<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 SEPTEMBER 30, 1999
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 November 5, 1999, there were outstanding 357,850,893 shares of Common
Stock, par value $.01, of the registrant.
Page 1 of 22 pages
<PAGE> 2
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
--------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Operations
for the three months and six months ended 4
September 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
- ----------
</TABLE>
2
<PAGE> 3
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
ASSETS 1999 1999
------ ------------------- ----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 52,208 $ 193,128
Investments 155,683 309,787
Accounts receivable, net 619,751 526,469
Deferred tax asset 20,527 16,727
Prepaid expenses and other current assets 27,019 25,979
--------------- ----------------
Total current assets 875,188 1,072,090
--------------- ----------------
INVESTMENTS 105,207 175,689
--------------- ----------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 108,397 94,786
--------------- ----------------
CAPITALIZED SOFTWARE, LESS ACCUMULATED
AMORTIZATION 89,104 48,095
--------------- ----------------
OTHER:
Accounts receivable 291,084 145,793
Excess of cost over fair value of net assets acquired,
less accumulated amortization 619,354 87,713
Other 74,943 52,517
--------------- ----------------
Total other assets 985,381 286,023
--------------- ----------------
TOTAL ASSETS $ 2,163,277 $ 1,676,683
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 43,450 $ 71,129
Accrued expenses 189,505 168,254
Income taxes payable 19,244 27,153
Deferred revenue 290,467 254,968
---------------- ----------------
Total current liabilities 542,666 521,504
DEFERRED REVENUE 121,699 75,657
LONG TERM DEBT 515,237
---------------- ----------------
Total liabilities 1,179,602 597,161
---------------- ----------------
SHAREHOLDERS' EQUITY:
Common stock 3,576 3,679
Additional paid-in capital 494,885 304,825
Retained earnings 485,508 777,318
Accumulated other comprehensive income (294) (6,300)
---------------- ----------------
Total shareholders' equity 983,675 1,079,522
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,163,277 $ 1,676,683
================ ================
</TABLE>
See notes to condensed 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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ----------------------------------
1999 1998 1999 1998
---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Software license fees $ 211,634 $ 135,043 $ 372,586 $ 263,673
Maintenance fees 102,970 79,948 200,710 154,642
Professional services fees 253,545 151,578 437,904 286,877
---------------- --------------- ---------------- ----------------
Total revenues 568,149 366,569 1,011,200 705,192
---------------- --------------- ---------------- ----------------
OPERATING EXPENSES:
Cost of software license fees 6,916 7,280 12,862 13,900
Cost of maintenance 10,879 9,029 21,259 18,309
Cost of professional services 230,466 123,683 388,946 236,409
Software product development 18,336 16,003 35,661 31,318
Sales and marketing 113,796 90,278 214,111 187,138
Administrative and general 22,978 18,118 37,668 33,151
Purchased research and development 17,900 2,750 17,900 2,750
---------------- --------------- ---------------- ----------------
Total operating expenses 421,271 267,141 728,407 522,975
---------------- --------------- ---------------- ----------------
INCOME FROM OPERATIONS 146,878 99,428 282,793 182,217
OTHER INCOME (EXPENSE):
Interest and investment income 5,554 6,942 11,564 12,901
Interest expense (4,873) (148) (5,037) (271)
---------------- --------------- ---------------- ----------------
Total other income 681 6,794 6,527 12,630
---------------- --------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 147,559 106,222 289,320 194,847
INCOME TAX PROVISION 55,777 36,434 106,811 66,212
---------------- --------------- ---------------- ----------------
NET INCOME $ 91,782 $ 69,788 $ 182,509 $ 128,635
================ =============== ================ ================
Basic earnings per share $ 0.26 $ 0.19 $ 0.51 $ 0.35
================ =============== ================ ================
Diluted earnings per share $ 0.24 $ 0.17 $ 0.47 $ 0.32
================ =============== ================ ================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 182,509 $ 128,635
Adjustments to reconcile net income to cash provided by
operations:
Purchased research and development 17,900 2,750
Depreciation and amortization 25,661 19,939
Tax benefit from exercise of stock options 25,491 44,706
Deferred income taxes 7,474 2,870
Other 6,100 (113)
Net change in assets and liabilities, net of effects from acquisitions:
Accounts receivable (166,396) (47,451)
Prepaid expenses and other current assets 666 (11,390)
Other assets (34,806) 144
Accounts payable and accrued expenses (46,425) 7,758
Deferred revenue 67,637 30,619
Income taxes (9,933) 12,502
-------------- --------------
Net cash provided by operating activities 75,878 190,969
-------------- --------------
CASH USED IN INVESTING ACTIVITIES:
Purchase of:
Businesses (623,642) (533)
Property and equipment (15,846) (11,670)
Capitalized software (6,019) (5,786)
Investments:
Proceeds from maturity 360,269 115,894
Purchases (130,064) (385,459)
Other (3,270) (2,610)
-------------- --------------
Net cash used in investing activities (418,572) (290,164)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 20,617 9,840
Net proceeds from sale of common stock 14,293 9,512
Repurchase of common stock (348,373)
Proceeds from (payment of) long term debt 515,237 (2,716)
-------------- --------------
Net cash provided by financing activities 201,774 16,636
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (140,920) (82,559)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 193,128 206,278
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,208 $ 123,719
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
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, 1999 included in the Company's
Annual Report to Shareholders and the Company's Form 10-K filed with the
Securities and Exchange Commission.
Certain amounts in the fiscal 1999 financial statements have been
reclassified to conform to the fiscal 2000 presentation.
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 Six Months Ended
September 30, September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
BASIC EPS:
Numerator: Net Income $ 91,782 $ 69,788 $ 182,509 $ 128,635
------------- -------------- --------------- --------------
Denominator: Weighted-average
common shares outstanding 356,959 365,586 357,426 363,638
------------- -------------- --------------- --------------
Basic EPS $ 0.26 $ 0.19 $ 0.51 $ 0.35
============= ============== =============== ==============
DILUTED EPS:
Numerator: Net Income $ 91,782 $ 69,788 $ 182,509 $ 128,635
------------- -------------- --------------- --------------
Denominator: Weighted-average
common shares outstanding 356,959 365,586 357,426 363,638
Dilutive effect of stock options 27,976 36,574 27,845 36,938
------------- -------------- --------------- --------------
Total shares 384,935 402,160 385,271 400,576
------------- -------------- --------------- --------------
Diluted EPS $ 0.24 $ 0.17 $ 0.47 $ 0.32
============= ============== =============== ==============
</TABLE>
6
<PAGE> 7
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
NOTE 3 - COMPREHENSIVE INCOME
Other comprehensive income includes foreign currency translation gains and
losses and gains on marketable securities that have been excluded from net
income and reflected instead in equity. Total comprehensive income is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------------- ----------------------------------
1999 1998 1999 1998
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 91,782 $ 69,788 $ 182,509 $ 128,635
Foreign currency translation
adjustment, net of tax 1,047 431 987
Unrealized gain on marketable
securities, net of tax 5,019 5,019
------------- --------------- -------------- ---------------
Total comprehensive income $ 97,848 $ 70,219 $ 188,515 $ 128,635
============= =============== ============== ===============
</TABLE>
NOTE 4 - ACQUISITIONS
In September 1999, the Company acquired Livernois Staffing Services, LLC
(Livernois) a privately held provider of engineering and information technology
services for approximately $1.5 million in cash, notes payable that are due
within one year and assumed liabilities of approximately $0.1 million. The
acquisition has been accounted for as a purchase and, accordingly, assets and
liabilities acquired have been recorded at fair value as of the date of
acquisition. The amount by which the acquisition cost exceeded the fair value of
the net assets acquired was approximately $1.6 million and is being amortized
over a ten-year period on a straight-line basis.
In September 1999, the Company acquired Programart Corporation (Programart) a
privately held developer of application performance management software for
approximately $125 million in cash. Of the total purchase price, $17.9 million
was allocated to in-process research and development based upon independent
valuations of the expected future cash flows, less costs to complete the
development. In accordance with SFAS No. 2, this amount was expensed as of the
purchase date. The acquisition has been accounted for as a purchase and,
accordingly, assets and liabilities acquired have been recorded at fair value as
of the date of acquisition. The amount by which the acquisition cost exceeded
the fair value of the net assets acquired was approximately $60.4 million and is
being amortized over a twenty-year period on a straight-line basis.
In August 1999, the Company acquired all outstanding common shares of Data
Processing Resources Corporation ("DPRC"), a professional services company, for
approximately $518 million in cash. This amount includes $115 million of DPRC
subordinated debt and third party expenses of approximately $7 million. The
acquisition has been accounted for under the purchase method of accounting and,
accordingly, assets and liabilities acquired have been recorded at fair value as
of the date of acquisition. The amount by which the acquisition cost exceeded
the fair value of the net assets acquired was approximately $462 million and is
being amortized over a twenty-year period on a straight-line basis.
7
<PAGE> 8
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
In May 1999, the Company acquired Reliant Data Systems, a privately held
developer of data migration software, for approximately $10.4 million in cash
and assumed liablilities of approximately $3.0 million. The acquisition has been
accounted for as a purchase and, accordingly, assets and liabilities acquired
have been recorded at fair value as of the date of acquisition. The amount by
which the acquisition cost exceeded the fair value of the net assets acquired
was approximately $13.4 million and is being amortized over a fifteen-year
period on a straight-line basis.
The pro forma unaudited consolidated results of operations assume the
acquisitions occurred as of the beginning of each of the periods presented (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------- ----------------------------------------
1999 1998 1999 1998
--------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 614,422 $ 456,407 $ 1,163,144 $ 875,578
Net Income 87,288 63,676 175,411 117,195
Diluted earnings per share 0.23 0.16 0.46 0.29
</TABLE>
The pro forma results include the amortization of the goodwill and interest
expense on debt assumed to finance these purchases. These amounts do not reflect
any benefit from the anticipated reduction in costs for certain corporate
functions from combined operations. The pro forma results are not necessarily
indicative of what actually would have occurred if the acquisition had been
completed as of the beginning of each of the fiscal periods presented, nor are
they necessarily indicative of future consolidated results.
8
<PAGE> 9
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
NOTE 5 - SEGMENTS
Compuware operates in two business segments in the software industry: products
and services. The Company provides software products and professional services
to the world's largest IT organizations that help information technology
professionals efficiently develop, implement and support the applications that
run their businesses.
Financial information for the Company's business segments is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------ ---------------------------------------
1999 1998 1999 1998
---------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Revenue:
Products:
Mainframe $ 258,775 $ 175,602 $ 478,106 $ 344,917
Client/Server 55,829 39,389 95,190 73,398
Services 253,545 151,578 437,904 286,877
---------------- ------------------ ------------------- ------------------
Total revenues $ 568,149 $ 366,569 $ 1,011,200 $ 705,192
================ ================== =================== ==================
Operating Expenses:
Products $ 149,927 $ 122,590 $ 283,893 $ 250,665
Services 230,466 123,683 388,946 236,409
Administrative and general 22,978 18,118 37,668 33,151
---------------- ------------------ ------------------- ------------------
Total operating expenses $ 403,371 $ 264,391 $ 710,507 $ 520,225
================ ================== =================== ==================
Income from operations, before other
income and expense and purchased
research and development:
Products $ 164,677 $ 92,401 $ 289,403 $ 167,650
Services 23,079 27,895 48,958 50,468
Administrative and general (22,978) (18,118) (37,668) (33,151)
---------------- ------------------ ------------------- ------------------
Income from operations, before other
income and expense and purchased
research and development 164,778 102,178 300,693 184,967
Purchased research and development (17,900) (2,750) (17,900) (2,750)
Other income and expense 681 6,794 6,527 12,630
---------------- ------------------ ------------------- ------------------
Income before income taxes $ 147,559 $ 106,222 $ 289,320 $ 194,847
================ ================== =================== ==================
</TABLE>
9
<PAGE> 10
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
NOTE 6 - CREDIT FACILITY
In August 1999, the Company entered into a four year unsecured credit agreement
with several major financial institutions for $900 million. Proceeds from the
credit facility were used to finance the acquisitions of DPRC and Programart.
The remaining amount under the credit facility will be used for future
acquisitions and working capital requirements. Interest may be determined on a
Eurodollar or prime rate basis at the Company's option. For the quarter ended
September 30, 1999, the average interest rate was 6.55% based upon the
Eurodollar rate. The credit agreement contains restrictive covenants and
requires commitment fees in accordance with standard banking practice. As of
September 30, 1999, the Company had $515 million outstanding under the credit
arrangement.
The Company's $30 million revolving bank credit facility was terminated
concurrently with the signing of the new credit facility.
NOTE 7 - SUBSEQUENT EVENTS
VIASOFT ACQUISITION
In July 1999, the Company and Viasoft, Inc. announced that an agreement had been
reached whereby Compuware will acquire Viasoft through a cash tender offer. A
wholly owned subsidiary of Compuware has offered to purchase any and all
outstanding shares of Viasoft's common stock for $9 per share, for total
consideration of $168 million. On October 28, 1999, the Department of Justice
announced that it will file suit to block this merger. Compuware has extended
the tender offer to November 29, 1999, to provide additional time to pursue
available options in defense of the civil action. If allowed to proceed, it is
expected that this purchase will be funded by cash on hand and borrowings under
the credit facility.
CACI INTERNATIONAL INC. ACQUISITION
In November 1999, the Company and CACI International Inc. (CACI) announced that
an agreement had been reached whereby Compuware will acquire the COMNET products
group from CACI for $40 million.
10
<PAGE> 11
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains certain forward looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are identified by the use of
the words "believes", "expects", "anticipates", "will", "contemplates", "would"
and similar expressions that contemplate future events. Numerous important
factors, risks and uncertainties affect the Company's operating results,
including without limitation those contained in this report, and could cause the
Company's actual results to differ materially from the results implied by these
or any other forward looking statements made by, or on behalf of, the Company.
There can be no assurance that future results will meet expectations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operational
data from the Company's consolidated statements of income as a percentage of
total revenues and the percentage change in such items compared to the prior
period:
<TABLE>
<CAPTION>
Percentage of Percentage of
Total Revenues Total Revenues
------------------------- ----------------------------
Three Months Ended Period- Six Months Ended Period-
September 30, to-Period September 30, to-Period
------------------------- ----------------------------
1999 1998 Change 1999 1998 Change
--------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Software license fees 37.3% 36.8% 56.7% 36.8% 37.4% 41.3%
Maintenance fees 18.1% 21.8% 28.8% 19.9% 21.9% 29.8%
Professional services fees 44.6% 41.4% 67.3% 43.3% 40.7% 52.6%
------------------------- ----------------------------
Total revenue 100.0% 100.0% 55.0% 100.0% 100.0% 43.4%
------------------------- ----------------------------
OPERATING EXPENSES:
Cost of software license fees 1.2% 2.0% (5.0%) 1.2% 2.1% (7.5%)
Cost of maintenance 1.9% 2.5% 20.5% 2.1% 2.6% 16.1%
Cost of professional services 40.6% 33.7% 86.3% 38.5% 33.5% 64.5%
Software product development 3.2% 4.4% 14.6% 3.5% 4.4% 13.9%
Sales and marketing 20.0% 24.6% 26.1% 21.2% 26.5% 14.4%
Administrative & general 4.0% 4.9% 26.8% 3.7% 4.7% 13.6%
Purchased research & development 3.2% 0.8% 550.9% 1.8% 0.4% 550.9%
------------------------- ----------------------------
Total operating expenses 74.1% 72.9% 57.7% 72.0% 74.2% 39.3%
------------------------- ----------------------------
Income from operations 25.9% 27.1% 47.7% 28.0% 25.8% 55.2%
Other income 0.1% 1.9% (90.0%) 0.6% 1.8% (48.3%)
------------------------- ----------------------------
Income before taxes 26.0% 29.0% 38.9% 28.6% 27.6% 48.5%
Income tax provision 9.8% 10.0% 53.1% 10.6% 9.4% 61.3%
------------------------- ----------------------------
Net income 16.2% 19.0% 31.5% 18.0% 18.2% 41.9%
========================= ============================
</TABLE>
11
<PAGE> 12
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company operates in two business segments in the software industry: products
and professional services.
PRODUCTS REVENUE
The Company's products are designed to support three key activities within the
application development process: building, testing and managing the application
to optimize performance in production. Products revenue consists of software
license fees and maintenance fees. Products revenue comprised 55.4% and 58.6% of
total Company revenue during the second quarters of fiscal years 2000 and 1999,
respectively, and 56.7% and 59.3% of total Company revenue during the first six
months of fiscal years 2000 and 1999, respectively. Mainframe product revenue
increased $83.2 million or 47.4%, to $258.8 million during the second quarter of
fiscal year 2000 from $175.6 million during the second quarter of fiscal year
1999 and $133.2 million or 38.6%, to $478.1 million during the first six months
of fiscal year 2000 from $344.9 million during the first six months of fiscal
year 1999. Client/server revenue increased $16.4 million or 41.7%, to $55.8
million during the second quarter of fiscal year 2000 from $39.4 million during
the second quarter of fiscal year 1999 and $21.8 million or 29.7%, to $95.2
million during the first six months of fiscal year 2000 from $73.4 million
during the first six months of fiscal year 1999. These increases occurred across
all product lines and reflect an increase in large multi-product sales, as well
as increases in e-commerce activity.
During September 1999, the Company acquired substantially all assets and certain
liabilities of Programart Corporation. (See Note 4.) This acquisition introduced
two new products, Strobe MVS Application Performance Measurement System and
APMpower Application Performance Analysis System to the Compuware Corporation
product line.
PROFESSIONAL SERVICES REVENUE
The Company offers a broad range of data processing professional services,
including business systems analysis, design and programming, software conversion
and system planning and consulting. Professional service revenue comprised 44.6%
and 41.4% of total Company revenue during the second quarters of fiscal years
2000 and 1999, respectively, and 43.3% and 40.7% of total Company revenue during
the first six months of fiscal years 2000 and 1999, respectively. Revenue from
professional services increased $102.0 million, or 67.3%, to $253.6 million
during the second quarter of fiscal year 2000 from $151.6 million in the second
quarter of fiscal year 1999 and revenue from professional services increased
$151.0 million, or 52.6%, to $437.9 million during the first six months of
fiscal year 2000 from $286.9 million in the first six months of fiscal year
1999. The Company's North American operations generated 92.8% and 88.4% of total
professional services revenue during the second quarters of fiscal years 2000
and 1999, respectively, and 91.2% and 88.9% of total professional services
revenue during the first six months of fiscal years 2000 and 1999, respectively.
International services revenue also increased slightly during these periods.
During August 1999, the Company completed the acquisition of Data Processing
Resources Corporation (DPRC). Excluding DPRC, total professional services
increased $32.7 million or 21.6% during the second quarter of fiscal year 2000
and $81.8 million or 28.5% during the six months ended September 30, 1999. The
Company plans to continue growing naturally and through acquisitions both in
North America and internationally.
12
<PAGE> 13
OPERATING PROFIT
The Company evaluates the performance of its segments based primarily on
operating profit before corporate expenses, purchased research and development
expense, net interest income and income taxes.
Financial information for the Company's products segment is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1999 1998 1999 1998
------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Revenue $ 314,604 $ 214,991 $ 573,296 $ 418,315
Operating expenses 149,927 122,590 283,893 250,665
------------------ ------------------- ------------------ -------------------
Products operating profit $ 164,677 $ 92,401 $ 289,403 $ 167,650
================== =================== ================== ===================
</TABLE>
Products revenue by geographic location is presented in the table below (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1999 1998 1999 1998
------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
United States $ 219,850 $ 138,436 $ 402,730 $ 265,297
European subsidiaries 64,632 57,090 120,102 106,730
Other international operations 30,122 19,465 50,464 46,288
------------------ ------------------- ------------------ -------------------
Total products revenue $ 314,604 $ 214,991 $ 573,296 $ 418,315
================== =================== ================== ===================
</TABLE>
The products segment generated operating margins of 52.3% and 43.0% during the
second quarters of fiscal years 2000 and 1999, respectively, and operating
margins of 50.5% and 40.1% during the first six months of fiscal years 2000 and
1999, respectively. Products expenses include cost of software license fees,
cost of maintenance, software product development costs and sales and marketing
expenses. The increase in the operating margins quarter over quarter is
primarily a result of economies associated with larger sales volumes, more sales
representatives in the field with increased sales productivity, additional
product offerings, and increased market penetration of our client/server
products.
Cost of software license fees includes amortization of capitalized software, the
cost of preparing and disseminating products to customers and the cost of author
royalties. Cost of software license fees decreased $0.4 million, or 5.0%, to
$6.9 million in the second quarter of fiscal year 2000 from $7.3 million in the
second quarter of fiscal year 1999 and decreased $1.0 million, or 7.5%, to $12.9
million in the first six months of fiscal year 2000 from $13.9 million in the
first six months of fiscal year 1999. The decrease in these costs is due
primarily to a decrease in amortization of internally developed software
products, decreased author royalties and decreased packaging and distribution
costs. As a percentage of software license fees, these costs were 3.3% and 5.4%
in the second quarters of fiscal years 2000 and 1999, respectively, and 3.5% and
5.3% in the first six months of fiscal years 2000 and 1999, respectively.
Cost of maintenance consists of the cost of maintenance programmers and product
support personnel and the computing, facilities and benefits costs allocated to
such personnel. Cost of maintenance increased $1.9 million, or 20.5%, to $10.9
million in the second quarter of fiscal
13
<PAGE> 14
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
(CONTINUED)
year 2000 from $9.0 million in the second quarter of fiscal year 1999 and
increased $3.0 million, or 16.1%, to $21.3 million in the first six months of
fiscal year 2000 from $18.3 million in the first six months of fiscal year 1999.
The increase in cost of maintenance was due primarily to the increase in
maintenance and support staff in order to support the worldwide growth of the
installed customer base. However, as a percentage of maintenance fees, these
costs were 10.6% and 11.3% for the second quarters of fiscal years 2000 and
1999, respectively, and 10.6% and 11.8% for the first six months of fiscal years
2000 and 1999, respectively. The Company will continue to look for ways to
reduce this percentage while maintaining superior service levels and high
renewal rates.
Software product development costs consist of the cost of programming personnel,
the facilities, computing and benefits costs allocated to such personnel and the
costs of preparing user and installation guides for the Company's software
products, less the amount of software development costs capitalized during the
period. Software product development costs increased $2.3 million or 14.6%, to
$18.3 million in the second quarter of fiscal year 2000 from $16.0 million in
the second quarter of fiscal year 1999 and increased $4.3 million or 13.9%, to
$35.7 million in the first six months of fiscal year 2000 from $31.3 million in
the first six months of fiscal year 1999. The increase in these costs was due
primarily to an increase in software development staff and depreciation of
computing equipment needed to meet the demand for new and enhanced products.
While continuing to support and enhance its traditional mainframe products, the
Company has significantly increased the resources allocated to developing and
enhancing its client/server product lines. Before the capitalization of
internally developed software products, total research and development
expenditures for the second quarter of fiscal year 2000 increased $2.4 million,
or 12.8%, to $21.4 million from $19.0 million in the second quarter of fiscal
year 1999 and for the first six months of fiscal year 2000 these costs increased
$4.8 million, or 12.8%, to $41.9 million from $37.1 million in the first six
months of fiscal year 1999. Capitalized research and development expenditures as
a percentage of total software product development costs decreased to 14.2% in
the second quarter of fiscal year 2000 from 15.6% in the second quarter of
fiscal year 1999 and decreased to 14.8% in the first six months of fiscal year
2000 from 15.6% in the first six months of fiscal year 1999.
Sales and marketing costs consist of the sales and marketing expenses associated
with the Company's products business, which include costs of direct sales, sales
support and marketing staff, the facilities and benefits costs allocated to such
personnel and the costs of marketing and sales incentive programs. Sales and
marketing costs increased $23.5 million or 26.1%, to $113.8 million in the
second quarter of fiscal year 2000 from $90.3 million in the second quarter of
fiscal year 1999 and increased $27.0 million or 14.4%, to $214.1 million in the
first six months of fiscal year 2000 from $187.1 million in the first six months
of fiscal year 1999. As a percentage of license fees, these costs were 53.8% and
66.9% for the second quarters of fiscal years 2000 and 1999, respectively, and
57.5% and 71.0% for the first six months of fiscal years 2000 and 1999,
respectively. The increase in sales and marketing costs was largely attributable
to the expansion of the worldwide sales force and increases in distributor
commissions and travel related expenditures. The direct sales and sales support
staff increased by 460 to 2,523 people at September 30, 1999, as compared to
2,063 at September 30, 1998.
During the second quarter of fiscal 2000, the Company acquired Programart, a
developer of application management software. The acquisition cost was $125
million and accounted for as a purchase. The purchase price was allocated to the
net tangible and intangible assets acquired including goodwill, and to in-
process research and development. The in-process research and development
includes the value of a product in the development stage that has not yet
reached technological feasibility and is believed to have no alternative future
use. As such, the Company expensed the in-process research and development as of
the purchase date.
14
<PAGE> 15
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company used an independent valuation to allocate the purchase price among
the tangible assets, intangible assets and the in-process research and
development. The "Income Approach" was used by the Company for its valuation of
purchased software and in-process research and development and focuses on
determining the income producing capability of these assets. The information for
this analysis was obtained through interviews with appropriate company personnel
and the review of market data, growth factors and expected technology trends. In
applying the "Income Approach", the Company estimated the expected future cash
flows, less the costs to complete the development, and discounted these cash
flows to their present value using an 18% discount rate for the in-process
research and development and 16% for existing software products.
Financial information for the Company's professional services segment is as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------- --------------------------------------
1999 1998 1999 1998
------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Revenue $ 253,545 $ 151,578 $ 437,904 $ 286,877
Operating expenses 230,466 123,683 388,946 236,409
------------------ ------------------ ------------------- ------------------
Professional services operating profit $ 23,079 $ 27,895 $ 48,958 $ 50,468
================== ================== =================== ==================
</TABLE>
Professional services revenue by geographic location is presented in the table
below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------- --------------------------------------
1999 1998 1999 1998
------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
United States $ 235,403 $ 134,055 $ 399,188 $ 254,906
European subsidiaries 15,660 14,936 33,544 27,955
Other international operations 2,482 2,587 5,172 4,016
------------------ ------------------ ------------------- ------------------
Total professional services revenue $ 253,545 $ 151,578 $ 437,904 $ 286,877
================== ================== =================== ==================
</TABLE>
The professional services segment generated operating margins of 9.1% and 18.4%
during the second quarters of fiscal years 2000 and 1999, respectively, and
11.2% and 17.6% during the first six months of fiscal years 2000 and 1999,
respectively. The decrease in the professional services margin is primarily
attributable to increased allocations of costs of corporate systems, increased
use of subcontractors for special services, and additional billable staff
temporarily off assignment. Cost of professional services includes all costs of
the Company's professional services business, including the personnel costs of
the professional, management and administrative staff of the Company's services
business and the facilities and benefits costs allocated to such personnel. Cost
of professional services increased $106.8 million, or 86.3%, to $230.5 million
in the second quarter of fiscal year 2000 from $123.7 million in the second
quarter of fiscal year 1999 and increased $152.5 million, or 64.5%, to $388.9
million in the first six months of fiscal year 2000 from $236.4 million in the
first six months of fiscal year 1999. The increase in these expenses was due
primarily to an increase of 4,582 professional billable staff to 9,643 people at
September 30, 1999, of which 3,350 people were added as a result of the DPRC
acquisition, from 5,061 people at September 30, 1998. In addition, an increase
in sub-contractor costs, and to a lesser extent, increases in employee training,
development and travel related expenditures also contributed to the increase.
15
<PAGE> 16
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Administrative and general expenses increased $4.9 million, or 26.8%, to $23.0
million in the second quarter of fiscal year 2000 from $18.1 million in the
second quarter of fiscal year 1999 and increased $4.5 million, or 13.6%, to
$37.7 million in the first six months of fiscal year 2000 from $33.2 million in
the first six months of fiscal year 1999. The increase in administrative and
general expenses is attributable, primarily, to the costs associated with
merging recent acquisitions into existing operations. However, as a percentage
of total revenue, these expenses decreased to 4.0% and 4.9% of total revenue
during the second quarters of fiscal years 2000 and 1999, respectively, and
decreased to 3.7% and 4.7% of total revenue during the first six months of
fiscal years 2000 and 1999, respectively.
Net interest and investment income for the second quarter of fiscal year 2000
was $0.7 million as compared to $6.8 million in the second quarter of fiscal
year 1999, and for the first six months of fiscal year 2000, net interest and
investment income was $6.5 million as compared to $12.6 million in the first six
months of fiscal year 1999. The decrease in net interest and investment income
is primarily attributable to interest expense associated with the $900 million
Senior Credit Facility discussed in the liquidity section of this document.
The Company's provision for income taxes was $55.8 million in the second quarter
of fiscal year 2000, which represents an effective tax rate of 37.8% and $106.8
million in the first six months of fiscal year 2000, which represents an
effective tax rate of 36.9%. This compares to a tax provision of $36.4 million
in the second quarter of fiscal year 1999, which represents an effective tax
rate of 34.3% and of $66.2 million in the first six months of fiscal year 1999,
which represents an effective tax rate of 34.0%. The increase in the effective
tax rate was due to the growth in pre-tax earnings, which dilutes the effect of
the tax credits on the effective tax rate, nondeductible goodwill amortization
associated with certain acquisitions and a shift of the Company's state
apportionment to states with higher corporate income tax rates.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had approximately $313.1 million in cash
and investments which resulted primarily from cash generated from operations.
During the first six months of fiscal years 2000 and 1999, Compuware generated
$75.9 million and $191.0 million, respectively, in operating cash flow. During
these periods, the Company had capital expenditures which included property and
equipment, capitalized research and software development and purchased software
of $21.9 million and $17.5 million, respectively.
As of September 30, 1999, the Company had $515.2 million in long term debt
compared to $4.3 million as of September 30, 1998. This increase is attributed
to borrowings under the $900 million Senior Credit Facility entered into on
August 3, 1999. (See Note 6.)
As discussed in Note 4, the Company has acquired stock or assets of Livernois
Staffing Services, LLC, Programart Corporation and Data Processing Resources
Corporation during the quarter ended September 30, 1999. These acquisitions have
been funded by cash on hand and borrowings under the Senior Credit Facility.
During July 1999, Compuware announced it has entered into an agreement to
purchase all outstanding shares of common stock of Viasoft, Inc. for an
aggregate purchase price of $168 million. On October 28, 1999, the Department of
Justice announced that it will file suit to block this merger. Compuware has
extended the tender offer to November 29, 1999, to provide additional time to
pursue available options in defense of the civil action. If allowed to proceed,
it is expected that this purchase will be funded by cash on hand and borrowings
under the Senior Credit Facility.
16
<PAGE> 17
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company is required to adopt this
statement for the year ending March 31, 2002. SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. The Company has not
determined the effect, if any, that adoption will have on its financial position
or results of operations.
YEAR 2000
The Year 2000 problem is the result of the widespread practice of using only two
digits instead of four to represent the year in computing equipment and computer
software. Failure to address this problem could cause erroneous results in the
proper interpretation of years after 1999. The Company has instituted various
projects to address this issue which include three major areas: the software
products which the Company develops and markets, its internal information
technology (IT) assets and aspects not directly related to the Company's IT
assets or software products ("non-IT assets"). This last area includes such
items as embedded systems in infrastructure components (such as building
security and HVAC systems), as well as the business relationships the Company
has with its customers and suppliers, especially those third parties with whom
the Company has a systems interaction.
The Company undertook a project to inventory and assess the impact of the Year
2000 on its software products in the middle of 1994. As a part of this project
the Company identified the software products that would be supported beyond
December 31, 1999. Plans were put in place to complete the necessary changes to
make the identified software products Year 2000 compliant. The Company believes
that all of the Company's current product offerings are Year 2000 compliant.
The Company has established a web page to update customers on the Year 2000
status of the software products. This site assists the customers in
understanding the Year 2000 strategy. As part of this strategy, customers which
have non-compliant or unsupported versions of the Company's products are being
strongly urged to upgrade to a compliant product.
Part of the site gives customers access to frequently asked Year 2000 questions.
The Company is committed to supporting its customers into the year 2000 and
beyond. The strategy provides leadership and tools needed to meet the challenge
of the millennium change.
The Company has undertaken a project to inventory, assess and remediate its
internal software applications and other IT assets. Many of these applications
are essential for day-to-day operations. The Company believes it has completed
remediation, testing and implementation for all critical software. The
remediation and testing activities have been performed exclusively by internal
resources.
The Company is also in the process of assessing and remediating its other IT and
non-IT assets. These include areas such as PCs, networks, voice mail, e-mail,
building security, etc. This portion of the project is substantially complete.
Additional testing will continue through the end of calendar 1999.
17
<PAGE> 18
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company has also undertaken a project to identify its significant
third-party suppliers, and is assessing Year 2000 issues so as to avoid any
business disruption to the Company. In most cases, the Company must rely on
supplier representations, without any ability to do independent testing or
evaluation. Contingency plans are being developed for certain key suppliers
which are deemed to be critical for the Company's operation. Based upon the
information received to date, the Company does not expect any material financial
impacts from difficulties attributable to suppliers, although the actual outcome
is impossible to predict. Embedded systems and other non-IT systems have been
evaluated for Year 2000 compliance, and are being repaired or replaced as
necessary.
The costs for Year 2000-related activities are being budgeted as necessary.
Costs of the Company's Year 2000 compliance activities have not been and are not
expected to have a material impact on the Company's results of operations or
financial position. This expectation assumes that the Company will not be
obligated to incur significant Year 2000 related costs on behalf of its
customers or suppliers, and that the Company's critical vendors will be able to
meet their commitments to the Company, however, the Company cannot predict the
effects of Year 2000-related difficulties of its business partners, vendors and
customers.
The Company believes it is adequately prepared to meet the challenges of the
coming of Year 2000 without significant impact to the Company's ability to carry
on its normal business operations. However, there can be no assurances that the
Company will not experience significant unanticipated negative consequences
caused by undiscovered year 2000 problems in its internal systems, or by
interruptions in supplier or infrastructure services. Management estimates that
the Company is approximately 98% complete with all Year 2000 efforts as of
September 30, 1999, which includes 100% completion of all critical business
systems and supported software products. The balance of the efforts yet to be
expended are in the areas of non-IT assets, monitoring supplier compliance and
completing contingency planning.
18
<PAGE> 19
COMPUWARE CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on August 24, 1999 at the Company's
Headquarters, 31440 Northwestern Highway, Farmington Hills, Michigan.
1. PROPOSAL ONE - Election of directors.
The following directors were elected to hold office for one year until the 2000
Annual Meeting of Shareholders and until their successors are elected and
qualified:
<TABLE>
<CAPTION>
Nominee for Director Total Votes For Total Votes Withheld
- -------------------- --------------- --------------------
<S> <C> <C>
Elizabeth A. Chappell 312,298,420 1,144,164
Elaine K. Didier 311,644,470 1,798,114
Bernard M. Goldsmith 312,275,877 1,166,707
William O. Grabe 312,270,424 1,172,160
William R. Halling 312,271,962 1,170,622
Peter Karmanos, Jr. 312,241,869 1,200,715
Joseph A. Nathan 312,277,638 1,164,946
W. James Prowse 311,116,097 2,326,487
G. Scott Romney 308,585,178 4,857,406
Thomas Thewes 312,043,517 1,399,067
Lowell P. Weicker, Jr. 312,213,189 1,229,395
</TABLE>
The total number of the Company's common shares issued and outstanding and
entitled to be voted at the Annual Meeting was 355,712,053. The total number of
shares voted at the Annual Meeting was 313,442,584 or 88.117% of the shares
outstanding and eligible to vote.
19
<PAGE> 20
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 or incorporated by
reference.
Exhibit
Number Description of Document
------- -----------------------
10.84 Agreement and Plan of Merger, dated July 14, 1999
among the Company, Viasoft, and CV Acquisition, Inc.
(1)
10.85 Agreement and Plan of Merger, dated June 23, 1999,
among the Company, DPRC and COMP Acquisition Co. (2)
27 Financial Data Schedule
(1) Incorporated by reference to the Company's
Schedule 14D-1 filed on July 23, 1999 (SEC File
No. 000-25472)
(2) Incorporated by reference to the Company's
Schedule 14D-1 filed on June 30, 1999 (SEC File
No. 000-27612)
(b) Reports on Form 8-K.
A Form 8-K was filed September 8, 1999 regarding the execution of an
asset purchase agreement among Compuware, Programart and certain
shareholders of Programart.
A Form 8-K was filed September 8, 1999 regarding the request by the
Department of Justice for additional materials and the amendment of the
agreement and plan of merger among Compuware, Viasoft, Inc. and CV
Acquisition, Inc.
A Form 8-K was filed August 19, 1999 regarding the consummation of the
acquisition of DPRC.
A Form 8-K was filed July 8, 1999 regarding the agreement and plan of
merger among Compuware, DPRC and COMP Acquisition Co.
An amendment to Form 8-K was filed on September 2, 1999, which included
financial statements relating to the DPRC acquisition.
20
<PAGE> 21
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: November 11, 1999 By:/s/ Joseph A. Nathan
----------------- -------------------------
Joseph A. Nathan
President
Chief Operating Officer
Date: November 11, 1999 By: /s/ Laura L. Fournier
----------------- ----------------------
Laura L. Fournier
Senior Vice President
Chief Financial Officer
21
<PAGE> 22
Index To Exhibits
-----------------
Exhibit
Number Description of Document
------- -----------------------
10.84 Agreement and Plan of Merger, dated July 14, 1999 among
the Company, Viasoft, and CV Acquisition, Inc. (1)
10.85 Agreement and Plan of Merger, dated June 23, 1999,
among the Company, DPRC and COMP Acquisition Co.(2)
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Schedule
14D-1 filed on July 23, 1999 (SEC File No.
000-25472)
(2) Incorporated by reference to the Company's Schedule
14D-1 filed on June 30, 1999 (SEC File No.
000-27612)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 52,208
<SECURITIES> 0
<RECEIVABLES> 641,305
<ALLOWANCES> 21,554
<INVENTORY> 0
<CURRENT-ASSETS> 875,188
<PP&E> 179,890
<DEPRECIATION> 71,493
<TOTAL-ASSETS> 2,163,277
<CURRENT-LIABILITIES> 542,666
<BONDS> 515,237
0
0
<COMMON> 3,576
<OTHER-SE> 980,393
<TOTAL-LIABILITY-AND-EQUITY> 2,163,277
<SALES> 1,011,200
<TOTAL-REVENUES> 1,011,200
<CGS> 728,407
<TOTAL-COSTS> 728,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,037
<INCOME-PRETAX> 289,320
<INCOME-TAX> 106,811
<INCOME-CONTINUING> 182,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,509
<EPS-BASIC> .51
<EPS-DILUTED> .47
</TABLE>
