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Previous: NEWSEDGE CORP, 10-Q, 1998-08-14 |
Next: FIRST COMMUNITY BANCSHARES INC /NV/, 10-Q, 1998-08-14 |
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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 0-20900
COMPUWARE CORPORATION
---------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2007430
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
31440 NORTHWESTERN HIGHWAY
FARMINGTON HILLS, MI 48334-2564
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (248)737-7300
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
--- ---
As of August 10, 1998, there were outstanding 182,934,074 shares of Common
Stock, par value $.01, of the registrant.
Page 1 of 11 pages
<PAGE> 2
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE> 3
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
ASSETS 1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 177,865 $ 206,278
Investments 171,447 54,349
Accounts receivable, net 375,586 388,573
Deferred tax asset 12,804 14,133
Refundable income taxes 1,539 2,594
Prepaid expenses and other current assets 16,526 10,348
----------- -----------
Total current assets 755,767 676,275
----------- -----------
INVESTMENTS 116,753 107,721
----------- -----------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 85,995 84,494
----------- -----------
CAPITALIZED SOFTWARE, LESS ACCUMULATED
AMORTIZATION 49,072 50,455
----------- -----------
OTHER:
Accounts receivable 75,531 64,282
Deferred tax asset 11,650 12,926
Excess of cost over fair value of net assets acquired,
less accumulated amortization 57,044 57,607
Other assets 13,306 18,880
----------- -----------
Total other assets 157,531 153,695
----------- -----------
TOTAL ASSETS $ 1,165,118 $ 1,072,640
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 23,234 $ 19,985
Accrued expenses 96,036 113,792
Deferred revenue 196,962 180,174
----------- -----------
Total current liabilities 316,232 313,951
DEFERRED REVENUE 46,645 43,437
LONG TERM DEBT 4,532 6,956
----------- -----------
Total liabilities 367,409 364,344
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock 1,819 1,802
Additional paid-in capital 313,648 282,668
Retained earnings 486,302 427,455
Foreign currency translation adjustment (4,060) (3,629)
----------- -----------
Total shareholders' equity 797,709 708,296
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,165,118 $ 1,072,640
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUES:
Software license fees $ 128,630 $ 76,261
Maintenance fees 74,694 56,317
Professional services fees 135,299 91,900
--------- ---------
Total revenues 338,623 224,478
--------- ---------
OPERATING EXPENSES:
Cost of software license fees 6,620 4,814
Cost of maintenance 9,280 7,113
Cost of professional services 112,726 80,821
Software product development 15,315 13,562
Sales and marketing 96,860 66,235
Administrative and general 15,033 11,935
--------- ---------
Total operating expenses 255,834 184,480
--------- ---------
INCOME FROM OPERATIONS 82,789 39,998
OTHER INCOME 5,836 2,389
--------- ---------
INCOME BEFORE INCOME TAXES 88,625 42,387
INCOME TAX PROVISION 29,778 14,115
--------- ---------
NET INCOME $ 58,847 $ 28,272
========= =========
Basic earnings per share $ 0.33 $ 0.16
========= =========
Diluted earnings per share $ 0.30 $ 0.15
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,847 $ 28,272
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization 9,899 8,804
Tax benefit from exercise of stock options 25,276 4,111
Deferred income taxes 2,605 2,303
Other 52 (243)
Net change in assets and liabilities, net of effects from acquisitions:
Accounts receivable 1,738 19,927
Prepaid expenses and other current assets (6,178) (5,757)
Other assets 5,434 (104)
Accounts payable and accrued expenses (14,507) (25,799)
Deferred revenue 19,996 (4,352)
Refundable income taxes 1,055 2,622
--------- ---------
Net cash provided by operating activities 104,217 29,784
--------- ---------
CASH USED IN INVESTING ACTIVITIES:
Purchase of:
Businesses (533) (709)
Property and equipment (5,681) (8,178)
Capitalized software (2,875) (2,609)
Investments:
Proceeds from maturity 43,364 19,343
Purchases (170,215) (35,345)
--------- ---------
Net cash used in investing activities (135,940) (27,498)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 5,721 3,849
Payment of long term debt (2,411)
--------- ---------
Net cash provided by financing activities 3,310 3,849
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,413) 6,135
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 206,278 107,341
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 177,865 $ 113,476
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Compuware Corporation and its wholly owned subsidiaries
(collectively, the "Company"). All intercompany balances and transactions have
been eliminated in consolidation.
In the opinion of management of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, that are necessary for a fair presentation of the
results for the interim periods presented. These financial statements should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto for the year ended March 31, 1998 included in the Company's
Annual Report to Shareholders and the Company's Form 10-K filed with the
Securities and Exchange Commission.
NOTE 2 - COMPUTATION OF EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") data were computed as follows (in thousands,
except for per share data):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1998 1997
---------- ---------
<S> <C> <C>
BASIC EPS:
Numerator: Net Income $ 58,847 $ 28,272
---------- ---------
Denominator:
Weighted-average common shares outstanding 180,835 172,387
---------- ---------
Basic EPS $ 0.33 $ 0.16
========== =========
DILUTED EPS:
Numerator: Net Income $ 58,847 $ 28,272
---------- ---------
Denominator:
Weighted-average common shares outstanding 180,835 172,387
Dilutive effect of stock options 18,537 12,574
---------- ---------
Total shares 199,372 184,961
---------- ---------
Diluted EPS $ 0.30 $ 0.15
========== =========
</TABLE>
6
<PAGE> 7
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operational
data from the Company's consolidated statements of operations as a percentage of
total revenues and the percentage change in such items compared to the prior
period:
<TABLE>
<CAPTION>
Period-
Percentage of to-Period
Total Revenues Change
-------------------- ---------
Three Months Ended 1997
June 30, to
--------------------
1998 1997 1998
----- ----- -----
<S> <C> <C> <C>
Revenues:
Software license fees 38.0% 34.0% 68.7%
Maintenance fees 22.0 25.1 32.6
Professional services fees 40.0 40.9 47.2
----- -----
Total revenues 100.0 100.0 50.8
----- -----
Operating expenses:
Cost of software license fees 2.0 2.2 37.5
Cost of maintenance 2.8 3.2 30.5
Cost of professional services 33.3 36.0 39.5
Software product development 4.5 6.0 12.9
Sales and marketing 28.6 29.5 46.2
Administrative and general 4.4 5.3 26.0
----- -----
Total operating expenses 75.6 82.2 38.7
----- -----
Income from operations 24.4 17.8 107.0
Interest and investment income, net 1.8 1.1 144.3
----- -----
Income before income taxes 26.2 18.9 109.1
Income tax provision 8.8 6.3 111.0
----- -----
Net income 17.4% 12.6% 108.1%
===== =====
</TABLE>
7
<PAGE> 8
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1997
Total revenues for the first quarter of fiscal 1999 were $338.6 million, an
increase of $114.1 million, or 50.8%, as compared to $224.5 million for the
first quarter of fiscal 1998. The Company experienced an increase in license
fees, maintenance fees, and professional services fees during the three months
ended June 30, 1998.
Software license fees increased $52.3 million, or 68.7%, to $128.6 million in
the first quarter of fiscal 1999 from $76.3 million in the first quarter of
fiscal 1998. Almost all of the Company's product families experienced growth in
license fees, with the largest percentage increase in its client/server testing
and implementation and mainframe testing and implementation products.
Maintenance fee revenues increased $18.4 million, or 32.6%, to $74.7 million in
the first quarter of fiscal 1999 from $56.3 million in the first quarter of
fiscal 1998. The Company continues to experience growth in maintenance fees for
all of its product families due to the growth in the number of installed copies
of its products.
Revenues from professional services increased $43.4 million, or 47.2%, to $135.3
million in the first quarter of fiscal 1999 from $91.9 million in the first
quarter of fiscal 1998. All of the Company's professional services offices
experienced growth in revenues. The overall increase was due primarily to
increased business at new and existing clients equal to $8.7 million, $5.9
million and $4.6 million, at the Company's Farmington Hills, Michigan,
Milwaukee, Wisconsin, and Columbus, Ohio branches, respectively.
Cost of software license fees increased $1.8 million, or 37.5%, to $6.6 million
in the first quarter of fiscal 1999 from $4.8 million during the same period of
fiscal 1998. As a percentage of software license fees, these costs decreased to
5.1% in the first quarter of fiscal 1999 from 6.3% for the same period in fiscal
1998.
Cost of maintenance increased $2.2 million, or 30.5%, to $9.3 million in the
first quarter of fiscal 1999 from $7.1 million in the first quarter of fiscal
1998. As a percentage of maintenance fees, these costs decreased to 12.4% in the
first quarter of fiscal 1999 from 12.6% for the first quarter of fiscal 1998.
Cost of professional services increased $31.9 million, or 39.5%, to $112.7
million in the first quarter of fiscal 1999 from $80.8 million in the first
quarter of fiscal 1998. The increase in these expenses was due primarily to the
growth in the professional staff by 964 to 4,766 people at the end of the first
quarter of fiscal 1999 from 3,802 at the end of the same period in fiscal 1998.
As a percentage of professional services fees, these costs decreased to 83.3% in
the first quarter of fiscal 1999 from 87.9% in the first quarter of fiscal 1998.
Software product development costs increased $1.8 million or 12.9%, to $15.3
million in the first quarter of fiscal 1999 from $13.6 million in the first
quarter of fiscal 1998. Before the capitalization of internally developed
software products, total research and development expenditures increased $2.2
million to $18.2 million, or 13.6%, in the first quarter of fiscal 1999 from
$16.0 million in the first quarter of fiscal 1998. Capitalized research and
development expenditures as a percentage of total software product development
costs increased to 15.6% in the first quarter of fiscal 1999 from 15.2% in the
first quarter of fiscal 1998.
Sales and marketing costs increased $30.7 million, or 46.2%, to $96.9 million in
the first quarter of fiscal 1999 from $66.2 million in the first quarter of
fiscal 1998. The increase in sales and marketing costs was due primarily to the
expansion of the worldwide sales and marketing organizations, increased
Corporate advertising expense, and higher sales commissions associated with
increased product sales. As a percentage of license fees, these costs decreased
to 75.3% in the first quarter of fiscal 1999 from 86.9% in the first quarter of
fiscal 1998.
8
<PAGE> 9
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Administrative and general costs increased $3.1 million, or 26.0%, to $15.0
million in the first quarter of fiscal 1999 from $11.9 million in the first
quarter of fiscal 1998. The increase in these costs was due primarily to the
increase in the costs of administration, corporate communications and employee
development programs in order to support the Company's growth. As a percentage
of total revenue, these costs decreased to 4.4% in the first quarter of fiscal
1999 from 5.3% in the first quarter of fiscal 1998.
Income from operations for the first quarter of fiscal 1999 was $82.8 million,
as compared to income from operations of $40.0 million in the first quarter of
fiscal 1998. As a percentage of revenues, income from operations increased to
24.4% in the first quarter of fiscal 1999 from 17.8% in the same period of
fiscal 1998.
Net interest and investment income for the first quarter of fiscal 1999 was $5.8
million as compared to $2.4 million in the first quarter of fiscal 1998. This
increase in income was due primarily to higher average cash balances in the
fiscal 1999 period as compared to the fiscal 1998 period.
In the first quarter of fiscal 1999, the Company had an income tax provision of
$29.8 million, as compared to an income tax provision of $14.1 million, in the
first quarter of fiscal 1998. The effective tax rate for the first quarter of
fiscal 1999 is 33.6%, as compared to 33.3% for the first quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company held $466.1 million in cash and investments.
The Company has no debt other than the $4.5 million of notes issued as part of
prior years' acquisitions.
The Company continues to evaluate business acquisition opportunities that fit
the Company's strategic plans.
The Company believes that its available cash resources, together with cash flow
from operations will be sufficient to meet its cash needs for the foreseeable
future.
9
<PAGE> 10
COMPUWARE CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed herewith.
Exhibit
Number Description of Document
------- -----------------------
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
None
10
<PAGE> 11
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.
COMPUWARE CORPORATION
Date: August 13, 1998 By: /s/ Joseph A. Nathan
--------------- --------------------
Joseph A. Nathan
President
Chief Operating Officer
Date: August 13, 1998 By: /s/ Laura L. Fournier
--------------- ----------------------
Laura L. Fournier
Senior Vice President
Chief Financial Officer
11
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 177,865
<SECURITIES> 7
<RECEIVABLES> 384,593
<ALLOWANCES> 9,007
<INVENTORY> 0
<CURRENT-ASSETS> 755,767
<PP&E> 139,375
<DEPRECIATION> 53,380
<TOTAL-ASSETS> 1,165,118
<CURRENT-LIABILITIES> 316,232
<BONDS> 4,532
0
0
<COMMON> 1,819
<OTHER-SE> 799,950
<TOTAL-LIABILITY-AND-EQUITY> 1,165,118
<SALES> 338,623
<TOTAL-REVENUES> 338,623
<CGS> 255,834
<TOTAL-COSTS> 255,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 88,625
<INCOME-TAX> 29,778
<INCOME-CONTINUING> 58,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,847
<EPS-PRIMARY> .33
<EPS-DILUTED> .30
</TABLE>
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