<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 September 30, 1995
------------------
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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0267091
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification 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 38,328,216 shares of the registrant's common stock, par value $.01
per share, outstanding at September 30, 1995.
<PAGE>
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 September 30, 1995
(unaudited) and December 31, 1994............................... 1
Consolidated Statements of Income for the nine and three months
ended September 30, 1995 and 1994 (unaudited)................... 2
Supplemental Income Statement Information for the nine and three
months ended September 30, 1995 and 1994 (unaudited)............ 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1995 and 1994 (unaudited)................... 3
Notes to Consolidated Financial Statements (unaudited).......... 4
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>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
SunGard Data Systems Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30,
1995 December 31,
(Unaudited) 1994
------------- ------------
<S> <C> <C>
Assets
Current:
Cash and equivalents........................................................................... $ 45,901 $ 68,491
Short-term investments, at cost, which approximates market..................................... 38,559 34,107
Trade receivables, less allowance for doubtful accounts of $7,114 and $7,276................... 92,095 85,339
Earned but unbilled receivables................................................................ 23,493 13,488
Prepaid expenses and other current assets...................................................... 16,910 14,380
Deferred income taxes.......................................................................... 6,493 6,490
-------- --------
Total current assets....................................................................... 223,451 222,295
Property and equipment, less accumulated depreciation of $125,144 and $105,036.................... 91,131 90,436
Software products, less accumulated amortization of $54,926 and $46,943........................... 35,457 23,964
Goodwill, less accumulated amortization of $18,385 and $15,035.................................... 117,184 95,822
Other intangible assets, less accumulated amortization of $27,443 and $20,452..................... 52,602 53,223
-------- --------
$519,825 $485,740
======== ========
Liabilities and Stockholders' Equity
Current:
Short-term and current portion of long-term debt............................................... $ 3,880 $ 5,673
Accounts payable............................................................................... 7,425 7,628
Accrued compensation and benefits.............................................................. 20,582 22,354
Other accrued expenses......................................................................... 15,847 14,214
Accrued income taxes........................................................................... 3,874 6,049
Deferred revenues.............................................................................. 58,596 57,492
-------- --------
Total current liabilities.................................................................. 110,204 113,410
-------- --------
Long-term debt.................................................................................... 5,380 4,894
-------- --------
Deferred income taxes............................................................................. 5,823 8,144
-------- --------
Committments......................................................................................
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000 shares authorized............................. - -
Common stock, par value $.01 per share; 60,000 shares authorized;
38,328 and 18,807 shares issued............................................................. 383 189
Capital in excess of par value................................................................. 165,271 162,235
Restricted stock plans......................................................................... (260) (858)
Retained earnings.............................................................................. 238,304 205,121
Foreign currency translation adjustment........................................................ (911) (2,366)
-------- --------
402,787 364,321
Treasury stock, at cost, 179 and 131 shares.................................................... (4,369) (5,029)
-------- --------
Total stockholders' equity................................................................... 398,418 359,292
-------- --------
$519,825 $485,740
======== ========
</TABLE>
See accompanying notes
1
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues.................................................................. $378,723 $316,652 $132,114 $109,908
-------- -------- -------- --------
Costs and expenses:
Cost of sales and direct operating...................................... 166,348 143,240 54,576 49,504
Sales, marketing and administration..................................... 80,214 63,514 28,860 21,836
Product development..................................................... 34,575 26,562 13,138 9,119
Depreciation of property and equipment.................................. 22,413 17,484 7,932 6,126
Amortization of intangible assets....................................... 16,745 15,626 6,144 5,798
Merger costs............................................................ 1,351 - 1,351 -
-------- -------- -------- --------
321,646 266,426 112,001 92,383
-------- -------- -------- --------
Income from operations.................................................... 57,077 50,226 20,113 17,525
Investment income, net.................................................. 3,772 1,613 1,179 685
-------- -------- -------- --------
Income before income taxes................................................ 60,849 51,839 21,292 18,210
Income taxes............................................................ 25,502 21,254 9,284 7,466
-------- -------- -------- --------
Net income................................................................ $ 35,347 $ 30,585 $ 12,008 $ 10,744
======== ======== ======== ========
Fully diluted net income per common share (1)............................. $ 0.91 $ 0.79 $ 0.31 $ 0.28
======== ======== ======== ========
Shares used to compute fully diluted net income per common share (1)...... 38,649 38,512 39,254 38,502
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
SunGard Data Systems Inc.
Supplemental Income Statement Information
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Investment support systems.............................................. $233,819 $195,872 $ 79,303 $ 66,700
Disaster recovery services.............................................. 118,911 100,683 41,559 36,213
Computer services and other ............................................ 25,993 20,097 11,252 6,995
-------- -------- -------- --------
$378,723 $316,652 $132,114 $109,908
======== ======== ======== ========
Income from operations:
Investment support systems.............................................. $ 36,515 $ 31,896 $ 11,163 $ 10,447
Disaster recovery services.............................................. 23,150 20,747 10,209 7,873
Computer services and other ............................................ 4,173 3,411 1,828 1,294
Corporate administration................................................ (5,410) (5,828) (1,736) (2,089)
Merger costs............................................................ (1,351) - (1,351) -
-------- -------- -------- --------
$ 57,077 $ 50,226 $ 20,113 $ 17,525
======== ======== ======== ========
Operating margin:
Investment support systems.............................................. 15.6% 16.3% 14.1% 15.7%
======== ======== ======== ========
Disaster recovery services.............................................. 19.5% 20.6% 24.6% 21.7%
======== ======== ======== ========
Computer services and other ............................................ 16.1% 17.0% 16.2% 18.5%
======== ======== ======== ========
Total................................................................... 15.1% 15.9% 15.2% 15.9%
======== ======== ======== ========
Total, excluding merger costs........................................... 15.4% 15.9% 16.2% 15.9%
======== ======== ======== ========
</TABLE>
(1) Adjusted to reflect two-for-one stock split which occurred in July 1995.
See accompanying notes
2
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flow from operations:
Net income................................................................................... $ 35,347 $ 30,585
Reconciliation of net income to cash flow from operations:
Depreciation and amortization............................................................. 39,158 33,110
Charges for incentive stock plans......................................................... 1,855 1,094
Other noncash charges (credits)........................................................... 368 (25)
Deferred income taxes..................................................................... (2,324) (3,072)
-------- --------
74,404 61,692
Cash provided by (used for) working capital, net of effect of acquired
businesses:
Accounts receivable and other current assets.............................................. (9,277) (3,248)
Accounts payable and accrued expenses..................................................... (6,808) 291
Deferred revenues......................................................................... (6,464) (1,129)
-------- --------
Cash flow from operations............................................................... 51,855 57,606
-------- --------
Financing activities:
Cash received from employee stock plans...................................................... 4,187 572
Cash paid for treasury stock................................................................. (5,642) -
Repayments of debt........................................................................... (8,378) (1,331)
-------- --------
Total financing activities.............................................................. (9,833) (759)
-------- --------
Long-term investment activities:
Cash paid for acquired businesses............................................................ (35,314) (27,761)
Cash paid for property and equipment......................................................... (21,068) (22,196)
Cash paid for software and other assets...................................................... (3,778) (2,710)
-------- --------
Total long-term investment activities................................................... (60,160) (52,667)
-------- --------
Increase (decrease) in cash and equivalents before short-term investment activities............ (18,138) 4,180
Short-term investment activities:
Purchase of short-term investments........................................................... (49,134) (39,268)
Maturities of short-term investments......................................................... 44,682 36,295
-------- --------
Increase (decrease) in cash and equivalents.................................................... (22,590) 1,207
Beginning cash and equivalents................................................................. 68,491 51,955
-------- --------
Ending cash and equivalents.................................................................... $ 45,901 $ 53,162
======== ========
Supplemental information:
Acquired businesses:
Property and equipment.................................................................... 2,483 2,012
Software products......................................................................... 14,096 2,620
Goodwill and other intangible assets...................................................... 30,984 37,418
Purchase price obligations and debt assumed............................................... (6,760) (6,214)
Deferred income taxes..................................................................... 761 (3,234)
Net current assets acquired (liabilities assumed)......................................... (6,250) (4,841)
-------- --------
Cash paid for acquired businesses, net of cash acquired........................................ $ 35,314 $ 27,761
======== ========
</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 nine and three month periods ended September 30, 1995 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. 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, 1994.
2. During the nine month period ended September 30, 1995, the Company
completed five business acquisitions accounted for as purchases. Four
acquisitions were in the Company's investment support systems business and
one in the Company's disaster recovery services business. These
transactions are not expected to have a material effect on the Company's
financial condition or results of operations.
On August 31, 1995, the Company completed a merger with Intelus
Corporation, a Maryland-based provider of document imaging and work flow
management systems to the healthcare and financial services industries.
This merger has been accounted for as a pooling-of-interests. The
accompanying consolidated financial statements include the results of
Intelus from July 1, 1995. The full year 1995 and prior year consolidated
financial statements have not been restated because the impact of such
restatement would not be material.
On October 31, 1995, the Company completed the previously announced merger
with MACESS Corporation, an Alabama-based provider of document imaging and
workflow management systems to managed healthcare providers (HMO's). The
Company expects to complete its previously announced merger with
Renaissance Software Inc., a California-based provider of risk management
and derivatives trading software systems, during November of 1995. Each of
these transactions will be accounted for as poolings-of-interests, and,
except for merger costs associated with the three mergers, which are
estimated to be approximately $4.5 million, these transactions are not
expected to have a material effect on the Company's financial condition or
results of operations.
3. Fully diluted net income per share was calculated using the weighted-
average number of common shares and common-equivalent shares outstanding
during the period. Common-equivalent shares are principally attributable to
unexercised stock options.
4
<PAGE>
SunGard Data Systems Inc.
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
4. On June 2, 1995, the Company's Board of Directors authorized a two-for-one
stock split on all shares of its common stock. The stock split was
effective for stockholders of record on June 15, 1995. Certificates for the
additional shares were issued on July 7, 1995. The number of shares used
for purposes of calculating net income per common share have been adjusted
for all periods presented to reflect this stock split.
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 declined during the nine and three month periods
ended September 30, 1995, compared to the corresponding periods in 1994, due
primarily to costs associated with development spending, partially offset by
higher software license revenues. The Company expects that the full year 1995
ISS operating margin will be comparable to the full year 1994 margin.
Disaster Recovery Services (DRS):
The DRS operating margin decreased during the nine month period ended
September 30, 1995, compared to the corresponding period in 1994, due primarily
to computer equipment upgrades and facility improvements. The operating margin
increased during the three month period ended September 30, 1995, compared to
the corresponding period in 1994, due primarily to revenue growth and cost
containment efforts. The Company expects that the DRS operating margin for the
full year 1995 will be comparable to the full year 1994 margin.
Computer Services and Other (CS):
The CS operating margin declined during the nine and three month periods
ended September 30, 1995 compared to the corresponding periods in 1994, due
principally to the initial effect of the recently announced merger with Intelus
Corporation.
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 nine and three month periods ended September 30,
1995 increased $62.1 million, or 20%, and $22.2 million, or 20%, compared to the
corresponding periods in 1994. Excluding acquired businesses, revenues
increased $44.2 million, or 14%, and $12.9 million, or 12%, during the nine and
three month periods compared to the corresponding periods in 1994. Recurring
revenues derived from remote processing services, disaster recovery services and
software maintenance are approximately $312.4 million and $269.5 million for the
nine month periods ended September 30, 1995 and 1994, respectively, representing
82% and 85% 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 nine and three month periods ended September 30, 1995
increased $37.9 million, or 19%, and $12.6 million, or 19%, compared to the
corresponding periods in 1994. Excluding acquired businesses, revenues
increased $25.6 million, or 13%, and $7.0 million, or 11%, during the nine and
three month periods ended September 30, 1995, compared to the corresponding
periods in 1994. In the nine month period, the increase is attributable to
increases in data processing and software maintenance revenues of $13.1 million
and increases in software license and professional services revenues of $12.5
million. In the three month period, the increase is attributable to increases
in data processing and software maintenance revenues of $3.6 million and
increases in software license and professional services revenues of $3.4
million.
Disaster Recovery Services:
DRS revenues for the nine and three month periods ended September 30, 1995
increased $18.2 million, or 18%, and $5.3 million, or 15%, compared to the
corresponding periods in 1994. Excluding acquired businesses, revenues
increased $16.3 million, or 17%, and $5.2 million, or 15%, during the nine and
three month periods compared to the corresponding periods in 1994. The
increases are attributable primarily to increases in revenues resulting from new
contract signings and contract renewals. The Company expects that DRS revenues
will continue to be higher in 1995 compared to 1994 due primarily to new
contract signings and contract renewals and, to a lesser extent, a full year of
operations for businesses acquired in 1994.
Computer Services and Other:
CS revenues for the nine and three month periods ended September 30, 1995
increased $5.9 million, or 29%, and $4.3 million, or 61%, compared to the
corresponding periods in 1994. The increases are due primarily to the
acquisition of Intelus Corporation. In addition, volumes in the Company's
remote-access computer services and mailing services businesses have continued
to increase. The Company expects that CS revenues will be higher for the full
year 1995 compared to 1994 principally due to acquisitions.
Costs and Expenses:
Cost of sales and direct operating expenses for the nine and three month
periods ended September 30, 1995 increased $23.1 million and $5.1 million, or
16% and 10%, respectively, compared to corresponding periods in 1994. The
increase is due primarily to upgrades of leased computer equipment in the
Company's DRS and CS businesses and, to a lesser extent, acquired businesses.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Continued)
Costs and Expenses:
(Continued)
While sales, marketing and administration expenses for the nine and three
month periods ended September 30, 1995 increased $18.1 million and $8.4 million,
or 28% and 38%, respectively, compared to the corresponding periods in 1994, as
a percentage of revenues, sales, marketing and administrative expenses were
relatively stable at 21.5% in 1995 compared to 20% in 1994.
Product development expenses for the nine and three month periods ended
September 30, 1995 increased $8.0 million and $4.0 million, or 30% and 44%,
respectively, compared to the corresponding periods in 1994. The increases are
due primarily to an increase in development spending in connection with certain
investment support products and acquisitions.
Depreciation of property and equipment for the nine and three month periods
ended September 30, 1995 increased $4.9 million and $1.8 million, or 28% and
29%, respectively, compared to the corresponding periods in 1994. The increase
is due primarily to facility improvements and equipment additions principally in
the DRS business and acquired businesses.
Merger costs of $1.4 million ($0.03 per fully diluted share) were recorded
during the three month period ended September 30, 1995. These costs, which are
not deductible for income tax purposes, were incurred in connection with the
merger with Intelus Corporation, which was completed on August 31, 1995.
Investment income for the nine and three month periods ended September 30,
1995 increased $2.2 million and $0.5 million compared to the corresponding
periods in 1994 due primarily to a change in mix between taxable and tax-exempt
instruments, an overall increase in interest rates, and an increase in average
cash and investment balances.
Liquidity and Capital Resources:
At September 30, 1995, cash and short-term investments decreased $18.1
million to $84.5 million from $102.6 million at December 31, 1994. The decrease
resulted primarily from 1995 acquisitions and payments related to certain prior
year acquisitions. Cash equivalents and short-term investments are invested
primarily in institutional money-market funds, short-term municipal bonds, and
highly rated, investment-grade corporate bonds. By policy, the Company places
its investments with institutions of high credit-quality and limits the amount
of credit exposure to any one issuer.
During the nine month period ended September 30, 1995, as adjusted for the
two-for-one stock split, the Company purchased 250,000 shares of its common
stock under a stock repurchase plan announced on November 16, 1994, permitting
the Company to purchase up to 2,000,000 shares of its common stock by December
31, 1995. During the period November 16, 1994 through September 30, 1995, the
Company has purchased an aggregate of 550,000 shares of its common stock, of
which 179,000 shares are held in treasury at September 30, 1995. Shares
purchased under
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Continued)
Liquidity and Capital Resources:
(Continued)
the plan will continue to be used for the Company's stock option and award plans
and other general corporate purposes.
The Company believes that its 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. With respect to the lawsuit
described in Item 3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994, the class action
counts and all but one of the other counts against the
Company have been dismissed, and the Company believes that
the remainder of the lawsuit will not be material to its
business or financial condition.
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:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K: None
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet of SunGard Data Systems Inc. as of
September 30, 1995 and the unaudited consolidated statement of income for the
nine months ended September 30, 1995, included in the Form 10-Q of SunGard Data
Systems Inc. for the quarterly period ended September 30, 1995, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 45,901
<SECURITIES> 38,559
<RECEIVABLES> 115,588
<ALLOWANCES> 7,114
<INVENTORY> 0
<CURRENT-ASSETS> 223,451
<PP&E> 216,275
<DEPRECIATION> 125,144
<TOTAL-ASSETS> 519,825
<CURRENT-LIABILITIES> 110,204
<BONDS> 5,380
<COMMON> 383
0
0
<OTHER-SE> 398,035
<TOTAL-LIABILITY-AND-EQUITY> 519,825
<SALES> 0
<TOTAL-REVENUES> 378,723
<CGS> 0
<TOTAL-COSTS> 320,295
<OTHER-EXPENSES> 1,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 60,849
<INCOME-TAX> 25,502
<INCOME-CONTINUING> 35,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,347
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.91
</TABLE>
