<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): JULY 21, 1998
STERLING COMMERCE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-14196 75-2623341
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
300 CRESCENT COURT, SUITE 1200, DALLAS, TEXAS 75201
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 981-1000
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 21, 1998, XcelleNet, Inc. ("XcelleNet") merged (the "Merger") with
and into Sterling Commerce (Southern), Inc. ("Merger Sub"), a wholly owned
subsidiary of Sterling Commerce, Inc. ("Sterling Commerce"), pursuant to an
Agreement and Plan of Merger, dated as of April 16, 1998 (the "Merger
Agreement"), among Sterling Commerce, Merger Sub and XcelleNet. At the
effective time of the Merger (the "Effective Time") each share of common stock,
par value $0.01 per share, of XcelleNet ("XcelleNet Stock"), issued and
outstanding immediately prior to the Effective Time, was converted into the
right to receive (i) a cash payment in an amount equal to $8.80 and (ii) 0.2885
of a fully paid and nonassessable share of common stock, par value $0.01 per
share, of Sterling Commerce ("Commerce Stock"). The total consideration paid by
Sterling Commerce in connection with the Merger was approximately $225 million,
consisting of approximately $74 million in cash and approximately 2.4 million
shares of Commerce Stock. The funds for the cash portion of the consideration,
and payment of fees and expenses, related to the Merger were derived from
Sterling Commerce's existing working capital.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
-----------------------------------------
Report of Independent Public Accountants dated January 22, 1998/*/
Audited Financial Statements of XcelleNet and its subsidiaries:
Consolidated Balance Sheets - Years Ended December 31, 1996 and
1997/**/
Consolidated Statements of Operations - Years Ended December 31,
1995, 1996 and 1997/**/
Consolidated Statements of Cash Flows - Years Ended December 31,
1995, 1996 and 1997/**/
Notes to Consolidated Financial Statements/**/
Unaudited Financial Statements of XcelleNet and its subsidiaries:
Consolidated Statements of Operations - Three Months Ended March
31, 1997 and March 31, 1998/***/
Consolidated Condensed Balance Sheets - Three Months Ended
December 31, 1997 and March 31, 1998/***/
Consolidated Statements of Cash Flows - Three Months Ended March
31, 1997 and March 31, 1998/***/
Notes to Consolidated Interim Financial Statements/***/
________________
/*/ The Report of Independent Public Accountants of Arthur Andersen LLP is
incorporated herein by reference to page 21of the XcelleNet's Annual
Report on Form 10-K for the year ended December 31, 1997 (Commission File
No. 0-23560).
/**/ The Audited Financial Statements of XcelleNet, including the Notes
thereto, are incorporated herein by reference to pages 22 through 32 of
XcelleNet's Annual Report on Form 10-K for the year ended December 31,
1997 (Commission File No. 0-23560).
/***/ The Unaudited Financial Statements of XcelleNet including the Notes
thereto are incorporated herein by reference to Item 1 of XcelleNet's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 0-23560).
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<PAGE>
(b) Pro Forma Financial Information
-------------------------------
The unaudited pro forma combined condensed financial statements of Sterling
Commerce give effect to the consummation of the Merger, as if the Merger had
been consummated: (i) on March 31, 1998, in the case of the Unaudited Pro Forma
Combined Condensed Balance Sheet and (ii) on October 1, 1996, in the case of the
Unaudited Pro Forma Combined Condensed Statements of Operations for the fiscal
year ended September 30, 1997 and the six months ended March 31, 1998.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
what Sterling Commerce's actual financial position or results of operations
would have been had the Merger been consummated on such dates, nor is it
necessarily indicative of future financial position or results of operations.
Additionally, it does not give effect to (i) any transactions other than the
Merger and those described in the accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements of Sterling Commerce; (ii) either
Sterling Commerce's or XcelleNet's results of operations since March 31, 1998;
or (iii) any one-time charges that may result from the restructuring of Sterling
Commerce's existing business due to the Merger. Sterling Commerce's Management
is still in the process of evaluating and planning for the restructuring
directly related to the Merger. In addition, Sterling Commerce intends to
restructure certain other parts of its existing businesses and expects to incur
charges related thereto, which costs are not included in the pro forma combined
condensed financial information. All of these restructuring costs are expected
to be incurred in the quarter ending September 30, 1998, when the Merger is
expected to close and decisions related to the restructurings are expected to be
finalized.
Although Sterling Commerce's management is still in the process of
evaluating the nature, scope and extent of the restructurings, it currently
estimates that the related charges will be in the range of $65 million to $80
million in the aggregate. The pro forma combined condensed financial
information does not purport to be indicative of Sterling Commerce's financial
position or results of operations as of the date hereof or for any period ended
on the date hereof, or as of or for any other future date or period.
The following unaudited pro forma combined condensed financial statements
are based upon the historical financial statements of Sterling Commerce and
XcelleNet and should be read in conjunction with such historical financial
statements. Sterling Commerce has retained independent valuation professionals
to determine the fair value of the assets and liabilities of XcelleNet
(including intangible assets) as of the Effective Time. Although such
determination of fair value is not presently expected to result in values that
are materially greater or less than the values assumed in the preparation of the
following unaudited pro forma combined condensed financial statements, there can
be no assurance with respect thereto.
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<PAGE>
STERLING COMMERCE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
STERLING PRO FORMA
COMMERCE XCELLENET ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE 2) COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................ $269,122 $16,678 $ (74,151) (a) $211,649
Marketable securities................................ 273,061 16,786 289,847
Accounts and notes receivable, net................... 116,280 12,533 128,813
Income tax receivable................................ 9,731 227 9,958
Prepaid expenses and other current assets............ 20,060 1,959 22,019
-------- ------- --------- --------
Total current assets............................ 688,254 48,183 (74,151) 662,286
Property and equipment, net........................... 74,186 4,553 78,739
Computer software, net................................ 47,735 1,694 18,488 (c) 68,917
Excess cost over net assets acquired, net............. 16,190 2,319 25,531 (c) 44,040
Noncurrent deferred income taxes...................... 895 (895) (c)
Other assets.......................................... 15,281 337 15,618
Investment in XcelleNet............................... 224,716 (a)
(48,366) (b)
(176,350) (c)
-------- ------- --------- --------
Total Assets.................................... $842,646 $57,981 $ (31,027) $869,600
======== ======= ========= ========
Current Liabilities:
Accounts payable and accrued liabilities............. $ 52,308 $ 5,269 $ 8,180 (a) $ 65,757
Income taxes payable................................. 6,893 6,893
Deferred revenue.................................. 61,141 3,252 64,393
-------- ------- --------- ---------
Total current liabilities....................... 120,342 8,521 8,180 137,043
Deferred income taxes................................ 16,733 1,094 6,774 (c) 23,507
Other noncurrent liabilities......................... 13,975 15,069
Stockholders' equity:
Common stock......................................... 910 84 (84) (b) 934
24 (a)
Additional paid-in capital........................... 546,342 34,644 (34,644) (b) 688,703
142,361 (a)
Retained earnings.................................... 144,344 13,638 (13,638) (b) 4,344
(140,000) (c)
-------- ------- --------- ---------
Total stockholders' equity...................... 691,596 48,366 (39,207) 693,981
-------- ------- --------- ---------
Total liabilities and stockholders' equity.... $842,646 $57,981 $ (31,027) $ 869,600
======== ======= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE>
STERLING COMMERCE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
XCELLENET
-----------------------------------------------------------------
STERLING
COMMERCE DEDUCT ADD HISTORICAL
HISTORICAL HISTORICAL THREE MONTHS PRO FORMA
YEAR HISTORICAL YEAR THREE MONTHS ENDED PRO FORMA YEAR ADJUSTMENTS
ENDED 9/30/97 ENDED 12/31/97 ENDED 12/31/97 12/31/96 ENDED 9/30/97 (NOTE 3)
------------- --------------- ------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Products.................... $119,958 $ 34,320 $ 10,540 $ 10,258 $34,038
Product support............. 71,316 14,942 4,229 3,117 13,830
Services.................... 142,565 4,317 1,238 340 3,419
Royalties................... 16,758
-------- --------- -------- -------- --------- ---------
350,597 53,579 16,007 13,715 51,287
Costs and expenses:
Cost of sales:
Products and product
support.................. 35,863 6,027 1,590 1,299 5,736 $ 6,821 (a)
Services.................. 34,752 4,147 1,178 580 3,549
-------- --------- -------- -------- ------- ---------
70,615 10,174 2,768 1,879 9,285 6,821
Product development and
enhancement................. 24,853 8,840 2,177 2,049 8,712
Selling, general and
administrative.............. 134,849 29,453 7,996 8,235 29,692
Purchased research and
development................. 31,879
Reorganization costs......... 15,810 1,025 3,112 4,137
-------- --------- -------- -------- ------- --------
278,006 49,492 12,941 15,275 51,826 6,821
-------- --------- -------- -------- ------- --------
Income (loss) before other
income and income taxes..... 72,591 4,087 3,066 (1,560) (539) (6,821)
Other income................. 16,693 877 288 177 766
Income (loss) before income -------- --------- -------- -------- ------- --------
taxes....................... 89,284 4,964 3,354 (1,383) 227 (6,821)
Provisions for (benefit of)
income taxes................ 33,840 1,819 1,174 (529) 116 (1,534) (b)
-------- --------- -------- -------- ------- --------
Net income (loss)....... $ 55,444 $ 3,145 $ 2,180 $ (854) $ 111 $ (5,287)
======== ========= ======== ======== ======= ========
Net income per common share:
Basic....................... $0.66
========
Diluted..................... $0.64
========
Shares used to compute net
income per common share:
Basic....................... 83,561
========
Diluted..................... 83,983
========
<CAPTION>
PRO FORMA
COMBINED YEAR
ENDED 9/30/97
-------------
<S> <C>
Revenue:
Products.................... $153,996
Product support............. 85,146
Services.................... 145,984
Royalties................... 16,758
--------
401,884
Costs and expenses:
Cost of sales:
Products and product
support.................. 48,420
Services.................. 38,301
--------
86,721
Product development and
enhancement................. 33,565
Selling, general and
administrative.............. 164,541
Purchased research and
development................. 31,879
Reorganization costs......... 19,947
--------
336,653
--------
Income (loss) before other
income and income taxes..... 65,231
Other income................. 17,459
Income (loss) before income --------
taxes....................... 82,690
Provisions for (benefit of)
income taxes................ 32,422
--------
Net income (loss)....... $ 50,268
========
Net income per common share:
Basic....................... $ 0.58
========
Diluted..................... $ 0.56
========
Shares used to compute net
income per common share:
Basic....................... 85,992
========
Diluted..................... 89,007
========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE>
STERLING COMMERCE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
XCELLENET
----------------------------------------------------
STERLING ADD
COMMERCE HISTORICAL DEDUCT HISTORICAL PRO FORMA PRO FORMA
HISTORICAL YEAR HISTORICAL THREE MONTHS SIX MONTHS PRO FORMA COMBINED
SIX MONTHS ENDED NINE MONTHS ENDED ENDED ADJUSTMENTS SIX MONTHS
ENDED 3/31/98 12/31/97 ENDED 9/30/97 3/31/98 3/31/98 (NOTE 3) ENDED 3/31/98
------------- --------- ------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products................ $ 76,860 $ 34,320 $23,780 $ 8,175 $ 18,715 $ 95,575
Product support......... 45,762 14,942 10,713 4,492 8,721 54,483
Services................ 94,737 4,317 3,079 1,546 2,784 97,521
-------- --------- ------- -------- -------- -------- --------
217,359 53,579 37,572 14,213 30,220 247,579
Costs and expenses:
Cost of sales:
Products and product
support.............. 18,928 6,027 4,437 1,587 3,177 25,516
Services.............. 25,564 4,147 2,969 1,253 2,431 $ 3,411 (a) 27,995
-------- --------- ------- -------- -------- -------- --------
44,492 10,174 7,406 2,840 5,608 3,411 53,511
Product development and
enhancement.............. 14,040 8,840 6,663 2,206 4,383 18,423
Selling, general and
administrative........... 90,366 29,453 21,457 7,572 15,568 105,934
Reorganization costs...... 1,025 1,025
-------- --------- ------- -------- -------- -------- --------
148,898 49,492 36,551 12,618 25,559 3,411 177,868
-------- --------- ------- -------- -------- -------- --------
Income (loss) before other
income and income taxes.. 68,461 4,087 1,021 1,595 4,661 (3,411) 69,711
Other income.............. 11,919 877 589 328 616 12,535
-------- --------- ------- -------- -------- -------- --------
Income (loss) before income
taxes.................... 80,380 4,964 1,610 1,923 5,277 (3,411) 82,246
Provisions for (benefit of)
income taxes............. 29,202 1,819 645 663 1,837 (767) (b) 30,272
-------- --------- ------- -------- -------- -------- --------
Net income (loss)..... $ 51,178 $ 3,145 $ 965 $ 1,260 $ 3,440 $ (2,644) $ 51,974
======== ========= ======= ======== ======== ======== ========
Net income per common share:
Basic.................... $ 0.57 $ 0.56
======== ========
Diluted.................. $ 0.55 $ 0.54
======== ========
Shares used to compute net
income per common share:
Basic.................... 90,069 92,500
======== ========
Diluted.................. 93,786 96,810
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. GENERAL
The Merger will be accounted for as a purchase business combination by
Sterling Commerce. These unaudited pro forma combined condensed financial
statements reflect the payment of approximately $74.2 million in cash and the
issuance of approximately 2,431,000 shares of Common Stock in exchange for an
aggregate of approximately 8,426,000 shares of common stock, par value $0.01, of
XcelleNet ("XcelleNet Stock") (amount of XcelleNet Stock outstanding as of May
31, 1998). The pro forma adjustments assume a payment of $8.80 in cash per
share of XcelleNet Stock and the issuance of 0.2885 share of Common Stock (the
"Stock Factor") for each share of XcelleNet Stock as set forth in the following
table:
<TABLE>
<S> <C>
XcelleNet Stock outstanding as of May 31, 1998.................... 8,426,266
Stock Factor...................................................... 0.2885
---------
Number of shares of Common Stock exchanged........................ 2,430,978
</TABLE>
The actual amount of the cash payment and the actual number of shares of
Common Stock to be issued will be determined at the Effective Time of the Merger
based on the actual number of shares of XcelleNet Stock outstanding on that date
and a Stock Factor of 0.2885, subject to adjustment as provided in the Merger
Agreement.
The accompanying unaudited pro forma combined condensed financial statements
reflect an aggregate purchase price of approximately $225 million, consisting of
cash paid, Common Stock issued to XcelleNet shareholders, valued at $45.75 per
share, and costs of Sterling Commerce directly related to the Merger as follows
(in thousands):
<TABLE>
<S> <C>
Cash paid to XcelleNet shareholders........................................................ $ 74,151
Common Stock issued and XcelleNet options assumed to complete the Merger................... 142,385
Investment advisor, legal, accounting and other professional fees and expenses............. 5,660
Other costs related to the Merger.......................................................... 2,520
--------
$224,716
========
</TABLE>
For purposes of the accompanying unaudited pro forma combined condensed
balance sheet, the aggregate purchase price has been allocated to the net assets
acquired, with the remainder recorded as excess cost over net assets acquired on
the basis of preliminary estimates of fair values. These preliminary estimates
of fair value were determined by Sterling Commerce's management based primarily
on information furnished by management of XcelleNet. Sterling Commerce will
retain independent valuation professionals to assist in the determination of the
value to be assigned to the individual assets to be acquired, including
intangible assets and in-process research and development. While the pro forma
information has been presented based on the best information currently available
to Sterling Commerce's management, the final allocation of the purchase price
will be based on a complete evaluation of the assets and liabilities of
XcelleNet. Although the final valuation of the assets to be acquired is not
presently expected to result in values that are significantly different from
management's estimates as included in the unaudited pro forma combined condensed
balance sheet, there can be no assurance with respect thereto.
-8-
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2. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The accompanying unaudited pro forma combined condensed balance sheet assumes
the Merger was consummated on March 31, 1998 and reflects the following pro
forma adjustments:
a) To record the aggregate cost of the Merger as described in Note 1 above.
b) To eliminate XcelleNet's historical equity balances.
c) To record the allocation of the purchase price for the Merger to the
assets and liabilities acquired as follows (in thousands):
<TABLE>
<S> <C>
Working capital................................................................................... $ 39,662
Property and equipment............................................................................ 4,553
Software.......................................................................................... 20,182
Other assets...................................................................................... 337
Other liabilities................................................................................. (1,094)
Deferred income taxes............................................................................. (6,774)
Purchase in-process research and development to be charged to expense upon consummation
of the Merger.................................................................................... 140,000
Excess cost over net assets acquired.............................................................. 27,850
--------
$224,716
========
</TABLE>
3. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATION
The accompanying unaudited pro forma combined condensed statements of
operations have been prepared as if the Merger was consummated as of October 1,
1996 and reflect the following pro forma adjustments:
a) To record amortization of software acquired in the Merger computed using
the straight-line method over its estimated remaining economic life (five
years) and amortization of excess cost over net assets acquired over its
estimated remaining economic life (ten years).
b) To adjust the provision for income taxes to reflect the impact on the
results of operations of the Merger and related pro forma adjustments.
4. UNAUDITED PRO FORMA COMBINED EARNINGS PER COMMON SHARE DATA
The unaudited pro forma combined basic net income per common share is computed
by dividing pro forma combined net income by the weighted average number of
shares of Common Stock outstanding during the period plus 2,430,978, the number
of shares of Common Stock currently anticipated to be issued to complete the
Merger. The unaudited pro forma combined diluted net income per common share is
computed by dividing pro forma combined net income by the weighted average
number of shares of Common Stock outstanding during the period, as adjusted for
the effect of dilutive stock options, plus 3,024,388, the number of shares of
Common Stock currently anticipated to be issued, as adjusted for the effect of
dilutive stock options of XcelleNet assumed, to complete the Merger.
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(c) Exhibits:
--------
Exhibit
Number Exhibit
------ -------
2.1 Agreement and Plan of Merger, dated as of April 16,
1998, by and among Sterling Commerce, Merger Sub and
XcelleNet (included as Appendix A to the Proxy
Statement/Prospectus forming part of the Registration
Statement filed on Form S-4 (Commission File No. 333-
56475)
23.1 Consent of Arthur Andersen LLP
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
STERLING COMMERCE, INC.
By:/s/ Albert K. Hoover
--------------------
Albert K. Hoover
Senior Vice President, General Counsel
and Secretary
Dated: July 21, 1998
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INDEX TO EXHIBITS
-----------------
EXHIBIT
NUMBER EXHIBIT
------ -------
2.1 Agreement and Plan of Merger, dated as of April 16,
1998, by and among Sterling Commerce, Merger Sub and
XcelleNet (included as Appendix A to the Proxy
Statement/Prospectus forming part of the Registration
Statement filed on Form S-4 (Commission File No. 333-
56475)
23.1 Consent of Arthur Andersen LLP
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated January 22, 1998 included in XcelleNet, Inc.'s
Form 10-K for the year ended December 31, 1997 in this Current Report on Form 8-
K and into Sterling Commerce, Inc.'s previously filed (i) Registration
Statements on Form S-3 (Commission File Nos. 333-48317, 333-13959 and 333-
13955), (ii) Registration Statement on Form S-4 (Commission File No. 333-56475),
and (iii) Registration Statements on Form S-8 (Commission File Nos. 333-40827
and 333-37523).
/s/ Arthur Andersen LLP
Atlanta, Georgia
July 20, 1998
