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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 March 31, 1994 or
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[ ] 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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1285 Drummers Lane, Wayne, Pennsylvania 19087
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(Address of principal executive offices, including zip code)
(610) 341-8700
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(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
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There were 18,830,944 shares of the registrant's common stock, par value $.01
per share, outstanding at March 31, 1994.
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SunGard Data Systems Inc.
And Subsidiaries
Index
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1994
(unaudited) and December 31, 1993.......................... 1
Consolidated Statements of Income for the three months
ended March 31, 1994 and 1993 (unaudited).................. 2
Supplemental Income Statement Information for the three
months ended March 31, 1994 and 1993 (unaudited)........... 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 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 ......................................................... 10
</TABLE>
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- - ----------------------------
SunGard Data Systems Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31,
1994 Dec. 31,
(Unaudited) 1993
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<S> <C> <C>
Assets
Current:
Cash and equivalents................................................................. $ 57,310 $ 51,955
Short-term investments, at cost, which approximates market........................... 39,703 32,824
Trade receivables, less allowance for doubtful accounts of $7,387 and $6,969......... 72,995 74,053
Earned but unbilled receivables...................................................... 11,493 12,213
Prepaid expenses and other current assets............................................ 15,142 13,895
Deferred income taxes................................................................ 5,983 5,690
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Total current assets............................................................. 202,626 190,630
Property and equipment, less accumulated depreciation of $90,125 and $85,098............ 80,326 77,556
Software products, less accumulated amortization of $40,247 and $37,931................. 26,115 27,615
Goodwill, less accumulated amortization of $12,623 and $11,888.......................... 84,196 84,852
Other assets, less accumulated amortization of $16,224 and $14,535...................... 36,233 37,482
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$ 429,496 $ 418,135
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Liabilities and Stockholders' Equity
Current:
Current portion of long-term debt.................................................... $ 2,927 $ 3,162
Accounts payable..................................................................... 5,912 7,191
Accrued compensation and benefits.................................................... 13,499 19,466
Other accrued expenses............................................................... 13,495 11,528
Accrued income taxes................................................................. 10,146 4,069
Deferred revenues.................................................................... 46,613 45,633
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Total current liabilities........................................................ 92,592 91,049
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Long-term debt.......................................................................... 3,422 3,361
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Deferred income taxes................................................................... 5,741 6,765
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Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000 shares authorized................... - -
Common stock, par value $.01 per share; 30,000 shares authorized;
18,831 and 18,801 issued.......................................................... 188 188
Capital in excess of par value....................................................... 161,528 161,149
Restricted stock plans............................................................... (1,795) (2,156)
Retained earnings.................................................................... 171,457 162,034
Foreign translation adjustment....................................................... (3,637) (4,041)
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327,741 317,174
Treasury stock, at cost, 0 and 6 shares.............................................. - (214)
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Total stockholders' equity......................................................... 327,741 316,960
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$ 429,496 $ 418,135
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</TABLE>
See accompanying notes
1
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SunGard Data Systems Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1994 1993
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<S> <C> <C>
Revenues........................................... $102,152 $ 87,514
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Costs and expenses:
Cost of sales and direct operating............... 45,898 40,682
Sales, marketing and administration.............. 21,168 17,795
Product development.............................. 9,195 7,868
Depreciation of property and equipment........... 5,569 4,642
Amortization of intangible assets................ 4,811 3,631
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86,641 74,618
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Income from operations............................. 15,511 12,896
Gain on sale of product line..................... - 4,071
Interest income.................................. 683 711
Interest expense................................. (222) (2,036)
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Income before income taxes......................... 15,972 15,642
Income taxes..................................... 6,549 5,501
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Net income......................................... $ 9,423 $ 10,141
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Net income per common share:
Primary.......................................... $ 0.49 $ 0.64
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Fully diluted.................................... $ 0.49 $ 0.59
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Shares used to compute net income per common share:
Primary.......................................... 19,262 15,788
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Fully diluted.................................... 19,262 19,106
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</TABLE>
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SunGard Data Systems Inc.
Supplemental Income Statement Information
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1994 1993
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<S> <C> <C>
Revenues:
Investment support systems....................... $ 64,568 $ 56,047
Disaster recovery services....................... 31,205 25,023
Computer services and other...................... 6,379 6,444
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$102,152 $ 87,514
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Income from operations:
Investment support systems....................... $ 10,658 $ 8,900
Disaster recovery services....................... 5,847 5,097
Computer services and other...................... 977 713
Corporate administration......................... (1,971) (1,814)
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$ 15,511 $ 12,896
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Operating margin:
Investment support systems....................... 16.5% 15.9%
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Disaster recovery services....................... 18.7% 20.4%
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Computer services and other...................... 15.3% 11.1%
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Total............................................ 15.2% 14.7%
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</TABLE>
See accompanying notes
2
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SunGard Data Systems Inc.
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1994 1993
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<S> <C> <C>
Cash flow from operations:
Net income..................................................... $ 9,423 $10,141
Reconciliation of net income to cash flow from operations:
Depreciation and amortization............................... 10,380 8,273
Net gain on sale of product line............................ - (3,371)
Charges for incentive stock plans........................... 361 353
Other noncash charges (credits)............................. 89 (423)
Deferred income tax benefit................................. (503) (44)
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19,750 14,929
Cash provided by (used for) working capital, net of effect of
acquired businesses and sale of product line:
Accounts receivable and other current assets................ 553 144
Accounts payable and accrued expenses....................... (270) 5,528
Deferred revenues........................................... 885 (1,058)
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Cash flow from operations................................. 20,918 19,543
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Financing activities:
Proceeds from employee stock plans............................. 433 17
Repayments of notes payable and long-term debt................. (169) (51)
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Total financing activities................................ 264 (34)
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Long-term investment activities:
Cash paid for acquired businesses.............................. - (2,931)
Cash paid for property and equipment........................... (8,153) (5,400)
Cash paid for software and other assets........................ (795) (183)
Proceeds from sale of assets................................... - 11,208
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Total long-term investment activities..................... (8,948) 2,694
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Increase in cash and equivalents before short-term investment
activities..................................................... 12,234 22,203
Short-term investment activities:
Purchase of short-term investments............................. (19,819) (2,602)
Maturities of short-term investments........................... 12,940 5,755
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Increase in cash and equivalents................................. 5,355 25,356
Beginning cash and equivalents................................... 51,955 60,097
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Ending cash and equivalents...................................... $57,310 $85,453
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Supplemental information:
Acquired businesses:
Property and equipment...................................... - 1,776
Software products........................................... - 969
Goodwill and other intangible assets........................ 184 1,336
Net current assets acquired (liabilities assumed)........... (184) (1,150)
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Cash paid for acquired businesses................................ $ - $ 2,931
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</TABLE>
See accompanying notes
3
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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 March 31, 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
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SunGard Data Systems Inc.
Calculation of Net Income Per Share
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1994 1993
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<S> <C> <C>
Primary:
Average shares outstanding................................... 18,801 15,302
Dilutive stock options, net of treasury shares............... 461 486
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Adjusted shares outstanding.................................. 19,262 15,788
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Net income................................................... $ 9,423 $10,141
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Net income per share......................................... $ 0.49 $ 0.64
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================================================================================================
Filly Diluted:
Average shares outstanding................................... 18,801 15,302
Assumed conversion of 8.25% subordinated debentures.......... - 3,317
Dilutive stock options, net of treasury shares............... 461 487
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Adjusted shares outstanding.................................. 19,262 19,106
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Net income................................................... $ 9,423 $10,141
Assumed interest expense savings on
subordinated debentures, net of income taxes.............. - 1,084
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Adjusted net income.......................................... $ 9,423 $11,225
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Net income per share......................................... $ 0.49 $ 0.59
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</TABLE>
5
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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 during the three month period ended
March 31, 1994, compared to the corresponding period in 1993, due primarily to
an increase in software license revenues and a net improvement in margins of
businesses acquired since 1992. The Company expects that the full year 1994 ISS
operating margin will continue to improve for the balance of the year.
Disaster Recovery Services (DRS):
The DRS operating margin decreased during the first three months of 1994,
compared to the corresponding period in 1993, due primarily to disaster fees
generated as a result of the bombing of the World Trade Center in February 1993.
The Company expects that the DRS operating margin will be lower for the full
year 1994 compared to 1993 due principally to an increase in spending in
connection with disaster recovery computer system upgrades.
Computer Services and Other (CS):
The CS operating margin increased during the three month period ended
March 31, 1994, compared to the corresponding period in 1993, due primarily to
an increase in revenues (excluding 1993 revenues from the product line sold).
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 three month period ended March 31, 1994 increased
$14.6 million, or 17%, compared to the corresponding period in 1993. Acquired
businesses, net of the 1993 product line sale, account for approximately $5.3
million of the increase. Recurring revenues derived from remote processing
services, alternate-site services and software maintenance are $87.2 million and
$75.7 million for the three month periods ended March 31, 1994 and 1993,
respectively, representing 85% and 86% of consolidated revenues, respectively.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Revenues:
(Continued)
Investment Support Systems:
ISS revenues for the three month period ended March 31, 1994 increased $8.5
million, or 15%, compared to the corresponding period in 1993. Acquired
businesses account for approximately $3.3 million of the increase. The
remaining increase is attributable to increases in data processing and software
maintenance revenues of $3.0 million and software license and professional
services revenues of $2.2 million. The increase in software license revenues
was principally in the Capital Markets Systems group.
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 three month period ended March 31, 1994 increased $6.2
million, or 25%, compared to the corresponding period in 1993. Acquired
businesses account for approximately $3.0 million of the increase, and
alternate-site services revenues resulting primarily from new contract signings
and renewals account for the balance of the increase. 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 three month period ended March 31, 1994 decreased $0.1
million, or 1%, compared to the corresponding period in 1993. Excluding $1.0
million of 1993 revenues from the product line sold in February 1993, revenues
increased $0.9 million 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Costs and Expenses:
Total costs and expenses for the three month period ended March 31, 1994
increased $12.0 million, or 16%, compared to the corresponding period in 1993.
Cost of sales and direct operating expenses for the three month period
ended March 31, 1994 increased $5.2 million, or 13%, compared to corresponding
period 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 three month period
ended March 31, 1994 increased $3.4 million, or 19%, compared to the
corresponding period 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 ISS and DRS businesses.
Product development expenses for the three month period ended March 31,
1994 increased $1.3 million, or 17%, compared to the corresponding period in
1993. The increase is due primarily to acquired businesses and increased
development spending in the Company's Capital Markets Systems and Trust and
Shareholder Systems groups.
Depreciation of property and equipment for the three month period ended
March 31, 1994 increased $0.9 million, or 20%, compared to the corresponding
period in 1993. The increase is due primarily to acquired businesses, net of
the product line sold, and DRS and CS equipment additions.
Amortization of intangible assets for the three month period ended March
31, 1994 increased $1.2 million, or 32%, 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 three month period ended March 31, 1994 decreased
$1.8 million compared to the corresponding period in 1993 due primarily to the
conversion of the Company's subordinated convertible debentures on May 12, 1993.
The Company's effective income tax rate is higher in 1994 compared to 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 March 31, 1994, cash and short-term investments increased $12.2 million
to $97.0 million from $84.8 million at December 31, 1993. Capital expenditures
for property and equipment were $8.2 million in the first quarter 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.
8
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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: None
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
9
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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: May 13, 1994 By: s/Michael J. Ruane
--------------------------------
Michael J. Ruane
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
10
