<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 March 31, 1996
--------------
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 41,966,797 shares of the registrant's common stock, par value $.01
per share, outstanding at March 31, 1996.
<PAGE>
SunGard Data Systems Inc.
And Subsidiaries
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995.......................... 1
Consolidated Statements of Income for the three months
ended March 31, 1996 and 1995 (unaudited).................. 2
Supplemental Income Statement Information for the three
months ended March 31, 1996 and 1995 (unaudited)........... 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (unaudited).................. 3
Notes to Consolidated Financial Statements (unaudited)..... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation................................... 5
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
<PAGE>
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,
1996 December 31,
(Unaudited) 1995
------------ -----------
<S> <C> <C>
Assets
Current:
Cash and equivalents.................................................................. $ 103,201 $ 79,091
Short-term investments, at cost, which approximates market............................ 33,038 36,066
Trade receivables, less allowance for doubtful accounts of $7,866 and $6,426.......... 109,090 118,169
Earned but unbilled receivables....................................................... 22,745 25,090
Prepaid expenses and other current assets............................................. 19,177 16,020
Deferred income taxes................................................................. 7,552 6,727
------------ -----------
Total current assets.............................................................. 294,803 281,163
Property and equipment, less accumulated depreciation of $134,282 and $126,580........... 94,692 95,745
Software products, less accumulated amortization of $61,972 and $59,033.................. 34,284 35,375
Goodwill, less accumulated amortization of $20,957 and $19,658........................... 116,322 116,455
Other intangible assets, less accumulated amortization of $29,579 and $27,015............ 49,508 50,996
------------ -----------
$ 589,609 $ 579,734
============ ===========
Liabilities and Stockholders' Equity
Current:
Short-term and current portion of long-term debt...................................... $ 5,837 $ 6,761
Accounts payable...................................................................... 8,458 12,428
Accrued compensation and benefits..................................................... 22,229 29,330
Other accrued expenses................................................................ 16,932 15,773
Accrued income taxes.................................................................. 19,951 10,639
Deferred revenues..................................................................... 71,083 72,642
------------ -----------
Total current liabilities......................................................... 144,490 147,573
------------ -----------
Long-term debt........................................................................... 3,349 3,241
------------ -----------
Deferred income taxes.................................................................... 5,571 6,628
------------ -----------
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;
42,111 and 42,111 shares issued.................................................... 421 421
Capital in excess of par value........................................................ 171,667 171,558
Notes receivable for common stock..................................................... (1,125) (2,817)
Restricted stock plans................................................................ (95) (220)
Retained earnings..................................................................... 271,839 260,172
Foreign currency translation adjustment............................................... (1,404) (1,279)
------------ -----------
441,303 427,835
Treasury stock, at cost, 150 and 189 shares........................................... (5,104) (5,543)
------------ -----------
Total stockholders' equity.......................................................... 436,199 422,292
------------ -----------
$ 589,609 $ 579,734
============ ===========
</TABLE>
See accompanying notes
1
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------- ----------
1996 1995
----------- ----------
<S> <C> <C>
Revenues................................................................. $ 149,798 $ 121,490
----------- ----------
Costs and expenses:
Cost of sales and direct operating..................................... 67,236 55,706
Sales, marketing and administration.................................... 30,903 25,510
Product development.................................................... 13,179 10,291
Depreciation of property and equipment................................. 8,595 7,083
Amortization of intangible assets...................................... 6,812 5,296
----------- ----------
126,725 103,886
----------- ----------
Income from operations................................................... 23,073 17,604
Interest income, net.................................................. 1,519 1,246
----------- ----------
Income before income taxes............................................... 24,592 18,850
Income taxes........................................................... 9,960 7,729
----------- ----------
Net income............................................................... $ 14,632 $ 11,121
=========== ==========
Fully diluted net income per common share................................ $ 0.34 $ 0.29 (1)
=========== ==========
Shares used to compute fully diluted net income per common share......... 42,871 38,302(1)
=========== ==========
</TABLE>
================================================================================
<TABLE>
<CAPTION>
SunGard Data Systems Inc.
Supplemental Income Statement Information
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------- ----------
1996 1995
----------- ----------
<S> <C> <C>
Revenues:
Investment support systems............................................. $ 92,734 $ 77,040
Disaster recovery services............................................. 43,469 37,117
Computer services and other ........................................... 13,595 7,333
----------- ----------
$ 149,798 $ 121,490
=========== ==========
Income from operations:
Investment support systems............................................. $ 15,559 $ 13,632
Disaster recovery services............................................. 8,746 5,077
Computer services and other ........................................... 658 1,082
Corporate administration............................................... (1,890) (2,187)
----------- ----------
$ 23,073 $ 17,604
=========== ==========
Operating margin:
Investment support systems............................................. 16.8% 17.7%
=========== =========
Disaster recovery services............................................. 20.1% 13.7%
=========== =========
Computer services and other ........................................... 4.8% 14.8%
=========== =========
Total.................................................................. 15.4% 14.5%
=========== =========
</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>
Three Months Ended
March 31,
---------- ----------
1996 1995
---------- ----------
<S> <C> <C>
Cash flow from operations:
Net income............................................................................... $ 14,632 $ 11,121
Reconciliation of net income to cash flow from operations:
Depreciation and amortization......................................................... 15,407 12,379
Charges for stock option and award plans.............................................. 337 690
Other noncash charges (credits)....................................................... 282 (121)
Deferred income tax benefit........................................................... (1,882) (1,737)
---------- ----------
28,776 22,332
Cash provided by (used for) working capital, net of effect of acquired
businesses:
Accounts receivable and other current assets.......................................... 8,337 4,464
Accounts payable and accrued expenses................................................. (476) 404
Deferred revenues..................................................................... (2,328) (4,618)
---------- ----------
Cash flow from operations........................................................... 34,309 22,582
---------- ----------
Financing activities:
Cash received under employee stock plans................................................. 3,709 1,604
Cash paid for treasury stock............................................................. (4,415) (1,995)
Repayments of debt....................................................................... (1,024) (90)
---------- ----------
Total financing activities.......................................................... (1,730) (481)
---------- ----------
Long-term investment activities:
Cash paid for acquired businesses, net of cash acquired.................................. (2,542) (3,324)
Cash paid for property and equipment..................................................... (7,584) (5,486)
Cash paid for software and other assets.................................................. (1,371) (531)
---------- ----------
Total long-term investment activities............................................... (11,497) (9,341)
---------- ----------
Increase (decrease) in cash and equivalents before short-term investment activities........ 21,082 12,760
Short-term investment activities:
Purchase of short-term investments....................................................... (2,660) (39,797)
Maturities of short-term investments..................................................... 5,688 19,268
---------- ----------
Increase (decrease) in cash and equivalents................................................ 24,110 (7,769)
Beginning cash and equivalents............................................................. 79,091 68,491
---------- ----------
Ending cash and equivalents................................................................ $ 103,201 $ 60,722
========== ==========
Supplemental information:
Acquired businesses:
Property and equipment................................................................ - 60
Software products..................................................................... 765 1,237
Goodwill and other intangible assets.................................................. 2,620 3,119
Purchase price obligations and debt assumed........................................... - (240)
Net current liabilities assumed....................................................... (843) (852)
---------- ----------
Cash paid for acquired businesses, net of cash acquired.................................... $ 2,542 $ 3,324
========== ==========
</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 March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996. 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, 1995.
2. On April 26, 1996, the Company completed the acquisition of the disaster
recovery business of Digital Equipment Corporation. The acquisition
consisted primarily of contract rights, computer equipment and a non-
competition agreement. The acquisition is not expected to have a material
effect upon the financial condition of results of operations of the
Company.
3. Fully diluted net income per common 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>
Item 2. Management's Discussion and Analysis of Financial Condition and
Result's of Operations
Statements about the Company's expectations and all other statements in
this quarterly report on Form 10-Q other than historical facts are forward-
looking statements. Since these statements involve risks and uncertainties and
are subject to change at any time, the Company's actual results could differ
materially from expected results. The Company derives most of its forward-
looking statements from its operating budgets and forecasts, which are based
upon many detailed assumptions. While the Company believes that its assumptions
are reasonable, it cautions that there are inherent difficulties in predicting
certain important factors, especially the timing and magnitude of software
sales, the timing and magnitude of technological advances, the performance of
recently acquired businesses, the prospects for future acquisitions, and the
overall condition of the financial services industry. These factors, as and
when applicable, are discussed in the Company's filings with the Securities and
Exchange Commission, including its Form 10-K for the year ended December 31,
1995, a copy of which may be obtained from the Company without charge.
Income from Operations:
Investment Support Systems (ISS):
The Company's ISS business is comprised of more than twenty operating units
of various sizes and complexities. Historically, most operating units have met
or exceeded expectations, while some have not, yielding overall results for the
entire business at approximately the levels expected.
Since overall ISS results reflect the sum of the diverse results of
individual operating units, there could be an adverse impact on ISS revenues and
margins if too many individual units are unable to meet expectations.
The ISS operating margin was 16.8% for the three months ended March 31,
1996. The Company expects that the full-year 1996 operating margin will be
approximately 16%, consistent with the full-year ISS operating margin during the
last three years. The most important factors affecting the ISS operating margin
continue to be the timing and magnitude of software license revenues, the
performance of recently acquired businesses and the level of spending on product
development.
Disaster Recovery Services (DRS):
The DRS operating margin increased during the three month period ended
March 31, 1996 compared to the corresponding period in 1995, due primarily to an
increase in revenues and the timing and magnitude of equipment expenditures. The
Company expects the timing and magnitude of expenditures for equipment and
facilities upgrades to be spread throughout 1996, compared with 1995, when such
expenditures were more heavily concentrated in the first quarter.
The Company expects that the full-year 1996 DRS operating margin will
remain the same as in 1995. The most important factors affecting the DRS
operating margin continue to be the rate of new contract signings, contract
renewals, and timing and magnitude of equipment and facilities expenditures, as
well as the level of acquisition activity.
5
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Income from Operations
(Continued):
Computer Services and Other (CS):
The decline in the CS operating margin during the three month period ended
March 31, 1996 compared to the corresponding period in 1995 is due to the
initial effect of the 1995 acquisitions of Intelus Corporation and MACESS
Corporation, partially offset by an increase in the operating margin in the
Company's remote-access computer processing and automated mailing services
businesses.
The Company expects that the CS operating margin will improve for the full-
year 1996 compared to 1995. The most important factors affecting the CS
operating margin are the performance of acquired businesses, which are highly
dependent upon the timing and magnitude of software license revenues, and
revenue growth in remote-access computer processing and automated mailing
services businesses.
Revenues:
Total revenues for the three month period ended March 31, 1996 increased
$28.3 million, or 23%, compared to the corresponding period in 1995. Excluding
acquired businesses, revenues increased $11.3 million, or 9%, during the three
month period compared to the corresponding period in 1995. Recurring revenues
derived from remote processing, disaster recovery and software maintenance
services are approximately $119.6 million and $100.3 million for the three month
periods ended March 31, 1996 and 1995, respectively, representing 80% and 83% of
consolidated revenues, respectively. The decline in the percentage of recurring
revenues during 1996 is due to an increase in the percentage of software license
revenues, which increased to 11% of total revenues during the three month period
ended March 31, 1996, compared to 9% of total revenues during the corresponding
period in 1995. This increase was due primarily to continued growth in software
license revenues in the Trading Systems Group and acquired businesses, partially
offset by a decline in software license revenues in the Company's Financial
Systems Group due to a large sale during the first quarter of 1995. The Company
expects that the percentage of recurring revenues will be approximately 80% for
the full-year 1996.
The Company sells a significant portion of its products and services to the
financial services industry and could be directly affected by the overall
condition of that industry. The Company expects that the consolidation trend in
the financial services industry will continue, but it is unable to predict what
effect, if any, this trend may have.
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 three month period ended March 31, 1996 increased
$15.7 million, or 20%, compared to the corresponding period in 1995. Excluding
acquired businesses, revenues increased $4.6 million, or 6%, during the three
month period ended March 31, 1996, compared to the corresponding period in
1995. The increase is attributable to increases in data processing and software
maintenance revenues of $4.6 million. Excluding acquired businesses, software
license and professional services revenues were unchanged in 1996, due in part
to a large software license sale of a Financial Systems Group product during the
first quarter of 1995. This product is more frequently sold on a recurring
revenue basis.
Disaster Recovery Services:
DRS revenues for the three month period ended March 31, 1996 increased $6.4
million, or 17%, compared to the corresponding period in 1995. Excluding
acquired businesses, revenues increased $6.0 million, or 16%, during the three
month period compared to the corresponding period in 1995. The increase is
attributable primarily to increases in revenues resulting from new contract
signings and contract renewals, a significant portion of which were in the
Company's midrange platforms.
Computer Services and Other:
CS revenues for the three month period ended March 31, 1996 increased $6.3
million, or 85%, compared to the corresponding period in 1995. Excluding
acquired businesses, revenues increased $0.8 million, or 11%, compared to the
corresponding period in 1995. The increase is due to increased volume in the
Company's remote-access computer processing business.
Costs and Expenses:
Cost of sales and direct operating expenses for the three month period
ended March 31, 1996 increased $11.5 million, or 21%, compared to the
corresponding period in 1995. The increase is due primarily to acquired
businesses. As a percentage of revenues, cost of sales and direct operating
expenses declined to approximately 45% from 46% in 1995. The decline was due
primarily to an increase in product development spending, as well as the results
of cost containment efforts.
Sales, marketing and administration expenses for the three month period
ended March 31, 1996 increased $5.4 million, or 21%, compared to the
corresponding period in 1995. The increase is due primarily to acquired
businesses and an increase in sales activity, particularly in the Trading
Systems and Disaster Recovery Services Groups. As a percentage of revenues,
sales, marketing and administrative expenses were relatively stable at
approximately 21%.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Costs and Expenses
(Continued):
Product development expenses for the three month period ended March 31,
1996 increased $2.9 million, or 28%, compared to the corresponding period in
1995. The increase is due primarily to acquired businesses and an increase in
development spending in connection with various ISS products. Development costs
capitalized were $0.5 million and $0.3 million during the three month periods
ended March 31, 1996 and 1995, respectively.
Depreciation of property and equipment for the three month period ended
March 31, 1996 increased $1.5 million, or 21%, compared to the corresponding
period in 1995. The increase is due primarily to acquired businesses and
purchases of equipment and facility improvements.
Net interest income for the three month period ended March 31, 1996
increased $0.3 million, or 22%, compared to the corresponding period in 1995 due
primarily to an increase in average cash and investment balances, and, to a
lesser extent, an increase in overall interest rates.
The Company's effective income tax rate was 40.5% and 41.0% during the
three month periods ended March 31, 1996 and 1995, respectively. The small
decline in the 1996 effective income tax rate is due primarily to nondeductible
intangible asset amortization remaining relatively constant, while income before
income taxes is increasing.
Liquidity and Capital Resources:
At March 31, 1996, cash and short-term investments increased $21.0 million
to $136.2 million from $115.2 million at December 31, 1995. 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.
Cash flow from operations increased during the three month period ended
March 31, 1996 to $34.3 million from $22.6 million during the comparable period
in 1995. The increase was due to collection of accounts receivable balances
resulting primarily from fourth quarter 1995 sales, as well as an increase in
net income. The Company spent $7.6 million for property and equipment during
the three months ended March 31, 1996, and expects that capital spending for the
full-year 1996 will increase to approximately $37.0 million from $31.7 million
during 1995. The expected increase is due to businesses acquired during 1995
and replacement and improvement of equipment and facilities.
The Company expects that its existing cash resources and cash generated
from operations will be sufficient for the foreseeable future to meet its
operating requirements, contingent payments in connection with business
acquisitions, and ordinary capital spending needs. Furthermore, the Company
believes that it has the capacity to borrow funds and use equity to finance
additional capital needs.
8
<PAGE>
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:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K: None
9
<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: May 14, 1996 By: /s/Michael J. Ruane
------------------------------------
Michael J. Ruane
Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
10
<PAGE>
LIST OF EXHIBITS
NUMBER EXHIBIT
- ------ -------
27.1 Financial Data Schedule.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET OF SUNGARD SYSTEMS INC. AS OF MARCH 31,
1996 AND THE UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1996, INCLUDED IN THE FORM 10-Q OF SUNGARD DATA SYSTEMS INC. FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 103,201
<SECURITIES> 33,038
<RECEIVABLES> 139,701
<ALLOWANCES> 7,866
<INVENTORY> 0
<CURRENT-ASSETS> 294,803
<PP&E> 228,974
<DEPRECIATION> 134,282
<TOTAL-ASSETS> 589,609
<CURRENT-LIABILITIES> 144,490
<BONDS> 3,349
0
0
<COMMON> 421
<OTHER-SE> 435,778
<TOTAL-LIABILITY-AND-EQUITY> 589,609
<SALES> 0
<TOTAL-REVENUES> 149,798
<CGS> 0
<TOTAL-COSTS> 95,822<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,592
<INCOME-TAX> 9,960
<INCOME-CONTINUING> 14,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,632
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<FN>
<F1>EXCLUDES SELLING, MARKETING AND ADMINISTRATIVE COSTS
</FN>
</TABLE>
