<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
Commission File Number 0-19395
SYBASE, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2951005
6475 Christie Avenue, Emeryville, CA 94608
Telephone Number: (510) 922-3500
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
--- ---
On October 31, 1996, 76,393,025 shares of the Registrant's Common Stock, $.001
par value, were outstanding.
<PAGE> 2
SYBASE, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at September 30, 3
3 1996 and December 31, 1995.
Condensed Consolidated Statements of Operations for the 4
quarter and nine months ended September 30, 1996
and September 30, 1995.
Condensed Consolidated Statements of Cash Flows 5
for the nine months ended September 30, 1996 and
September 30, 1995.
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of 7
Financial Condition and Results of Operations.
Part II: Other Information
Item 1: Legal Proceedings 25
Item 6: Exhibits and Reports on Form 8-K. 25
Signatures 26
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<PAGE> 3
PART I
ITEM 1: FINANCIAL STATEMENTS
SYBASE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except share data) 1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 124,237 $ 180,877
Short-term cash investments 31,385 42,844
--------- ---------
Total cash and short-term cash investments 155,622 223,721
Accounts receivable, net 218,603 193,924
Deferred income taxes 23,966 24,947
Other current assets 17,696 18,905
--------- ---------
Total current assets 415,887 461,497
Property, equipment and improvements, net 198,868 194,916
Deferred income taxes 16,088 16,088
Capitalized software, net 19,663 17,227
Other assets 71,372 76,564
--------- ---------
TOTAL ASSETS $ 721,878 $ 766,292
========= =========
Current liabilities:
Accounts payable $ 25,380 $ 36,939
Accrued compensation and related expenses 39,909 42,400
Accrued income taxes 31,249 28,373
Other accrued liabilities 79,110 75,215
Deferred revenue 149,245 138,264
--------- ---------
Total current liabilities 324,893 321,191
Other liabilities 5,214 5,452
Stockholders' equity:
Preferred stock, $0.001 par value, 8,000,000
shares authorized; none issued or outstanding -- --
Common stock, $0.001 par value, 200,000,000
shares authorized; 76,327,977 shares issued
and outstanding (1995-72,645,734) 76 72
Additional paid-in capital 357,716 315,064
Retained earnings 40,988 128,255
Accumulated translation adjustments (7,009) (3,742)
--------- ---------
Total stockholders' equity 391,771 439,649
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 721,878 $ 766,292
========= =========
</TABLE>
See accompanying notes.
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<PAGE> 4
SYBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(In thousands, except per share data) 1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 147,219 $ 145,963 $ 445,618 $ 436,494
Services 102,994 87,111 298,146 252,842
--------- --------- --------- ---------
Total revenues 250,213 233,074 743,764 689,336
Costs and expenses:
Cost of license fees 6,963 6,446 21,665 21,230
Cost of services 62,906 53,707 181,891 150,069
Sales and marketing 123,373 118,170 390,863 347,649
Product development and engineering 39,217 38,412 128,393 110,620
General and administrative 17,163 17,173 55,625 49,168
Cost of merger 0 (980) 0 24,017
Purchase of in-process technology 0 0 0 19,965
Cost of restructuring 49,232 0 49,232 0
--------- --------- --------- ---------
Total costs and expenses 298,854 232,928 827,669 722,718
--------- --------- --------- ---------
Operating income (loss) (48,641) 146 (83,905) (33,382)
Other income and expense, net 1,112 1,921 5,791 6,717
--------- --------- --------- ---------
Income (loss) before income taxes (47,529) 2,067 (78,114) (26,665)
Provision (benefit) for income taxes 5,100 925 5,998 (1,201)
--------- --------- --------- ---------
Net income (loss) ($ 52,629) $ 1,142 ($ 84,112) ($ 25,464)
========= ========= ========= =========
Net income (loss) per share ($ 0.69) $ 0.02 ($ 1.13) ($ 0.36)
========= ========= ========= =========
Shares used in per share computation 75,748 75,753 74,755 70,922
</TABLE>
See accompanying notes.
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<PAGE> 5
SYBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) Nine Months Ended September 30,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash and cash equivalents, beginning of period $ 180,877 $ 152,211
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 84,112) ($ 25,464)
Adjustments to reconcile net loss to net cash
provided by/(used for)
operating activities:
Depreciation and amortization 76,521 48,614
Net loss on retirement of property, equipment 0
& improvements 10,137
Deferred income taxes 981 (1,007)
Changes in assets and liabilities:
Accounts receivable (25,214) 13,854
Other current assets 1,233 (7,015)
Accounts payable (11,734) 5,497
Accrued compensation and related expenses (2,498) (2,958)
Other accrued liabilities 6,906 (4,517)
Deferred revenues 10,981 21,734
Accrued income taxes 2,876 (21,529)
Other (310) (2,796)
--------- ---------
Net cash provided by (used for) operating (14,233) 24,413
activities
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of available-for-sale cash investments (58,511) (84,934)
Maturities of available-for-sale cash investments 59,025 48,674
Sales of available-for-sale cash investments 10,950 47,015
Business combinations, net of cash acquired (1,136) (23,010)
Purchases of property, equipment and improvements (69,520) (98,217)
Capitalized software development costs (11,624) (8,467)
Decrease(increase) in other assets (1,892) 5,707
--------- ---------
Net cash used for investing activities (72,708) (113,232)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 32,886 36,149
Tax benefit of exercise of stock options 0 3,000
Payment on capital lease obligations 0 (194)
--------- ---------
Net cash provided by financing activities 32,886 38,955
Effect of exchange rate changes on cash (2,585) 2,466
--------- ---------
Net increase in cash and cash equivalents (56,640) (47,398)
Cash and cash equivalents, end of period $ 124,237 $ 104,813
========= =========
Cash investments, end of period 31,385 93,092
--------- ---------
Total cash, cash equivalents, and cash investments, end of $ 155,622 $ 197,905
period
========= =========
Supplemental disclosures:
Capital lease obligations incurred $ 0 $ 0
========= =========
Interest paid $ 0 $ 410
========= =========
Income taxes paid $ 10,269 $ 19,347
========= =========
</TABLE>
See accompanying notes.
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<PAGE> 6
SYBASE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements include
the accounts of Sybase and its subsidiaries, and, in the opinion of
management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary to fairly state the Company's
consolidated financial position, results of operations and cash flows
for the periods stated. The condensed consolidated balance sheet as of
December 31, 1995 has been derived from the audited financial
statements of the Company.
This report on Form 10-Q should be read in conjunction with the
Company's audited financial statements for the year ended December 31,
1995 and notes included therein. The results of operations for the
quarter and the nine months ended September 30, 1996 are not
necessarily indicative of results for the entire fiscal year ended
December 31, 1996.
2. On February 28, 1996 Sybase acquired Visual Components, Inc., a
developer and marketer of components for software developers. Sybase
issued 733,178 shares of its common stock for all the outstanding
shares of common stock of Visual Components, Inc. and assumed
outstanding options to acquire 135,496 common shares. The transaction
has been accounted for as a pooling of interests. The operating results
of Visual Components, Inc. prior to the combination were not material
in relation to those of Sybase. Therefore, prior period financial
information of Sybase has not been restated.
3. Net loss per share is computed using the weighted average number of
common shares outstanding. Common stock equivalents consisting of stock
options and warrants are not included in the calculation for loss
periods because their effect would be anti-dilutive.
4. On September 17, 1996, the Board of Directors of Sybase approved a
stock option repricing program pursuant to which employees of the
Company (excluding certain executive officers) could elect, on or
before October 21, 1996 to exchange or amend their then outstanding
employee stock options for new or amended employee stock options having
an exercise price equal to the closing fair market value of the
Company's Common Stock on October 21, 1996 and subject to certain
restrictions on exercisability until July 21, 1997.
5. In the third quarter of 1996, the Company announced and began to
implement a restructuring plan aimed at reducing costs, restoring
profitability to the Company's operations and focusing the Company's
products around its core businesses. The Company's restructuring
actions consisted primarily of terminating certain product lines,
actions to minimize the impact of our product terminations on current
customers with those products, the termination of employees, vacating
certain facilities and cancelling real estate leases as a result of
these employee terminations and general excess capacity and writing
down operating assets related to these facilities. These actions
resulted in a charge of $49.2 million, including approximately $17.0
million for severance and related items, $15.7 million for vacating
facilities and cancelling real estate leases, $13.9 million for
expenses related to discontinued products, and $2.6 million for other
restructuring related items. The charge consisted of cash expenditures
of $15.8 million, accrued expenses of $16.0 million and non-cash asset
write-downs of $17.4 million, through the third quarter. The Company
expects that most of the remaining $16.0 million accrued expense
balance at September 30, 1996 will result in use of cash over the next
12 months and will be financed from current working capital.
-6-
<PAGE> 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
9/30/96 9/30/95 Change 9/30/96 9/30/95 Change
-------- -------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
License Fees $ 147.2 $ 146.0 1% $ 445.6 $ 436.5 2%
Percentage 59% 63% 60% 63%
Total
Services 103.0 87.1 18% 298.1 252.8 18%
Percentage 41% 37% 40% 37%
Total
Total $ 250.2 $ 233.1 7% $ 743.8 $ 689.3 8%
</TABLE>
Total revenues for the third quarter of 1996 increased 7 percent to $250.2
million from the $233.1 million achieved in the third quarter of 1995. License
fees increased 1 percent to $147.2 million in the third quarter of 1996, from
$146.0 million recorded in the third quarter of last year. License fees
increased 2 percent to $445.6 million in the first nine months of 1996 from
$436.5 million in the same period of 1995.
Services revenues grew 18 percent to $103.0 million in the third quarter of
1996, up from $87.1 million recorded in the year earlier period. For the first
nine months of 1996, services revenues increased 18 percent to $298.1 million in
1996 from $252.8 million in the same period of 1995. Services revenues consist
primarily of support and maintenance service fees and consulting, education and
other services related to the development and deployment of applications using
the Company's software products. Services revenues as a percentage of total
revenues increased to 41 percent in the third quarter and to 40 percent in the
first nine months of 1996 from 37 percent in the same periods of 1995,
reflecting relatively higher growth in services revenues as compared with the
license revenue.
The increase in services revenues resulted, in part, from the increase in
support and maintenance service fees related to the Company's growing installed
base and the renewal of maintenance contracts. The increase in
-7-
<PAGE> 8
services revenues also resulted from increased demand for the Company's
consulting and other services.
Services revenues in any given period are significantly affected by the amount
of license fee revenues generated in the same and immediately preceding periods.
The rate of quarterly year-over-year services revenue growth has declined in
seven of the last eight quarters due to the decrease in license revenue growth
during 1995 and the first nine months of 1996 discussed above. The Company
expects services revenues to continue to increase modestly in absolute dollars
in 1996, due partially to a larger installed base of customers. However, as this
is a forward-looking statement, future actual results may differ. See "Future
Operating Results."
During the first quarter of 1996, the Company completed the acquisition of
Visual Components, Inc. ("Visual"), a developer of software components. This
acquisition was accounted for as a pooling of interests. The revenues and
results of operations of Visual prior to the acquisition were not material in
relation to those of Sybase. Historical consolidated results of Sybase have not
been restated for this acquisition.
The impact of price changes on the increase in revenues during the third quarter
or first nine months of 1996 was not significant.
Geographical Revenues
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
9/30/96 9/30/95 Change 9/30/96 9/30/95 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
North American $151.6 $142.1 7% $453.8 $423.7 7%
Percentage of 61% 61% 61% 61%
total revenues
International:
European $56.8 $56.1 1% $173.1 $175.6 -1%
Percentage of 23% 24% 23% 25%
total revenues
Intercontinental $41.8 $34.9 20% $116.9 $ 89.9% 30%
Percentage of 17% 15% 16% 13%
total revenues
Total International $98.6 $91.0 8% $290.0 $265.6 9%
Percentage of 39% 39% 39% 39%
total revenues
Total revenues $250.2 $233.1 7% $743.8 $689.3 8%
</TABLE>
-8-
<PAGE> 9
North American revenues (United States, Canada and Mexico) grew 7 percent in the
third quarter of 1996 to $151.6 million from $142.1 million in the third quarter
of 1995. North American revenues were up 7 percent in the first nine months of
1996 to $453.8 million from $423.7 million in the same period in 1995.
International revenues increased 8 percent in the third quarter of 1996 to $98.6
million from $91.0 million in the year earlier period, with European revenues
increasing 1 percent and Intercontinental revenues (principally Asia, Australia,
and Latin America) increasing 20 percent. Over the first nine months of 1996,
International revenues increased 9 percent to $290.0 million for the nine month
period from $265.6 million in the year earlier period, with European revenues
declining 1 percent and Intercontinental revenues increasing 30 percent.
International revenues comprised 39 percent of total revenues in each of the
third quarters of 1996 and 1995, and in the first nine months of 1996 and 1995.
The consolidated results for the third quarter and the first nine months of 1996
were not materially impacted by exchange rates when compared to the same periods
in 1995 Although the Company takes into account changes in exchange rates over
time in its pricing and strategy, the Company's business and results of
operations could be materially and adversely affected by fluctuations in foreign
currency exchange rates. See "Future Operating Results."
-9-
<PAGE> 10
Costs and Expenses
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
9/30/96 9/30/95 Change 9/30/96 9/30/95 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cost of license fees $ 7.0 $ 6.4 8% $ 21.7 $ 21.2 2%
Percentage of 5% 4% 5% 5%
license fees
Cost of services $ 62.9 $ 53.7 17% $181.9 $150.1 21%
Percentage of 61% 62% 61% 59%
services revenues
Sales and marketing $ 123.4 $118.2 4% $390.9 $347.6 12%
Percentage of 49% 51% 53% 50%
total revenues
Product
development and
engineering $ 39.2 $ 38.4 2% $128.4 $110.6 16%
Percentage of 16% 16% 17% 16%
total revenues
General and $ 17.2 $ 17.2 0% $ 55.6 $ 49.2 13%
administrative 7% 7% 7% 7%
Percentage of
total revenues
Cost of merger $ 0.0 ( 1.0) * $ 0.0 $ 24.0 *
Powersoft 0% 0% 0% 3%
Percentage of
total revenues
Purchase of
in-process
technology $ 0.00 $ 0.0 * $ 0.0 $ 20.0 *
Percentage of 0% 0% 0% 3%
total revenues
Cost of restructure $ 49.2 $ 0.0 * $ 49.2 $ 0.0 *
Percentage of 20% 0% 7% 0%
total revenues
</TABLE>
* Not meaningful
Cost of license fees. Cost of license fees, consisting primarily of product
costs (media and documentation), amortization of capitalized software
development costs, cost of acquired technologies, and third-party royalty costs,
represented 5 percent of license fees in the third quarter of 1996 and 4 percent
in the same period of 1995, totaling $7.0 million and $6.4 million,
respectively. Cost of license fees totaled $21.7 million in the first
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<PAGE> 11
nine months of 1996 and $21.2 million in same period of 1995, representing 5
percent of license fees in each period. Amortization of capitalized software
costs included in cost of license fees was $1.9 million in the third quarter of
1996, up from $1.6 million in the third quarter of last year, and $5.7 million
in the first nine months of 1996, up from $5 million over the same period in
1995.
Cost of services. Cost of services, consisting primarily of maintenance,
consulting and education expenses and, to a lesser degree, services-related
product costs (media and documentation), decreased slightly as a percentage of
services revenues to 61 percent in the third quarter of 1996 from 62 percent in
the third quarter of 1995, and increased slightly to 61 percent from 59 percent
for the first nine months of 1996 compared to the same period in 1995. The
increase in absolute dollars in the third quarter and first nine months of 1996
compared to the same periods in 1995 reflects the expansion of the services
organizations, made in order to better support the growth in customer sites, to
enable the migration of the Company's customer base to the latest versions of
Sybase(R) database products, to gain a more geographically diverse customer
base, and to better enable customers to develop and deploy the Company's
existing and new software products.
Sales and marketing. Sales and marketing expenses decreased slightly as a
percentage of total revenues in the third quarter of 1996 compared to the third
quarter of 1995. Sales and marketing expenses increased as a percentage of total
revenues to 53 percent in the first nine months of 1996, from 50 percent in the
first nine months of 1995 and also increased in absolute dollars. The increase
in sales and marketing expenses in the first nine months of 1996 as a percentage
of total revenues is primarily the result of lower than expected license
revenues realized in the first nine months of 1996 and, to a lesser extent, the
continued up-front costs of implementing a named account and indirect channels
sales reorganization.
The increase in sales and marketing expenses in absolute dollars in the third
quarter and first nine months of 1996 is attributable to the Company's
investment in reorganizing, building and training its direct sales and sales
management organizations; supporting increased sales through indirect channels;
and developing relationships and programs with Sybase reseller and system
integration partners.
Product development and engineering. Product development and engineering
expenses (net of capitalized software development costs) remained consistent as
a percent of revenues at 16% in the third quarters of 1996 and 1995. This
category represented 17% of revenues for the first nine months of 1996 compared
to 16% in the same period of 1995. The
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<PAGE> 12
slight increase in product development and engineering expenses as a percent of
total revenues in the first nine months of 1996 is primarily the result of lower
than anticipated license revenues in the first nine months of 1996. In absolute
dollars, product development and engineering expenses in the third quarter of
1996 increased 2 percent over the third quarter of 1995. These expenses rose 16
percent in the first nine months of 1996 compared to the same period of 1995.
Expenditures in the third quarter and first nine months of 1996 were made to
further develop the System 11(TM) suite of products, including enhancements to
Sybase(R) SQL Server(TM), SQL Anywhere(TM), Sybase IQ(TM) and Replication
Server(R) products and certain other existing database products; the Company's
interoperability products, including Enterprise CONNECT(TM) products; and
application development tools, including PowerBuilder 5.0 and Optima++. The
Company capitalized approximately $3.5 million and $3.5 million of software
development costs in the third quarter of 1996 and 1995, respectively,
representing 8 percent and 8 percent of gross product development and
engineering expenditures. The Company capitalized approximately $8.1 million and
$8.2 million of software development costs in the first nine months of 1996 and
1995, respectively, representing 6 percent and 7 percent of gross product
development and engineering expenditures. The increase in capitalization of
product development costs in the first nine months of 1996 in absolute dollars
reflects major development programs such as Sybase IQ, PowerBuilder 5.0 and
Optima++, all of which achieved technological feasibility during 1996 for
purposes of capitalization. The Company believes that product development and
engineering expenditures are essential to technology and product leadership.
General and administrative. As a percentage of revenues general and
administrative expenses remained consistent at 7 percent in the third quarter
and first nine months of 1996 compared to the same periods of 1995. In absolute
dollars, general and administrative expenses during the first nine months of
1996 increased $6.4 million over the same period in 1995.
Cost of mergers. In the first quarter of 1995, the company charged to operations
approximately $25.0 million related to the cost of merger with Powersoft
Corporation. In the third quarter of 1995, the Company reversed $1.0 million of
the $25.0 estimated and previously charged to operations in the first quarter of
1995, to adjust the merger costs to amounts actually expended. See "Future
Operating Results."
Purchase of in-process technology. In the second quarter of 1995, the Company
charged to operations approximately $20.0 million for the
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<PAGE> 13
acquisition of in-process technology related to the business combination with
SDP S.A. See "Future Operating Results."
Cost of restructure. In the third quarter of 1996, the Company charged to
operations $49.2 million to cover the costs of a restructuring. The Company's
goal in the restructuring was to reduce the on-going expenses and refocus its
operations. The charge included approximately $17.0 million for severance and
related items, $15.7 million for facilities consolidation and termination of
real estate leases, $13.9 million for expenses related to discontinued products,
and $2.6 million for other restructuring related items. See Note 5 of the Notes
to Condensed Consolidated Financial Statements.
Operating Income (Loss)
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
9/30/96 9/30/95 Change 9/30/96 9/30/95 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating
income (loss) ($48.6) $0.1 * ($83.9) ($33.4) *
Percentage of -19% 0% -11% -5%
total revenues
Operating income
exclusive of
one-time charges $0.6 ($0.8) * ($34.7) $10.6 *
Percentage of 0% 0 % -5% 2%
total revenues
</TABLE>
- --------------
* Not meaningful
The Company posted an operating profit of $0.6 million, before the cost of
restructure in the third quarter of 1996. After the charge, the Company had an
operating loss of $48.6 million in the third quarter of 1996. This compares with
a $0.8 million operating loss in the third quarter of 1995 before the reversal
of $1.0 million of merger costs. The Company incurred an operating loss of $34.7
million in the first nine months of 1996, before the restructuring charge. This
compares with $10.6 million of operating income in the same period of 1995
before one-time, pre-tax charges of $20 million for the write-off of purchased
in-process technology and $24 million in merger related costs, net of reversals.
The substantial decrease in operating income for the first nine months of 1996
compared to the same period of 1995 results primarily from the costs of
restructuring, the increased expenses described above and lower than expected
license revenue.
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<PAGE> 14
Other Income and Expense, Net
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
9/30/96 9/30/95 Change 9/30/96 9/30/95 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Other income $2.1 $2.0 5% $7.2 $6.9 4%
Percentage of 1% 1% 1% 1%
total revenues
Other expense, net $1.0 ($0.1) * $1.4 ($0.2) *
Percentage of 0% 0% 0% 0%
total revenues
</TABLE>
* Not meaningful
Other income consists primarily of interest earned on cash investments. The
increase in other income in absolute dollars in the third quarter and first nine
months of 1996 compared to the same periods of 1995 is largely due to higher
effective returns resulting from a shift in investments to taxable from
tax-exempt investments, offset by smaller average invested cash balances than in
the year earlier period. Net foreign exchange gains and losses resulting from
the Company's hedging activities were immaterial for all periods covered.
Other expense and other (net) includes interest expense from capital lease
obligations incurred in prior years, bank fees and expenses, net gains and
losses resulting from the Company's foreign currency exposures, hedging
activities and the related cost of foreign exchange hedging and the write off of
assets.
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<PAGE> 15
Provision for Income Taxes
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
9/30/96 9/30/95 Change 9/30/96 9/30/95 Change
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Provision for
income taxes $5.1 $0.9 467% $6.0 ($1.2) *
Effective tax rate * * * *
</TABLE>
- ----------
* Not meaningful
The Company recorded an income tax provision of $5.1 million in the third
quarter of 1996 and $0.9 million in the third quarter of 1995. The tax provision
in the third quarter of 1996 was primarily due to the generation of taxable
income and withholding taxes payable in certain foreign jurisdictions. For the
first nine months of 1996, the Company's tax provision totals $6.0 million
compared to a tax benefit of $1.2 million over the same period of 1995.
Realization of the Company's net deferred tax assets, which total $40.0 million
at September 30, 1996, is dependent upon the Company generating sufficient
taxable income in future years in appropriate tax jurisdictions to obtain
benefit primarily from the reversal of temporary differences and from net
operating loss and tax credit carryforwards. The amount of deferred tax assets
considered realizable is subject to adjustment in future periods if estimates of
future taxable income are reduced and any such adjustments could have an impact
on the Company's effective tax rate in future periods. See "Future Operating
Results."
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<PAGE> 16
Net Income (Loss) and Net Income (Loss) Per Share
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
9/30/96 9/30/95 Change 9/30/96 9/30/95 Change
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ($52.6) $1.1 * ($84.1) ($25.5) 230%
Percentage of -21% 0% -11% -4%
total revenues
Net income (loss)
per share ($0.69) $0.02 * ($1.13) ($0.36) 214%
Shares used in per
share computation 75.7 75.8 74.8 70.9
</TABLE>
The Company incurred a net loss in the third quarter of 1996 of $52.6 million,
or $0.69 per share, compared to net income of $1.1 million, or $0.02 per share
in the third quarter of 1995. The Company incurred a net loss in the first nine
months of 1996 of $84.1 million, or $1.13 per share, compared to a net loss of
$25.5 million, or $0.36 per share, in the same period of 1995. The significant
increase in net loss during the third quarter of 1996 and the nine months ended
September 30, 1996 is primarily the result of the $49.2 million cost of
restructure discussed above. Shares used in the per share computation were
essentially flat from the third quarter of 1995 to the third quarter of 1996,
and increased 5 percent in the first nine months of 1996 from the same period of
1995.
FINANCIAL CONDITION
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Months Months
Ended Ended Percent
9/30/96 9/30/95 Change
------- ------- --------
<S> <C> <C>
Working capital $91.0 $143.0 -36%
Cash, cash equivalents and cash investments $155.6 $197.9 -21%
Net cash (used in) provided by operating activities ($14.2) $24.4 -158%
Net cash used in investing activities ($72.7) ($113.2) -36%
Net cash provided by financing activities $32.9 $39.0 -16%
</TABLE>
Net cash used in operating activities was $14.2 million in the first nine months
of 1996 compared to net cash provided by operating activities of $24.4 million
in the first nine months of 1995. Net cash provided by operating activities
during the first nine months of 1996 reflects a net loss of $84.1 million versus
a net loss of $25.5 million in the year ago period.
-16-
<PAGE> 17
Partially offsetting this increased loss, depreciation and amortization amounted
to $76.5 million in the first nine months of 1996 compared to $48.6 million in
the prior year. Additionally, decreased net cash from operating activities
reflects an increase of accounts receivable of $25.2 million in the first nine
months of 1996 compared to an accounts receivable decrease of $13.9 million in
the same period of 1995. Cash provided by an increase in the deferred revenue
balance was $11.0 million in the first nine months of 1996 compared to $21.7
million in the same period of 1995. In the first nine months of 1996 an increase
in accrued income taxes totaled $2.9 million compared to a $21.5 million
reduction in the same period of 1995.
Net cash used for investing activities decreased to $72.7 million in the first
nine months of 1996 compared to $113.2 million in the same period of 1995.
Investing activities included capital expenditures of $69.5 million in the first
nine months of 1996 compared to $98.2 million in the same period of 1995, which
reflects slower expansion of expenditures required to support the Company's
worldwide employee base. Additionally, investing activities included cash used
in business combinations of $1.1 million in the first nine months of 1996,
compared to a cash use of $23.0 million (net of cash acquired) during the same
period of 1995. During the first nine months of 1996 there was a net decrease of
cash investments in the amount of $11.5 million compared to a $10.8 million net
decrease in the same period of 1995.
Net cash provided by financing activities for the first nine months of 1996 was
$32.9 million compared to $39.0 million in the same period of 1995. In the first
nine months of 1996, $32.9 million was provided from the issuance of common as
compared to $36.1 million in the year earlier period.
The Company engages in business operations around the world and is therefore
exposed to foreign currency fluctuations. As of September 30 1996, the Company
had identifiable assets totaling $116.4 million associated with its European
operations and $83.3 million associated with its Intercontinental operations.
The Company experiences foreign exchange transaction exposures from short-term
intercompany payables and receivables denominated in different currencies. The
Company hedges certain of these short-term exposures under a plan approved by
the Sybase Board of Directors (see Note 2 of Notes to Consolidated Financial
Statements of 1995 Sybase Annual Report). The Company also experiences foreign
exchange translation exposure on certain of its net assets denominated in
different currencies. As certain of these net assets are considered by Sybase,
the U.S. parent company, to be a permanent investment in each subsidiary, the
foreign currency translation gains and
-17-
<PAGE> 18
losses are reflected in stockholders' equity accumulated foreign currency
translation adjustments.
Cash, cash equivalents, and cash investments totaled $155.6 million at September
30, 1996, compared to $197.9 million at September 30, 1995.
The Company currently believes that it has the financial resources needed to
meet its presently anticipated business requirements, including capital
expenditure and strategic operating programs, for the foreseeable future.
However, if the Company's future results of operations do not meet the Company's
expectations or if the Company were to experience significant losses, the
Company's financial condition would be adversely impacted and the Company could
require additional sources of capital. The preceding sentence is a
forward-looking statement, and as such actual results may differ from those
forecasted due to a variety of factors, including but not limited to those in
the Section entitled "Future Operating Results".
FUTURE OPERATING RESULTS
The Company's future operating results may vary substantially from period to
period. The price of the Company's Common Stock will fluctuate in the future;
and an investment in the Company's Common Stock is subject to a variety of
risks, including but not limited to the specific risks identified below. The
results of operations for the quarter and nine months ended September 30, 1996
are not necessarily indicative of results for the entire fiscal year ended
December 31, 1996 or any other future period. Expectations, forecasts and
projections by the Company or others are by nature forward-looking statements
and future results can not be guaranteed. Forward-looking statements that were
true at the time made may ultimately prove to be incorrect or false. Inevitably
some investors in the Company's securities will experience gains while others
will experience losses depending on the prices at which they purchase and sell
securities. Prospective and existing investors are urged to carefully consider
the various cautionary statements and risks set forth in this report.
The timing and amount of the Company's license fee revenues are subject to a
number of factors that make estimation of revenues and operating results prior
to the end of a quarter extremely uncertain. The Company has operated
historically with little or no backlog and, as a result, license fees in any
quarter are dependent on orders booked and shipped in that quarter. In addition,
the timing of closing of large license agreements increases the risk of
quarter-to-quarter fluctuations and the uncertainty of estimating quarterly
operating results. The Company has experienced a
-19-
<PAGE> 19
pattern of recording 50 percent to 70 percent of its quarterly revenues in the
third month of the quarter, with a concentration of such revenues in the last
two weeks of that third month. The Company's operating expenses are based on
projected annual and quarterly revenue levels and are incurred approximately
ratably throughout each quarter. Because the Company's operating expenses are
relatively fixed in the short term, if projected revenues are not realized in
the expected period, the Company's operating results for that period would be
adversely affected and could result in an operating loss, as occurred in the
first and second quarters of 1996. Failure to achieve revenue, earnings and
other operating and financial results as forecast or anticipated by brokerage
firm and industry analysts could result in an immediate and adverse effect on
the market price of the Company's stock. The Company's rate of year-over-year
growth slowed significantly in each of the past six quarters compared to the
year earlier periods. The Company may not achieve in the future the relatively
high rates of growth experienced by the Company in 1991 through 1994 or the
rates of growth projected for the software markets in which Sybase competes.
Commencing in late 1995 and continuing throughout 1996 the Company implemented a
variety of changes to the sales organization, including a new sales model,
changes to sales compensation programs and an increased focus on sales through
indirect channels. Although such changes are intended to enhance overall
revenues, such changes could, in the short-run, materially and adversely affect
the sales process and revenues. For example, the Company believes that these
changes may have contributed in part to the lower than expected revenues in the
first two quarters of 1996. In the second quarter of 1996, the Company announced
several other management and organizational changes, including changes in the
senior management of the sales and marketing organizations. In the third quarter
of 1996, Mitchell Kertzman succeeded Mark Hoffman as the Company's President and
Chief Executive Officer, with Mr. Hoffman continuing as the Company's Chairman
of the Board. Also in the third quarter of 1996, Jack Acosta succeeded Ken
Goldman as the Company's Chief Financial Officer and David Litwack became
Executive Vice President of Products. The Company may make other management and
organization changes in the future. Organizational and management changes are
intended to enhance productivity and competitiveness. However, such changes may
not produce the desired results, and could materially adversely affect
productivity, expenses and revenues.
The market for the Company's stock is highly volatile. The trading price of the
Company's common stock fluctuated widely in 1995 and the first nine months of
1996 and may in the future continue to be subject to wide fluctuations in
response to quarterly variations in operating and financial
-19-
<PAGE> 20
results, announcements of technological innovations, new products, or customer
contracts won by the Company or its competitors, changes in prices of the
Company's or its competitors' products and services, changes in product mix,
changes in the Company's revenue and revenue growth rates for the Company as a
whole or for individual geographic areas, business units, products or product
categories, as well as other events or factors. Statements or changes in
opinions, ratings or earnings estimates made by brokerage firms and industry
analysts relating to the market in which the Company does business, the
Company's competitors, or the Company or its products specifically, have
resulted, and could in the future result, in an immediate and adverse effect on
the market price of the Company's common stock. In particular, due to a variety
of factors, the Company's stock price declined significantly during the third
quarter of 1994, the second quarter of 1995 and the first and second quarters of
1996. In addition, the stock market has from time to time experienced extreme
price and volume fluctuations which have particularly affected the market price
for many high-technology companies and which often have been unrelated to the
operating performance of these companies.
An increased portion of the Company's revenues in recent quarters has been
derived from its international operations. Several of the Company's
international subsidiaries have been only recently acquired or formed. In
addition there have been several management and organizational changes within
the international operations. International revenues, in absolute dollars and as
a percentage of total revenues, may fluctuate in part due to the growth and, in
some cases, the relative immaturity of international organizations. The
Company's operations and financial results could be significantly affected by
factors associated with international operations such as changes in foreign
currency exchange rates and uncertainties relative to regional economic
circumstances, political instability in emerging markets and difficulties in
staffing and managing foreign operations, as well as by other risks associated
with international activities.
The market for the Company's software products and services is extremely
competitive and characterized by dynamic customer demands, rapid technological
and marketplace changes, and frequent product enhancements and new product
introductions. The Company competes with a number of companies, including Oracle
Corporation, Informix Corporation, Microsoft Corporation, IBM Corporation, and
Computer Associates, Inc. Many of the Company's competitors and potential
competitors have significantly greater financial, technical, sales and marketing
resources and a larger installed base than the Company. Each of Informix, IBM,
Microsoft and Oracle has announced the development of enhanced versions of their
principal database products that are intended
-20-
<PAGE> 21
to improve the performance or expand the capabilities of their existing
products. New or enhanced products introduced by existing or future competitors
could increase the competition faced by the Company's products, and result in
greater price pressure on certain of the Company's database products, especially
to the extent that market acceptance for personal computer oriented technologies
increases. A failure by the Company to compete successfully with its existing
competitors or with new competitors could have a material adverse effect on the
Company's business and results of operations and on the market price of the
Company's common stock.
Existing and future competition or changes by the Company in its product
offerings or product pricing structure could result in an immediate reduction in
the prices of the Company's products. The Company introduced changes in its
pricing and licensing structure in the first quarter of 1996 that increased the
prices for certain products or configurations, and reduced the prices for other
products and configurations. The Company will introduce price and licensing
changes from time to time in the future. If recently implemented or future
changes in the Company's products, pricing structure or existing or future
competition, for example from Microsoft, were to result in significant revenue
declines, the Company's business and financial results would be adversely
affected.
The Company's future results will depend in part on its ability to enhance its
existing products and to introduce new products, on a timely and cost-effective
basis, that meet dynamic customer requirements. Customer requirements for
products can rapidly change as a result of innovations or changes within the
computer hardware and software industries. For example, the widespread use of
the Internet is rapidly giving rise to new customer requirements as well as new
methods and practices of selling, marketing and distributing products and
services. Sybase's future results will depend in part on its success in
developing new products, making generally available products that have been
previously announced, enhancing its existing products and adapting its existing
products to changing customer requirements, and ultimately on the market
acceptance received by such new or enhanced products. The Company has announced
the development and anticipated availability dates of several products. For
example, Optima++ for Java development and the Company currently plans to
commence commercial shipment of this product in late 1996 or early 1997. The
Company has also announced its NetImpact(TM) family of Internet application
development tools which the Company currently plans to commence commercial
shipment in 1997. The Company has experienced delays in introducing some new
products in the past. For example, the commercial shipment of Sybase IQ which
became commercially available in February 1996 was previously planned for the
second half of 1995. Unanticipated delays in product availability schedules
could result from various factors including development or testing difficulties,
feature changes, software errors, shortages in appropriately skilled software
engineers and project management problems. Delays in the scheduled availability
of these or other products, a lack of or decrease in market acceptance of new or
enhanced products, particularly SQL Server 11 which became
-21-
<PAGE> 22
commercially available in December 1995 and PowerBuilder 5.0 which became
commercially available in June 1996, or the Company's failure to accurately
anticipate customer demand or meet customer performance requirements or to
anticipate competitive products and developments could have a material adverse
effect on the Company's business and financial results. New products or new
versions of existing products may, despite testing, contain undetected errors or
bugs that will delay the introduction or adversely affect commercial acceptance
of such products.
Sybase's results will also depend increasingly on the ability of its products to
interoperate and perform well with existing and future leading,
industry-standard application software products intended to be used in
connection with relational database management systems. Failure to meet existing
or future interoperability and performance requirements of certain independent
vendors marketing such applications in a timely manner has in the past and could
in the future adversely affect the market for Sybase's products. Certain leading
applications will not be interoperable with Sybase relational database
management systems ("RDBMSs") until certain features are added to the Company's
RDBMS and others may never be available on Sybase's RDBMS. In addition, the
Company's application development tools, database design tools and certain
connectivity products are designed for use with RDBMSs offered by the Company's
competitors. Vendors of non-Sybase RDBMSs and related products may become less
willing in the future to provide the Company with access to products, technical
information and marketing and sales support. If existing and potential customers
of the Company who use non-Sybase RDBMSs refrain from purchasing such products
due to concerns that over time the development, quality, and support of products
for non-Sybase RDBMSs will diminish, the Company's business, results of
operations and financial condition could be materially and adversely affected.
Commercial acceptance of the Company's products and services could be adversely
affected by critical or negative statements or reports by brokerage firms,
industry and financial analysts, and industry periodicals concerning the
Company, its products, business, or competitors, or by the advertising or
marketing efforts of competitors, or other factors that could
-22-
<PAGE> 23
affect customer perception, such as the criticism of the scalability of the
Company's SQL Server 10 database product experienced in 1995. In addition,
customer perception of Sybase and its products could be adversely affected by
financial results reported for the 1995 fiscal year and the first nine months of
1996 and by press reports related thereto.
As the number of software products in the industry and the number of software
patents increase, the Company believes that software developers may become
increasingly subject to infringement claims. Third parties have in the past
asserted and may in the future assert that their patents or other proprietary
rights are violated by products offered or in development by the Company. Any
such claims, with or without merit, can be time consuming and expensive to
defend or settle, and could have an adverse effect on the Company's business and
results of operations.
The Company's ability to achieve its future revenues and earnings will depend in
part on the ability of its officers and key personnel to manage growth, costs
and expenses successfully through the implementation of appropriate management
systems and controls. Failure to effectively implement or maintain such systems
and controls could adversely affect the Company's business and results of
operations. The success of the Company also depends in part on its ability to
attract and retain qualified technical, managerial, sales and marketing
personnel. The competition for such personnel is intense in the software
industry, and Sybase believes, has increased substantially in recent years. In
particular, there have been several changes in 1995 and 1996 to the Company's
executive management team. Changes in management, the Company's recent financial
performance and a reduction in the overall number of Sybase employees made in
the third quarter of 1996 could cause an increase in the amount of employee
turnover. The failure to effectively recruit, train and retain qualified
personnel or high rates of employee turnover, particularly among engineering or
sales staff, could adversely affect the Company's product development efforts,
product sales and other aspects of the Company's operations and results. During
1995, the software industry generally, and Sybase specifically, experienced
higher than historical rates of employee turnover.
Sybase currently enters most of its North American customer orders in its
Burlington, Massachusetts operations center and ships all of its products in
North America (other than its Powersoft products) from its Emeryville,
California distribution facility. Because of the pattern of recording a high
percentage of quarterly revenues within the last week or two weeks of the
quarter, the closure or inoperability of one or both of these facilities during
such weeks due to natural calamity or due to a systems or power failure
-23-
<PAGE> 24
could have a material adverse effect on the Company's ability to record revenues
for such quarter.
In 1994 and 1995 the Company acquired Powersoft and several other companies. In
February 1996, the Company acquired Visual Components, Inc. The Company may
acquire other distributors, companies, products, or technologies in the future.
The achievement of the desired benefits of these and future acquisitions will
depend in part upon whether the integration of the acquired businesses is
achieved in an efficient and effective manner. The successful combination of
businesses will require, among other things, integration of the companies'
related product offerings and coordination of their sales, marketing and
research and development efforts. The difficulties of such coordination may be
increased by the geographic distance between separate organizations. The Company
may be unable to integrate effectively these or future acquired businesses, and
may not obtain the anticipated or desired benefits of such acquisitions. Such
acquisitions may result in costs, liabilities or additional expenses that could
adversely affect the Company's results of operations and financial condition. In
addition, acquisitions or changes in business or market conditions may cause the
Company to revise its plans, which could result in unplanned expenses or a loss
of anticipated benefits from past investments.
During the third quarter of 1996 the Company incurred a restructuring charge of
approximately $49 million. The Company will continue to evaluate its business,
products and results of operations, and accordingly the Company may incur
restructuring charges sometime in the future.
-24-
<PAGE> 25
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Following the Company's announcement on April 3, 1995 of its
preliminary results for the first fiscal quarter ended March 31, 1995, several
class action lawsuits were filed against the Company and certain of its officers
in the U.S. District Court, Northern District of California. The complaints are
similar and allege violations of federal and state securities laws and request
unspecified monetary damages. These actions have been consolidated, and a
consolidated amended class action complaint was served on August 7, 1995, and
the parties are in the early stages of pretrial discovery. Management believes
that the claims contained in the consolidated amended complaint are without
merit and intends to defend against the claims vigorously. In the opinion of
management, resolution of this litigation is not expected to have a material
adverse effect on the financial position of the Company. However, depending on
the amount and timing, an unfavorable resolution of this matter could materially
affect the Company's future results of operations or cash flows in a particular
period.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of Loss Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
-25-
<PAGE> 26
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.
November 12, 1996 SYBASE, INC.
By /s/ JACK L. ACOSTA
-----------------------------------------
Jack L. Acosta
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
By /s/ PETER F. PERVERE
-----------------------------------------
Peter F. Pervere
Vice President and
Corporate Controller
(Principal Accounting Officer)
-26-
<PAGE> 27
EXHIBIT INDEX TO SYBASE, INC.
QUARTERLY REPORT ON FORM 10-Q
Exhibit Number Description
11.1 Computation of Loss Per Share
27 Financial Data Schedule
-27-
<PAGE> 1
EXHIBIT 11.1
SYBASE, INC.
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
------------------------ ------------------------
(In thousands, except for per share data) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actual weighted average shares outstanding
for the period:
Common stock 75,748 75,753 74,755 70,922
-------- -------- -------- --------
Total common and common
equivalent shares 75,748 75,753 74,755 70,922
======== ======== ======== ========
Net income (loss) ($52,629) $ 1,142 ($84,112) ($25,464)
======== ======== ======== ========
Net income (loss) per share ($ 0.69) $ 0.02 ($ 1.13) ($ 0.36)
======== ======== ======== ========
</TABLE>
-28-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 124237
<SECURITIES> 31385
<RECEIVABLES> 239009
<ALLOWANCES> 20406
<INVENTORY> 0
<CURRENT-ASSETS> 415887
<PP&E> 393563
<DEPRECIATION> 194695
<TOTAL-ASSETS> 721878
<CURRENT-LIABILITIES> 324893
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 391695
<TOTAL-LIABILITY-AND-EQUITY> 721878
<SALES> 445618
<TOTAL-REVENUES> 743764
<CGS> 21665
<TOTAL-COSTS> 594419
<OTHER-EXPENSES> 233249
<LOSS-PROVISION> 11209
<INTEREST-EXPENSE> 285
<INCOME-PRETAX> (78101)
<INCOME-TAX> 5998
<INCOME-CONTINUING> (84099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84099)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
