<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 March 31, 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
SunGard/(R)/ DATA SYSTEMS INC.
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0267091
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 131,539,391 shares of the registrant's common stock, par value $.01
per share, outstanding at March 31, 2000.
<PAGE>
SUNGARD DATA SYSTEMS INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999....................................... 1
Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999 (unaudited)................... 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited)................... 3
Notes to Consolidated Financial Statements (unaudited)...... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities and Use of Proceeds................... 16
Item 3. Defaults upon Senior Securities............................. 17
Item 4. Submission of Matters to a Vote of Security Holders......... 17
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures............................................................. 18
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
SUNGARD DATA SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
---------- -----------
<S> <C> <C>
Assets
Current:
Cash and equivalents......................................................................... $ 271,906 $ 286,990
Short-term investments....................................................................... 85,319 104,235
Trade receivables, less allowance for doubtful accounts of $31,761 and $34,141............... 273,672 278,114
Earned but unbilled receivables.............................................................. 59,063 56,288
Prepaid expenses and other current assets.................................................... 40,142 35,615
Deferred income taxes........................................................................ 26,282 25,565
---------- -----------
Total current assets..................................................................... 756,384 786,807
---------- -----------
Investment in common stock...................................................................... 75,288 49,902
Property and equipment, less accumulated depreciation of $337,042 and $318,405.................. 186,976 182,682
Software products, less accumulated amortization of $151,972 and $146,185....................... 133,579 110,355
Goodwill, less accumulated amortization of $63,423 and $59,840.................................. 254,490 211,791
Other tangible and intangible assets, less accumulated amortization of
$80,449 and $77,740.......................................................................... 142,728 93,393
Deferred income taxes........................................................................... 121,751 129,832
---------- -----------
$1,671,196 $ 1,564,762
========== ===========
Liabilities and Stockholders' Equity
Current:
Short-term and current portion of long-term debt............................................. $ 10,923 $ 7,755
Accounts payable............................................................................. 15,398 14,924
Accrued compensation and benefits............................................................ 74,133 84,971
Other accrued expenses....................................................................... 57,479 61,820
Accrued income taxes......................................................................... 36,866 13,142
Deferred revenues............................................................................ 183,438 165,866
---------- ----------
Total current liabilities................................................................ 378,237 348,478
---------- ----------
Long-term debt.................................................................................. 9,377 5,517
---------- ----------
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;
131,539 and 128,505 shares issued......................................................... 1,315 1,285
Capital in excess of par value............................................................... 610,702 591,998
Restricted stock plans and notes receivable for common stock................................. (1,598) (1,768)
Retained earnings............................................................................ 648,616 608,519
Accumulated other comprehensive income....................................................... 24,547 10,733
---------- ----------
Total stockholders' equity................................................................. 1,283,582 1,210,767
---------- ----------
$1,671,196 $1,564,762
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
SUNGARD DATA SYSTEMS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
------------ -------------
<S> <C> <C>
Revenues:
Services....................................................................... $ 329,239 $ 289,072
Licenses and resales........................................................... 55,426 62,575
------------ -------------
384,665 351,647
------------ -------------
Costs and expenses:
Cost of sales and direct operating............................................. 164,267 152,395
Sales, marketing and administration............................................ 85,385 76,797
Product development............................................................ 34,179 31,694
Depreciation and amortization.................................................. 20,747 18,342
Amortization of acquisition-related intangible assets.......................... 13,129 10,390
Merger costs, including noncash of $71,459 in 1999 (see Note 2)................ 1,600 85,224
------------ -------------
319,307 374,842
------------ -------------
Income (loss) from operations.................................................... 65,358 (23,195)
Interest income................................................................ 5,367 3,680
Interest expense............................................................... (457) (526)
------------ -------------
Income (loss) before income taxes and extraordinary items........................ 70,268 (20,041)
Income taxes................................................................... 28,747 26,340
------------ -------------
Income (loss) before extraordinary items ........................................ 41,521 (46,381)
Extraordinary items, net of income taxes ...................................... - 10,670
------------ -------------
Net income (loss)................................................................ 41,521 (35,711)
Pro forma income tax benefit resulting from acquired Subchapter S corporation.... - (26,934)
------------ -------------
Pro forma net income (loss)...................................................... $ 41,521 $ (8,777)
============ =============
Pro forma basic net income (loss) per common share:
Before extraordinary items.................................................... $ 0.32 $ (0.16)
============ =============
After extraordinary items..................................................... $ 0.32 $ (0.07)
============ =============
Pro forma diluted net income (loss) per common share:
Before extraordinary items.................................................... $ 0.31 $ (0.16)
============ =============
After extraordinary items..................................................... $ 0.31 $ (0.07)
============ =============
Shares used to compute pro forma net income (loss) per common share:
Basic......................................................................... 131,191 123,420
============ =============
Diluted....................................................................... 134,194 123,420
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SUNGARD DATA SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Cash flow from operations:
Net income (loss)................................................................... $ 41,521 $ (35,711)
Reconciliation of net income to cash flow from operations:
Depreciation and amortization.................................................... 33,876 28,732
Extraordinary gains, net of income taxes......................................... - (10,670)
Noncash compensation charge related to the acquisition of ASC.................... - 71,459
Other noncash charges (credits).................................................. (918) 6,317
Deferred income tax benefit...................................................... (1,426) (4,563)
Accounts receivable and other current assets..................................... 16,899 5
Accounts payable and accrued expenses............................................ (6,411) 3,826
Deferred revenues................................................................ 1,019 3,652
------------- --------------
Cash flow from operations...................................................... 84,560 63,047
------------- --------------
Financing activities:
Cash received under employee stock plans............................................ 11,687 15,504
Cash received from borrowings....................................................... 4 3,405
Pre-acquisition cash distributions to shareholders of acquired corporations, net.... - (2,999)
Cash paid to repay debt............................................................. (1,307) (3,332)
------------- --------------
Total financing activities..................................................... 10,384 12,578
------------- --------------
Investment activities:
Cash paid for acquired businesses, net of cash acquired............................. (106,062) (563)
Cash paid for property and equipment................................................ (19,817) (17,883)
Cash paid for software and other assets............................................. (2,797) (6,345)
Cash paid for purchases of short-term investments................................... (13,949) -
Cash received from sale of subsidiaries............................................. - 25,000
Cash received from sales and maturities of short-term investments................... 32,597 2,267
------------- --------------
Total investment activities.................................................... (110,028) 2,476
------------- --------------
Increase (decrease) in cash and equivalents........................................... (15,084) 78,101
Beginning cash and equivalents........................................................ 286,990 265,011
------------- --------------
Ending cash and equivalents........................................................... $ 271,906 $ 343,112
============= ==============
Supplemental information:
Acquired businesses:
Property and equipment........................................................... $ 2,379 $ 503
Software products................................................................ 28,651 650
Goodwill and other intangible assets............................................. 100,192 160
Deferred income taxes............................................................ 509 103,004
Purchase price obligations and debt assumed...................................... (8,802) (107)
Net current liabilities assumed.................................................. (14,369) (1,193)
Common stock issued and net equity acquired in poolings of interests ............ (2,498) (102,454)
------------- --------------
Cash paid for acquired businesses, net of cash acquired............................... $ 106,062 $ 563
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 three month period
ended March 31, 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 C
corporation for all periods presented.
2. ACQUISITIONS AND DISPOSITIONS:
ACQUISITIONS:
POOLING-OF-INTERESTS TRANSACTIONS:
During the three months ended March 31, 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 three months ended March 31, 1999, the Company completed the
acquisitions of ASC, DollarMark Solutions, Inc., Sterling Wentworth Corporation
(SWC), and Tiger Systems, Inc. A total of 8.5 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 1.4
million shares of the Company's common stock. In addition, during the second
and third quarters of 1999, the Company completed the acquisitions of FDP Corp.
(FDP), Oshap Technologies Ltd. (Oshap), and Pentamation Enterprises, Inc. (PEI),
as well as three other pooling-of-interests transactions. All historical
financial information of the Company has been restated to include the historical
financial information of ASC, FDP, Oshap, PEI and 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
4
<PAGE>
SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. ACQUISITIONS AND DISPOSITIONS, CONTINUED:
ACQUISITIONS, CONTINUED:
POOLING-OF-INTERESTS TRANSACTIONS, CONTINUED:
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 three months of 2000, the Company completed three
acquisitions. Total cash paid in connection with the three acquisitions was
$94.9 million, subject to certain adjustments.
The Company has engaged an independent Big 5 accounting and professional
services firm to perform a valuation of the intangible assets acquired in
connection with the acquisition of Global Information Solutions Ltd. (GIS). 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 exists at the time of
acquisition. At March 31, 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. 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. Cash paid in connection with the acquisition of GIS was $76.1
million, subject to certain adjustments.
MERGER COSTS:
During the three months ended March 31, 2000 and 1999, the Company
recorded merger costs of $1.6 million and $85.2 million ($1.6 million after tax,
or $0.01 per diluted share, and $58.8 million pro forma after tax, or $0.46 per
pro forma diluted share), respectively. The 2000 and 1999 merger costs are
associated with pooling-of-interests transactions, and 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.
5
<PAGE>
SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. ACQUISITIONS AND DISPOSITIONS, CONTINUED:
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 three months ended March 31, 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. COMPREHENSIVE INCOME (LOSS):
Comprehensive income (loss) consists of net income (loss), adjusted for
other increases and decreases affecting stockholders' equity that are excluded
from the determination of net income (loss). The calculation of comprehensive
income (loss) for the three months ended March 31, 2000 and 1999 follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
------- --------
Net income (loss) $41,521 $(35,711)
Foreign currency translation loss (2,512) (2,755)
Unrealized gains on marketable securities 25,117 49
Income tax expense (8,791) -
------- --------
Comprehensive net income (loss) $55,335 $(38,417)
======= ========
</TABLE>
The unrealized gains on marketable securities result primarily from the
Company's 16.5% investment in common stock of Tecnomatix Technologies Ltd.
(NASDAQ: TCNO), which was acquired in connection with the 1999 pooling-of-
interests transaction with Oshap.
6
<PAGE>
SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. SHARES USED IN COMPUTING PRO FORMA NET INCOME (LOSS) PER COMMON SHARE:
The computation of shares used in computing pro forma basic and diluted net
income (loss) per common share for each of the three months ended March 31, 2000
and 1999 follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
------- -------
Weighted average common shares
outstanding 131,035 123,120
Contingent shares 156 300
------- -------
Total shares used for calculation of pro
forma basic net income (loss) per common share 131,191 123,420
Employee stock options (1) 3,003 -
------- -------
Total shares used for calculation of pro
forma diluted net income (loss) per common 134,194 123,420
share ======= =======
</TABLE>
(1) 1999 excludes 4,607 common stock equivalent shares because they are anti-
dilutive due to a net loss.
7
<PAGE>
SUNGARD DATA SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. RECLASSIFIED 1999 QUARTERLY SEGMENT DATA:
The recent formation of the eSourcing business within the business continuity
and Internet services (BCIS) segment resulted in the Company's computer services
application service provider (ASP) business becoming part of the BCIS business
segment. The following 1999 quarterly segment information reflects this
reclassification.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Investment support systems $258,758 $255,004 $255,003 $283,613
Business continuity and Internet services 82,188 90,512 88,963 96,274
Other businesses 10,701 7,357 7,713 8,415
-------- -------- -------- --------
$351,647 $352,873 $351,679 $388,302
======== ======== ======== ========
Operating margin, excluding merger costs:
Investment support systems $ 51,183 $ 44,710 $ 45,378 $ 48,553
Business continuity and Internet services 14,865 25,582 24,979 28,945
Other businesses 78 1,246 1,976 1,724
Corporate administration (4,097) (4,056) (2,970) (2,997)
-------- -------- -------- --------
62,029 67,482 69,363 76,225
Merger costs (85,224) (5,222) (8,738) -
-------- -------- -------- --------
$(23,195) $ 62,260 $ 60,625 $ 76,225
======== ======== ======== ========
Operating margin, excluding merger costs:
Investment support systems 19.8% 17.5% 17.8% 17.1%
======== ======== ======== ========
Business continuity and Internet services 18.1% 28.3% 28.1% 30.1%
======== ======== ======== ========
Other businesses 0.7% 16.9% 25.6% 20.5%
======== ======== ======== ========
Total 17.6% 19.1% 19.7% 19.6%
======== ======== ======== ========
</TABLE>
8
<PAGE>
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. Since these statements involve risks and
uncertainties and are subject to change at any time, actual results could differ
materially from expected results. Forward-looking statements include
information about possible or assumed future financial results of the Company.
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 timing and scope of technological
advances, the integration and performance of acquired businesses, the prospect
of future acquisitions, the ability to attract and retain key personnel, the
effect of year 2000 issues on software and services buying decisions, 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 all historical financial information. Also during 2000 and 1999,
the Company recorded merger costs associated with acquired companies and, on
March 31, 1999, the Company sold two of its three wholly owned healthcare
information systems (HIS) businesses. 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
<TABLE>
<CAPTION>
SUNGARD DATA SYSTEMS INC.
SUPPLEMENTAL INCOME STATEMENT INFORMATION
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Three Months
Ended
March 31,
---------
2000 1999
---- ----
Revenues:
Investment support systems $281,355 $258,758
Business continuity and Internet services 96,363 82,188
Other businesses 6,947 10,701
-------- --------
$384,665 $351,647
======== ========
Operating income:
Investment support systems $ 46,726 $ 51,183
Business continuity and Internet services 23,048 14,865
Other businesses 1,426 78
Corporate administration (4,242) (4,097)
-------- --------
66,958 62,029
Merger costs, including noncash charge of
$71.5 million in 1999 (1,600) (85,224)
-------- --------
$ 65,358 $(23,195)
======== ========
Operating margins, excluding merger costs:
Investment support systems 16.6% 19.8%
======== ========
Business continuity and Internet services 23.9% 18.1%
======== ========
Other businesses 20.5% 0.7%
======== ========
Total 17.4% 17.6%
======== ========
</TABLE>
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
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 revenue and income.
Investment Support Systems (ISS):
The Company's ISS business is comprised of fourteen groups of related
financial services software businesses. Historically, most of these businesses
have met or exceeded expectations, while some have not, yielding overall results
for the entire business at approximately the levels expected. However, during
1999, overall results were below expectations due primarily to a 36% decrease in
revenues from software licenses and resales of third-party hardware and
software in four of the Company's derivatives and risk management systems
businesses. The Company's other ISS units performed well overall, but their
results did not fully offset the decrease in software licenses and resales
within the four affected businesses. The Company believes that much of the
decrease is due to a slowdown in new system purchases by both large and medium-
size financial institutions resulting from the industry's focus on year 2000
testing and preparation during 1999.
The ISS operating margin was 16.6% for the three month period ended March
31, 2000, as compared with 19.8% for the comparable period in 1999. The
decrease in the operating margin is due primarily to lower revenues from
software licenses and resales in four of the Company's derivatives and risk
management systems businesses. Software licenses and resales in these
businesses were $10.5 million during the three month period ended March 31,
2000, as compared with $23.2 million during the three months ended March 31,
1999. This decline was offset partially by an increase in revenues in the
brokerage systems businesses, an increase in software license revenues from
shareholder accounting systems due to a contract cancellation fee resulting from
industry consolidation, and a decline in compensation expenses associated with
the Company's long-term incentive plan.
The Company expects that the full-year 2000 ISS operating margin will
increase slightly 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 23.9% during the three month period ended
March 31, 2000, as compared with 18.1% for the comparable period in 1999. The
increase in the operating margin is due primarily to
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
INCOME FROM OPERATIONS, CONTINUED:
Business Continuity and Internet Services (BCIS), Continued:
increases in revenues, costs associated with equipment upgrades and facilities
expenditures during the first three months of 1999, and a decline in
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
slightly lower than the full-year 1999 BCIS operating margin of 26.1%, as
customer testing returns to pre-Y2K levels and the Company makes additional
investments in its new Web-hosting and co-location services. 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.
REVENUES:
Total revenues for the three month period ended March 31, 2000 increased
$33.0 million, or 9%, as compared with the corresponding period in 1999.
Excluding acquired businesses, revenues increased approximately 6% and 12%
during the three month periods ended March 31, 2000 and 1999, as compared with
the corresponding periods in the previous years. The slower revenue growth rate
in 2000 is due primarily to lower derivatives and risk management software
license and professional services revenues, a decline in professional services
revenues related to conversion work on large shareholder accounting system
projects and, to a lesser extent, a decline in revenues resulting from the HIS
sale.
During the three month period ended March 31, 2000, recurring revenues
derived from processing services, business continuity and Internet services,
professional services, software maintenance, and software and hardware rentals
increased 14% to $329.2 million, or 86% of total revenues, as compared with
$289.1 million, or 82% of total revenues during the comparable period in 1999.
Professional services revenues were $64.3 million and $71.1 million during
the three month periods ended March 31, 2000 and 1999, respectively. The
decrease in professional services revenues is due primarily to conversion work
on large shareholder accounting system projects in 1999, a decrease in
derivatives and risk management professional services and the absence of
professional services revenues due to the sale of the HIS businesses, partially
offset by professional services revenues from acquired businesses and an
increase in professional services from the Company's brokerage systems
businesses.
During the three month period ended March 31, 2000, nonrecurring revenues
derived from software licenses and sales of third-party software and hardware
decreased 11% to $55.4 million, as compared with $62.6 million during the
comparable period in 1999. Software license revenues totaled $46.5 million and
$52.8 million during the three month periods ended March 31, 2000 and 1999,
respectively. Lower software license and third-party fees are due primarily to
a $12.7 million decline in derivatives and risk management systems revenues and
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Continued)
REVENUES, CONTINUED:
the absence of revenues associated with the sale of the HIS businesses, and are
offset in part by the addition of revenues from acquired businesses and an
increase in software license revenues from shareholder accounting systems due to
a contract cancellation fee resulting from industry consolidation. Lower
revenues from resales are also attributable to a decline in sales of computer
equipment related to large system installations during 1999 in the Company's
public sector businesses.
Investment Support Systems:
ISS revenues for the three month period ended March 31, 2000 increased
$22.6 million, or 9%, as compared with the corresponding period in 1999.
Recurring ISS revenues increased $27.6 million, while nonrecurring ISS revenues
decreased $5.0 million. The increase in recurring ISS revenues is due to strong
growth in the Company's brokerage systems businesses and acquired businesses,
and is offset in part by a decline in professional services revenues associated
with conversion work on large shareholder accounting system projects in 1999 and
a decline in professional services revenues in the Company's derivatives and
risk management systems businesses. The decline in nonrecurring revenues is due
to lower derivatives and risk management software license revenues and a decline
in sales of computer equipment in the Company's public sector businesses, offset
in part by an increase in software license revenues from shareholder accounting
systems due to a contract cancellation fee resulting from industry
consolidation. All of these decreases are also offset in part by revenues from
acquired businesses.
Excluding acquired businesses, ISS revenues increased approximately 2% and
14% during the three month periods ended March 31, 2000 and 1999 as compared
with the comparable periods in the prior years. The lower growth rate in 2000 as
compared with 1999 is due primarily to lower revenues from derivatives and risk
management systems, and professional services revenues related to conversion
work on large shareholder accounting system projects in 1999. The higher
internal revenue growth rate in 1999 is due primarily to an increase in software
license revenues in the derivatives and risk management systems businesses
resulting from strong demand for these products in late 1998 and early 1999.
Business Continuity and Internet Services:
BCIS revenues for the three month period ended March 31, 2000 increased
$14.2 million, or 17%, as compared with the corresponding period in 1999. The
increase is attributable 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, and is offset in part by a
decline in revenues related to year 2000 testing.
Other Businesses:
The Company's remaining businesses consist of an HIS business which
provides work-flow management systems to healthcare insurance organizations, and
an automated mailing-services business. During the first quarter of 1999, this
segment also included two other wholly owned HIS businesses, which were sold on
March 31, 1999. During the three month period ended March 31, 2000, revenues
from Other Businesses declined by
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
REVENUES, CONTINUED:
Other Businesses, Continued:
$3.8 million, or 35%, due primarily to the aforementioned sale of the HIS
businesses.
COSTS AND EXPENSES:
Cost of sales and direct operating expenses for the three month period
ended March 31, 2000 increased $11.9 million, or 8%, as compared with the
corresponding period in 1999. The increase is due primarily to BCIS and ISS
equipment upgrades and acquired businesses, partially offset by lower costs
resulting from the sale of the HIS businesses.
Sales, marketing and administration expenses for the three month period
ended March 31, 2000 increased $8.6 million, or 11%, as compared with the
corresponding period in 1999. The increase is due primarily to acquired
businesses and the formation of the Company's global account management program
and a corporate marketing program, and is partially offset by lower costs
associated with the Company's long-term incentive plan, a decrease in costs in
the Company's derivatives and risk management systems businesses, and lower
costs resulting from the sale of the HIS businesses.
Product development expenses for the three month period ended March 31,
2000 increased $2.5 million, or 8%, as compared with the corresponding period in
1999. The increase is due primarily to acquired businesses and various ISS
product development initiatives, partially offset by lower costs resulting from
the sale of the HIS businesses. Development costs capitalized during the three
month periods ended March 31, 2000 and 1999 were $1.2 million and $1.1 million,
respectively.
Depreciation and amortization for the three month period ended March 31,
2000 increased $2.4 million, or 13%, as compared with the corresponding period
in 1999. The increase is due primarily to purchases of computer and
telecommunications equipment and acquired businesses.
Amortization of acquisition-related intangible assets for the three month
period ended March 31, 2000 increased $2.7 million, or 26%, as compared with the
corresponding period in 1999. The increase is due to recently acquired
businesses.
Interest income for the three month period ended March 31, 2000 increased
$1.7 million, or 46%, as compared with the corresponding period in 1999. The
increase is due to higher 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 three month period ended March 31,
2000, as compared with 40.5% during the year ended December 31, 1999. The
slightly lower
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
COSTS AND EXPENSES, CONTINUED:
effective income tax rate in 2000 as compared with 1999 is due to recently
acquired companies with lower effective income tax rates.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and short-term investments were $357.2 million at March 31, 2000, a
decrease of $34.0 million from December 31, 1999. The decrease is due primarily
to net cash paid of $106.1 million in connection with businesses acquired and
minority interest investments. Cash flow from operations exceeded $84.0 million
during the first three months of 2000, an increase of $21.5 million, or 34%, as
compared with the corresponding period in 1999.
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 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.
EFFECT OF YEAR 2000:
The Company's comprehensive program to evaluate and address the impact of
the year 2000 on its software systems, processing services and business
continuity and Internet operations was completed by the end of 1999 without
significant incident. This program encompassed the Company's products that are
sold to its customers, as well as third-party products that are resold to
customers or are used internally by the Company. The Company continues to
monitor the effect that year 2000 may have on its products.
The Company believes that year 2000 compliance concerns caused some decline
in software buying and conversion activity during the last half of 1999 and
during the first quarter of 2000, and that this impact may continue through the
first half of 2000. The Company's revenue growth during the first half of 2000,
therefore, may be lower than during the first half of 1999.
Many third-party hardware, software and other products interact with the
Company's products and services or are used by the Company as an integral part
of its operations. The Company continues to monitor these third-party products
for year 2000 compliance, so that noncompliant products may be modified or
replaced in a timely manner. In doing so, the Company must rely upon its
outside vendors to meet continued year 2000 requirements. If any of the
Company's important vendors fails to continue to meet its year 2000
requirements, the Company will switch to another vendor as soon as possible;
this may have a material and adverse impact on the Company's business and
financial results. Although the Company believes that all of its important
vendors are meeting their year 2000 requirements, the Company cannot determine
at this time whether or when year 2000 related problems will arise with its
third-party products or whether any problems that do arise will have a material
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
EFFECT OF YEAR 2000, CONTINUED:
adverse impact on the Company's business or financial results.
THE FOREGOING IS A YEAR 2000 READINESS DISCLOSURE MADE PURSUANT TO THE
TERMS AND PROTECTIONS OF THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use 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 March 31, 2000, the Company continues to hold an equity
investment equal to approximately 16.5% 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 foreign currency risk, technology risk, and risks associated
with the public finance markets, which have recently been volatile. 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) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
16
<PAGE>
PART II. OTHER INFORMATION:
(Continued)
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:
27.1 Financial Data Schedule for the quarter ended
March 31, 2000.
(b) Reports on Form 8-K: None.
17
<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: May 15, 2000 By: s/Michael J. Ruane
---------------------------------------------
Michael J. Ruane
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer)
18
<PAGE>
LIST OF EXHIBITS
NUMBER EXHIBIT
- ------ -------
27.1 Financial Data Schedule for the quarter ended March 31, 2000
19
<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 MARCH
31, 2000 AND THE UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 2000 BOTH INCORPORATED BY REFERENCE INTO THE FORM 10-Q OF
SUNGARD DATA SYSTEMS INC. FOR THE THREE MONTHS ENDED MARCH 31, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 271,906
<SECURITIES> 85,319
<RECEIVABLES> 364,496
<ALLOWANCES> 31,761
<INVENTORY> 0
<CURRENT-ASSETS> 756,384
<PP&E> 524,018
<DEPRECIATION> 337,042
<TOTAL-ASSETS> 1,671,196
<CURRENT-LIABILITIES> 378,237
<BONDS> 9,377
0
0
<COMMON> 1,315
<OTHER-SE> 1,282,267
<TOTAL-LIABILITY-AND-EQUITY> 1,671,196
<SALES> 0
<TOTAL-REVENUES> 384,665
<CGS> 0
<TOTAL-COSTS> 232,322<F1>
<OTHER-EXPENSES> 1,600<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457
<INCOME-PRETAX> 70,268
<INCOME-TAX> 28,747
<INCOME-CONTINUING> 41,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,521
<EPS-BASIC> 0.32<F3>
<EPS-DILUTED> 0.31<F3>
<FN>
<F1>EXCLUDES SELLING, MARKETING AND ADMINISTRATIVE COSTS AND MERGER COSTS.
<F2>MERGER COSTS.
<F3>INCLUDES MERGER COSTS TOTALING $0.01 PER BOTH BASIC SHARE AND DILUTED SHARE.
</FN>
</TABLE>
