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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-10180
COMPUTER ASSOCIATES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2857434
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
ONE COMPUTER ASSOCIATES PLAZA, ISLANDIA, NEW YORK 11788-7000
(Address of principal executive offices) (Zip Code)
(516) 342-5224
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class) (Exchange on which registered)
Common Stock, par value $.10 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
6 1/4% Convertible Subordinated Debentures of
On-Line Software International, Inc.
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 ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III to this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant:
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as at May 25, 1994 was $4,350,640,214 based on a total of
117,188,962 shares held by non-affiliates and the closing price on the New
York Stock Exchange on that date which was 37 1/8.
Number of shares of stock outstanding at May 25, 1994:
161,459,180 shares of Common Stock, par value $.10 per share.
Documents Incorporated by Reference:
Part III - Proxy Statement to be issued in conjunction with Registrant's
Annual Stockholders' Meeting.
The index to exhibits is located on page 34.
2
Item 1. Business
(a) General Development of Business
Computer Associates International, Inc. (the "Company" or "Registrant") was
incorporated in Delaware in 1974 and commenced business in June 1976. In
December 1981, the Company completed its initial public offering of Common
Stock. The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "CA".
In the early years of its existence, the Company supplied systems software
for IBM mainframe computers, primarily those using the VSE operating system.
Since then the Company's line of products has grown to parallel the expansion
of the software industry itself. Through the introduction of new internally
developed products, strategic alliances and co-development projects as well
as a series of company and product acquisitions, the Company has
significantly increased the breadth of its product portfolio. Today, the
Company supplies an extensive array of systems products, database management
systems, business and consumer applications products for use on a variety of
platforms ranging from mainframes to personal computers. Because of its
independence from hardware manufacturers, the Company has been able to offer
products for use not only on all the IBM operating systems (MVS, VSE, VM and
OS/2), but also for use on many other operating systems, such as VMS from
Digital Equipment Corporation ("DEC"), UNIX from such manufacturers as
Hewlett-Packard ("HP") and Sequent and MS-DOS and Windows from Microsoft.
The Company's products operate on over 30 different operating systems and
platforms.
During fiscal 1992, the Company acquired Pansophic Systems, Incorporated
("Pansophic"), On-Line Software International, Inc. ("On-Line") and
substantially all the assets of Access Technology, Inc. ("Access"), as well
as a number of smaller companies and individual products. Pansophic, On-Line,
Access and the other smaller acquisitions were accounted for by the purchase
method of accounting.
On May 19, 1994, the Company announced that it had entered into a definitive
agreement with The ASK Group, Inc. ("ASK") providing for the Company's
acquisition of ASK through a cash tender offer. ASK provides database and
manufacturing software solutions primarily for client/server environments.
See Note 12 of Notes to Consolidated Financial Statements.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's business has been in a single industry segment--the design,
development, marketing and support of integrated computer software products.
See Note 3 of Notes to Consolidated Financial Statements for financial data
pertaining to geographic areas.
(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company designs, develops, markets and supports standardized computer
software products for use with a broad range of mainframe, midrange and
desktop computers from many different hardware manufacturers including IBM,
Hewlett-Packard, Amdahl, Data General ("DG"), DEC, Sun, Tandem,
Compaq and Apple, among others.
Whether the most powerful mainframe or the ubiquitous small business
workstation, a computer system consists of hardware and software. Hardware
is the computer or central processing unit together with peripheral equipment
such as disk and tape data storage devices, printers and terminals. Software
consists of programs or instructions which tell the hardware what to do and
how to respond to specific user requests.
PRODUCTS
The Company designs, develops, markets and supports a broad range of
standardized software products which enable clients to more efficiently
utilize their data processing resources--hardware, software and
personnel--by providing tools to measure and improve computer hardware and
software performance and programmer productivity. The Company also designs,
develops, markets and supports database management, business applications and
graphics software for mainframe, midrange and desktop computers from a
variety of vendors including IBM, DEC, HP, Amdahl, DG, Sun, Sequent, Tandem,
Compaq and Apple. Because data processing resources are a significant
investment for most users of medium and large-scale computer systems,
managing these resources, increasing their efficiency, and leveraging
information technology into new areas of business can result in substantial
savings for the client. Many of these products can be used with little or no
modification irrespective of the business or applications for which such a
computer system is used. In each of the past three fiscal years, no single
product accounted for 10% or more of the Company's revenue.
3
In recognition of the increasing "downsizing" or "rightsizing" trend, where
powerful desktop computers--alone or networked--are able to do work formerly
done only on larger computers, the Company has formed many joint development
partnerships operating under our standardized development architecture,
CA90s(r). The goal of these alliances is to port the Company's successful
systems management applications to a range of different platforms and
operating systems. The first of this series was the fiscal 1993 introduction
of CA-UNICENTER(r) for HP-UX running on Hewlett-Packard HP Series 9000/800
hardware. By the end of fiscal 1994, the Company was marketing versions of
CA-UNICENTER for use on several client/server platforms. Similarly, many of
the Company's most successful DOS-based micro applications have been enhanced
to provide upwardly compatible applications on more powerful workstations
using such operating systems as Microsoft's Windows, Novell's NetWare and
IBM's OS/2. Fiscal 1994 also witnessed the introduction of two products for
home use, Kiplinger's(TM) CA-Simply Money(TM) personal finance software, and
CA-Simply Tax(TM), a product for income tax preparation.
Prices for the Company's products vary depending upon the type of license
agreement chosen by the client. See "Narrative Description of
Business-Licensing."
SALES AND MARKETING
The Company distributes, markets, and supports its products on a worldwide
basis primarily with its own employees. The Company has approximately 3,400
sales and sales support personnel engaged in promoting the licensing of the
Company's products by its clients.
In North America, the Company operates through a single sales force
responsible for sales, marketing and service of the Company's software
products. A separate National Accounts group provides additional service
to large clients, including end users and facilities managers. Facilities
managers provide data processing services to those companies that wish to
"outsource" their computer processing requirements.
The Company also operates through wholly owned subsidiaries located in 28
countries outside North America. Each of these subsidiaries is structured as
an autonomous entity and markets all or most of the Company's products in its
respective territory. In addition, the Company's products are marketed by
independent distributors in many areas of the world where it does not have
a direct presence. Revenue from independent distributors accounted for
approximately 2% of the Company's fiscal 1994 revenues.
The Company considers that it has established marketing and distribution
channels in most areas of the world where the number of computer
installations warrants the establishment of such channels. For fiscal
year 1994 approximately 46%, for fiscal year 1993 approximately 50% and, for
fiscal year 1992 approximately 52%, of the Company's revenue was derived from
business outside North America. Western Europe is the Company's most
important foreign market. The Company believes that its operations outside
the United States are located in countries which are politically stable and
that such operations are not exposed to any special or unusual risks. See
Note 3 of Notes to Consolidated Financial Statements for further information
concerning the Company's foreign operations.
The Company's marketing and marketing services groups produce substantially
all of the user documentation for its products, as well as promotional
brochures, advertising and other business solicitation materials. The duties
of these groups include the writing of the materials, editing, typesetting,
photocomposition and printing.
LICENSING
The Company does not sell or transfer title to its products to clients. The
products are licensed on a "right to use" basis pursuant to license
agreements. Such licenses generally require that the customer use the
product only for its internal purposes at its own computer installation and,
with respect to mainframe software, are non-transferable.
The Company offers several types of mainframe software licenses. Under the
first, the client agrees to pay a one-time fee and an annual usage and
maintenance fee. The annual usage and maintenance fees typically range from
12% to 20% of the then-prevailing one-time fee for the product. Payment of
the usage and maintenance fee entitles the client to receive technical
support for the product from the Company and to receive all enhancements and
improvements (other than optional features subject to a separate charge) to
the product developed by the Company during the annual period covered. A
second alternative is the term license under which the client agrees to pay
a fixed fee and in return receives the right to use the product for a
specified term ranging from one month to three years. Upon expiration of this
period, a term license must be renewed for continued use of the product, and
the then prevailing term license fee paid. Maintenance is included in the
term license fee. The Company offers a third alternative which combines
4
elements of the other licensing options in that the client pays an initial
licensing fee and a periodic license fee including maintenance to continue
using the product. During fiscal 1993 and 1994, the Company introduced new
licensing payment options based on the size of the enterprise in terms of the
computing power as measured in MIPS--millions of instructions per second.
Usage of software programs under the enterprise-wide licensing options may
be expanded to subsidiaries and other related entities on a national or
worldwide basis, regardless of the number, size and location of the data
centers or central processing units ("CPUs") in use. In addition, under this
option, the client is free to reallocate hardware or modify user
configurations without incremental costs. Product revenue for licenses is
recognized upon delivery of the product to the client. Usage and maintenance
fees are recognized ratably over the term of the agreement. Where the client
has elected to pay the license fees in monthly or annual installments, the
present value of the license fee is recognized as product revenue upon
delivery of the product, and maintenance is unbundled from the selling price
and ratably recognized over the term of the agreement. One-time license fees
under the first alternative range between $1,540 and $1,150,000, and
three-year term license fees range between $1,030 and $770,000. Pricing under
enterprise-wide licensing options is dependent on usage. See Note 1 of Notes
to Consolidated Financial Statements for disclosure of its revenue
recognition policies.
The Company's micro and UNIX-based software products are licensed to end
users upon payment of a fixed fee. Suggested license fees range between $20
and $570,000, dependent upon the number of users licensed or the size of the
enterprise in terms of computing power as measured in MIPS. The licenses are
version-specific and permanent in nature. Maintenance and support services,
primarily provided through telephone contact with employees of the Company,
may be purchased for an additional fee. The Company also offers site licenses
on micro software products providing pricing advantages based on the number
of copies licensed. Maintenance is also available on a site-license basis
under similar terms and conditions as mainframe software licenses.
Under its standard form of license agreements, the Company warrants that its
products will perform in accordance with specifications published in the
product documentation.
COMPETITION
The computer software business is highly competitive. There are many
companies, including IBM, DEC, HP, and other large computer manufacturers,
which have substantially greater resources, as well as the ability to develop
and market software programs similar to and competitive with the products
offered by the Company. Competitive products are also offered by numerous
independent software companies, which specialize in specific aspects of the
highly fragmented software industry. Some are the leading developers
and vendors in their own specialized markets.
IBM, DEC and HP are by far the largest suppliers of systems software and are
the manufacturers of the computer hardware systems used by most of the
Company's clients. From time to time, these hardware manufacturers have
modified or introduced new operating systems, systems software and computer
hardware. Such products could incorporate features which are currently
performed by the Company's products or could require modification of the
Company's products to maintain their compatibility with these companies'
hardware or software. Although the Company has to date been able to adapt its
products and its business to changes introduced by hardware manufacturers,
there can be no assurance that it will be able to do so in the future.
Historically, clients using proprietary operating systems were furnished
with "source code" which makes the operating system generally understandable
to programmers, "object code" which directly controls the hardware, and other
technical documentation. Since the availability of source code facilitated
the development of systems and applications software which must interface
with the operating systems, independent software vendors such as the Company
were able to develop compatible software. IBM has a policy of restricting the
use or availability of the source code for some of its operating systems. To
date, this policy has not had any effect on the Company. However, such
restrictions may in the future result in higher research and development
costs for the Company in connection with the enhancement and modification of
existing products and the development of new products. Although the Company
does not expect such restrictions will have an adverse effect on its
products, there can be no assurance that such restrictions or other
restrictions will not have a material adverse effect on the Company's
business.
The Company anticipates increased use of microcode or firmware provided by
hardware manufacturers. Microcode and firmware are basically software
programs in hardware form, and therefore are less flexible than pure
software. The Company believes that these technical advances will not have
a significant impact on the Company's operations and that its products will
remain compatible with any such changes. However, there can be no assurance
that future technological developments will not have an adverse impact on the
Company's operations.
5
Although no company competes with the Company across its entire software
product line or a significant portion thereof, the Company considers at least
75 firms to be directly competitive with one or more of the Company's systems
software packages. In the areas of database management systems, graphics and
applications software for the micro, workstation, midrange and mainframe
environments, there are hundreds of companies, the primary business of which
is focused on at least one but not all of these areas. Certain of these
companies have substantially larger operations than the Company's in these
specific areas. Many companies, large and small, use their own technical
personnel to develop programs similar to those of the Company; these may
rightly be seen as competitors of the Company. The Company believes that the
most important considerations for potential purchasers of software packages
are: product capability; ease of installation and use; reliability and
quality of technical support; documentation and training; the experience
and financial stability of the vendor; integration of the product line; and,
to a lesser extent, price. Price is a stronger factor in the client/server
and microcomputer marketplace.
PRODUCT PROTECTION
The products of the Company are treated as trade secrets and confidential
information. The Company relies for protection upon the contractual
agreements with clients and its own security systems and confidentiality
procedures. The Company also protects its products and their documentation
and other written materials under copyright law. The Company obtains
trademark protection for its various product names.
CLIENTS
No individual client accounted for a material portion of the Company's
revenue during any of the past three fiscal years. Since the Company's
mainframe packages are used with relatively expensive computer hardware, most
of its revenues are derived from companies which have the resources to make
a substantial commitment to data processing and their computer installations.
Most of the world's major companies use one or more of the Company's software
packages. The Company's software products are generally used in
a broad range of industries, businesses and applications. The Company's
clients include manufacturers, banks, insurance companies, educational
institutions, retail microcomputer distributors, value-added resellers,
government agencies and individual personal computer users.
PRODUCT DEVELOPMENT
The history of the computer industry has seen rapid changes in hardware and
software technology. The Company must maintain the usefulness of its products
as well as modify and enhance its products to accommodate changes to, and to
ensure compatibility with, hardware and software.
To date, the Company has been able to adapt its products to such changes and
the Company believes that it will be able to do so in the future. Computer
software vendors must also continually ensure that their products meet the
needs of clients in the ever-changing marketplace. Accordingly, the Company
has the policy of continually enhancing, improving, adapting and adding new
features to its products, as well as developing additional products. The
Company offers a facility, CA-UNISERVICE(r), for many of its software
products whereby problem diagnosis, program 'fixes' and other mainframe
services can be provided online between the customer's installation and the
support facilities of the Company. CA-TCC(SM): Total Client Care, another
facility, provides a major extension to existing support services of the
Company by offering free access to the Company's client support database.
Product development work is primarily done at the Company's facilities in
San Diego, California; San Jose, California; Chicago, Illinois; Andover,
Massachusetts; Westwood, Massachusetts; Mount Laurel, New Jersey; Princeton,
New Jersey; Islandia, New York; Dallas, Texas; and Reston, Virginia. The
Company also performs product development in Sydney, Australia; Vienna,
Austria; Brussels, Belgium; Vancouver, Canada; Slough, England; Paris,
France; Darmstadt, Germany; Dublin, Ireland; Tel Aviv, Israel; and Milan,
Italy. For its fiscal years ended March 31, 1994, 1993 and 1992, product
development costs charged to operations were $211,273,000, $207,365,000 and
$190,324,000, respectively. In fiscal years 1994, 1993 and 1992, the Company
capitalized $15,471,000, $18,149,000 and $23,582,000, respectively, of
internally developed software costs.
Certain of the Company's products were acquired from others. The Company
continues to seek synergistic companies, products and partnerships. The
purchase price of acquired products is capitalized and amortized
over a period of five years.
6
EMPLOYEES
As of March 31, 1994, the Company had over 6,900 employees of whom
approximately 1,300 were located at its facilities in Islandia, New York;
3,150 were located at other offices in the United States, and 2,450 were
located at its offices in foreign countries. Of the total employees,
approximately 1,800 were engaged in product development efforts and 3,400
were engaged in sales and sales support functions. The Company believes its
employee relations are excellent.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
REVENUE
See Note 3 of Notes to Consolidated Financial Statements for financial data
pertaining to the geographic distribution of the Company's operations.
ITEM 2. PROPERTIES
The principal properties of the Company are geographically distributed to
meet sales and operating requirements. All of the properties of the Company
are considered to be both suitable and adequate to meet current operating
requirements.
The Company leases approximately 55 office facilities throughout the United
States, and approximately 62 office facilities outside the United States.
Expiration dates on material leases range from fiscal 1995 to 2004.
The Company's 675,000 square-foot headquarters in Islandia, New York, is
owned by Islandia Centre Associates ("ICA"), the Company's 98% owned general
partnership that purchased the 64-acre site and developed the facility.
During fiscal 1994, the Company used cash, its revolving credit facility and
a two-year unsecured term loan to repay all of the outstanding debt under the
$175 million building credit financing. See Note 5 of Notes to Consolidated
Financial Statements for information concerning indebtedness. The Company's
subsidiary in Germany owns two buildings totaling approximately 120,000
square feet. The Company also owns 54,000 and 214,000 square-foot office
facilities in Austin, Texas and Princeton, New Jersey, respectively.
The Company owns various computer, telecommunications and electronic
equipment. It also leases IBM, DEC, HP and DG computers located at the
Company's facilities in Islandia, New York; Princeton, New Jersey; San Diego,
California; and Chicago, Illinois. This equipment is used for the Company's
internal product development, for technical support efforts and for
administrative purposes. In addition, each of the Company's subsidiaries
outside the U.S. leases certain computer hardware enabling them to
communicate with all other offices of the Company through a dedicated
worldwide network. The Company considers its computer and other equipment to
be adequate for its needs. See Note 6 of Notes to Consolidated Financial
Statements for information concerning lease obligations.
ITEM 3. LEGAL PROCEEDINGS
The Company, various subsidiaries and certain current and former officers
and directors have been named as defendants in civil lawsuits alleging a
number of separate violations of federal securities laws. The Company
believes that the facts do not support the plaintiffs' claims and intends to
vigorously contest each of them.
The Company was a defendant and counterclaim plaintiff in a suit brought by
Electronic Data Systems Corporation ("EDS") on January 9, 1992 in the United
States District Court for the Northern District of Texas, Dallas Division,
in which the parties alleged among other things: breaches of licensing
agreements, misuse of copyright, interference with business relationships,
fraud and violations of the antitrust laws. The parties settled the dispute
on May 17, 1994, and on May 19, 1994, the Court entered an order dismissing
the case with prejudice. At the time of the settlement, EDS signed a
long-term licensing agreement. See Note 7 of Notes to Consolidated Financial
Statements.
7
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, present position and business experience of all executive
officers of the Company as of May 27, 1994 are listed below:
Name Age Position
Charles B. Wang (1) 49 Chairman, Chief Executive Officer
and Director
Sanjay Kumar (1) 32 President, Chief Operating Officer
and Director
Russell M. Artzt (1) 47 Executive Vice President--Research
and Development and Director
Arnold S. Mazur 51 Executive Vice President--Sales
Belden A. Frease 55 Senior Vice President and Secretary
Peter A. Schwartz 50 Senior Vice President--Finance and
Chief Financial Officer
Ira Zar 32 Senior Vice President and Treasurer
(1) Member of the Executive Committee
Mr. Charles B. Wang has been Chief Executive Officer and a Director of the
Company since June 1976 and Chairman of the Board since April 1980.
Mr. Kumar joined the Company with the acquisition of UCCEL in August 1987.
He was elected President, Chief Operating Officer and a Director effective
January 1994, having previously served as Executive Vice President--
Operations from January 1993 to December 1993, Senior Vice President--
Planning from April 1989 to December 1992, Vice President--Planning from
November 1988 to March 1989 and Vice President--Research and Development
effective April 1988.
Mr. Artzt has been with the Company since June 1976. He has been Executive
Vice President--Research and Development of the Company since April 1987 and
a Director of the Company since November 1980. From February 1983 to March
1987, Mr. Artzt was the Company's Senior Vice President--Development.
Mr. Mazur was elected Executive Vice President--Sales effective April 1990,
having previously served as President--Financial and Micro Products Group
from April 1989 to March 1990, President--Information Products Division from
October 1988 to March 1989, President--Europe Products Division from April
1987 to September 1988. Mr. Mazur joined the Company in September 1980.
Mr. Frease was elected Secretary of the Company effective May 1991, and he
has been a Senior Vice President of the Company since April 1985. He joined
the Company in November 1983 and served as Secretary from that date through
March 1988.
Mr. Schwartz has been Senior Vice President--Finance and Chief Financial
Officer of the Company since April 1987. He has served in various financial
roles since joining the Company in July 1983.
Mr. Zar was elected Senior Vice President and Treasurer effective April
1994, having previously served as Vice President--Finance since April 1990
and Assistant Vice President from April 1987 to March 1990. Mr. Zar joined
the Company in June 1982.
The officers are appointed annually and serve at the discretion of the Board
of Directors.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange. The
following table sets forth, for the quarters indicated, the quarterly high
and low closing prices on the New York Stock Exchange.
High Low
FISCAL 1994:
Fourth Quarter ....................... 44 1/2 30 7/8
Third Quarter ........................ 44 32 1/2
Second Quarter ....................... 33 1/8 27 5/8
First Quarter ........................ 30 21 7/8
FISCAL 1993:
Fourth Quarter ....................... 26 3/4 20 1/4
Third Quarter ........................ 20 1/2 14 7/8
Second Quarter ....................... 16 1/4 11 1/2
First Quarter ........................ 15 3/8 11 1/8
On March 31, 1994, the closing price for the Company's Common Stock on the
New York Stock Exchange was 30 7/8. The Company currently has approximately
10,000 record stockholders.
On May 26, 1994, the Company declared its regular, semi-annual cash
dividend. The Company also increased the semi-annual dividend from $.07 to
$.10 per share at that time. The Company has paid cash dividends in July and
January of each year since July 1990.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below gives effect to the restatement for the
adoption in 1992 of AICPA Statement of Position 91-1, Software Revenue
Recognition. It should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements and related notes included elsewhere in this annual
report on Form 10-K.
Year Ended March 31,
---------------------------------------------
INCOME STATEMENT DATA 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Revenue ............ $2,148,470 $1,841,008 $1,508,761 $1,300,558 $1,244,402
Net income ......... 401,262 245,544 162,909 130,255 123,225
- Per common share. $ 2.34 $ 1.44 $ .92 $ .70 $ .66
Dividends declared
per common share .. .14 .10 .10 .10
March 31,
BALANCE SHEET DATA 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands)
Cash from operations $ 480,213 $ 415,747 $ 360,717 $ 287,750 $ 183,257
Working capital 450,599 340,694 311,058 546,985 377,273
Total assets 2,491,605 2,348,819 2,168,862 1,515,944 1,385,667
Long-term debt (less
current maturities) 71,381 166,714 40,804 24,611 26,089
Stockholders' equity 1,243,133 1,054,530 988,339 884,071 803,013
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for fiscal year 1994 of $2.1 billion increased 17% over $1.8
billion for fiscal year 1993. Product revenues increased by 24% over the
prior year's level. The increase in product revenue was primarily
attributable to higher licensing fees on the mainframe and midrange
platforms, and market acceptance of the Company's leading UNIX-based product,
CA-UNICENTER, which is currently operational on several different platforms.
Enterprise Licensing alternatives and less restrictive pricing options
affording clients licensing flexibility also contributed to revenue growth,
particularly for mainframe systems products. International revenues
increased by 6% during fiscal year 1994. This increase, less than the 29%
achieved by domestic operations, was adversely affected by foreign currency
exchange rates and local economic conditions during 1994, as well as the
later introduction of our UNIX-based offerings. Maintenance revenues in
fiscal year 1994 increased 3%, or $21 million. Maintenance revenues continue
to be negatively impacted by site consolidations which offset most of the
incremental maintenance attributable to new licensing arrangements. Price
changes did not have a material impact in either year.
Selling, marketing and administrative expenses were 47% of revenue for
fiscal year 1994, four percentage points less than the 51% experienced for
fiscal 1993. The lower percentage for fiscal year 1994 reflects higher
revenue achievement without a proportionate increase in operating and
administrative costs. Fiscal year 1994 realized a full year of facilities
cost savings associated with the Company's refinancing of its headquarters
building which was completed in the latter half of fiscal year 1993, as well
as lower personnel costs. Net product and development expenditures
increased marginally for fiscal year 1994 over the prior year period. The
minimal increase was primarily due to operating efficiencies and benefits
inherent in the Company's CA90s developmental architecture. Commissions and
royalties were unchanged at 5% of revenue for fiscal years 1994 and 1993.
Commissions attributable to the increased product revenue were offset by the
shift from direct marketing specialists to client service representatives.
The latter's compensation is more heavily weighted to a fixed base salary
than that of the marketing specialists. Depreciation and amortization
expense, although relatively unchanged in absolute amount for fiscal years
1994 and 1993, the net of reduced amortization due to the expiration of the
five year amortization period related to the Applied Data Research, Inc.
("ADR") acquisition offset by the reassessment of the current carrying
value of certain other purchased software products. Net interest expense for
fiscal year 1994 was $1.8 million, approximately $2.7 million less than net
interest expense of $4.5 million in fiscal year 1993. The lower net expense
was the result of higher average cash and marketable securities balances,
lower average debt levels outstanding and lower borrowing costs. The higher
debt levels for fiscal year 1993 were primarily the result of debt used to
finance the Company's corporate headquarters building. Pre-tax income
increased in fiscal year 1994 by $243 million, or from 21% to 29% when
expressed as a percentage of total revenue. After-tax margins similarly
improved in fiscal 1994 to 19% from 13%. These improvements were the result
of the significant revenue increase without a corresponding increase in costs
for reasons noted above. The consolidated fiscal year 1994 effective tax rate
of 36% remained unchanged from fiscal year 1993. Full year net income and net
income per share both increased by 63%.
Total revenue for fiscal year 1993 of $1.8 billion increased 22% over $1.5
billion for fiscal year 1992. Product revenue increased by 27% over the prior
year's level. The growth was attributable to higher licensing fee revenue
across most platforms. In addition, products acquired during fiscal year 1992
benefitted from the Company's wider distribution channels for all of fiscal
year 1993. In fiscal years 1992 and 1993, the Company began promoting its
offerings on platforms other than that of IBM's mainframe MVS, VM and VSE
platforms. UNIX-based products introduced during the last half of fiscal
year 1993 received significant client and marketplace interest. During the
latter part of fiscal year 1993, an Enterprise Licensing alternative was
introduced to numerous clients. Enterprise Licensing, a less restrictive
pricing approach, affords clients the opportunity to license products for use
throughout their enterprise without the restrictions and upgrade costs of
tier pricing. Although significant interest was shown in both UNIX-based
products and Enterprise Licensing, neither had a material incremental impact
on revenue during fiscal year 1993. Maintenance revenue increased primarily
as a result of the commencement of maintenance from additional licenses added
in prior periods. Price changes did not have a material impact in either
year. Total international revenues grew in excess of 15% by exploiting the
Company's expanded presence outside North America, and the introduction of
new product offerings in locations where the Company was already well known.
The slightly lower international growth rate than that of the prior year
reflects the ongoing economic turmoil and currency dislocations experienced
during fiscal year 1993, particularly in Western Europe, the Company's
largest market outside North America.
10
Selling, marketing and administrative expenses were 51% of revenue for
fiscal year 1993 as opposed to 54% for fiscal year 1992. The lower percentage
for fiscal year 1993 reflects the higher revenue achievement without a
proportionate increase in fixed operating and administrative costs.
Contributing to the improved percentage, fiscal year 1993 facilities costs
declined as a result of the Company's refinancing of its headquarters'
building. Management continues to emphasize expense control as a means of
enhancing profitability. Net product and development expenditures increased
by $17 million in fiscal year 1993 over the prior year, but declined from
13% to 11% when expressed as a percent of revenue. This decline reflects the
operating efficiencies realized from prior company acquisitions and the
benefits inherent in the Company's CA90s development architecture. These
efficiencies are allowing the Company to not only enhance its existing
products, but also invest in the development of products for the workstation
and personal computer environments without significantly impacting
profitability. Commissions and royalties were unchanged at 5% of revenue for
fiscal years 1993 and 1992. Depreciation and amortization increased by $51
million in fiscal year 1993 versus fiscal year 1992 primarily due to the
effect of a full year's amortization of the intangible assets related to
companies acquired during fiscal year 1992, and additions to purchased
software products during fiscal year 1993. Also contributing to the higher
amortization expense in fiscal year 1993 was higher amortization of
capitalized development costs resulting from the introduction of new products
to the marketplace. Additional depreciation expense was incurred during
fiscal year 1993 due to the aforementioned headquarters' building purchase.
Net interest expense for fiscal year 1993 of $4.5 million, $10.5 million
lower than in fiscal year 1992, was the direct result of lower average cash
balances and higher average debt levels outstanding. The higher debt levels
were primarily used to purchase the Company's corporate headquarters
building. Pre-tax income increased in fiscal year 1993 by $117 million, or
from 18% to 21% as a percent of revenue. After tax margins similarly improved
in fiscal 1993 to 13% from 11% as a result of the changes noted above, and
to a much lesser extent, a lower consolidated effective tax rate. The
consolidated effective tax rate for fiscal year 1993 declined to 36% from 39%
in fiscal year 1992. The decline was principally the result of using foreign
tax credits. Net income per share increased by 57%. A reduction of 4% in the
average shares outstanding during fiscal year 1993 contributed to this
improvement.
The Company's foreign subsidiaries operate as distributors for the products
of the Company. As such, the subsidiaries pay royalties to the Company on
revenue generated from the licensing of products. After payment of such
royalties, these foreign subsidiaries had net income of $108,001,000,
$74,841,000 and $59,321,000 in fiscal years 1994, 1993 and 1992,
respectively. See Note 3 of Notes to Consolidated Financial Statements.
The Company's products are designed to improve the productivity and
efficiency of its clients' data processing resources. Accordingly, in a
recessionary environment, the Company's products are often a reasonable
economic alternative to customers faced with the prospect of incurring
expenditures to increase their existing data processing resources. However,
a general or global slowdown in the world economy could adversely affect the
Company's operations.
SELECTED UNAUDITED QUARTERLY INFORMATION
(in thousands, except per share amounts)
- - --------------------------------------------------------------------------
1994 Quarterly Results June 30 Sept.30 Dec.31 Mar.31 Total
- - ---------------------- ------- ------- ------ ------ -------
Revenue $423,382 $516,968 $574,380 $633,740 $2,148,470
Percent of total revenue 20% 24% 27% 29% 100%
Net income 30,749 87,538 124,188 158,787 401,262
- Per common share $ .18 $ .51 $ .72 $ .93 $ 2.34
- - --------------------------------------------------------------------------
1993 Quarterly Results June 30 Sept.30 Dec.31 Mar.31 Total
- - ---------------------- ------- ------- ------ ------ -------
Revenue $367,475 $431,947 $501,525 $540,061 $1,841,008
Percent of total revenue 20% 24% 27% 29% 100%
Net income 19,263 46,970 80,209 99,102 245,544
- Per common share $ .11 $ .28 $ .48 $ .57 $ 1.44
11
The Company has traditionally reported lower profit margins for the first
two quarters of each fiscal year than those experienced in the third and
fourth quarters. As part of the annual budget process, management
establishes higher discretionary expense levels in relation to revenue for
the first half of the year. Historically, the Company's combined third and
fourth quarter revenues have been greater than the first half of the year,
as these two quarters coincide with the clients' calendar year budget periods
and the culmination of the Company's annual sales plan. These historically
higher second half revenues have resulted in significantly higher profit
margins since total expenses have not increased in proportion to revenue.
However, past financial performance should not be considered to be a reliable
indicator of future performance.
The Company's future operating results may be affected by a number of
factors, including but not limited to: uncertainties relative to global
economic conditions; industry factors; the availability and cost of new
products; the Company's ability to develop, manufacture, and license its
products profitably; the Company's ability to successfully increase its
market share in its core business while expanding its product base into
other markets; the strength of its distribution channels; and the Company's
ability to effectively manage expense growth relative to revenue growth.
There have been no special marketing programs by the Company which have had
a material effect on the revenue or net income of any given quarterly period.
FOREIGN CURRENCY EXCHANGE
Approximately 46% of the Company's total revenue in fiscal year 1994, 50%
in fiscal year 1993 and 52% in fiscal year 1992, was derived from sales
outside of North America. The net income effect of foreign currency exchange
rate fluctuations versus the U.S. Dollar on international revenues is largely
offset to the extent expenses of the Company's international operations are
incurred and paid for in the same currencies as those of its revenues.
Economic uncertainty in major European markets caused a gradual
strengthening of the U.S. Dollar during fiscal year 1994. The Company has
mitigated its exposure to foreign currency translation adjustments by
substantially offsetting assets denominated in foreign currencies with
foreign currency liabilities. A foreign currency translation adjustment of
$8 million was charged to Stockholders' Equity in fiscal year 1994.
During fiscal 1994 the net income effect of foreign exchange losses was $7
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate adequate cash to meet its needs is
provided by cash flow from operations and available credit facilities. The
Company increased its cash generated from operations by over $64 million
during fiscal year 1994 primarily as a function of increased net income.
Increases in current accounts receivable balances resulting from higher,
particularly fourth quarter, fiscal year 1994 revenue were partially offset
by higher taxes payable resulting from the improved net income levels, as
well as higher accounts payable and accrued expense balances. Common Stock
repurchases of $205 million and net long-term debt repayments of $108 million
were significant uses of cash during fiscal 1994. The Company's cash flow is
also affected by the mix of plans (initial license fee, annual and monthly
payment options) selected by its clients and, to a lesser extent, by the mix
of term versus one-time fee licenses.
In 1994, the Company completed a multi-currency credit facility for its
domestic and foreign subsidiaries denominated in U.S. and foreign currencies
in the aggregate of $12 million. The facility was established to
meet any short-term working capital requirements. In addition, the Company
has a credit facility with a group of banks that permits the Company to
borrow up to $250 million. Most borrowings under this agreement are subject
to the London interbank rate ("LIBOR") plus 3/8%. The agreement calls for the
maintenance of certain financial conditions and ratios. During fiscal year
1994, peak borrowings under these facilities were $50 million. The weighted
average interest rate for these borrowings during the year was 4.6%. The
comparable interest rate for borrowings during fiscal year 1993 was 4.9%, and
peak borrowings were $200 million. At March 31, 1994, approximately $50
million was outstanding under these credit arrangements.
During fiscal 1994, the Company restructured debt related to its Islandia,
NY corporate headquarters by repaying all outstanding amounts under its
four-year $175 million term loan facility. As part of this restructuring, the
Company borrowed $51 million under a two-year term loan repayable in
quarterly installments. Borrowings on the debt generally carry an interest
rate of LIBOR plus 3/8%. In addition, in March 1994, the Company retired all
outstanding UCCEL 7 1/4% Subordinated Debentures approximating $6 million.
12
The Company believes that these sources of liquidity, plus existing cash and
cash equivalents and current marketable securities balances of $368 million
as of March 31, 1994, are adequate for its foreseeable operating needs.
The Company completed the repurchase of 15 million shares under an August
1990 Common Stock Repurchase Program. In July 1992, the Company announced its
intention to repurchase an additional 15 million shares of Common Stock. On
May 12, 1993, the Board of Directors increased this authorization to a total
of 25 million shares for general corporate purposes. Through May 26, 1994,
the Company purchased 13.5 million shares under this program.
The Company's capital resource commitments as of March 31, 1994, consisted
of lease obligations for office space, computer equipment, a mortgage
obligation and amounts due resulting from the acquisitions of products and
companies. The Company intends to meet its capital resource commitments from
its available funds. No significant commitments exist for future capital
expenditures. See Notes 5, 6, 7 and 12 of Notes to Consolidated Financial
Statements for details concerning commitments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company are listed in the Index to Financial
Statements filed as part of this Form 10-K.
The Supplementary Data specified by Item 302 of Regulation S-K as it relates
to selected quarterly data is included in Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Information
on the effects of changing prices is not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of
the Registrant's fiscal year for information concerning directors and to Part
I, page 7, of this Annual Report on Form 10-K for information concerning
executive officers under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of
the Registrant's fiscal year for information concerning executive
compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of
the Registrant's fiscal year for information concerning security ownership
of each person known by the Company to own beneficially more than 5% of
the Company's outstanding shares of Common Stock, of each director of the
Company and all executive officers and directors as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of
the Registrant's fiscal year for information
concerning certain relationships and related transactions.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)The Registrant's financial statements together with a separate table
of contents are annexed hereto.
(2)Financial Statement Schedules are listed in the separate table of
contents annexed hereto.
(3)Exhibits
REGULATION S-K
EXHIBIT NUMBER
--------------
3(i)(a) Restated Certificate of Previously filed as Exhibit 3.1
Incorporation to the Company's Registration
Statement on Form S-1 (Registration
No. 2-74618) and incorporated herein
by reference.
3(i)(b) Certificate of Amendment Previously filed as Exhibit 3.2 to
of the Restated the Company's Registration
Certificate of Statement on Form S-1 (Registration
Incorporation No. 2-84239) and Incorporated herein
by reference.
3(i)(c) Certificate of Amendment Previously filed on Form 8 dated
of the Restated January 22, 1986 to Form 10-Q for
Certificate of fiscal quarter ended September 30,
Incorporation 1985, and incorporated herein by
reference.
3(i)(d) Certificate of Amendment Previously filed as Exhibit 3(d) to
of the Restated the Company's Annual Report on Form
Certificate of 10-K for the fiscal year ended March
Incorporation 31, 1988 (File No. 0-10180) and
incorporated herein by reference.
3(i)(e) Certificate of Amendment Previously filed as Exhibit 3(e) to
of the Restated the Company's Annual Report on Form
Certificate of 10-K for the fiscal year ended March
Incorporation 31, 1990 (File No. 0-10180) and
incorporated herein by reference.
3(ii) By-Laws Previously filed as an Exhibit to
the Company's Form 10-Q for fiscal
quarter ended September 30, 1993
(File No. 0-10180) and incorporated
herein by reference.
4(a) Indenture dated as of Previously filed as Exhibit 4.1 to
March 1, 1987 between On-Line Software International,
On-Line Software Inc.'s Registration Statement on
International, Inc. and Form S-2 (No. 33-12488) and
Manufacturers Hanover incorporated herein by reference.
Trust Company with respect
to the 6 1/4% Convertible
Subordinated Debentures due
2002 of the Company's
wholly owned subsidiary.
4(b) Supplemental Indenture Previously filed as Exhibit A to the
dated as of September 25, Company's Annual Report on Form 10-K
1991 between On-Line for the fiscal year ended March 31,
Software International,Inc. 1992 (File No. 0-10180) and
and Manufacturers Hanover incorporated herein by reference.
Trust Company with respect
to the 6 1/4% Convertible
Subordinated Debentures due
2002 of the Company's wholly
owned subsidiary.
14
REGULATION S-K
EXHIBIT NUMBER
--------------
4(c) Certificate of Designation Previously filed as Exhibit 3 to the
of Series One Junior Company's Current Report on Form 8-K
Participating Preferred dated June 18, 1991 and
Stock, Class A of the incorporated herein by reference.
Company.
4(d) Rights Agreement dated as Previously filed as Exhibit 4 to the
of June 18, 1991 between Company's Current Report on Form 8-K
the Company and dated June 18, 1991 and
Manufacturers Hanover incorporated herein by reference.
Trust Company.
4(e) 1981 Incentive Stock Option Previously filed as Exhibit 10.5 to
Plan. the Company's Registration Statement
on Form S-1 (Registration 2-74618)
and incorporated herein by
reference.
4(f) 1987 Non-Statutory Stock Previously filed as Appendix C to
Option Plan. the Company's definitive Proxy
Statement dated July 1, 1987 and
incorporated herein by reference.
4(g) Amendment No. 1 to the 1987 Filed herewith.
Non-Statutory Stock Option
Plan dated October 20, 1993.
4(h) 1991 Stock Incentive Plan, Previously filed as Exhibit A to the
as amended by Amendment Company's definitive Proxy Statement
No. 1 thereto. dated July 11, 1991 and incorporated
herein by reference.
4(i) Amendment No. 2 to the Filed herewith.
1991 Stock Incentive Plan
dated October 20, 1993.
4(j) 1993 Stock Option Plan for Previously filed as Annex 1 to the
for Non-Employee Directors. Company's definitive Proxy Statement
dated July 7, 1993 and incorporated
herein by reference.
4(k) Amendment No. 1 to the Filed herewith.
1993 Stock Option Plan for
Non-Employee Directors
dated October 20, 1993.
4(l) The Company's 401(k) Filed herewith.
Excess Benefit Plan
dated January 1, 1993.
4(m) Amendment No. 1 to the Filed herewith.
Company's 401(k) Excess
Benefit Plan dated March
30, 1994.
4(n) The Company's 401(k) Filed herewith.
Restoration Plan dated
March 31, 1994.
10(a) Agreement of Lease, dated Previously filed as Exhibit 2 to the
July 20, 1989, between Company's Form 8 Report dated August
Islandia Centre Associates 9, 1989 and incorporated herein by
and the Company. reference.
15
REGULATION S-K
EXHIBIT NUMBER
--------------
10(b) Credit Agreement, dated Previously filed as an Exhibit to
December 9, 1991, among the Company's Quarterly Report on
the Company, various banks Form 10-Q for the fiscal quarter
and financial institutions ended December 31, 1991 (File No.
and Credit Suisse, as 0-10180) and incorporated herein by
agent. reference.
10(c) Amendment No. 1 dated Previously filed as an Exhibit (b)
November 13, 1992 to Credit to the Company's Schedule 14D-1
Agreement among the dated May 25, 1994 (File No.
Company, various banks and 5-34725) and incorporated herein by
Financial Institutions and reference.
Credit Suisse, as agent.
10(d) Amendment No. 2 dated Previously filed as an Exhibit (b)
July 30, 1993 to Credit to the Company's Schedule 14D-1
Agreement among the dated May 25, 1994 (File No.
Company, various banks and 5-34725) and incorporated herein by
Financial Institutions and reference.
Credit Suisse, as agent.
10(e) Unsecured Term Loan Previously filed as an Exhibit to
Agreement dated December the Company's Quarterly Report on
20, 1993, between the Form 10-Q for the fiscal quarter
Company and Credit Suisse, ended December 31, 1993 (File No.
as agent. 0-10180) and incorporated herein by
reference.
10(f) Buy-Sell Agreement dated Previously filed as Exhibit 2 to the
October 30, 1992, between Company's Current Report on Form 8-K
the Company and The dated November 24, 1992 and
Prudential Insurance incorporated herein by reference.
Company of America.
21 Subsidiaries of the Filed herewith.
Registrant.
23 Consent of Ernst & Young. Filed herewith.
(b)Reports on Form 8-K.
There were no current reports on Form 8-K filed during the fiscal quarter
ended March 31, 1994.
(c)Exhibits: See Index to Exhibits.
(d)Financial Statement Schedules: The response to this portion of Item 14 is
submitted as a separate section of this report.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as
amended, the undersigned Registrant hereby undertakes as set forth in the
following paragraph, which undertaking shall be incorporated by reference
into Registrant's Registration Statements on Form S-8 Nos. 33-53572 (filed
October 22, 1992), 33-34607 (filed April 27, 1990), 33-18322 (filed December
4, 1987), 33-20797 (filed December 19, 1988), 2-92355 (filed July 23, 1984),
2-87495 (filed October 28, 1983) and 2-79751 (filed October 6, 1982).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By /s/ CHARLES B. WANG
-----------------------------------
Charles B. Wang
Chairman
Chief Executive Officer
By /s/ PETER A. SCHWARTZ
----------------------------------
Peter A. Schwartz
Senior Vice President-Finance
Principal Financial and Accounting Officer
Dated: May 27, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
Name Title
------ -------
/s/ CHARLES B. WANG Chairman
-------------------------- and Director
Charles B. Wang
/s/ SANJAY KUMAR Director
--------------------------
Sanjay Kumar
/s/ RUSSELL M. ARTZT Director
--------------------------
Russell M. Artzt
/s/ IRVING GOLDSTEIN Director
--------------------------
Irving Goldstein
/s/ RICHARD A. GRASSO Director
--------------------------
Richard A. Grasso
/s/ EDWARD C. LORD Director
--------------------------
Edward C. Lord, III
/s/ GARY E. MARTINELLI Director
--------------------------
Gary E. Martinelli
/s/ WILLEM F. P. de VOGEL Director
---------------------------
Willem F. P. de Vogel
Dated: May 27, 1994
17
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
ISLANDIA, NEW YORK
----------------------
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(A)(1) AND (2) AND ITEM 14(d)
----------------------
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
-----------------------
FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
------------------------
YEAR ENDED MARCH 31, 1994
Page
The following consolidated financial statements of Computer Associates
International, Inc. and subsidiaries are included in Item 8:
Report of Independent Auditors 18
Consolidated Statements of Income-Years
Ended March 31, 1994, 1993 and 1992 19
Consolidated Balance Sheets-March 31, 1994 and 1993 20
Consolidated Statements of Stockholders' Equity-Years
Ended March 31, 1994, 1993 and 1992 22
Consolidated Statements of Cash Flows-Years Ended
March 31, 1994, 1993 and 1992 23
Notes to Consolidated Financial Statements 24
The following consolidated financial statement schedules of Computer
Associates International, Inc. and subsidiaries are included in Item 14(d):
Schedule VIII-Valuation and Qualifying Accounts 32
Schedule X-Supplementary Income Statement Information 33
With the exception of Schedule IX, all other schedules for which provision
is made in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted. The information required in
Schedule IX has been incorporated herein by reference to Management's
Discussion and Analysis of Financial Condition and Results of Operations.
18
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Computer Associates International, Inc.
We have audited the accompanying consolidated balance sheets of Computer
Associates International, Inc. and subsidiaries as of March 31, 1994 and
1993, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended March 31,
1994. Our audits also included the financial statement schedules listed in
the Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Computer Associates International, Inc. and subsidiaries at March 31, 1994
and 1993, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended March 31, 1994, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
ERNST & YOUNG
New York, New York
May 26, 1994
19
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
1994 1993 1992
-------- -------- --------
(In thousands, except per share amounts)
Product revenue and other related income. $1,455,675 $1,169,519 $ 923,990
Maintenance fees ........................ 692,795 671,489 584,771
TOTAL REVENUE 2,148,470 1,841,008 1,508,761
Costs and Expenses:
Selling, marketing and administrative .. 1,000,682 940,137 820,385
Product development and enhancements ... 211,273 207,365 190,324
Commissions and royalties .............. 101,410 98,302 81,006
Depreciation and amortization .......... 206,317 207,006 156,257
Interest expense (income), net ......... 1,816 4,535 (6,277)
TOTAL COSTS AND EXPENSES 1,521,498 1,457,345 1,241,695
Income before income taxes .............. 626,972 383,663 267,066
Income taxes ............................ 225,710 138,119 104,157
NET INCOME $ 401,262 $ 245,544 $1,162,909
NET INCOME PER COMMON SHARE $ 2.34 $ 1.44 $ .92
Weighted average common shares
used in computation ..................... 171,428 170,354 177,982
See Notes to Consolidated Financial Statements.
20
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS 1994 1993
-------- --------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents .................. $ 133,127 $ 79,483
Marketable securities ...................... 235,071 149,017
Trade and installment accounts receivable .. 594,854 596,608
Inventories and other current assets ....... 36,169 43,812
---------- ----------
TOTAL CURRENT ASSETS 999,221 868,920
INSTALLMENT ACCOUNTS RECEIVABLE,
due after one year ......................... 626,923 410,009
PROPERTY AND EQUIPMENT
Land and buildings ......................... 254,797 231,742
Computer equipment ......................... 112,808 125,954
Furniture, fixtures and equipment .......... 120,241 125,262
Leasehold improvements ..................... 37,514 42,347
---------- ----------
525,360 525,305
Allowance for depreciation and amortization 220,770 214,713
---------- ----------
TOTAL PROPERTY AND EQUIPMENT 304,590 310,592
PURCHASED SOFTWARE PRODUCTS, net of accumulated
amortization of $737,049 and $590,279 ...... 259,290 404,106
EXCESS OF COST OVER NET ASSETS ACQUIRED,
net of accumulated amortization
of $43,720 and $30,262 ..................... 201,665 243,085
OTHER ASSETS ................................ 99,916 112,107
---------- ----------
TOTAL ASSETS $2,491,605 $2,348,819
========== ==========
See Notes to Consolidated Financial Statements.
21
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
-------- --------
(Dollars in thousands)
CURRENT LIABILITIES
Loans payable-banks ......................... $ 50,000 $ 25,000
Accounts payable ............................ 75,343 56,885
Salaries, wages and commissions ............. 73,079 47,423
Accrued expenses and other liabilities ...... 108,508 163,424
Taxes, other than income taxes .............. 37,802 42,058
Federal, state and foreign income taxes payable 124,696 106,956
Deferred income taxes ....................... 51,019 39,385
Current portion of long-term debt ........... 28,175 47,095
-------- --------
TOTAL CURRENT LIABILITIES 548,622 528,226
LONG-TERM DEBT, net of current portion ....... 71,381 166,714
DEFERRED INCOME TAXES ........................ 298,914 256,577
DEFERRED MAINTENANCE REVENUE ................. 329,555 342,772
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, 500,000,000 shares
authorized, 186,941,259 shares issued ..... 18,694 18,687
Additional paid-in capital .................. 519,091 515,071
Retained earnings ........................... 1,115,975 737,915
Equity adjustment ........................... (16,217) (8,564)
Treasury stock, at cost-23,892,483 shares for
1994 and 19,034,139 shares for 1993 ......... (394,410) (208,579)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 1,243,133 1,054,530
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,491,605 $2,348,819
========= =========
See Notes to Consolidated Financial Statements.
22
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Paid-In Retained Equity Treasury Stockholders'
Stock Capital Earnings Adjustment Stock Equity
-------- --------- -------- ---------- ------- ----------
(Dollars in thousands)
Balance at March 31, 1991 $18,687 $517,201 $ 364,436 $20,090 $(36,343) $ 884,071
Net income ............... 162,909 162,909
Dividends declared
($.10 per share) ........ (17,819) (17,819)
Exercise of Common Stock
options and other ....... (881) 2,325 1,444
Translation adjustment
in 1992 ................. 3,194 3,194
Purchases of treasury
stock ................... (45,460) (45,460)
--------- --------- --------- --------- ---------- ----------
Balance at March 31, 1992 18,687 516,320 509,526 23,284 (79,478) 988,339
Net income ............... 245,544 245,544
Dividends declared
($.10 per share) ........ (17,155) (17,155)
Exercise of Common Stock
options and other ....... (1,249) 6,941 5,692
Translation adjustment
in 1993 ................. (31,848) (31,848)
Purchases of treasury
stock ................... (136,042) (136,042)
--------- --------- ---------- ---------- ---------- ----------
Balance at March 31, 1993 18,687 515,071 737,915 (8,564) (208,579) 1,054,530
Net income ............... 401,262 401,262
Dividends declared
($.14 per share) ........ (23,202) (23,202)
Exercise of Common Stock
options and other ....... 7 (349) 13,843 13,501
401(k) discretionary
contribution ............ 4,369 5,025 9,394
Translation adjustment
in 1994 ................. (8,293) (8,293)
Net change attributable to
unrealized gain on
marketable securities . 640 640
Purchases of treasury
stock ................... (204,699) (204,699)
--------- --------- ---------- ---------- ---------- ----------
Balance at March 31, 1994 $18,694 $519,091 $1,115,975 $(16,217)(1) $(394,410) $1,243,133
(1) Represents foreign currency translation adjustment of $(16,857,000) and unrealized gain on
marketable securities of $640,000.
See Notes to Consolidated Financial Statements.
23
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
1994 1993 1992
------ ------ ------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income ................................... $401,262 $245,544 $162,909
Adjustments to reconcile net income to .......
net cash provided by operating activities:
Depreciation and amortization ................ 206,317 207,006 156,257
Provision for deferred income taxes .......... 60,469 27,679 53,318
Increase in noncurrent installment
accounts receivable, net .................... (226,785) (93,717) (68,933)
(Decrease) increase in deferred
maintenance revenue ......................... (8,064) 29,458 39,517
Foreign currency transaction loss-before
taxes ....................................... 10,421 11,020 7,157
Changes in other operating assets and
liabilities, net of effects of acquisitions:
(Increase) decrease in trade and
installment receivables ................... (30,357) (64,371) 28,067
Other changes in operating assets and
liabilities ............................... 66,950 53,128 (17,575)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 480,213 415,747 360,717
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles ............ (3,923) (65,271) (412,500)
Purchases of property and equipment .......... (28,637) (221,857) (15,130)
Purchases of noncurrent marketable securities. (4,700) (10,250) (52,340)
Sales of noncurrent marketable securities .... 17,683 8,759 51,352
Purchases of current marketable securities ... (164,776) (171,550) (355,341)
Sales of current marketable securities ....... 78,722 230,702 355,584
Increase in capitalized development
costs and other ............................. (15,471) (18,149) (25,075)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (121,102) (247,616) (453,450)
FINANCING ACTIVITIES:
Dividends .................................... (23,202) (17,155) (17,819)
Purchases of treasury stock .................. (204,699) (136,042) (45,460)
Proceeds from loans payable-banks ............ 100,000 200,000 480,000
Repayments of loans payable-banks ............ (75,000) (375,000) (280,000)
Issuances of long-term debt .................. 81,676 189,104
Repayments of long-term debt ................. (189,225) (16,084) (20,120)
Exercise of common stock options and other ... 11,611 5,692 1,444
-------- -------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (298,839) (149,485) 118,045
INCREASE IN CASH AND CASH EQUIVALENTS BEFORE
EFFECT OF EXCHANGE RATE CHANGES ON CASH ..... 60,272 18,646 25,312
Effect of exchange rate changes on cash ...... (6,628) (13,444) (5,387)
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS ........ 53,644 5,202 19,925
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR ....................................... 79,483 374,281 54,356
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..... $133,127 $ 79,483 $ 74,281
======== ======== ========
24
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial
statements are those of Computer Associates International, Inc. and
subsidiaries (the "Company"). Significant intercompany items and transactions
have been eliminated in consolidation. The Company has various investments
which it accounts for under the equity method of accounting. These
investments are not significant either individually or when considered
collectively. The Company's net activity for such investments is reflected
in selling, marketing and administrative expense.
Basis of Revenue Recognition: Product license fee revenue is recognized after
both acceptance by the client and delivery of the product. Maintenance
revenue, whether bundled with product license or priced separately, is
recognized ratably over the maintenance period. Accounts receivable resulting
from product sales with extended payment terms are discounted to present
value using the rate which approximates the Company's cost of funds. The
amounts of the discount credited to operations for the years ended March 31,
1994, 1993 and 1992 were $121,200,000, $109,985,000 and $90,077,000,
respectively.
Marketable Securities: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents. The Company has adopted early implementation of Financial
Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("FASB 115"). The Company has
evaluated its investment policies and determined that all of its investment
securities are to be classified as available-for-sale.Available-for-sale
securities are carried at fair value, with the unrealized gains and losses
reported in Stockholders' Equity under the caption Equity Adjustment. The
amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are
included in interest income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities
classified as available-for-sale are included in interest income.
Property and Equipment: Land, buildings, computer equipment, furniture,
fixtures and equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided over the estimated useful lives
of the assets by the straight-line method.
Intangibles: Excess of costs over net assets acquired are being amortized by
the straight-line method over 20 years. Cost of purchased software and
acquired rights to market software products, and software development costs
(costs incurred after development of a working model or a detailed program
design) are capitalized and amortized by the straight-line method over five
years or the product's useful economic life, whichever is less, commencing
with product release. During fiscal year 1994, approximately $17 million was
charged to depreciation and amortization expense as a result of a
reassessment of the current carrying value of certain of the Company's
purchased software products. Unamortized capitalized development costs
included in other assets at March 31, 1994 and 1993 were $62,154,000 and
$61,331,000, respectively. Amortization of capitalized development costs was
$14,502,000, $15,969,000 and $11,985,000 for the fiscal years ended March 31,
1994, 1993 and 1992, respectively.
Net income per share: Net income per share of Common Stock is computed by
dividing net income by the weighted average number of common shares and any
dilutive common share equivalents outstanding. Fully diluted net income
per share for fiscal 1994, 1993 and 1992 is not materially different from net
income per share.
25
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Statement of Cash Flows: Interest payments for the years ended March 31,
1994, 1993 and 1992 were $13,190,000, $12,537,000 and $8,716,000,
respectively. Income taxes paid for these fiscal years were $139,260,000,
$60,715,000 and $28,787,000, respectively.
Translation of Foreign Currencies: In translating financial statements of
foreign subsidiaries, all assets and liabilities are translated using the
exchange rate in effect at the balance sheet date. All revenue, costs and
expenses are translated using an average exchange rate. Net income includes
exchange losses of approximately $6,669,000 in 1994, $7,053,000 in 1993 and
$4,366,000 in 1992.
NOTE 2 - INVESTMENTS
The following is a summary of cash equivalents and current marketable
securities classified as "available-for-sale" securities as required
by FASB 115:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
U.S. corporate securities. $ 4,215,000 $ $ 46,000 $ 4,169,000
Other debt securities .... 270,706,000 1,505,000 819,000 271,392,000
------------ ---------- ---------- ------------
Total Debt Securities $274,921,000 $1,505,000 $ 865,000 $275,561,000
Of the Total Debt Securities shown above, Cash and Cash Equivalents include
other debt securities with a Cost of $40,461,000, Gross Unrealized Gains of
$29,000 and Estimated Fair Value of $40,490,000.
Fiscal 1994 gross realized gains on sales of available-for-sale securities
totaled $67,000, and gross realized losses totaled $27,000. The net
adjustment for unrealized holding gains on available-for-sale securities
included in stockholders' equity totaled $640,000.
The amortized cost and estimated fair value of debt securities at March 31,
1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
Estimated
Cost Fair Value
------------ ------------
Available-for-Sale:
Due in one year or less ........... $ 79,322,000 $ 79,494,000
Due in one through three years .... 111,386,000 112,205,000
Due in three through five years ... 78,017,000 77,643,000
Due after five years .............. 6,196,000 6,219,000
------------ ------------
Total Debt Securities $274,921,000 $275,561,000
26
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 3 - GEOGRAPHIC AREA INFORMATION AND FOREIGN OPERATIONS
United States Foreign (a) Eliminations Total
------------- ----------- ------------ -------
(Dollars in thousands)
1994:
Revenue:
To unaffiliated customers $1,089,549 $1,058,921 $2,148,470
Between geographic areas (b) 223,906 $(223,906)
---------- ---------- ---------- ----------
Total Revenue 1,313,455 1,058,921 (223,906) 2,148,470
Net income 293,261 108,001 401,262
Identifiable assets 1,870,566 997,204 (376,165) 2,491,605
Total liabilities 878,749 745,888 (376,165) 1,248,472
1993:
Revenue:
To unaffiliated customers $ 846,312 $994,696 $1,841,008
Between geographic areas (b) 242,328 $(242,328)
---------- ---------- ---------- ----------
Total Revenue 1,088,640 994,696 (242,328) 1,841,008
Net income 170,703 74,841 245,544
Identifiable assets 1,840,587 889,174 (380,942) 2,348,819
Total liabilities 968,713 706,518 (380,942) 1,294,289
1992:
Revenue:
To unaffiliated customers $ 660,660 $848,101 $1,508,761
Between geographic areas (b) 201,190 $(201,190)
---------- ---------- ---------- ----------
Total Revenue 861,850 848,101 (201,190) 1,508,761
Net income 103,588 59,321 162,909
Identifiable assets 1,748,636 766,885 (346,659) 2,168,862
Total liabilities 924,005 603,177 (346,659) 1,180,523
(a)The Company operates wholly owned subsidiaries in 29 foreign countries,
including Canada, Europe (17), South America (2) and the Pacific Rim (9).
(b)Represents royalties from foreign subsidiaries generally determined as a
percentage of certain amounts invoiced to customers.
For the years ended March 31, 1994, 1993 and 1992, $42,578,000, $40,967,000
and $30,020,000, respectively, of export sales to unaffiliated customers are
included in United States revenue.
27
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - TRADE AND INSTALLMENT ACCOUNTS RECEIVABLE
Trade and installment accounts receivable consist of the following:
March 31,
1994 1993
------ ------
(Dollars in thousands)
Current receivables $971,406 $934,808
Less: Allowance for uncollectible amounts (134,581) (138,925)
Unamortized discount and maintenance fees (241,971) (199,275)
--------- ---------
$594,854 $596,608
========= =========
Non-current receivables $975,758 $647,055
Less: Allowance for uncollectible amounts (11,800) (10,600)
Unamortized discount and maintenance fees (337,035) (226,446)
--------- ---------
$626,923 $410,009
========= =========
The provisions for uncollectible amounts for the years ended March 31, 1994,
1993 and 1992 were $90,068,000, $86,884,000 and $136,172,000, respectively,
and are included in selling, marketing and administrative expenses.
NOTE 5 - DEBT
The largest component of the debt obligations is a two year, $51 million
unsecured term loan with $45 million outstanding at March 31, 1994. This debt
is subject to interest primarily at the prevailing London interbank rate plus
3/8% and is payable in quarterly installments. The Company's fixed rate debt
obligations carry annual interest rates ranging from 6 1/4% to 7 1/2%. The
fair market value of long-term debt approximates its carrying value. The
carrying value of assets pledged against long-term debt was $54 million and
$205 million in 1994 and 1993, respectively.
The Company has an agreement with a group of banks, renewable annually, to
provide up to $250 million of unsecured financing, subject to interest
primarily at the prevailing London interbank rate plus 3/8%. At March 31,
1994 and 1993, $50 million and $25 million, respectively, were outstanding
under this arrangement. The Company has entered into a $12 million unsecured
multi-currency credit facility. The facility was established to meet any
short-term working capital requirements and can be drawn upon, up to a
predefined limited, by most subsidiaries. There were no amounts drawn at
March 31, 1994.
The maturities of long-term debt outstanding for the five fiscal years noted
are as follows: 1995-$28,175,000; 1996-$22,371,000; 1997-$3,131,000; 1998-
$3,669,000; and 1999-$4,159,000.
Interest expense for the years ended March 31, 1994, 1993 and 1992 was
$13,145,000, $16,873,000, and $9,755,000, respectively, and is netted with
interest income.
28
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - LEASES
The Company leases real estate and certain data processing and other
equipment with lease terms expiring through 2004. The leases are operating
leases and generally provide for renewal options and additional rental based
on escalation in operating expenses and real estate taxes. The Company had
no material capital leases at March 31, 1994.
Rental expense under operating leases for the years ended March 31, 1994,
1993 and 1992 was $89,829,000, $121,939,000 and $123,744,000, respectively.
Future minimum lease payments are: 1995-$70,764,000; 1996-$52,916,000; 1997-
$38,016,000; 1998-$31,901,000; 1999-$18,703,000; and thereafter-$59,592,000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company, various subsidiaries and certain current and former officers and
directors have been named as defendants in several civil lawsuits alleging
a number of separate violations of federal securities laws. The Company
believes that the facts do not support the plaintiffs' claims and intends to
vigorously contest each of them.
The Company was a defendant and counterclaim plaintiff in a suit brought by
Electronic Data Systems Corporation ("EDS") on January 9, 1992 in the United
States District Court for the Northern District of Texas, Dallas Division
in which the parties alleged among other things: breaches of licensing
agreements, misuse of copyright, interference with business relationships,
fraud and violations of the antitrust laws. The parties settled the dispute
on May 17, 1994 and on May 19, 1994 the Court entered an order dismissing the
case with prejudice. At the time of the settlement EDS signed a long-term
licensing agreement.
NOTE 8 - INCOME TAXES
The amounts of income before income taxes attributable to domestic and
foreign operations are as follows:
YEAR ENDED MARCH 31,
1994 1993 1992
---- ---- ----
(Dollars in thousands)
Domestic $453,647 $239,569 $156,146
Foreign 173,325 144,094 110,920
-------- -------- --------
$626,972 $383,663 $267,066
======== ======== ========
29
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following:
Year Ended March 31,
1994 1993 1992
---- ---- ----
(Dollars in thousands)
Current:
Federal $123,897 $ 63,401 $ 21,518
State 16,523 17,397 5,007
Foreign 24,821 29,642 24,314
-------- -------- --------
165,241 110,440 50,839
-------- -------- --------
Deferred:
Federal 14,049 (14,440) 20,212
State 5,917 2,508 5,821
Foreign 40,503 39,611 27,285
-------- -------- --------
60,469 27,679 53,318
-------- -------- --------
Total:
Federal 137,946 48,961 41,730
State 22,440 19,905 10,828
Foreign 65,324 69,253 51,599
-------- -------- --------
$225,710 $138,119 $104,157
======== ======== ========
Under Financial Accounting Standards Board Statement No. 109, deferred income
taxes have been provided for the differences between financial statement and
tax basis of assets and liabilities. The cumulative impact of temporary
differences, primarily due to the modified accrual basis (approximately 82%
in 1994 and 60% in 1993 of total deferred income taxes), purchase accounting
adjustments (approximately 23% in 1994 and 40% in 1993), net capitalized
development costs (approximately 6% in 1994 and 7% in 1993) and receivable
reserves ( a deferred tax asset of approximately 10% in 1994 and 12% in 1993)
is shown on the Consolidated Balance Sheets under the captions
"Deferred Income Taxes."
The provision for income taxes is reconciled to the tax provision computed
at the federal statutory rate as follows:
Year Ended March 31,
1994 1993 1992
---- ---- ----
(Dollars in thousands)
Statutory rate $219,440 $130,445 $ 90,803
State taxes, net of federal tax effect 14,586 13,137 7,146
Difference between foreign and federal
tax rates 2,368 8,339 8,845
Foreign tax credit (7,093) (10,071)
Other, net (3,591) (3,731) (2,637)
-------- -------- --------
$225,710 $138,119 $104,157
======== ======== ========
30
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 9 - EMPLOYEE INCENTIVE STOCK OPTION PLAN AND NON-QUALIFIED STOCK OPTION
PLAN
The Company has a 1981 Incentive Stock Option Plan (the "1981 Plan") pursuant
to which options to purchase up to 8,000,000 shares of Common Stock of the
Company were available for grant to employees (including officers of the
Company). The 1981 Plan expired on October 23, 1991. Therefore, from and
after that date no new options can be granted under the 1981 Plan. Pursuant
to the 1981 Plan, the exercise price could not be less than the fair market
value of each share at the date of grant. The option period could not exceed
ten years. Options granted thereunder may be exercised in annual increments
commencing one year after the date of grant and become fully exercisable
after the expiration of five years. Options for 934,887 of 2,078,106
outstanding under the 1981 Plan were exercisable at March 31, 1994 at $2.06
- - - $13.82 per share.
The Company has a 1987 Non-Statutory Stock Option Plan (the "1987 Plan")
pursuant to which options to purchase up to 5,000,000 shares of Common Stock
of the Company may be granted to select salaried officers and key employees
of the Company. Pursuant to the 1987 Plan the exercise price shall not be
less than the fair market value of each share at the date of the grant. The
option period shall not exceed twelve years. Each option may be exercised
only in accordance with a vesting schedule established by the Company's Stock
Option Committee. As of March 31, 1994, 9,000 shares of the Company's Common
Stock were available for future grants. 2,694,250 of the 4,779,250 options
which are outstanding under the 1987 Plan were exercisable as of that date.
These options are exercisable at $7.50 - $14.38 per share.
The Company's 1991 Stock Incentive Plan (the "1991 Plan") provides that stock
appreciation rights and/or options, both qualified and non-statutory, to
purchase up to 10,000,000 shares of Common Stock of the Company may be
granted to employees (including officers of the Company) under conditions
similar to the 1981 Plan. As of March 31,1994, no stock appreciation rights
have been granted under this plan and 3,458,724 options have been granted.
86,444 of the 3,358,058 options which are outstanding under the 1991 Plan
were exercisable at that date. These options are exercisable at $11.25 -
$25.63 per share.
The 1993 Stock Option Plan for Non-Employee Directors (the "1993 Plan")
provides for non-statutory options to purchase up to 100,000 shares of Common
Stock of the Company to be available for grant to each member of the Board
of Directors who is not otherwise an employee of the Company. Pursuant to the
1993 Plan, the exercise price shall be the fair market value of the shares
covered by the option at the date of grant. The option period shall not
exceed 10 years and each option may be exercised in whole or in part on the
first anniversary date of its grant. As of March 31, 1994, 8,000 options have
been granted under this plan.
The following table summarizes the activity under these plans:
Option Shares Under
Prices Option
------------- ------------
Outstanding at March 31, 1991 $.29 - $14.50 7,075,620
Granted $2.48 - $7.63 1,873,345
Exercised $.50 - $13.82 (280,536)
Terminated $.29 - $14.50 (528,612)
Outstanding at March 31, 1992 $.66 - $13.82 8,139,817
Granted $11.25 - $14.38 2,023,904
Exercised $.87 - $13.82 (611,695)
Terminated $2.31 - $14.38 (242,047)
Outstanding at March 31, 1993 $.66 - $14.38 9,309,979
Granted $21.88 - $25.63 2,267,820
Exercised $2.06 - $14.38 (1,053,884)
Terminated $.66 - $14.38 (172,941)
Outstanding at March 31, 1994 $2.06 - $25.63 10,350,974
31
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 10 - PROFIT SHARING PLAN
The Company maintains a profit sharing plan, the Computer Associates Savings
Harvest Plan ("CASH Plan"), for the benefit of employees of the Company. The
CASH Plan is intended to be a qualified plan under Section 401(a) of the
Internal Revenue Code of 1986 (the "Code") and contains a qualified cash or
deferred arrangement as described under Section 401(k) of the Code. Pursuant
to the CASH Plan, eligible participants may elect to contribute a percentage
of their annual gross salary. Matching contributions to the CASH Plan for the
years ended March 31, 1994, 1993 and 1992 were $3,738,000, $3,473,000 and
$2,955,000, respectively. In addition, the Company may make discretionary
contributions to the CASH Plan. Discretionary contributions to the CASH Plan
for the years ended March 31, 1994, 1993 and 1992 were $13,953,000,
$14,103,000 and $7,165,000, respectively.
NOTE 11 - RIGHTS PLAN
Each outstanding share of the Company's common stock carries a stock purchase
right issued under the Company's Rights Agreement, dated June 18, 1991 (the
"Rights Agreement"). Under certain circumstances, each right may be exercised
to purchase one one-thousandth of a share of Series One Junior Participating
Preferred Stock, Class A, for $35. Under certain circumstances, following (i)
the acquisition of 20% or more of the Company's outstanding common stock by
an Acquiring Person (as defined in the Rights Agreement), (ii) the
commencement of a tender offer or exchange offer which would result in a
person or group owning 20% or more of the Company's outstanding common
stock or (iii) the determination by the Company's Board of Directors and a
majority of the Disinterested Directors (as defined in the Rights Agreement)
that a 15% stockholder is an Adverse Person (as defined in the Rights
Agreement), each right (other than rights held by an Acquiring Person or
Adverse Person) may be exercised to purchase common stock of the Company or
a successor company with a market value of twice the $35 exercise price. The
rights, which are redeemable by the Company at one cent per right, expire in
June 2001.
NOTE 12 - SUBSEQUENT EVENT
On May 19, 1994 the Company entered into a definitive agreement providing for
the acquisition of The ASK Group, Inc. ("ASK") through a cash tender offer
for all of the approximately 23 million common shares outstanding at $13.25
per share. The agreement has been unanimously approved by the Board of
Directors of ASK and the Company. The agreement is conditioned upon a
majority of the shares being tendered and all regulatory approvals being
granted. The acquisition is expected to be completed by late June 1994 and
will be financed from the Company's existing cash, cash equivalents,
marketable securities and $250 million credit facility. The acquisition will
be accounted for as a purchase transaction.
32
SCHEDULE VIII
COMPUTER ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at charged to Charged Balance
beginning costs and to other at end
Description of period expenses accounts (a) Deductions (b) of period
- - --------------------------- ----------- ------------ ------------- --------------- -----------
(Dollars in thousands)
Reserves and allowances
deducted from assets to
which they apply:
Allowance for uncollectible amounts
Year ended March 31, 1994 ... $149,525 $ 90,068 $ 93,212 $146,381
Year ended March 31, 1993 ... $164,297 $ 86,884 $ 28 $101,684 $149,525
Year ended March 31, 1992 ... $130,208 $136,172 $10,682 $112,765 $164,297
(a) Reserves of acquired companies.
(b) Write-offs of amounts against allowance provided.
33
SCHEDULE X
COMPUTER ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Charged to Costs and Expenses
-----------------------------------
Year Ended March 31,
-----------------------------------
Item 1994 1993 1992
- - ---- ------ ------ ------
(Dollars in thousands)
Depreciation and amortization of intangible
assets,pre-operating costs and similar deferrals:
Amortization of software products,
acquired rights to market software
products and capitalized development
costs ................................... $174,449 $177,497 $121,718
Advertising costs ............................. $ 31,238 $ 31,181 $ 19,647
Maintenance and repairs, taxes, other than payroll and income taxes, and royalties are not presented since
such amounts are less than 1% of total revenue.
34
INDEX TO EXHIBITS
Regulation S-K Exhibit to
Exhibit Number this Report
-------------- -----------
21 Subsidiaries of the Registrant. Exhibit A
23 Consent of Ernst & Young. Exhibit B
4(g) Amendment No. 1 to the 1987 Non- Exhibit C
Statutory Stock Option Plan dated
October 20, 1993.
4(i) Amendment No. 2 to the 1991 Stock Exhibit D
Incentive Plan dated October 20, 1993.
4(k) Amendment No. 1 to the 1993 Stock Exhibit E
Option Plan for Non-Employee Directors
dated October 20, 1993.
4(l) The Company's 401(k) Excess Benefit Exhibit F
Plan dated January 1, 1993.
4(m) Amendment No. 1 to the Company's Exhibit G
401(k) Excess Benefit Plan dated
March 30, 1994.
4(n) The Company's 401(k) Restoration Plan Exhibit H
dated March 31, 1994.