<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1998 or
-------------
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
___________
Commission file number 1-12989
SunGard(R) Data Systems Inc.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0267091
-------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1285 Drummers Lane, Wayne, Pennsylvania 19087
---------------------------------------------
(Address of principal executive offices, including zip code)
(610) 341-8700
-------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
There were 104,132,716 shares of the registrant's common stock, par value $.01
per share, outstanding at June 30, 1998.
<PAGE>
SunGard Data Systems Inc.
And Subsidiaries
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997............................. 1
Consolidated Statements of Income for the six and three
months ended June 30, 1998 and 1997 (unaudited)............... 2
Supplemental Income Statement Information for the six and
three months ended June 30, 1998 and 1997 (unaudited)......... 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 (unaudited)...................... 3
Notes to Consolidated Financial Statements (unaudited)........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 7
Part II. Other Information
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities....................................... 13
Item 3. Defaults upon Senior Securities............................. 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Other Information........................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures ............................................................ 15
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
SunGard Data Systems Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997 (1)
----------- ------------
<S> <C> <C>
Assets
Current:
Cash and equivalents ........................................................... $ 128,554 $ 81,185
Short-term investments, at cost, which approximates market ..................... 21,344 24,970
Trade receivables, less allowance for doubtful accounts of $25,228 and $19,702 . 225,113 183,757
Earned but unbilled receivables ................................................ 37,953 40,951
Prepaid expenses and other current assets ...................................... 25,954 24,269
Deferred income taxes .......................................................... 22,586 21,163
--------- ---------
Total current assets ....................................................... 461,504 376,295
Property and equipment, less accumulated depreciation of $230,610 and $202,336 .... 132,633 123,261
Software products, less accumulated amortization of $98,963 and $89,022 ........... 70,180 75,634
Goodwill, less accumulated amortization of $35,057 and $32,660 .................... 156,997 160,109
Other intangible assets, less accumulated amortization of $53,278 and $45,451 ..... 116,488 121,649
--------- ---------
$ 937,802 $ 856,948
========= =========
Liabilities and Stockholders' Equity
Current:
Short-term and current portion of long-term debt ............................... $ 11,831 $ 16,996
Accounts payable ............................................................... 15,664 19,105
Accrued compensation and benefits .............................................. 57,279 58,592
Other accrued expenses ......................................................... 43,090 30,552
Accrued income taxes ........................................................... 476 6,736
Deferred revenues .............................................................. 128,028 111,666
--------- ---------
Total current liabilities .................................................. 256,368 243,647
--------- ---------
Long-term debt .................................................................... 2,769 3,080
Commitments .......................................................................
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000 shares authorized ............. - -
Common stock, par value $.01 per share; 320,000 shares authorized;
104,133 and 102,085 shares issued ........................................... 1,041 1,021
Capital in excess of par value ................................................. 248,287 228,333
Notes receivable for common stock .............................................. (30) (500)
Restricted stock plans ......................................................... (1,924) (1,532)
Retained earnings .............................................................. 437,765 389,545
Accumulated other comprehensive loss ........................................... (6,474) (6,646)
--------- ---------
Total stockholders' equity ................................................... 678,665 610,221
--------- ---------
$ 937,802 $ 856,948
========= =========
</TABLE>
(1)Restated for pooling-of-interests with Infinity Financial Technology, Inc.
See accompanying notes
1
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997(1) 1998 1997(1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues ................................................. $ 546,900 $ 424,126 $ 282,347 $ 223,087
--------- --------- --------- ---------
Costs and expenses:
Cost of sales and direct operating ..................... 230,001 176,932 117,790 92,764
Sales, marketing and administration .................... 119,080 88,872 61,537 46,492
Product development .................................... 52,234 42,131 27,377 22,772
Depreciation of property and equipment ................. 27,156 23,676 13,829 12,008
Amortization of intangible assets ...................... 24,145 22,600 11,876 12,017
Merger and restructuring costs ......................... 8,747 10,479 600 10,479
--------- --------- --------- ---------
461,363 364,690 233,009 196,532
--------- --------- --------- ---------
Income from operations ................................... 85,537 59,436 49,338 26,555
Interest income ........................................ 2,851 1,682 1,531 759
Interest expense ....................................... (734) (1,321) (338) (736)
--------- --------- --------- ---------
Income before income taxes ............................... 87,654 59,797 50,531 26,578
Income taxes ........................................... 38,136 24,398 20,809 11,068
--------- --------- --------- ---------
Net income ............................................... $ 49,518 $ 35,399 $ 29,722 $ 15,510
========= ========= ========= =========
Basic net income per common share ........................ $ 0.48 $ 0.36 $ 0.29 $ 0.16
========= ========= ========= =========
Shares used to compute basic net income per common share . 103,090 98,502 103,695 98,869
========= ========= ========= =========
Diluted net income per common share ...................... $ 0.46 $ 0.35 $ 0.28 $ 0.15
========= ========= ========= =========
Shares used to compute diluted net income per common share 107,097 102,580 107,543 102,802
========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SunGard Data Systems Inc.
Supplemental Income Statement Information
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- ---------------------------
Revenue: 1998 1997(1) 1998 1997(1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Investment support systems ............................. $ 376,618 $ 284,733 $ 196,383 $ 151,089
Disaster recovery services ............................. 129,759 108,730 67,183 55,904
Computer services and other ............................ 40,523 30,663 18,781 16,094
--------- --------- --------- ---------
$ 546,900 $ 424,126 $ 282,347 $ 223,087
========= ========= ========= =========
Income from operations:
Investment support systems ............................. $ 71,837 $ 49,322 $ 37,637 $ 25,954
Disaster recovery services ............................. 23,241 20,802 13,028 11,067
Computer services and other ............................ 5,389 4,297 2,418 2,472
Corporate administration ............................... (6,183) (4,506) (3,145) (2,459)
Merger and restructuring costs ......................... (8,747) (10,479) (600) (10,479)
--------- --------- --------- ---------
$ 85,537 $ 59,436 $ 49,338 $ 26,555
========= ========= ========= =========
Operating margin:
Investment support systems ............................. 19.1% 17.3% 19.2% 17.2%
========= ========= ========= =========
Disaster recovery services ............................. 17.9% 19.1% 19.4% 19.8%
========= ========= ========= =========
Computer services and other ............................ 13.3% 14.0% 12.9% 15.4%
========= ========= ========= =========
Total .................................................. 15.6% 14.0% 17.5% 11.9%
========= ========= ========= =========
Total, excluding merger and restructuring costs 17.2% 16.5% 17.7% 16.6%
========= ========= ========= =========
</TABLE>
(1)Restated for pooling-of-interests with Infinity Financial Technology, Inc.
See accompanying notes
2
<PAGE>
SunGard Data Systems Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1998 1997 (1)
--------------- ---------------
<S> <C> <C>
Cash flow from operations:
Net income ........................................................... $ 49,518 $ 35,398
Reconciliation of net income to cash flow from operations:
Depreciation and amortization ..................................... 51,301 46,276
Purchased in-process research and development ..................... - 10,479
Other noncash charges ............................................. 4,898 2,450
Deferred income tax benefit ....................................... (3,000) (6,439)
--------------- ---------------
102,717 88,164
Cash provided by (used for) working capital, net of effect of acquired
businesses:
Accounts receivable and other current assets ....................... (43,877) (4,548)
Accounts payable and accrued expenses .............................. 3,083 (16,391)
Deferred revenues .................................................. 15,284 (3,900)
--------------- ---------------
Cash flow from operations ......................................... 77,207 63,325
--------------- ---------------
Financing activities:
Cash received under employee stock plans ............................. 14,400 5,774
Cash received under revolving line of credit and other borrowings .... 106 124,000
Repayments of debt ................................................... (6,454) (117,843)
--------------- ---------------
Total financing activities ........................................ 8,052 11,931
--------------- ---------------
Long-term investment activities:
Cash paid for acquired businesses, net of cash acquired .............. (1,243) (50,871)
Cash paid for property and equipment ................................. (35,906) (26,248)
Cash paid for software and other long-term assets .................... (4,370) (5,237)
--------------- ---------------
Total long-term investment activities ............................. (41,519) (82,356)
--------------- ---------------
Increase in cash and equivalents before short-term investment activities 43,740 (7,100)
Short-term investment activities:
Purchase of short-term investments ................................... (12,444) -
Maturities of short-term investments ................................. 16,073 -
--------------- ---------------
Increase in cash and equivalents ....................................... 47,369 (7,100)
Beginning cash and equivalents ......................................... 81,185 83,024
--------------- ---------------
Ending cash and equivalents ............................................ $ 128,554 $ 75,924
=============== ===============
Supplemental information:
Acquired businesses:
Property and equipment ............................................ 380 13,792
Software products ................................................. 145 16,144
Purchased in-process research and development ..................... - 10,479
Deferred income taxes ............................................. - 1,761
Goodwill and other intangible assets .............................. 2,412 10,433
Purchase price obligations and debt assumed ....................... (901) (2,679)
Net current assets acquired (liabilities assumed) ................. (2,088) 3,709
Common stock issued ............................................... 1,295 (2,768)
--------------- ---------------
Cash paid for acquired businesses, net of cash acquired ................ $ 1,243 $ 50,871
=============== ===============
</TABLE>
(1)Restated for pooling-of-interests with Infinity Financial Technology, Inc.
See accompanying notes
3
<PAGE>
SunGard Data Systems Inc.
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation:
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, and have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and
with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All significant intercompany transactions and accounts have been eliminated. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included in the
accompanying financial statements. Operating results for the six and three month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1997.
2. Acquisitions:
On January 2, 1998, the Company issued 13,223,000 shares of common stock in
connection with a merger with Infinity Financial Technology, Inc. (Infinity).
Infinity develops, markets and supports enterprise software solutions for
financial trading and risk management. The merger has been accounted for as a
pooling-of-interests. Therefore, in accordance with generally accepted
accounting principles, all historical financial information of the Company has
been restated to include the historical financial information of Infinity.
Also during the first six months of 1998, the Company completed a merger
with Plaid Brothers Software, Inc. (Plaid Brothers), and acquired certain assets
of a disaster recovery professional services business. The merger with Plaid
Brothers has been accounted for as a pooling-of-interests. The accompanying
consolidated financial statements include the results of Plaid Brothers from
April 1, 1998; prior periods have not been restated since the impact of such
restatement would not be material. The accompanying consolidated financial
statements also include the results of the acquired disaster recovery
professional services business from the date of acquisition. The Company does
not expect that these two acquisitions will have a material effect on its
financial condition or results of operations.
3. Merger and Restructuring Costs:
During the six and three months ended June 30, 1998, the Company recorded
merger and restructuring costs of $8,747,000 and $600,000, respectively
($7,648,000 after-tax, or $0.07 per diluted share, and $600,000, or less than
$0.01 per diluted share, respectively). Merger costs, which are generally
nondeductible for income tax purposes, are comprised of $4,131,000 for costs
associated with the merger with Infinity, $1,316,000 for costs associated with
the Company's expired offer to acquire Rolfe & Nolan Plc., and $600,000 for
costs associated with the merger with Plaid Brothers.
4
<PAGE>
SunGard Data Systems Inc.
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
3. Merger and Restructuring Costs, continued:
Merger costs consist of investment banking, legal, accounting and printing fees.
Also, the Company recorded $2,700,000 during the first quarter of 1998 for
restructuring costs associated with the closure of certain office facilities and
severance costs resulting from the merger with Infinity. The balance of the
restructuring reserve, which is $2,200,000 at June 30, 1998, is expected to be
utilized by December 31, 1998.
During the second quarter of 1997, the Company recorded a charge to
operations of $10,479,000 ($6,356,000 after-tax, or $0.06 per diluted share),
principally in connection with purchased in-process research and development
associated with the acquisition of certain assets of Premier Solutions Ltd.
4. Net Income Per Common Share:
Calculation of Basic and Diluted Net Income Per Common Share:
The following table sets forth the computation of the number of shares used
in the computation of basic and diluted net income per common share for the six
and three months ended June 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 49,518 $ 35,399 $ 29,722 $ 15,510
======== ======== ======== ========
Weighted-average common shares
outstanding 103,047 98,460 103,695 98,869
Contingent shares 43 42 -- --
-------- -------- -------- --------
Total shares used for calculation of
basic net income per common share 103,090 98,502 103,695 98,869
Employee stock options 3,938 4,021 3,780 3,879
Contingent stock options 69 57 68 54
-------- -------- -------- --------
Total shares used for calculation of
diluted net income per common share 107,097 102,580 107,543 102,802
======== ======== ======== ========
</TABLE>
5
<PAGE>
SunGard Data Systems Inc.
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
4. Net Income Per Common Share, continued:
Common Stock Split:
On August 14, 1997, the Company's Board of Directors authorized a two-for-
one split of the Company's common stock. The stock split was effective for
stockholders of record on September 2, 1997, and shares were issued on September
22, 1997. The number of shares used for purposes of calculating net income per
common share and all per share data have been adjusted for all periods presented
to reflect the stock split.
5. Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
statement, which became effective January 1, 1998, establishes rules for the
reporting of comprehensive income and its components in financial statements.
Comprehensive income consists of net income, adjusted for other increases and
decreases affecting stockholders' equity that, under generally accepted
accounting principles, are excluded from the determination of net income.
The calculation of comprehensive income for the six and three months ended
June 30, 1998 and 1997 follows (in thousands):
Six Months Ended Three Months Ended
June 30, June 30,
------------------ --------------------
1998 1997 1998 1997
-------- -------- --------- ---------
Net Income $49,518 $35,399 $29,722 $15,510
Foreign currency translation gains
(losses) 172 (4,198) 531 91
Estimated income tax benefit
(expense) (60) 1,469 (186) (32)
------- ------- ------- -------
Comprehensive income $49,630 $32,670 $30,067 $15,569
======= ======= ======= =======
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements about the Company's expectations and all other statements in
this quarterly report on Form 10-Q other than historical facts are forward-
looking statements. Since these statements involve risks and uncertainties and
are subject to change at any time, the Company's actual results could differ
materially from expected results. The Company derives most of its forward-
looking statements from its operating budgets and forecasts, which are based
upon many detailed assumptions. While the Company believes that its assumptions
are reasonable, it cautions that there are inherent difficulties in predicting
certain important factors, especially the timing and magnitude of software
sales, the timing and scope of technological advances and year 2000 compliance,
the integration and performance of recently acquired businesses, the prospects
for future acquisitions, and the overall condition of the financial services
industry. These factors, as and when applicable, are discussed in the Company's
filings with the Securities and Exchange Commission, including its most recent
Form 10-K, a copy of which may be obtained from the Company without charge.
During the six and three months ended June 30, 1998, the Company recorded
merger and restructuring costs of $8,747,000 and $600,000 ($7,648,000 after-tax,
or $0.07 per diluted share, and $600,000 after-tax, or less than $0.01 per
diluted share, respectively). Merger costs, which are generally nondeductible
for income tax purposes, are comprised of $4,131,000 for costs associated with
the merger with Infinity, $1,316,000 for costs associated with the Company's
expired offer to acquire Rolfe & Nolan Plc., and $600,000 for costs associated
with the merger of Plaid Brothers. Merger costs consist of investment banking,
legal, accounting and printing fees. Also, the Company recorded $2,700,000
during the first quarter of 1998 for restructuring costs associated with the
closure of certain office facilities and severance costs resulting from the
merger with Infinity.
During the six and three months ended June 30, 1997, the Company recorded a
charge to operations of $10,479,000 ($6,356,000 after-tax, or $0.06 per diluted
share), principally in connection with purchased in-process research and
development associated with the acquisition of certain assets of Premier
Solutions Ltd.
The following discussion of income from operations excludes all of the
charges to operations described in two preceding paragraphs.
Income from Operations:
Investment Support Systems (ISS):
The Company's ISS business is comprised of more than forty operating units
of various size and complexity. Historically, most operating units have met or
exceeded expectations, while some have not, yielding overall results for the
entire business at approximately the levels expected. Since overall ISS results
reflect the sum of the diverse results of individual operating units, there
could be an adverse impact on ISS revenues and margins if too many individual
units are unable to meet expectations.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Continued)
Income from Operations, continued:
Investment Support Systems (ISS), continued:
The ISS operating margin was 19.1% and 19.2% for the six and three month
periods ended June 30, 1998, respectively, as compared with 17.3% and 17.2% for
the comparable periods in 1997. The increase in the operating margin is due
primarily to an increase in software license revenues, despite an increase in
overall product development expense.
The Company expects that the full-year 1998 ISS operating margin will be
higher than the full-year 1997 ISS operating margin. The most important factors
affecting the ISS operating margin continue to be the timing and magnitude of
software license revenues, the operating margin of recently acquired businesses
and the level of product development spending.
Disaster Recovery Services (DRS):
The DRS operating margin was 17.9% and 19.4% during the six and three month
periods ended June 30, 1998, respectively, as compared with 19.1% and 19.8% for
the comparable periods in 1997. The decrease in the operating margins is due
primarily to expenses resulting from a 28% expansion (which added 64,000 square
feet) of the Philadelphia MegaCenter, equipment additions and upgrades, an
increase in bad debt expense, and an increase in commission expenses resulting
from new contract signings.
The Company expects that the 1998 full-year DRS operating margin will
approximate the 1997 full-year DRS operating margin. The most important factors
affecting the DRS operating margin continue to be the rate of new contract
signings and contract renewals, the timing and magnitude of equipment and
facilities expenditures, and the performance of recently acquired businesses.
Computer Services and Other (CS):
The CS operating margin was 13.3% and 12.9% during the six and three month
periods ended June 30, 1998, respectively, as compared with 14.0% and 15.4% for
the comparable periods in 1997. The decrease in the operating margins is due to
an increase in operating costs associated with equipment upgrades in the
Company's remote-access computer processing business, which offset an increase
in revenues in the Company's healthcare information systems (HIS) business.
The Company expects that the 1998 full-year CS operating margin will
approximate the 1997 full-year CS operating margin. The most important factors
affecting the CS operating margin continue to be the timing and magnitude of
software license revenues of the HIS business, and revenue variability and
timing of computer upgrades in both remote-access computer processing and
automated mailing services businesses.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
REVENUES:
Total revenues for the six and three month periods ended June 30, 1998
increased $122.8 million, or 29%, and $59.3 million, or 27%, respectively, as
compared with the corresponding periods in 1997. Excluding acquired businesses,
revenues increased approximately 18% during the six and three month periods
compared with the corresponding periods in 1997.
Recurring revenues derived from computer processing, software maintenance,
software and hardware rentals, disaster recovery fees, and professional services
were $441.0 million, or 81%, and $226.1 million, or 80%, during the six and
three month periods ended June 30, 1998, respectively, as compared with $351.5
million, or 83%, and $180.9 million, or 81%, during the comparable periods in
1997. The decline in the percentage of recurring revenues to total revenues is
due primarily to an increase in software license revenues.
Professional services revenues totaled $82.3 million and $44.7 million
during the six and three month periods ended June 30, 1998, respectively, as
compared with $48.8 million and $28.1 million during the comparable periods in
1997. The increase in professional services revenues was due primarily to large
shareholder accounting and not-for-profit accounting system installations and
conversions.
Non-recurring revenues, derived from software licenses and sales of third-
party software and hardware, were $105.9 million and $56.3 million during the
six and three month periods ended June 30, 1998, respectively, as compared with
$72.6 million and $42.2 million during the comparable periods in 1997. Software
license revenues totaled $87.1 million and $46.0 million during the six and
three month periods ended June 30, 1998, respectively, as compared with $63.0
million and $37.0 million during the comparable periods in 1997. The increase
in software license revenues was due primarily to investment support systems
businesses acquired in 1997, and an increase in revenues from the Company's
derivative trading and global risk management software products.
The Company sells a significant portion of its products and services to the
financial services industry and could be directly affected by the overall
condition of that industry. The Company expects that the consolidation trend in
the financial services industry will continue, but it is unable to predict what
effect, if any, this trend may have on the Company.
Investment Support Systems:
ISS revenues for the six and three month periods ended June 30, 1998
increased $91.9 million, or 32%, and $45.3 million, or 30%, as compared with the
corresponding periods in 1997. The increases in ISS revenues during the six and
three month periods are attributable to increases in recurring revenues of $64.9
million and $32.1 million, respectively, and increases in non-recurring revenues
of $27.0 million and $13.2 million, respectively. Excluding acquired
businesses, revenues increased approximately 18% during the six and three month
periods ended June 30, 1998, compared with the corresponding periods in 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
REVENUES, CONTINUED:
Disaster Recovery Services:
DRS revenues for the six and three month periods ended June 30, 1998
increased $21.0 million, or 19%, and $11.3 million, or 20%, as compared with the
corresponding periods in 1997. The increases are attributable primarily to
increases in revenues resulting from new contract signings and contract
renewals, growth in work-group recovery, mid-range platforms, and the SunGard
National Network. Excluding acquired businesses, revenues increased
approximately 18% during the six month period ended June 30, 1998, and 19%
during the three month period, compared with the corresponding periods in 1997.
Computer Services and Other:
CS revenues for the six and three month periods ended June 30, 1998
increased $9.9 million, or 32%, and $2.7 million, or 17%, as compared with the
corresponding periods in 1997. The increases are due primarily to an increase
in revenues in the Company's HIS businesses. Excluding acquired businesses,
revenues increased approximately 27% during the six month period ended June 30,
1998, and 11% during the three month period ended June 30, 1998, compared with
the corresponding periods in 1997.
COSTS AND EXPENSES:
Cost of sales and direct operating expenses for the six and three month
periods ended June 30, 1998 increased $53.1 million, or 30%, and $25.0 million,
or 27%, as compared with the corresponding periods in 1997. The increases are
due primarily to acquired businesses, DRS facility expansion and equipment
upgrades.
Sales, marketing and administration expenses for the six and three month
periods ended June 30, 1998 increased $30.2 million, or 34%, and $15.0 million,
or 32%, as compared with the corresponding periods in 1997. The increases are
due primarily to acquired businesses, an expansion in the sales force,
particularly in DRS, and an increase in non-cash expenses associated with the
Company's long-term incentive plan.
Product development expenses for the six and three month periods ended
June 30, 1998 increased $10.1 million, or 24%, and $4.6 million, or 20%, as
compared with the corresponding periods in 1997. The increases are due primarily
to acquired businesses and an increase in development spending in connection
with various ISS products. Development costs capitalized during the six and
three month periods ended June 30, 1998 were $1.3 million and $0.7 million,
compared with $1.7 million and $0.6 million during the corresponding periods in
1997.
Depreciation of property and equipment for the six and three month periods
ended June 30, 1998 increased $3.5 million, or 15%, and $1.8 million, or 15%,
compared with the corresponding
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
COSTS AND EXPENSES, CONTINUED:
periods in 1997. The increases are due primarily to purchases of computer and
telecommunications equipment and acquired businesses.
Amortization of intangible assets for the six and three month periods ended
June 30, 1998 increased $1.5 million, or 7%, and decreased $0.1 million, or 1%,
respectively. The increase during the six month period was due primarily to
acquired businesses. The slight decline during the three month period was due
to a charge recorded in 1997 for accelerated amortization related to an
Australian investment support systems business that provides investment
accounting and processing services.
Interest income for the six and three month periods ended June 30, 1998
increased $1.2 million, or 70%, and $0.8 million, or 102%, compared with the
comparable periods in 1997. The increases are due to higher cash and short-term
investment balances. Interest expense decreased $0.6 million, or 44%, and $0.4
million, or 54%, due to a decrease in short-term debt balances.
The Company's effective income tax rate for the six and three month periods
ended June 30, 1998 was 43.5% and 40.8%, respectively. Excluding the effect of
merger costs, which are generally nondeductible, the Company's effective income
tax rate was 40.7% for the six and three month periods ended June 30, 1998, as
compared with an effective income tax rate of 40.6% and 41.0% during the six and
three month periods ended June 30, 1997, and a full-year 1997 effective income
tax rate, excluding merger costs, of 40.6%.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1998, cash and short-term investments increased $43.7 million
to $149.9 million from $106.2 million at December 31, 1997. The increase in cash
and short-term investments is net of a decrease in short and long-term debt from
$20.1 million at December 31, 1997 to $14.6 million at June 30, 1998. At
June 30, 1998, there were no outstanding borrowings under the Company's credit
agreement.
The Company expects that its existing cash resources and cash generated
from operations will be sufficient to meet its operating requirements,
contingent payments in connection with previously acquired businesses, and
ordinary capital spending needs for at least the next twelve months.
Furthermore, the Company has a $150.0 million credit agreement, and believes it
has the capacity to secure additional credit or issue equity to finance
additional capital needs.
YEAR 2000 SYSTEMS EVALUATION:
The Company has a comprehensive program to evaluate and address the impact
of the year 2000 on its software systems, computer processing and disaster
recovery operations. This program includes steps to identify each item or
element that will require modification and to establish a plan
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
YEAR 2000 SYSTEMS EVALUATION, CONTINUED:
to complete and test all required modifications. The assessment, identification
and planning phases are substantially completed. Modification and testing of
many of the Company's software products are completed and substantially all of
the remaining modification and testing activity is expected to be completed by
the end of 1998. The Company is continuing to evaluate its third-party hardware
and software systems, many of which are an integral part of its operations. For
these systems, the Company is relying upon its outside vendors to meet year 2000
requirements.
The Company believes that it will meet its year 2000 commitments using
existing product development and support resources, without incurring
significant incremental expense. To the extent modifications and enhancements
become necessary for software products for which modification and testing for
the year 2000 have not been completed, the Company may have to seek additional
staffing resources. Also, certain third-party hardware and operating system
upgrades may be accelerated in order to meet the Company's year 2000
requirements.
The Company is closely monitoring the progress of each of its businesses to
prepare its systems and operations for the year 2000 and beyond, and
participates in certain industry-wide tests of year 2000 compliance such as
those being conducted by the Securities Industry Association. The Company
expects to meet year 2000 operation commitments and expects to complete this
effort on a timely basis, without significant disruption to its customers or
operations.
The Company believes that year 2000 issues may cause both an acceleration
of software buying decisions and a shortage in the availability of experienced
programmers during the next several years. While the Company cannot predict the
impact of these factors on its business, it does not currently believe that any
such impact will be material.
12
<PAGE>
Part II. OTHER INFORMATION:
Item 1. LEGAL PROCEEDINGS: None
Item 2. CHANGES IN SECURITIES: None
Item 3. DEFAULTS UPON SENIOR SECURITIES: None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
(a) The 1998 Annual Meeting of Stockholders of the registrant was
held on May 11, 1998.
(b) At the 1998 Annual Meeting, the following were elected as
directors:
For Withheld
---------- --------
Gregory S. Bentley 73,307,670 184,836
Michael C. Brooks 73,308,221 184,285
Albert A. Eisenstat 73,307,670 184,836
Bernard Goldstein 73,307,418 185,088
James L. Mann 73,307,237 185,269
Michael Roth 73,308,221 184,285
Malcolm I. Ruddock 73,307,670 184,836
Lawrence J. Schoenberg 73,307,670 184,836
(c) (i) At the 1998 Annual Meeting, an amendment to the Company's
Restated Certificate of Incorporation to increase the number of
authorized shares of common stock by 200,000,000 was approved by the
following vote:
Votes in favor 56,543,657
Votes against 16,568,600
Votes abstaining 171,005
Broker non-votes 209,244
(ii) At the 1998 Annual Meeting, the Company's 1998 Equity
Incentive Plan was approved by the following vote:
Votes in favor 42,810,000
Votes against 16,995,072
Votes abstaining 549,896
Broker non-votes 13,137,538
(d) None.
13
<PAGE>
Part II. OTHER INFORMATION, CONTINUED:
Item 5. OTHER INFORMATION:
Pursuant to recent amendments to the proxy rules under the Securities
Exchange Act of 1934, as amended, the Company's stockholders are
notified that the deadline for providing the Company of timely notice
of any stockholder proposal to be submitted outside of the Rule 14a-8
process for consideration at the Company's 1999 Annual Meeting of
Stockholders ("Annual Meeting") will be February 17, 1999. As to all
such matters which the Company does not have notice on or before
February 17, 1999, discretionary authority shall be granted to the
designated persons in the Company's proxy statement for the Annual
Meeting.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
27.1 Financial Data Schedule for the quarter ended June 30, 1998
(b) Reports on Form 8-K: None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNGARD DATA SYSTEMS INC.
Date: August 14, 1998 By: /s/ Michael J. Ruane
----------------------------------
Michael J. Ruane
Vice President-Finance and Chief
Financial Officer
(Principal Financial Officer)
15
<PAGE>
LIST OF EXHIBITS
NUMBER EXHIBIT
- ------ -------
27.1 Financial Data Schedule for the quarter ended June 30, 1998
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET OF SUNGARD DATA SYSTEMS INC. AS OF JUNE
30, 1998 AND THE UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS
ENDED JUNE 30, 1998, BOTH INCORPORATED BY REFERENCE INTO THE FORM 10-Q OF
SUNGARD DATA SYSTEMS INC. FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 128,554
<SECURITIES> 21,344
<RECEIVABLES> 288,294
<ALLOWANCES> 25,228
<INVENTORY> 0
<CURRENT-ASSETS> 461,504
<PP&E> 363,243
<DEPRECIATION> 230,610
<TOTAL-ASSETS> 937,802
<CURRENT-LIABILITIES> 256,368
<BONDS> 2,769
0
0
<COMMON> 1,041
<OTHER-SE> 677,624
<TOTAL-LIABILITY-AND-EQUITY> 937,802
<SALES> 0
<TOTAL-REVENUES> 546,900
<CGS> 0
<TOTAL-COSTS> 333,536<F1>
<OTHER-EXPENSES> 8,747<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 734
<INCOME-PRETAX> 87,654
<INCOME-TAX> 38,136
<INCOME-CONTINUING> 49,518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,518
<EPS-PRIMARY> 0.48<F3>
<EPS-DILUTED> 0.46<F3>
<FN>
<F1>EXCLUDES SELLING, MARKETING AND ADMINISTRATIVE COSTS, AND MERGER AND
RESTRUCTURING COSTS.
<F2>MERGER AND RESTRUCTURING COSTS.
<F3>INCLUDES MERGER AND RESTRUCTURING COSTS TOTALING 0.07 PER SHARE.
</FN>
</TABLE>
