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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, 1995
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 24, 1995 was $7,455,002,034 based on a total of
113,600,031 shares held by non-affiliates and the closing price on the New York
Stock Exchange on that date which was 65 5/8.
Number of shares of stock outstanding at May 24, 1995:
160,137,850 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.
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Item 1. Business
(a) General Development of Business
Computer Associates International, Inc. (the "Company" or
"Registrant'') was incorporated in Delaware in 1974. 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 its early years, the Company supplied systems management software for
mainframe computers from International Business Machines Corp. ("IBM"),
primarily those using the VSE operating system. Since that time the Company's
line of products has expanded significantly, paralleling the growth of the
software industry itself. Employing a triparte strategy of growing through
the introduction of internally developed products, strategic alliances coupled
with a series of company and product acquisitions, and integration of the other
two, the Company has significantly increased the breadth of its product
portfolio. Today, the Company supplies an extensive array of systems
management, information management, business management and consumer software
products for use on a variety of hardware platforms. Because of its
independence from hardware manufacturers, the Company has been able to offer
products for use on most of the major operating systems available. The
Company's products operate on over 40 different desktop, midrange and mainframe
operating systems and platforms.
In June 1994, the Company acquired The ASK Group, Inc. ("ASK"). ASK was
primarily engaged in developing, marketing and selling relational database
management systems, data access and connectivity products, manufacturing and
financial software applications and application development tools designed for
use in client/server environments. The acquisition was accounted for using
the purchase method of accounting. See Note 2 of Notes to Consolidated
Financial Statements for additional information concerning acquisitions.
On May 25, 1995, the Company announced that it had entered into a definitive
agreement with Legent Corporation ("Legent") providing for the acquisition of
all issued and outstanding common stock of Legent through a cash tender offer.
Legent provide a broad range of computer software products for the management
of information systems across several platforms and operating systems. See
Note 12 of Notes to Consolidated Financial Statements.
(b) Financial Information about Industry Segments
The Company's business is in a single industry segment--the design,
development, marketing, licensing and support of a wide range of integrated
computer software products operating on an equally diverse range of hardware
platforms and operating systems.
See Note 4 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 desktop, midrange and mainframe
computers from many different hardware manufacturers including among others,
IBM, Hewlett-Packard Company ("HP"), Digital Equipment Corp. ("DEC"), Sun
Microsystems ("Sun"), Data General Corp. ("DG"), Tandem Computers Inc. and
Compaq Computer Corp.
A computer system, running the most powerful mainframe or the ubiquitous
small desktop, consists of hardware and software. Hardware is the physical
computer or central processing unit as well as peripheral equipment such as
disk and tape data storage devices, printers and terminals. Software products
are the programs, or sets of instructions, which tell the hardware what to do
and how to respond to specific user requests.
The Company continues to follow its approach of designing and developing new
software technology solutions, acquiring software technology that is
complementary to existing products and integrating internally developed
products with acquired software.
Products
The Company offers a broad range of standardized systems management software
products which enable clients to use their total data processing
resources--hardware, software and personnel--more efficiently. Many of the
Company's products provide tools to measure and improve computer hardware and
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software performance and programmer productivity. The Company also designs,
develops, markets and supports information management and business management
software operating on desktop, midrange and mainframe computers. Information
management software is generally characterized by database management systems
and applications generators including front-end computer-aided software
engineering ("CASE") tools. Business management applications are used in
financial, human resource, manufacturing, distribution and banking applications
systems. Because data processing resources are a significant investment for
most users of computer systems, managing these resources, increasing their
efficiency and leveraging information technology into new areas of business
can result in substantial savings. Many of the Company's products can be used
with little or no modification, irrespective of the business or application. By
providing software that gives the same "look and feel" across many hardware
platforms, the Company offers its clients the opportunity to move to different
platforms with minimal inconvenience. In each of the past three fiscal years,
no single product accounted for 10% or more of the Company's revenue.
Recognizing the exceptional advance of technology, where powerful
desktop computers--alone or networked--are able to do work formerly done only
on larger computers, the Company has enhanced its software to operate in these
environments. The Company has formed numerous joint development partnerships
using CA90s as its standardized development architecture. Tangible proof
of the success of these initiatives is CA-Unicenter. The Company's
integrated systems management product has been developed and is currently
operating on several DG, HP, IBM and SUN platforms, as well as Novell's
Netware and Microsoft Windows NT operating environments. Alliances have been
established with HP for continued joint development of CA-Unicenter for
OpenView and with Microsoft for joint development and marketing of CA-Unicenter
for Windows NT. In order to allow our clients to manage many, if not all, of
these heterogeneous environments from a single point-of-control,
CA-Unicenter/STAR was recently introduced. The Company's information management
products, including CA-Datacom, CA-IDMS and CA-Ingres, are now available for
client/server environments. Fiscal 1995 witnessed the extension of the
Company's flagship CA-Masterpiece/2000 Financial Applications and CA-MANMAN,
ASK's manufacturing software line, to the client/server environments.
The Company's 4Home Productions division, offers a variety of desktop
consumer software for home use. CA-Simply House, a computer based home repair
and improvement guide and CA-Simply Kids, a computer based record-keeping and
family planning tool are recent additions to its fiscal year 1994 introductions
of Kiplinger's Simply Money and CA-Simply Tax.
Prices for the Company's products vary depending upon the type of license
agreement, operating environment and platform 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 with its own employees and a network of independent value-added
resellers, distributors and dealers. The Company has approximately 3,700 sales
and sales support personnel engaged in promoting the licensing of the Company's
products.
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, particularly facilities managers. Facilities managers provide
data processing services using the Company's products to those companies that
wish to "outsource" their computer processing requirements.
The Company also operates through wholly owned subsidiaries located in 31
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 1995 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
1995 approximately 49% of the Company's revenue was derived from business
outside North America. The percentages for fiscal year 1994 and 1993 were
approximately 46% and 50%, respectively. 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 4 of
Notes to Consolidated Financial Statements for further information concerning
the Company's foreign operations.
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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 requisite materials, editing,
typesetting, photocomposition and printing.
Licensing
The Company does not sell or transfer title to its products to its clients.
The products are licensed on a "right to use" basis pursuant to license
agreements. Such licenses generally require that the client use the product
only for its internal purposes at its own computer installation. In addition,
the Company offers license agreements to facilities managers enabling them to
utilize the Company's software in conjunction with their outsourcing business.
Under certain circumstances, the Company will also license, on a non-exclusive
basis, clients and other third parties as resellers of certain of the
Company's products. The Company is encouraging value-added resellers ("VARs")
to actively market the Company's products. VAR's bundle the Company's products
along with specialized consulting services to provide clients with a complete
solution. Such VAR's generally service a particular market or sector and
provide enhanced user-specific solutions.
The Company offers several types of mainframe 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 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 and support is included in the term license
fee. The Company offers a third alternative which combines 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. The
Company also offers licenses for products and groups of products based on the
size of an enterprise's 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. 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.
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 $1,440 and $1,150,000, and three-year term license fees range between
$965 and $770,000. Pricing under enterprise-wide licensing options is dependent
on usage. See Note 1 of Notes to Consolidated Financial Statements for further
discussion of revenue recognition policies.
The Company's micro software products are licensed to end users upon
payment of a fixed fee. Suggested license fees range between $29 and $4,500 per
copy, dependent upon the product and number of users licensed. UNIX-based
software products are licensed to end users on a CPU basis, number of
concurrent users basis, or based on the size of the enterprise in terms of
computing power, as measured in MIPS. These 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 terms and
conditions similar to those for 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 And Risks
The computer software business is highly competitive. There are many
companies, including DEC, HP, IBM, Sun, 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
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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, HP and Sun 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, licensees using proprietary operating systems were furnished
with "source code" which makes the operating system generally understandable to
programmers, or "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 ongoing 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.
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 desktop, midrange and mainframe environments,
there are hundreds of companies, whose primary business focus is 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
capabilities; 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.
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; market acceptance of competing technologies; the availability and
cost of new solutions; the Company's ability to successfully maintain or
increase market share in its core business while expanding its product base
into other markets; the strength of its distribution channels; the Company's
ability to effectively manage fixed and variable expense growth relative to
revenue growth; and the Company's ability to effectively integrate acquired
products and operations.
Product Protection
The products of the Company are treated as trade secrets and confidential
information. The Company relies for protection upon its contractual agreements
with clients as well as 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
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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, for many of its software products
whereby problem diagnosis, program "fixes" and other mainframe services can be
provided online between the client's installation and the support facilities
of the Company. CA-TCCSM: Total Client Care, another facility, provides a
major extension to existing support services of the Company by offering access
to the Company's client support database. In addition, the Company anticipates
offering support services online via the INTERNET. These services have
contributed to the Company's ability to provide maintenance more efficiently.
Product development work is primarily done at the Company's facilities in
Alameda, California; San Diego, California; Santa Clara, 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, 1995, 1994 and 1993, product
development costs charged to operations were $232,785,000, $211,273,000 and
$207,365,000, respectively. In fiscal years 1995, 1994, and 1993, the Company
capitalized $15,505,000, $15,471,000 and $18,149,000, 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
not exceeding five years.
Employees
As of March 31, 1995, the Company had over 7,550 employees of whom
approximately 1,400 were located at its facilities in Islandia, New York; 3,400
were located at other offices in the United States, and 2,750 were located at
its offices in foreign countries. Of the total employees, approximately 2,000
were engaged in product development efforts and 3,700 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 4 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 51 office facilities throughout the United
States, and approximately 73 office facilities outside the United States.
Expiration dates on material leases range from fiscal 1996 to 2020.
The Company's 675,000 square-foot headquarters in Islandia, New York, is
owned by Islandia Centre Associates ("ICA"), a general partnership in which the
Company has a 98% interest. 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
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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 7 of Notes to Consolidated Financial Statements for
information concerning lease obligations.
Item 3. Legal Proceedings
The Company is the respondent in an ongoing and protracted arbitration
proceeding before the American Arbitration Association of New York. The
Company believes the claims are without merit and will resist Claimants'
efforts to have the arbitrators assess any damages. Management, after
consultation with counsel and review of the facts at issue, believes that the
potential damages, if any, arising from the matter will not have a material
adverse effect on its consolidated financial position.
The Company, various subsidiaries and certain current and former officers
have been named as defendants in various claims and lawsuits arising in the
normal course of business. The Company believes that the facts do not support
the plaintiffs' claims and intends to vigorously contest each of them.
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 26, 1995 are listed below:
Name Age Position
Charles B. Wang (1) 50 Chairman, Chief Executive Officer and Director
Sanjay Kumar (1) 33 President, Chief Operating Officer and Director
Russell M. Artzt (1) 48 Executive Vice President-Research and Development
and Director
Belden A. Frease 56 Senior Vice President and Secretary
Peter A. Schwartz 51 Senior Vice President-Finance and Chief
Financial Officer
Ira Zar 33 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. 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 1995:
Fourth Quarter 63 3/4 47 3/8
Third Quarter 50 3/4 43 5/8
Second Quarter 45 37 7/8
First Quarter 43 1/8 27 3/4
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
On March 31, 1995, the closing price for the Company's Common Stock on the
New York Stock Exchange was 59 3/8. The Company currently has approximately
9,000 record stockholders.
On May 18, 1995, the Company declared its regular, semi-annual cash dividend
of $.10 per share. 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 1995(1) 1994 1993 1992 1991
--------- -------- -------- --------- --------
(in thousands, except per share amounts)
Revenue $2,622,992 $2,148,470 $1,841,008 $1,508,761 $1,300,558
Net income 431,904 401,262 245,544 162,909 130,255
- - Per common share $ 2.57 $ 2.34 $ 1.44 $ .92 $ .70
Dividends declared
per common share .20 .14 .10 .10 .10
March 31,
--------------------------------------------------
BALANCE SHEET DATA 1995 1994 1993 1992 1991
(in thousands) ------ ------ ------ ------ ------
Cash from operations $ 489,370 $ 480,213 $ 415,747 $ 360,717 $ 287,750
Working capital 299,673 450,599 340,694 311,058 546,985
Total assets 3,269,428 2,491,605 2,348,819 2,168,862 1,515,944
Long-term debt (less
current maturities) 50,489 71,381 166,714 40,804 24,611
Stockholders' equity 1,578,125 1,243,133 1,054,530 988,339 884,071
(1)Includes a pre-tax write-off of $249 million related to the acquisition of
The ASK Group, Inc. in June 1994. See Note 2 of Notes to Consolidated Financial
Statements for additional information.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Total revenue for fiscal year 1995 of $2.6 billion increased 22% over the $2.1
billion total for fiscal year 1994. Product revenue increased by 31% over the
prior year's level. The growth was attributable to greater revenue derived from
licensing fees on the midrange platform as well as modest increases in product
revenues for mainframe based systems management products. The midrange
platform increase was due chiefly to the success of the Company's pioneer
UNIX-based systems management product, CA-Unicenter, as well as integration of
the ASK/Ingres products acquired in June 1994. The continued demand for
enterprise licensing alternatives and less restrictive pricing options also
contributed to revenue growth. International revenue, positively affected by
foreign exchange currency rates, relatively stable economic conditions,
expanding markets and favorable product offerings, grew by 28% during fiscal
year 1995 over the prior fiscal year. Maintenance revenue in fiscal year 1995
increased 4%, or $27 million, primarily due to the acquisition of ASK.
Absolute maintenance revenue continued to be negatively impacted by site
consolidations and the revenue mix shift toward lower maintenance generating
client/server solutions. Price changes did not have a material impact in either
year.
Selling, marketing and administrative expenses were 40% of revenue for
fiscal year 1995 in contrast to 47% for fiscal year 1994. This percentage
reduction reflects a higher revenue achievement without a proportionate
increase in total fixed and administrative costs, and to a lesser extent,
operating efficiencies realized from the acquisition of ASK. Net product and
development expenditures increased $22 million, or 10%, for fiscal year 1995
over the prior period. The increase was due to support and enhancement of the
ASK products and ongoing development efforts to expand client/server product
offerings. Commissions and royalties were at 5% of revenue for both fiscal
years. Depreciation and amortization expense increased by $51 million, or 25%
in fiscal year 1995 over fiscal year 1994, primarily due to the additional
purchased software product amortization associated with the ASK acquisition.
Net interest expense for fiscal year 1995 was $8.1 million, approximately $6.3
million higher than fiscal year 1994, as a result of higher debt levels
associated with borrowings used to finance the ASK acquisition. A pre-tax
purchased research and development charge of $249 million is reflected in
fiscal year 1995 total expenses. The charge represents a write-off of purchased
research and development technology that had not reached the working model
stage and has no alternative future use. Pre-tax income increased in fiscal
1995 by 11%, or $70 million to $697 million from $627 million in fiscal year
1994. This pre-tax income figure includes the charge of $249 million noted
above. Without the charge, income would have been $946 million, an increase of
$319 million or 51% from fiscal year 1994. The consolidated effective tax rate
for fiscal year 1995 increased to 38% from 36% in fiscal year 1994. The
increase was principally the result of reduced foreign tax credits. Net
income in fiscal 1995 increased 8%, including the previously mentioned charge,
and 46% without it. Net income per share increased 10% after the charge and
49% before it. A 2% reduction in the average shares outstanding during fiscal
year 1995 contributed to this improvement.
Total revenue 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 UNIX-based product, CA-Unicenter, operating on
several different platforms. Enterprise license alternatives and less
restrictive pricing options affording clients licensing flexibility also
contributed to revenue growth, particularly for mainframe systems products.
International revenue 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 international introduction of our UNIX-based offerings.
Maintenance revenue in fiscal year 1994 increased 3%, or $21 million.
Maintenance revenue were 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 fiscal
years 1994 and 1993.
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
10
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, is 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%.
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 $155,251,000, $108,001,000 and
$74,841,000 in fiscal years 1995, 1994 and 1993, respectively. See Note 4 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)
1995 Quarterly Results June 30(1) Sept. 30 Dec. 31 Mar. 31 Total(1)
- ----------------------- --------- -------- ------- ------- ---------
Revenue $476,631 $623,340 $721,032 $801,989 $2,622,992
Percent of total revenue 18% 24% 27% 31% 100%
Net income (loss) (85,579) 130,375 174,206 212,902 431,904
- - Per common share $ (.53) $ .78 $ 1.04 $ 1.27 $ 2.57
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
(1)Includes a pre-tax write-off of $249 million related to the acquisition of
The ASK Group, Inc. in June 1994. See Note 2 of Notes to Consolidated Financial
Statements for additional information.
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; market acceptance of competing technologies; the availability and
cost of new solutions; the Company's ability to successfully maintain or
increase market share in its core business while expanding its product base
into other markets; the strength of its distribution channels; the Company's
ability to effectively manage fixed and variable expense growth relative to
revenue growth; and the Company's ability to effectively integrate acquired
products and operations.
11
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
Economic uncertainty in world markets caused a gradual weakening of the U.S.
Dollar during fiscal year 1995. Approximately 49% of the Company's total
revenue in fiscal year 1995, 46% in fiscal year 1994 and 50% in fiscal year
1993, 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. During fiscal 1995, the net income effect
of foreign exchange losses was less than $1 million. A foreign currency
translation adjustment of $76 million was credited to Stockholders' Equity in
fiscal year 1995. As part of the its risk management strategy, the Company did
not enter into any foreign exchange derivative transactions during fiscal years
1995 and 1994.
Liquidity and Capital Resources
Cash from operations for fiscal year 1995, heavily affected by increased
foreign and domestic tax payments, increased slightly over the prior
year. Improved net income levels were offset by higher accounts receivable
balances. These balances were increased by the foreign exchange impact of
the weakened dollar and fiscal year 1995 higher sales. The Company's $314
million stock acquisition of ASK was financed from existing cash and bank
borrowings. Cash generated from operations was used to purchase $173 million of
treasury stock and to finance costs associated with the acquisition of ASK. See
Note 1 for details of cash flows.
During fiscal 1995, the Company restructured its credit agreement with a group
of banks to increase its borrowing capacity to $500 million. As part of the
restructuring, the Company repaid in full the debt related to its Islandia, NY
corporate headquarters. Borrowings under this new agreement are subject to
interest, primarily at the prevailing London Interbank Rate ("LIBOR") plus 20
basis points and is payable at maturity or in quarterly installments,
whichever is sooner. The agreement calls for the maintenance of certain
financial conditions and ratios. The Company also maintains a multicurrency
credit facility of $20 million. The multicurrency facility was established to
meet any short-term working capital requirements for its foreign subsidiaries.
Peak borrowings under these facilities were $392 million during fiscal 1995,
and the weighted average interest rate for those borrowings during the year was
5.3%. Peak borrowings for 1994 were $50 million, and the comparable interest
rate for borrowings was 4.6%. At March 31, 1995, $240 million was outstanding
under these credit arrangements.
On May 25, 1995, the Company entered into a definitive agreement providing
for the acquisition of Legent Corporation ("Legent"). The acquisition will be
financed from existing cash and marketable securities as well as a new $2
billion credit facility which will replace the existing $500 million facility.
The Company's capital resource commitment as of March 31, 1995, 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 6, 7, and 12 for details concerning commitments.
The Company believes that the foregoing sources of liquidity, plus existing
cash and cash equivalents and current marketable securities balances of $301
million as of March 31, 1995 are adequate for its foreseeable operating needs.
The Company purchased almost 5 million shares of its Common Stock under its
current open market repurchase program, bringing the total purchased under this
program to approximately 16 million shares. An additional 9 million shares is
authorized for repurchase. The Company had previously completed a 15 million
share repurchase program, for a total of 31 million shares repurchased to date.
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.
12
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.
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.
13
REGULATION S-K
EXHIBIT NUMBER
--------------
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.
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) Amendment No. 1 dated May Filed herewith.
17, 1995 to Rights
Agreement dated as of June
18, 1991.
4(f) 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(g) 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(h) Amendment No. 1 to the 1987 Previously filed as Exhibit c to the
Non-Statutory Stock Option Company's Annual Report on Form 10-K
Plan dated October 20, for the fiscal year ended March 31,
1993. 1994 and incorporated herein by
reference.
14
REGULATION S-K
EXHIBIT NUMBER
--------------
4(i) 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(j) Amendment No. 2 to the Previously filed as Exhibit D to the
1991 Stock Incentive Plan Company's Annual Report on Form 10-K
dated October 20, 1993. for the fiscal year ended March 31,
1994 and incorporated herein by
reference.
4(k) 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(l) Amendment No. 1 to the Previously filed as Exhibit E to the
1993 Stock Option Plan for Company's Annual Report on Form 10-K
Non-Employee Directors for the fiscal year ended March 31,
dated October 20, 1993. 1994 and incorporated herein by
reference.
4(m) The Company's 401(k) Previously filed as Exhibit F to the
Excess Benefit Plan. Company's Annual Report on Form 10-K
dated January 1, 1993 for the fiscal year ended March 31,
1994 and incorporated herein by
reference.
4(n) Amendment No. 1 to the Previously filed as Exhibit G to the
Company's 401(k) Excess Company's Annual Report on Form 10-K
Benefit Plan dated for the fiscal year ended March 31,
March 30, 1994. 1994 and incorporated herein by
reference.
4(o) The Company's 401(k) Previously filed as Exhibit H to the
Restoration Plan dated Company's Annual Report on Form 10-K
March 30, 1994. for the fiscal year ended March 31,
1994 and incorporated herein by
reference.
10(a) Credit Agreement dated Previously filed as an Exhibit(b)(1)
June 21, 1994 among the to the Company's Amendment No. 5 to
Company, various banks Schedule 14D-1 dated June 23, 1994
and financial institutions and incorporated herein by reference.
and Credit Suisse, as
agent.
10(b) Credit Agreement, dated Previously filed as an Exhibit(b)(2)
June 21, 1994, among the to the Company's Amendment No. 5 to
Company, various banks Schedule 14D-1 dated June 23, 1994
and financial institutions and incorporated herein by reference.
and Credit Suisse, as
agent.
21 Subsidiaries of the Filed herewith.
Registrant.
23 Consent of Ernst & Young Filed herewith.
LLP.
15
(b)Reports on Form 8-K.
There were no current reports on Form 8-K filed during the fiscal quarter
ended March 31, 1995.
(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. 33-53915 (filed
May 31, 1994),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 26, 1995
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/ SHIRLEY STRUM KENNY Director
--------------------------
Shirley Strum Kenny
/s/ WILLEM F. P. de VOGEL Director
---------------------------
Willem F. P. de Vogel
Dated: May 26, 1995
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, 1995
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, 1995, 1994 and 1993 19
Consolidated Balance Sheets-March 31, 1995 and 1994 20
Consolidated Statements of Stockholders' Equity-Years
Ended March 31, 1995, 1994 and 1993 22
Consolidated Statements of Cash Flows-Years Ended
March 31, 1995, 1994 and 1993 23
Notes to Consolidated Financial Statements 24
The following consolidated financial statement schedule of Computer
Associates International, Inc. and subsidiaries is included in Item 14(d):
Schedule II-Valuation and Qualifying Accounts 33
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.
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, 1995 and
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended March 31,
1995. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and the schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule 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, 1995
and 1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended March 31, 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
May 26, 1995
19
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Year Ended March 31,
1995 1994 1993
-------- -------- --------
(Dollars in thousands, except per share amounts)
Product revenue and other related income.. $1,903,349 $1,455,675 $1,169,519
Maintenance fees.......................... 719,643 692,795 671,489
---------- ---------- ----------
TOTAL REVENUE 2,622,992 2,148,470 1,841,008
Costs and Expenses:
Selling, marketing and administrative..... 1,051,096 1,000,682 940,137
Product development and enhancements...... 232,785 211,273 207,365
Commissions and royalties................. 127,436 101,410 98,302
Depreciation and amortization............. 257,699 206,317 207,006
Interest expense, net..................... 8,057 1,816 4,535
Purchased research and development........ 249,300
---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,926,373 1,521,498 1,457,345
---------- ---------- ----------
Income before income taxes................ 696,619 626,972 383,663
Income taxes.............................. 264,715 225,710 138,119
---------- ---------- ----------
NET INCOME $ 431,904 $ 401,262 $ 245,544
========== ========== ==========
NET INCOME PER COMMON SHARE $ 2.57 $ 2.34 $ 1.44
========== ========== ==========
Weighted average common shares
used in computation...................... 168,038 171,428 170,354
See Notes to Consolidated Financial Statements.
20
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONCOLIDATED BALANCE SHEETS
March 31,
ASSETS 1995 1994
-------- --------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents................... $ 116,579 $ 133,127
Marketable securities....................... 184,643 235,071
Trade and installment accounts receivable... 787,684 594,854
Inventories and other current assets........ 58,660 36,169
---------- ----------
TOTAL CURRENT ASSETS 1,147,566 999,221
INSTALLMENT ACCOUNTS RECEIVABLE,
due after one year.......................... 1,045,798 626,923
PROPERTY AND EQUIPMENT
Land and buildings.......................... 258,441 254,797
Equipment, furniture and improvements....... 341,804 270,563
---------- ----------
600,245 525,360
Allowance for depreciation and amortization. 256,292 220,770
---------- ----------
TOTAL PROPERTY AND EQUIPMENT 343,953 304,590
PURCHASED SOFTWARE PRODUCTS, net of
accumulated amortization of $487,164
and $737,049................................ 342,999 259,290
EXCESS OF COST OVER NET ASSETS ACQUIRED, net
of accumulated amortization of $48,603
and $43,720................................. 300,268 201,665
OTHER ASSETS................................. 88,844 99,916
---------- ----------
TOTAL ASSETS $3,269,428 $2,491,605
========== ==========
See Notes to Consolidated Financial Statements.
21
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
-------- --------
(Dollars in thousands)
CURRENT LIABILITIES
Loans payable--banks............................ $ 240,000 $ 50,000
Accounts payable................................ 86,475 75,343
Salaries, wages and commissions................. 89,035 73,079
Accrued expenses and other liabilities.......... 157,410 108,508
Taxes, other than income taxes.................. 51,172 37,802
Federal, state and foreign income taxes payable. 113,972 124,696
Deferred income taxes........................... 106,554 51,019
Current portion of long-term debt............... 3,275 28,175
----------- -----------
TOTAL CURRENT LIABILITIES 847,893 548,622
LONG-TERM DEBT, net of current portion........... 50,489 71,381
DEFERRED INCOME TAXES............................ 460,838 298,914
DEFERRED MAINTENANCE REVENUE..................... 332,083 329,555
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, 500,000,000
shares authorized, 186,941,259 shares issued.... 18,694 18,694
Additional paid-in capital...................... 523,598 519,091
Retained earnings............................... 1,515,677 1,115,975
Equity adjustment............................... 57,313 (16,217)
Treasury stock, at cost--26,803,409 shares for
1995 and 23,892,483 shares for 1994............. (537,157) (394,410)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,578,125 1,243,133
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,269,428 $2,491,605
========== ===========
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, 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) (394,410) 1,243,133
Net income 431,904 431,904
Dividends declared
($.20 per share) (32,202) (32,202)
Exercise of Common Stock
options and other (1,306) 23,150 21,844
401(k) discretionary contribution 5,813 7,386 13,199
Translation adjustment
in 1995 76,030 76,030
Net change attributable to
unrealized loss on marketable
securities (2,500) (2,500)
Purchases of treasury
stock (173,283) (173,283)
------- --------- ----------- --------- ----------- ----------
Balance at March 31, 1995 $18,694 $523,598 $1,515,677 $57,313(1) $(537,157) $1,578,125
======= ========= =========== ========= =========== ==========
(1) Represents foreign currency translation adjustment of $59,173,000 and
unrealized loss on marketable securities of $(1,860,000).
See Notes to Consolidated Financial Statements.
23
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
1995 1994 1993
------ ------ ------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income.................................... $431,904 $401,262 $ 245,544
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................. 257,699 206,317 207,006
Provision for deferred income taxes........... 41,669 60,469 27,679
Charge for purchased research and development. 249,300
Increase in noncurrent installment accounts
receivable, net.............................. (357,103) (226,785) (93,717)
(Decrease) increase in deferred maintenance
revenue...................................... (5,352) (8,064) 29,458
Foreign currency transaction loss--before taxes 1,131 10,421 11,020
Changes in other operating assets and
liabilities, net of effects of acquisitions:
Increase in trade and installment receivables (59,250) (30,357) (64,371)
Other changes in operating assets and
liabilities.................................. (70,628) 66,950 53,128
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.... 489,370 480,213 415,747
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles............. (430,675) (3,923) (65,271)
Purchases of property and equipment.......... (35,370) (28,637) (221,857)
Purchases of marketable securities........... (145,796) (169,476) (181,800)
Sales of marketable securities............... 193,724 96,405 239,461
Increase in capitalized development
costs and other............................. (15,552) (15,471) (18,149)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES....... (433,669) (121,102) (247,616)
FINANCING ACTIVITIES:
Dividends.................................... (32,202) (23,202) (17,155)
Purchases of treasury stock.................. (173,283) (204,699) (136,042)
Proceeds from loans payable--banks........... 522,000 100,000 200,000
Repayments of loans payable--banks........... (332,000) (75,000) (375,000)
Issuances of long-term debt.................. 81,676 189,104
Repayments of long-term debt................. (85,404) (189,225) (16,084)
Exercise of common stock options and other... 15,891 11,611 5,692
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES....... (84,998) (298,839) (149,485)
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS BEFORE EFFECT OF EXCHANGE
RATE CHANGES ON CASH.......................... (29,297) 60,272 18,646
Effect of exchange rate changes on cash....... 12,749 (6,628) (13,444)
--------- --------- ---------
(DECREASE)INCREASE IN CASH AND
CASH EQUIVALENTS............................. (16,548) 53,644 5,202
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR 133,127 79,483 74,281
--------- --------- ---------
CASH AND CASH EQUIVALENTS--END OF YEAR........ $116,579 $133,127 $ 79,483
========= ========= =========
See Notes to Consolidated Financial Statements.
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 gain or loss
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, 1995, 1994 and
1993 were $160,986,000, $121,200,000 and $109,985,000, respectively.
Marketable Securities: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
During 1994, the Company adopted 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, equipment, furniture, and 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 is 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,
1995 and 1994 were $55,713,000 and $62,154,000, respectively. Amortization of
capitalized development costs was $21,986,000, $14,502,000 and $15,969,000 for
the fiscal years ended March 31, 1995, 1994 and 1993, 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 1995, 1994 and 1993 is not materially different from net
income per share.
Statement of Cash Flows: Interest payments for the years ended March 31, 1995,
1994 and 1993 were $22,589,000, $13,190,000 and $12,537,000, respectively.
Income taxes paid for these fiscal years were $227,184,000, $139,260,000 and
$60,715,000, 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 $701,000 in 1995, $6,669,000 in 1994 and
$7,053,000 in 1993.
25
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 2 -- Acquisitions
On June 22, 1994, the Company acquired 98% of the issued and outstanding Common
Stock of The ASK Group, Inc. ("ASK"), and on September 20, 1994, merged ASK
into one of its wholly owned subsidiaries. The aggregate cost of acquiring the
Common Stock of ASK was approximately $315 million. The purchase price was
provided from existing cash balances and from a revolving credit agreement with
a group of banks. ASK was primarily in the business of developing, marketing
and selling computer-based relational database management systems, data access
and connectivity products, manufacturing and financial software application
tools and provided related consulting and support services. The acquisition was
accounted for as a purchase. The results of ASK's operations have been combined
with those of the Company since the date of acquisition.
In conjunction with the purchase of ASK, the Company recorded an after-tax
charge against earnings of $154 million relating to the write-off of purchased
research and development technology that had not reached the working model
stage and has no alternative future use. Had this charge not been taken during
the quarter ended June 30, 1994, net income for the fiscal year ended March
31, 1995 would have been $586 million, or $3.49 per share.
The following table reflects pro forma combined results of operations of the
Company and ASK on the basis that the acquisition had taken place and the
related charge, noted above, was recorded at the beginning of the fiscal year
for each of the periods presented:
Year Ended March 31,
1995 1994
---------- ----------
(Dollars in thousands, except per share amounts)
Revenue $2,677,613 $2,487,604
Net income 404,646 108,654
Net income per Common Share $ 2.41 $ .63
Shares used in computation 168,038 171,428
The following table reflects pro forma combined results of operations of the
Company and ASK on the basis that the acquisition had taken place at the
beginning of the fiscal year for each of the periods presented and excludes the
effect of the after-tax charge of $154 million:
Year Ended March 31,
1995 1994
---------- ----------
(Dollars in thousands, except per share amounts)
Revenue $2,677,613 $2,487,604
Net income 559,212 263,220
Net income per Common Share $ 3.33 $ 1.54
Shares used in computation 168,038 171,428
In management's opinion, the pro forma combined results of operations are not
indicative of the actual results that would have occurred had the acquisition
been consummated at the beginning of fiscal year 1994 or of future operations
of the combined companies under the ownership and operation of the Company.
26
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 3--Investments
The following is a summary of cash equivalents and marketable securities
classified as "available-for-sale" securities as required by FASB 115:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ---------- ---------- ---------
(Dollars in thousands)
March 31, 1995:
U.S. corporate debt securities $ 1,012 $ 7 $ 1,005
Other debt securities 185,491 $ 225 2,078 183,638
-------- ------- ------- --------
Total debt securities $186,503 $ 225 $2,085 $184,643
======== ======= ======= ========
March 31, 1994:
U.S. corporate debt securities $ 4,215 $ 46 $ 4,169
Other debt securities 270,706 $1,505 819 271,392
-------- ------- ------- --------
Total debt securities $274,921 $1,505 $865 $275,561
======== ======= ======= ========
At March 31, 1994, Cash and Cash Equivalents included other debt securities
with a Cost of $40,461,000, Gross Unrealized Gains of $29,000 and Estimated
Fair Value of $40,490,000.
The gross realized gains on sales of available-for-sale securities totaled
$14,000 and $67,000 for the periods ended March 31, 1995 and 1994,
respectively. The gross realized losses totaled $1,601,000 and $27,000 for the
periods ended March 31, 1995 and 1994, respectively. The net adjustment for
unrealized holding gains and losses included in stockholders' equity was a net
loss of $1,860,000 at March 31, 1995 and a net gain of $640,000 at March 31,
1994.
The amortized cost and estimated fair value of debt securities at March 31,
1995, 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.
March 31, 1995
Estimated
Fair
Cost Value
------ --------
(Dollars in thousands)
Available-for-Sale:
Due in one year or less $63,856 $63,885
Due one through three years 93,700 92,568
Due three through five years 28,947 28,190
Due after five years
-------- --------
$186,503 $184,643
======== ========
27
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 4--Geographic Area Information and Foreign Operations
United States Foreign (a) Eliminations Total
------------- ----------- ------------ -------
(Dollars in thousands)
March 31, 1995:
Revenue:
To unaffiliated customers $1,262,750 $1,360,242 $2,622,992
Between geographic areas (b) 289,933 $(289,933)
---------- ---------- ---------- ----------
Total Revenue 1,552,683 1,360,242 (289,933) 2,622,992
Net income 276,653 155,251 431,904
Identifiable assets 2,304,974 1,470,069 (505,615) 3,269,428
Total liabilities 1,124,131 1,072,787 (505,615) 1,691,303
March 31, 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
March 31, 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
(a) The Company operates wholly owned subsidiaries in 32 foreign countries,
including Canada, Europe (19), South America (3) 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, 1995, 1994 and 1993, $43,467,000, $42,578,000 and
$40,967,000, respectively, of export sales to unaffiliated customers are
included in United States revenue.
28
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 5--Trade and Installment Accounts Receivable
Trade and installment accounts receivable consist of the following:
March 31,
1995 1994
------ ------
(Dollars in thousands)
Current receivables $1,285,894 $971,406
Less: Allowance for uncollectible amounts (160,531) (134,581)
Unamortized discount and maintenance fees (337,679) (241,971)
----------- ----------
$ 787,684 $594,854
=========== ==========
Non-current receivables $1,666,938 $975,758
Less: Allowance for uncollectible amounts (22,050) (11,800)
Unamortized discount and maintenance fees (599,090) (337,035)
----------- ----------
$1,045,798 $626,923
The provisions for uncollectible amounts for the years ended March 31, 1995,
1994 and 1993 were $88,549,000, $90,068,000 and $86,884,000, respectively, and
are included in selling, marketing and administrative expenses.
Note 6--Debt
The Company has various debt obligations outstanding at March 31, 1995 and
1994. These fixed rate debt obligations carry annual interest rates ranging
from 6% to 7 1/2%. The fair market value of long-term debt approximates its
carrying value.
In 1995, the Company renegotiated its credit agreement with a group of banks,
renewable annually, to provide up to $500 million of unsecured financing,
subject to interest generally at the prevailing London interbank rate ("LIBOR")
plus 20 basis points. Commitment fees on this facility are generally at LIBOR
plus 12 1/ 2 basis points. At March 31, 1995 and 1994, $240 million and $50
million, respectively, were outstanding under this arrangement. The Company has
a $20 million unsecured and uncommitted multicurrency credit facility. The
facility is used to meet any short-term working capital requirements and can be
drawn upon, up to a predefined limit, by most subsidiaries. There were no
amounts drawn at March 31, 1995.
The Company conducts an ongoing review of its debt balances as a part of its
risk management strategy. To date, the Company has not entered into any form of
derivative transactions related to its debt instruments.
The maturities of long-term debt outstanding for the five fiscal years noted
are as follows: 1996--$3,275,000; 1997--$3,216,000; 1998--$3,644,000;
1999--$4,166,000; and 2000--$4,703,000.
Interest expense for the years ended March 31, 1995, 1994 and 1993 was
$23,592,000, $13,145,000 and $16,873,000, respectively, and is netted with
interest income.
29
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 7--Commitments and Contingencies
The Company leases real estate and certain data processing and other equipment
with lease terms expiring through 2020. 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 has no material
capital leases.
Rental expense under operating leases for the years ended March 31, 1995, 1994
and 1993 was $108,406,000, $89,829,000 and $121,939,000, respectively. Future
minimum lease payments are: 1996--$90,606,000; 1997--$61,774,000;
1998--$44,346,000; 1999--$31,261,000; 2000--$27,976,000; and
thereafter--$115,929,000.
The Company is the respondent in an ongoing and protracted arbitration
proceeding before the American Arbitration Association of New York. The Company
believes the claims are without merit and will resist Claimants' efforts to
have the arbitrators assess any damages. Management, after consultation with
counsel and review of the facts at issue, believes that the potential damages,
if any, arising from the matter will not have a material adverse effect on its
consolidated financial position.
The Company, various subsidiaries and certain current and former officers have
been named as defendants in various claims and lawsuits arising in the normal
course of business. The Company believes that the facts do not support the
plaintiffs' claims and intends to vigorously contest each of them.
Note 8--Income Taxes
The amounts of income before income taxes attributable to domestic and foreign
operations are as follows:
Year Ended March 31,
1995 1994 1993
--------------------------------
(Dollars in thousands)
Domestic $429,439 $453,647 $239,569
Foreign 267,180 173,325 144,094
---------------------------------
$696,619 $626,972 $383,663
=================================
30
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,
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Current:
Federal $166,402 $123,897 $ 63,401
State 23,204 16,523 17,397
Foreign 33,440 24,821 29,642
--------- --------- ---------
223,046 165,241 110,440
--------- --------- ---------
Deferred:
Federal (46,810) 14,049 (14,440)
State 9,990 5,917 2,508
Foreign 78,489 40,503 39,611
--------- --------- ---------
41,669 60,469 27,679
--------- --------- ---------
Total:
Federal 119,592 137,946 48,961
State 33,194 22,440 19,905
Foreign 111,929 65,324 69,253
--------- --------- ---------
$264,715 $225,710 $138,119
========= ========= =========
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 85% in
1995 and 82% in 1994 of total deferred income taxes), purchase accounting
adjustments (approximately 15% in 1995 and 23% in 1994), net capitalized
development costs (approximately 6% in 1995 and 1994) and receivable reserves
(a deferred tax asset of approximately 6% in 1995 and 10% in 1994) 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,
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Statutory rate $243,817 $219,440 $130,445
State taxes, net of federal tax effect 21,576 14,586 13,137
Other, net (678) (8,316) (5,463)
--------- --------- ---------
$264,715 $225,710 $138,119
========= ========= =========
31
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 768,179 of 1,378,245 options which are outstanding
under the 1981 Plan were exercisable at March 31, 1995 at $2.81 - $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, 1995, 9,000 shares of the Company's Common Stock were available
for future grants. 3,074,000 of the 4,426,750 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, 1995, no stock appreciation rights have been
granted under this plan and 6,158,724 options have been granted. 270,130 of the
5,685,274 options which are outstanding under the 1991 Plan were exercisable at
that date. These options are exercisable at $11.25 _ $53.13 per share.
The 1993 Stock Option Plan for Non-Employee Directors (the "1993 Plan")
provides for non-statutory options to purchase up to a total of 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
ten years and each option may be exercised in whole or in part on the first
anniversary date of its grant. As of March 31, 1995, 18,000 options have been
granted under this plan. 4,000 of the 14,000 options which are outstanding
under the 1993 Plan were exercisable as of that date. These options are
exercisable at $25.63-$41.00 per share.
The following table summarizes the activity under these plans:
Option Shares Under
Prices Option
---------- ------------
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
Granted $ 30.63 - $53.13 2,710,000
Exercised $ 2.06 - $25.63 (1,250,960)
Terminated $ 3.21 - $25.63 (305,745)
Outstanding at March 31, 1995 $ 2.81 - $53.13 11,504,269
32
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, 1995, 1994 and 1993 were $3,873,000, $3,738,000 and
$3,473,000, 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, 1995, 1994 and 1993 were $16,107,000, $13,953,000
and $14,103,000, 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 and
amended May 17, 1995 (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 $300. 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 $300 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 25, 1995 the Company entered into a definitive agreement providing for
the acquisition of Legent Corporation ("Legent") through a cash tender offer
for all of the approximately 37 million common shares outstanding at $47.95
per share. The agreement has been unanimously approved by the Board of
Directors of Legent and the Company. The agreement is conditioned upon a
majority of the shares being tendered and all regulatory approvals being
granted. The tender offer is expected to expire by late June 1995, unless
extended. It will be financed from the Company's existing cash, cash
equivalents, marketable securities and a $2 billion unsecured credit facility
which will replace the Company's existing $500 million credit facility.
The acquisition will be accounted for as a purchase transaction.
33
Schedule II
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, 1995 $146,381 $88,549 $7,336 $ 59,685 $182,581
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
(a) Reserves of acquired companies.
(b) Write-offs of amounts against allowance provided.
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 LLP. Exhibit B
4(e) Amendment No. 1 dated May 17, 1995 Exhibit C
to the 1991 Rights Agreement.