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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER: 0-20725
SIEBEL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3187233
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1855 SOUTH GRANT STREET
SAN MATEO, CA 94402
(Address of principal executive offices, including zip code)
(650) 295-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 [_]
The number of shares outstanding of the registrant's common stock, par value
$.001 per share, as of August 4, 1998, was 87,950,279.
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SIEBEL SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997 3
b) Consolidated Statements of Operations
for the three and six months ended June 30, 1998 and 1997 4
c) Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997 5
d) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
</TABLE>
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SIEBEL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data; unaudited)
June 30, December 31,
1998 1997
--------- --------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 63,275 $ 70,202
Short-term investments 116,136 91,999
Accounts receivable, net 110,663 63,056
Deferred income taxes 4,778 4,778
Prepaids and other 8,370 6,701
--------- --------
Total current assets 303,222 236,736
Property and equipment, net 24,815 24,843
Other assets 6,083 6,585
--------- --------
Total assets $ 334,120 $268,164
========= ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 5,707 $ 5,684
Accrued expenses 54,403 28,362
Income taxes payable 4,320 2,345
Deferred revenue 38,872 22,243
--------- --------
Total current liabilities 103,302 58,634
Deferred income taxes 162 162
--------- --------
Total liabilities 103,464 58,796
--------- --------
Stockholders' equity:
Common stock; $.001 par value; 300,000 shares authorized;
87,550 and 85,864 shares issued and outstanding, respectively 88 86
Additional paid-in capital 209,481 195,432
Notes receivable from stockholders (406) (406)
Deferred compensation (517) (639)
Retained earnings 22,735 15,260
Accumulated other comprehensive loss (725) (365)
--------- --------
Total stockholders' equity 230,656 209,368
--------- --------
Total liabilities and stockholders' equity $ 334,120 $268,164
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
SIEBEL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Software $ 67,340 $ 33,427 $ 123,342 $ 62,949
Maintenance, consulting and other 22,676 10,687 40,846 20,212
--------- --------- --------- -----------
Total revenues 90,016 44,114 164,188 83,161
Cost of revenues:
Software 2,286 969 3,302 1,497
Maintenance, consulting and other 15,227 6,067 26,032 11,828
--------- --------- --------- -----------
Total cost of revenues 17,513 7,036 29,334 13,325
--------- --------- --------- -----------
Gross margin 72,503 37,078 134,854 69,836
Operating expenses:
Product development 10,534 5,571 19,290 10,665
Sales and marketing 39,569 21,069 74,921 40,007
General and administrative 6,242 4,199 10,809 7,840
Merger related expenses 13,500 -- 13,500 --
--------- --------- --------- -----------
Total operating expenses 69,845 30,839 118,520 58,512
--------- --------- --------- -----------
Operating income 2,658 6,239 16,334 11,324
Other income, net 1,336 1,210 2,928 2,582
--------- --------- --------- -----------
Income before income taxes 3,994 7,449 19,262 13,906
Income tax expense 4,804 2,829 10,324 5,264
--------- --------- --------- -----------
Net income (loss) $ (810) $ 4,620 $ 8,938 $ 8,642
========= ========= ========= ===========
Diluted net income (loss) per share $ (0.01) $ 0.05 $ 0.09 $ 0.09
========= ========= ========= ===========
Shares used in diluted net income (loss) per share computation 86,870 92,586 99,454 92,638
========= ========= ========= ===========
Basic net income (loss) per share $ (0.01) $ 0.06 $ 0.10 $ 0.10
========= ========= ========= ===========
Shares used in basic net income (loss) per share computation 86,870 83,278 86,579 83,015
========= ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
SIEBEL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
SIX MONTHS ENDED
JUNE 30,
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,938 $ 8,642
Adjustments to reconcile net income to net cash provided by
operating activities:
Compensation related to stock options 129 108
Depreciation and amortization 5,156 3,206
Tax benefit from exercise of stock options 4,235 323
Loss on disposal of property and equipment 230 292
Allowance for doubtful accounts and returns 2,728 693
Changes in operating assets and liabilities:
Accounts receivable (52,032) (12,204)
Prepaids and other (900) (3,401)
Accounts payable 1,530 (360)
Accrued expenses 24,768 3,123
Income taxes payable 929 87
Deferred revenue 18,053 4,863
----------------- ----------------
Net cash provided by operating activities 13,764 5,372
----------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (7,659) (7,650)
Purchases / sales of short-term investments, net (20,999) (1,803)
Other assets 2,128 (1,149)
----------------- ----------------
Net cash used in investing activities (26,530) (10,602)
----------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,979 3,091
Repayment of stockholder notes - 58
----------------- ----------------
Net cash provided by financing activities 9,979 3,149
----------------- ----------------
Change in cash and cash equivalents (2,787) (2,081)
Adjustment to conform acquired Company's year end (4,140)
Cash and cash equivalents, beginning of period 70,202 77,495
----------------- ----------------
Cash and cash equivalents, end of period $ 63,275 $ 75,414
================= ================
Supplemental disclosures of cash flows information:
Cash paid for income taxes $ 2,796 $ 5,096
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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SIEBEL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared on substantially the same basis as the audited consolidated
financial statements, and in the opinion of management include all
adjustments, consisting only of normal recurring adjustments, necessary for
their fair presentation. The interim results presented are not necessarily
indicative of results for any subsequent quarter or for the year ending
December 31, 1998.
In May 1998, Siebel acquired Scopus Technology, Inc. ("Scopus") in a merger
transaction accounted for as a pooling of interests. Accordingly, all
financial information has been restated to reflect the combined operations of
the two companies. See Note 2.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
Prior to January 1, 1998, the Company recognized revenue in accordance with
Statement of Position No. 91-1, "Software Revenue Recognition". Software
license revenue was recognized when all of the following criteria had been
met: there was an executed license agreement, software had been shipped to
the customer, no significant vendor obligations remained, the license fee was
fixed and payable within twelve months and collection was deemed probable.
On January 1, 1998, the Company adopted the provisions of Statement of
Position No. 97-2 "Software Revenue Recognition". Revenue is recognized
under SOP 97-2 when all of the following criteria have been met: persuasive
evidence of an arrangement exists, delivery has occurred, the vendor's fee is
fixed or determinable, and collectibility is probable. Under SOP 97-2,
revenue on multiple element arrangements is allocated to the various elements
based on relative fair value.
Maintenance, consulting and other revenues relate primarily to maintenance,
consulting services and training. Maintenance revenues are recognized
ratably over the term of the maintenance contract, typically 12 to 36 months.
Consulting and training revenues are generally recognized as the services are
performed and are usually performed on a time and materials basis. Such
services primarily consist of implementation services related to the
installation of the Company's products and do not include significant
customization to or development of the underlying software code.
COST OF REVENUES
Cost of software consists primarily of media, product packaging,
documentation and other production costs, and third-party royalties.
Cost of maintenance, consulting and other consists primarily of salaries,
benefits and allocated overhead costs related to consulting, training and
customer support personnel, including cost of services provided by third
party consultants engaged by the Company.
USE OF ESTIMATES
6
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The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original maturity
of 90 days or less to be cash equivalents. Short-term investments generally
consist of highly liquid municipal securities with original maturities in
excess of 90 days.
The Company has classified its investments in certain debt and equity
securities as "available for sale." Such investments are carried at fair
value, with gross unrealized gains and losses, when material, reported as a
separate component of stockholders' equity.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets, generally three to five
years. Leasehold improvements are amortized over the lesser of the lease term
or the estimated useful lives of the improvements, generally seven years.
CAPITALIZED SOFTWARE
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility in the form of a working model has
been established. To date, the Company's software development has been
completed concurrent with the establishment of technological feasibility,
and, accordingly, no costs have been capitalized.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense is included
in sales and marketing expense and amounted to $7,245,000 in 1997 and
$4,598,000 for the six months ended June 30, 1998.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the consolidated financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets are recognized for deductible temporary
differences, net operating loss carryforwards and credit carryforwards if it
is more likely than not that the tax benefits will be realized. To the extent
a deferred tax asset cannot be recognized under the preceding criteria,
available allowances must be established. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
NET INCOME (LOSS) PER SHARE
During 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation
of basic earnings per share (EPS) and, for companies with potentially
dilutive securities, such as options, diluted EPS.
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Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding. Diluted earnings per share is computed
using the weighted average number of shares of common stock and, when
dilutive, convertible preferred stock outstanding and common equivalent
shares from options to purchase common stock and warrants outstanding using
the treasury stock method.
Effective February 3, 1998, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 98 which changes the calculation
of earnings per share in periods prior to initial public offerings as
previously applied under SAB No. 83. When a registrant issued common stock,
warrants, options, or other potentially dilutive instruments for
consideration or with exercise prices below the initial public offering
price within a one year period prior to the initial filing of a registration
statement relating to an initial public offering, SAB No. 83 required such
equity instruments to be treated as outstanding for all periods presented in
the filing, using the anticipated initial public offering price and the
treasury stock method. Under SAB No. 98, when common stock, options,
warrants, or other potentially dilutive instruments have been issued for
nominal consideration during the periods covered by income statements in the
filing, those nominal issuances are to be reflected in earnings per share
calculations for all periods presented. Based on the Company's current
understanding of the definition of "nominal consideration," the Company has
concluded that during all periods prior to the Company's initial public
offering, no equity instruments were issued for nominal consideration. Net
income per share for periods prior to the Company's initial public offering
have been restated in accordance with SAB No. 98.
EMPLOYEE STOCK OPTION AND PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
FOREIGN CURRENCY TRANSLATION
The Company considers the functional currency of its foreign subsidiaries to
be the local currency, and accordingly, they are translated into U.S. dollars
using exchange rates in effect at period end for assets and liabilities and
average exchange rates during each reporting period for the results of
operations. Adjustments resulting from translation of foreign subsidiary
financial statements are shown as a separate component of stockholders'
equity.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration
of credit risk principally consist of trade accounts receivable. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral on accounts receivable, as the majority of the Company's
customers are large, well established companies. The Company maintains
reserves for potential credit losses, but historically has not experienced
any significant losses related to individual customers or groups of customers
in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash and cash equivalents, accounts
receivable, and accounts payable approximate their respective carrying
amounts defined as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative
8
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Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated and accounted for as (a)
a hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a foreign-
currency-denominated forecasted transaction. For a derivative not designated
as a hedging instrument, changes in the fair value of the derivative are
recognized in earnings in the period of change. This statement will be
effective for all annual and interim periods beginning after June 15, 1999.
Management does not believe the adoption of SFAS No. 133 will have a material
effect on the financial position of the Company.
2. SCOPUS MERGER
On May 18, 1998, the Company completed the acquisition of Scopus of
Emeryville, California, a leading provider of customer service, field
service, and call center software solutions. Under the terms of the
agreement, each outstanding share of Scopus common stock was exchanged for
newly issued shares of common stock of the Company. This resulted in the
issuance of approximately 15.1 million additional shares of the Company's
Common Stock. In addition, all outstanding stock options of Scopus were
converted into the right to acquire the Company's Common Stock at the same
exchange ratio with a corresponding adjustment to the exercise price. In
connection with the merger, the Company incurred direct merger-related
expenses of approximately $13.5 million consisted of direct transaction fees
for investment bankers, attorneys, accountants and other professional fees of
$9.1 million, integration charges related to duplicate facilities and
equipment of $3.1 million and other miscellaneous expenses of $1.3 million.
As of June 30, 1998, the Company had $8.2 million remaining in accrued merger
expenses, which the Company expects to pay in 1998. The Company also incurred
indirect merger-related expenses of approximately $1.8 million for joint
sales training and merger-related marketing costs, which are included within
sales and marketing expenses.
The transaction has been accounted for as a pooling of interests. As required
by pooling accounting, the financial statements of Siebel have been restated
to include the financial position and results of operations of Scopus for all
periods presented. Prior to the merger with Siebel, Scopus used a fiscal year
ending March 31. The restated financial statements for the three and six
month periods ended June 30, 1997 include Siebel's results of operations for
those periods and Scopus' results of operations for the three and six month
periods ended September 30, 1997. Beginning on January 1, 1998, the restated
financial statements combine the operating results of Siebel and Scopus for
the calendar periods noted.
As a result of conforming the reporting periods of Siebel and Scopus, as
described above, the operating results of Scopus for the three month period
ended March 31, 1998 is included in the restated financial statements for
both 1997 and 1998. Net income for this period is reflected as a reduction of
opening retained earnings in the restated 1998 financial statements.
The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow.
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<TABLE>
<CAPTION>
(in thousands, unaudited) Three months ended Years ended
March 31, December 31,
-------------------------- ------------------------
1998 1997 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues:
Siebel $47,100 $19,485 $118,775 $39,152
Scopus 27,072 19,562 88,853 62,210
------- ------- -------- --------
$74,172 $39,047 $207,628 $101,362
======= ======= ======== ========
Net income (loss):
Siebel $ 8,285 $ 2,758 $ (2,427) $ 5,025
Scopus 1,463 1,264 1,240 7,836
------- ------- -------- --------
$ 9,748 $ 4,022 $ (1,187) $ 12,861
======= ======= ======== ========
</TABLE>
In combining the financial statements of Siebel and Scopus, certain
reclassifications, conforming changes and adjustments relating to revenue
recognition were made to the historical financial statements of Scopus. These
conforming changes and adjustments resulted in a reduction of previously
reported net income of approximately $505,000 in fiscal 1995, $578,000 in
fiscal 1996, and $2,931,000 in fiscal 1997. There were no conforming changes
or adjustments for the period from April 1, 1998 through May 18, 1998. These
changes and adjustments will not reverse in future periods.
3. NET INCOME (LOSS) PER SHARE
Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding. Diluted earnings per share is computed
using the weighted average number of shares of common stock and, when
dilutive, outstanding common equivalent shares from options to purchase common
stock using the treasury stock method.
The following is a reconciliation of the number of shares used in the basic
and diluted earnings per share computations for the periods presented:
<TABLE>
<CAPTION>
(in thousands, unaudited) Three months ended Six months ended
June 30, June 30,
-------------------------- ------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares used in basic net income (loss)
per share computation 86,870 83,278 86,579 83,015
Effect of dilutive potential common
shares - 9,308 12,875 9,623
------ ------ ------ ------
Shares used in diluted net income
(loss) per share computation 86,870 92,586 99,454 92,638
====== ====== ====== ======
</TABLE>
Dilutive potential common shares excluded from the computation for the three
months ended June 30, 1998 was 12,753,000.
4. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for
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prior periods will be reclassified, as required. The Company's total
comprehensive earnings were as follows:
<TABLE>
<CAPTION>
(in thousands, unaudited) Three months ended Six months ended
June 30, June 30,
-------------------------- ------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (810) $4,620 $8,938 $8,642
Translation adjustment (345) - (360) -
------- ------ ------ ------
Total comprehensive income (loss) $(1,155) $4,620 $8,578 $8,642
======= ====== ====== ======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN AND
UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--RISK FACTORS" IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K. ANY SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE SUCH
STATEMENTS ARE MADE AND THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
Siebel Systems, Inc. ("Siebel" or the "Company") is the world's leading supplier
of Enterprise Relationship Management systems for organizations focused on
increasing sales, marketing and customer service effectiveness in field sales,
service organizations, telesales, telemarketing, call centers, and third-party
resellers. The Company designs, develops, markets, and supports Siebel
Enterprise Applications, a leading Internet-enabled, object oriented
client/server application software product family designed to meet the sales,
marketing and customer service information system requirements of even the
largest multi-national organizations.
In today's increasingly competitive global markets, businesses must continuously
improve their operations. Having spent considerable effort and resources in
previous years automating finance, manufacturing, distribution, human resources
management, and general office operations, many businesses are now looking to
apply the leverage of information technology to their sales, marketing and
customer service processes. Unlike previous automation efforts which have
focused on decreasing expenses, sales, marketing and customer service
information systems focus primarily on increasing revenues.
The Siebel Enterprise Applications are comprised of a broad range of advanced
client/server application products designed to allow corporations to deploy
comprehensive customer information systems, product information systems,
competitive information systems, and decision support systems on a global basis.
The Company's products provide support for multiple languages and multiple
currencies with support for a number of frequently interdependent distribution
channels, including direct field sales, telesales, telemarketing, distribution,
retail and Internet-based selling and support.
RECENT DEVELOPMENTS
On May 18, 1998, the Company completed the acquisition of Scopus of Emeryville,
California, a leading provider of customer service, field service, and call
center software solutions. Under the terms of the agreement, each outstanding
share of Scopus common stock was exchanged for newly issued shares of common
stock of the Company. This resulted in the issuance of approximately 15.1
million additional shares of the Company's Common Stock. In addition, all
outstanding stock options of Scopus were converted into the right to acquire the
Company's Common Stock at the same exchange ratio with a corresponding
adjustment to the exercise price. In connection with the merger, the Company
incurred direct merger-related expenses of approximately $13.5 million consisted
of direct transaction fees for investment bankers, attorneys, accountants and
other professional fees of $9.1 million, integration charges related to
duplicate facilities and equipment of $3.1 million and other miscellaneous
expenses of $1.3 million. As of June 30, 1998, the Company had $8.2 million
remaining in accrued merger expenses, which the Company expects to pay in 1998.
The Company also incurred indirect merger-related expenses of approximately $1.8
million for joint sales training and merger-related marketing costs, which are
included within sales and marketing expenses.
The transaction has been accounted for as a pooling of interests. As required by
pooling accounting, the financial statements of Siebel have been restated to
include the financial position and results of operations of Scopus for all
periods presented. Prior to the merger with Siebel, Scopus used a fiscal year
ending March 31. The restated financial
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statements for the three and six month periods ended June 30, 1997 include
Siebel's results of operations for those periods and Scopus' results of
operations for the three and six month periods ended September 30, 1997.
Beginning on January 1, 1998, the restated financial statements combine the
operating results of Siebel and Scopus for the calendar periods noted.
RESULTS OF OPERATIONS
REVENUES
Software. License revenues increased to $67,340,000 for the three months ended
June 30, 1998 from $33,427,000 for the three months ended June 30, 1997 and
decreased as a percentage of total revenues to 75% in the second quarter 1998
from 76% in the second quarter 1997. For the six months ended June 30, 1998,
license revenue increased to $123,342,000 from $62,949,000 for the six months
ended June 30, 1997 and decreased as a percentage of total revenues to 75% in
the fiscal 1998 period from 76% in the fiscal 1997 period. License revenues
increased in absolute dollar amount during these periods from the prior year
periods due to an increase in the number of licenses of Siebel Enterprise and
Siebel Series 5 applications to new and existing customers. This increase in
the number of licenses was primarily due to continued demand by new and existing
customers for products in the Siebel Enterprise and Siebel Series 5 applications
family both in the United States and internationally. The decrease in license
revenues as a percentage of total revenues was primarily due to increased levels
of maintenance, consulting and other revenues.
Maintenance, Consulting and Other. Maintenance, consulting and other revenues
increased to $22,676,000 for the three months ended June 30, 1998 from
$10,687,000 for the three months ended June 30, 1997 and increased as a
percentage of total revenues to 25% in the second quarter 1998 from 24% in the
second quarter 1997. For the six months ended June 30, 1998, maintenance,
consulting and other revenues increased to $40,846,000 from $20,212,000 for the
six months ended June 30, 1997 and increased as a percentage of total revenues
to 25% from 24% in the fiscal 1997 period. These increases in absolute dollar
amount and as a percentage of total revenues were due to growth in the Company's
consulting business and growth in the installed base of customers with a
maintenance component and maintenance renewals from products licensed in prior
periods. The Company expects that maintenance, consulting and other revenues
will remain the same or increase as a percentage of total revenues due to
maintenance components of new and existing license agreements and due to the
Company's expansion of its consulting organization to meet anticipated customer
demands in connection with product implementation.
COST OF REVENUES
Software. Cost of software license revenues includes product packaging,
documentation and production. Cost of license revenues through June 30, 1998
have averaged less than 4% of software license revenues. All costs incurred in
the research and development of software products and enhancements to existing
products have been expensed as incurred, and, as a result, cost of license
revenues includes no amortization of capitalized software development costs.
These costs are expected to remain the same or increase as a percentage of total
revenues.
Maintenance, Consulting and Other. Cost of maintenance, consulting and other
revenues consists primarily of personnel, facility and systems costs incurred in
providing customer support. Cost of maintenance, consulting and other revenues
increased to $15,227,000 for the three months ended June 30, 1998 from
$6,067,000 for the three months ended June 30, 1997 and increased as a
percentage of total revenues to 17% in the second quarter 1998 from 14% in the
second quarter 1997. For the six months ended June 30, 1998, cost of
maintenance, consulting and other revenues increased to $26,032,000 from
$11,828,000 for the six months ended June 30, 1997 and increased as a percentage
of total revenues to 16% in the fiscal 1998 period from 14% in the fiscal 1997
period. The increases in the absolute dollar amount reflect the effect of fixed
costs resulting from the Company's expansion of its maintenance and support
organization and the costs of certain customers obtaining implementation
services through the Company. The increase as a percentage of total revenues
reflects the use of third-party contractors to assist on certain consulting
projects. The Company expects that maintenance, consulting and other costs will
continue to increase in absolute dollar amount as the Company expands its
customer support organization to meet anticipated customer demands in
13
<PAGE>
connection with product implementation. These costs are expected to remain the
same or increase as a percentage of total revenues.
OPERATING EXPENSES
Product Development. Product development expenses include expenses associated
with the development of new products, enhancements of existing products and
quality assurance activities, and consist primarily of employee salaries,
benefits, consulting costs and the cost of software development tools. Product
development expenses increased to $10,534,000 for the three months ended June
30, 1998 from $5,571,000 for the three months ended June 30, 1997 and decreased
as a percentage of total revenues to 12% in the second quarter 1998 from 13% in
the second quarter 1997. For the six months ended June 30, 1998 product
development expenses increased to $19,290,000 from $10,665,000 for the six
months ended June 30, 1997 and decreased as a percentage of total revenues to
12% in the fiscal 1998 period from 13% in the fiscal 1997 period. The increases
in the dollar amount of product development expenses were primarily attributable
to costs of additional personnel in the Company's product development
operations. The Company anticipates that it will continue to devote substantial
resources to product development. The Company expects product development
expenses to increase in absolute dollar amount but remain at a similar
percentage of total revenues as the first six months of 1998. The Company to
date has not capitalized any software development costs.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses, travel and entertainment and promotional expenses. Sales and
marketing expenses increased to $39,569,000 for the three months ended June 30,
1998 from $21,069,000 for the three months ended June 30, 1997 and decreased as
a percentage of total revenues to 44% in the second quarter 1998 from 48% in the
second quarter 1997. For the six months ended June 30, 1998 sales and marketing
expenses increased to $74,921,000 from $40,007,000 for the six months ended June
30, 1997 and decreased as a percentage of total revenues to 46% in the fiscal
1998 period from 48% in the fiscal 1997 period. The increases in the dollar
amount of sales and marketing expenses reflect primarily the hiring of
additional sales and marketing personnel and, to a lesser degree, costs
associated with expanded promotional activities. The Company expects that sales
and marketing expenses will continue to increase in absolute dollar amount as
the Company continues to expand its sales and marketing efforts, establishes
additional sales offices in the United States and internationally and increases
its promotional activities. These expenses are expected to remain at a similar
percentage of total revenues as the first six months of 1998.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel. General and administrative expenses increased to $6,242,000
for the three months ended June 30, 1998 from $4,199,000 for the three months
ended June 30, 1997 and decreased as a percentage of total revenues to 7% in the
second quarter 1998 from 10% in the second quarter 1997. For the six months
ended June 30, 1998 general and administrative expenses increased to $10,809,000
from $7,840,000 for the six months ended June 30, 1997 and decreased as
percentage of total revenues to 7% in the fiscal 1998 period from 9% in the
fiscal 1997 period. The increases in the absolute dollar amount of general and
administrative expenses were primarily due to increased staffing and associated
expenses necessary to manage and support the Company's increased scale of
operations. The Company believes that its general and administrative expenses
will continue to increase in absolute dollar amount as a result of the continued
expansion of the Company's administrative staff and facilities to support
growing operations. The Company anticipates that its general and administrative
expenses as a percentage of total revenues should remain at a similar percentage
as the first six months of 1998.
Merger related expenses. In connection with the merger with Scopus, the Company
incurred direct merger-related expenses of approximately $13.5 million related
primarily to investment bankers, attorneys, accountants and other professional
fees of $9.1 million and duplicate facilities and equipment of $3.1 million. As
of June 30, 1998, the Company had $8.2 million remaining in accrued merger
expenses, which the Company expects to pay in 1998. The Company also incurred
indirect merger-related expenses of approximately $1.8 million for joint sales
training and merger-related marketing costs, which are included within sales and
marketing expenses. There were no merger-related expenses in the three and six
months ended June 30, 1997.
Year 2000. The Company is reviewing its information systems for any potential
problems that might arise as a result of
14
<PAGE>
the need for its installed computer systems and software to reference dates
following December 31, 1999 ("Year 2000 Issues") and does not believe such
systems will be adversely affected by the upcoming change in century. The
Company has not made an assessment as to whether any of its customers, suppliers
or service providers will be adversely affected by Year 2000 Issues. The failure
of the Company's software or the software of its customers, suppliers or service
providers as a result of Year 2000 Issues could have a material adverse effect
on the Company's business, financial condition and results of operations.
OPERATING INCOME AND OPERATING MARGIN
Operating income decreased to $2,658,000 for the three months ended June 30,
1998 from $6,239,000 for the three months ended June 30, 1997 and operating
margin decreased to 3% in the second quarter 1998 from 14% in the second quarter
1997. For the six months ended June 30, 1998 operating income increased to
$16,334,000 from $11,324,000 for the six months ended June 30, 1997 and
operating margin decreased to 10% in the fiscal 1998 period from 14% in the
fiscal 1997 period. These decreases in operating income and margin were
primarily due to $13.5 million of merger-related expenses incurred in the three
months ended June 30, 1998. Excluding the merger related expenses, operating
income for the six months ended June 30, 1998 increased to $31,618,000 from
$11,324,000 for the six months ended June 30, 1997 and operating margin
increased to 19% in the fiscal 1998 period from 14% in the fiscal 1997 period.
The Company expects operating margins, net of merger-related expenses, to
decrease as compared to operating margin for the first six months of 1998 as it
continues to invest heavily in sales, marketing, development and support
activities globally.
OTHER INCOME, NET
Other income, net is primarily comprised of interest income earned on the
Company's cash and cash equivalents and short-term investments and reflects
earnings on increasing cash and cash equivalents and short-term investment
balances.
PROVISION FOR INCOME TAXES
The provision for income taxes was $4,804,000 and $2,829,000 and approximately
120% and 38%, respectively, for the three months ended June 30, 1998 and 1997,
respectively. The provision for income taxes was $10,324,000 and $5,264,000 and
54% and 38%, respectively, for the six months ended June 30, 1998 and 1997
respectively. The effective tax rate in 1998 was affected by the non-
deductibility of certain merger-related expenses. The Company expects its
effective tax rate for the remainder of 1998 to be approximately 38%.
NET INCOME (LOSS)
The Company had a net loss (after provision for income taxes) of $810,000 for
the three months ended June 30, 1998 compared to net income of $4,620,000 for
the three months ended June 30, 1997. Diluted net loss per share decreased to
$0.01 per share in the second quarter of 1998 from net income of $0.05 per share
in the comparable period in 1997. Net loss was 1% as a percentage of total
revenues for the three months ended June 30, 1998 compared to net income of 10%
for the three months ended June 30, 1997. The Company had net income of
$8,938,000 for the six months ended June 30, 1998 compared to net income of
$8,642,000 for the six months ended June 30, 1997. Diluted net income per share
was $0.09 for each of the six-month periods ended June 30, 1998 and 1997. Net
income decreased as a percentage of total revenues to 5% in the six months ended
June 30, 1998 from 10% in the six months ended June 30, 1997, due primarily to
the effect of the merger-related expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments increased to
$179,411,000 as of June 30, 1998 from $162,201,000 as of December 31, 1997,
representing approximately 54% of total assets. This increase was primarily
attributable to net income and increases in deferred revenue, accrued expenses
and issuances of common stock, partially offset by increases in accounts
receivable and purchases of property and equipment. The Company's days
15
<PAGE>
sales outstanding (DSO) in accounts receivable was 111 as of June 30, 1998
compared with 82 as of December 31, 1997. The Company expects DSO will fluctuate
significantly in future quarters.
The Company believes that the anticipated cash flows from operations, cash, cash
equivalents and short-term investments will be adequate to meet its cash needs
for working capital and capital expenditures for at least the next twelve
months.
FACTORS AFFECTING OPERATING RESULTS
Limited Operating History. The Company has only a limited operating history, and
its prospects must be evaluated in light of the risks and uncertainties
encountered by a company in its early stage of development.
Limited Deployment. Many of the Company's customers are in the pilot phase of
implementing the Company's software. There can be no assurance that enterprise-
wide deployments by such customers will be successful. The Company's customers
frequently contemplate the deployment of its products commercially to large
numbers of sales, marketing and customer service personnel, many of whom have
not previously used application software systems, and there can be no assurance
of such end-users' acceptance of the product. If any of the Company's customers
are not able to customize and deploy Siebel applications successfully and on a
timely basis to the number of anticipated users, the Company's reputation could
be significantly damaged, which could have a material adverse effect on the
Company's business, operating results and financial condition.
Product Concentration. Approximately 61% of the Company's license revenues in
the six months ended June 30, 1998 were attributable to sales of Siebel Sales
Enterprise. The remaining license revenues were attributable to sales of Siebel
Service Enterprise and Siebel Series 5. The Company currently expects Siebel
Sales Enterprise and related consulting, maintenance and training services to
continue to account for a substantial amount of the Company's future revenues.
As a result, factors adversely affecting the pricing of or demand for Siebel
Sales Enterprise, such as competition or technological change, could have a
material adverse effect on the Company's business, operating results and
financial condition.
Competition. The market for the Company's products is intensely competitive,
subject to rapid change and significantly affected by new product introductions
and other market activities of industry participants. The Company's products
are targeted at the emerging market for sales, marketing and customer service
information systems, and the Company faces competition primarily from customers'
internal information technology departments and systems integrators, as well as
from other application software providers that offer a variety of products and
services to address this market. Many of the Company's customers and potential
customers have in the past attempted to develop sales, marketing and customer
service information systems, in-house either alone or with the help of systems
integrators and there can be no assurance that the Company will be able to
compete successfully against such internal development efforts.
The Company relies on a number of systems consulting and systems integration
firms, particularly Andersen Consulting, for implementation and other customer
support services, as well as recommendations of its products during the
evaluation stage of the purchase process. Although the Company seeks to
maintain close relationships with these service providers, many of them have
similar, and often more established, relationships with the Company's
competitors. If the Company is unable to develop and retain effective, long-
term relationships with these third parties, the Company's competitive position
could be materially and adversely affected. Further, there can be no assurance
that these third parties, many of which have significantly greater resources
than the Company, will not market software products in competition with the
Company in the future or will not otherwise reduce or discontinue their
relationships with, or support of, the Company and its products.
A large number of personal, departmental and other products exist in the sales
automation market. Companies (Products) such as Symantec Corporation (ACT!),
Borealis Corporation (Arsenal), Saratoga Systems (Avenue), Early Cloud & Co.
(CallFlow), Epiphany (Clarity, Momentum, Relevance), Clarify Inc. (ClearSales,
ClearSupport), Sales Technologies (Cornerstone), Onyx (Customer Center), IMA
(EDGE), Applix (Enterprise), Dendrite International, Inc.
16
<PAGE>
(Force One), Marketrieve Company (Marketrieve PLUS), Firstwave Technologies,
Inc. (Netgain), Broadvision, Inc. (One-To-One Application System), Oracle
Corporation (Oracle Sales and Marketing, Oracle Service and Oracle Call, Front
Office Application), Pivotal Software, Inc. (Relationship), SAP AG (Sales Force
Automation Solution) Software Artistry (SA-Expert Sales), SalesKit Software
Corporation (SalesKit), SalesLogix (SalesLogix), Kiefer & Veittinger GmbH (K&V)
International (SALES Manager) (SAP AG has recently announced its intention to
acquire an 80% equity interest in K&V), Aurum (SalesTrak) (recently acquired by
Baan Company N.V.), MEI (UniverSell) and The Vantive Corporation (Vantive
Enterprise) are among the many firms in this market segment. Some of these
competitors have longer operating histories, significantly greater financial,
technical, marketing and other resources, significantly greater name recognition
and a larger installed base of customers than the Company. In addition, many
competitors have well-established relationships with current and potential
customers of the Company. As a result, these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products, than can the Company. The Company believes it competes
favorably in this marketplace based on the following competitive advantages:
breadth and depth of functionality, configurable business objects, Internet and
intranet enablement, strategic alignments with industry leaders, support for the
global enterprise, scalability allowing support for large user communities and a
modern and enduring product architecture. In general, the Company has priced its
products at or above those of its competitors, which pricing the Company
believes is justified by the scope of functionality delivered and the
performance characteristics afforded by the Company's products.
It is also possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. The Company also expects
that competition will increase as a result of consolidation in the software
industry. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition.
Management of Growth; Dependence upon Key Personnel. In the event that the
significant growth of the Company's revenues continues, such growth may place a
significant strain upon the Company's management systems and resources. The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage its employee work force. There can be no assurance that the Company
will be able to do so successfully. The Company's failure to do so could have a
material adverse effect upon the Company's business, operating results and
financial condition. The Company's future performance depends in significant
part upon the continued service of its key technical, sales and senior
management personnel, particularly Thomas M. Siebel, the Company's Chairman and
Chief Executive Officer, none of whom has entered into an employment agreement
with the Company. The loss of the services of one or more of the Company's
executive officers could have a material adverse effect on the Company's
business, operating results and financial condition.
International Operations. The Company's sales are primarily to large multi-
national companies. To service the needs of such companies, both domestically
and internationally, the Company must provide worldwide product support
services. As a result, the Company has expanded and intends to continue to
expand its international operations and enter additional international markets,
which will require significant management attention and financial resources and
could adversely affect the Company's operating margins and earnings, if any.
Revenues from international sales accounted for approximately 27%, 34% and 31%
of the Company's total license revenues in fiscal 1997 and the three and six
months ended June 30, 1998, respectively.
The growth in the Company's revenues from international sales is expected to
continue to subject a portion of the Company's revenues to the risks associated
with international sales, including foreign currency fluctuations, economic or
political instability, shipping delays and various trade restrictions, any of
which could have a significant impact on the Company's ability to deliver
products on a competitive and timely basis. Future imposition of, or
significant increases in the level of, customs duties, export quotas or other
trade restrictions, could have an adverse effect on the Company's business,
financial condition and results of operations. As the Company develops an
international sales
17
<PAGE>
force, it expects to be more directly subject to foreign currency fluctuations.
To the extent such direct sales are denominated in foreign currency, any such
fluctuation may adversely affect the Company's business, financial condition and
results of operations. Foreign currency transactions, when realized, are
included as a component of other income. Finally, the laws of certain foreign
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States.
Risk Relating to Acquisitions. The Company has acquired in the past, and may
acquire in the future, other products or businesses which are complementary to
the Company's business. The integration of products and personnel as a result
of any such acquisitions has and will continue to divert the Company's
management and other resources. There can be no assurance that difficulties will
not arise in integrating such operations, products, personnel or businesses. The
failure to successfully integrate such products or operations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Risks Relating to the Merger with Scopus. Risks associated with the merger with
Scopus, which was completed in May 1998, include but are not limited to
uncertainties relating to integration, retention of employees by the combined
company, and the effect of the merger on customers and existing agreements. The
successful integration of the two companies will require significant effort from
each company, including the coordination of their research and development,
integration of the companies' product offerings, coordination of their sales and
marketing efforts and business development efforts. The combined company will
need to integrate and streamline overlapping functions successfully. The Company
incurred approximately $1.8 million of such integration costs during the three
months ended June 30, 1998 for joint sales training and merger related marketing
activities. The integration of certain operations following the merger will
require the dedication of management resources that may distract attention from
the normal operations of the combined Company. The success of the combined
Company will also be dependent in part on the retention and integration of
management, technical, marketing, sales and customer support personnel. In
addition, certain of Scopus' and Siebel's existing customers may view the merger
as disadvantageous to them. As a consequence, the combined Company's
relationship with these customers could be adversely affected. Failure to
quickly and effectively complete the integration of the operations of Siebel and
Scopus, failure to attract, hire, retain and integrate skilled employees, and
uncertainty in the marketplace or customer concern regarding the impact of the
merger and related transactions could have a material adverse effect on the
combined Company's business, financial condition and results of operations.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1996, Debra Christoffers, a former sales person of the Company, filed a
complaint for wrongful termination against the Company and Thomas Siebel, in the
Superior Court of California, County of San Mateo. A jury verdict was returned
on May 15, 1998 with a judgment for an immaterial amount. Post-trial
proceedings are continuing in the matter. The Company believes it has adequate
legal defenses and believes that the ultimate outcome of these actions will not
have a material effect on the Company's financial position or results of
operations, although there can be no assurance as to the outcome of such
litigation.
In March 1998, a purported class action complaint was filed against the Company
and Scopus Technology, Inc. ("Scopus") in the Superior Court of the State of
California for the County of Alameda by a person claiming to be a Scopus
stockholder. Scopus became a wholly owned subsidiary of the Company on May 18,
1998, upon the merger of a subsidiary of the Company with and into Scopus ("the
Merger"). The complaint alleges that the Scopus board of directors breached its
fiduciary duties to the shareholders of Scopus in connection with its approval
of the Merger. The complaint further alleges that the Company aided and abetted
the alleged breach of fiduciary duty. The complaint seeks monetary and other
relief. The Company believes the suit is completely without merit and intends
to contest the matter vigorously, although there can be no assurance as to the
outcome of such litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of the Company's first registration statement, filed on Form
S-1 under the Securities Act of 1933 (No. 333-12061) relating to the Company's
initial public offering of its Common Stock, was June 27, 1996. There has been
no change to the disclosure contained in the Company's report on Form 10-Q for
the quarter ended March 31, 1998 regarding the use of proceeds generated by the
Company's initial public offering of its Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on April 29, 1998 (the
"Annual Meeting").
The following matters were considered and voted upon at the Annual Meeting:
The first matter related to the election of two director nominees, George T.
Shaheen and Charles R. Schwab as Directors to serve until the 2001 annual
meeting of stockholders. The votes cast and withheld for such nominees were as
follows:
<TABLE>
<CAPTION>
Name For Withheld
--------------------- ---------- --------
<S> <C> <C>
George T. Shaheen 23,802,699 54,117
Charles R. Schwab 23,801,299 55,517
</TABLE>
The second matter related to the ratification of the appointment of KPMG Peat
Marwick LLP as independent auditors of the Company for its fiscal year ending
December 31, 1998. 23,853,372 votes were cast for ratification and 444 votes
were cast against ratification. There were 3,000 abstentions and no broker non-
votes.
Based on these voting results, each of the directors nominated was elected and
the second matter was approved.
A special meeting of stockholders was held on May 18, 1998 (the "Special
Meeting") to consider the proposal to approve the issuance of shares of common
stock of Siebel Systems, Inc., pursuant to the Agreement and Plan of Merger and
Reorganization by and among Siebel, Scopus Acquisition, Inc. and Syracuse
Acquisition, Inc. 53,348,979 votes were cast for ratification and 79,970 votes
were cast against ratification. There were 187,188 abstentions and no broker
non-votes. Based on these voting results, the merger with Scopus was approved.
19
<PAGE>
ITEM 5. OTHER INFORMATION
Pursuant to the Company's bylaws, stockholders who wish to bring matters or
propose nominees for director at the Company's 1999 annual meeting of
stockholders must provide specified information to the Company between January
28, 1999 and February 28, 1999 (unless such matters are included in the
Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange
Act of 1934, as amended).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description of Document
- -------------- -----------------------
2.1 Agreement and Plan of Merger and Reorganization, dated March 1,1998,
among the Registrant, Syracuse Acquisition Sub, Inc. and Scopus Technology,
Inc.(4)
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as
amended.(6)
3.2 Bylaws of the Registrant.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Stock Certificate.(1)
4.3 Restated Investor Rights Agreement, dated December 1, 1995, between the
Registrant and certain investors, as amended April 30, 1996 and June 14,
1996.(1)
10.1 Registrant's 1996 Equity Incentive Plan, as amended.(3)
10.2 Registrant's Employee Stock Purchase Plan, as amended.(3)
10.3 Form of Indemnity Agreement entered into between the Registrant and its
officers and directors.(1)
10.4 Registrant's Deferred Compensation Plan, dated January 10,1997.(5)
10.5 Master Alliance Agreement, dated March 17, 1995, between the Registrant
and Andersen Consulting LLP.(1)(2)
10.6 Assignment Agreement, dated September 20, 1995, by and between the
Registrant and Thomas M. Siebel.(1)
10.7 Lease Agreement, dated June 4, 1996, by and between the Registrant and
Crossroad Associates and Clocktower Associates.(1)
10.8 Form of Voting Agreement dated as of March 1, 1998, a substantially
similar version of which has been executed by and between the Registrant,
Scopus Technology, Inc. and each of Thomas M. Siebel, Thomas M. Siebel as
Trustee under the Siebel Living Trust u/a/d 7/29/93, the Thomas and Stacey
Siebel Foundation and First Virtual Capital, Inc.(7)
10.9 Form of Affiliate Agreement, substantially similar versions of which are
to be executed by the Registrant, Scopus Technology, Inc. and each of the
affiliates of the Registrant.(8)
21.1 Subsidiaries of the Registrant.(6)
27.1 Financial Data Schedule.(9)
_____________________
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (No. 333-03751), as amended.
(2) Confidential treatment has been granted with respect to portions of this
exhibit.
(3) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (No. 333-07983), as amended.
(4) Incorporated by reference to exhibit 99.1 of the Registrant's Current Report
on Form 8-K filed by the Registrant on March 16, 1998.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.
20
<PAGE>
(7) Incorporated by reference to exhibit 99.3 of the Registrant's Current Report
on Form 8-K filed by the Registrant on March 16, 1998.
(8) Incorporated by reference to exhibit 99.5 of the Registrant's Current Report
on Form 8-K filed by the Registrant on March 16, 1998.
(9) Filed herewith.
(b) Reports on Form 8-K
On May 19, 1998, the Company filed a report on Form 8-K relating to the closure
of the Company's merger with Scopus Technology, Inc. on May 18, 1998.
On May 29, 1998, the Company filed a report on Form 8-K relating to the
Company's merger with Scopus Technology, Inc.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIEBEL SYSTEMS, INC.
Date: August 13, 1998 By: /s/ Howard H. Graham
-----------------------------------
Howard H. Graham
Senior Vice President Finance and
Administration
and
Chief Financial Officer
By: /s/ Paul J. Gifford
-----------------------------------
Paul J. Gifford
Corporate Controller
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIEBEL
SYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERS ENDED JUNE 30, 1997
AND 1998, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. THE SUMMARY FINANCIAL INFORMATION FOR THE PERIODS ENDED
JUNE 30, 1997 AND DECEMBER 31, 1997 HAVE BEEN RESTATED TO REFLECT THE EFFECT OF
THE POOLING OF INTERESTS BETWEEN SIEBEL SYSTEMS, INC. AND SCOPUS TECHNOLOGY,
INC., WHICH OCCURRED ON MAY 18, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1998
<PERIOD-END> JUN-30-1997 DEC-31-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 75,414 70,202 63,275
<SECURITIES> 75,936 91,999 116,136
<RECEIVABLES> 40,758 63,056 110,663
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 201,785 236,736 303,222
<PP&E> 19,490 24,843 24,815
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 226,920 268,164 334,120
<CURRENT-LIABILITIES> 40,347 58,634 103,302
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 162,409 195,518 209,569
<OTHER-SE> 23,959 13,850 21,087
<TOTAL-LIABILITY-AND-EQUITY> 226,920 268,164 334,120
<SALES> 62,949 156,971 123,342
<TOTAL-REVENUES> 83,161 207,628 164,188
<CGS> 1,497 4,393 3,302
<TOTAL-COSTS> 13,325 33,180 29,334
<OTHER-EXPENSES> 58,512 167,829 118,520
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 13,906 11,993 19,262
<INCOME-TAX> 5,264 13,180 10,324
<INCOME-CONTINUING> 8,642 (1,187) 8,938
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,642 (1,187) 8,938
<EPS-PRIMARY> 0.10 (0.01) 0.10
<EPS-DILUTED> 0.09 (0.01) 0.09
</TABLE>
