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SUNGARD DATA SYSTEMS INC
10-Q, 2000-11-14
COMPUTER PROCESSING & DATA PREPARATION

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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 September 30, 2000 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

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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 132,915,326 shares of the registrant's common stock, par value $.01 per share, outstanding at September 30, 2000.

SUNGARD DATA SYSTEMS INC.
AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2000 (unaudited)
	and December 31, 1999
	Consolidated Statements of Income for the nine and three months
	ended September 30, 2000 and 1999 (unaudited)
	Consolidated Statements of Cash Flows for the nine months
	ended September 30, 2000 and 1999 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)
Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
S IGNATURES

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

SunGard Data Systems Inc.

Consolidated Balance Sheets

(In thousands, except per-share amounts)

								September 30, 2000 (Unaudited)
											December 31, 1999
Assets
Current:
	Cash and equivalents								$   253,237			$   286,990
	Short-term investments								135,602			104,235
	Trade receivables, less allowance for doubtful accounts of $21,786 and $34,141								306,538			278,114
	Earned but unbilled receivables								50,549			56,288
	Prepaid expenses and other current assets								35,081			35,615
	Deferred income taxes								27,330			25,565
		Total current assets							808,337			786,807
Investment in common stock									21,806			49,902
Property and equipment, less accumulated depreciation of $367,138 and $318,405									191,458			182,682
Software products, less accumulated amortization of $169,802 and $146,185									150,242			110,355
Goodwill, less accumulated amortization of $71,490 and $59,840									292,822			211,791
Other tangible and intangible assets, less accumulated amortization of
	$87,654 and $77,740								136,154			93,393
Deferred income taxes									141,060			129,832
									$1,741,879			$1,564,762
Liabilities and Stockholders' Equity
Current:
	Short-term and current portion of long-term debt								$        6,327			$      7,755
	Accounts payable								16,095			14,924
	Accrued compensation and benefits								87,485			84,971
	Other accrued expenses								55,040			61,820
	Accrued income taxes								20,855			13,142
	Deferred revenues								167,966			165,866
		Total current liabilities							353,768			348,478
Long-term debt									6,940			5,517
Commitments
Stockholders' equity:
	Preferred stock, par value $.01 per share; 5,000 shares authorized, of which 3,200 is
	designated as Series A Junior Participating Preferred stock								-			-
	Common stock, par value $.01 per share; 320,000 shares authorized;
	132,915 and 128,505 shares issued								1,329			1,285
	Capital in excess of par value								641,523			591,998
	Restricted stock plans and notes receivable for common stock								(1,100	)		(1,768	)
	Retained earnings								757,624			608,519
	Accumulated other comprehensive income (loss)								(18,205	)		10,733
		Total stockholders' equity							1,381,171			1,210,767
									$1,741,879			$1,564,762
The accompanying notes are an integral part of these financial statements.

SunGard Data Systems Inc.
Consolidated Statements of Income
(In thousands, except per-share amounts)
(Unaudited)

		Nine Months Ended							Three Months Ended
		September 30,							September 30,
			2000				1999				2000				1999
Revenues:
Services		$	1,017,533			$	886,212			$	349,431			$	305,493
License and resale fees			181,437				169,987				63,778				46,186
			1,198,970				1,056,199				413,209				351,679
Costs and expenses:
Cost of sales and direct operating			483,359				444,791				164,665				141,693
Sales, marketing and administration			259,565				227,165				85,021				76,474
Product development			104,089				96,234				34,879				32,996
Depreciation and amortization			65,939				56,546				23,091				19,610
Amortization of acquisition-related intangible assets			41,858				32,589				14,009				11,543
Merger costs, including purchased in-process research    and development of $5,206 in 2000 (see Note 2)			7,962				99,184				5,206				8,738
			962,772				956,509				326,871				291,054
Income from operations			236,198				99,690				86,338				60,625
Interest income			17,132				12,046				6,498				4,376
Interest expense			(1,383	)			(1,746	)			(615	)			(612	)
Income before income taxes and extraordinary items			251,947				109,990				92,221				64,389
Income taxes			101,419				84,830				36,889				29,647
Income before extraordinary items			150,528				25,160				55,332				34,742
Extraordinary items, net of income taxes			-				10,670				-				-
Net income			150,528				35,830				55,332				34,742
Pro forma income tax benefit resulting from    acquired Subchapter S corporation			-				(27,381	)			-				-
Pro forma net income		$	150,528			$	63,211			$	55,332			$	34,742
Pro forma basic net income per common share:
Before extraordinary items		$	1.14			$	0.42			$	0.42			$	0.27
After extraordinary items		$	1.14			$	0.50			$	0.42			$	0.27
Pro forma diluted net income per common share:
Before extraordinary items		$	1.12			$	0.40			$	0.41			$	0.27
After extraordinary items		$	1.12			$	0.49			$	0.41			$	0.27
Shares used to compute pro forma net income per common share:
Basic			131,774				126,519				132,376				127,774
Diluted			134,959				130,182				135,737				130,367
The accompanying notes are an integral part of these financial statements.

 

SunGard Data Systems Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
			Nine Months Ended
			September 30,
		2000					1999
Cash flow from operations:
Net income		$	150,528				$	35,830
Reconciliation of net income to cash flow from operations:
Depreciation and amortization			107,797					89,135
Extraordinary gains, net of income taxes			-					(10,670	)
Noncash compensation charge related to the acquisition of ASC			-					71,459
Purchased in-process research and development			5,206					-
Other noncash charges (credits)			(2,963	)				3,843
Deferred income tax benefit			(4,112	)				(11,308	)
Accounts receivable and other current assets			(2,589	)				(4,854	)
Accounts payable and accrued expenses			(14,301	)				(1,496	)
Deferred revenues			(10,061	)				3,396
Cash flow from operations			229,505					175,335
Financing activities:
Cash received under employee stock plans			38,222					36,167
Cash received from borrowings			25					4,648
Pre-acquisition cash distributions to shareholders of acquired corporations, net			-					(3,637	)
Cash paid to repay debt			(7,749	)				(19,914	)
Total financing activities			30,498					17,264
Investment activities:
Cash paid for acquired businesses, net of cash acquired			(169,651	)				(53,964	)
Cash paid for property and equipment			(63,182	)				(62,330	)
Cash paid for software and other assets			(15,767	)				(11,910	)
Cash paid for purchases of short-term investments			(97,853	)				(35,038	)
Cash paid for purchases of long-term investments			(14,087	)				-
Cash received from sale of subsidiaries			-					25,000
Cash received from sales and maturities of short-term investments			66,784					12,498
Total investment activities			(293,756	)				(125,744	)
Increase (decrease) in cash and equivalents			(33,753	)				66,855
Beginning cash and equivalents			286,990					265,011
Ending cash and equivalents		$	253,237				$	331,866
Supplemental information:
Acquired businesses:
Property and equipment		$	2,738				$	2,278
Software products			50,971					30,111
Purchased in-process research and development			5,206					-
Goodwill and tangible and intangible assets			135,559					50,254
Deferred income taxes			(849	)				100,011
Purchase price obligations and debt assumed			(7,800	)				(5,342	)
Net current assets (liabilities) assumed	.		(13,675	)				1,156
Common stock issued and net equity acquired in poolings of interests			(2,499	)				(124,504	)
Cash paid for acquired businesses, net of cash acquired		$	169,651				$	53,964
The accompanying notes are an integral part of these financial statements.

 

 

SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL S TATEMENTS (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 nine and three month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 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, 1999.

     During 1999, the Company acquired Automated Securities Clearance, Ltd. (ASC). ASC was a Subchapter S corporation before the Company acquired it; therefore, all income passed through directly to and substantially all income taxes were paid directly by the former shareholder of ASC. Net income and all net income per share amounts prior to the acquisition are presented on a pro forma basis since generally accepted accounting principles require the presentation of pro forma income tax expense for ASC as if ASC had been a Subchapter C corporation for all periods presented.

2.   Acquisitions and Dispositions:

       Acquisitions:

       Pooling-of-Interests Transactions:

     During the nine months ended September 30, 2000, the Company completed the acquisition of Microbank Software, Inc. (Microbank). A total of 2.2 million shares of common stock were issued in connection with this acquisition, and outstanding options to buy shares of Microbank were converted into options to buy 0.3 million shares of the Company’s common stock.

     During the nine months ended September 30, 1999, the Company completed ten acquisitions in its investment support systems business. A total of 18.8 million shares of common stock were issued in connection with these acquisitions, and outstanding options to buy shares of the acquired companies were converted into options to buy 1.6 million shares of the Company's common stock.

     All historical financial information of the Company has been restated to include the historical financial information of ASC, FDP Corp. (FDP), Oshap Technologies Ltd. (Oshap), Pentamation Enterprises, Inc. (PEI) and Sterling Wentworth Corporation (SWC). Historical financial information is not restated for the other acquisitions due to immateriality. Each immaterial acquisition has been recorded as of the beginning of the quarter in which it was completed. Except for the merger costs described below, the

 

Company does not expect that the immaterial acquisitions, individually or in the aggregate, will have a material effect on its financial condition or results of operations.

Purchase Transactions:

     During the first nine months of 2000, the Company completed eight acquisitions. Total cash paid in connection with the eight acquisitions was $168.3 million, subject to certain adjustments. Also during the first nine months of 2000, the Company paid $0.6 million as additional consideration based upon the performance of a business previously acquired.

     In connection with the acquisition of Global Information Solutions Ltd. (GIS), the Company engaged an independent firm to perform a valuation of the intangible assets acquired to serve as the basis of allocation of the purchase price to the various classes of assets acquired. The allocation of the purchase price includes a charge of $5.2 million, totaling approximately 6% of the purchase price, for purchased in-process research and development. Purchased in-process research and development represents the value of software products still in development and not considered to have reached technological feasibility as of the date of acquisition. Management believes that the purchased in-process research and development has no alternative future uses.

     The Company has also engaged an independent firm to perform a valuation of the intangible assets acquired in connection with the acquisition of the assets of the Risk and Exposure Management Business of GE Information Services, Inc. (RXM). The valuation will serve as the basis of allocation of the purchase price to the various classes of assets acquired, and will include a determination as to whether any purchased in-process research and development exist at the time of acquisition. At September 30, 2000, the allocation of the purchase price is still preliminary, and does not include an allocation to purchased in-process research and development. The allocation to purchased in-process research and development, if any, will be recorded as an acquisition-related expense when the valuation is completed. Cash paid in connection with the acquisition of RXM was $51.4 million, plus up to $23.0 million contingent upon the future performance of RXM.

Merger Costs:

     During the nine months ended September 30, 2000 and 1999, the Company recorded merger costs of $8.0 million and $99.2 million ($5.4 million after tax, or $0.04 per diluted share, and $72.7 million pro forma after tax, or $0.56 per pro forma diluted share), respectively. The merger costs are associated with pooling-of-interests transactions, and, in 2000, include a $5.2 million charge for purchased in-process research and development. The charges associated with poolings of interests principally include investment banking, legal, accounting and printing fees that generally are not deductible for income tax purposes. The 1999 merger costs also include a noncash compensation charge of $71.5 million ($45.0 million pro forma after tax, or $0.35 per pro forma diluted share) in connection with a pre-existing employment agreement with an executive of ASC, which obligated ASC to issue to the executive 25% of the shares issued in the merger. The fair value of those shares and related payroll costs were recorded as one-time costs associated with the merger.

 

Dispositions and Extraordinary Items:

     On March 31, 1999, the Company sold two wholly owned healthcare information systems (HIS) subsidiaries. Total cash received in connection with the sale of the HIS businesses was $25.0 million, resulting in an after-tax gain of $10.4 million ($0.08 per diluted share). The gain on the sale is reflected on the Consolidated Statements of Income as an extraordinary item in accordance with the reporting requirements for a sale of assets following a recently completed business combination that was accounted for as a pooling of interests. Also during the nine months ended September 30, 1999, an extraordinary gain of $0.3 million (less than $0.01 per diluted share) was recorded as a result of Oshap’s early retirement of debt.

3. Stockholder Rights Plan:

     On July 18, 2000, the Company’s board of directors adopted a Stockholder Rights Plan under which all stockholders of record as of July 20, 2000 received rights to purchase shares of Series A Junior Participating Preferred Stock (“Preferred Stock”). Each right will detach from the common stock and trade separately should any person or group acquire beneficial ownership of 15% or more of the Company’s common stock or announce a tender offer for 15% or more of the Company’s common stock. If a person or group acquires beneficial ownership of 15% or more of the Company’s common stock (“Acquiring Person”), all rights except for those held by the Acquiring Person become rights to purchase one one-hundredth of one share of Preferred Stock for $175, or $175 of the Company’s common stock at a 50% market discount, subject to adjustment by the Company’s board of directors. If the Company merges, consolidates or engages in a similar transaction with an Acquiring Person, each holder has a “flip over” right to buy discounted stock in the acquiring entity.

     These rights were distributed as a dividend at the rate of one right for each share of common stock of the Company held by stockholders of record as of the close of business on July 20, 2000. Until the occurrence of certain events, the rights are represented by and traded in tandem with common stock, and cannot be separately traded. Under certain circumstances, the rights are redeemable at a price of $0.01 per right. Further, upon the occurrence of certain events, the Company’s board of directors has the option to exchange one share of common stock per right. The rights expire on July 20, 2010. The rights have no voting rights.

4. Authorization for Stock Buy-Back:

     On August 22, 2000, the Company announced that its board of directors authorized the Company to purchase up to 2,000,000 shares of its common stock through August 18, 2001. The repurchases will be made from time to time in the open market, at the discretion of management. Shares purchased under this plan will be used for the Company's employee stock option and stock purchase plans and other general corporate purposes. There were no purchases of shares of the Company’s common stock through September 30, 2000.

 

5. Shares Used in Computing Pro Forma Net Income Per Common Share:

     The computation of shares used in computing pro forma basic and diluted net income per common share for each of the nine and three months ended September 30, 2000 and 1999 follows (in thousands):

	Nine Months				Three Months
	Ended				Ended
	Sept. 30,				Sept. 30,
	2000		1999		2000		1999
Weighted average common shares
outstanding	131,705		126,376		132,376		127,774
Contingent shares	69		143		-		-
Total shares used for calculation of pro forma
basic net income per common share	131,774		126,519		132,376		127,774
Employee stock options	3,185		3,663		3,361		2,593
Total shares used for calculation of pro forma
diluted net income per common share	134,959		130,182		135,737		130,367

6. Comprehensive Income:

    Comprehensive income consists of net income, adjusted for other increases and decreases affecting stockholders' equity that are excluded from the determination of net income. The calculation of comprehensive income for the nine and three months ended September 30, 2000 and 1999 follows (in thousands):

	Nine Months				Three Months
	Ended				Ended
	Sept. 30,				Sept. 30,
	2000		1999		2000		1999
Net income	$150,528		$35,830		$55,332		$34,742
Foreign currency translation gain (loss)	(10,869	)	5		(5,679	)	4,093
Unrealized losses on marketable
securities	(27,799	)	(40	)	(1,263	)	(65	)
Income tax benefit	9,730		-		443		-
Comprehensive net income	$121,590		$35,795		$48,833		$38,770

     The unrealized losses on marketable securities during 2000 result primarily from the Company’s investment in approximately 16.7% of the common stock in Tecnomatix Technologies Ltd. (NASDAQ: TCNO), which was acquired in connection with the 1999 pooling-of-interests transaction with Oshap.

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Statements about the outlook of SunGard Data Systems Inc. (the Company) and all other statements in this quarterly report on Form 10-Q other than historical facts are forward-looking statements that are subject to risks and uncertainties that may change at any time and differ materially from actual results. Forward-looking statements include information about possible or assumed future financial results of the Company and usually contain words such as “believes,” “intends,” “expects,” “anticipates,” or similar expressions. 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, such as the timing and magnitude of software sales, the effect of year 2000 issues on software and services buying decisions, the timing and scope of technological advances, the integration and performance of acquired businesses, the prospects for future acquisitions, the ability to attract and retain key personnel, 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 2000 and 1999, the Company completed certain acquisitions accounted for as poolings of interests. Five acquisitions completed in 1999 required restatement of prior-period results. Also during 2000 and 1999, the Company recorded merger costs associated with acquired companies, and, on March 31,

1999, the Company sold two wholly owned healthcare information systems (HIS) businesses, resulting in an extraordinary gain. See Note 2 of Notes to Unaudited Consolidated Financial Statements.

The following supplemental unaudited income statement information should be read along with the unaudited consolidated financial statements and notes thereto included in this report.

SunGard Data Systems Inc.
Supplemental Income Statement Information
(In thousands)
(Unaudited)
			Nine Months										Three Months
			Ended										Ended
			Sept. 30,										Sept. 30,
			2000						1999				2000				1999
Revenues:
Investment support systems		$	873,747					$	768,764			$	300,828			$	255,002
Business continuity and Internet services			300,643				261,663				103,701						88,963
Other businesses			24,580						25,772				8,680				7,714
		$	1,198,970					$	1,056,199			$	413,209			$	351,679
Operating income:
Investment support systems		$	170,225					$	141,274			$	64,055			$	45,378
Business continuity and Internet services			82,943						65,027				30,537				24,579
Other businesses			7,420						3,699				2,866				2,376
Corporate administration			(16,428	)			(11,126			)	(5,914			)	(2,970			)
			244,160				198,874						91,544				69,363
Merger costs, including purchased in-process
research and development of $5,206
in 2000			(7,962	)					(99,184	)			(5,206	)			(8,738	)
		$	236,198					$	99,690			$	86,338			$	60,625
Operating margins, excluding merger costs:
Investment support systems			19.5%						18.4%				21.3%				17.8%
Business continuity and Internet services			27.6%						24.9%				29.4%				27.6%
Other businesses			30.2%						14.4%				33.0%				30.8%
Total			20.4%						18.8%				22.2%				19.7%

INCOME FROM OPERATIONS:

     The Company sells a significant portion of its products and services to the financial services industry and could be affected directly by the overall condition of that industry. The Company expects that the consolidation trend in that industry will continue, but it is unable to predict what effect, if any, this trend may have on the Company.

     Certain of the Company’s investment support systems (ISS) businesses derive a significant portion of revenues from software license sales. Since there are inherent difficulties in predicting the timing and magnitude of software sales, there is the potential for fluctuations in quarterly revenues and income.

     Investment Support Systems (ISS):

     The Company's ISS business is comprised of groups of related businesses that sell software and related services to the financial services industry. Historically, these groups in the aggregate have met or exceeded expectations. During 1999, however, overall results were below expectations due primarily to a 36% decrease in revenues from license and resale fees in four of the Company’s risk and derivatives systems businesses. The Company’s other ISS units performed well overall, but their results did not fully offset the decrease within the four affected businesses. The Company believes that much of the decrease was due to a slowdown in new system purchases by both large and medium-size financial institutions resulting from the industry’s focus on Y2K testing and preparation during 1999.

     The ISS operating margin was 19.5% and 21.3% for the nine and three month periods ended September 30, 2000, respectively, as compared with 18.4% and 17.8% for the comparable periods in 1999. The increase in the operating margin during the nine month period is due primarily to an increase in revenues in the brokerage and execution systems businesses, cost reductions in the risk and derivatives systems businesses, and a contract cancellation fee, partially offset by an $8.0 million, or 15%, decrease in license and resale fees in the risk and derivatives systems businesses. The increase in the operating margin during the three month period is due primarily to a $10.0 million, or 119%, increase in license and resale fees in the risk and derivatives systems businesses, an increase in revenues in the brokerage and execution systems businesses, and cost reductions in the risk and derivatives systems businesses.

     The Company expects that the full-year 2000 ISS operating margin could increase from the full-year 1999 operating margin of 18.0%. The most important factors affecting the ISS operating margin continue to be the timing and magnitude of software license sales, the operating margins of recently acquired businesses and the level of product development spending.

     Business Continuity and Internet Services (BCIS):

     The BCIS operating margin was 27.6% and 29.4% during the nine and three month periods ended September 30, 2000, as compared with 24.9% and 27.6% for the comparable periods in 1999. The increases in the operating margins are due primarily to increases in revenues, lower costs associated with

 

equipment upgrades and facilities expenditures, and lower compensation expenses associated with severance costs and the Company’s long-term incentive plan.

     The Company expects that the full-year 2000 BCIS operating margin will be approximately 27% to 29%, as compared with the full-year 1999 BCIS operating margin of 26.4%. The most important factors affecting the BCIS operating margin are the rate of new contract signings and contract renewals, and the timing and magnitude of equipment and facilities expenditures. The Company plans to make additional investments in its new Web-hosting and co-location services during the fourth quarter of 2000.

REVENUES:

     Total revenues for the nine and three month periods ended September 30, 2000 increased $142.8 million, or 14%, and $61.5 million, or 17%, as compared with the corresponding periods in 1999. Excluding acquired businesses, revenues increased approximately 10% and 14% during the nine and three month periods ended September 30, 2000, as compared with 11% and 7% during the corresponding periods in the previous year. The lower revenue growth rate during the nine month period is due primarily to a $25.0 million decline in revenues from the Company’s risk and derivatives systems businesses, partially offset by higher revenues from brokerage and execution systems businesses. The higher revenue growth rate during the three month period is due primarily to an increase in revenues from the Company’s brokerage and execution systems businesses, as well as a $2.3 million increase in revenues from the Company’s risk and derivatives systems businesses as compared with the corresponding period in 1999. The Company believes that Y2K concerns caused some decline in software buying and conversion activity during the last half of 1999 and during the first half of 2000 and this has been a significant cause for the slower revenue growth during the first half of 2000.

     During the nine and three month periods ended September 30, 2000, recurring revenues derived from processing services, business continuity services, professional services, software maintenance, and software and hardware rentals increased 15% and 14%, respectively, to $1,017.5 million, or 85% of total revenues, and $349.4 million, or 85% of total revenues, respectively, as compared with $886.2 million, or 84% of total revenues, and $305.5 million, or 87% of total revenues, during the comparable periods in 1999.

     Professional services revenues are $204.9 million and $70.2 million during the nine and three month periods ended September 30, 2000, respectively, as compared with $210.4 million and $74.9 million during the comparable periods in 1999. The decreases are due primarily to lower risk and derivatives systems professional services and to conversion work on large shareholder accounting system projects in 1999. These decreases are partially offset by increases in professional services revenues from acquired businesses.

     During the nine and three month periods ended September 30, 2000, nonrecurring revenues derived from software license fees and resales of third-party hardware and software are $181.4 million and $63.8 million, respectively, as compared with $170.0 million and $46.2 million during the comparable periods in 1999. Software license fees totaled $157.6 million and $56.6 million during the nine and three month periods ended September 30, 2000, respectively, as compared with $147.3 million and $40.8 million during

 

the comparable periods in 1999. Higher nonrecurring revenues during the nine month period are due primarily to acquired businesses and a contract cancellation fee, partially offset by an $8.0 million decline in nonrecurring revenues from risk and derivatives systems and lower nonrecurring revenues from the Company’s public sector businesses. Higher nonrecurring revenues during the three month period are due primarily to a $10.0 million increase in nonrecurring revenues from risk and derivatives systems and from acquired businesses.

      Investment Support Systems:

     ISS revenues for the nine and three month periods ended September 30, 2000 increased $105.0 million, or 14%, and $45.8 million, or 18%, respectively, as compared with the corresponding periods in 1999. During the nine month period, recurring ISS revenues increased $92.0 million, or 15%, while nonrecurring ISS revenues increased $13.0 million, or 8%. The increase in recurring ISS revenues is due primarily to growth in the Company’s brokerage and execution systems businesses and to acquired businesses. These increases are partially offset by lower recurring revenues from risk and derivatives systems and lower professional services revenues from shareholder accounting systems. The increase in nonrecurring revenues in the nine month period is due primarily to revenues from acquired businesses, an increase in license fees from shareholder accounting systems due to a contract cancellation fee relating to industry consolidation and an increase in resale fees from brokerage and execution systems businesses, partially offset by lower revenues from risk and derivatives systems and to a decline in license and resale fees in the Company’s public sector businesses.

     During the three month period ended September 30, 2000, recurring ISS revenues increased $28.8 million, or 14%, while nonrecurring ISS revenues increased $17.0 million, or 41%, as compared with the comparable period in 1999. The increase in recurring ISS revenues is due primarily to higher recurring revenues from brokerage and execution systems and to acquired businesses, partially offset by lower recurring revenues from risk and derivatives systems and lower professional services revenues from shareholder accounting systems. The increase in nonrecurring revenues is due primarily to a $10.0 million increase in license and resale fees from the Company’s risk and derivatives systems businesses and to acquired businesses.

      Business Continuity and Internet Services:

     BCIS revenues for the nine and three month periods ended September 30, 2000 increased $39.0 million, or 15%, and $14.7 million, or 17%, as compared with the corresponding periods in 1999. The increases are due primarily to increases in revenues resulting from new contract signings and contract renewals, continued growth in demand for midrange platforms, network services and work-group recovery, partially offset by a decrease in revenues related to Y2K testing.

      Recent Accounting Pronouncement:

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin Number 101, “Revenue Recognition in Financial Statements” (SAB 101). Further, the SEC issued interpretations to SAB 101 during October 2000. Implementation of SAB 101 is required no later than the fourth quarter of 2000. The Company does not believe that implementation of SAB 101 will have any material effect on its financial position or results of operations.

 

COSTS AND EXPENSES:

     Cost of sales and direct operating expenses for the nine and three month periods ended September 30, 2000 increased $38.6 million, or 9%, and $23.0 million, or 16%, respectively, as compared with the corresponding periods in 1999. The increases are due primarily to acquired businesses and equipment upgrades, partially offset by cost reductions in risk and derivatives systems and shareholder accounting systems businesses.

     Sales, marketing and administration expenses for the nine and three month periods ended September 30, 2000 increased $32.4 million, or 14%, and $8.5 million, or 11%, respectively, as compared with the corresponding periods in 1999. The increases are due primarily to acquired businesses and the Company’s new global account management and corporate marketing programs, partially offset by cost reductions in the Company’s risk and derivatives systems businesses.

     Product development expenses for the nine and three month periods ended September 30, 2000 increased $7.9 million, or 8%, and $1.9 million, or 6%, as compared with the corresponding periods in 1999. The increases are due primarily to acquired businesses and various ISS product development initiatives. Development costs capitalized during the nine and three month periods ended September 30, 2000 are $7.2 million and $3.1 million, respectively, as compared with $3.7 million and $1.7 million in the comparable periods in 1999.

     Depreciation and amortization for the nine and three month periods ended September 30, 2000 increased $9.4 million, or 17%, and $3.5 million, or 18%, respectively, as compared with the corresponding periods in 1999. The increases are due primarily to equipment purchases and to acquired businesses.

     Amortization of acquisition-related intangible assets for the nine and three month periods ended September 30, 2000 increased $9.3 million, or 28%, and $2.5 million, or 21%, as compared with the corresponding periods in 1999. The increases are due to recently acquired businesses.

     Interest income for the nine and three month periods ended September 30, 2000 increased $5.1 million, or 42%, and $2.1 million, or 48%, respectively, as compared with the corresponding periods in 1999. The increases are due to higher average cash and short-term investment balances, and, to a lesser extent, an increase in interest rates.

     Excluding the effect of merger costs and extraordinary gains resulting from the sale of the HIS businesses and early extinguishment of debt, the Company's effective income tax rate was 40.0% for the nine and three month periods ended September 30, 2000, as compared with 40.5% during the year ended December 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES:

     Cash and short-term investments are $388.8 million at September 30, 2000, a decrease of $2.4 million from December 31, 1999. The decrease is due primarily to net cash paid of $183.7 million in

 

connection with acquisitions and minority interest investments, partially offset by an increase in net income and strong cash flow from operations. The allowance for doubtful accounts declined from $34.1 million at December 31, 1999 to $21.8 million at September 30, 2000. The decline is due primarily to the write-off of old receivables deemed to be uncollectable. Because these receivables had previously been reserved and expensed, the write-off has no effect on the statement of operations or financial position of the Company.

     The Company expects that its existing cash resources and cash generated from operations will be sufficient to meet its operating requirements, contingent payment obligations related to business acquisitions, 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company has not recently used derivative financial instruments to manage risk exposures or for trading or speculative purposes. The Company invests available cash in short-term, highly liquid financial instruments, with a substantial portion of such investments having initial maturities of three months or less. While changes in interest rates could decrease the Company's interest income, the Company does not consider the interest rate risk for these investments to be material. As of September 30, 2000, the Company continues to hold an equity investment equal to approximately 16.7% of the common stock in Tecnomatix Technologies Ltd. (NASDAQ: TCNO), which was acquired in connection with the 1999 pooling-of-interests transaction with Oshap. The risks associated with this investment include risks associated with the technology sector of the public finance markets, which has recently been volatile, foreign currency risk, and technology risk. The Company does not believe that it has a material exposure to the risks associated with this investment.

     While approximately 20% of the Company's revenues come from sales to customers located outside of the United States, approximately one-half of those revenues are U.S. dollar-denominated sales by the Company's U.S.-based operations. For the Company's foreign operations, the Company generally matches local currency revenues with local currency costs. For these reasons, the Company does not believe that it has a material exposure to changes in foreign currency exchange rates.

Part II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS: None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

	(a)	On July 18, 2000, the Company's board of directors adopted a Stockholder Rights Plan under which all stockholders of record as of July 20, 2000 received rights to purchase shares of Series A Junior Participating Preferred Stock ("Preferred Stock").

 

		Each right will detach from the common stock and trade separately should any person or group acquire beneficial ownership of 15% or more of the Company's common stock or announce a tender offer for 15% or more of the Company's common stock. If a person or group acquires beneficial ownership of 15% or more of the Company's common stock (an "Acquiring Person"), all rights except for those held by the Acquiring Person become rights to purchase one one-hundredth of one share of Preferred Stock for $175, or $175 of the Company's common stock at a 50% market discount, subject to adjustment by the Company's board of directors. If the Company merges, consolidates or engages in a similar transaction with an Acquiring Person, each holder has a "flip over" right to buy discounted stock in the acquiring entity. These rights were distributed as a dividend at the rate of one right for each share of common stock of the Company held by stockholders of record as of the close of business on July 20, 2000. Until the occurrence of certain events, the rights are represented by and traded in tandem with common stock, and cannot be separately traded. Under certain circumstances, the rights are redeemable at a price of $0.01 per right. Further, upon the occurrence of certain events, the Company's board of directors has the option to exchange one share of common stock per right. The rights expire on July 20, 2010. The rights have no voting rights.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None.

ITEM 5. OTHER INFORMATION: None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

	(a) Exhibits:

		3.2	Amended and Restated Bylaws of the Company.

		27.1	Financial Data Schedule for the nine months ended September 30, 2000.

		99.1	Press Release, dated as of July 20, 2000 entitled “SunGard Announces Second Quarter 2000 Results and Adoption of Stockholder Rights Plan" (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on July 21, 2000).

		99.2	Rights Agreement dated as of July 18, 2000 between SunGard Data Systems Inc. and Wells Fargo Bank Minnesota, N.A. (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on July 21, 2000) .

		99.3	Registrant’s Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on July 21, 2000).

		99.4	Form of Rights Certificate (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on July 21, 2000).

 

(b)

Reports on Form 8-K:

Form 8-K filed on July 21, 2000 relating to the Company's adoption of a Stockholder Rights Plan on July 18, 2000.

 

 

 

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 S YSTEMS INC.
Date:	November 14, 2000	By:	s/ Michael J. Ruane
			Michael J. Ruane
		Vice President-Finance and Chief Financial Officer
			(Principal Financial Officer)

 

LIST OF EXHIBITS
NUMBER	EXHIBIT
3.2	Amended and Restated Bylaws of the Company.
27.1	Financial Data Schedule for the nine months ended September 30, 2000.
99.1	Press Release, dated as of July 20, 2000 entitled “SunGard Announces Second
	Quarter 2000 Results and Adoption of Stockholder Rights Plan" (incorporated by
	reference to the Company's Current Report on Form 8-K filed with the Commission
	on July 21, 2000).
99.2	Rights Agreement dated as of July 18, 2000 between SunGard Data Systems Inc.
	and Wells Fargo Bank Minnesota, N.A. (incorporated by reference to the
	Company's Current Report on Form 8-K filed with the Commission on July 21,
	2000).
99.3	Registrant’s Certificate of Designation of Series A Junior Participating Preferred
	Stock (incorporated by reference to the Company's Current Report on Form 8-K
	filed with the Commission on July 21, 2000).
99.4	Form of Rights Certificate (incorporated by reference to the Company's Current
	Report on Form 8-K filed with the Commission on July 21, 2000).

 

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