<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1994 or
-------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
COMMISSION FILE NUMBER 0-14232
SUNGARD/(R)/ DATA SYSTEMS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0267091
-------------------- -------------------
(State or other jurisdiction of (IRS EmployerIdentification No.)
incorporation or organization)
1285 DRUMMERS LANE, WAYNE, PENNSYLVANIA 19087
---------------------------------------------
(Address of principal executive offices, including zip code)
(610) 341-8700
-------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
There were 18,852,210 shares of the registrant's common stock, par value $.01
per share, outstanding at June 30, 1994.
<PAGE>
SUNGARD DATA SYSTEMS INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1994
(unaudited) and December 31, 1993.............................. 1
Consolidated Statements of Income for the six and three months
ended June 30, 1994 and 1993 (unaudited)....................... 2
Supplemental Income Statement Information for the six and three
months ended June 30, 1994 and 1993 (unaudited)................ 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1994 and 1993 (unaudited)....................... 3
Notes to Consolidated Financial Statements
(unaudited).................................................... 4
Calculation of Net Income Per Share (unaudited)................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation....................................... 6
Part II. Other Information
Item 1. Legal Proceedings.............................................. 9
Item 2. Changes in Securities.......................................... 9
Item 3. Defaults upon Senior Securities................................ 9
Item 4. Submission of Matters to a Vote of Security Holders............ 9
Item 5. Other Information.............................................. 9
Item 6. Exhibits and Reports on Form 8-K............................... 9
Signatures............................................................... 11
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SunGard Data Systems Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30,
1994 Dec. 31,
(Unaudited) 1993
--------- ---------
<S> <C> <C>
Assets
Current:
Cash and equivalents........................................................... $ 55,710 $ 51,955
Short-term investments, at cost, which approximates market..................... 39,033 32,824
Trade receivables, less allowance for doubtful accounts of $7,313 and $6,969... 74,572 74,053
Earned but unbilled receivables................................................ 12,516 12,213
Prepaid expenses and other current assets...................................... 14,900 13,895
Deferred income taxes.......................................................... 6,284 5,690
--------- ---------
Total current assets....................................................... 203,015 190,630
Property and equipment, less accumulated depreciation of $95,099 and $85,098...... 81,269 77,556
Software products, less accumulated amortization of $41,829 and $37,931........... 25,224 27,615
Goodwill, less accumulated amortization of $13,526 and $11,888.................... 83,361 84,852
Other assets, less accumulated amortization of $17,744 and $14,535................ 42,264 37,482
--------- ---------
$ 435,133 $ 418,135
========= =========
Liabilities and Stockholders' Equity
Current:
Current portion of long-term debt.............................................. $ 2,925 $ 3,162
Accounts payable............................................................... 6,003 7,191
Accrued compensation and benefits.............................................. 15,719 19,466
Other accrued expenses......................................................... 12,949 11,528
Accrued income taxes........................................................... 3,910 4,069
Deferred revenues.............................................................. 45,957 45,633
--------- ---------
Total current liabilities.................................................. 87,463 91,049
--------- ---------
Long-term debt.................................................................... 3,405 3,361
--------- ---------
Deferred income taxes............................................................. 4,935 6,765
--------- ---------
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000 shares authorized............. - -
Common stock, par value $.01 per share; 60,000 shares authorized;
18,852 and 18,801 issued.................................................... 189 188
Capital in excess of par value................................................. 162,084 161,149
Restricted stock plans......................................................... (1,594) (2,156)
Retained earnings.............................................................. 181,875 162,034
Foreign translation adjustment................................................. (3,144) (4,041)
--------- ---------
339,410 317,174
Treasury stock, at cost, 2 and 6 shares........................................ (80) (214)
--------- ---------
Total stockholders' equity................................................... 339,330 316,960
--------- ---------
$ 435,133 $ 418,135
========= =========
</TABLE>
See accompanying notes
1
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.................................................. $ 206,744 $ 182,167 $ 104,592 $ 94,653
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales and direct operating...................... 93,736 84,479 47,838 43,797
Sales, marketing and administration..................... 41,678 36,657 20,510 18,862
Product development..................................... 17,443 17,068 8,248 9,200
Depreciation of property and equipment.................. 11,358 9,412 5,789 4,770
Amortization of intangible assets....................... 9,828 7,360 5,017 3,729
---------- ---------- ---------- ----------
174,043 154,976 87,402 80,358
---------- ---------- ---------- ----------
Income from operations.................................... 32,701 27,191 17,190 14,295
Gain on sale of product line............................ - 4,071 - -
Interest income......................................... 1,396 1,505 713 794
Interest expense........................................ (468) (3,006) (246) (970)
---------- ---------- ---------- ----------
Income before income taxes................................ 33,629 29,761 17,657 14,119
Income taxes............................................ 13,788 11,232 7,239 5,731
---------- ---------- ---------- ----------
Net income................................................ $ 19,841 $ 18,529 $ 10,418 $ 8,388
========== ========== ========== ==========
Net income per common share:
Primary................................................. $ 1.03 $ 1.11 $ 0.54 $ 0.48
========== ========== ========== ==========
Fully diluted........................................... $ 1.03 $ 1.05 $ 0.54 $ 0.46
========== ========== ========== ==========
Shares used to compute net income per common share:
Primary................................................. 19,266 16,709 19,250 17,629
========== ========== ========== ==========
Fully diluted........................................... 19,267 19,125 19,254 19,143
========== ========== ========== ==========
</TABLE>
================================================================================
SunGard Data Systems Inc.
Supplemental Income Statement Information
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
Revenues: 1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment support systems.............................. $ 129,172 $ 117,687 $ 64,604 $ 61,640
Disaster recovery services.............................. 64,470 52,328 33,265 27,305
Computer services and other............................. 13,102 12,152 6,723 5,708
---------- ---------- ---------- ----------
$ 206,744 $ 182,167 $ 104,592 $ 94,653
========== ========== ========== ==========
Income from operations:
Investment support systems.............................. $ 21,449 $ 19,440 $ 10,791 $ 10,540
Disaster recovery services.............................. 12,874 10,395 7,027 5,298
Computer services and other............................. 2,117 1,007 1,140 294
Corporate administration................................ (3,739) (3,651) (1,768) (1,837)
---------- ---------- ---------- ----------
$ 32,701 $ 27,191 $ 17,190 $ 14,295
========== ========== ========== ==========
Operating margin:
Investment support systems.............................. 16.6% 16.5% 16.7% 17.1%
========== ========== ========== ==========
Disaster recovery services.............................. 20.0% 19.9% 21.1% 19.4%
========== ========== ========== ==========
Computer services and other............................. 16.2% 8.3% 17.0% 5.2%
========== ========== ========== ==========
Total................................................... 15.8% 14.9% 16.4% 15.1%
========== ========== ========== ==========
</TABLE>
See accompanying notes
2
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1994 1993
--------- ---------
<S> <C> <C>
Cash flow from operations:
Net income....................................................................................... $ 19,841 $ 18,529
Reconciliation of net income to cash flow from operations:
Depreciation and amortization................................................................. 21,186 16,772
Net gain on sale of product line.............................................................. 0 (3,371)
Charges for incentive stock plans............................................................. 725 566
Other noncash charges (credits)............................................................... 116 (657)
Deferred income tax benefit................................................................... (1,610) (1,226)
--------- ---------
40,258 30,613
Cash provided by (used for) working capital, net of effect of acquired businesses
and sale of product line:
Accounts receivable and other current assets.................................................. (946) (1,232)
Accounts payable and accrued expenses......................................................... (4,522) (2,165)
Deferred revenues............................................................................. (115) (3,615)
--------- ---------
Cash flow from operations................................................................... 34,675 23,601
--------- ---------
Financing activities:
Proceeds from employee stock plans............................................................... 618 817
Repayments of notes payable and long-term debt................................................... (199) (2,286)
--------- ---------
Total financing activities.................................................................. 419 (1,469)
--------- ---------
Long-term investment activities:
Cash paid for acquired businesses................................................................ (8,277) (14,764)
Cash paid for property and equipment............................................................. (14,733) (13,321)
Cash paid for software and other assets.......................................................... (2,120) (2,261)
Proceeds from sale of assets....................................................................... 0 11,262
--------- ---------
Total long-term investment activities....................................................... (25,130) (19,084)
--------- ---------
Increase in cash and equivalents before short-term investment activities........................... 9,964 3,048
Short-term investment activities:
Purchase of short-term investments............................................................... (30,627) (14,400)
Maturities of short-term investments............................................................. 24,418 8,643
--------- ---------
Increase in cash and equivalents................................................................... 3,755 (2,709)
Beginning cash and equivalents..................................................................... 51,955 60,097
--------- ---------
Ending cash and equivalents........................................................................ $ 55,710 $ 57,388
========= =========
Non-cash activities:
Reduction of long-term debt, net of debt issuance costs, resulting from conversion of
subordinated convertible debentures into common stock............................................ 0 (83,993)
========= =========
Supplemental information:
Acquired businesses:
Property and equipment........................................................................ 0 3,733
Software products............................................................................. 0 2,373
Goodwill and other intangible assets.......................................................... 8,759 14,426
Debt assumed or created....................................................................... 0 (807)
Net current assets acquired (liabilities assumed)............................................. (482) (4,961)
--------- ---------
Cash paid for acquired businesses.................................................................. $ 8,277 $ 14,764
========= =========
</TABLE>
See accompanying notes
3
<PAGE>
SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule 10-
01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended June 30, 1994 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1994.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1993.
2. Effective April 30, 1994, the Company's disaster recovery business
completed the acquisition of disaster recovery subscriber contracts and
certain other assets of XL/DataComp Inc., a wholly-owned subsidiary of
Storage Technology Corp. The acquisition is not expected to have a material
effect on the Company's financial condition or results of operations.
3. On May 9, 1994, stockholders approved an increase to the number of
authorized shares of common stock by 30 million shares, bringing total
authorized shares of common stock to 60 million shares.
4
<PAGE>
SunGard Data Systems Inc.
Calculation of Net Income Per Share
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding............................ 18,814 16,236 18,827 17,170
Dilutive stock options, net of treasury shares........ 452 473 423 459
--------- --------- --------- ---------
Adjusted shares outstanding........................... 19,266 16,709 19,250 17,629
========= ========= ========= =========
Net income............................................ $ 19,841 $ 18,529 10,418 $ 8,388
========= ========= ========= =========
Net income per share.................................. $ 1.03 $ 1.11 0.54 $ 0.48
========= ========= ========= =========
===============================================================================================================
Fully Diluted:
Average shares outstanding............................ 18,814 16,236 18,827 17,170
Assumed conversion of 8.25% subordinated debentures... 0 2,413 0 1,508
Dilutive stock options, net of treasury shares........ 453 476 427 465
--------- --------- --------- ---------
Adjusted shares outstanding........................... 19,267 19,125 19,254 19,143
========= ========= ========= =========
Net income............................................ $ 19,841 $ 18,529 10,418 $ 8,388
Assumed interest expense savings on
subordinated debentures, net of income taxes....... 0 1,565 0 481
--------- --------- --------- ---------
Adjusted net income................................... $ 19,841 $ 20,094 10,418 $ 8,869
========= ========= ========= =========
Net income per share.................................. $ 1.03 $ 1.05 0.54 $ 0.46
========= ========= ========= =========
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INCOME FROM OPERATIONS:
Investment Support Systems (ISS):
The ISS operating margin increased slightly during the six month period
ended June 30, 1994, compared to the corresponding period in 1993, due primarily
to a net improvement in margins of businesses acquired since 1992. The ISS
operating margin declined slightly during the three month period ended June 30,
1994, compared to the corresponding period in 1993, due primarily to lower
software license revenues and the effects of the two most recent ISS
acquisitions, which have historically lower margins than the rest of the
Company's ISS businesses. The Company expects that the 1994 ISS operating margin
will improve for the balance of the year.
Disaster Recovery Services (DRS):
The DRS operating margin increased during the six and three month periods
ended June 30, 1994, compared to the corresponding periods in 1993. The six
month increase was due primarily to businesses acquired since May 1993,
substantially offset by higher 1993 disaster fees resulting from the bombing of
the World Trade Center in February 1993. The three month increase was due
primarily to businesses acquired during 1993. The Company expects that the
DRS operating margin will remain at approximately 20% for the full year 1994.
Computer Services and Other (CS):
The CS operating margin increased during the six and three month periods
ended June 30, 1994, compared to the corresponding periods in 1993, due
primarily to an increase in revenues (excluding 1993 revenues from the product
line sold), as well as the effect of a charge recorded in the second quarter of
1993 in connection with the move of certain Computer Services operations to a
new facility in Voorhees, NJ. The Company expects that the CS operating margin
will be higher for the full year 1994 compared to 1993.
The Company believes that its business is not seasonal; nevertheless, the
timing and magnitude of software sales, commitments for equipment and
facilities, product development efforts and disaster recovery activities may
cause profitability to fluctuate from one quarter to another.
REVENUES:
Total revenues for the six and three month periods ended June 30, 1994
increased $24.6 million, or 13%, and $9.9 million, or 11%, compared to the
corresponding periods in 1993. Acquired businesses, net of the 1993 product
line sold, account for approximately $10.4 million and $5.1 million of the
respective increases. Recurring revenues derived from remote processing
services, alternate-site services and software maintenance are $176.0 million
and $153.3 million for the six month periods ended June 30, 1994 and 1993,
respectively, representing 85% and 84% of consolidated revenues, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
REVENUES:
(Continued)
Investment Support Systems:
ISS revenues for the six and three month periods ended June 30, 1994
increased $11.5 million, or 10%, and $3.0 million, or 5%, compared to the
corresponding periods in 1993. Acquired businesses account for approximately
$4.9 million and $1.7 million of the respective increases. During the six month
period, the remaining increase is attributable to increases in data processing
and software maintenance revenues of $6.3 million and software license and
professional services revenues of $0.3 million. In the three month period, the
remaining increase is attributable to an increase in data processing and
software maintenance revenues of $3.3 million, partially offset by a decline in
software license and professional services revenues of $2.0 million. The decline
in software license revenues during the three month period compared to the
corresponding period in 1993 was due to a large software license sale in the
second quarter of 1993.
The Company expects that ISS revenues will increase during the remainder of
1994 compared to 1993. The Company believes that the trend of mergers in the
financial services industry, especially banks and mutual funds, will continue,
but it is unable to predict the overall effect, if any, future mergers may have.
Disaster Recovery Services:
DRS revenues for the six and three month periods ended June 30, 1994
increased $12.1 million, or 23%, and $6.0 million, or 22%, compared to the
corresponding periods in 1993. Acquired businesses account for approximately
$6.5 million and $3.5 million of the respective increases. Alternate-site
services revenues resulting primarily from new contract signings and renewals
account for the balance of the increases. The Company expects that DRS revenues
will increase during the remainder of 1994 compared to 1993 due primarily to new
contracts and acquired businesses.
The Company believes that mainframe computer platforms will continue to play
an integral role in data processing solutions for the foreseeable future and,
therefore, will continue to provide a market for the Company's principal DRS
services. In addition, the Company believes that midrange and client/server and
local- and wide-area-network technologies increasingly will become components of
distributed data processing systems, and that they represent incremental market
opportunities for the DRS business.
Computer Services and Other:
CS revenues for the six and three month periods ended June 30, 1994
increased $1.0 million, or 8%, and $1.0 million, or 18%, compared to the
corresponding periods in 1993. Excluding 1993 revenues from the product line
sold in February 1993, revenues during the first six months of 1994
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
REVENUES:
(Continued)
increased $1.9 million, or 17%, due primarily to an increase in remote access
computer services revenues. The Company expects that CS revenues will increase
during the remainder of 1994 compared to 1993 as a result of the impact of new
contracts.
COSTS AND EXPENSES:
Total costs and expenses for the six and three month periods ended June 30,
1994 increased $19.1 million and $7.0 million, or 12% and 9%, respectively,
compared to the corresponding periods in 1993.
Cost of sales and direct operating expenses for the six and three month
periods ended June 30, 1994 increased $9.3 million and $4.0 million, or 11% an
9%, respectively, compared to corresponding periods in 1993. The increase is
due primarily to acquired businesses, net of the product line sold, equipment
upgrades, and servicing remote access customers.
Sales, marketing and administration expenses for the six and three month
periods ended June 30, 1994 increased $5.0 million and $1.6 million, or 14% and
9%, respectively, compared to the corresponding periods in 1993. The increase
is due primarily to acquired businesses, net of the product line sold, and
expansion of sales and marketing efforts principally in the DRS business.
Product development expenses for the six month period ended June 30, 1994
increased $0.4 million, or 2%, compared to the corresponding period in 1993.
During the three month period ended June 30, 1994, product development expenses
declined $1.0 million, or 10%, compared to the corresponding period in 1993. The
six month increase is due primarily to acquired businesses. The three month
decline is due primarily to completion of a new release of a Trust and
Shareholder systems product.
Depreciation of property and equipment for the six month period ended June
30, 1994 increased $1.9 million, or 21%, compared to the corresponding period in
1993. The increase is due primarily to acquired businesses, net of the product
line sold, and DRS and ISS equipment additions.
Amortization of intangible assets for the six month period ended June 30,
1994 increased $2.5 million, or 34%, compared to the corresponding period in
1993. The increase is due primarily to acquired businesses, net of the product
line sold.
Interest expense for the six month period ended June 30, 1994 decreased $2.5
million compared to the corresponding period in 1993 due primarily to the
conversion of the Company's subordinated convertible debentures on May 12, 1993.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
COSTS AND EXPENSES:
(Continued)
The Company's effective income tax rate is higher for the six month period
ended June 30, 1994 compared to the corresponding period in 1993 due primarily
to a lower effective tax rate associated with the gain on the 1993 sale of the
product line.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1994, cash and short-term investments increased $9.9 million to
$94.7 million from $84.8 million at December 31, 1993. Capital expenditures for
property and equipment were $14.7 million during the first six months of 1994.
The Company believes that existing cash resources and cash generated from
operations will be sufficient to meet its operating requirements and ordinary
capital spending needs for the foreseeable future. Furthermore, the Company
believes that it has the capacity to borrow funds and use equity to finance
additional capital needs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders:
(a) The 1994 Annual Meeting of Stockholders of the
registrant was held on May 9, 1994.
(b) At the 1994 Annual Meeting, the following were elected
as directors:
Gregory S. Bentley
Michael C. Brooks
Albert A. Eisenstat
Bernard Goldstein
James L. Mann
Michael Roth
Malcolm I. Ruddock
Lawrence J. Schoenberg
9
<PAGE>
PART II. OTHER INFORMATION
(Continued)
Item 4. Submission of Matters to a Vote of Security Holders:
(Continued)
(c) At the 1994 Annual Meeting, the following matters were
voted upon and approved:
(i) Approval of an Amendment to the Company's
Certificate of Incorporation to increase the
number of authorized shares of common stock by
30,000,000.
15,254,272 votes in favor
901,979 votes against
16,564 votes abstaining
(ii) Approval of the Company's 1994 Equity Incentive
Plan.
12,697,673 votes in favor
2,809,662 votes against
28,830 votes abstaining
(iii) Ratification of the appointment of Coopers &
Lybrand as the registrant's independent
accountants for 1994.
16,227,503 votes in favor
5,157 votes against
11,407 votes abstaining
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Statement re: computation of per share earnings is
included on page 5 of this report on Form 10-Q.
(b) Reports on Form 8-K: None
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SunGard Data Systems Inc.
Date: August 12, 1994 By: /s/ Michael J. Ruane
--------------------------------------------
Michael J. Ruane
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer)
11
