<PAGE>
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
November 25, 1998
-----------------
Date of Report (Date of earliest event reported)
SIEBEL SYSTEMS, INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-20725 94-3187233
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation File Number) Identification No.)
1855 SOUTH GRANT STREET
SAN MATEO, CA 94402
--------------------
(Address of principal executive offices)
(650) 295-5000
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On April 15, 1998, the Registrant filed with the Securities and Exchange
Commission (Commission File Number 333-48055) a Registration Statement on Form
S-4 (the "S-4 Registration Statement") containing the Registrant's unaudited Pro
Forma Combined Condensed Financial Statements for the years ended December 31,
1997, 1996 and 1995. The S-4 Registration Statement was filed pursuant to an
Agreement and Plan of Merger and Reorganization dated March 1, 1998 among the
Registrant, Syracuse Acquisition Sub, Inc., a California corporation and then
wholly-owned subsidiary of the Registrant ("Merger Sub"), and Scopus Technology,
Inc. ("Scopus"), whereby Merger Sub was merged with and into Scopus. Attached
as Appendix A to this current report on Form 8-K are the Registrant's audited
consolidated financial statements for the three years ended December 31, 1997,
and the related consolidated financial statement schedule, selected financial
data and management's discussion and analysis of financial condition and results
of operations.
ITEM 7. FINANCIAL STATEMENTS, FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
EXHIBIT NO. DESCRIPTION
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
<PAGE>
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.
SIEBEL SYSTEMS, INC.
Date: November 25, 1998
By: /s/ Howard H. Graham
--------------------------------
Howard H. Graham
Senior Vice President,
Finance and Administration
and Chief Financial Officer
<PAGE>
Appendix A
AUDITED CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE,
SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
================================================================================
APPENDIX A
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Siebel Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Siebel
Systems, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 financial position of Siebel
Systems, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Mountain View, California
July 16, 1998
<PAGE>
SIEBEL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
1997 1996
----------------- ------------------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 70,202 $ 77,495
Short-term investments 91,999 74,133
Accounts receivable, net 63,056 29,247
Deferred income taxes 4,778 2,706
Prepaids and other 6,701 4,955
----------------- ------------------
Total current assets 236,736 188,536
Property and equipment, net 24,843 15,298
Other assets 6,585 3,111
----------------- ------------------
Total assets $ 268,164 $ 206,945
================= ==================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 5,684 $ 5,341
Accrued expenses 28,362 13,945
Income taxes payable 2,345 3,956
Deferred revenue 22,243 11,067
---------------- ----------------
Total current liabilities 58,634 34,309
Deferred income taxes 162 205
----------------- ------------------
Total liabilities 58,796 34,514
----------------- ------------------
Stockholders' equity:
Common stock; $.001 par value; 300,000 shares authorized; 85,864
and 81,969 shares issued and outstanding, respectively 86 82
Additional paid-in capital 195,432 157,583
Notes receivable from stockholders (406) (508)
Deferred compensation (639) (1,173)
Accumulated other comprehensive losses (365) --
Retained earnings 15,260 16,447
----------------- ------------------
Total stockholders' equity 209,368 172,431
----------------- ------------------
Total liabilities and stockholders' equity $ 268,164 $ 206,945
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIEBEL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------------
1997 1996 1995
--------------- ---------------- -------------
<S> <C> <C> <C>
Revenues:
Software $ 156,971 $ 80,413 $ 26,589
Maintenance, consulting and other 50,657 20,949 9,245
--------------- ---------------- -------------
Total revenues 207,628 101,362 35,834
Cost of revenues:
Software 4,393 2,197 915
Maintenance, consulting and other 28,787 13,183 7,300
--------------- ---------------- -------------
Total cost of revenues 33,180 15,380 8,215
--------------- ---------------- -------------
Gross margin 174,448 85,982 27,619
Operating expenses:
Product development 26,105 14,775 8,198
Sales and marketing 98,748 44,044 13,797
General and administrative 16,938 9,737 3,361
Merger termination costs 3,298 - -
Write-off acquired research and development 22,740 - -
--------------- ---------------- -------------
Total operating expenses 167,829 68,556 25,356
--------------- ---------------- -------------
Operating income 6,619 17,426 2,263
Other income, net 5,374 3,118 624
--------------- ---------------- -------------
Income before income taxes 11,993 20,544 2,887
Income taxes 13,180 7,683 1,085
--------------- ---------------- -------------
Net income (loss) $ (1,187) $ 12,861 $ 1,802
=============== ================ =============
Diluted net income (loss) per share $ (0.01) $ 0.16 $ 0.03
=============== ================ =============
Shares used in diluted net income (loss) per share computation 83,798 78,198 62,409
=============== ================ =============
Basic net income (loss) per share $ (0.01) $ 0.18 $ 0.03
=============== ================ =============
Shares used in basic net income (loss) per share computation 83,798 69,736 62,000
=============== ================ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock
Partners' --------------------- --------------------
Capital Shares Amount Shares Amount
--------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 1,153 1,895 19 7,095 7
Conversion of partners' capital (1,153) 9,378 9 32,323 32
Issuance of common stock under Employee Stock Option Plans - - - 1,314 1
Issuance of common stock, net of issuance costs of $968 - - - 2,430 2
Conversion of mandatorily redeemable preferred stock - - - 1,737 2
Conversion of convertible preferred stock - (1,895) (19) 1,380 2
Repurchase and retirement of common stock - - - (840) (1)
Issuance of convertible preferred stock - 10,244 10 - -
Common stock issued for exercise of warrants - - - 341 1
Compensation related to stock options - - - - -
Amortization of deferred compensation related to stock options - - - - -
Net income - - - - -
------ ------ --- ------- ---
Balances, December 31, 1995 - 19,622 19 45,780 46
Issuance of common stock under Employee Stock Option Plans - - - 2,675 3
Issuance of common stock under Employee Stock Purchase Plans - - - 295 -
Issuance of common stock, net of issuance costs of $1,849 - - - 12,891 13
Repayment of note receivable - - - - -
Issuance of convertible preferred stock - 494 1 - -
Convertible preferred stock issued for exercise of warrant - 300 - - -
Tax benefit from stock options - - - - -
Compensation related to stock options - - - - -
Cancellation of stock options issued below fair value - - - - -
Conversion of convertible preferred stock into common stock - (20,416) (20) 20,416 20
Repurchase and retirement of common stock - - - (88) -
Amortization of deferred compensation related to stock options - - - - -
Net income - - - - -
------ ------ --- ------- ---
Balances, December 31, 1996 - - - 81,969 82
Issuance of common stock under Employee Stock Option Plans - - - 2,067 2
Issuance of common stock under Employee Stock Purchase Plans - - - 626 -
Issuance of common stock related to InterActive acquisition - - - 602 1
Issuance of common stock related to Nomadic acquisition - - - 600 1
Repayment of note receivable - - - - -
Compensation related to stock options - - - - -
Cancellation of stock options issued below fair value - - - - -
Tax benefit from stock options - - - - -
Amortization of deferred compensation related to stock options - - - - -
Currency translation adjustment - - - - -
Net loss - - - - -
------ ------ --- ------- ---
Balances, December 31, 1997 - - - 85,864 86
====== ====== ==== ======= ===
</TABLE>
<TABLE>
<CAPTION>
Notes
Additional receivable Deferred
paid-in from stock
capital stockholders compensation
---------- ------------ ------------
<S> <C> <C> <C>
Balances, December 31, 1994 4,140 (13) -
Conversion of partners' capital 1,112 - -
Issuance of common stock under Employee Stock Option Plans 156 - -
Issuance of common stock, net of issuance costs of $968 23,856 - -
Conversion of mandatorily redeemable preferred stock 1,398 - -
Conversion of convertible preferred stock 17 - -
Repurchase and retirement of common stock (8) - -
Issuance of convertible preferred stock 8,344 - -
Common stock issued for exercise of warrants 136 - -
Compensation related to stock options 748 - (748)
Amortization of deferred compensation related to stock options - - 96
Net income - - -
-------- ----- -------
Balances, December 31, 1995 39,899 (13) (652)
Issuance of common stock under Employee Stock Option Plans 2,018 - -
Issuance of common stock under Employee Stock Purchase Plans 1,641 - -
Issuance of common stock, net of issuance costs of $1,849 109,477 (507) -
Repayment of note receivable - 12 -
Issuance of convertible preferred stock 1,094 - -
Convertible preferred stock issued for exercise of warrant 437 - -
Tax benefit from stock options 2,173 - -
Compensation related to stock options 893 - (893)
Cancellation of stock options issued below fair value (48) - 48
Conversion of convertible preferred stock into common stock - - -
Repurchase and retirement of common stock (1) - -
Amortization of deferred compensation related to stock options - - 324
Net income - - -
-------- ----- -------
Balances, December 31, 1996 157,583 (508) (1,173)
Issuance of common stock under Employee Stock Option Plans 4,788 - -
Issuance of common stock under Employee Stock Purchase Plans 4,299 - -
Issuance of common stock related to InterActive acquisition 14,580 - -
Issuance of common stock related to Nomadic acquisition 10,393 - -
Repayment of note receivable - 102 -
Compensation related to stock options (256) - 256
Cancellation of stock options issued below fair value (1) - 1
Tax benefit from stock options 4,046 - -
Amortization of deferred compensation related to stock options - - 277
Currency translation adjustment - - -
Net loss - - -
-------- ----- -------
Balances, December 31, 1997 195,432 (406) (639)
======== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
other Total
comprehensive Retained stockholders'
losses earnings equity
------------- -------- ----------
<S> <C> <C> <C>
Balances, December 31, 1994 - 1,784 7,090
Conversion of partners' capital - - -
Issuance of common stock under Employee Stock Option Plans - - 157
Issuance of common stock, net of issuance costs of $968 - - 23,858
Conversion of mandatorily redeemable preferred stock - - 1,400
Conversion of convertible preferred stock - - -
Repurchase and retirement of common stock - - (9)
Issuance of convertible preferred stock - - 8,354
Common stock issued for exercise of warrants - - 137
Compensation related to stock options - - -
Amortization of deferred compensation related to stock options - - 96
Net income - 1,802 1,802
----- ------- --------
Balances, December 31, 1995 - 3,586 42,885
Issuance of common stock under Employee Stock Option Plans - - 2,021
Issuance of common stock under Employee Stock Purchase Plans - - 1,641
Issuance of common stock, net of issuance costs of $1,849 - - 108,983
Repayment of note receivable - - 12
Issuance of convertible preferred stock - - 1,095
Convertible preferred stock issued for exercise of warrant - - 437
Tax benefit from stock options - - 2,173
Compensation related to stock options - - -
Cancellation of stock options issued below fair value - - -
Conversion of convertible preferred stock into common stock - - -
Repurchase and retirement of common stock - - (1)
Amortization of deferred compensation related to stock options - - 324
Net income - 12,861 12,861
----- ------- --------
Balances, December 31, 1996 - 16,447 172,431
Issuance of common stock under Employee Stock Option Plans - - 4,790
Issuance of common stock under Employee Stock Purchase Plans - - 4,299
Issuance of common stock related to InterActive acquisition - - 14,581
Issuance of common stock related to Nomadic acquisition - - 10,394
Repayment of note receivable - - 102
Compensation related to stock options - - -
Cancellation of stock options issued below fair value - - -
Tax benefit from stock options - - 4,046
Amortization of deferred compensation related to stock options - - 277
Currency translation adjustment (365) - (365)
Net loss - (1,187) (1,187)
----- ------- --------
Balances, December 31, 1997 (365) 15,260 209,368
===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIEBEL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,187) $ 12,861 $ 1,802
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Compensation related to stock options 277 324 96
Depreciation and amortization 8,125 3,363 1,089
Deferred income taxes (1,615) (1,617) (643)
Tax benefit from exercise of stock options 4,046 2,173 -
Loss on disposal of property and equipment 307 155 -
Allowance for doubtful accounts and returns 2,348 585 -
Write-off of acquired research and development 22,740 - -
Software licenses exchanged for equipment and prepaid assets - (3,408) -
Changes in operating assets and liabilities:
Accounts receivable (40,485) (19,636) (4,548)
Prepaids and other (1,736) (3,313) (1,228)
Accounts payable 126 3,287 1,307
Accrued expenses 13,723 10,326 1,935
Income taxes payable (1,611) 2,821 862
Deferred revenue 15,963 3,632 5,908
---------- ----------- ----------
Net cash provided by operating activities 21,021 11,553 6,580
---------- ----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (17,640) (13,742) (2,637)
Purchases and sales of short-term investments (68,941) (73,936) (7,466)
Maturites of short-term investmets 51,075 7,265 555
Proceeds from disposal of property and equipment - 16 15
Cash acquired in acquisitions 129 - -
Other assets (1,764) (947) (288)
---------- ----------- ----------
Net cash used in investing activities (37,141) (81,344) (9,821)
---------- ----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of repurchases 8,725 112,559 24,052
Proceeds from issuance of preferred stock - 1,532 8,354
Repayment of stockholder notes 102 12 -
---------- ----------- ----------
Net cash provided by financing activities 8,827 114,103 32,406
---------- ----------- ----------
Change in cash and cash equivalents (7,293) 44,312 29,165
Cash and cash equivalents, beginning of year 77,495 33,183 4,018
---------- ----------- ----------
Cash and cash equivalents, end of year $ 70,202 $ 77,495 $ 33,183
========== =========== ==========
Supplemental disclosures of cash flows information:
Conversion of partnership units into common and preferred stock $ - $ - $ 1,153
========== =========== ==========
Common stock issued for acqusitions $ 24,975 $ - $ -
========== =========== ==========
Exercise of common stock options in exchange for stockholder note $ - $ 507 $ -
========== =========== ==========
Cash paid for income taxes $ 14,077 $ 4,597 $ 1,171
========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIEBEL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
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.
On May 18, 1998, Siebel merged with Scopus Technology Inc. ("Scopus") in a
transaction recorded as a pooling of interests. Accordingly, 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 as of December 31, 1997 and for prior periods include Siebel's
results of operations for the calendar periods noted and Scopus' results of
operations for the fiscal periods ending three months later. See note 7.
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 persuasive evidence of an arrangement exists and delivery has
occurred, provided the fee is fixed and determinable, collectibility is probable
and the arrangement does not require significant customization of the software.
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.
The Company's customer base includes a number of its suppliers (e.g. AT&T,
BankBoston Robertson Stephens, Bank of America, Cabletron Systems, The Charles
Schwab Corporation, Cigna Corporation, Cisco Systems, Inc., Compaq Computer
Corporation, Dell Computer Corporation, Lucent Technologies, MCI
Telecommunications Corporation, Microsoft Corporation, NationsBank Montgomery
Securities, PeopleSoft, Inc., Sequent Computer Systems, Inc., Siemens Medical
and Sun Microsystems, Inc.). On
<PAGE>
occasion, the Company has purchased goods and/or services for company operations
from these vendors at or about the same time Siebel has licensed its software to
these organizations. These transactions are separately negotiated and recorded
at terms the Company considers to be arm's-length.
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
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 within
accumulated other comprehensive other losses.
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.
SOFTWARE DEVELOPMENT COSTS
Software development costs associated with new 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 was
immaterial in 1996 and 1995.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. 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
<PAGE>
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
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. During
all periods prior to the Company's initial public offering, no equity
instruments were issued for nominal consideration. Net income (loss) 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 using the
intrinsic value method. As such, compensation expense is recorded if on the date
of grant the current market price of the underlying stock exceeds 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 reported within accumulated other comprehensive losses.
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 any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's cash and cash equivalents, accounts
receivable, and accounts payable approximate their respective fair values
defined as the amount at which the instrument could be exchanged in a current
transaction between willing parties.
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. The Company does not have any long-lived assets it considers to be
impaired.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way public business enterprises are to
report information about operating segments in annual financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports. The Company will adopt SFAS No. 131 in
fiscal 1998. This new accounting standard is not expected to have a material
effect on the Company's annual consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative 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 Company's consolidated financial position or
results of operations.
(2) FINANCIAL STATEMENT DETAILS
Short-Term Investments. Short-term investments, $55,697,000 of which mature in
less than one year, and $36,302,000 of which mature in one to five years,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Certificates of deposit.................................................... $ - $ 1,325
Municipal securities....................................................... 91,999 72,808
------- -------
$91,999 $74,133
======= =======
</TABLE>
Accounts Receivable, Net. Accounts receivable, net, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Trade accounts receivable................................................. $67,344 $31,187
Less: allowances for doubtful accounts and returns........................ 4,288 1,940
------- -------
$63,056 $29,247
======= =======
</TABLE>
<PAGE>
Property and Equipment, Net. Property and equipment, net, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Computer equipment........................................................ $19,728 $14,120
Furniture and fixtures.................................................... 6,096 3,051
Computer software......................................................... 8,446 2,202
Leasehold improvements.................................................... 3,346 907
------- -------
37,616 20,280
Less: accumulated depreciation............................................ 12,773 4,982
------- -------
$24,843 $15,298
======= =======
</TABLE>
Accrued Expenses. Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Bonuses................................................................... $ 7,092 $ 1,672
Commissions............................................................... 5,713 4,129
Vacation.................................................................. 2,312 2,280
Sales tax................................................................. 3,026 1,103
Other..................................................................... 10,219 4,761
------- -------
$28,362 $13,945
======= =======
</TABLE>
Other Income, Net. Other income, net, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Interest income................................................. $6,019 $3,281 $ 653
Interest expense................................................ (4) (8) (29)
Other........................................................... (641) (155) -
------ ------ -----
$5,374 $3,118 $ 624
====== ====== =====
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
As of December 31, 1997, the Company leased facilities under noncancelable
operating leases expiring between 1998 and 2006. Future minimum lease payments
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998........................................................................... $ 5,042
1999........................................................................... 4,193
2000........................................................................... 3,755
2001........................................................................... 3,652
2002........................................................................... 2,912
Thereafter..................................................................... 6,395
-------
$25,949
=======
</TABLE>
<PAGE>
Rent expense for the years ended December 31, 1997, 1996 and 1995, was
$6,160,000, $2,834,000, and $1,050,000, respectively.
EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan that allows eligible employees to contribute up
to 20% of their compensation, limited to $10,000 in 1998. Employee contributions
and earnings thereon vest immediately. Although, the Company may make
discretionary contributions to the 401(k) plan, none have been made to date.
LEGAL ACTIONS
The Company is engaged in certain legal actions arising in the ordinary course
of business. 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 consolidated financial position or results of operations, although
there can be no assurance as to the outcome of such litigation.
(4) STOCKHOLDERS' EQUITY
STOCK SPLIT
All share and per share amounts for all periods presented have been restated
to reflect a two-for-one stock split (effected in the form of a stock dividend),
which was effective March 20, 1998.
NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the number of shares used in the basic
and diluted earnings per share computation for the periods presented (in
thousands):
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Shares used in basic net income (loss) per share
computation...................................... 83,798 69,736 62,000
Effect of dilutive potential common shares........ -- 8,462 409
Shares used in diluted net income (loss) per ------------ ------------ -----------
share computation................................ 83,798 78,198 62,409
============ ============ ===========
</TABLE>
The Company excluded potentially dilutive securities for each period presented
from its diluted net income (loss) per share computation because either the
exercise price of the securities exceeded the average fair value of the
Company's common stock or the Company had net losses, and, therefore, these
securities were anti-dilutive. For the year ended December 31, 1997, the
Company excluded 10,716,882 employee stock options with a weighted average
exercise price of $7.48 per share as potentially dilutive common shares.
EMPLOYEE STOCK OPTION AND PURCHASE PLANS
The 1996 Equity Incentive Plan (the "Plan"), which amended and restated the
Company's 1994 Stock Option Plan and 1996 Supplemental Stock Option Plan,
provides for the issuance of up to an aggregate of 40,000,000 shares of common
stock to employees, directors and consultants. The Plan provides for the
issuance of incentive and nonstatutory stock options, restricted stock purchase
awards, stock bonuses and stock appreciation rights.
Under the Plan, the exercise price for incentive stock options is at least
100% of the fair market value on the date of the grant. The exercise price for
incentive stock options is at least 110% of the fair market
<PAGE>
value on the date of the grant for persons with greater than 10% of the voting
power of all classes of stock. Options generally expire in 10 years; however,
incentive stock options may expire in 5 years if the optionee owns stock
representing more than 10% of the voting power of all classes of stock. Vesting
periods are determined by the Board of Directors and generally provide for
shares to vest ratably over 5 years.
The Plan also allows for the exercise of certain unvested options. Shares of
common stock issued to employees upon exercise of unvested options are subject
to repurchase by the Company at the original exercise price. The Company's
ability to repurchase these shares expires at a rate equivalent to the current
vesting schedule of each option. As of December 31, 1997, 3,505,000 shares of
common stock had been issued to employees upon the exercise of unvested options,
which are subject to repurchase, at a weighted average repurchase price of $0.22
per share.
During the period from October 1995 through April 1996, the Company granted
options to purchase an aggregate of 16,305,000 shares of common stock at
exercise prices ranging from $.13 to $1.63 per share. Based in part on an
independent appraisal obtained by the Company's Board of Directors, and other
factors, the Company recorded $748,000 of deferred compensation expense in 1995
and an additional $893,000 of deferred compensation expense in 1996 relating to
these options. These amounts are being amortized over the vesting period of the
individual options, generally five years.
The Company has assumed certain options granted to former employees of
acquired companies (the "Acquired Options"). The Acquired Options were assumed
by the Company outside of the Plan, but all are administered as if issued under
the Plan. All of the Acquired Options have been adjusted to give effect to the
conversion under the terms of the Agreements and Plans of Reorganization between
the Company and the companies acquired. The Acquired Options generally become
exercisable over a four year period and generally expire either five or ten
years from the date of grant. No additional options will be granted under any of
the acquired companies' plans.
Combined plans activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE
AVAILABLE NUMBER PRICE
FOR GRANT OF SHARES PER SHARE
-------------- -------------- ------------
<S> <C> <C> <C>
Balances, December 31, 1994........................................ 13,312,493 604,566 $ 0.71
Additional shares authorized.................................... 1,310,576 --
Options granted................................................. (7,207,100) 7,207,100 $ 0.62
Options exercised............................................... -- (1,314,352) $ 0.10
Options canceled................................................ 1,209,498 (1,209,498) $ 0.22
----------- ----------
Balances, December 31, 1995........................................ 8,625,467 5,287,816 $ 0.85
Additional shares authorized.................................... 14,700,000 --
Options granted................................................. (19,928,944) 19,928,944 $ 3.83
Options exercised............................................... -- (2,674,624) $ 0.45
Options canceled................................................ 1,355,842 (1,355,842) $ 2.20
----------- ----------
Balances, December 31, 1996........................................ 4,752,365 21,186,294 $ 3.61
Additional shares authorized.................................... 16,000,000 --
Options granted................................................. (13,330,274) 13,330,274 $16.55
Options exercised............................................... -- (2,067,303) $ 2.25
Options canceled................................................ 5,409,831 (5,409,831) $16.69
----------- ----------
Balances, December 31, 1997........................................ 12,831,922 27,039,434 $ 7.48
=========== ==========
</TABLE>
<PAGE>
The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OF OUTSTANDING CONTRACTUAL EXERCISE OF OUTSTANDING EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------------ ---------------- ------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
$ 0.00 - 0.82.......... 5,542,735 8.1 $ 0.54 3,624,064 $ 0.45
$ 1.38 - 4.25.......... 7,808,072 8.3 $ 1.90 1,833,143 $ 1.92
$ 5.81 - 8.44.......... 1,871,514 9.0 $ 7.94 160,069 $ 6.55
$10.99 -14.88.......... 8,836,570 9.1 $12.55 1,119,851 $12.52
$16.14 -20.75.......... 2,955,811 9.7 $19.50 33,284 $17.20
$26.44 -39.83.......... 24,732 6.7 $36.34 2,890 $33.30
---------- ---------
$ 0.00 -39.83.......... 27,039,434 8.7 $ 7.48 6,773,301 $ 3.08
========== =========
</TABLE>
In May 1996, the Company adopted the 1996 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 1,400,000 shares for issuance thereunder. The
Purchase Plan became effective upon the completion of the Company's initial
public offering. In January 1997, the Board of Directors of the Company adopted
an amendment to the Purchase Plan to increase the number of shares authorized
for issuance under the Purchase Plan to 3,400,000 shares. The Purchase Plan
permits eligible employees to purchase common stock, through payroll deductions
of up to 15% of the employee's compensation, at a price equal to 85% of the fair
market value of the common stock at either the beginning or the end of each
offering period, whichever is lower. In addition, Scopus had adopted the 1995
Employee Stock Purchase Plan (the "Acquired Purchase Plan"). All shares
purchased under the Acquired Purchase Plan have been adjusted to give effect to
the conversion under the terms of the Agreement and Plan of Merger and
Reorganization between the Company and Scopus. No additional shares will be
issued under the Acquired Purchase Plan. As of December 31, 1997, 921,421
shares had been purchased under the Purchase Plan and the Acquired Purchase
Plan.
FAIR VALUE INFORMATION
The Company has elected to continue to use the intrinsic value-based method to
account for all of its employee stock-based compensation plans. The Company has
recorded no compensation costs related to its stock option plans for the years
ended December 31, 1997, 1996 and 1995, except for the options granted during
the period from October 1995 through April 1996, because the exercise price of
each option equals or exceeds the fair value of the underlying common stock as
of the grant date for each stock option.
Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
effects on net income (loss) and net income (loss) per share data as if the
Company had elected to use the fair value approach to account for all its
employee stock-based compensation plans. Had compensation cost for the Company's
plans been determined consistent with the fair value approach enumerated in SFAS
No. 123, the Company's net income (loss) and net income (loss) per share for the
years ended December 31, 1997, 1996 and 1995 would have been as indicated below
(in thousands, except per share data):
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $ (1,187) $12,861 $1,802
Pro forma................................................. $(13,939) $ 9,613 $1,591
Net income (loss) per diluted share:
As reported............................................... $ (0.01) $ 0.16 $ 0.03
Pro forma................................................. $ (0.17) $ 0.12 $ 0.03
Net income (loss) per basic share:
As reported............................................... $ (0.01) $ 0.18 $ 0.03
Pro forma................................................. $ (0.17) $ 0.14 $ 0.03
</TABLE>
The fair value of options granted was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate...................................... 6.1% 6.0% 5.9%
Expected life (in years)..................................... 3.5 3.5 3.6
Expected volatility.......................................... 83.9% 69.2% 70.4%
</TABLE>
The fair value of employees' stock purchase rights under the Purchase Plan was
estimated using the Black-Scholes model with the following weighted average
assumptions used for purchases:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Risk-free interest rate...................................... 5.3% 5.5%
Expected life (in years)..................................... 0.7 0.5
Expected volatility.......................................... 83.9% 68.5%
</TABLE>
Under SFAS No. 123, the weighted average estimated fair value of employee
stock options granted at exercise price equal to market price at grant date
during 1997, 1996 and 1995 was $16.97, $3.72 and $0.09 per share, respectively.
(5) INCOME TAXES
The components of income tax expense for the years ended December 31, 1997,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
Current:
<S> <C> <C> <C>
Federal................................................................... $ 7,631 $ 4,984 $1,217
State..................................................................... 2,669 1,710 368
Foreign................................................................... 400 345 143
------- ------- ------
Total current.......................................................... 10,700 7,039 1,728
Deferred:
Federal................................................................... (1,349) (1,356) (563)
State..................................................................... (217) (173) (80)
------- ------- ------
Total deferred......................................................... (1,566) (1,529) (643)
------- ------- ------
Charge in lieu of taxes attributable to employer's stock option
plans................................................................ 4,046 2,173 --
------- ------- ------
Total income taxes..................................................... $13,180 $ 7,683 $1,085
======= ======= ======
</TABLE>
<PAGE>
The differences between the income tax expense computed at the federal
statutory rate of 35% and the Company's actual income tax expense for the years
ended December 31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Expected income tax expense............................................... $ 4,302 $7,119 $ 982
State income taxes, net of federal tax benefit............................ 1,864 1,196 203
In-process research and development....................................... 7,959 -- --
Research and experimentation credit....................................... (543) (537) (130)
Tax exempt interest....................................................... (995) (204) --
Other, net................................................................ 593 109 30
------- ------ ------
Total income taxes................................................... $13,180 $7,683 $1,085
======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1997 and 1996
are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- ----------
Deferred tax assets:
<S> <C> <C>
Deferred state taxes...................................................... $ 900 $ 573
Accruals and reserves, not currently taken for tax purposes............... 3,276 2,133
Net operating loss carryforward........................................... 602 --
------ ------
Deferred assets.......................................................... 4,778 2,706
Deferred tax liability--depreciation........................................ (162) (205)
------ ------
Net deferred assets...................................................... $4,616 $2,501
====== ======
</TABLE>
Management believes it is more likely than not that future operations will
generate sufficient taxable income to realize the deferred tax assets.
(6) RELATED PARTIES, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
Certain members of the Company's Board of Directors serve as officers for
customers of the Company. In 1997, aggregate revenues associated with shipments
to these customers were $1,598,000 and accounts receivable from these customers
was $654,000. No customer has accounted for 10% or more of total revenues in
1997, 1996, or 1995.
The Company's export sales for the years ended December 31, 1997 and 1996 were
$41.8 million and $7.7 million, respectively, (27% and 10% of total license
revenues, respectively), and were immaterial in 1995. The Company's export
sales are made principally in Europe and Asia.
(7) ACQUISITIONS
SCOPUS TECHNOLOGY, INC.
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 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.
<PAGE>
The transaction has been accounted for as a pooling of interests. Accordingly,
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 as of December 31, 1997 and for prior periods include
Siebel's results of operations for the calendar periods noted and Scopus'
results of operations for the fiscal periods ending three months later.
Beginning on January 1, 1998, the restated financial statements combine the
operating results of Siebel and Scopus for the calendar periods noted.
The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow (in thousands).
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1996 1995
-------------- ------------ ------------
Total revenues:
<S> <C> <C> <C>
Siebel................. $118,775 $ 39,152 $ 8,038
Scopus................. 88,853 62,210 27,796
-------- -------- -------
$207,628 $101,362 $35,834
======== ======== =======
Net income (loss):
Siebel................. $ (2,427) $ 5,025 $ 317
Scopus................. 1,240 7,836 1,485
-------- -------- -------
$ (1,187) $ 12,861 $ 1,802
======== ======== =======
</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 $2,930,000 in fiscal 1997, $580,000 in
fiscal 1996, and $505,000 in fiscal 1995.
INTERACTIVE WORKPLACE, INC
On October 1, 1997, the Company issued shares of common stock in exchange for
all outstanding securities of privately-held InterActive WorkPlace, Inc.
("InterActive"), a developer of intranet-based business intelligence software
technology. The transaction was valued at approximately $15 million and was
accounted for by the purchase method of accounting. Accordingly, the operating
results of InterActive have been included in the accompanying consolidated
financial statements of the Company from the date of acquisition. Under the
terms of the agreement, InterActive's securityholders received or will receive
up to approximately 854,000 shares of the Company's common stock in exchange for
all outstanding shares in InterActive. Additionally, InterActive optionees
received options to purchase an aggregate of approximately 64,000 shares of the
Company's common stock in exchange for their options to purchase InterActive
common stock. The excess of the purchase price over the fair value of the net
assets acquired was allocated to purchased in-process research and development
and intangible assets of $14,017,000 and $104,000, respectively. The purchased
in-process research and development was charged to operations in the fourth
quarter of 1997. The amounts allocated to intangible assets will be amortized
over three years.
The results of operations of InterActive prior to the acquisition date are not
considered material to the consolidated results of operations of the Company
and, accordingly, pro forma financial information has not been presented.
NOMADIC SYSTEMS, INC
On November 1, 1997, the Company issued shares of common stock in exchange for
all outstanding securities of privately-held Nomadic Systems, Inc. ("Nomadic"),
a provider of innovative business solutions to pharmaceutical sales forces. The
transaction was valued at approximately $11 million and was accounted
<PAGE>
for by the purchase method of accounting. Accordingly, the operating results of
Nomadic have been included in the accompanying consolidated financial statements
of the Company from the date of acquisition. Under the terms of the agreement,
Nomadic's securityholders received approximately 600,000 shares of the Company's
common stock in exchange for all outstanding shares of Nomadic. The excess of
the purchase price over the fair value of the net assets acquired was allocated
to purchased in-process research and development and intangible assets of
$8,723,000 and $1,553,000, respectively. The purchased in-process research and
development was charged to operations in the fourth quarter of 1997. The amounts
allocated to intangible assets will be amortized over three years.
The results of operations of Nomadic prior to the acquisition date are not
considered material to the consolidated results of operations of the Company
and, accordingly, pro forma financial statement information has not been
presented.
CLEAR WITH COMPUTERS, INC.
The Company incurred merger costs of approximately $3.3 million in the third
quarter of 1997 in connection with its planned merger with Clear With Computers,
Inc. The merger plan was terminated early in the fourth quarter of 1997.
<PAGE>
SCHEDULE II
SIEBEL SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO
BEGINNING COSTS AND BALANCE AT
OF YEAR EXPENSES DEDUCTIONS END OF YEAR
------------- -------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997.............. $1,940 $4,920 $2,572 $4,288
Year ended December 31, 1996.............. $ 665 $2,636 $1,361 $1,940
Year ended December 31, 1995.............. $ 349 $1,072 $ 756 $ 665
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
- -----------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Operating Data
Net revenues.................................. $207,628 $101,362 $35,834
Operating income.............................. $ 6,619 $ 17,426 $ 2,263
Net income (loss)............................. $ (1,187) $ 12,861 $ 1,802
Pro forma net income *........................ $ 24,851 $ 12,861 $ 1,802
Net income (loss) per diluted share........... $ (0.01) $ 0.16 $ 0.03
Pro forma net income per diluted share *...... $ 0.26 $ 0.16 $ 0.03
Total assets.................................. $268,164 $206,945 $57,167
Total equity.................................. $209,368 $172,430 $42,884
</TABLE>
______________
* Excludes write-off of acquired research and development
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
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.
This Report contains forward looking statements that involve risks and
uncertainties. The Company's future financial results are subject to a number of
risk factors which may cause the Company's actual results to vary, perhaps
materially, from current expectations. Some of these factors are discussed in
"Risk Factors" below and elsewhere in this Report.
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
<PAGE>
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, consisting 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.
The transaction has been accounted for as a pooling of interests. Accordingly,
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.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the three
years ended December 31, 1997 expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Revenues: % % %
Software............................................... 75.6 79.3 74.2
Maintenance, consulting and other...................... 24.4 20.7 25.8
----- ----- -----
Total revenues...................................... 100.0 100.0 100.0
Cost of revenues:
Software............................................... 2.1 2.2 2.5
Maintenance, consulting and other...................... 13.9 13.0 20.4
----- ----- -----
Total cost of revenues.............................. 16.0 15.2 22.9
----- ----- -----
Gross margin........................................ 84.0 84.8 77.1
Operating expenses:
Product development.................................... 12.6 14.6 22.9
Sales and marketing.................................... 47.6 43.4 38.5
General and administrative............................. 8.2 9.6 9.4
Merger termination costs............................... 1.6 -- --
Write-off of acquired research and development......... 11.0 -- --
----- ----- -----
Total operating expenses............................ 80.8 67.6 70.8
----- ----- -----
Operating income.................................... 3.2 17.2 6.3
Other income, net......................................... 2.6 3.1 1.7
----- ----- -----
Income before taxes................................. 5.8 20.3 8.0
Income taxes.............................................. 6.3 7.6 3.0
----- ----- -----
Net income (loss)................................... (0.5) 12.7 5.0
===== ===== =====
</TABLE>
REVENUES
Software. License revenues increased to $156,971,000 for the year ended
December 31, 1997 from $80,413,000 and $26,589,000 for the years ended December
31, 1996 and 1995, respectively. License revenues as a percentage of total
revenues were 76% in the fiscal 1997 period as compared to 79% in the fiscal
1996 period and 74% in the fiscal 1995 period. License revenues increased in
absolute dollar amount during these periods from the respective prior year
periods due to an increase in the number of licenses of Siebel applications sold
to new and existing customers and also due to licenses of new modules, released
with the latest version of Siebel applications, to existing users of Siebel base
applications. This increase in the number of licenses was primarily due to
continued demand by new and existing customers for products in the Siebel
applications family both in the United States and internationally. The Company
expects that license revenues will remain the same or decrease as a percentage
of total revenues.
Maintenance, Consulting and Other. Maintenance, consulting and other revenues
increased to $50,657,000 for the year ended December 31, 1997 from $20,949,000
and $9,245,000 for the years ended
<PAGE>
December 31, 1996 and 1995, respectively, and as a percentage of total revenues
were 24% in the fiscal 1997 period as compared to 21% and 26% in the fiscal 1996
and 1995 periods, respectively. These increases in absolute dollar amount 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 increased maintenance revenues derived from the
Company's growing installed base and due to the Company's expansion of its
consulting organization to meet anticipated customer demands in connection with
product implementation.
A relatively small number of customers account for a significant percentage of
the Company's license revenues. For 1997 and 1996, sales to the Company's ten
largest customers accounted for 27% and 28% of total revenues, respectively. The
Company expects that licenses of its products to a limited number of customers
will continue to account for a large percentage of revenue for the foreseeable
future.
The Company markets its products in the United States through its direct sales
force and internationally through its sales force and distributors in Japan.
International revenues accounted for 27% and 10% of total revenues in 1997 and
1996, respectively. The Company is increasing its international sales force and
is seeking to establish distribution relationships with appropriate strategic
partners and expects international revenues will continue to account for a
substantial portion of total revenues in the future.
COST OF REVENUES
Software. Cost of software license revenues includes third-party software
royalties, product packaging, documentation and production. Cost of license
revenues through December 31, 1997 has averaged less than 3% 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 consist primarily of personnel, facility and systems costs incurred in
providing customer support. Cost of maintenance, consulting and other revenues
increased to $28,787,000 for the year ended December 31, 1997 from $13,183,000
and $7,300,000 for the years ended December 31, 1996 and 1995, respectively, and
as a percentage of total revenues were 14% for the year ended December 31, 1997
as compared to 13% in the fiscal 1996 and 20% in fiscal 1995. 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 growth in
the Company's consulting business. The Company expects that maintenance,
consulting and other costs will continue to increase in absolute dollar amount
as the Company expands both its customer support organization to support a
growing installed base and its consulting organization to meet anticipated
customer demands in 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 $26,105,000 for the year ended December 31,
1997 from $14,775,000 and $8,198,000 for the years ended December 31, 1996 and
1995, respectively, and decreased as a percentage of total revenues to 13% in
the fiscal 1995 period from 15% and 23% in the fiscal 1996 and 1995 periods,
respectively. 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
<PAGE>
similar percentage of total revenues as in 1997. 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 $98,748,000 for the year ended December 31, 1997
from $44,044,000 and $13,797,000 for the years ended December 31, 1996 and 1995,
respectively, and as a percentage of total revenues sales and marketing expenses
increased to 48% in 1997, from 43% and 39% in the fiscal 1996 and 1995 periods,
respectively. The increases in the dollar amount of sales and marketing expenses
reflect primarily the hiring of additional sales and marketing personnel and,
costs associated with expanded promotional activities, and indirect merger-
related costs, such as corporate sales training and marketing programs. 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 promotional activities. These expenses are
expected to remain at a similar percentage of total revenues as in 1997.
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 $16,938,000
for the year ended December 31, 1997 from $9,737,000 and $3,361,000 for the
years ended December 31, 1996 and 1995, respectively, and as a percentage of
total revenues were 8% in the fiscal 1997 period and 10% and 9% in the fiscal
1996 and 1995 periods, respectively. 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 and the expenses associated with being a public
company. The Company anticipates that its general and administrative expenses as
a percentage of total revenues should remain at a similar percentage as in 1997.
Merger Termination Costs. The Company incurred merger costs of approximately
$3.3 million in the third quarter of 1997 in connection with its planned merger
with Clear With Computers, Inc. The merger plan was terminated early in the
fourth quarter of 1997.
Write-off of Acquired Research and Development. On October 1, 1997, the
Company completed its purchase of InterActive WorkPlace, Inc. ("InterActive"), a
developer of intranet-based business intelligence software technology that has
been incorporated into the Siebel InterActive product. The Company took a one-
time charge of $14,017,000 million, or $0.17 per diluted share, pursuant to an
allocation of the purchase price by an independent appraiser, as a write-off of
acquired research and development. The acquisition was accounted for by the
purchase method of accounting.
On November 1, 1997, the Company completed its purchase of Nomadic Systems,
Inc. ("Nomadic"), a provider of innovative business solutions to pharmaceutical
sales forces. Technology acquired with Nomadic has been incorporated into the
Siebel Pharma product. The Company took a one-time charge of $8,723,000 or $0.10
per diluted share, pursuant to an allocation of the purchase price by an
independent appraiser, as a write-off of acquired research and development. The
acquisition was accounted for by the purchase method of accounting.
OPERATING INCOME AND OPERATING MARGIN
Operating income decreased to $6,619,000 for the year ended December 31, 1997
from $17,426,000 for the year ended December 31, 1996 and increased from
$2,263,000 for the year ended December 31, 1995 and operating margin was 3% in
the fiscal 1997 period, as compared with 17% and 6% in the fiscal 1996 and 1995
periods, respectively. Excluding merger termination costs, the write-off of
acquired research and development and merger related expenses, operating income
increased to
<PAGE>
$32,657,000 for the year ended December 31, 1997 from $17,426,000 and $2,263,000
for the years ended December 31, 1996 and 1995, respectively, and operating
margin was 16% in the fiscal 1997 period as compared to 17% and 6% in the fiscal
1996 and 1995 periods, respectively. These increases in operating income and
margin, excluding merger termination costs and the write-off of in-process
research and development, were due to increases in license revenues without a
proportional increase in cost, particularly costs associated with the hiring of
new personnel. The Company expects operating margins, net of merger-related
expenses, to decrease as it continues to invest 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
Income taxes are comprised primarily of federal and state taxes. The provision
for income taxes was $13,180,000 $1,085,000, $7,683,000, and in 1997, 1996, and
1995, respectively. The provision for income taxes as a percentage of pretax
income was 110%, 38% and 37%, respectively. The tax rate in 1997 was higher than
the rates in 1996 and 1995 primarily due to non-deductible items related to
acquisitions. The Company expects its effective tax rate to be approximately
38%, excluding the effect of non-recurring, non-deductible costs such as merger-
related expenses.
NET INCOME (LOSS)
The Company had a net loss of $1,187,000 for the year ended December 31, 1997
compared to net income of $12,861,000 and net income of $1,802,000 for the years
ended December 31, 1996 and 1995, respectively. Net loss per share was $0.01 per
diluted share in fiscal 1997, compared with net income of $0.16 and $0.03 in the
fiscal 1996 and 1995 periods, respectively.
Excluding merger termination costs and the write-off of acquired research and
development, the Company had pro-forma net income of $23,630,000 for the year
ended December 31, 1997 compared to net income of $12,861,000 and $1,802,000 for
the years ended December 31, 1996 and 1995, respectively. Net income per diluted
share was $0.28 per share in fiscal 1997, compared with net income of $0.16 and
$0.03 in the fiscal 1996 and 1995 periods, respectively. Pro-forma net income
as a percentage of total revenues was 11% in the year ended December 31, 1997
compared to 13% and 5% in the years ended December 31, 1996 and 1995,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments increased to
$162,201,000 as of December 31, 1997 from $151,628,000 as of December 31, 1996,
representing approximately 60% and 73% of total assets, respectively. This
increase was primarily attributable to increases in accrued expenses and
deferred revenue, partially offset by increases in accounts receivable and
purchases of property and equipment. The Company has generated positive cash
flow in 1997, 1996 and 1995.
The Company has used fully serviced office suites on a month-to-month rental
basis to establish its presence in new locations. As these locations expand,
the Company expects to transition more of the office suites to leased space.
This transition will involve build-out of tenant improvements, acquisition of
furniture and fixtures, and other capital costs, which were not incurred in
connection with the use of fully serviced office suites. The Company has
already built-out leased facilities, both domestically and internationally, and
expects this trend to continue. Accordingly, capital expenditures are expected
to increase during 1998 and in 1999.
<PAGE>
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.
<PAGE>
EXHIBIT 23.1
REPORT AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Siebel Systems, Inc.
The audits referred to in our report dated July 16, 1998, include the related
financial statement schedule as of December 31, 1997, and for each of the years
in the three-year period ended December 31, 1997. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our
audits. In our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to incorporation by reference in the registration statements (Nos.
333-07893, 333-22763, and 333-40437) on Form S-8 and the registration statements
(Nos. 333-36967 and 333-40259) on Form S-3 of Siebel Systems, Inc. of our report
dated July 16, 1998, relating to the consolidated balance sheets of Siebel
Systems, Inc. and subsidiaries as of December 31, 1997, and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997,
and the related consolidated financial statement schedule, which report is
included herein.
/s/ KPMG Peat Marwick LLP
Mountain View, California
November 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIEBEL
SYSTEMS, INC.'S AUDITED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER
31, 1997, INCLUDED AS APPENDIX A IN THE COMPANY'S CURRENT REPORT ON FORM 8-K
FILED ON NOVEMBER 25, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS. THE SUMMARY FINANCIAL INFORMATION FOR THE THREE YEARS
ENDED DECEMBER 31, 1997 HAS 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. THE SUMMARY FINANCIAL INFORMATION FOR THE YEAR ENDED
DECEMBER 30, 1997 HAS PREVIOUSLY BEEN SUBMITTED.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 0<F1> 77,495
<SECURITIES> 0<F1> 74,133
<RECEIVABLES> 0<F1> 29,247
<ALLOWANCES> 0<F1> 0
<INVENTORY> 0<F1> 0
<CURRENT-ASSETS> 0<F1> 188,536
<PP&E> 0<F1> 15,298
<DEPRECIATION> 0<F1> 0
<TOTAL-ASSETS> 0<F1> 206,945
<CURRENT-LIABILITIES> 0<F1> 34,309
<BONDS> 0<F1> 0
0<F1> 0
0<F1> 0
<COMMON> 0<F1> 157,665
<OTHER-SE> 0<F1> 14,766
<TOTAL-LIABILITY-AND-EQUITY> 0<F1> 206,945
<SALES> 26,589 80,413
<TOTAL-REVENUES> 35,834 101,362
<CGS> 915 2,197
<TOTAL-COSTS> 8,215 15,380
<OTHER-EXPENSES> 25,356 68,556
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,887 20,544
<INCOME-TAX> 1,085 7,683
<INCOME-CONTINUING> 1,802 12,861
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,802 12,861
<EPS-PRIMARY> 0.03 0.18
<EPS-DILUTED> 0.03 0.16
<FN>
<F1>The December 31, 1995 balance sheet has not been restated.
</FN>
</TABLE>
