Exhibit 13.1
Portions of the SunGard's Annual Report to Stockholders
for the fiscal year ended December 31, 1999
SunGard (NYSE:SDS) is a global leader in integrated IT solutions and eProcessing
for financial services. SunGard is also the pioneer and a leading provider of
high-availability infrastructure for business continuity. With annual revenues
in excess of $1 billion, SunGard serves more than 10,000 clients in over 50
countries, including 47 of the world's 50 largest financial services
institutions.
financial highlights
- --------------------
As Originally Reported (1)
[GRAPH]
Revenues in Millions of Dollars
$533 $670 $862 $1,160 $1,393
1995 1996 1997 1998 1999
[GRAPH]
Adjusted Net Income in Millions of Dollars
$53 $68 $87 $129 $171
1995 1996 1997 1998 1999
[GRAPH]
Adjusted Diluted Net Income
per Share in Dollars (4)
$0.67 $0.79 $0.97 $1.19 $1.37
1995 1996 1997 1998 1999
Restated (2)
[GRAPH]
Revenues in Millions of Dollars
$655 $810 $1,038 $1,312 $1,445
1995 1996 1997 1998 1999
[GRAPH]
Adjusted Pro Forma Net Income
in Millions of Dollars (5)(6)
$60 $82 $102 $140 $172
1995 1996 1997 1998 1999
[GRAPH]
Adjusted Pro Forma Diluted Net Income
per Share in Dollars (4)(5)(6)
$0.56 $0.71 $0.85 $1.11 $1.32
1995 1996 1997 1998 1999
selected financial information (2)
- ----------------------------------
(in thousands, except per-share amounts) 1995 1996 1997 1998 1999
--------------------------------------------------------------------------
Income Statement Data (3)(4)
Revenues $654,905 $810,067 $1,037,639 $1,312,248 $1,444,501
Income from operations 91,015 79,811 154,274 214,904 175,915
Pro forma net income before
extraordinary items (5) 54,344 70,380 92,902 127,308 100,531
Pro forma net income (5) 54,344 70,380 92,902 130,382 111,201
Pro forma basic net income per share
before extraordinary items 0.54 0.64 0.80 1.06 0.79
Pro forma diluted net income per share
before extraordinary items 0.51 0.61 0.77 1.01 0.77
Pro forma basic net income per share 0.54 0.64 0.80 1.08 0.88
Pro forma diluted net income per share 0.51 0.61 0.77 1.04 0.85
Adjusted pro forma net income (6) 59,858 82,373 102,448 139,677 171,840
Adjusted pro forma diluted net income
per share (6) 0.56 0.71 0.85 1.11 1.32
Balance Sheet Data
Total assets $691,054 $843,283 $973,405 $1,214,192 $1,564,762
Total short-term and long-term debt 23,226 51,083 32,058 27,158 13,272
Stockholders' equity 469,894 576,168 688,126 840,447 1,210,767
(1) All periods are as originally reported, which excludes the effects of
restatements resulting from certain pooling-of-interests transactions.
Results of companies acquired in pooling-of-interests transactions are
included from the beginning of the quarter in which the acquisitions were
completed. All periods exclude all items in footnote 3 below.
(2) All periods are restated for certain poolings of interests. See Notes 1 and
2 of Notes to Consolidated Financial Statements.
(3) 1995 includes after-tax merger and preferred stock redemption costs of
$5,514 ($0.05 per diluted share). 1996 includes charges for purchased
in-process research and development and merger costs of $51,083 ($33,468
after tax; $0.29 per diluted share) and an after-tax capital gain resulting
from the sale of an investment by Oshap Technologies Ltd. (Oshap) of
$21,475 ($0.19 per diluted share). 1997 includes charges for purchased
in-process research and development and merger costs of $13,669 ($9,546
after tax; $0.08 per diluted share). 1998 includes merger and restructuring
costs of $14,584 ($12,369 after tax; $0.10 per diluted share) and after-tax
extraordinary gains resulting from Oshap's early retirement of debt of
$3,074 ($0.02 per diluted share). 1999 includes merger costs of $99,184
($71,309 pro forma after tax; $0.55 per pro forma diluted share) and
extraordinary gains of $16,766 ($10,670 after tax; $0.08 per diluted
share) resulting from the sale of two wholly owned healthcare information
systems businesses and from Oshap's early retirement of debt. See Note 2 of
Notes to Consolidated Financial Statements.
(4) All per-share amounts are adjusted for July 1995 and September 1997
two-for-one stock splits.
(5) Includes a charge for pro forma income taxes related to the acquisition of
Automated Securities Clearance, Ltd. See Note 1 of Notes to Consolidated
Financial Statements.
(6) Excludes all items described in footnote 3 above.
quarterly financial information (unaudited)
- -------------------------------------------
first second third fourth
(in thousands, except per-share amounts) quarter quarter quarter quarter
----------------------------------------------------------
1999(1)(2)
Revenues $351,647 $352,873 $351,679 $388,302
Income (loss) before income taxes and
extraordinary items (20,041) 65,642 64,389 80,466
Pro forma net income (loss)(3) (8,777) 37,246 34,742 47,990
Pro forma diluted net income (loss)
per common share(4) (0.07) 0.29 0.27 0.37
------------------------------------------------------------
1998(5)(6)
Revenues $298,433 $317,540 $329,892 $366,383
Income before income taxes and
extraordinary items 42,988 54,300 57,892 67,068
Pro forma net income(3) 23,720 31,653 35,699 39,310
Pro forma diluted net income
per common share(4) 0.19 0.25 0.28 0.31
(1) Includes after-tax merger costs and extraordinary items of $48,114, $3,787
and $8,738 during the first, second and third quarters, respectively
($0.39, $0.03 and $0.07 per diluted share, respectively). See Note 2 of
Notes to Consolidated Financial Statements.
(2) First quarter of 1999 is restated for 1999 poolings of interests with FDP
Corp. (FDP), Oshap Technologies Ltd. (Oshap) and Pentamation Enterprises,
Inc. (PEI). Second quarter of 1999 is restated for 1999 poolings of
interests with Oshap and PEI. See Note 2 of Notes to Consolidated Financial
Statements.
(3) Includes a charge for pro forma income taxes related to the acquisition of
Automated Securities Clearance, Ltd. (ASC). See Note 1 of Notes to
Consolidated Financial Statements.
(4) Due to rounding during each quarter, the sum of the quarters may not be
equal to the full-year total.
(5) Includes after-tax merger costs and extraordinary items of $7,048, $2,403,
$203 and $(359) during the first through fourth quarters, respectively
($0.06 and $0.02 per diluted share for the first and second quarters,
respectively, and, for both the third and fourth quarters, less than $0.01
per diluted share). See Note 2 of Notes to Consolidated Financial
Statements.
(6) All quarters in 1998 are restated for poolings of interests with ASC, FDP,
Oshap, PEI and Sterling Wentworth Corporation. See Note 2 of Notes to
Consolidated Financial Statements.
stock information
- -----------------
The common stock of SunGard Data Systems Inc. (the Company) is listed on the New
York Stock Exchange under the symbol SDS. At March 10, 2000, the Company had
approximately 5,400 stockholders of record. No dividends have ever been paid on
the Company's common stock. The Company's policy is to retain earnings for use
in its business.
The accompanying table indicates high and low sales prices per share of the
Company's common stock, as reported on the New York Stock Exchange.
Calendar Year 1999
First Quarter $41 15/16 $32 7/8
Second Quarter 39 15/16 27 9/16
Third Quarter 36 5/8 21 3/8
Fourth Quarter 26 3/16 16 7/8
Calendar Year 1998
First Quarter $37 3/8 $28 1/16
Second Quarter 40 31 7/16
Third Quarter 40 31 1/4
Fourth Quarter 39 11/16 21 11/16
The closing price of the Company's common stock on March 10, 2000, as reported
on the New York Stock Exchange, was $31 per share.
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 Annual Report 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 Form 10-K for the year ended December 31,
1999, a copy of which may be obtained from the Company without charge.
During 1999, the Company completed certain acquisitions accounted for as
poolings of interests, which required restatement of prior-period results.
During 1999, 1998 and 1997, the Company recorded merger costs associated with
acquired companies. On March 31, 1999, the Company sold two of its three wholly
owned healthcare information systems (HIS) businesses, resulting in an
extraordinary gain. See Notes 1 and 2 of Notes to Consolidated Financial
Statements.
Results of Operations
The following table sets forth, for the periods indicated, certain amounts
included in the Company's Consolidated Statements of Income, the relative
percentage that those amounts represent to consolidated revenues (unless
otherwise indicated), and the percentage change in those amounts from period to
period. This information should be read along with the Consolidated Financial
Statements and Notes thereto.
year ended December 31, percent of revenues (1) percent
(in millions) year ended December 31, increase (decrease)(1)
1999 1998
1999 1998 1997 1999 1998 1997 vs.1998 vs.1997
--------------------------------------------------------------------------------
Revenues
Investment support systems $1,052.4 $ 957.4 $ 741.6 73% 73% 72% 10% 29%
Business continuity and Internet services 357.9 302.5 253.5 25 23 24 18 19
Other businesses 34.2 52.3 42.5 2 4 4 (35) 23
-------------------------------------------------------------
$1,444.5 $1,312.2 $1,037.6 100% 100% 100% 10 26
=============================================================
Costs and Expenses
Cost of sales and direct operating $ 605.0 $ 544.9 $ 428.0 42% 42% 41% 11% 27%
Sales, marketing and administration 310.8 292.6 235.3 22 22 23 6 24
Product development 131.5 129.3 103.7 9 10 10 2 25
Depreciation and amortization 76.9 71.5 64.6 5 6 6 8 11
Amortization of acquisition-related
intangible assets 45.2 44.4 38.0 3 3 4 2 17
Merger costs, including noncash charge
of $71.5 in 1999 99.2 14.6 13.7 7 1 1 -- --
-------------------------------------------------------------
$1,268.6 $1,097.3 $ 883.3 88% 84% 85% 16 24
=============================================================
Operating Income
Investment support systems(2) $ 189.8 $ 166.0 $ 121.9 18% 17% 16% 14% 36%
Business continuity and Internet services(2) 94.4 72.1 56.5 26 24 22 31 28
Other businesses(2) 5.0 5.3 3.1 15 10 7 (5) 72
Corporate administration (14.1) (13.9) (13.5) (1) (1) (1) 2 3
-----------------------------------
275.1 229.5 168.0 19 17 16 20 37
Merger costs, including noncash charge
of $71.5 in 1999 (99.2) (14.6) (13.7) (7) (1) (1) -- --
-----------------------------------
$ 175.9 $ 214.9 $ 154.3 12 16 15 (18) 39
===================================
(1) All percentages are calculated using actual amounts rounded to the nearest
$1,000.
(2) Percent of revenues is calculated as a percent of investment support
systems revenues, business continuity and Internet services revenues, and
revenues from other businesses, respectively.
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
the financial services industry will continue, but it is unable to predict what
effect, if any, this trend may have on the Company.
Certain investment support systems (ISS) companies acquired during 1999 and
1998 derive a significantly larger portion of revenues from software license
sales than the Company's other ISS businesses. Since there are inherent
difficulties in predicting the timing and magnitude of software sales, the
potential for fluctuations in quarterly revenues and income is greater than it
was before these acquisitions were completed.
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. During 1999,
overall results were below expectations due primarily to a 36% decrease in
software license and third-party fees in four of the Company's derivatives and
risk management systems businesses. The Company's other ISS businesses performed
well overall, but their results did not fully offset the decrease in software
license and third-party fees 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 Y2K testing and preparation during 1999. Software license
and third-party fees of the four affected businesses are $78.5 million, $122.1
million and $108.5 million in 1999, 1998 and 1997, respectively.
The ISS operating margin is 18% in 1999, compared with 17% in 1998 and 16%
in 1997. Despite the offsetting impact of lower license fees in the four
derivatives and risk management businesses, the higher margin in 1999 is due to
lower operating costs in these same four businesses, an increase in license fees
in other ISS businesses, improved margins for Automated Securities Clearance,
Ltd. (ASC) and Oshap Technologies Ltd. (Oshap), and lower compensation expense
associated with the Company's long-term equity incentive plans. The higher
margin in 1998 compared to 1997 is due primarily to an increase in software
license and third-party fees, as well as to a reduction in costs in three ISS
businesses.
The Company expects that the full-year 2000 ISS operating margin will
increase slightly from the full-year 1999 operating margin. 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)
BCIS provides business continuity, Web-hosting, co-location, outsourcing and
remote-access computer services. The BCIS operating margin is 26% in 1999,
compared with 24% in 1998 and 22% in 1997. The increasing operating margins are
due primarily to increases in revenues, including additional Y2K testing revenue
and, in 1999, the favorable settlement of a contract dispute and lower
compensation expense associated with the Company's long-term equity incentive
plans. The increasing operating margin in 1999 and 1998 is net of the impact of
equipment additions and upgrades, increases in commission expense resulting from
new contract signings and, in 1999, severance costs.
The Company expects that the full-year 2000 BCIS operating margin will
decline slightly from the full-year 1999 operating margin as customer testing
returns to pre-Y2K levels and the Company makes additional investments in its
new Web-hosting and co-location offerings. The most important factors affecting
the BCIS operating margin continue to be the rate of new contract signings and
contract renewals and the timing and magnitude of equipment and facilities
expenditures.
Revenues
Total revenues increased $132.3 million and $274.6 million in 1999 and 1998,
respectively. Excluding acquired businesses and the 1999 sale of the HIS
businesses, total revenues increased approximately 10% and 18% in 1999 and 1998,
respectively.
The slower revenue growth rate in 1999 is due primarily to lower
derivatives and risk management software license revenues, lower professional
services revenues resulting from shareholder accounting system conversions being
completed in late 1998 and early 1999 and, to a lesser extent, a decline in
revenues resulting from the sale of the HIS businesses.
Recurring revenues derived from processing services, business continuity
and Internet services, professional services, software maintenance, and software
and hardware rentals are $1.2 billion, $1.0 billion and $0.8 billion in 1999,
1998 and 1997, respectively, representing 83%, 79% and 79% of consolidated
revenues, respectively, for those years. The increase in recurring revenues is
due primarily to an increase in revenues from business continuity and Internet
services and to an increase in revenues from the Company's brokerage systems
business. Professional services revenues are $268.6 million in 1999, compared to
$239.0 million and $149.9 million in 1998 and 1997, respectively. The 1999
increase in professional services revenues is due primarily to both the addition
of professional services revenues of acquired businesses and an increase in
brokerage systems professional services, and is net of the impact of shareholder
accounting system conversions being completed in late 1998 and early 1999 and a
decline in revenues resulting from the sale of the HIS businesses. The 1998
increase in professional services revenues is primarily the result of an
increased emphasis on professional services opportunities in many of the
Company's businesses and shareholder accounting systems conversions that were
completed in late 1998 and early 1999.
Nonrecurring revenues, derived from software licenses and sales of
third-party software and hardware, are $239.1 million in 1999, compared to
$271.3 million and $219.5 million in 1998 and 1997, respectively. Lower revenues
from third-party software and hardware sales are due primarily to a decline in
sales of hardware related to large systems installations in 1998 in the public
sector and trust and custody software businesses and a decline in revenues
resulting from the sale of the HIS businesses.
Software license revenues included in license and third-party fees are
$208.2 million, $219.5 million and $185.9 million in 1999, 1998 and 1997,
respectively. Lower software license revenues in 1999 are due primarily to both
a decline in derivatives and risk management software license revenues and the
absence of software license revenues associated with the sale of the HIS
businesses, and are offset in part by the addition of revenues from acquired
businesses. Higher software license revenues in 1998 compared to 1997 are due
primarily to an increase in derivatives and risk management software license
revenues and the addition of revenues from acquired businesses.
Investment Support Systems
ISS revenues increased $95.0 million, or 10%, and $215.8 million, or 29%, in
1999 and 1998, respectively. In 1999, recurring ISS revenues increased $118.8
million, while nonrecurring ISS revenues decreased $23.8 million. In 1998,
recurring ISS revenues increased $168.1 million, while nonrecurring ISS revenues
increased $47.7 million. Excluding acquired businesses, ISS revenues increased
approximately 8% and 18% in 1999 and 1998, respectively. Excluding from all
periods the four derivatives and risk management businesses that experienced a
decrease in software license and third-party fees, ISS revenues increased
approximately 19%, 32% and 31% in 1999, 1998 and 1997, respectively.
Business Continuity and Internet Services
BCIS revenues increased $55.4 million, or 18%, and $49.0 million, or 19%, in
1999 and 1998, respectively. The increases are attributable primarily to new
contract signings and contract renewals, continued growth in demand for midrange
platforms, network services and work-group recovery, increases in business
continuity professional services and software licenses and, in 1998, an increase
in revenues from government contracts in the computer outsourcing and processing
business.
Other Businesses
The Company's remaining businesses (Other Businesses) consist of an HIS
business, which provides work-flow management systems to healthcare insurance
organizations, and an automated mailing-services business. Revenues from Other
Businesses decreased $18.1 million, or 35%, in 1999 and increased $9.8 million,
or 23%, in 1998. Excluding the 1999 sale of the HIS businesses, 1999 revenues
decreased approximately 10%. The decrease is due to lower revenues in both the
HIS and automated mailing-services businesses. The 1998 increase is attributable
to higher revenues in the HIS businesses and is net of the impact of lower
revenues in the automated mailing-services business.
Costs and Expenses
Cost of sales and direct operating expenses increased $60.2 million and $116.8
million in 1999 and 1998, respectively. The increases are due primarily to BCIS
and ISS equipment upgrades, BCIS facilities improvements and to the costs
associated with acquired businesses. The increase in 1999 is net of the impact
of lower costs resulting from the sale of the HIS businesses.
Sales, marketing and administration expenses increased $18.2 million and
$57.4 million in 1999 and 1998, respectively. The 1999 increases are due
primarily to the additional expenses of acquired businesses and BCIS severance
costs, and are net of the impact of a $13.9 million reduction in expense
associated with the Company's long-term equity incentive plans, a favorable
settlement of a BCIS contract dispute and lower costs resulting from the sale of
the HIS businesses. The 1998 increases are due primarily to additional expenses
associated with acquired businesses, expansion of the sales force, particularly
the BCIS sales force, and an $8.0 million increase in expenses associated with
the Company's long-term equity incentive plans. Total compensation expense
related to all of the Company's equity incentive plans was $0.3 million, $14.2
million and $6.2 million in 1999, 1998 and 1997, respectively.
Product development expenses increased $2.1 million and $25.6 million in
1999 and 1998, respectively. The 1999 increase is due primarily to the addition
of expenses associated with acquired businesses and is net of a decline in
development spending associated with derivatives and risk management systems and
lower costs resulting from the sale of the HIS businesses. The 1998 increase is
the result of the addition of expenses of acquired businesses and increased
development spending for various ISS products. Development costs capitalized are
$4.8 million, $8.0 million and $5.6 million in 1999, 1998 and 1997,
respectively.
Depreciation and amortization of property and equipment increased $5.4
million and $6.8 million in 1999 and 1998, respectively. The increases are due
primarily to purchases of computer and telecommunications equipment, BCIS
facilities improvements, and depreciation and amortization associated with
acquired businesses.
Amortization of acquisition-related intangible assets increased $0.8
million and $6.4 million in 1999 and 1998, respectively. The increases are due
to recently acquired businesses and are net of the impact of intangible assets
of previously acquired businesses having been fully amortized.
As explained in Note 2 of Notes to Consolidated Financial Statements, the
Company recorded merger costs of $99.2 million ($0.55 per pro forma diluted
share) in 1999 and $14.6 million ($0.10 per diluted share) in 1998 and recorded
merger and other acquisition-related costs of $13.7 million ($0.08 per diluted
share) in 1997. Also, the Company recorded extraordinary gains in 1999 and 1998
of $10.7 million ($0.08 per diluted share) and $3.1 million ($0.02 per diluted
share), respectively. The extraordinary gains are related to the sale of the HIS
businesses and Oshap's early retirement of debt (see Note 2 of Notes to
Consolidated Financial Statements).
Net interest income increased $7.2 million and $3.9 million in 1999 and
1998, respectively. The increases are due to higher cash and short-term
investment balances. There were no borrowings under the Company's line of credit
during 1999 or 1998.
The Company's effective income tax rates are 59.6%, 41.5% and 39.9% in
1999, 1998 and 1997, respectively. The increase in the 1999 rate is due to
certain merger costs being nondeductible, including a $71.5 million noncash
charge related to the acquisition of ASC (see Note 2 of Notes to Consolidated
Financial Statements). The 1998 increase is also due to an increase in
nondeductible merger costs and higher costs associated with nondeductible
intangible assets. Excluding these nondeductible costs, as well as the effect of
extraordinary items, the Company's 1999, 1998 and 1997 effective income tax
rates are 40.5%, 40.4% and 39.1%, respectively. The lower effective tax rate in
1997 is due primarily to the effect of the merger with ASC.
Liquidity and Capital Resources
The Company's financial condition and balance sheet remain strong. At December
31, 1999, cash and short-term investments are $391.2 million, an increase of
$100.2 million from December 31, 1998 after spending $96.8 million on acquired
businesses and receiving $25.0 million from the sale of the HIS businesses. Cash
flow from operations exceeded $263.0 million in 1999 and is expected to be in
excess of that amount in 2000. Short- and long-term debt declined from $27.2
million at December 31, 1998 to $13.3 million at December 31, 1999.
Stockholders' equity exceeded $1.0 billion for the first time, reaching $1.2
billion at December 31, 1999.
At December 31, 1999, the Company's remaining commitments consist primarily
of operating leases for computer equipment and facilities aggregating $234.9
million, of which $71.4 million will be paid in 2000. The Company expects that
its existing cash resources and cash generated from operations for the
foreseeable future will be sufficient to meet its operating requirements,
contingent payments in connection with business acquisitions and ordinary
capital spending needs. Furthermore, the Company has a $150.0 million credit
agreement and believes that 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 year end, and the Company's systems and
operations completed the rollover to year 2000 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,
especially in derivatives and risk management systems, and that this impact may
continue during the first half of 2000. The Company's rate of internal 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 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 adverse impact on the
Company's business or financial results.
The Company does not maintain detailed accounting records that separately
identify all of the costs associated with its year 2000 activities. In response
to disclosure requirements regarding year 2000 matters, the Company has reviewed
its accounting and product development records for the period beginning January
1, 1996 in an effort to estimate the costs of its year 2000 compliance program.
Through December 31, 1999, the Company has spent approximately $28.2 million in
direct labor and benefit costs for modification and testing, plus approximately
$7.5 million in capital expenditures. The Company does not expect to incur
significant incremental expenses in 2000.
consolidated statements of income
- ---------------------------------
year ended December 31,
(in thousands, except per-share amounts) 1999 1998 1997
----------------------------------------------
Revenues:
Services $1,205,380 $1,040,938 $ 818,166
License and third-party fees 239,121 271,310 219,473
----------------------------------------------
1,444,501 1,312,248 1,037,639
----------------------------------------------
Costs and expenses:
Cost of sales and direct operating 605,045 544,863 428,047
Sales, marketing and administration 310,830 292,650 235,253
Product development 131,482 129,353 103,745
Depreciation and amortization 76,843 71,453 64,624
Amortization of acquisition-related intangible assets 45,202 44,441 38,027
Merger costs, including noncash charge of $71,459 in 1999 (see Note 2) 99,184 14,584 13,669
----------------------------------------------
1,268,586 1,097,344 883,365
----------------------------------------------
Income from operations 175,915 214,904 154,274
Interest income 16,862 9,742 6,620
Interest expense (2,321) (2,398) (3,213)
----------------------------------------------
Income before income taxes and extraordinary items 190,456 222,248 157,681
Income taxes 117,306 93,546 62,947
----------------------------------------------
Income before extraordinary items 73,150 128,702 94,734
Extraordinary items, net of income taxes of $6,096 in 1999 10,670 3,074 --
----------------------------------------------
Net income 83,820 131,776 94,734
Pro forma income tax expense (benefit) related to acquired
Subchapter S corporation (27,381) 1,394 1,832
----------------------------------------------
Pro forma net income $ 111,201 $ 130,382 $ 92,902
==============================================
Pro forma basic net income per common share:
Before extraordinary items $ 0.79 $ 1.06 $ 0.80
==============================================
After extraordinary items $ 0.88 $ 1.08 $ 0.80
==============================================
Shares used to compute basic net income
per common share 126,949 120,350 115,627
==============================================
Pro forma diluted net income per common share:
Before extraordinary items $ 0.77 $ 1.01 $ 0.77
==============================================
After extraordinary items $ 0.85 $ 1.04 $ 0.77
==============================================
Shares used to compute diluted net income
per common share 130,195 125,455 120,687
==============================================
consolidated balance sheets
- ---------------------------
December 31,
(in thousands, except per-share amounts) 1999 1998
----------------------------
Assets
Current:
Cash and equivalents $ 286,990 $ 265,011
Short-term investments 104,235 26,001
Trade receivables, less allowance for doubtful accounts of $34,141 and $28,988 278,114 269,729
Earned but unbilled receivables 56,288 42,830
Prepaid expenses and other current assets 35,615 36,106
Deferred income taxes 25,565 22,208
----------------------------
Total current assets 786,807 661,885
Investment in common stock 49,902 16,251
Property and equipment, less accumulated depreciation of $318,405 and $267,220 182,682 149,334
Software products, less accumulated amortization of $146,185 and $123,220 110,355 83,929
Goodwill, less accumulated amortization of $59,840 and $49,010 211,791 161,404
Other tangible and intangible assets, less accumulated amortization of $77,740 and $60,814 93,393 102,063
Deferred income taxes 129,832 39,326
----------------------------
$1,564,762 $1,214,192
============================
Liabilities and Stockholders' Equity
Current:
Short-term and current portion of long-term debt $ 7,755 $ 17,310
Accounts payable 14,924 21,256
Accrued compensation and benefits 84,971 96,371
Other accrued expenses 61,820 56,358
Accrued income taxes 13,142 22,947
Deferred revenues 165,866 149,655
----------------------------
Total current liabilities 348,478 363,897
----------------------------
Long-term debt 5,517 9,848
----------------------------
Commitments (see Note 11)
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000 shares authorized -- --
Common stock, par value $.01 per share; 320,000 shares authorized;
128,505 and 122,602 shares issued 1,285 1,226
Capital in excess of par value 591,998 316,922
Restricted stock plans and notes receivable from common stock (1,768) (3,129)
Retained earnings 608,519 536,523
Accumulated other comprehensive income (loss) 10,733 (7,299)
----------------------------
1,210,767 844,243
Treasury stock, at cost, 0 and 641 shares -- (3,796)
----------------------------
Total stockholders' equity 1,210,767 840,447
----------------------------
$1,564,762 $1,214,192
============================
The accompanying notes are an integral part of these financial statements.
consolidated statements of cash flows
- -------------------------------------
year ended December 31,
(in thousands) 1999 1998 1997
------------------------------------------
Cash Flow From Operations
Net income $ 83,820 $131,776 $ 94,734
Reconciliation of net income to cash flow from operations:
Depreciation and amortization 122,045 115,894 102,651
Extraordinary gains, net of income taxes (10,670) (3,074) --
Noncash compensation charge related to the acquisition of ASC 71,459 -- --
Other noncash charges including purchased in-process
research and development in 1997 4,860 22,270 18,837
Deferred income tax benefit (4,755) (13,817) (15,840)
Accounts receivable and other current assets (15,451) (73,621) (47,544)
Accounts payable and accrued expenses 1,014 50,804 15,893
Deferred revenues 10,876 18,779 2,225
------------------------------------------
Cash flow from operations 263,198 249,011 170,956
------------------------------------------
Financing Activities
Cash received from employee stock plans and issuance of
common stock 40,514 28,386 14,381
Cash received from borrowings 4,856 5,700 171,752
Pre-acquisition cash distributions to shareholders of acquired
corporations, net (5,605) (9,655) (4,405)
Cash received by consolidated subsidiary from issuing shares to
minority owners -- 8,500 --
Cash paid for treasury stock -- (871) (525)
Cash paid to repay debt (26,445) (13,684) (197,152)
------------------------------------------
Total financing activities 13,320 18,376 (15,949)
------------------------------------------
Investment Activities
Cash paid for acquired businesses, net of cash acquired (96,763) (26,121) (56,009)
Cash paid for property and equipment (95,829) (73,253) (64,108)
Cash paid for software and other assets (16,489) (14,691) (13,598)
Cash paid for purchases of short-term investments (93,018) (21,661) (79,902)
Cash received from sale of subsidiaries 25,000 -- --
Cash received from sales and maturities of short-term investments 22,560 42,434 54,334
------------------------------------------
Total investment activities (254,539) (93,292) (159,283)
------------------------------------------
Increase (decrease) in cash and equivalents 21,979 174,095 (4,276)
Beginning cash and equivalents 265,011 90,916 95,192
------------------------------------------
Ending cash and equivalents $ 286,990 $265,011 $ 90,916
==========================================
Supplemental Information
Interest paid $ 2,310 $ 2,808 $ 3,413
==========================================
Income taxes paid $ 114,872 $ 81,227 $ 73,720
==========================================
Acquired businesses:
Property and equipment $ 3,142 $ 1,312 $ 5,681
Software products 41,676 6,409 17,765
Purchased in-process research and development -- -- 10,161
Goodwill and other intangible assets 82,867 27,737 34,445
Deferred income taxes 100,774 233 1,738
Purchase price obligations and debt assumed (8,077) (3,021) (6,406)
Net current assets acquired (liabilities assumed) 619 (12,362) (954)
Common stock issued and net equity acquired in poolings of interests (124,238) 5,813 (6,421)
------------------------------------------
Cash paid for acquired businesses, net of cash acquired of $3,029,
$1,708 and $4,606 in 1999, 1998 and 1997, respectively $ 96,763 $ 26,121 $ 56,009
==========================================
The accompanying notes are an integral part of these financial statements.
consolidated statement of stockholders' equity
- ----------------------------------------------
preferred stock common stock
------------------- ----------------------
number of par number of par
(in thousands) shares value shares value
--------------------------------------------
Balances, December 31, 1996, as previously reported -- $-- 48,473 $ 485
Adjustments in connection with poolings of interests -- -- 8,285 82
--------------------------------------------
Balances, December 31, 1996, as restated -- -- 56,758 567
Poolings of interests -- -- 2,796 28
Comprehensive income:
Net income -- -- -- --
Foreign currency translation -- -- -- --
Unrealized gains on short-term investments -- -- -- --
Total comprehensive income
Two-for-one common stock split -- -- 57,814 578
Pre-acquisition contributions (distributions) -- -- -- --
Purchase of common stock -- -- -- --
Note repayments -- -- -- --
Shares issued under stock plans -- -- 1,399 14
Compensation expense related to restricted stock plans -- -- -- --
Options earned under long-term incentive plan -- -- -- --
Income tax benefit arising from employee stock options -- -- -- --
--------------------------------------------
Balances, December 31, 1997 -- -- 118,767 1,187
Poolings of interests -- -- 1,343 13
Comprehensive income:
Net income -- -- -- --
Foreign currency translation -- -- -- --
Unrealized losses on short-term investments -- -- -- --
Total comprehensive income
Stock issued for acquired company -- -- 15 1
Pre-acquisition contributions (distributions) -- -- -- --
Purchase of common stock -- -- -- --
Note repayments, net of issuances -- -- -- --
Shares issued under stock plans -- -- 2,477 25
Compensation expense related to stock plans -- -- -- --
Income tax benefit arising from employee stock options -- -- -- --
--------------------------------------------
Balances, December 31, 1998 -- -- 122,602 1,226
Poolings of interests -- -- 1,837 18
Comprehensive income:
Net income -- -- -- --
Foreign currency translation -- -- -- --
Unrealized gains on short-term investments (net of income taxes of $12,060) -- -- -- --
Total comprehensive income
Deferred income tax benefit resulting from acquisition of ASC -- -- -- --
Noncash compensation expense resulting from acquisition of ASC -- -- -- --
Noncash broker fee in connection with acquisition of ASC -- -- -- --
Purchase of minority interests in MINT and Decalog -- -- 407 4
Pre-acquisition distributions -- -- -- --
Note repayments -- -- -- --
Shares issued under stock plans -- -- 3,659 37
Compensation expense related to stock plans -- -- -- --
Options earned under long-term incentive plan -- -- -- --
Income tax benefit arising from employee stock options -- -- -- --
--------------------------------------------
Balances, December 31, 1999 -- $-- 128,505 $1,285
============================================
The accompanying notes are an integral part of these financial statements.
accumulated other
comprehensive income (loss) treasury stock
restricted stock -------------------------------------- ------------------------------
capital in plans and notes foreign unrealized gains
excess of receivable from retained currency on marketable number of
par value common stock earnings translation securities shares cost total
- -----------------------------------------------------------------------------------------------------------------------------------
$208,082 $(3,428) $301,686 $ (287) $ -- (43) $(1,475) $ 505,063
28,827 (1,448) 45,786 189 69 (271) (2,400) 71,105
- -----------------------------------------------------------------------------------------------------------------------------------
236,909 (4,876) 347,472 (98) 69 (314) (3,875) 576,168
2,574 -- 3,884 (65) -- -- -- 6,421
-- -- 94,734 -- -- -- --
-- -- -- (6,749) -- -- --
-- -- -- -- 24 -- --
88,009
(578) -- -- -- -- (282) -- --
1,631 -- (6,111) -- -- -- -- (4,480)
-- -- -- -- -- (30) (525) (525)
-- 1,074 -- -- -- -- -- 1,074
11,682 -- -- -- -- 54 1,475 13,171
-- 511 -- -- -- -- -- 511
4,230 -- -- -- -- -- -- 4,230
3,547 -- -- -- -- -- -- 3,547
- -----------------------------------------------------------------------------------------------------------------------------------
259,995 (3,291) 439,979 (6,912) 93 (572) (2,925) 688,126
4,357 -- (11,644) (221) -- -- -- (7,495)
-- -- 131,776 -- -- -- --
-- -- -- (168) -- -- --
-- -- -- -- (91) -- --
131,517
912 -- -- -- -- -- -- 913
9,140 -- (23,588) -- -- -- -- (14,448)
-- -- -- -- -- (69) (871) (871)
-- 221 -- -- -- -- -- 221
28,014 (688) -- -- -- -- -- 27,351
1,791 629 -- -- -- -- -- 2,420
12,713 -- -- -- -- -- -- 12,713
- -----------------------------------------------------------------------------------------------------------------------------------
316,922 (3,129) 536,523 (7,301) 2 (641) (3,796) 840,447
3,434 -- (6,219) -- -- 641 3,796 1,029
-- -- 83,820 -- -- -- --
-- -- -- (4,364) -- -- --
-- -- -- -- 22,396 -- --
101,852
103,004 -- -- -- -- -- -- 103,004
71,459 -- -- -- -- -- -- 71,459
3,531 -- -- -- -- -- -- 3,531
23,512 -- -- -- -- -- -- 23,516
-- -- (5,605) -- -- -- -- (5,605)
-- 1,369 -- -- -- -- -- 1,369
39,986 (631) -- -- -- -- -- 39,392
-- 623 -- -- -- -- -- 623
11,043 -- -- -- -- -- -- 11,043
19,107 -- -- -- -- -- -- 19,107
- -----------------------------------------------------------------------------------------------------------------------------------
$591,998 $(1,768) $608,519 $(11,665) $22,398 -- $ -- $1,210,767
===================================================================================================================================
notes to consolidated financial statements
- ------------------------------------------
1. Summary of Significant Accounting Policies
Basis of Presentation
SunGard Data Systems Inc. (the Company), through its subsidiaries, provides
integrated technology solutions, principally proprietary software and
application services to the financial services industry and business continuity
and Internet services, comprised of high-availability infrastructure, Web-
hosting, co-location, outsourcing and remote-access computer services. The
consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
The consolidated financial statements for all periods have been restated
for the poolings of interests with Automated Securities Clearance, Ltd. (ASC),
FDP Corp. (FDP), Oshap Technologies Ltd. (Oshap), Pentamation Enterprises, Inc.
(PEI) and Sterling Wentworth Corporation (SWC). Historical financial information
has not been restated for five other poolings of interests due to immateriality.
Each immaterial acquisition was recorded as of the beginning of the quarter in
which it was completed. See Note 2 of Notes to Consolidated Financial
Statements.
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 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.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and reported
amounts of revenues and expenses during the reporting period. Future events
could cause actual results to differ from those estimates.
The Company amortizes intangible assets, including software product costs,
over periods that it believes approximate the related useful lives of those
assets based upon estimated future operating results and cash flows of the
underlying business operations. The Company closely monitors estimates of those
lives. Those estimates could change due to numerous factors, including product
demand, market conditions, technological developments, economic conditions and
competitor activities.
Revenue Recognition
Revenues from processing services, business continuity and Internet services and
software maintenance services are recognized over the terms of the related
contracts or as the related services are provided. Revenues from license fees of
proprietary products are generally recognized upon the signing of a contract and
delivery of the product, as long as the fee is considered to be fixed and
determinable and collection is probable.
Revenues from license fees of proprietary products that are paid for over
an extended period of time and are bundled together with computer equipment and
other postdelivery services, and for which significant technology or service
risks exist, are recorded ratably over the contract period. Revenues from
fixed-fee contracts requiring a significant amount of program modification or
customization, installation, systems integration and/or related services are
recognized based upon the estimated percentage of completion. Changes in
estimated costs during the course of a contract are reflected in the period in
which the facts become known.
Cash and Equivalents
Cash equivalents consist of commercial paper and other investments that are
readily convertible into cash and have original maturities of three months or
less.
Short-term Investments
The Company classifies all of its short-term investments as available-for-sale
securities. Short-term investments consist primarily of government agency bonds
and notes and corporate obligations which are stated at market value, with
unrealized gains and losses net of income tax on such securities reflected in
stockholders' equity as a component of other comprehensive income (loss).
Realized gains and losses on short-term investments are included in earnings and
are derived using the specific-identification method for determining cost of
securities. The fair values of investments are determined using quoted market
prices.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of temporary cash and short-term investments and
receivables. By policy, the Company places its temporary cash and short-term
investments with institutions of high credit-quality and limits the amount of
credit exposure to any one issuer. 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
believes that any credit risk associated with receivables is substantially
mitigated by a relatively large number of customer accounts and reasonably short
collection terms. Receivables are stated at estimated net realizable value,
which approximates fair value.
Property and Equipment
Property and equipment are recorded at cost, and depreciation is provided on the
straight-line method over the estimated useful lives of the related assets (two
to eight years for equipment and ten to forty years for buildings and
improvements). Leasehold improvements are amortized ratably over their remaining
lease term or useful life, if shorter.
Foreign Currency Translation
The functional currency of each of the Company's foreign operations is the local
currency of the country in which the operation is headquartered. All assets and
liabilities are translated into U.S. dollars using exchange rates in effect at
the balance sheet date. Revenues and expenses are translated using average
exchange rates during the period. Increases and decreases in net assets
resulting from foreign currency translation are reflected in stockholders'
equity as a component of other comprehensive income (loss).
Investment in Common Stock
Long-term investment in common stock consists of 1.7 million shares of common
stock (approximately 16.5% of the outstanding common stock) of Tecnomatix
Technologies Ltd. (Nasdaq: TCNO). These shares were acquired in connection with
the 1999 acquisition of Oshap (see Note 2 of Notes to Consolidated Financial
Statements). In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," this
investment is classified as available for sale. The investment is stated at
market value, with unrealized gains and losses net of income tax reflected in
stockholders' equity as a component of other comprehensive income (loss). The
fair value of the investment is determined using quoted market prices. Prior to
the Company's acquisition of Oshap, this investment was recorded using the
equity method of accounting.
Software Development and Product Costs
Product development costs are expensed as incurred and consist primarily of
design and development costs of new products and significant enhancements
incurred before the establishment of technological feasibility. In 1999, the
Company recorded an expense of $3.3 million for the impairment of certain
acquired software products.
Costs associated with purchased software, software obtained through
business acquisitions, and new products and enhancements to existing products
that meet technological feasibility and recoverability tests are capitalized and
amortized over the estimated useful lives of the related products, generally
five to ten years, using the straight-line method or the ratio of current
revenues to current and anticipated revenues from such software, whichever
provides the greater amortization. Amortization of all software products
aggregated $27.7 million, $23.5 million and $24.3 million during 1999, 1998 and
1997, respectively.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized using the straight-line method over periods ranging
from five to thirty years. The recoverability of goodwill is periodically
reviewed by the Company. In assessing recoverability, many factors are
considered, including operating results and cash flows of the acquired
businesses, as well as benefits that the acquired businesses contribute to
existing and related products, services and markets. After consideration of
these factors, the Company determines whether a reduction in amortizable life or
charge for impairment is appropriate. The Company believes that no impairment of
goodwill existed at December 31, 1999.
In 1998, the Company recorded a charge of $6.5 million for both the partial
impairment of goodwill associated with a United Kingdom-based investment support
systems processing business and the write-off of the remaining goodwill
associated with an Australia-based investment support systems business.
Other Intangible Assets
Other intangible assets consist primarily of contract rights, customer bases and
noncompetition agreements obtained in business acquisitions. Contract rights and
customer bases are amortized using the straight-line method over their estimated
useful lives, ranging from four to seventeen years. Noncompetition agreements
are amortized using the straight-line method over the term of such agreements,
ranging from two to seven years.
Income Taxes
The Company recognizes deferred income tax assets and liabilities based upon the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income tax assets and liabilities
are calculated based on the difference between the financial and tax bases of
assets and liabilities using the currently enacted income tax rates in effect
during the years in which the differences are expected to reverse.
2. Acquisitions and Dispositions
Pooling-of-Interests Transactions
In 1999, the Company completed ten acquisitions in its investment support
systems (ISS) 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 results 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.
A reconciliation of revenues, pro forma net income, before and after
extraordinary items, and pro forma net income per common share, before and after
extraordinary items, from the amounts originally reported to the amounts as
restated for each of the years ended December 31 follows (in thousands, except
per-share amounts):
1999(1) 1998(1) 1997(1)
Revenues:
As originally reported $1,392,998 $1,159,748 $ 925,030
Poolings of interests 51,503 152,500 112,609
----------------------------------------
Combined $1,444,501 $1,312,248 $1,037,639
========================================
Pro forma net income before
extraordinary items:
As originally reported $ 99,921 $ 118,933 $ 83,975
Poolings of interests 610 8,375 8,927
----------------------------------------
Combined $ 100,531 $ 127,308 $ 92,902
========================================
Pro forma net income after
extraordinary items:
As originally reported $ 110,292 $ 118,933 $ 83,975
Poolings of interests 909 11,449 8,927
----------------------------------------
Combined $ 111,201 $ 130,382 $ 92,902
========================================
Pro forma basic net income
per common share before
extraordinary items:
As originally reported $0.82 $1.14 $0.84
========================================
Combined $0.79 $1.06 $0.80
========================================
Pro forma basic net income
per common share after
extraordinary items:
As originally reported $0.90 $1.14 $0.84
========================================
Combined $0.88 $1.08 $0.80
========================================
Pro forma diluted net income
per common share before
extraordinary items:
As originally reported $0.80 $1.10 $0.81
========================================
Combined $0.77 $1.01 $0.77
========================================
Pro forma diluted net income
per common share after
extraordinary items:
As originally reported $0.88 $1.10 $0.81
========================================
Combined $0.85 $1.04 $0.77
========================================
(1) The 1999 combined amounts include revenues, pro forma net income and pro
forma net income per common share for each of the quarters prior to the
consummation of the mergers with FDP, completed during the second quarter,
and Oshap and PEI, completed during the third quarter. The mergers with ASC
and SWC were completed during the first quarter. The 1998 and 1997 combined
amounts include ASC, FDP, Oshap, PEI and SWC for all periods.
In 1998, the Company completed three ISS acquisitions. A total of 14.6
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 1.7 million shares of the Company's common
stock.
All historical financial information of the Company was restated in 1998 to
include the historical financial information of Infinity Financial Technology,
Inc. (Infinity). 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.
In 1997, the Company completed six acquisitions. Five of these acquisitions
are in the Company's ISS business and one in its healthcare information systems
(HIS) business. A total of 3.7 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 0.7 million shares of the
Company's common stock. Historical financial information is not restated for
these acquisitions due to immateriality. Each acquisition has been recorded as
of the beginning of the quarter during which it was completed.
Purchase Transactions
During 1999, the Company completed eight ISS acquisitions. The total cash paid
is $98.4 million, subject to certain adjustments. The Company also paid $1.4
million as additional consideration based upon the operating performance of
businesses previously acquired. In conjunction with the Company's pooling of
interests with Oshap, the Company also acquired the minority interests of two
Oshap subsidiaries, MINT Software Technologies Ltd. (MINT) and Decalog N.V.
(Decalog). In addition to the cash paid, the Company also issued 0.4 million
shares of common stock and converted unvested stock options into 0.4 million
options to purchase common stock of the Company. Goodwill recorded in connection
with all of these acquisitions is $64.1 million. Also in connection with these
acquisitions, a total of up to $2.8 million could be paid as additional
consideration contingent upon the future operating performance of certain
acquired businesses.
During 1998, the Company completed six acquisitions, five of which are in
its ISS business and one in its business continuity and Internet services (BCIS)
business. The total cash paid is $16.9 million, subject to certain adjustments.
Goodwill recorded is approximately $6.7 million. The Company also paid $5.0
million as additional consideration based upon the operating performance of
businesses previously acquired.
During 1997, the Company completed five acquisitions, three of which are in
its ISS business and two in its BCIS business. The total cash paid is $58.9
million, subject to certain adjustments. Goodwill recorded is $15.2 million. The
Company also paid $0.7 million as additional consideration based upon the
operating performance of a previously acquired business. Total additional
consideration of $2.2 million could be paid based upon the achievement of
certain future financial results.
Also during 1997, the Company recorded a charge of $10.2 million ($6.0
million after tax; $0.05 per diluted share) for purchased in-process research
and development associated primarily with the acquisition of certain assets of
Premier Solutions Ltd. This charge represents, as of the date of acquisition,
the value of software products still in development, but not considered to have
reached technological feasibility or to have any alternative future use.
During 1998 and 1997, certain businesses which the Company acquired in
1999, in pooling-of-interests transactions for which prior year financial
statements are restated, made cash payments totaling $7.1 million and $0.7
million, respectively, in connection with certain purchase transactions.
Goodwill recorded in connection with these acquisitions is $2.4 million.
The results of operations of all of these acquired businesses have been
included in the accompanying Consolidated Statements of Income from the date of
acquisition. Pro forma combined results of operations are not presented since
the results of operations as reported in the accompanying Consolidated
Statements of Income would not be materially different.
Merger Costs
During 1999, the Company recorded $99.2 million ($71.3 million pro forma after
tax; $0.55 per pro forma diluted share) for merger costs. These costs are
related to the Company's acquisitions accounted for as poolings of interests and
include a noncash compensation charge of $71.5 million ($45.0 million pro forma
after tax; $0.35 per pro forma diluted share) related to a pre-existing
employment agreement with an executive of ASC. This agreement obligated ASC to
issue to the executive 25% of the shares the Company issued in the merger. The
fair value of these shares and the related payroll costs have been recorded as
one-time non-cash costs associated with the merger. The remaining merger costs,
which generally are not tax deductible, consist principally of investment
banking, legal, accounting and printing fees.
During 1998, the Company recorded $14.6 million ($12.4 million after tax;
$0.10 per diluted share) for merger and restructuring costs. Merger costs are
associated with poolings of interests and costs associated with the expiration
of the Company's offer to acquire Rolfe & Nolan Plc. Restructuring costs
associated with the merger with Infinity are $2.7 million. Approximately $1.5
million of these costs are severance costs that were paid to twenty-seven
employees whose employment was terminated because they were in redundant
software development and administrative functions, and approximately $1.2
million of these costs are associated with the closing of duplicate office
facilities.
During 1997, the Company recorded $3.5 million ($0.03 per diluted share)
for merger costs associated with poolings of interests.
Dispositions and Extraordinary Items
On March 31, 1999, the Company sold two wholly owned HIS subsidiaries. Total
cash received in connection with the sale of the HIS businesses is $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 in 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.
During 1999 and 1998, extraordinary gains of $0.3 million (less than $0.01
per diluted share) and $3.1 million ($0.02 per diluted share), respectively,
were recorded as a result of Oshap's early retirement of debt.
Subsequent Events
On March 1, 2000, the Company paid approximately $80.6 million, subject to
certain adjustments, to acquire the assets of Global Information Systems Limited
(GIS). The acquisition, which will be accounted for as a purchase, will be part
of the Company's banking and treasury systems business, and is not expected to
have a material effect on the Company's financial condition or results of
operations.
On February 16, 2000, the Company issued 2.2 million shares of common stock
in exchange for 100% of the common stock of Microbank Software, Inc. and
converted outstanding options to buy shares of the acquired company into options
to buy 0.3 million shares of the Company's common stock. The acquisition, which
will be accounted for as a pooling of interests, will be part of the Company's
banking and treasury systems business and is not expected to have a material
effect on the Company's financial condition or results of operations.
3. Pro forma Net Income Per Common Share
The computation of the number of shares used in calculating basic and diluted
pro forma net income per common share for each of the years ended December 31
follows (in thousands):
1999 1998 1997
---------------------------
Weighted-average common shares
outstanding 126,869 120,328 115,606
Contingent shares 80 22 21
---------------------------
Total shares used for calculation of
pro forma basic net income per
common share 126,949 120,350 115,627
Employee stock options 3,234 4,935 5,000
Contingent stock options 12 170 60
---------------------------
Total shares used for calculation of
pro forma diluted net income
per common share 130,195 125,455 120,687
===========================
Common Stock Split
On August 14, 1997, the Company's board of directors authorized a two-for-one
stock split of the Company's common stock. The stock split was effective for
stockholders of record on September 2, 1997, and shares were issued on September
22, 1997. The number of shares used for purposes of calculating pro forma net
income per common share and all per-share data has been adjusted for all periods
presented to reflect the stock split.
4. Short-term Investments and Investment in Common Stock
Short-term investments and investment in common stock consist of the following
at December 31 (in thousands):
unrealized
gains
cost (losses) fair value
---------------------------------------
1999
Government obligations $ 44,079 $ (226) $ 43,853
Corporate obligations 60,458 (76) 60,382
---------------------------------------
104,537 (302) 104,235
Long-term investment
in Tecnomatix common stock(1) 15,142 34,760 49,902
---------------------------------------
$ 119,679 $ 34,458 $ 154,137
=======================================
1998
Government obligations $ 24,105 $ 2 $ 24,107
Corporate obligations 1,894 -- 1,894
---------------------------------------
$ 25,999 $ 2 $ 26,001
=======================================
(1) Prior to July 13, 1999, Oshap used the equity method of accounting.
Maturities of short-term investments consisted of the following at December
31, 1999 (in thousands):
cost fair value
--------------------------
Due within one year $ 47,874 $ 47,875
Due in one year through three years
(average maturity 1.8 years) 56,663 56,360
--------------------------
$104,537 $104,235
==========================
5. Property and Equipment
Property and equipment consist of the following at December 31 (in thousands):
1999 1998
-----------------------
Computer and telecommunications equipment $ 327,544 $ 283,476
Leasehold improvements 80,894 59,996
Office furniture and equipment 60,735 52,574
Buildings and improvements 26,152 16,505
Land 3,059 1,740
Construction in progress 2,703 2,263
-----------------------
501,087 416,554
Accumulated depreciation and amortization (318,405) (267,220)
-----------------------
$ 182,682 $ 149,334
=======================
6. Long-Term Debt
Long-term debt consists of the following at December 31 (in thousands):
1999 1998
--------------------
Bank debt (interest rates ranging from 6% to 8%) $ 3,489 $ 16,366
Purchase price obligations due former owners of
acquired businesses 4,478 3,475
Other, primarily capital lease obligations for
computer equipment and buildings 5,305 7,317
--------------------
13,272 27,158
Current maturities (7,755) (17,310)
--------------------
$ 5,517 $ 9,848
====================
The Company has an unsecured revolving credit agreement (Credit Agreement)
that provides for up to $150.0 million of borrowings for the period ending
August 2003. The Company may borrow at LIBOR plus a margin, depending upon
certain financial ratios at the time of the borrowing, or a base rate, generally
the Prime rate, at the Company's option. In order to remain eligible to borrow
under the Credit Agreement, the Company must, among other requirements, maintain
a defined minimum net worth and fixed-charge coverage ratio and limit its total
debt. There were no borrowings under the Credit Agreement during 1999 or 1998.
Annual maturities of long-term debt during the next five years are as
follows (in millions): 2000--$7.8; 2001--$2.8; 2002--$1.2; 2003--$0.1; and
2004--$0.1.
7. Stock Option and Award Plans
Employee Stock Purchase Plans
Under the Company's Employee Stock Purchase Plans, a maximum of 4.4 million
shares of common stock may be issued to substantially all employees. Eligible
employees may purchase a limited number of shares of common stock each quarter
through payroll deductions. Beginning January 1, 1999, the purchase price is
equal to 85% of the lower of the closing price of the Company's common stock on
the first business day or the last business day of each calendar quarter. During
1999, 1998 and 1997, employees purchased 0.5 million, 0.4 million and 0.4
million shares, respectively, at average purchase prices of $25.11, $30.95 and
$20.02 per share, respectively. At December 31, 1999, 0.9 million shares of
common stock were reserved for issuance under these plans.
Equity Incentive Plans
Under the Company's 1994, 1996 and 1998 Equity Incentive Plans, awards or
options to purchase up to 10.4 million shares of common stock may be granted to
key employees of the Company, with an individual limit of up to 0.4 million
shares per participant per year. Options may be either incentive stock options
or nonqualified stock options, and the option price generally must be at least
equal to the fair value of the Company's common stock on the date of award or
grant. Generally, options are granted for a ten-year term and become fully
exercisable one year from the date of grant, subject to a four- or five-year
vesting schedule.
During 1999 and 1998, performance accelerated stock options (PASOs) were
awarded for an aggregate of 1.3 million and 0.8 million shares, respectively.
PASOs are nonqualified options that are granted annually near the beginning of a
three-year performance period at an exercise price equal to the fair value of
the Company's common stock on the date of grant, with a term of ten years
beginning on the date of grant. Shares vest under PASOs nine and one-half years
after the date of grant, except that vesting may be fully or partially
accelerated at the end of the third year if certain financial performance goals
are met over the three-year period. If the goals are surpassed, then cash
bonuses will become payable upon completion of the three-year period.
During 1997, long-term incentive plan awards (LTIP awards) were granted for
future options of up to an aggregate of 0.4 million shares. The actual number of
shares issued and the exercise price per share were contingent upon achieving
certain cumulative financial results during 1997 through 1999. For option shares
earned, the exercise price was $19.88 per share, but could be reduced to a
minimum of $0.99 per share if actual operating results during the three-year
period exceeded targeted operating results. Compensation expense, if any, was
estimated initially at the time the achievement of the cumulative financial
results
became probable and was recorded over the remaining three-year period of the
LTIP award, based upon the difference between the market value and exercise
price of the shares earned. During the years ended December 31, 1998 and 1997,
compensation expense of $13.7 million and $5.8 million, respectively, was
recorded in connection with LTIP awards. During 1999, no expense was recorded in
connection with long-term incentive plans. During 1999, 1998 and 1997, 0.4
million, 0.1 million and 0.1 million options, respectively, were issued under
the 1996, 1995 and 1994 LTIP awards, at exercise prices ranging from $6.04 to
$14.27 per share.
Under the Company's 1986 Stock Option Plan, options to purchase up to 4.0
million shares of the Company's common stock were issued to officers and key
employees. These options were either incentive stock options or nonqualified
stock options, and the option price was equal to the fair value of the Company's
common stock on the date of grant. Generally, options were granted for a
ten-year term and became fully exercisable one year from the date of grant,
subject to a four- or five-year vesting schedule.
The table below summarizes transactions under these equity incentive and
stock option plans. All share and per-share amounts have been restated to
reflect the September 1997 two-for-one stock split (see Note 3 of Notes to
Consolidated Financial Statements).
The number of shares available under the 1998 Equity Incentive Plan will
increase each year by the number of option shares exercised during the previous
year under all of the Company's equity plans, subject to a maximum increase of
2% of outstanding shares as of the end of the previous year.
Restricted Stock Plans
The Company's Restricted Stock Award Plan for Outside Directors (RSAP) provides
for awards of up to 0.4 million shares of the Company's common stock. Each
outside director automatically receives an initial award of 20,000 shares of the
Company's common stock upon election to the Company's board of directors and,
upon re-election as an outside director every fifth year thereafter,
automatically receives another 20,000 shares. Shares awarded under the RSAP are
subject to certain transfer and forfeiture restrictions that lapse over a five-
year vesting period. RSAP awards for 20,000 shares were granted during 1999 and
1998 at a fair value of $31.55 and $34.44 per share, respectively. There were no
awards during 1997. For future awards, the number of shares awarded to each
outside director is reduced to 5,000 shares every five years, subject to the
same terms and restrictions. At December 31, 1999, 0.1 million shares of common
stock were reserved for issuance under this plan.
The Company's Restricted Stock Incentive Plan (RSIP) provides for awards of
up to 1.6 million shares of the Company's common stock to key management
employees. Shares awarded under the RSIP are subject to certain transfer and
forfeiture restrictions that lapse over a five-year vesting period. There have
been no awards granted since 1991. At December 31, 1999, 0.2 million shares of
common stock were reserved for issuance under this plan.
Unearned compensation expense related to the restricted stock plans is
reported as a reduction of stockholders' equity in the accompanying consolidated
financial statements. For accounting purposes, compensation expense is recorded
ratably over the five-year period during which the shares are subject to
transfer and forfeiture restrictions and is based on the market value on the
award date less the par value of the shares awarded. Compensation expense
related to these plans aggregated $0.6 million, $0.5 million and $0.4 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999, 12.3 million shares of common stock were reserved for
issuance under all of the Company's equity incentive and stock option plans,
including 0.3 million shares under restricted stock plans.
Pro Forma Information
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" in accounting for its stock option and award plans. Accordingly,
compensation expense has been recorded for its LTIP, RSAP and RSIP awards, and
no expense has been recorded for its other stock-based plans. FASB Statement No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), changes the method
for recognition of cost on stock option and award plans. Adoption of the cost
recognition requirements under SFAS 123 is optional; however, pro forma
information is presented in the following paragraph.
Had compensation cost for the Company's stock option and award plans been
determined based upon the fair value at the date of grant or award, as
prescribed under SFAS 123, the Company's net income and diluted net income per
share would have been reduced by approximately $15.7 million, $4.6 million and
$5.4 million ($0.12, $0.04 and $0.04 per diluted share) in 1999, 1998 and 1997,
respectively. The fair value of the options granted during 1999, 1998 and 1997
is estimated to be $15.62, $16.34 and $10.84 per share, respectively, on the
date of grant using the Black-Scholes pricing model with the following
assumptions: volatility of 51%, 38% and 36% in 1999, 1998 and 1997,
respectively; expected term of six years; risk-free interest rate of 6.60%,
5.00% and 5.75% in 1999, 1998 and 1997, respectively; and no dividend yield. The
effects of applying SFAS 123 in this pro forma disclosure are not necessarily
indicative of the impact on future years, since SFAS 123 does not apply to
grants and awards made prior to 1995, and the Company's options and awards
generally vest over five years. The Company also anticipates that additional
options and awards will be made in future years.
shares (in thousands)
-------------------------------------- -------------
under weighted
available under option LTIP award average price
-------------------------------------- -------------
Balances at December 31, 1996, as previously reported 2,124 8,142 932 $10.33
Adjustments in connection with poolings of interests 1,092 1,518 -- 5.28
--------------------------------------
Balances at December 31, 1996, as restated 3,216 9,660 932 9.54
Poolings of interests -- 674 -- 3.90
Authorized 123 -- -- --
LTIP award (415) -- 415 --
LTIP maturity 66 102 (168) 7.32
Canceled 446 (490) (50) 12.17
Granted (1,645) 1,645 -- 19.91
Exercised -- (1,266) -- 3.70
--------------------------------------
Balances at December 31, 1997 1,791 10,325 1,129 11.39
Poolings of interests -- 36 -- 1.28
Authorized 3,030 -- -- --
LTIP maturity 135 112 (247) 7.10
Canceled (389) (471) -- 18.97
Granted (2,785) 2,785 -- 32.44
Exercised -- (2,089) -- 7.69
--------------------------------------
Balances at December 31, 1998 1,782 10,698 882 17.18
Poolings of interests -- 354 -- 11.52
Authorized 1,898 -- -- --
LTIP maturity 104 362 (466) 9.23
Expired (559) -- -- --
Canceled 1,282 (1,282) -- 28.12
Granted (4,444) 4,444 -- 31.42
Exercised -- (3,106) -- 8.83
--------------------------------------
Balances at December 31, 1999 63 11,470 416 23.31
======================================
The following table summarizes information concerning outstanding and
exercisable options (in thousands) at December 31, 1999:
options outstanding options exercisable
------------------------------------------------------------ ---------------------------------
weighted average
------------------------------------------ number of weighted average
range of exercise prices number of options remaining life (years) exercise price options exercise price
- ------------------------ ------------------------------------------------------------ ---------------------------------
$0.34 to $5.00 743 2.1 $ 2.42 686 $ 2.88
$5.01 to $10.00 876 5.9 6.24 758 7.16
$10.01 to $20.00 2,726 5.5 15.73 2,562 15.24
$20.01 to $30.00 2,846 8.5 24.32 1,459 23.20
over $30.00 4,279 8.9 35.01 1,114 33.61
8. Savings Plans
The Company and its subsidiaries maintain savings plans that cover substantially
all employees. These plans generally provide that the Company will match
employee contributions up to 4% of employee compensation, subject to certain
limitations. Total expense under these plans aggregated $13.7 million, $11.7
million and $9.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
9. Income Taxes
The provisions for income taxes for each of the years ended December 31 consist
of the following (in thousands):
1999 1998 1997
--------------------------------
Current
Federal $ 90,836 $ 79,681 $ 57,616
State 24,756 19,405 13,364
Foreign 12,565 8,277 7,807
--------------------------------
128,157 107,363 78,787
--------------------------------
Deferred
Federal (3,847) (11,702) (13,521)
State (638) (2,115) (1,874)
Foreign (270) -- (445)
--------------------------------
(4,755) (13,817) (15,840)
--------------------------------
$123,402 $ 93,546 $ 62,947
================================
Differences between income tax expense at the U.S. federal statutory income
tax rate and the Company's effective income tax rate for each of the years ended
December 31 are as follows (in thousands):
1999 1998 1997
--------------------------------
Tax at federal statutory rate $ 72,527 $76,527 $53,118
State income taxes,
net of federal benefit 16,091 10,734 7,012
Nondeductible merger and other costs 34,714 2,267 1,234
Nondeductible intangible amortization 2,637 3,910 1,652
Tax-exempt interest income (438) (491) (235)
Foreign taxes (5,017) (244) (664)
Net operating losses 1,635 -- --
Other, net 1,253 843 830
--------------------------------
$123,402 $93,546 $62,947
================================
Effective income tax rate 59.6% 41.5% 39.9%
================================
Deferred income taxes are recorded based upon differences between financial
statement and tax bases of assets and liabilities. The following deferred income
taxes were recorded at December 31 (in thousands):
1999 1998
-------------------
Current:
Accounts receivable $ 12,290 $ 9,549
Accrued compensation and benefits 7,137 6,016
Other accrued expenses 3,707 3,484
Deferred revenues and acquisition-related items 2,431 3,159
-------------------
Total current deferred income tax asset $ 25,565 $22,208
===================
Long-term:
Accounts receivable $ (1,763) $(2,456)
Property and equipment 10,728 8,130
Intangible assets 109,570 8,092
Net operating loss carryforwards 9,469 7,322
Long-term incentive plan 7,559 8,682
Purchased in-process research and development
and other acquisition-related items 15,904 17,075
Unrealized gain on common stock investment (12,166) --
-------------------
Total long-term deferred income tax asset 139,301 46,845
Valuation allowance (9,469) (7,519)
-------------------
Net long-term deferred income tax asset $129,832 $39,326
===================
A valuation allowance for deferred income tax assets associated with net
operating-loss carryforwards has been established since the Company currently
believes it is more likely than not that the deferred income tax assets will not
be realized. Tax loss carryforwards of U.S. subsidiaries, totaling $16.2
million, expire between 2002 and 2019. Tax loss carryforwards of Israeli
subsidiaries, totaling $7.0 million, are unlimited in duration and linked to the
Israeli consumer price index. The remaining tax loss carryforwards of certain
European and Asian subsidiaries total $7.5 million and have various expiration
dates beginning in 2003.
In connection with the acquisition of ASC, the Company and the former
shareholder of ASC have agreed, for federal income tax purposes, to treat the
Company's acquisition of ASC stock as an acquisition of assets pursuant to
Section 338(h)(10) of the Internal Revenue Code of 1986. As a result, the
Company may deduct the amortization of the fair value of the intangible assets
acquired as an expense against taxable income over the next fifteen years. While
the tax deduction will reduce current income taxes payable over that fifteen-
year period, it will not reduce the Company's overall effective income tax rate
since it arose in connection with a pooling-of-interests transaction, and
generally accepted accounting principles require that such benefit be credited
to capital in excess of par value. The deferred income tax asset recorded in
connection with this transaction was $103.0 million.
10. Operating Segments and Geographic Information
The Company's three operating segments consist of its investment support systems
(ISS) business, business continuity and Internet services (BCIS) business, and a
third segment referred to as Other Businesses. The Company's operating segments
are groups of businesses that offer similar products and services. The segments
are managed separately since each business requires different technology and
marketing strategies.
ISS designs, markets and maintains a comprehensive set of proprietary
software applications that are delivered to customers on license and
application-service-provider bases. The fundamental purpose of these systems is
to automate the complex transaction processing associated with investment
operations. BCIS provides customers with business continuity services and high-
availability infrastructure, enabling customers to have around-the-clock access
to business-critical information. BCIS also provides Web-hosting and co-location
services, as well as outsourcing and remote-access computer services primarily
for software developers and government agencies. Other Businesses is comprised
of a business that provides a work-flow management system, which increases
efficiency and flexibility in managing healthcare insurance organizations, and
an automated mailing-services business.
The 1999, 1998 and 1997 operating results and certain asset information for each
operating segment follow (in thousands):
total operating corporate and
1999 ISS BCIS Other Businesses segments other items consolidated total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues $1,052,378 $357,937 $34,186 $1,444,501 $ -- $1,444,501
Depreciation and amortization 72,258 47,347 1,821 121,426 619 122,045
Operating income 189,824 94,371 5,024 289,219 (113,304)(1) 175,915
Extraordinary items, net of income taxes 299 -- 10,371 10,670 -- 10,670
Total assets 961,776 240,304 16,726 1,218,806 345,956(2) 1,564,762
Cash paid for property and equipment 39,682 54,760 1,068 95,510 319 95,829
1998
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues $ 957,375 $302,540 $52,333 $1,312,248 $ -- $1,312,248
Depreciation and amortization 69,068 43,409 3,033 115,510 384 115,894
Operating income 163,249 72,064 5,296 240,609 (25,705)(1) 214,904
Extraordinary items, net of income taxes 3,074 -- -- 3,074 -- 3,074
Total assets 876,700 200,549 9,937 1,087,186 127,006(2) 1,214,192
Cash paid for property and equipment 28,641 40,023 2,517 71,181 2,072 73,253
1997
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues $ 741,601 $253,544 $42,494 $1,037,639 $ -- $1,037,639
Depreciation and amortization 62,913 36,656 2,815 102,384 267 102,651
Operating income 121,893 56,458 3,076 181,427 (27,153)(1) 154,274
Total assets 749,253 174,513 6,597 930,363 43,042(2) 973,405
Cash paid for property and equipment 24,329 36,967 2,652 63,948 160 64,108
(1) Includes corporate administrative expenses, merger costs associated with
poolings of interests and, in 1997, purchased in-process research and
development costs.
(2) The Company does not allocate deferred income taxes. Amount is net of
investments in subsidiaries, which are eliminated in consolidation.
The Company's revenues by customer location for each of the years ended
December 31 follow (in thousands):
1999 1998 1997
------------------------------------------
United States $1,147,521 $ 997,777 $ 791,216
------------------------------------------
International:
Europe 199,661 222,168 157,512
Asia/Pacific 51,591 45,624 42,641
Canada 20,970 19,897 21,463
Other 24,758 26,782 24,807
------------------------------------------
296,980 314,471 246,423
------------------------------------------
$1,444,501 $1,312,248 $1,037,639
==========================================
11. Commitments
The Company leases a substantial portion of its computer equipment and
facilities under operating leases. Future minimum rentals under operating leases
with initial or remaining noncancelable lease terms in excess of one year at
December 31, 1999 follow (in thousands):
2000 $ 71,350
2001 54,274
2002 35,550
2003 22,612
2004 17,249
Thereafter 33,826
--------
$234,861
========
Rent expense aggregated $87.2 million, $82.7 million and $71.1 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
report of independent accountants
To The Board of Directors and Stockholders
SunGard Data Systems Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity, and cash flows present
fairly, in all material respects, the financial position of SunGard Data Systems
Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 10, 2000, except as to the subsequent
events information presented in Note 2, for
which the date is March 1, 2000.