<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 March 31, 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 April 30, 1996, 74,925,350 shares of the Registrant's Common Stock, $.001 par
value, were outstanding.
<PAGE> 2
SYBASE, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1996 and 3
December 31, 1995.
Condensed Consolidated Statements of Income for the 4
quarter ended March 31, 1996 and March 31,
1995.
Condensed Consolidated Statements of Cash Flows 5
for the quarter ended March 31, 1996 and
March 31, 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 22
Item 6: Exhibits and Reports on Form 8-K. 22
Signatures 23
</TABLE>
- 2 -
<PAGE> 3
PART I
ITEM 1: FINANCIAL STATEMENTS
SYBASE, INC.
------------
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands, except share data) 1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $167,838 $180,877
Short-term cash investments 36,226 42,844
-------- --------
Total cash and short-term cash investments 204,064 223,721
Accounts receivable, net 204,958 193,924
Deferred income taxes 23,799 24,947
Other current assets 21,142 18,905
-------- --------
Total current assets 453,963 461,497
Property, equipment and improvements, net 199,977 194,916
Deferred income taxes 16,088 16,088
Capitalized software, net 20,169 17,227
Other assets 77,246 76,564
-------- --------
TOTAL ASSETS $767,443 $766,292
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,892 $ 36,939
Accrued compensation and related expenses 35,839 42,400
Accrued income taxes 28,097 28,373
Other accrued liabilities 67,364 75,215
Deferred revenue 147,044 138,264
--------- --------
Total current liabilities 309,236 321,191
Other liabilities 6,367 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; 74,525,823 shares issued
and outstanding (1995-72,645,734) 74 72
Additional paid-in capital 339,012 315,064
Retained earnings 118,181 128,255
Accumulated translation adjustments (5,427) (3,742)
-------- --------
Total stockholders' equity 451,840 439,649
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $767,443 $766,292
======== ========
</TABLE>
See accompanying notes.
- 3 -
<PAGE> 4
SYBASE, INC.
------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
(In thousands, except per share data) 1996 1995
---- ----
<S> <C> <C>
Revenues:
License fees $147,945 $136,325
Services 95,719 79,927
-------- --------
Total revenues 243,664 216,252
Costs and expenses:
Cost of license fees 7,117 7,222
Cost of services 56,139 46,158
Sales and marketing 130,293 108,731
Product development and engineering 43,091 35,366
General and administrative 18,726 15,762
Cost of merger 0 24,997
-------- --------
Total costs and expenses 255,366 238,236
-------- --------
Operating income (loss) (11,702) (21,984)
Other income and expense, net 2,494 2,422
-------- --------
Income (loss) before income taxes (9,208) (19,562)
Provision (benefit) for income taxes (2,302) (2,126)
-------- --------
Net income (loss) ($6,906) ($17,436)
======== ========
Net income (loss) per share ($0.09) ($0.25)
======== ========
Shares used in per share computation 73,630 70,009
-------- --------
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
SYBASE, INC.
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) Quarter Ended March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash and cash equivalents, beginning of year $180,877 $ 152,211
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) ($6,906) ($17,436)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 23,348 17,007
Deferred income taxes 1,148 (2,629)
Changes in assets and liabilities:
Accounts receivable (12,114) (7,211)
Other current assets (2,213) (2,928)
Accounts payable (6,222) 6,878
Accrued compensation and related expenses (6,568) (5,888)
Other accrued liabilities (8,181) 10,591
Deferred revenues 8,780 12,752
Accrued income taxes (276) (14,660)
Other 874 (1,878)
-------- ----------
Net cash used for operating activities (8,330) (5,402)
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of available-for-sale cash investments (28,994) (5,211)
Maturities of available-for-sale cash investments 35,612 (39,677)
Sales of available-for-sale cash investments 0 17,108
Business combinations, net of cash acquired (6,151) 6,768
Purchases of property, equipment and improvements (22,582) (38,168)
Capitalized software development costs (4,683) (2,583)
Decrease(increase) in other assets (796) 4,994
-------- ----------
Net cash used for investing activities (27,594) (56,769)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 23,950 18,086
Tax benefit of exercise of stock options (287)
-------- ----------
Net cash provided by financing activities 23,950 17,799
Effect of exchange rate changes on cash (1,065) 3,540
-------- ----------
Net increase in cash and cash equivalents (13,039) (40,832)
Cash and cash equivalents, end of period $167,838 $ 111,379
======== ==========
Cash investments, end of period 36,226 119,650
-------- ----------
Total cash, cash equivalents, and cash investments,
end of period $204,064 $ 231,029
======== ==========
Supplemental disclosures:
Capital lease obligations incurred $ 0 $ 0
======== ==========
Interest paid $ 0 $320
======== ==========
Income taxes paid $ 4,702 $ 14,409
======== ==========
</TABLE>
See accompanying notes.
- 5 -
<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 prepared 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
three months ended March 31, 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 leading
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 have not
been material. Therefore, prior period financial information of Sybase
will not be restated.
3. Net income per share is computed using the weighted average number of
common shares outstanding and dilutive common stock equivalents
consisting of stock options and warrants (using the treasury stock
method).
- 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>
Quarter Quarter Percent
Ended Ended Change
3/31/96 3/31/95
<S> <C> <C> <C>
License fees $147.9 $136.3 9%
Percentage of total revenues 61% 63%
Services $ 95.7 $79.9 20%
Percentage of total revenues 39% 37%
Total revenues $243.7 $216.3 13%
</TABLE>
Total revenues for the first quarter of 1996 increased 13 percent to $243.7
million from the $216.3 million achieved in the first quarter of 1995. During
the first quarter of 1996, the Company completed the acquisition of Visual
Components, Inc. ("Visual"), a developer of reusable 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 first quarter of 1996 was not significant.
License fees increased 9 percent to $147.9 million in the first quarter of 1996,
from $136.3 million recorded in the first quarter of last year. While the
year-over-year increase in license fees of 9 percent in the first quarter of
1996 represented an improvement over the previous two quarters in which there
was a decline in year-over-year license fees, the first quarter 1996 license
fees did not meet the Company's expectations. License fees and, as a
consequence, total revenues did not meet the Company's expectations due in part
to a sales force reorganization that may have lengthened selling cycles and
impacted the marketing of the Company's software products. The Company also
recently announced a new organizational structure in which it has formed two
business units -- the Enterprise Business Group and the Powersoft Business Group
- -- and given new responsibilities to several key executives in order to be more
- 7 -
<PAGE> 8
responsive to customers' changing requirements and to set the stage for more
aggressive sales and marketing.
Services revenues grew 20 percent to $95.7 million in the first quarter of 1996,
up from $79.9 million recorded in the year earlier period. This rate of growth
was substantially lower than the 44% rate of year-over-year growth in services
revenues for the 1995 fiscal year. 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 39 percent in the first quarter of 1996 from 37 percent in the
first quarter of 1995, reflecting relatively higher growth in services revenues
as compared with license revenue growth.
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 services revenues
also resulted from increased demand for the Company's consulting and other
services. The Company expects services revenues to continue to increase modestly
in absolute dollars in 1996, due partially to an expanding installed base of
customers, and the commercial introduction of the System 11(TM) suite of
products. However, as this is a forward-looking statement, future actual results
may differ. See "Future Operating Results."
GEOGRAPHICAL REVENUES:
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Quarter Percent
Ended Ended Change
3/31/96 3/31/95
<S> <C> <C> <C>
North American $150.8 $134.8 12%
Percentage of 62% 62%
total revenues
International:
European $ 59.3 $ 55.9 6%
Percentage of 24% 26%
total revenues
Intercontinental $ 33.6 $ 25.6 31%
Percentage of 14% 12%
total revenues
Total international $ 92.9 $ 81.5 14%
Percentage of 38% 38%
total revenues
Total revenues $243.7 $216.3 13%
</TABLE>
- 8 -
<PAGE> 9
North American revenues (United States and Canada) grew 12 percent in the first
quarter of 1996 to $150.8 million from $134.8 million in the first quarter of
1995. International revenues increased 14 percent in the same period to $92.9
million from $81.5 million in the year earlier period, with European revenues
increasing 6 percent and Intercontinental revenues (principally Asia, Australia,
and Latin America) increasing 31 percent. The Company attributes the slow rates
of growth, particularly in North American and European revenues in the first
quarter of 1996 compared to the first quarter of 1995, to the decline in the
growth rate of license revenues and related causes discussed above and to a more
competitive database market.
International revenues comprised 38 percent of total revenues in each of the
first quarters of 1996 and 1995. The slightly stronger total international
revenue growth rate in the first quarter of 1996 compared to the North American
growth rate reflects expansion during 1995 of the Company's direct selling
organization in existing and new international markets, as well as the effects
of actions taken and investments made in expanding the Company's international
organization. The consolidated results were not materially impacted by exchange
rates during the first quarter of 1996 when compared to the same quarter of
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."
COSTS AND EXPENSES
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Percent
3/31/96 3/31/95 Change
<S> <C> <C> <C>
Cost of license fees $ 7.1 $ 7.2 (1)%
Percentage of 5% 5%
license fees
Cost of services $ 56.1 $ 46.2 22%
Percentage of 59% 58%
services revenues
Sales and marketing $130.3 $108.7 20%
Percentage of 53% 50%
total revenues
Product development
and engineering $ 43.1 $ 35.4 22%
</TABLE>
- 9 -
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of 18% 16%
total revenues
General and
administrative $18.7 $15.8 19%
Percentage of 8% 7%
total revenues
Cost of Merger
with Powersoft $0.0 $25.0 (100)%
Percentage of 0% 12%
total revenues
</TABLE>
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,
decreased slightly in absolute dollar amount in the first quarter of 1996 as
compared to the first quarter of 1995, and represented 5 percent of license fees
in each of the first quarters of 1996 and 1995. Cost of license fees remained
essentially flat year-over-year in absolute dollars and as a percentage of
license fees Amortization of capitalized software costs included in cost of
license fees was $1.7 million in the first quarter of 1996, up from $1.3 million
in the first quarter of last year.
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), increased slightly as a percentage of
services revenues to 59 percent in the first quarter of 1996 from 58 percent in
the first quarter of 1995. The increase in cost of services as a percentage of
services revenues in the first quarter of 1996 is primarily due to the hiring of
additional staff in the Company's customer service and support organization. The
increase in absolute dollars in the first three months of 1996 compared to the
first three months of 1995 reflects the expansion of the customer support and
the professional 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 increased as a percentage of
total revenues to 53 percent in the first quarter of 1996, from 50 percent in
the first quarter of 1995 and also increased in absolute dollars. The increase
in sales and marketing expenses as a percentage of total revenues is primarily
the result of lower than expected license revenues realized in the first quarter
of 1996 and, to a lesser extent, the
- 10 -
<PAGE> 11
implementation of a named account and indirect channels sales reorganization and
the relatively fixed salary costs associated with increased hiring made to
support the Company's new sales model.
The increase in sales and marketing expenses in absolute dollars in the first
quarter 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 Sybase Open
Solutions(TM) partners. Also in the first quarter of 1996, Sybase incurred
marketing expenses relating to datawarehousing and to new marketing programs
supporting launches and announcements of several new products such as Sybase
IQ(TM) and S-Designor(R) 5.0 toolset. During the remainder of 1996, Sybase plans
to make modest additional investments in sales and marketing in absolute dollars
to put in place marketing programs to support new products.
Product development and engineering. Product development and engineering
expenses (net of capitalized software development costs) grew at a higher rate
than revenues in the first three months of 1996 and, as a result, increased as a
percentage of total revenues in the first quarter of 1996 to 18 percent from 16
percent in the first quarter of 1995. The increase in product development and
engineering expenses as a percent of total revenues in the first quarter of 1996
is primarily the result of lower than anticipated license revenues realized in
the first quarter of 1996. In absolute dollars, product development and
engineering expenses in the first quarter of 1996 increased 22 percent over the
first quarter of 1995. The increase in the first quarter of 1996 was the result
of several major product development programs begun in 1995. Expenditures in the
first quarter 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),
and Replication Server(R) products and certain other existing database products;
the systems management tools products, including SQL Server Manager(TM) for
Windows; the Company's interoperability products, including Enterprise
CONNECT(TM) products; application development tools, including the forthcoming
PowerBuilder(R) 5.0; and Sybase New Media products. The Company capitalized
approximately $2.9 million and $2.6 million of software development costs in the
first quarter of 1996 and 1995, respectively, representing 6 percent and 7
percent of gross product development and engineering expenditures, respectively.
The increase in capitalization of product development and engineering
expenditures for the first quarter of 1996 reflects major development programs
such as SQL Server 11 for DEC and NT platforms, Sybase IQ, Sybase MPP(TM),
PowerBuilder 5.0 and Optima++(TM), all of which achieved technological
feasibility for purposes of capitalization. The Company believes that product
development and engineering expenditures are essential to
- 11 -
<PAGE> 12
maintaining its position as a technology and product leader and have contributed
to growth in its revenues in the enterprise client-server RDBMS and tools
software markets. The Company expects product development and engineering
expenditures to continue to be significant, both in absolute dollars and as a
percentage of total revenues.
General and administrative. General and administrative expenses increased
slightly both in absolute dollars and as a percentage of total revenues to 8
percent in the first quarter of 1996 versus 7 percent in the first quarter of
1995. The increase in general and administrative expenses as a percentage of
total revenues in the first quarter of 1996 is primarily the result of lower
than anticipated license revenues and, to a lesser extent, a slower rate of
growth in services revenues. The absolute dollar increases in general and
administrative expenses resulted primarily from increased investments in systems
infrastructure intended to support the Company's planned growth, and from the
lingering effects of several acquisitions made over the last two years.
Cost of merger. In the first quarter of 1995, the Company charged to operations
estimated one-time costs related to the merger with Powersoft of approximately
$25.0 million, a substantial portion of which are nondeductible for income tax
purposes. These costs consisted primarily of investment banking and
professional fees and other direct costs associated with the merger. See
"Future Operating Results."
OPERATING INCOME:
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Quarter Percent
Ended Ended Change
3/31/96 3/31/95
<S> <C> <C> <C>
Operating income (loss)
before one-time charges ($11.7) $3.0 *
Percentage of total revenues (5)% 1%
Operating income (loss)
after one-time charges ($11.7) ($22.0) 47%
Percentage of total revenues (5)% (10)%
</TABLE>
- ---------------
* Not meaningful
The Company incurred an operating loss of $11.7 million in the first quarter of
1996. This compares with $3.0 million of operating income in the first quarter
of 1995 before a one-time, pre-tax charge of $25 million related to the merger
with Powersoft. The substantial decrease in operating income and margins in the
first quarter of 1996 compared to the first quarter of 1995 results from the
operating factors described above.
- 12 -
<PAGE> 13
INTEREST INCOME AND INTEREST EXPENSE AND OTHER (NET)
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Percent
3/31/96 3/31/95 Change
<S> <C> <C> <C>
Interest income $2.6 $2.9 (11)%
Percentage of total revenues 1% 1%
Interest expense and other, net $0.1 $0.5 (83)%
Percentage of total revenues 0% 0%
</TABLE>
Interest income consists primarily of interest earned on investments. Interest
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 and hedging activities and the
related cost of foreign exchange hedging. The decrease in interest income in
absolute dollars in the first quarter of 1996 is due to smaller average invested
cash balances in the first quarter of 1996 than in the year earlier period, as
well as to modestly lower interest rates. Net foreign exchange gains and losses
resulting from the Company's hedging activities were immaterial for all periods
covered.
PROVISION (CREDIT) FOR INCOME TAXES:
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Percent
3/31/96 3/31/95 Change
<S> <C> <C> <C>
Provision (credit) for
income taxes ($2.3) ($2.1) 8%
</TABLE>
The Company recorded income tax credits of $2.3 million and $2.1 million in the
first quarters of 1996 and 1995, respectively.
Realization of the Company's net deferred tax assets, which total $39.9 million
at March 31, 1996, is dependent upon the Company generating sufficient taxable
income in future years in appropriate tax jurisdictions to obtain benefit 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
- 13 -
<PAGE> 14
could have an impact on the Company's effective tax rate in future periods. See
"Future Operating Results."
NET INCOME/(LOSS) AND NET INCOME/(LOSS) PER SHARE:
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Quarter Quarter Percent
Ended Ended Change
3/31/96 3/31/95
<S> <C> <C> <C>
Net income (loss) ($6.9) ($17.4) *
Percentage of (3)% (8)%
total revenues
Net income (loss)
per share ($0.09) ($0.25) *
Shares used in
per share
computation 73.6 70.0 5%
</TABLE>
- ----------------
* Not meaningful
The Company incurred a net loss in the first quarter of 1996 of $6.9 million, or
$0.09 per share, compared to a net loss of $17.4 million, or $0.25 per share in
the first quarter of 1995. Shares used in the per share computation increased 5
percent in the first quarter of 1996 from the year earlier period.
LIQUIDITY AND CAPITAL RESOURCES
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Quarter Percent
Ended Ended Change
3/31/96 3/31/95
<S> <C> <C> <C>
Working capital $144.7 $174.1 (17)%
Cash, cash equivalents and
short-term investments $204.1 $231.0 (12)%
Net cash used for
operating activities $ 8.3 $ 5.4 54%
Net cash used for investing
activities $ 27.6 $ 56.8 (51)%
Net cash provided by
financing activities $ 24.0 $ 17.8 35%
</TABLE>
- 14 -
<PAGE> 15
Net cash used for operating activities was $8.3 million in the first quarter of
1996 compared to $5.4 million in the first quarter of 1995. Net cash used for
operating activities during the first quarter of 1996 reflects a net loss of
$6.9 million. Additionally, increased net cash used for operating activities
results from an increase in accounts receivable of $12.1 million in the first
quarter of 1996 compared to an increase of $7.2 million in the first quarter of
1995, and a decrease of accounts payable, and other accrued liabilities of $6.2
million and $8.2 million, respectively, in the first quarter of 1996 compared to
an increase of $6.9 million and $10.6 million, respectively, in the year earlier
period. Partially offsetting the above was an increase in depreciation and
amortization to $23.3 million in the first quarter of 1996 from $17.0 million in
the first quarter of 1995, and an increase of deferred revenues of $8.9 million
in the first quarter of 1996 compared to an increase of $12.8 million in the
first quarter of 1995.
Net cash used for investing activities decreased to $27.6 million in the first
quarter of 1996 compared to $56.8 million in the first quarter of 1995.
Investing activities included capital expenditures of $22.6 million in the first
three months of 1996 compared to $38.2 million in the first three months of
1995, which reflect expenditures required to support the Company's growing
employee base around the world and systems and infrastructure investments.
During these periods and due in part to several acquisitions, the number of
Sybase employees increased to 5,970 at the end of March 1996, from 5,440 at the
end of March 1995. Additionally, investing activities included cash used for
business combinations of $6.2 million (net of cash acquired) during the first
quarter of 1996 compared to $6.8 million provided during the year earlier
period. During the first quarter of 1996 there was a net decrease in cash
investments in the amount of $6.6 million compared to a net increase in cash
investments in the amount of $27.8 million in the year earlier period.
Net cash provided by financing activities for the first quarter of 1996 was
$24.0 million compared to $17.8 million in the first quarter of 1995. Financing
activities in both periods consisted of the issuance of common stock upon the
exercise of employee stock options, the sale of shares through employee stock
purchase plans, and the tax benefit associated with the exercise of stock.
The Company engages in business operations around the world and is therefore
exposed to foreign currency fluctuations. As of March 31 1996, the Company had
identifiable assets totaling $137.9 million associated with its European
operations and $82.2 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
- 15 -
<PAGE> 16
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 its net assets denominated in different currencies. As 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 losses
are reflected in stockholders' equity accumulated foreign currency translation
adjustments.
Cash, cash equivalents, and cash investments totaled $204.1 million at March 31,
1996, compared to $231.0 million at March 31, 1995.
The Company 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.
FUTURE OPERATING RESULTS
The Company's future operating results may vary substantially from
period to period. 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 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 quarter 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
four quarters of 1995 and first quarter of 1996 compared to the year earlier
periods. The Company may not achieve in the future the relatively high rates of
growth
- 16 -
<PAGE> 17
experienced by the Company in 1991 through 1994 or the rates of growth projected
for the client/server software industry.
In late 1995 and early 1996 the Company implemented a variety of changes
to the sales organization, including a new sales model, changes to the 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. The Company believes that these changes may have contributed in part
to the lower than expected revenues in the first quarter 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
organization and the grouping of products and certain product-related services
into two major business groups, the Enterprise Business Group and the Powersoft
Business Group. 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 will continue
to be subject to wide fluctuations in response to quarterly variations in
operating and financial 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 quarter 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.
- 17 -
<PAGE> 18
An increased portion of the Company's revenues in recent quarters has
been derived from its international operations. Many of the Company's
international subsidiaries have been only recently acquired or formed.
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
Systems 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 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
- 18 -
<PAGE> 19
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, the next version of its PowerBuilder application
development tool is in beta testing, and the Company currently plans to commence
commercial shipment of this product in the first half of 1996. 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 commercially available in December 1995,
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
- 19 -
<PAGE> 20
for Sybase's products. Certain leading applications will not be interoperable
with Sybase relational database management systems ("RDBMSs") until the second
half of 1996 and others may never be available on Sybase RDBMSs. 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 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 quarter 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 future planned levels of growth in
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. The failure to
- 20 -
<PAGE> 21
effectively recruit, train and retain such 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. In particular, there have been several changes in 1995 and
1996 to the Company's executive management team.
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 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 effect 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.
- 21 -
<PAGE> 22
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 Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
- 22 -
<PAGE> 23
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.
May 10, 1996 SYBASE, INC.
By /s/ KENNETH A. GOLDMAN
----------------------
Kenneth A. Goldman
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)
- 23 -
<PAGE> 24
EXHIBIT INDEX TO SYBASE, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Exhibit Number Description
- ------------- -----------
<S> <C>
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
- 24 -
<PAGE> 1
Exhibit 11.1
SYBASE, INC
-----------
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
(In thousands, except for per share data) 1996 1995
---- ----
<S> <C> <C>
Actual weighted average shares
outstanding for the period:
Common stock 73,630 70,009
Dilutive employee stock options
and warrants (1) 0 0
Weighted average shares in common stock
equivalents of Powersoft Corporation (2) 0 0
------- --------
Total common and common
equivalent shares 73,630 70,009
======= ========
Net income (loss) ($6,906) ($17,436)
======= ========
Net income (loss) per share ($0.09) ($0.25)
======= ========
</TABLE>
(1) Computed using the treasury stock method. Not included if
anti-dilutive.
(2) On an as converted basis using the merger conversion ratio of 1.6 shares
of Sybase, Inc. common stock and equivalents for each share of Powersoft
Corporation common stock and equivalents.
- 25 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
UNAUDITED BALANCE SHEET AND INCOME STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 167838
<SECURITIES> 36226
<RECEIVABLES> 223575
<ALLOWANCES> 18617
<INVENTORY> 0
<CURRENT-ASSETS> 453963
<PP&E> 357147
<DEPRECIATION> 157170
<TOTAL-ASSETS> 767443
<CURRENT-LIABILITIES> 309236
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 451766
<TOTAL-LIABILITY-AND-EQUITY> 767443
<SALES> 147945
<TOTAL-REVENUES> 243664
<CGS> 7117
<TOTAL-COSTS> 193549
<OTHER-EXPENSES> 61817
<LOSS-PROVISION> 1106
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> (9208)
<INCOME-TAX> (2302)
<INCOME-CONTINUING> (6906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6906)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
