<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, 1997 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 43,123,421 shares of the registrant's common stock, par value $.01
per share, outstanding at March 31, 1997.
<PAGE>
SUNGARD DATA SYSTEMS INC.
AND SUBSIDIARIES
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements:
<TABLE>
<CAPTION>
<S> <C> <C>
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996.......................... 1
Consolidated Statements of Income for the three months
ended March 31, 1997 and 1996 (unaudited).................. 2
Supplemental Income Statement Information for the three
months ended March 31, 1997 and 1996 (unaudited)........... 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (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>
March 31,
1997 December 31,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
Assets
Current:
Cash and equivalents............................... $ 49,998 $ 46,072
Trade receivables, less allowance for doubtful
accounts of $12,729 and $10,391.................. 139,509 130,404
Earned but unbilled receivables.................... 25,013 27,842
Prepaid expenses and other current assets.......... 21,247 18,507
Deferred income taxes.............................. 14,457 13,632
--------- ---------
Total current assets............................. 250,224 236,457
Property and equipment, less accumulated
depreciation of $169,955 and $158,214............ 114,204 109,523
Software products, less accumulated amortization
of $73,257 and $68,780........................... 70,063 71,917
Goodwill, less accumulated amortization
of $25,251 and $23,444........................... 159,692 156,796
Other intangible assets, less accumulated
amortization of $38,466 and $34,590.............. 113,178 104,625
--------- ---------
$707,361 $679,318
========= =========
Liabilities and Stockholders' Equity
Current:
Short-term and current portion of long-term debt... $ 38,004 $ 34,932
Accounts payable................................... 14,074 13,531
Accrued compensation and benefits.................. 31,935 41,581
Other accrued expenses............................. 26,499 24,004
Accrued income taxes............................... 20,382 5,873
Deferred revenues.................................. 87,527 90,345
--------- ---------
Total current liabilities........................ 218,421 210,266
--------- ---------
Long-term debt....................................... 4,655 4,414
--------- ---------
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;
43,123 and 42,300 shares issued.................. 431 423
Capital in excess of par value..................... 176,977 175,937
Notes receivable for common stock.................. (352) (559)
Restricted stock plans............................. (1,481) (1,535)
Retained earnings.................................. 313,272 292,113
Foreign currency translation adjustment............ (4,562) (266)
--------- ---------
484,285 466,113
Treasury stock, at cost, 0 and 43 shares........... -- (1,475)
--------- ---------
Total stockholders' equity....................... 484,285 464,638
--------- ---------
$707,361 $679,318
========= =========
</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,
---------------------------
1997 1996
----------- ----------
<S> <C> <C>
Revenues............................................. $187,421 $149,798
--------- ---------
Costs and expenses:
Cost of sales and direct operating.................. 81,966 67,236
Sales, marketing and administration................. 36,270 30,903
Product development................................. 16,813 13,179
Depreciation of property and equipment.............. 11,366 8,595
Amortization of intangible assets................... 10,553 6,812
--------- ---------
156,968 126,725
--------- ---------
Income from operations............................... 30,453 23,073
Interest income..................................... 593 1,871
Interest expense.................................... (585) (352)
--------- ---------
Income before income taxes........................... 30,461 24,592
Income taxes........................................ 12,337 9,960
--------- ---------
Net income........................................... $ 18,124 $ 14,632
========= =========
Fully diluted net income per common share............ $ 0.41 $ 0.34
========= =========
Shares used to compute fully diluted net income
per common share................................... 43,942 42,871
========= =========
</TABLE>
SunGard Data Systems Inc.
Supplemental Income Statement Information
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
----------- ----------
<S> <C> <C>
Revenues:
Investment support systems.......................... $120,026 $ 92,734
Disaster recovery services.......................... 52,826 43,469
Computer services and other......................... 14,569 13,595
--------- ---------
$187,421 $149,798
========= =========
Income from operations:
Investment support systems.......................... $ 20,940 $ 15,559
Disaster recovery services.......................... 9,735 8,746
Computer services and other......................... 1,825 658
Corporate administration............................ (2,047) (1,890)
--------- ---------
$ 30,453 $ 23,073
========= =========
Operating margin:
Investment support systems.......................... 17.4% 16.8%
========= =========
Disaster recovery services.......................... 18.4% 20.1%
========= =========
Computer services and other......................... 12.5% 4.8%
========= =========
Total............................................... 16.2% 15.4%
========= =========
</TABLE>
See accompanying notes
2
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flow from operations:
Net income..................................................... $ 18,124 $ 14,632
Reconciliation of net income to cash flow from operations:
Depreciation and amortization................................. 21,919 15,407
Other noncash charges (credits)............................... 853 619
Deferred income tax benefit................................... (4,197) (1,882)
--------- ---------
36,699 28,776
Cash provided by (used for) working capital,
net of effect of acquired businesses:
Accounts receivable and other current assets.................. (5,065) 8,337
Accounts payable and accrued expenses......................... 2,945 (476)
Deferred revenues............................................. (4,180) (2,328)
--------- ---------
Cash flow from operations.................................... 30,399 34,309
--------- ---------
Financing activities:
Cash received under employee stock plans....................... 2,711 3,709
Cash paid for treasury stock................................... -- (4,415)
Cash received under revolving line of credit................... 30,000 --
Repayments of debt............................................. (26,847) (1,024)
--------- ---------
Total financing activities.................................... 5,864 (1,730)
--------- ---------
Long-term investment activities:
Cash paid for acquired businesses, net of cash acquired........ (14,874) (2,542)
Cash paid for property and equipment........................... (14,821) (7,584)
Cash paid for software and other long-term assets.............. (2,642) (1,371)
--------- ---------
Total long-term investment activities......................... (32,337) (11,497)
--------- ---------
Increase in cash and equivalents before
short-term investment activities............................... 3,926 21,082
Short-term investment activities:
Purchase of short-term investments............................. -- (2,660)
Maturities of short-term investments........................... -- 5,688
--------- ---------
Increase in cash and equivalents................................ 3,926 24,110
Beginning cash and equivalents.................................. 46,072 79,091
--------- ---------
Ending cash and equivalents..................................... $ 49,998 $103,201
========= =========
Supplemental information:
Acquired businesses:
Property and equipment........................................ 2,267 --
Software products............................................. 147 765
Goodwill and other intangible assets.......................... 16,474 2,620
Purchase price obligations and debt assumed................... (1,635) --
Net current liabilities assumed............................... 214 (843)
Common stock issued........................................... (2,593) --
--------- ---------
Cash paid for acquired businesses, net of cash acquired......... $ 14,874 $ 2,542
========== =========
</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, 1997 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997. 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, 1996.
2. During the first quarter of 1997, the Company completed the acquisition of
GMI Software, Inc. (GMI), a global provider of application software
supporting exchange-traded futures and options. The acquisition of GMI has
been accounted for as a pooling-of-interests. The accompanying consolidated
financial statements include the results of GMI from January 1, 1997. Prior
year consolidated financial statements have not been restated because the
effect of such restatement is not material.
Also during the first quarter, the Company completed the acquisition of the
disaster recovery business of Data Assurance Corporation of Englewood,
Colorado. This acquisition has been accounted for as a purchase of assets.
On April 15, 1997, the Company completed the acquisition of the Global Plus
product line and certain other assets of Premier Solutions Ltd. Global Plus
is a real-time, multi-currency trust and custody accounting system. This
acquisition has been accounted for as a purchase of assets. The Company has
engaged a nationally recognized, independent appraisal firm to express an
opinion on the fair market value of the assets acquired to serve as the
basis of allocation of the purchase price to the various classes of assets
acquired. While this appraisal is not yet complete, the Company expects to
record a charge against second quarter earnings for that portion of the
purchase price related to purchased in-process research and development.
This charge represents, as of the date of acquisition, the value of
software products still in development, but not considered to have reached
technological feasibility or to have any alternate future use.
Except for the charge related to purchased in-process research and
development described above, these acquisitions are not expected to have a
material effect on the Company's financial condition or results of
operations.
4
<PAGE>
SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128), which specifies a new
methodology for the computation, presentation and disclosure of earnings
per share and makes the U.S. standard for computing earnings per share more
compatible with that of other countries and with the International
Accounting Standards Committee.
SFAS 128 requires a dual presentation of basic and diluted earnings per
share. The new standard is required to be adopted in the fourth quarter of
1997. While early adoption is not permitted, SFAS 128 requires restatement
of all prior period earnings per share data at the time of adoption. The
Company's new earnings per share amounts are not expected to be materially
different from those computed under the present accounting standard for the
three months ended March 31, 1997 and 1996.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS 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 most recent Form 10-K, 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 thirty operating units
of various size and complexity. 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 17.4% and 16.8% for the three month periods
ended March 31, 1997 and 1996, respectively. The increase in the operating
margin is due primarily to cost reductions in certain ISS businesses as compared
to the first three months of 1996, despite an increase in overall product
development expense.
The Company expects that the full-year 1997 ISS operating margin will be
slightly higher than the full-year 1996 ISS operating margin. The most
important factors affecting the ISS operating margin continue to be the timing
and magnitude of software license revenues, the operating margin of recently
acquired businesses and the level of product development spending.
Disaster Recovery Services (DRS):
The DRS operating margin was 18.4% and 20.1% during the three month periods
ended March 31, 1997 and 1996, respectively. The decrease in the operating
margin is due primarily to the expansion of its sales force and costs associated
with additional operating facilities and equipment.
The Company expects that the full-year 1997 DRS operating margin will
approximate the 1996 full-year DRS operating margin. The most important factors
affecting the DRS operating margin continue to be the rate of new contract
signings and contract renewals, the timing and magnitude of equipment and
facilities expenditures, and the performance of recently acquired businesses.
6
<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 CS operating margin was 12.5% and 4.8% during the three month periods
ended March 31, 1997 and 1996, respectively. The increase in the operating
margin is due to an increase in revenues and cost reductions in the Company's
healthcare information systems (HIS) businesses.
The Company expects that the CS operating margin will continue to improve
as compared to 1996. The most important factors affecting the CS operating
margin are the timing and magnitude of software license revenues related to the
HIS businesses, and revenue variability in both remote-access computer
processing and automated mailing services.
REVENUES:
Total revenues for the three month period ended March 31, 1997 increased
$37.6 million, or 25%, compared to the corresponding period in 1996. Excluding
acquired businesses, revenues increased $16.9 million, or 11%, during the three
month period compared to the corresponding period in 1996. Recurring revenues
derived from remote processing, disaster recovery and software maintenance
services approximated $149.3 million and $119.6 million, representing
approximately 80% of consolidated revenues in both of the three month periods
ended March 31, 1997 and 1996, respectively.
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.
Investment Support Systems:
ISS revenues for the three month period ended March 31, 1997 increased
$27.3 million, or 29%, compared to the corresponding period in 1996. Excluding
acquired businesses, revenues increased $7.9 million, or 9%, during the three
month period ended March 31, 1997, compared to the corresponding period in 1996.
This increase is attributable to increases in data processing and software
maintenance revenues of $8.6 million, partially offset by a net decrease in
software license and professional services revenues of $0.7 million.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
INCOME FROM OPERATIONS, CONTINUED:
Disaster Recovery Services:
DRS revenues for the three month period ended March 31, 1997 increased $9.4
million, or 22%, compared to the corresponding period in 1996. Excluding
acquired businesses, revenues increased $8.0 million, or 18%, during the three
month period ended March 31, 1997, compared to the corresponding period in 1996.
The increase is attributable primarily to increases in revenues resulting from
new contract signings and contract renewals, and continued growth in midrange
platforms.
Computer Services and Other:
CS revenues for the three month period ended March 31, 1997 increased $1.0
million, or 7%, compared to the corresponding period in 1996. The increase is
due to increased volume in the Company's remote-access computer processing
business, and an increase in revenues in the Company's HIS businesses.
COSTS AND EXPENSES:
Cost of sales and direct operating expenses for the three month period
ended March 31, 1997 increased $14.7 million, or 22%, compared to the
corresponding period in 1996. The increase is due primarily to acquired
businesses, partially offset by cost reductions in certain ISS businesses.
Sales, marketing and administration expenses for the three month period
ended March 31, 1997 increased $5.4 million, or 17%, compared to the
corresponding period in 1996. The increases are due primarily to acquired
businesses and an expansion in the sales force, particularly in the DRS Group,
partially offset by cost reductions in certain ISS and HIS businesses.
Product development expenses for the three month period ended March 31,
1997 increased $3.6 million, or 28%, compared to the corresponding period in
1996. The increase is due primarily to acquired businesses and an increase in
development spending in connection with various ISS products. Development costs
capitalized were $1.2 million and $0.5 million for the three months ended March
31, 1997 and 1996, respectively. The increase in development costs capitalized
is a function of the timing of development activities.
Depreciation of property and equipment for the three month period ended
March 31, 1997 increased $2.8 million, or 32%, compared to the corresponding
period in 1996. The increase is due primarily to purchases of computer and
telecommunications equipment and acquired businesses.
Amortization of intangible assets for the three month period ended March
31, 1997 increased $3.7 million, or 55%, due to acquired businesses.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
COSTS AND EXPENSES, CONTINUED:
Interest income for the three month period ended March 31, 1997 decreased
$1.3 million, or 68%, and interest expense increased $0.2 million, or 66%,
compared to the corresponding period in 1996 due to lower cash and short-term
investment balances and an increase in short-term debt.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1997, cash and equivalents increased $3.9 million to $50.0
million from $46.1 million at December 31, 1996. The increase in cash and
equivalents is partially offset by a $3.1 million increase in short-term debt.
At March 31, 1997, borrowings under the Company's credit agreement totaled $20.0
million.
The Company expects that its existing cash resources and cash generated
from operations will be sufficient to meet its operating requirements,
contingent payments in connection with previously acquired businesses, and
ordinary capital spending needs for at least the next twelve months.
Furthermore, the Company has a $150.0 million credit agreement ($130.0 million
available at March 31, 1997), and believes it has the capacity to secure
additional credit or issue 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: 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, 1997 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 DATA SYSTEMS INC. AS OF MARCH
31, 1997 AND THE UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1997, BOTH INCORPORATED BY REFERENCE INTO THE FORM 10-Q OF
SUNGARD DATA SYSTEMS INC. FOR THE THREE MONTHS ENDED MARCH 31, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 49,998
<SECURITIES> 0
<RECEIVABLES> 177,251
<ALLOWANCES> 12,729
<INVENTORY> 0
<CURRENT-ASSETS> 250,224
<PP&E> 284,159
<DEPRECIATION> 169,955
<TOTAL-ASSETS> 707,361
<CURRENT-LIABILITIES> 218,421
<BONDS> 4,655
0
0
<COMMON> 431
<OTHER-SE> 483,854
<TOTAL-LIABILITY-AND-EQUITY> 707,361
<SALES> 0
<TOTAL-REVENUES> 187,421
<CGS> 0
<TOTAL-COSTS> 120,698<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 585
<INCOME-PRETAX> 30,461
<INCOME-TAX> 12,337
<INCOME-CONTINUING> 18,124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,124
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
<FN>
<F1>EXCLUDES SELLING, MARKETING AND ADMINISTRATIVE COSTS.
</FN>
</TABLE>
