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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, 1996
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 22, 1996 was $13,439,761,644 based on a total of
176,838,969 shares held by non-affiliates and the closing price on the New
York Stock Exchange on that date which was $76.00.
Number of shares of stock outstanding at May 22, 1996:
242,653,264 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.
2
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 tripartite 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 existing major operating systems. 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.
In August 1995, the Company acquired Legent Corporation ("Legent"). Legent
provides a broad range of computer software products for the management of
information systems across several platforms and operating systems. 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.
In April 1996, the Company announced a restructuring with respect to its
business applications solutions. Organized around the concept of
self-contained operational units, the Company formed seven new "Independent
Business Units" ("iBUs"). These iBUs will be responsible for development,
marketing, sales and support of their respective product areas. In order to
better maintain its commitment to delivering quality technical support for
its clients throughout the world, the Company has also formed a Technical
Services Group. This group, which will serve as the bridge between the
Company's sales and development organizations, will provide the highest
quality technical assistance and guidance to clients. Although the Company
expects these structural changes will improve operational efficiencies, it
should be noted that there are risks associated with changing the Company's
business model.
(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 Inc. ("Sun"), Data General Corp. ("DG"), Tandem
Computers Inc. and Compaq Computer Corp.
A computer system, running the most powerful mainframe or the ubiquitous
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.
3
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 software
performance and programmer productivity. During the past fiscal year, the
Company announced CA-Unicenter TNG (The Next Generation)TM, the
newest release of its systems management platform, CA-Unicenter.
CA-Unicenter TNG is an object-oriented solution that enables organizations
to visualize and control their entire information technology infrastructure--
including applications, databases, systems and networks--from a business
perspective. This technology establishes a link between an organization's
information technology resources and its business policies. Through
CA-Unicenter TNG, an organization can define its business policies, map these
policies to particular resource management requirements, and then monitor
resources for their support of specific business processes. The flexible
business process views can be customized to deliver information based on
specific roles, locations, resources, and any other dimensions of control.
To visualize the complex interactions and interdependencies of an
enterprise's entire distributed environment, CA-Unicenter TNG features a real
world interface that incorporates 3-D animation and elements of virtual
reality.
With more than 30 million users, and growing by 15 percent each month, the
Internet has emerged as the de facto communications platform. Recognizing the
growth of the Internet as a platform for business computing, the Company
announced several offerings for this environment during this past fiscal
year. These are CA-Unicenter/ICE (Internet Commerce Enabled)TM, JasmineTM and
CA-OpenIngres/ICETM. While the Internet has created untapped electronic
commerce opportunities, these cannot be realized until the Internet becomes
more secure, reliable and manageable. The CA ICE family of solutions is
supporting the Internet evolution from a personal browser to a business
forum.
CA-Unicenter/ICE was introduced as a comprehensive solution for securing and
managing electronic commerce over the Internet. CA-Unicenter/ICE addresses
the management needs of Web Servers and Web Clients by providing security,
event management, help-desk, storage management, resource accounting and
database monitoring.
Jasmine is the first object-oriented database for development and deployment
of multimedia, client/server, Intranet and Internet business applications.
Developed in conjunction with Fujitsu Limited, Jasmine enables organizations
to build applications with intuitive multimedia representation of complex
real world activities and data which may be executed on client workstations,
either standalone or within a Web browser. It will be integrated with
Netscape's Commerce and Internet servers and Spyglass' Web Server. Jasmine
is ideally suited for the development of such cross-industry applications as
electronic catalogs, kiosks, customer support and sales force automation as
well as industry specific applications in sectors such as insurance,
financial services, manufacturing, pharmaceuticals, health care and
telecommunications. Applications built with Jasmine are easily customizable
to match specific business requirements.
The Company also announced CA-OpenIngres/ICE. This database management
solution provides Web-enabled access to corporate data in UNIX and Windows
NT environments. As a relational database solution which has been extended
and optimized for Internet use, CA-OpenIngres/ICE enables users to access
databases quickly and efficiently through the convenience of the Web page.
The Company plans to embed Spyglass Web Server technology in each copy of
CA-OpenIngres/ICE.
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 4,100
sales and sales support personnel engaged in promoting the licensing of the
Company's products.
In North America, the Company operates primarily through a single sales
force responsible for sales, marketing and service of the Company's
non-business application solutions. Several iBUs are responsible for the
sales and marketing activities of business application solutions. A separate
Global Accounts group provides additional service to large clients,
particularly facilities managers. Facilities managers deliver data processing
services using the Company's products to those companies that wish to
"outsource" their computer processing requirements.
4
The Company also operates through wholly owned subsidiaries located in 36
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 1% of the Company's fiscal 1996 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
1996 approximately 50% of the Company's revenue was derived from business
outside North America. The percentages for fiscal year 1995 and 1994 were
approximately 49% and 46%, 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.
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 9% 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 $1,500 and $1,200,000,
and three-year term license fees range between $1,000 and $805,000. Pricing
under enterprise-wide licensing options is dependent on contracted levels of
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 $10 and $4,500 per copy,
dependent upon the product and number of users licensed. 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. UNIX-based software products are licensed to end users on
5
a CPU basis, number of concurrent users basis, or based on the size of the
enterprise in terms of computing power, as measured in Power Units.
Maintenance and support services, primarily provided through telephone
contact with employees of the Company, may be purchased for an additional
fee.
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 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 and other hardware
vendors have 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; dependability 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; possible disruptions resulting from
organizational changes; and the Company's ability to effectively integrate
acquired products and operations.
6
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. In addition to obtaining patent protection for
new technology, the Company protects its products and their documentation and
other written materials under copyright law. The Company also obtains
trademark protection for its various product names.
Clients
No individual client accounted for a material portion of the Company's
revenue during any of the past three fiscal years. Since the Company's
mainframe packages are used with relatively expensive computer hardware, most
of its revenues are derived from companies which have the resources to make
a substantial commitment to data processing and their computer installations.
Most of the world's major companies use one or more of the Company's software
packages. The Company's software products are generally used in a broad range
of industries, businesses and applications. The Company's clients include
manufacturers, financial service providers, banks, insurance companies,
educational institutions, hospitals, 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, as described more fully in "Narrative Description Of Business--
Products," 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-TCC (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; Columbus, Ohio;
Pittsburgh, Pennsylvania; Dallas, Texas; Reston, Virginia; and Bellevue,
Washington. 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, 1996, 1995 and
1994, product development costs charged to operations were $285,404,000,
$232,785,000 and $211,273,000, respectively. In fiscal years 1996, 1995, and
1994, the Company capitalized $15,742,000, $15,505,000 and $15,471,000,
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, 1996, the Company had approximately 8,800 employees of whom
approximately 1,500 were located at its facilities in Islandia, New York;
approximately 4,000 were located at other offices in the United States, and
approximately 3,300 were located at its offices in foreign countries. Of the
total employees, approximately 2,700 were engaged in product development
efforts and 4,100 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.
7
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 60 office facilities throughout the United
States, and approximately 80 office facilities outside the United States.
Expiration dates on material leases range from fiscal 1997 to 2020.
The Company owns a 675,000 square-foot headquarters in Islandia, New York.
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.
As a result of the Legent acquisition, the company now owns and operates
115,000, 143,000, 240,000 square-foot office facilities in Columbus, Ohio;
Herndon, Virginia and Pittsburgh, Pennsylvania, respectively.
The Company owns various computer, telecommunications and electronic
equipment. It also leases IBM, DEC, HP and DG computers located at the
Company's facilities in Islandia, New York; Princeton, New Jersey; San Diego,
California; and Chicago, Illinois. This equipment is used for the Company's
internal product development, for technical support efforts and for
administrative purposes. In addition, each of the Company's subsidiaries
outside the U.S. leases certain computer hardware enabling them to
communicate with all other offices of the Company through a dedicated
worldwide network. The Company considers its computer and other equipment to
be adequate for its needs. See Note 7 of Notes to Consolidated Financial
Statements for information concerning lease obligations.
Item 3. Legal Proceedings
The Company, various subsidiaries and certain current and former officers
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 23, 1996 are listed below:
Name Age Position
Charles B. Wang (1) 51 Chairman, Chief Executive Officer and
Director
Sanjay Kumar (1) 34 President, Chief Operating Officer and
Director
Russell M. Artzt (1) 49 Executive Vice President--Research and
Development and Director
Belden A. Frease 57 Senior Vice President and Secretary
Charles P. McWade 51 Senior Vice President--Finance
Peter A. Schwartz 52 Senior Vice President--Finance and Chief
Financial Officer
Ira Zar 34 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, and Senior Vice President--
Planning from April 1989 to December 1992.
8
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.
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. McWade has been Senior Vice President--Finance of the Company since
April 1990, having served in various financial positions including Treasurer
from April 1988 to March 1994. Mr. McWade joined the company in October
1983.
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.
Mr. Zar joined the Company in June 1982.
The officers are appointed annually and serve at the discretion of the Board
of Directors.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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.
Fiscal 1996 Fiscal 1995
High Low High Low
Fourth Quarter $ 75.88 $ 52.88 $ 42.50 $ 31.58
Third Quarter $ 67.88 $ 37.63 $ 33.83 $ 29.08
Second Quarter $ 50.83 $ 40.75 $ 30.00 $ 25.25
First Quarter $ 48.67 $ 37.17 $ 28.75 $ 18.50
On March 31, 1996, the closing price for the Company's Common Stock on the
New York Stock Exchange was $ 71.63. The Company currently has approximately
8,500 record stockholders.
The Company has paid cash dividends in July and January of each year since
July 1990 and intends to continue that policy. The Company's most recent
dividend, paid in January 1996, was $ .07 per share.
References to prices per share have been adjusted to reflect a three-for-two
stock split effective August 21, 1995.
Item 6. Selected Financial Data
The information set forth below 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 1996(1) 1995(2) 1994 1993 1992
------- ------- ------ ------- -------
(in thousands, except per share amounts)
Revenue $ 3,504,629 $2,622,992 $2,148,470 $1,841,008 $1,508,761
Net (loss) income (56,354) 431,904 401,262 245,544 162,909
- - - Per common share(3) $ (.23) $ 1.71 $ 1.56 $ .96 $ .61
Dividends declared per
common share(3) .137 .133 .093 .067 .067
March 31,
---------------------------------------------------------
BALANCE SHEET DATA 1996(1) 1995(2) 1994 1993 1992
------- ------- ------ ------ ------
(in thousands)
Cash from operations $ 619,358 $ 489,370 $ 480,213 $ 415,747 $ 360,717
Working capital (deficiency) (53,757) 299,673 450,599 340,694 311,058
Total assets 5,015,966 3,269,428 2,491,605 2,348,819 2,168,862
Long-term debt (less
current maturities) 944,506 50,489 71,381 166,714 40,804
Stockholders' equity 1,481,662 1,578,125 1,243,133 1,054,530 988,339
(1)Includes a pre-tax write-off of $1,303 million related to the acquisition of Legent Corporation
in August 1995. See Note 2 of Notes to Consolidated Financial Statements for additional
information.
(2)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.
(3)Adjusted to reflect a three-for-two stock split effective August 21, 1995.
9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Annual Report on Form 10-K contains certain forward-looking statements
and information relating to the Company that are based on the beliefs and
assumptions made by the Company's management as well as information
currently available to the management. When used in this document, the words
"anticipate," "believe," "estimate," and "expect" and similar expressions,
are intended to identify forward-looking statements. Such statements reflect
the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described
herein as anticipated, believed, estimated or expected. The Company does not
intend to update these forward-looking statements.
Total revenue for fiscal year 1996 of $3.5 billion increased 34% over the
$2.6 billion recorded in fiscal year 1995. The increase reflects continued
demand for less restrictive enterprise licensing pricing options, as well as
the continued growth of licensing fees for the Company's client/server
products. In addition, the inclusion of Legent mainframe and client/server
products acquired in August 1995 contributed to revenue growth. International
revenues increased 34% during fiscal year 1996. Relatively stable economic
conditions and continued expansion of foreign markets, especially relating
to Legent products were largely responsible for this growth. Maintenance
revenue was essentially unchanged; increasing 1% or $10 million primarily due
to the acquisition of the Legent client base, partially offset by the ongoing
trend of site consolidations as well as expanding client/server revenues
which yield lower maintenance. Price changes did not have a material impact
in either year.
Selling, marketing and administrative expenses for fiscal year 1996
decreased to 39% of revenue from 40% in fiscal year 1995. This percentage
reduction reflects higher revenue achievement without a proportionate
increase in total fixed and administrative costs as well as operating
efficiencies realized from the acquisitions of Legent and ASK. Net research
and development expenditures increased $53 million, or 23%, for fiscal year
1996 over the prior fiscal period. The addition of Legent product and
development personnel, the expanded emphasis on adapting products
for the client/server environment and introduction of Inter/Intranet products
were largely responsible for this increase. Commissions and royalties
approximated 5% of revenue for both fiscal year 1996 and 1995. Depreciation
and amortization expense increased 57%, or $147 million in fiscal year 1996
over fiscal year 1995, primarily as a result of additional and accelerated
purchased software amortization associated with the Legent acquisition.
Approximately $150 million of additional amortization expense during fiscal
1996 was directly attributable to the Legent acquisition. Net interest
expense for fiscal year 1996 was $71 million, an increase of approximately
$63 million over fiscal year 1995, reflecting the higher debt levels
associated with borrowings used to finance the Legent acquisition. A pre-tax
purchased research and development charge of $1,303 million is included in
fiscal year 1996 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. Fiscal year 1996 had
a pre-tax loss of $101 million compared to the $697 million pre-tax income
in fiscal year 1995. The pre-tax amounts for both fiscal years 1996 and 1995
include charges relative to the acquisitions of Legent and ASK, respectively.
Excluding the fiscal year 1996 Legent charge of $1,303 million and fiscal
year 1995 ASK charge of $249 million, pre-tax income for fiscal year 1996
was $1,202 million compared to $946 million in fiscal year 1995, an increase
of $256 million, or 27%. The consolidated effective tax rate for fiscal year
1996 reflects a tax benefit of 44%. Without the effect of the Legent charge,
the consolidated effective tax rate would have been 37.5% in fiscal 1996 as
versus 38% in fiscal 1995. Fiscal year 1996 had a net loss of $56 million,
including the previously mentioned charge. Excluding the aforementioned
charges in fiscal 1996 and 1995, net income was $752 million
compared to $586 million in fiscal year 1995. This $166 million increase over
fiscal year 1995 was a 28% improvement. Net income per share excluding both
charges was $2.98 in 1996 compared to $2.33 for 1995, also an increase of
28%.
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
10
the acquisition of ASK. Absolute maintenance revenue was negatively affected
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 total 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 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.
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 $224,733,000,
$155,251,000 and $108,001,000 in fiscal years 1996, 1995 and 1994,
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)
- - --------------------------------------------------------------------------------------------
1996 Quarterly Results June 30 Sept. 30(1) Dec. 31 Mar.31 Total(1)
- - ---------------------- ------- ----------- ------- ------ --------
Revenue $577,452 $812,316 $1,004,439 $1,110,422 $3,504,629
Percent of total revenue 16 % 23 % 29 % 32 % 100%
Net income (loss) 88,549 (637,180) 227,178 265,099 (56,354)
- - - Per common share(3) $ .35 $ (2.64) $ .90 $ 1.05 $ (.23)
1995 Quarterly Results June 30(2) Sept. 30 Dec. 31 Mar. 31 Total(2)
- - ---------------------- ---------- -------- ------- ------- --------
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(3) $ (.35) $ .52 $ .69 $ .85 $ 1.71
(1)Includes a pre-tax write-off of $1,303 million related to the acquisition of Legent Corporation
in August 1995. See Note 2 of Notes to Consolidated Financial Statements for additional
information.
(2)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.
(3)Adjusted to reflect a three-for-two stock split effective August 21, 1995.
11
The Company has traditionally reported lower profit margins for the first
two quarters of each fiscal year than those experienced in the third and
fourth quarters. As part of the annual budget process, management establishes
higher discretionary expense levels in relation to revenue for the first half
of the year. Historically, the Company's combined third and fourth quarter
revenues have been greater than the first half of the year, as these two
quarters coincide with the clients' calendar year budget periods and the
culmination of the Company's annual sales plan. These historically higher
second half revenues have resulted in significantly higher profit margins
since total expenses have not increased in proportion to revenue. However,
past financial performance should not be considered to be a reliable
indicator of future performance.
The Company's future operating results may be affected by a number of
factors, including, but not limited to: uncertainties relative to global
economic conditions; 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.
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
Uncertainty in world currency markets caused a gradual strengthening of the
U.S. Dollar during fiscal year 1996. Approximately 50% of the Company's
total revenue in fiscal year 1996, 49% in fiscal year 1995 and 46% in fiscal
year 1994, 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 1996, the net income
effect of foreign exchange gains was approximately $1 million. A foreign
currency translation adjustment of $25 million was charged to Stockholders'
Equity in fiscal year 1996. As part of its risk management strategy, the
Company did not enter into any foreign exchange derivative transactions
during fiscal years 1996 and 1995.
Liquidity and Capital Resources
Cash from operations for the year ended March 31, 1996 increased by $130
million, or 27%, over the preceding fiscal year. The increase was primarily
the result of increased net income, excluding the non-cash charge to
earnings for purchased research and development. While absolute accounts
receivable balances have increased during fiscal 1996 reflecting the
clients' higher propensity to finance licensing fees, collection of billed
receivables has reduced the amount of time such receivables are outstanding.
Installment, or unbilled, receivables have grown proportionally with revenue
and continue to be viewed by the Company both as a competitive advantage when
marketing product as well as a beneficial use of the Company's capital. Cash
generated from operations and maturities of marketable securities were used
to reduce debt drawn as a result of the August 1995 Legent acquisition. The
Company's fiscal 1996 open market purchases of its common stock of $31
million was significantly lower than that of the prior year primarily due to
concerted efforts to reduce the debt levels associated with the Legent
acquisition.
In August 1995, the Company's revolving line of credit was renegotiated from
$500 million to $2 billion to fund the $1.8 billion acquisition of Legent.
Under the new credit facility, borrowings are subject to interest primarily
at the prevailing London Interbank Rate ("LIBOR") plus a fixed spread
dependent on the achievement of certain financial ratios. The agreement
provides for a facility fee, also dependent on the achievement of certain
financial ratios. The facility calls for the maintenance of certain financial
conditions. The Company also has $23 million of unsecured and uncommitted
multicurrency lines of credit available. These multicurrency facilities were
established to meet any short-term working capital requirements for
subsidiaries principally outside the United States. Peak borrowings under all
financing arrangements were $1,845 million during fiscal 1996, and the
weighted average interest rate for those borrowings was 6.5%. Peak borrowing
under credit facilities during fiscal 1995 were $392 million and the weighted
average interest rate for these borrowings was 5.3%. At March 31, 1996,
approximately $1.4 billion was outstanding under these credit arrangements.
In April 1996, the Company further restructured a portion of its debt by
completing a $320 million private placement of debt. The private placement
affords the Company several advantages including extending the maturity of
its debt, locking in a favorable interest rate and broadening the Company's
sources of liquidity.
12
The Company's capital resource commitment as of March 31, 1996, consisted
of lease obligations for office facilities, computer equipment, a mortgage
obligation and amounts due resulting from the acquisition of products and
companies. The Company intends to meet its capital resource requirements from
its available funds. No significant commitments exist for future capital
expenditures. See Notes 6 and 7 for details concerning commitments.
The Company believes that the foregoing sources of liquidity, plus existing
cash and marketable securities balances of $201 million as of March 31, 1996,
are adequate for its foreseeable operating needs.
The Company purchased approximately 750 thousand shares of its Common Stock
under its open market repurchase program during fiscal 1996, bringing the
total purchased under this program to approximately 24.5 million shares. An
additional 13 million shares is authorized for repurchase. The Company had
previously completed a 22.5 million share repurchase program, for a total of
47 million shares. All references to share amounts have been adjusted for the
three-for-two stock split effective August 21, 1995.
Item 8. Financial Statements and Supplementary Data
The Financial Statements of the Company are listed in the Index to Financial
Statements filed as part of this Form 10-K.
The Supplementary Data specified by Item 302 of Regulation S-K as it relates
to selected quarterly data is included in Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Information
on the effects of changing prices is not required.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end
of the Registrant's fiscal year for information concerning directors and to
Part I, page 7, of this Annual Report on Form 10-K for information concerning
executive officers under the caption "Executive Officers of the Registrant."
Item 11. Executive Compensation
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of
the Registrant's fiscal year for information concerning executive
compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of
the Registrant's fiscal year for information concerning security ownership
of each person known by the Company to own beneficially more than 5% of the
Company's outstanding shares of Common Stock, of each director of the Company
and all executive officers and directors as a group.
Item 13. Certain Relationships and Related Transactions
Reference is made to the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of
the Registrant's fiscal year for information concerning certain relationships
and related transactions.
13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) The Registrant's financial statements together with a separate
table of contents are annexed hereto.
(2) Financial Statement Schedules are listed in the separate table of
contents annexed hereto.
(3) Exhibits
REGULATION S-K
EXHIBIT NUMBER
--------------
3(i)(a) Restated Certificate of Previously filed as Exhibit 3.1
Incorporation to the Company's Registration
Statement on Form S-1 (Registration
No. 2-74618) and incorporated herein
by reference.
3(i)(b) Certificate of Amendment Previously filed as Exhibit 3.2 to
of the Restated the Company's Registration
Certificate of Statement on Form S-1 (Registration
Incorporation No. 2-84239) and Incorporated herein
by reference.
3(i)(c) Certificate of Amendment Previously filed on Form 8 dated
of the Restated January 22, 1986 to Form 10-Q for
Certificate of fiscal quarter ended September 30,
Incorporation 1985, and incorporated herein by
reference.
3(i)(d) Certificate of Amendment Previously filed as Exhibit 3(d) to
of the Restated the Company's Annual Report on Form
Certificate of 10-K for the fiscal year ended March
Incorporation 31, 1988 (File No. 0-10180) and
incorporated herein by reference.
3(i)(e) Certificate of Amendment Previously filed as Exhibit 3(e) to
of the Restated the Company's Annual Report on Form
Certificate of 10-K for the fiscal year ended March
Incorporation 31, 1990 (File No. 0-10180) and
incorporated herein by reference.
3(ii) By-Laws Previously filed as an Exhibit to
the Company's Form 10-Q for fiscal
quarter ended September 30, 1993
(File No. 0-10180) and incorporated
herein by reference.
4(a) Indenture dated as of Previously filed as Exhibit 4.1 to
March 1, 1987 between On-Line Software International,
On-Line Software Inc.'s Registration Statement on
International, Inc. and Form S-2 (No. 33-12488) and
Manufacturers Hanover incorporated herein by reference.
Trust Company with respect
to the 6 1/4% Convertible
Subordinated Debentures due
2002 of the Company's
wholly owned subsidiary.
4(b) Supplemental Indenture Previously filed as Exhibit A to the
dated as of September 25, Company's Annual Report on Form 10-K
1991 between On-Line for the fiscal year ended March 31,
Software International,Inc. 1992 (File No. 0-10180) and
and Manufacturers Hanover incorporated herein by reference.
Trust Company with respect
to the 6 1/4% Convertible
Subordinated Debentures due
2002 of the Company's wholly
owned subsidiary.
14
REGULATION S-K
EXHIBIT NUMBER
--------------
4(c) Certificate of Designation Previously filed as Exhibit 3 to the
of Series One Junior Company's Current Report on Form 8-K
Participating Preferred dated June 18, 1991 and
Stock, Class A of the incorporated herein by reference.
Company.
4(d) Rights Agreement dated as Previously filed as Exhibit 4 to the
of June 18, 1991 between Company's Current Report on Form 8-K
the Company and dated June 18, 1991 and
Manufacturers Hanover incorporated herein by reference.
Trust Company.
4(e) Amendment No. 1 dated May Previously filed as Exhibit C to the
17, 1995 to Rights Company's Annual Report on Form 10-K
Agreement dated as of June for the fiscal year ended March 31,
18, 1991. 1995 (File No. 0-10180) and
incorporated herein by reference.
10(a) 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.
10(b) 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.
10(c) 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.
10(d) 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.
10(e) 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.
10(f) Amendment No. 3 to the Filed herewith.
1991 Stock Incentive Plan
date August 9, 1995.
10(g) 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.
10(h) 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.
15
REGULATION S-K
EXHIBIT NUMBER
--------------
10(i) 1994 Annual Incentive Previously filed as Exhibit A to the
Compensation Plan. Company's definitive Proxy Statement
dated July 8, 1994 and incorporated
herein by reference.
10(j) Amendment No. 1 to the Previously filed as Exhibit A to the
1994 Annual Incentive Company's definitive Proxy Statement
Compensation Plan dated dated July 7, 1995 and incorporated
August 9, 1995. herein by reference.
10(k) 1995 Key Employee Stock Previously filed as Exhibit A to the
Ownership Plan. Company's definitive Proxy Statement
dated July 7, 1995 and incorporated
herein by reference.
10(l) Credit Agreement dated Previously filed as an Exhibit 1
June 24, 1995 among the to the Company's Form 10-Q for the
Company, various banks fiscal quarter ended June 30, 1995
and financial institutions (File No. 0-10180) and incorporated
and Credit Suisse, as herein by reference.
agent.
10(m) Note Purchase Agreement Filed herewith.
dated as of April 1, 1996.
21 Subsidiaries of the Filed herewith.
Registrant.
23 Consent of Ernst & Young Filed herewith.
LLP.
(b) Reports on Form 8-K.
There were no current reports on Form 8-K filed during the fiscal quarter
ended March 31, 1996.
(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. 33-64377 (filed
November 17, 1995), 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 24, 1996
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/ WILLEM F. P. de VOGEL Director
---------------------------
Willem F. P. de Vogel
/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
Dated: May 24, 1996
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, 1996
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 Operations--Years Ended
March 31, 1996, 1995 and 1994 19
Consolidated Balance Sheets-March 31, 1996 and 1995 20
Consolidated Statements of Stockholders' Equity--
Years Ended March 31, 1996, 1995 and 1994 22
Consolidated Statements of Cash Flows--Years
Ended March 31, 1996, 1995 and 1994 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 34
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, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March
31, 1996. 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, 1996
and 1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended March 31, 1996, 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 24, 1996
19
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands, except per share amounts)
Product revenue and other related income $2,775,261 $1,903,349 $1,455,675
Maintenance fees 729,368 719,643 692,795
--------- --------- ---------
TOTAL REVENUE 3,504,629 2,622,992 2,148,470
Costs and Expenses:
Selling, marketing and administrative 1,367,301 1,051,096 1,000,682
Product development and enhancements 285,404 232,785 211,273
Commissions and royalties 174,116 127,436 101,410
Depreciation and amortization 404,326 257,699 206,317
Interest expense, net 70,813 8,057 1,816
Purchased research and development 1,303,280 249,300
--------- --------- ---------
TOTAL COSTS AND EXPENSES 3,605,240 1,926,373 1,521,498
(Loss) income before income taxes (100,611) 696,619 626,972
Income taxes (benefit) (44,257) 264,715 225,710
--------- --------- ---------
NET (LOSS) INCOME $ (56,354) $ 431,904 $ 401,262
========= ========= =========
NET (LOSS) INCOME PER COMMON SHARE $ (.23) $ 1.71 $ 1.56
========= ========= =========
Weighted average common shares
used in computation 241,512 252,057* 257,142*
*Share amounts adjusted for three-for-two stock split effective August 21,
1995.
See Notes to Consolidated Financial Statements.
20
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS 1996 1995
---- ----
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 96,539 $ 116,579
Marketable securities 104,674 184,643
Trade and installment accounts receivable 1,181,948 787,684
Other current assets 64,559 58,660
--------- ---------
TOTAL CURRENT ASSETS 1,447,720 1,147,566
INSTALLMENT ACCOUNTS RECEIVABLE,
due after one year 1,700,766 1,045,798
PROPERTY AND EQUIPMENT
Land and buildings 316,776 258,441
Equipment, furniture and improvements 403,636 341,804
--------- ---------
720,412 600,245
Allowance for depreciation and amortization 300,072 256,292
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 420,340 343,953
PURCHASED SOFTWARE PRODUCTS, net of accumulated
amortization of $786,472 and $487,164 580,173 342,999
EXCESS OF COST OVER NET ASSETS ACQUIRED, net of
accumulated amortization of $83,830
and $48,603 785,830 300,268
OTHER ASSETS 81,137 88,844
--------- ---------
TOTAL ASSETS $5,015,966 $3,269,428
========= =========
See Notes to Consolidated Financial Statements.
21
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---- ----
(Dollars in thousands)
CURRENT LIABILITIES
Loans payable and current portion
of long-term debt $ 499,353 $ 243,275
Accounts payable 101,429 86,475
Salaries, wages and commissions 119,046 89,035
Accrued expenses and other liabilities 340,397 157,410
Taxes, other than income taxes 65,457 51,172
Federal, state and foreign income taxes
payable 228,700 113,972
Deferred income taxes 147,095 106,554
--------- ---------
TOTAL CURRENT LIABILITIES 1,501,477 847,893
LONG-TERM DEBT, net of current portion 944,506 50,489
DEFERRED INCOME TAXES 721,445 460,838
DEFERRED MAINTENANCE REVENUE 366,876 332,083
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, 500,000,000
shares authorized, 280,411,290* shares
issued 28,041 28,041
Additional paid-in capital 516,651 514,251
Retained earnings 1,426,306 1,515,677
Equity adjustment 41,397 57,313
Treasury stock, at cost--38,203,519
shares for 1996 and 40,205,113* shares
for 1995 ( 530,733) (537,157)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,481,662 1,578,125
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,015,966 $3,269,428
========= =========
*Share amounts adjusted for three-for-two stock split effective
August 21,1995.
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(2) Capital(2) Earnings Adjustment Stock Equity
-------- ---------- -------- ---------- -------- ------------
(Dollars in
thousands)
Balance at March 31, 1993 $ 28,031 $ 505,727 $ 737,915 $ (8,564) $ (208,579) $ 1,054,530
Net income 401,262 401,262
Dividends declared
($.093 per share)(2) (23,202) (23,202)
Exercise of Common Stock
options and other 10 (352) 13,843 13,501
401(k) discretionary contribution 4,369 5,025 9,394
Translation adjustment
in 1994 (8,293) (8,293)
Net change attributable to
unrealized gain on
marketable securities 640 640
Purchases of treasury
stock (204,699) (204,699)
-------- -------- --------- --------- --------- ---------
Balance at March 31, 1994 28,041 509,744 1,115,975 (16,217) (394,410) 1,243,133
Net income 431,904 431,904
Dividends declared
($.133 per share)(2) (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 28,041 514,251 1,515,677 57,313 (537,157) 1,578,125
Net loss (56,354) (56,354)
Dividends declared
($.137 per share)(2) (33,017) (33,017)
Exercise of Common Stock
options and other (7,450) 6,765 32,218 31,533
401(k) discretionary contribution 9,850 5,116 14,966
Translation adjustment
in 1996 (25,001) (25,001)
Net change attributable to
unrealized gain on marketable
securities 2,320 2,320
Purchases of treasury
stock ( 30,910) (30,910)
-------- -------- --------- --------- --------- ---------
Balance at March 31, 1996 $28,041 $516,651 $1,426,306 $41,397(1) $ (530,733) $1,481,662
======== ======== ========= ========= ========= =========
(1) Represents foreign currency translation adjustment of $34,172,000,
unrealized gain on marketable securities of $460,000 and $6,765,000 of
restricted stock.
(2) Share amount adjusted for three-for-two stock split effective August 21,
1995.
See Notes to Consolidated Financial Statements.
23
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended March 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands)
OPERATING ACTIVITIES:
Net (loss) income $ (56,354) $ 431,904 $ 401,262
Adjustments to reconcile net (loss)
income to net cash provided
by operating activities:
Depreciation and amortization 404,326 257,699 206,317
Provision for deferred income
taxes (benefit) (290,070) 41,669 60,469
Charge for purchased research and
development 1,303,280 249,300
Increase in noncurrent installment
accounts receivable, net (590,407) (357,103) (226,785)
Increase (decrease) in deferred
maintenance revenue 36,990 (5,352) (8,064)
Foreign currency transaction (gain)
loss--before taxes (1,799) 1,131 10,421
Changes in other operating assets
and liabilities, net of effects of
acquisitions:
Increase in trade and installment
receivables (262,292) (59,250) (30,357)
Other changes in operating assets
and liabilities 75,684 (70,628) 66,950
--------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 619,358 489,370 480,213
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles (1,787,308) (430,675) (3,923)
Purchases of property and equipment (21,296) (35,370) (28,637)
Purchases of marketable securities (54,067) (145,796) (169,476)
Sales of marketable securities 136,356 193,724 96,405
Increase in capitalized development costs
and other (15,768) (15,552) (15,471)
--------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,742,083) (433,669) (121,102)
FINANCING ACTIVITIES:
Dividends (33,017) (32,202) (23,202)
Purchases of treasury stock (30,910) (173,283) (204,699)
Proceeds from borrowings 1,720,000 522,000 181,676
Repayments of borrowings (569,905) (417,404) (264,225)
Exercise of common stock options and other 21,110 15,891 11,611
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES --------- -------- --------
1,107,278 (84,998) (298,839)
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS BEFORE EFFECT OF EXCHANGE
RATE CHANGES ON CASH (15,447) (29,297) 60,272
Effect of exchange rate changes on cash (4,593) 12,749 (6,628)
--------- -------- --------
(DECREASE)INCREASE IN CASH AND
CASH EQUIVALENTS (20,040) (16,548) 53,644
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR 116,579 133,127 79,483
--------- -------- --------
CASH AND CASH EQUIVALENTS--END OF YEAR $ 96,539 $ 116,579 $ 133,127
========= ========= ========
See Notes to Consolidated Financial Statements.
24
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Significant Accounting Policies
Description of Business: Computer Associates Intenational, Inc. and
subsidiaries (the "Company") designs, develops, markets and supports a wide
range of integrated computer software products.
Principles of Consolidation: 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.
Reclassifications: Certain amounts in the 1995 Consolidated Balance Sheet and
1995 and 1994 Consolidated Statements of Cash Flows have been reclassified
to conform with the 1996 presentation.
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,
1996, 1995 and 1994 were $215,338,000, $160,986,000 and $121,200,000,
respectively.
Marketable Securities: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
The Company has evaluated its investment policies consistent with Financial
Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("FASB 115"), 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 based on the product's useful economic life, 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, 1996 and 1995 were $52,991,000 and $55,713,000, respectively.
Amortization of capitalized development costs was $18,509,000, $21,986,000
and $14,502,000 for the fiscal years ended March 31, 1996, 1995 and 1994,
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 1996, 1995 and 1994 is not materially different from net
income per share. The number of common shares used for computing net loss per
common share in fiscal 1996 does not include any common share equivalents
because the effect would have been antidilutive. Share and per share amounts
have been adjusted to reflect a three-for-two stock split effective
August 21, 1995.
25
COMPUTER ASSOCIATES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note 1--Significant Accounting Policies (continued)
Statement of Cash Flows: Interest payments for the years ended March 31,
1996, 1995 and 1994 were $75,689,000, $22,589,000 and $13,190,000,
respectively. Income taxes paid for these fiscal years were
$143,607,000, $227,184,000 and $139,260,000, 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 (loss)
includes exchange gains (losses) of approximately $1,124,000 in 1996,
($701,000) in 1995 and ($6,669,000) in 1994.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Stock Plans: The Company accounts for its stock-based compensation
arrangements under the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued To Employees" ("APB 25"). In 1995, Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123") was issued whereby companies may elect to account
for stock-based compensation using a fair-value-based method or continue
measuring compensation expense using the intrinsic value method prescribed
in APB 25. FASB 123 requires that companies electing to continue to use the
intrinsic value method make pro forma disclosure of net income and net
income per share as if the fair-value-based method of accounting has been
applied. The Company will adopt FASB 123 during the year ended March 31,
1997. Since the Company anticipates continuing to account for stock-based
compensation using the intrinsic value method, FASB 123 will not impact its
operating results or financial position.
Note 2 -- Acquisitions
On August 1, 1995, the Company acquired 98% of the issued and outstanding
shares of common stock of Legent Corporation ("Legent"), and on November 6,
1995 merged Legent into one of its wholly owned subsidiaries. The
aggregate purchase price of approximately $1.8 billion was funded from
drawings under the Company's $2 billion credit agreement dated as of July 24,
1995. Legent was engaged in the design, development, marketing, and support
of a broad range of computer software products for the management of
information systems used to manage mainframe, midrange, server, workstation
and PC systems deployed throughout a business enterprise. The acquisition was
accounted for as a purchase. The results of Legent's operations have been
combined with those of the Company since the date of acquisition.
The Company recorded an $808 million after-tax charge against earnings for
the write-off of purchased Legent research and development technology that
had not reached the working model stage and has no alternative future use.
Had this charge not been taken, net income for the fiscal year ended March
31, 1996 would have been $752 million, or $2.98 per share.
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 providing 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, net income for the fiscal year ended March 31, 1995 would have
been $586 million, or $2.33 per share.
26
COMPUTER ASSOCIATES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note 2--Acquisitions (continued)
The following table reflects pro forma combined results of operations of the
Company, ASK and Legent on the basis that the acquisition of ASK had taken
place at the beginning of fiscal year 1995 and the aquisition of Legent had
taken place at the beginning of the fiscal year for each of the periods
presented. The after-tax charges in fiscal years 1996 and 1995 of $808
million and $154 million, respectively, were recorded at the beginning of the
fiscal year for each of the periods presented:
Year Ended March 31,
1996 1995
---- ----
(Amounts in thousands, except per share amounts)
Revenue $ 3,623,148 $ 3,064,462
Net loss (259,647) (571,005)
Net loss per Common Share $ (1.08) $ (2.36)
Shares used in computation 241,512 241,440*
The following table reflects pro forma combined results of operations of the
Company, ASK and Legent on the basis that the acquisition of ASK had taken
place at the beginning of fiscal year 1995 and the aquisition of Legent had
taken place at the beginning of the fiscal year for each of the periods
presented and excludes the effect of the after-tax charges of $154 million
for ASK and $808 million for Legent:
Year Ended March 31,
1996 1995
---- ----
(Amounts in thousands, except per share amounts)
Revenue $3,623,148 $3,064,462
Net income 702,953 391,595
Net income per Common Share $ 2.79 $ 1.55
Shares used in computation 252,247 252,057*
In management's opinion, the pro forma combined results of operations are not
indicative of the actual results that would have occurred had the
acquisitions been consummated at the beginning of fiscal year 1995 or of
future operations of the combined companies under the ownership and operation
of the Company.
*Adjusted for three-for-two stock split effective August 21, 1995.
27
COMPUTER ASSOCIATES INTERNATIONAL, INC.
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, 1996:
Debt securities $ 104,214 $489 $ 29 $104,674
======== ===== ====== =======
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
======== ===== ====== =======
For years ended March 31, 1996 and 1995, no debt securities were deemed to
be Cash and Cash Equivalents.
The gross realized gains on sales of available-for-sale securities totaled
$823,000, $14,000 and $67,00 for the periods ended March 31, 1996, 1995 and
1994, respectively. The gross realized losses totaled $248,000, $1,601,000
and $27,000 for the periods ended March 31, 1996, 1995 and 1994,
respectively. The net adjustment for unrealized holding gains and losses
included in stockholders' equity was a net gain of $460,000 at March 31, 1996
and a net loss of $1,860,000 at March 31, 1995.
The amortized cost and estimated fair value of debt securities at March 31,
1996, 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, 1996
Estimated
Fair
Cost Value
Available-for-Sale: (Dollars in thousands)
Due in one year or less $31,021 $31,129
Due one through three years 73,193 73,545
------- -------
$104,214 $104,674
======= =======
28
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, 1996:
Revenue:
To unaffiliated customers $1,678,075 $1,826,554 $3,504,629
Between geographic areas (b) 403,014 $(403,014)
--------- --------- --------- ---------
Total Revenue 2,081,089 1,826,554 (403,014) 3,504,629
Net (loss) income (281,087) 224,733 (56,354)
Identifiable assets 3,708,855 1,897,360 (590,249) 5,015,966
--------- --------- --------- ---------
Total liabilities 2,767,171 1,357,382 (590,249) 3,534,304
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
(a) The Company operates wholly owned subsidiaries in 37 foreign countries, including Canada, Middle East,
Europe(19), South America (6) and the Pacific Rim (10).
(b) Represents royalties from foreign subsidiaries generally determined as a percentage of certain amounts
invoiced to customers.
For the years ended March 31, 1996, 1995 and 1994, $38,506,000, $43,467,000 and $42,578,000, respectively,
of export sales to unaffiliated customers are included in United States revenue.
29
COMPUTER ASSOCIATES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note 5 -- Trade and Installment Accounts Receivable
Trade and installment accounts receivable consist of the following:
March 31,
1996 1995
---- ----
(Dollars in thousands)
Current receivables $1,809,053 $1,285,894
Less: Allowance for uncollectible amounts (159,941) (160,531)
Unamortized discount and maintenance fees (467,164) (337,679)
--------- ---------
$1,181,948 $ 787,684
========= =========
Non-current receivables $2,705,331 $1,666,938
Less: Allowance for uncollectible amounts (22,050) (22,050)
Unamortized discount and maintenance fees (982,515) (599,090)
--------- ---------
$1,700,766 $1,045,798
========= =========
The provisions for uncollectible amounts for the years ended March 31, 1996,
1995 and 1994 were $70,912,000, $88,549,000 and $90,068,000, respectively,
and are included in selling, marketing and administrative expenses.
Note 6--Debt
In fiscal year 1996, the Company negotiated a $2 billion unsecured 5-year
reducing revolving credit facility with a group of banks, primarily to
finance the purchase of Legent. The credit facility provides for reducing
annual commitments of $250 million on each anniversary, maintenance of
certain financial ratios and restrictions on the amount of cash dividends
that may be declared. Interest and commitment fees under the facility are
generally at the prevailing London interbank rate ("LIBOR") plus a spread
dependent on the Company's achievement of certain ratios. At March 31, 1996,
the Company was paying interest at 6%. The amount outstanding under this
credit facility at March 31, 1996 was $1,390 million of which $495 million
is characterized as current based on the Company's anticipated repayments for
the twelve months ended March 31, 1997. The balance of $895 million has been
classified as long-term debt.
In fiscal year 1995, the Company had a $500 million unsecured credit facility
with a group of banks that was renewable annually. This facility has been
superseded by the $2 billion facility above. At March 31, 1995, $240
million was outstanding under this facility.
Unsecured and uncommitted multicurrency credit facilities of $23 million are
also available to meet any short-term working capital requirements and can
be drawn upon, up to a predefined limit, by most subsidiaries. Under these
multicurrency facilities, approximately $3 million was drawn at March 31,
1996. No amounts were drawn at March 31, 1995.
The Company also has various other debt obligations outstanding at March 31,
1996 and 1995. These fixed rate debt obligations carry annual interest rates
ranging from 6% to 7 1/2%.
30
COMPUTER ASSOCIATES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note 6--Debt (continued)
During April 1996, the Company completed the private placement of $320
million of unsecured senior debt due 2003. The debt has a fixed rate of
interest of 6.77%. Proceeds from this private placement were used to repay
outstanding amounts under the $2 billion credit facility. The private
placement enabled the Company to extend the maturity of its debt, commit to
a fixed rate of interest and broaden the Company's sources of liquidity.
The Company conducts an ongoing review of its debt balances as 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 fair market
value of long-term debt approximates its carrying value.
The maturities of long-term debt outstanding for the five fiscal years noted
after consideration of the April 1996 private placement discussed above are
as follows: 1997--$499,353,000; 1998--$500,105,000; 1999--$84,431,000;
2000--$69,045,000; and 2001--$69,084,000.
Interest expense for the years ended March 31, 1996, 1995 and 1994 was
$80,593,000, $23,592,000 and $13,145,000, respectively, and is netted with
interest income.
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, 1996,
1995 and 1994 was $165,493,000, $108,406,000 and $89,829,000, respectively.
Future minimum lease payments are: 1997--$99,263,000; 1998--$72,712,000;
1999--$48,390,000; 2000--$39,463,000; 2001--$32,488,000; and thereafter--
$88,071,000.
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of marketable securities and accounts
receivable. The Company's marketable securities consist primarily of high
quality debt securities with limited exposure to any single instrument. The
Company's accounts receivable balances have limited exposure to concentration
of credit risk due to the diverse client base and geographic areas covered
by operations.
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 (loss) before income taxes attributable to domestic and
foreign operations are as follows:
Year Ended March 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Domestic $(464,066) $429,439 $453,647
Foreign 363,455 267,180 173,325
--------- ------- -------
$(100,611) $696,619 $626,972
========= ======= =======
31
COMPUTER ASSOCIATES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note 8--Income Taxes (continued)
The provision for income taxes (benefit) consists of the following:
Year Ended March 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Current:
Federal $160,145 $166,402 $123,897
State 29,832 23,204 16,523
Foreign 55,836 33,440 24,821
------- ------- -------
245,813 223,046 165,241
======= ======= =======
Deferred:
Federal (337,201) (46,810) 14,049
State (35,755) 9,990 5,917
Foreign 82,886 78,489 40,503
------- ------- -------
(290,070) 41,669 60,469
======= ======= =======
Total:
Federal (177,056) 119,592 137,946
State (5,923) 33,194 22,440
Foreign 138,722 111,929 65,324
------- ------- -------
$(44,257) $264,715 $225,710
======= ======= =======
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 88%
in 1996 and 85% in 1995 of total deferred income taxes), purchase accounting
adjustments (approximately 16% in 1996 and 15% in 1995), net capitalized
development costs (approximately 2% in 1996 and 3% in 1995) and receivable
reserves (a deferred tax asset of approximately 4% in 1996 and 6% in 1995)
is shown on the Consolidated Balance Sheets under the captions "Deferred
Income Taxes."
The provision for income taxes (benefit) is reconciled to the tax provision
computed at the federal statutory rate as follows:
Year Ended March 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Statutory rate $(35,214) $243,817 $219,440
State taxes, net of federal tax effect (3,850) 21,576 14,586
Other, net (5,193) (678) (8,316)
-------- -------- -------
$(44,257) $264,715 $225,710
======== ======== =======
32
COMPUTER ASSOCIATES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note 9--Stock Plans
The Company has a 1981 Incentive Stock Option Plan (the "1981 Plan") pursuant
to which options to purchase up to 12,000,000 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 894,518 of the 1,209,286
options which are outstanding under the 1981 Plan were exercisable at March
31, 1996 at $2.92-$9.21 per share.
The Company has a 1987 Non-Statutory Stock Option Plan (the "1987 Plan")
pursuant to which options to purchase up to 7,500,000 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 and Compensation Committee. As of March 31, 1996, 13,500 shares of the
Company's Common Stock were available for future grants. 4,779,750 of the
5,847,375 options which are outstanding under the 1987 Plan were exercisable
as of that date. These options are exercisable at $5.00 - $9.59 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 30,000,000 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, 1996, no stock appreciation rights
have been granted under this plan and 13,362,965 options have been granted.
868,169 of the 11,213,928 options which are outstanding under the 1991 Plan
were exercisable at that date. These options are exercisable at $7.50- $43.50
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 150,000
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,
1996, 42,000 options have been granted under this plan. 21,000 of the 36,000
options which are outstanding under the 1993 Plan were exercisable as of that
date. These options are exercisable at $17.08 - $49.50 per share.
The following table summarizes the activity under these plans:
Option Shares Under
Prices Option
-------- ------------
Outstanding at March 31, 1993 $ .44 - $ 9.59 13,964,968
Granted $14.58 - $17.08 3,401,730
Exercised $ 1.38 - $ 9.59 (1,580,826)
Terminated $ .44 - $ 9.59 (259,411)
Outstanding at March 31, 1994 $ 1.38 - $17.08 15,526,461
Granted $20.42 - $35.42 4,065,000
Exercised $ 1.38 - $17.08 (1,876,440)
Terminated $ 2.14 - $17.08 (458,617)
Outstanding at March 31, 1995 $ 1.88 - $35.42 17,256,404
Granted $43.50 - $49.50 4,140,000
Exercised $ 1.88 - $35.42 (2,265,198)
Terminated $ 2.92 - $35.42 (824,617)
Outstanding at March 31, 1996 $ 2.92 - $49.50 18,306,589
33
COMPUTER ASSOCIATES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Note 9--Stock Plans (Continued)
Under the 1995 Key Employee Stock Ownership Plan (the "1995 Plan") the Stock
Option and Compensation Committee of the Board of Directors (the "Committee")
is authorized to grant, subject to the attainment of certain common stock
price objectives, up to 9,000,000 shares of the Company's restricted common
stock to three key executives. The Committee has initially reserved 3,000,000
shares of common stock (the "Initial Grant") and may grant up to an
additional 6,000,000 shares (the "Additional Grants") based on the price per
share of the common stock achieving target levels. At March 31, 1996, an
additional 2,400,000 shares may be reserved due to the achievement of certain
target prices. The Initial Grant and Additional Grants are non-transferable,
are subject to risk of forfeiture through March 31, 2000 and are further
subject to significant limitations on transfer during the seven years
following vesting. In January 1996, 600,000 shares of Common Stock reserved
under the Initial Grant vested, subject to the continued employment of the
key executives, and accordingly, the Company began accruing compensation
expense over the employment period ending March 31, 2000.
All references to the number of shares under option and option prices have
been adjusted to reflect a three-for-two stock split effective August 21,
1995.
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, 1996, 1995 and 1994 were $4,543,000, $3,873,000 and
$3,738,000, 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, 1996, 1995 and 1994 were $16,529,000,
$16,107,000 and $13,953,000, 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.
34
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, 1996 $182,581 $70,912 $4,832 $76,334 $181,991
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
(a) Reserves of acquired companies.
(b) Write-offs of amounts against allowance provided.
35
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
10(f) Amendment No. 3 to the 1991 Exhibit C
Stock 1991 Incentive Plan dated
August 9, 1995.
10(m) Note Purchase Agreement dated Exhibit D
of April 1, 1996.