be deposited all such funds in and with such depositories as the Board of
<PAGE>
Directors of the Executive Committee shall from time to time direct or as shall
be selected in accordance with procedure established by the Board or Executive
Committee; shall advise upon all terms of credit granted by the Corporation;
shall be responsible for the collection of all its accounts and shall cause to
be kept full and accurate accounts of all receipts and disbursements of the
Corporation. He shall have the power to endorse for deposit or collection or
otherwise all checks, drafts, notes, bills of exchange or other commercial
papers payable to the Corporation and to give proper receipts or discharges for
all payments to the Corporation. The Treasurer shall generally perform all
duties usually appertaining to the office of treasurer of a corporation. In the
absence or disability of the Treasurer, his duties shall be performed and his
powers may be exercised by the Assistant Treasurers in the order of their
seniority, unless otherwise determined by the Treasurer, the President, the
Executive Committee or the Board of Directors.
SECTION 13. ASSISTANT TREASURERS. Each Assistant Treasurer shall
generally assist the Treasurer and shall have such powers and perform such
duties and services as shall from time to time be prescribed or delegated to him
by the Treasurer, the President, the Executive Committee or the Board of
Directors.
SECTION 14. ADDITIONAL POWERS AND DUTIES. In addition to the foregoing
especially enumerated duties, services and powers, the several elected and
appointed officers of the Corporation shall perform such other duties and
services and exercise such further powers as may be provided by statute, the
Articles of Incorporation or these Bylaws, or as the Board of Directors or the
Executive Committee may from time to time determine or as may be assigned to
them by any competent superior officer.
ARTICLE EIGHT. SHARES AND TRANSFERS OF SHARES
SECTION 1. CERTIFICATES REPRESENTING SHARES. Certificates in such form as
may be determined by the Board of Directors and as shall conform to the
requirements of the statutes, the Articles of Incorporation and these Bylaws
shall be delivered representing all shares to which stockholders are entitled.
Such certificates shall be consecutively numbered and shall be entered in the
books of the Corporation as they are issued. Each certificate shall state on
the face thereof that the Corporation is organized under the laws of Texas, the
holder's name, the number and class of shares, and the par value of such shares
or a statement that such shares are without par value. Each certificate shall
be signed by the President or a Vice President and the Secretary or an Assistant
Secretary and may be sealed with the seal of the Corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent or registered
by a registrar, either of which is other than the Corporation or any employee of
the Corporation, the signature of any such officers may be facsimile.
SECTION 2. LOST CERTIFICATES. The Board of Directors, the Executive
Committee, the President or such other officer or officers or any agent of the
Corporation as the Board of Directors may from time to time designate, in its or
his discretion, may direct a new certificate representing shares to be issued in
place of any certificate theretofore issued by the Corporation alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors, the
Executive Committee, the President or any such other officer or agent in its or
his discretion and as a condition precedent to the issuance thereof, may require
<PAGE>
the owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as it or he shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it or he may direct, as indemnity against any claim that
may be made against the Corporation with respect to the certificate alleged to
have been lost, stolen or destroyed.
SECTION 3. TRANSFERS OF STOCK. Shares of stock shall be transferable only
on the books of the Corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer with all required stock transfer tax stamps affixed thereto and
cancelled or accompanied by sufficient funds to pay such taxes, it shall be the
duty of the Corporation or the transfer agent of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
SECTION 4. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
treat the holder of record of any shares of its stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE NINE. MISCELLANEOUS
SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the statutes and of the Articles of
Incorporation, may be declared by the Board of Directors at any regular or
special meeting. Dividends may be declared and paid in cash, in property, or in
shares of the Corporation, or in any combination thereof.
SECTION 2. RESERVES. There may be created from time to time by resolution
of the Board of Directors, out of the earned surplus of the Corporation, such
reserve or reserves as the directors from time to time in their discretion think
proper to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purpose as the
directors shall think beneficial to the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
SECTION 3. SIGNATURE OF NEGOTIABLE INSTRUMENTS. All bills, notes, checks
or other instruments for the payment of money shall be signed or countersigned
by such officer, officers, agent or agents, and in such manner, as are permitted
by these Bylaws and as from time to time may be prescribed by resolution
(whether general or special) of the Board of Directors or the Executive
Committee.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 5. SEAL. The seal of the Corporation shall be in such form as
shall be adopted and approved from time to time by the Board of Directors. The
seal may be used by causing it, or a facsimile thereof, to be impressed,
affixed, imprinted or in any manner reproduced.
<PAGE>
SECTION 6. INDEMNIFICATION. Repealed in its entirety by Resolution of the
Board of Directors on 10/31/91.
SECTION 7. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. For the
purpose of determining stockholders entitled to notice or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may provide that the stock transfer books
of the Corporation shall be closed for a stated period but not to exceed, in any
case, sixty (60) days. If the stock transfer books shall be closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed at least ten (10) days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of stockholders, such date in any case not to be more
than sixty (60) days and, in case of a meeting of stockholders, not less than
ten (10) days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of stockholders. When a determination of stockholders
entitled to vote at any meeting has been made as provided in this Section, such
determination shall apply to any adjournment thereof except where the
determination has been made through the closing of stock transfer books and the
stated period of closing has expired.
SECTION 8. SURETY BONDS. Such officers and agents of the Corporation (if
any) as the Board of Directors may direct from time to time shall be bonded for
the faithful performance of their duties and for the restoration to the
Corporation, in case of their death, resignation, retirement, disqualification
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Corporation, in such amounts and by such surety companies as the Board of
Directors may determine. The premiums on such bonds shall be paid by the
Corporation, and the bonds so furnished shall be in the custody of the
Secretary.
ARTICLE TEN. AMENDMENTS
These Bylaws may be altered, amended or repealed or new bylaws may be
adopted at any meeting of the stockholders at which a quorum is present or
represented, by the affirmative vote of the holders of a majority of the shares
present or represented by proxy at such meeting and entitled to vote thereat,
provided notice of the proposed alteration, amendment or repeal or adoption be
contained in the notice of such meeting. The power to alter, amend or repeal
these Bylaws or to adopt new bylaws has been delegated by the stockholders to
the Board of Directors pursuant to Article Ten of the Articles of Incorporation.
ARTICLE ELEVEN. INDEMNIFICATION
SECTION 1. DEFINITIONS. For purposes of this Article Eleven:
<PAGE>
(1) "Director" means any person who is or was a director of the
Corporation and any person who, while a director of the Corporation, is or
was serving at the request of the Corporation as a director, officer,
partners, venturer, proprietor, trustee, employee, agent, or similar
functionary of any other foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise.
(2) "Expenses" include court costs and attorney's fees.
(3) "Official Capacity" means:
(a) when used with respect to a director, the office of director
in the Corporation; and
(b) when used with respect to a person other than a director,
the elective or appointive office in the Corporation held by the
officer or the employment or agency relationship undertaken by the
employee or agent in behalf of the Corporation, but
(c) in both paragraphs (a) and (b) does not include service for
any other foreign or domestic corporation or any partnership, joint
venture, sole proprietorship, trust employee benefit plan, or other
enterprise.
(4) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, arbitrative,
or investigative, any appeal in such an action, suit, or proceeding, and
any inquiry or investigation that could lead to such an action, suit, or
proceeding.
SECTION 2. STANDARD FOR INDEMNIFICATION. The Corporation shall indemnify
a person who was, is, or is threatened to be made a named defendant or
respondent in a proceeding because the person is or was a director of the
Corporation only if it is determined in accordance with Section 11.06 that the
person:
(1) conducted himself in good faith;
(2) reasonably believed:
(a) in the case of conduct in his official capacity as a
director of the Corporation, that his conduct was in the Corporation's
best interests; and
(b) in all other cases, that his conduct was at least not
opposed to the Corporation's best interests;
(3) in the case of any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
SECTION 3. PROHIBITED INDEMNIFICATION. A director may not be indemnified
under Section 11.02 for obligations resulting from a proceeding:
(1) in which the person is found liable on the basis that personal
benefit was improperly received by him, whether or not the benefit resulted
from an action taken in the person's official capacity; or
<PAGE>
(2) in which the person is found liable to the Corporation.
SECTION 4. EFFECT OF TERMINATION OF PROCEEDING. The termination of a
proceeding by judgment, order, settlement, or conviction, or on a plea of nolo
contendere or its equivalent is not of itself determinative that the person did
not meet the requirements set forth in Section 11.02.
SECTION 5. PROCEEDING BY OR IN BEHALF OF CORPORATION. A person shall be
indemnified under Section 11.02 against judgments, penalties (including excise
and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person in connection with the proceeding; but if the proceeding
was brought by or in behalf of the Corporation, the indemnification is limited
to reasonable expenses actually incurred by the person in connection with the
proceeding.
SECTION 6. DETERMINATION OF INDEMNIFICATION. A determination of
indemnification under Section 11.02 must be made:
(1) by a majority vote of a quorum consisting of directors who at the
time of the vote are not named defendants or respondents in the proceeding;
provided, however, that if such a quorum cannot be obtained, such
determination may be made by a majority vote of a committee of the Board of
Directors, designated to act in the matter by a majority vote of all
directors, consisting solely of two or more directors who at the time of
the vote are not named defendants or respondents in the proceeding;
(2) by special legal counsel selected by the Board of Directors or a
committee of the Board of Directors by vote as set forth in Subsection (1)
of this Section, or, if such a quorum cannot be obtained and such a
committee cannot be established, by a majority vote of all directors; or
(3) by the shareholders in a vote that excludes the shares held by
directors who are named defendants or respondents in the proceeding.
SECTION 7. AUTHORIZATION OF INDEMNIFICATION. Authorization of
indemnification and determination as to reasonableness of expenses must be made
in the same manner as the determination that indemnification is permissible,
except that if the determination that indemnification is permissible is made by
special legal counsel, authorization of indemnification and determination as to
reasonableness of expenses must be made in the manner specified by Subsection
(2) of Section 11.06 for the selection of special legal counsel. A provision
contained in the Articles of Incorporation, the Bylaws, a resolution of
shareholders or directors, or an agreement that makes mandatory the
indemnification permitted under Section 11.02 of this Article shall be deemed to
constitute authorization of indemnification in the manner required by this
Section even though such provision may not have adopted or authorized in the
same manner as the determination that indemnification is permissible.
SECTION 8. SUCCESSFUL DEFENSE OF PROCEEDING. The Corporation shall
indemnify a director against reasonable expenses incurred by him in connection
with a proceeding in which he is a named defendant or respondent because he is
or was a director if he has been wholly successful, on the merits or otherwise,
in the defense of the proceeding.
SECTION 9. COURT ORDER IN SUIT FOR INDEMNIFICATION. If, in a suit for the
indemnification required by Section 11.08, a court of competent jurisdiction
determines that the director is entitled to indemnification under that Section,
the court shall order indemnification and shall award to the director the
expenses incurred in securing the indemnification.
<PAGE>
SECTION 10. COURT DETERMINATION OF INDEMNIFICATION. If, upon application
of a director, a court of competent jurisdiction determines, after giving any
notice the court considers necessary, that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances described
by Section 11.03 the court may order the indemnification that the court
determines is proper and equitable. The court shall limit indemnification to
reasonable expenses if the proceeding is brought by or in behalf of the
Corporation or if the director is found liable on the basis that he improperly
received personal benefit, whether or not the benefit resulted from an action
taken in the person's official capacity.
SECTION 11. ADVANCEMENT OF EXPENSES. Reasonable expenses incurred by a
director who was, is, or is threatened to be made a named defendant or
respondent in a proceeding shall be paid or reimbursed by the Corporation in
advance of the final disposition of the proceeding after:
(1) the Corporation receives a written affirmation by the director of
his good faith belief that he has met the standard of conduct necessary for
indemnification under this Article Eleven and a written undertaking by or
on behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met those requirements; and
(2) a determination that the facts then known to those making the
determination would not preclude indemnification under this Article Eleven.
SECTION 12. OBLIGATION FOR REPAYMENT OF ADVANCEMENT. The written
undertaking required by Section 11.11 must be an unlimited general obligation of
the director but need not be secured. It may be accepted without reference to
financial ability to make repayment. Determinations and authorizations of
payments under Section 11.11 must be made in the manner specified by Section
11.06 for determining whether indemnification is permissible.
SECTION 13. EXPENSES OF WITNESS. Notwithstanding any other provision of
this Article Eleven, the Corporation may pay or reimburse expenses incurred by a
director.
SECTION 14. INDEMNIFICATION AND ADVANCEMENT OF EXPENSES TO OFFICERS AND
OTHERS. An officer of the Corporation shall be indemnified as, and to the same
extent, provided by Sections 11.08, 11.09 and 11.10 for a director and is
entitled to seek indemnification under those Sections to the same extent as a
director. The Corporation may indemnify and advance expenses to an officer,
employee, or agent of the Corporation to the same extent that it may indemnify
and advance expenses to directors under this Article Eleven.
SECTION 15. INDEMNIFICATION AND ADVANCEMENT OF EXPENSES TO NOMINEES AND
DESIGNEES. The Corporation may indemnify and advance expenses to persons who
are not or were not officers, employees, or agents of the Corporation but who
are or were serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise to the same
extent that it may indemnify and advance expenses to directors under this
Article Eleven.
SECTION 16. FURTHER INDEMNIFICATION AND ADVANCEMENT OF EXPENSES TO
OFFICERS AND OTHERS. The Corporation may indemnify and advance expenses to an
officer, and may indemnify and advance expenses to an employee, agent, or person
<PAGE>
identified in Section 11.15 and who is not a director to such further extent as
provided by general or specific action of the Board of Directors, by vote of the
shareholders, by contract, or as otherwise permitted by law.
SECTION 17. CONTINUATION OF INDEMNIFICATION. The indemnification and
advancement of expenses provided by this Article Eleven shall continue as to a
person who has ceased to hold his position as a director, officer, employee,
agent, or other nominee, or designee as described in Section 11.15 and, in the
event of the death of such director, officer, employee, agent or other nominee
or designee, shall inure to the benefit of his heirs, executors and
administrators.
SECTION 18. LIABILITY INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, employee, or agent of the Corporation or
who is or was serving at the request of the Corporation as a director, officer,
employee, or agent of the corporation or who is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as such a
person, whether or not the Corporation would have the power to indemnify him
against that liability under this Article Eleven.
SECTION 19. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article Eleven shall be reported
in writing to the shareholders with or before the notice or waiver of notice of
the next shareholders' meeting or with or before the next submission to
shareholders of a consent to action without a meeting pursuant to Section A,
Article 9.10, of the Texas Business Corporation Act and, in any case, within the
12-month period immediately following the date of the indemnification or
advance.
SECTION 20. SERVICE TO EMPLOYEE BENEFIT PLAN. For purposes of this
Article Eleven, the Corporation is deemed to have requested a director serve an
employee benefit plan whenever the performance by him of his duties to the
Corporation also imposes duties on or otherwise involves services by him to the
plan or participants or beneficiaries of the plan. Excise taxes assessed on a
director with respect to an employee benefit plan pursuant to applicable law are
deemed fines. Action taken or omitted by him with respect to an employee
benefit plan in the performance of his duties for a purpose reasonably believed
by him to be in the interest of the participants and beneficiaries of the plan
is deemed to be for a purpose which is not opposed to the best interest of the
Corporation.
--END--
<PAGE>
EXHIBIT 21.01
COMPUTER LANGUAGE RESEARCH, INC.
SUBSIDIARIES OF REGISTRANT
Information is set forth below concerning all subsidiaries of the Company as of
December 31, 1996:
Percentage
of Voting
Stock Owned
Jurisdiction of by the
Name of Subsidiary Incorporation Company
------------------ --------------- -----------
Alamo Software Corporation Delaware 100%
FTS Corporation Delaware 100%
Electronic Tax Systems, Inc. Delaware 100%
ReadiSoft, Inc. Delaware 100%
Rent Roll, Inc. Delaware 100%
Credit Interfaces, Inc. Delaware 100%
<PAGE>
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 and the Registration Statement (Form S-8, No. 33-61457) pertaining to the
Non-Employee Directors' 1994 Stock Option Plan of Computer Language Research,
Inc. of our report dated February 14, 1997, with respect to the consolidated
financial statements and schedule of Computer Language Research, Inc. included
in the Annual Report (Form 10-K) for the year ended December 31, 1996.
Ernst & Young LLP
Dallas, Texas
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS PRESENTED IN THE 1996 FORM 10-K405 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,928
<SECURITIES> 0
<RECEIVABLES> 27,904
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 35,074
<PP&E> 62,469
<DEPRECIATION> 41,581
<TOTAL-ASSETS> 98,937
<CURRENT-LIABILITIES> 30,341
<BONDS> 188
0
0
<COMMON> 150
<OTHER-SE> 61,852
<TOTAL-LIABILITY-AND-EQUITY> 98,937
<SALES> 129,243
<TOTAL-REVENUES> 129,243
<CGS> 64,933
<TOTAL-COSTS> 64,933
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</TABLE>