<PAGE>
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 SEPTEMBER 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 November 2, 1998, was 88,738,630.
<PAGE>
SIEBEL SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
a) Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997 3
b) Consolidated Statements of Operations for the three
and nine months ended September 30, 1998 and 1997 4
c) Consolidated Statements of Cash Flows
for the nine months ended September 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 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SIEBEL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 105,700 $ 70,202
Short-term investments 123,476 91,999
Accounts receivable, net 107,849 63,056
Deferred income taxes 4,778 4,778
Prepaids and other 8,033 6,701
-------------- --------------
Total current assets 349,836 236,736
Property and equipment, net 30,168 24,843
Other assets 5,697 6,585
-------------- --------------
Total assets $ 385,701 $ 268,164
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 5,554 $ 5,684
Accrued expenses 71,565 28,362
Income taxes payable 8,401 2,345
Deferred revenue 43,958 22,243
-------------- --------------
Total current liabilities 129,478 58,634
Deferred income taxes 162 162
-------------- --------------
Total liabilities 129,640 58,796
-------------- --------------
Stockholders' equity:
Common stock; $.001 par value; 300,000 shares
authorized; 88,402 and 85,864 shares issued
and outstanding, respectively 88 86
Additional paid-in capital 220,509 195,432
Notes receivable from stockholders (406) (406)
Deferred compensation (426) (639)
Accumulated other comprehensive losses (501) (365)
Retained earnings 36,797 15,260
-------------- --------------
Total stockholders' equity 256,061 209,368
-------------- --------------
Total liabilities and stockholders' equity $ 385,701 $ 268,164
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SIEBEL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software $ 77,225 $ 41,486 $ 200,567 $ 104,435
Maintenance, consulting and other 26,969 13,750 67,815 33,962
-------- -------- --------- ---------
Total revenues 104,194 55,236 268,382 138,397
-------- -------- --------- ---------
Cost of revenues:
Software 993 1,346 4,295 2,843
Maintenance, consulting and other 16,698 7,826 42,730 19,654
-------- -------- --------- ---------
Total cost of revenues 17,691 9,172 47,025 22,497
-------- -------- --------- ---------
Gross margin 86,503 46,064 221,357 115,900
-------- -------- --------- ---------
Operating expenses:
Product development 11,572 6,607 30,862 17,272
Sales and marketing 47,242 27,204 122,163 67,211
General and administrative 6,915 4,392 17,724 12,232
Merger related expenses - 3,298 13,500 3,298
-------- -------- --------- ---------
Total operating expenses 65,729 41,501 184,249 100,013
-------- -------- --------- ---------
Operating income 20,774 4,563 37,108 15,887
Other income, net 1,548 1,371 4,476 3,953
-------- -------- --------- ---------
Income before income taxes 22,322 5,934 41,584 19,840
Income taxes 8,259 2,279 18,583 7,543
-------- -------- --------- ---------
Net income $ 14,063 $ 3,655 $ 23,001 $ 12,297
======== ======== ========= =========
Diluted net income per share $ 0.14 $ 0.04 $ 0.23 $ 0.13
======== ======== ========= =========
Shares used in diluted net income
per share computation 100,348 95,280 99,765 93,379
======== ======== ========= =========
Basic net income per share $ 0.16 $ 0.04 $ 0.26 $ 0.15
======== ======== ========= =========
Shares used in basic net income
per share computation 88,048 83,873 87,075 83,304
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SIEBEL SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,001 $ 12,297
Adjustments to reconcile net income to net cash
provided by operating activities:
Compensation related to stock options 193 155
Depreciation and amortization 7,969 5,673
Tax benefit from exercise of stock options 8,061 775
Loss on disposal of property and equipment 242 487
Allowance for doubtful accounts and returns 3,964 953
Changes in operating assets and liabilities:
Accounts receivable (50,454) (31,149)
Prepaids and other (563) (2,836)
Accounts payable 1,377 (1,228)
Accrued expenses 41,930 12,714
Income taxes payable 5,010 (1,035)
Deferred revenue 23,139 5,048
--------- ---------
Net cash provided by operating activities 63,869 1,854
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (15,837) (12,917)
Purchases and sales of short-term investments, net (28,339) (11,472)
Other assets 2,514 (2,209)
--------- ---------
Net cash used in investing activities (41,662) (26,598)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 17,431 4,583
Repayment of stockholder notes - 102
--------- ---------
Net cash provided by financing activities 17,431 4,685
--------- ---------
Change in cash and cash equivalents 39,638 (20,059)
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 $ 105,700 $ 57,436
========= =========
Supplemental disclosures of cash flows information:
Cash paid for income taxes $ 3,154 $ 7,867
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
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.
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 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 at terms the
Company considers to be arm's-length. During the three months ended
September 30, 1998, the Company recognized revenue of approximately $10.8
million in connection with such transactions.
6
<PAGE>
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 as a
separate component of stockholders' equity 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
$6,324,000 for the nine months ended September 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.
7
<PAGE>
NET INCOME 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.
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 shown as a separate component of
stockholders' equity 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
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 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
new accounting standard is not expected to have a material effect on the
Company's 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 financial position of the Company.
8
<PAGE>
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 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. As of September 30, 1998, the Company had $5.0 million remaining
in accrued merger expenses, which the Company expects to pay in the fourth
quarter of 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.
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 for the three and
nine month periods ended September 30, 1997 include Siebel's results of
operations for those periods and Scopus' results of operations for the
three and nine month periods ended December 31, 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 are 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.
<TABLE>
<CAPTION>
Three months ended Years ended
(in thousands, unaudited) 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.
9
<PAGE>
3. NET INCOME PER SHARE
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 Nine months ended
September 30, September 30,
---------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares used in basic net income per share
computation 88,048 83,873 87,075 83,304
Effect of dilutive potential common shares 12,300 11,407 12,690 10,075
------------ ------------ ----------- -----------
Shares used in diluted net income per share
computation 100,348 95,280 99,765 93,379
============ ============ ============ ============
</TABLE>
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 prior
periods will be reclassified, as required. The Company's total
comprehensive earnings were as follows:
<TABLE>
<CAPTION>
(in thousands, unaudited) Three months ended Nine months ended
September 30, September 30,
-------------------------- ------------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net income $14,063 $3,655 $23,001 $12,297
Translation adjustment 224 (22) (136) (22)
--------- --------- --------- ---------
Total comprehensive income $14,287 $3,633 $22,865 $12,275
========= ========= ========= =========
</TABLE>
10
<PAGE>
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,
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. As of September 30, 1998, the Company
had $5.0 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. 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 for the three and nine month periods ended September 30,
1997 include Siebel's results of
11
<PAGE>
operations for those periods and Scopus' results of operations for the three and
nine month periods ended December 31, 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 $77,225,000 for the three months ended
September 30, 1998 from $41,486,000 for the three months ended September 30,
1997 and decreased as a percentage of total revenues to 74% in the third quarter
1998 from 75% in the third quarter 1997. For the nine months ended September
30, 1998, license revenue increased to $200,567,000 from $104,435,000 for the
nine months ended September 30, 1997 and remained constant at 75% as a
percentage of total revenues in the fiscal 1998 and fiscal 1997 periods.
License revenues increased in absolute dollar amount during these periods due to
an increase in the number of licensed Siebel Enterprise and Siebel Series 5
applications at 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. The 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.
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 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 at terms the Company considers to be arm's-length. During
the three months ended September 30, 1998, the Company recognized revenue of
approximately $10.8 million in connection with such transactions.
Maintenance, Consulting and Other. Maintenance, consulting and other revenues
increased to $26,969,000 for the three months ended September 30, 1998 from
$13,750,000 for the three months ended September 30, 1997 and increased as a
percentage of total revenues to 26% in the third quarter 1998 from 25% in the
third quarter 1997. For the nine months ended September 30, 1998, maintenance,
consulting and other revenues increased to $67,815,000 from $33,962,000 for the
nine months ended September 30, 1997 and as a percentage of total revenues was
25% for each of the nine month periods ended September 30, 1998 and 1997. The
increase in absolute dollar amount was due to growth in the Company's consulting
business and growth in the installed base of customers on maintenance, including
maintenance renewal 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 third party royalties,
product packaging, documentation and production. Cost of license revenues
decreased to $993,000 for the three months ended September 30, 1998 from
$1,346,000 for the three months ended September 30, 1997 and decreased as a
percentage of total revenues to 1% in the third quarter 1998 from 2% in the
third quarter 1997. The decrease is primarily due to lower third-party royalty
costs. For the nine months ended September 30, 1998, cost of software license
revenues increased to $4,295,000 from $2,843,000 for the nine months ended
September 30, 1997 and as a percentage of total revenues was 2% for each of the
nine months ended September 30, 1998 and 1997. 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.
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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 $16,698,000 for the three months ended September 30, 1998 from
$7,826,000 for the three months ended September 30, 1997 and increased as a
percentage of total revenues to 16% in the third quarter 1998 from 14% in the
third quarter 1997. For the nine months ended September 30, 1998, cost of
maintenance, consulting and other revenues increased to $42,730,000 from
$19,654,000 for the nine months ended September 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
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 $11,572,000 for the three months ended
September 30, 1998 from $6,607,000 for the three months ended September 30, 1997
and decreased as a percentage of total revenues to 11% in the third quarter 1998
from 12% in the third quarter 1997. For the nine months ended September 30,
1998, product development expenses increased to $30,862,000 from $17,272,000 for
the nine months ended September 30, 1997 and decreased as a percentage of total
revenues to 11% in the fiscal 1998 period from 12% 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 nine 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 $47,242,000 for the three months ended September
30, 1998 from $27,204,000 for the three months ended September 30, 1997 and
decreased as a percentage of total revenues to 45% in the third quarter 1998
from 49% in the third quarter 1997. For the nine months ended September 30,
1998, sales and marketing expenses increased to $122,163,000 from $67,211,000
for the nine months ended September 30, 1997 and decreased as a percentage of
total revenues to 46% in the fiscal 1998 period from 49% 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, 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 its promotional activities. These expenses are
expected to remain at a similar percentage of total revenues as the first nine
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 $6,915,000
for the three months ended September 30, 1998 from $4,392,000 for the three
months ended September 30, 1997 and decreased as a percentage of total revenues
to 7% in the third quarter 1998 from 8% in the third quarter 1997. For the nine
months ended September 30, 1998, general and administrative expenses increased
to $17,724,000 from $12,232,000 for the nine months ended September 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
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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 nine 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,
comprised primarily of investment bankers, attorneys, accountants and other
professional fees of $9.1 million and duplicate facilities and equipment of $3.1
million. As of September 30, 1998, the Company had $5.0 million remaining in
accrued merger expenses, which the Company expects to pay in the fourth quarter
of 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 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.
OPERATING INCOME AND OPERATING MARGIN
Operating income increased to $20,774,000 for the three months ended September
30, 1998 from $4,563,000 for the three months ended September 30, 1997 and
operating margin increased to 20% in the third quarter 1998 from 8% in the third
quarter 1997. For the nine months ended September 30, 1998, operating income
increased to $37,108,000 from $15,887,000 for the nine months ended September
30, 1997 and operating margin increased to 14% in the fiscal 1998 period from
11% in the fiscal 1997 period. These increases in operating income and margin
were primarily due to increased license revenues without a proportionate
increase in costs, particularly costs associated with the hiring of new
personnel. Excluding merger related expenses and merger termination costs,
operating income for the nine months ended September 30, 1998 increased to
$50,608,000 from $19,185,000 for the nine months ended September 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 nine
months of 1998 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
The provision for income taxes was $8,259,000 and $2,279,000 or 37% and 38% for
the three months ended September 30, 1998 and 1997, respectively. The provision
for income taxes was $18,583,000 and $7,543,000 or 45% and 38% for the nine
months ended September 30, 1998 and 1997, respectively. The effective tax rate
for the nine months ended September 30, 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
The Company had net income of $14,063,000 for the three months ended September
30, 1998 compared to net income of $3,655,000 for the three months ended
September 30, 1997. Diluted net income per share increased to $0.14 per share
in the third quarter of 1998 from net income of $0.04 per share in the
comparable period in 1997. Net income was 13% as a percentage of total revenues
for the three months ended September 30, 1998, compared to net income of 7% of
total revenues for the three months ended September 30, 1997. The Company had
net income of $23,001,000 for the nine months ended September 30, 1998 compared
to net income of $12,297,000 for the nine months ended September 30, 1997.
Diluted net income per share increased to $0.23 per share in the nine month
period ended September 30, 1998 from net income of $0.13 per share in the
comparable period in 1997. Net income was 9% as a percentage of total revenues
for each of the nine month periods ended September 30, 1998 and 1997.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments increased to
$229,176,000 as of September 30, 1998 from $162,201,000 as of December 31, 1997,
representing approximately 59% and 60% of total assets, respectively. 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 sales outstanding (DSO) in accounts receivable was 93 as of
September 30, 1998, compared with 82 as of December 31, 1997. The Company
expects DSO will fluctuate significantly in future quarters.
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 the fourth quarter of 1998 and in 1999.
The Company believes that the anticipated cash flows from operations, along with
existing 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 nine months ended September 30, 1998 were attributable to sales of Siebel
Sales Enterprise. The remaining license revenues were attributable to sales of
Siebel Service Enterprise, Siebel Marketing 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
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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. (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 owns 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 due 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%, 26% and 29%
of the Company's total license revenues in fiscal 1997 and the three and nine
months ended September 30, 1998, respectively.
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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 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.
The Company has not been significantly affected by the recent unfavorable
economic conditions in certain Asian and Pacific Rim countries. If the economic
conditions in these markets do not improve, this may have an adverse impact on
the Company's business, financial condition and results of operations.
European Monetary Unit (EMU). Siebel Enterprise applications have the
functionality to allow for dual currency reporting and information management,
however, failure of the software to operate properly could require the Company
to incur unanticipated expenses to address any problems. The Company is
currently reviewing its internal systems for any potential problems that may
arise in connection with the conversion to the EMU. In addition, the Company
utilizes other third party systems and software products that may or may not be
EMU compliant. Failure of third party products could have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, the Company's foreign exchange exposures to legacy sovereign
currencies of the participating countries in the EMU will become foreign
exchange exposures to the EMU upon conversion. Currently, the Company has no
foreign exchange contracts denominated in legacy sovereign currencies with
maturity of January 1, 1999 or later. To the extent hedging transactions are
entered for exposures after January 1, 1999, they will be denominated in euros
as applicable. Although the Company is not aware of any material financial risk
arising from the conversion to EMU, the conversion may require the Company to
incur unanticipated expenses to address any problems, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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 September 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.
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Year 2000. The Company is reviewing its information systems for any potential
problems that might arise as a result of 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. However, the Company utilizes third-party equipment
and software that may not be Year 2000 compliant. Although the Company is
currently taking steps to address the impact, the failure of such third-party
equipment or software to operate properly with regard to Year 2000 Issues and
thereafter could have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, the purchasing
patterns of customers or potential customers may be affected by Year 2000 Issues
as companies use significant resources to assess its current systems for Year
2000 compliance. These assessments could result in expenditures which may
reduce the funds available to purchase products and services, such as those
offered by the Company, which could have a material adverse affect on the
Company's business, financial condition and results of operations. Currently
supported Siebel Enterprise applications have been designed to be Year 2000
compliant, however, failure of the software to operate properly with regard to
Year 2000 and thereafter could require the Company to incur unanticipated
expenses to address any problems, which could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company is aware of certain customer installations of earlier generation Scopus
product which is not Year 2000 compliant. The Company has advised these
customers that their installations are not Year 2000 compliant and are no longer
supported by Siebel. Updates to current Year 2000 compliant versions of
Siebel's software have been made available to all customers who are current on
maintenance.
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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,
Scopus Technology, Inc. ("Scopus") and the members of the Scopus board of
directors 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. On October 26, 1998, the court
sustained a demurrer filed by the Company, with leave to amend. The Company
believes the suit is completely without merit and intends to contest vigorously
any future filings or amendments, although there can be no assurance as to the
outcome of any 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 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)
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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.
(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.
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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: November 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
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIEBEL
SYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERS ENDED SEPTEMBER 30,
1997 AND 1998 IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THE SUMMARY FINANCIAL INFORMATION FOR THE QUARTER ENDED SEPTEMBER
30, 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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> SEP-30-1997 SEP-30-1998
<CASH> 57,436 105,700
<SECURITIES> 85,605 123,476
<RECEIVABLES> 59,443 107,849
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 211,743 349,836
<PP&E> 22,114 30,168
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 240,415 385,701
<CURRENT-LIABILITIES> 48,453 129,478
<BONDS> 0 0
0 0
0 0
<COMMON> 164,045 220,597
<OTHER-SE> 27,712 35,464
<TOTAL-LIABILITY-AND-EQUITY> 240,415 385,701
<SALES> 104,435 200,567
<TOTAL-REVENUES> 138,397 268,382
<CGS> 2,843 4,295
<TOTAL-COSTS> 22,497 47,025
<OTHER-EXPENSES> 100,013 184,249
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 19,840 41,584
<INCOME-TAX> 7,543 18,583
<INCOME-CONTINUING> 12,297 23,001
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,297 23,001
<EPS-PRIMARY> 0.15 0.26
<EPS-DILUTED> 0.13 0.23
</TABLE>
