<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 0-19395
SYBASE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-2951005
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
6475 Christie Avenue, Emeryville, CA 94608
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(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, 1997, 79,874,857 shares of the Registrant's Common Stock, $.001
par value, were outstanding.
<PAGE> 2
SYBASE, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1997 3
and December 31, 1996
Condensed Consolidated Statements of Operations for the 4
three months and nine months ended September 30, 1997 and
September 30, 1996
Condensed Consolidated Statements of Cash Flows 5
for the nine months ended September 30, 1997 and
September 30, 1996
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 20
Item 6: Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
-2-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except share data) 1997 1996
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 180,512 $ 156,796
Short-term cash investments 49,443 17,726
--------- ---------
Total cash and short-term cash investments 229,955 174,522
Accounts receivable, net 200,835 239,466
Deferred income taxes 13,724 13,729
Other current assets 21,029 17,551
--------- ---------
Total current assets 465,543 445,268
Property, equipment and improvements, net 162,362 191,328
Deferred income taxes 27,406 27,406
Capitalized software, net 43,062 19,974
Other assets 78,826 67,915
--------- ---------
TOTAL ASSETS $ 777,199 $ 751,891
========= =========
Current liabilities:
Accounts payable 16,720 21,563
Accrued compensation and related expenses 42,669 47,829
Accrued income taxes 22,879 26,952
Other accrued liabilities 91,598 89,386
Deferred revenue 160,374 166,482
--------- ---------
Total current liabilities 334,240 352,212
Other liabilities 2,382 2,871
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; 79,802,922 shares issued
and outstanding (1996-76,608,794 shares) 80 77
Additional paid-in capital 395,777 359,161
Retained earnings 59,214 46,081
Accumulated translation adjustments (14,494) (8,511)
--------- ---------
Total stockholders' equity 440,577 396,808
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 777,199 $ 751,891
========= =========
</TABLE>
See accompanying notes
-3-
<PAGE> 4
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per ----------------------------------------------
share data) 1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 131,614 $ 147,219 $ 395,657 $ 445,618
Services 112,585 102,994 328,082 298,146
--------- --------- --------- ---------
Total revenues 244,199 250,213 723,739 743,764
Costs and expenses:
Cost of license fees 6,563 6,963 20,769 21,665
Cost of services 63,435 62,906 186,986 181,891
Sales and marketing 118,015 123,373 349,286 390,863
Product development and 33,871 39,217 102,878 128,393
engineering
General and administrative 15,410 17,163 47,216 55,625
Cost of restructure 0 49,232 0 49,232
--------- --------- --------- ---------
Total costs and expenses 237,294 298,854 707,135 827,669
--------- --------- --------- ---------
Operating income (loss) 6,905 (48,641) 16,604 (83,905)
Other income and expense, net 1,506 1,112 4,252 5,791
--------- --------- --------- ---------
Income (loss) before income taxes 8,411 (47,529) 20,856 (78,114)
Provision for income taxes 3,195 5,100 7,723 5,998
--------- --------- --------- ---------
Net income (loss) $ 5,216 ($ 52,629) $ 13,133 ($ 84,112)
========= ========= ========= =========
Net income (loss) per share $ 0.07 ($ 0.69) $ 0.17 ($ 1.13)
========= ========= ========= =========
Shares used in per share
computation 80,053 75,748 79,286 74,755
========= ========= ========= =========
</TABLE>
See accompanying notes
-4-
<PAGE> 5
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Nine Months Ended
September 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash and cash equivalents, beginning of period $156,796 $180,877
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 13,133 (84,112)
Adjustments to reconcile net income (loss)
to net cash provided by (used) by operating activities:
Depreciation and amortization 78,722 76,521
Net loss on retirement of property,
equipment and improvements 0 10,137
Deferred income taxes 5 981
Changes in assets and liabilities:
Accounts receivable 32,443 (25,214)
Other current assets (3,344) 1,233
Accounts payable (4,843) (11,734)
Accrued compensation and related expenses (5,160) (2,498)
Other accrued liabilities (2,569) 6,906
Deferred revenues (7,578) 10,981
Accrued income taxes (4,073) 2,876
Other (2,126) (310)
------------- -------------
Net cash provided (used ) by operating activities 94,610 (14,233)
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of available-for-sale investments (56,893) (58,511)
Maturities of available-for-sale investments 16,998 59,025
Sales of available-for-sale cash investments 8,200 10,950
Business combinations, net of cash acquired (3,104) (1,136)
Purchases of property, equipment and (31,123) (69,520)
improvements
Capitalized software development costs (16,875) (11,624)
Decrease (Increase) in other assets (6,436) (1,892)
------------- -------------
Net cash used for investing activities (89,233) (72,708)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 24,619 32,886
------------- -------------
Net cash provided by financing activities 24,619 32,886
Effect of exchange rate changes on cash (6,280) (2,585)
------------- -------------
Net increase (decrease) in cash and cash 23,716 (56,640)
equivalents
------------- -------------
Cash and cash equivalents, end of period 180,512 124,237
Cash investments, end of period 49,443 31,385
------------- -------------
Total cash, cash equivalents, and short term cash
investments, end of period $229,955 $155,622
============= =============
Supplemental disclosures:
Interest paid $799 $0
============= =============
Income taxes paid $10,682 $10,269
============= =============
</TABLE>
See accompanying notes
-5-
<PAGE> 6
SYBASE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
include the accounts of Sybase, Inc. 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, 1996 has
been prepared from the audited consolidated financial statements of the
Company.
This report on Form 10-Q should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31,
1996 and notes included therein. The results of operations for the three
months and nine months ended September 30, 1997 are not necessarily
indicative of results for the entire fiscal year ending December 31, 1997.
2. Net income (loss) per share is computed using the weighted average number of
shares of outstanding common stock and dilutive common stock equivalents
from the assumed exercise of stock options (using the treasury stock
method).
3. On February 21, 1997, the Company acquired Purchase Net Inc., a developer of
application development software. The Company issued 750,000 shares of its
common stock with a fair market value of approximately $12,000,000 for all
of the outstanding shares of common stock of Purchase Net Inc. The
transaction was accounted for as a purchase. The total purchase cost was
$12,763,000, including direct cost and expenses related to the acquisition,
of this amount $12,693,000 was allocated to purchased software and included
in capitalized software in the condensed consolidated balance sheet. The
results of operations of Purchase Net Inc., which have not been material in
relation to those of the Company, have been included in the consolidated
results of operations for periods subsequent to the acquisition date.
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The impact of Statement 128 on the calculation of fully
diluted earnings per share for those quarters is not expected to be
material.
5. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 103, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial
statements, and is required to be adopted by the Company beginning in fiscal
1999. Additionally, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes
standards for the way the public business enterprises report information in
annual statements and interim financial reports operating segments, products
and services, geographic areas and major customers. SFAS 131 will first be
reflected in the Company's 1999 Annual Report and will apply to subsequent
annual and interim financial reporting. Sybase management is currently
evaluating the implication of these statements on operations.
-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>
Three Three Nine Nine
Months Months Months Months
Ended Ended Percent Ended Ended Percent
9/30/97 9/30/96 Change 9/30/97 9/30/96 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
License fees $131.6 $147.2 -11% $395.7 $445.6 -11%
Percentage of
total revenues 54% 59% 55% 60%
Services $112.6 $103.0 9% $328.0 $298.2 10%
Percentage of
total revenues 46% 41% 45% 40%
Total revenues $244.2 $250.2 -2% $723.7 $743.8 -3%
</TABLE>
Total revenues for the third quarter of 1997 decreased 2 percent to $244.2
million from the $250.2 million achieved in the third quarter of 1996. License
fees declined 11 percent to $131.6 million in the third quarter of 1997 from
$147.2 million recorded in the third quarter of last year. License fees
decreased 11 percent to $395.7 million in the first nine months of 1997 from
$445.6 million in the same period in 1996. The decrease in license revenues year
over year is mainly due to lower tools products revenues which the Company
believes is attributable to softness in the development tools market generally.
Total revenues for the first nine months of 1997 decreased 3 percent to $723.7
million from the $743.8 million achieved in the same period of 1996 as a result
of the factors described above.
Services revenues grew 9 percent to $112.6 million in the third quarter of 1997,
up from $103.0 million recorded in the year earlier period. Services revenues
increased 10 percent to $328.0 million for the first nine months of 1997 from
$298.2 million in the same period of 1996. 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 46 percent in the third quarter from 41 percent in the same quarter
of 1996. Service revenues for the nine months ending September 30, 1997
increased to 45 percent from 40 percent in the same period in 1996.
The increase in services revenues resulted, in part, from the increase in
support and maintenance service fees related to the Company's installed base and
the renewal of maintenance contracts. The increase in service 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 Company expects services revenues to continue to increase modestly in the
fourth quarter of 1997 in absolute dollars due partially to a larger installed
base of customers. However, as this is a forward-looking statement, future
actual results may differ materially. See "Future Operating Results."
The impact of price changes on revenues during the third quarter and the first
nine months of 1997 was not significant.
-7-
<PAGE> 8
GEOGRAPHICAL REVENUES
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Percent Ended Ended Percent
9/30/97 9/30/96 Change 9/30/97 9/30/96 Change
<S> <C> <C> <C> <C> <C> <C>
North American $143.5 $151.6 -5% $430.3 $453.8 -5%
Percentage of
total revenues 59% 61% 59% 61%
International
European $53.9 $56.8 -5% $164.7 $173.1 -5%
Percentage of
total revenues 22% 23% 23% 23%
Intercontinental $46.8 $41.8 12% $128.7 $116.9 10%
Percentage of
total revenues 19% 17% 18% 16%
Total international $100.7 $98.6 2% $293.4 $290.0 1%
Percentage of
total revenues 41% 39% 41% 39%
Total revenues $244.2 $250.2 -2% $723.7 $743.8 -3%
</TABLE>
North American revenues (United States, Canada and Mexico) decreased 5 percent
in the third quarter of 1997 to $143.5 million from $151.6 million in the third
quarter of 1996. North American revenues were down 5 percent in the first nine
months of 1997 to $430.3 million from $453.8 million in the same period in 1996.
International revenues increased 2 percent in the third quarter of 1997 to
$100.7 million from $98.6 million in the year earlier period, with European
revenues declining 5 percent and Intercontinental revenues (principally Asia,
Australia, and Latin America) increasing 12 percent. Over the first nine months
of 1997, International revenues increased 1 percent to $293.4 million from
$290.0 million in the year earlier period, with European revenues declining 5
percent and Intercontinental revenues increasing 10 percent from the year
earlier period. The Company believes the decline in total revenue is mainly due
to lower tools products revenues which the Company believes is attributable to
softness in the development tools market generally. The Company also attributes
the decline, in part, to the impact of foreign exchange on total International
revenues year over year.
International revenues grew to 41 percent of total revenues in the third quarter
of 1997 up from 39 percent in the third quarter of 1996 and comprised 41 percent
of total revenues during the first nine months of 1997 compared to 39 percent in
the same period of 1996. The stronger Intercontinental revenue "growth rate" in
the first nine months of 1997 compared to the North American and European growth
rates for the same period reflects the Company's increased market presence in
the Intercontinental regions.
-8-
<PAGE> 9
COSTS AND EXPENSES
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Percent Ended Ended Percent
9/30/97 9/30/96 Change 9/30/97 9/30/96 Change
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cost of license fees $6.6 $7.0 -6% $20.8 $21.7 -4%
Percentage of
license fees 5% 5% 5% 5%
Cost of services $63.4 $62.9 1% $187.0 $181.9 3%
Percentage of
services revenues 56% 61% 57% 61%
Sales and marketing $118.0 $123.4 -4% $349.3 $390.9 -11%
Percentage of
total revenues 48% 49% 48% 53%
Product development
and engineering $33.9 $39.2 -14% $102.9 $128.4 -20%
Percentage of
total revenues 14% 16% 14% 17%
General and
Administrative $15.4 $17.2 -10% $47.2 $55.6 -15%
Percentage of
total revenues 6% 7% 7% 7%
Cost of restructure $0.0 $49.2 * $0.0 $49.2 *
Percentage of
total revenues 0% 20% 0% 7%
</TABLE>
- ----------
*Not meaningful
Cost of license fees. Cost of license fees, consisting primarily of product
costs (media and documentation), third-party royalty costs, and amortization of
both capitalized software development costs, including the cost of acquired
technologies, decreased 6 percent in the third quarter of 1997 as compared to
the third quarter of 1996, and represented 5 percent of license fees in the
third quarter of 1997 and 5 percent in the same period in 1996. Cost of license
fees decreased 4 percent to $20.8 million in the first nine months of 1997
compared to $21.7 million in same period in 1996, and represented 5 percent of
license fees in the first nine months of 1997 and 5 percent in the first nine
months of 1996. The decrease in the cost of license fees is due, in part, to a
decrease in license revenue and an increase in productivity in order
fulfillment, both in the third quarter and first nine months of 1997, as
compared to the same periods in 1996. Amortization of capitalized software costs
included in cost of license fees was $2.3 million in the third quarter of 1997,
compared to $1.9 in the third quarter of 1996, and $6.0 million in the first
nine months of 1997, compared to $5.7 million for the same period in 1996.
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 as a percentage of services
revenues to 56 percent in the third quarter of 1997 from 61
-9-
<PAGE> 10
percent in the third quarter of 1996, and to 57 percent from 61 percent for the
first nine months of 1997 compared to the same period in 1996. The decrease in
cost of services as a percentage of services revenues for both periods is
primarily due to an aggressive program of cost containment implemented in the
third quarter of 1996 and the Company's continuing emphasis on improving
productivity in its services organization.
Sales and marketing. Sales and marketing expenses decreased as a percentage of
total revenues to 48 percent in the third quarter of 1997, from 49 percent in
the third quarter of 1996, and also decreased in absolute dollars. Sales and
marketing expenses decreased as a percentage of total revenues to 48 percent in
the first nine months of 1997, from 53 percent in the first nine months of 1996
and also decreased in absolute dollars. The decrease in sales and marketing
expenses for both periods as a percentage of total revenues, is primarily the
result of the Company's continuing emphasis on controlling costs in 1997.
Product development and engineering. Product development and engineering
expenses (net of capitalized software development costs) declined as a percent
of revenues to 14 percent in the third quarter and for the first nine months of
1997, compared to 16 percent and 17 percent, respectively, in the same periods
in 1996. The decrease in such expenses as a percentage of total revenues in the
third quarter of 1997 is the result of the Company's improved productivity in
product development and engineering, and capitalization of product development
costs for products achieving technological feasibility in the second and third
quarters of 1997. This capitalization of product development costs in the first
nine months of 1997 reflects major development programs such as PowerJ(TM),
Jaguar CTS(TM), Adaptive Server(TM) 11.5 Enterprise and several
EnterpriseConnect(TM) interoperability products, all of which achieved
technological feasibility for purposes of capitalization. In absolute dollars,
product development and engineering expenses in the third quarter of 1997
decreased 14 percent compared to the third quarter of 1996. Much of the
reduction in expenses between 1997 and 1996 resulted from discontinuation of
certain product lines in 1996. These product lines included interactive
television, wireless messaging and multimedia authoring tools. Expenditures in
the first half of 1997 were made to further develop the System 11(TM) suite of
products, including enhancements to Adaptive Server 11.5 Enterprise, which
became generally available in the third quarter of 1997, SQL Anywhere(TM),
Replication Server(R) products and certain other existing database products;
the Company's interoperability products, including EnterpriseConnect and Jaguar
CTS products; and application development tools, including PowerBuilder(R),
PowerJ, PowerDesigner(TM) and Power++(TM). The Company capitalized
approximately $6.0 million and $16.9 million of software development costs in
the third quarter and first nine months of 1997, respectively, compared to $3.5
million and $8.1 million for the same periods in 1996. The Company believes
that product development and engineering expenditures are essential to
technology and product leadership.
The capitalization of software development costs represents 15 percent and 13
percent of gross product development and engineering expenditures for the third
quarter and first nine months of 1997, respectively. By comparison,
capitalization of software development costs for the same periods in 1996
represented 8 percent and 6 percent of such expenditures, respectively.
In the first quarter of 1997, the Company also recorded capitalized software
costs of $12.7 million in connection with the Purchase Net acquisition. (See
Note 3 of Notes to Condensed Consolidated Financial Statements.)
-10-
<PAGE> 11
General and administrative. General and administrative expenses decreased to 6
percent of total revenues in the third quarter of 1997 compared to 7 percent in
the same period of 1996, and remain consistent at 7 percent for each of the
first nine months of 1997 and 1996. The absolute dollar amount of expenses
decreased to $15.4 million in the third quarter of 1997 from $17.2 million in
the third quarter of 1996. The decrease in general and administrative expenses,
in absolute dollars, resulted primarily from the Company's third quarter 1996
restructuring activities and the Company's continuing emphasis on improving
productivity. The Company plans to continue to tightly manage general and
administrative expenses.
-11-
<PAGE> 12
OPERATING INCOME (LOSS)
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Percent Ended Ended Percent
9/30/97 9/30/96 Change 9/30/97 9/30/96 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating income (loss) $6.9 ($ 48.6) * $16.6 ($83.9) *
Percentage of
total revenues 3% (19%) 2% (11%)
</TABLE>
- ----------
*Not meaningful
The Company reported operating income of $6.9 million in the third quarter of
1997 compared to a $48.6 million operating loss in the third quarter of 1996.
The Company reported operating income of $16.6 million in the first nine months
of 1997 compared to an operating loss of $83.9 million in the first nine months
of 1996 as a result of the operating factors described above.
OTHER INCOME AND EXPENSE, NET
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Percent Ended Ended Percent
9/30/97 9/30/96 Change 9/30/97 9/30/96 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Other income/expense, net $1.5 $1.1 35% $4.3 $5.8 -27%
Percentage of
total revenues 1% * 36% 1% 1% -26%
</TABLE>
- ----------
*Not meaningful
Other income/expense, net consists primarily of interest earned on cash
investments, 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. Other income/expense, net was $1.5 million in the
third quarter of 1997 compared to $1.1 million in the third quarter of 1996.
Other income/ expense, net was $4.3 million in the first nine months of 1997
compared to $5.8 million in the first nine months of 1996. The increase in other
income/expense, net in the third quarter of 1997 is partly due to higher
effective returns resulting from the shift in investments from countries with
lower yields to countries with higher yields. The increase in other
income/expense, net in the third quarter of 1997 was also due to an increase in
average cash balances for the third quarter of 1997. The decrease in other
income/expense, net for the nine months ended September 30, 1997, is largely due
to lower effective returns in the first two quarters of 1997 and increased
volatility in currencies not hedged within the Intercontinental region in the
third quarter of 1997. The Company elected not to hedge in certain
Intercontinental countries due to the prohibitive cost of hedging in those
currencies.
-12-
<PAGE> 13
PROVISION FOR INCOME TAXES
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Percent Ended Ended Percent
9/30/97 9/30/96 Change 9/30/97 9/30/96 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Provision for
income taxes $3.2 $5.1 -37% $7.7 $6.0 -28%
</TABLE>
The Company recorded an income tax provision of $3.2 million in the third
quarter of 1997 compared to $5.1 million in third quarter in 1996. The Company
recorded an income tax provision of $7.7 million in the first nine months of
1997 compared to $6.0 million in first nine months in 1996.
Realization of the Company's net deferred tax assets, which totaled $41.1
million at September 30, 1997, 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 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, or if such income is not earned in the appropriate geographic
regions, the Company's effective tax rate for the year could be adversely
impacted. See "Future Operating Results."
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
(in Millions, except per share amounts)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Percent Ended Ended Percent
9/30/97 9/30/96 Change 9/30/97 9/30/96 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $5.2 ($52.6) * $13.1 ($84.1) *
Percentage of
total revenues 2% -21% 2% -11%
Net income (loss)
per share $0.07 ($0.69) * $0.17 ($1.13) *
Shares used in per
share computation 80.0 75.7 79.3 74.8
</TABLE>
- ----------
*Not meaningful
The Company reported net income in the third quarter of 1997 of $5.2 million, or
$0.07 per share, compared to a net loss of $52.6 million after a $49.2 million
restructuring charge or $0.69 per share in the third quarter of 1996. The
Company reported net income in the first nine months of 1997 of $13.1 million,
or $0.17 per share, compared to a net loss of $84.1 million (after the
restructuring charge), or $1.13 per share, in the first nine months of 1996.
-13-
<PAGE> 14
FINANCIAL CONDITION
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Nine
Months Months
Ended Ended Percent
9/30/97 9/30/96 Change
------- ------- -------
<S> <C> <C> <C>
Working capital $131.3 $91.0 44%
Cash, cash equivalents and
short-term cash investments $230.0 $155.6 48%
Net cash provided (used)
by operating activities $94.6 ($14.2) *
Net cash used by
investing activities ($89.2) ($72.7) 23%
Net cash provided by
financing activities $24.6 $32.9 -25%
</TABLE>
- ----------
*Not meaningful
Net cash provided by operating activities was $94.6 million in the first nine
months of 1997 compared to net cash used by operating activities of $14.2
million in the first nine months of 1996. Net cash provided by operating
activities during the first nine months of 1997 reflects net income of $13.1
million versus a loss of $84.1 million in the year ago period. Additionally,
increased net cash from operating activities reflects a decrease of accounts
receivable of $32.4 million in the first nine months of 1997 compared to an
accounts receivable increase of $25.2 million in the same period of 1996.
Accounts payable and other accrued liabilities decreased during the first nine
months of 1997, resulting in a total cash decline of $7.4 million over this
period, compared to an decrease totaling $4.8 million over the same period in
1996. Cash flows from operating activities decreased as a result of a decrease
deferred revenue balance of $7.5 million in the first nine months of 1997
compared to cash provided by an increase of $10.9 million in the same period in
1996. In the first nine months of 1997, a reduction in accrued income taxes
totaled $4.1 million compared to an increase in accrued income taxes of $2.9
million in the same period in 1996.
Net cash used for investing activities increased to $89.2 million in the first
nine months of 1997 compared to $72.7 million used in the first nine months of
1996. Investing activities included capital expenditures of $31.1 million in the
first nine months of 1997 compared to $69.5 million in the first nine months of
1996, which reflects a decrease in expenditures required to support the
Company's employee base around the world. During the first nine months of 1997,
there was a net increase of cash investments in the amount of $31.7 million
compared to a net decrease of $11.5 million in the first half of 1996.
Net cash provided by financing activities for the first nine months of 1997 was
$24.6 million compared to $32.9 million in the first nine months of 1996, all
provided by the issuance of common stock related to the exercise of employee
stock options and the issuance of shares through employee stock purchase plans.
Cash, cash equivalents, and short-term cash investments totaled $229.9 million
at September 30, 1997, compared to $155.6 million at September 30, 1996.
-14-
<PAGE> 15
The Company engages in business operations around the world and is therefore
exposed to foreign currency fluctuations. As of September 30, 1997, the Company
had identifiable assets totaling $122 million associated with its European
operations and $110 million associated with its Intercontinental operations. The
Company has 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, Inc.
Board of Directors (see Note 2 of Notes to Consolidated Financial Statements of
1996 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, Inc. 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.
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.
-15-
<PAGE> 16
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 ended September 30, 1997 are not
necessarily indicative of results for the fiscal year ending December 31, 1997
or any other future period. Expectations, forecasts, and projections by the
Company or others are by nature forward-looking statements, and future results
cannot 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 strongly 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. Sybase has experienced a seasonal
pattern of license fee decline between the fourth quarter and the succeeding
first quarter contributing to lower total revenues and operating earnings in the
first quarter compared to the prior fourth quarter. For example, revenues and
earnings in the first quarter of 1997 were lower than in the fourth quarter of
1996. 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
such 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 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.
Through 1997, the Company will continue to fine-tune changes which were
initiated in the sales organization in 1996, including changes to the sales
model and 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. In the third quarter of 1997, John Chen became
the Company's President and Chief Operating Officer, and Mitchell Kertzman,
Chief Executive Officer, succeeded Mark Hoffman as the Company's Chairman of the
Board. 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 1996 and may in the future
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 could
also affect the Company's stock prices.
-16-
<PAGE> 17
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 that 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. For
example, the Company recently acquired operations in Chile, Argentina, Norway
and Peru. 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. New or
enhanced products, many of which have been announced and many of which are
continually introduced by existing or future competitors in the software
industry, could increase the competition faced by the Company's products from
time to time 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. For example, changes to the Company's
pricing and licensing structure in the first quarter of 1996 increased prices
for certain products, and reduced prices for others. The Company will introduce
price and licensing changes from time to time in the future. If such changes or
changes in the Company's products, or existing or future competition were to
result in significant revenue declines, the Company's business and financial
results could 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 gaining market
acceptance for such new or enhanced products. The Company has announced the
development and anticipated availability dates of several products, including
PowerBuilder 6.0, a component-based application development tool and
PowerSite(TM), a comprehensive Web application development tool, both of which
are scheduled to become generally available in the fourth quarter of 1997.
-17-
<PAGE> 18
The Company has experienced delays in introducing some new products in the past.
For example, the commercial shipment of Sybase IQ(TM), which became commercially
available in February 1996, had been 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, or the Company's failure to accurately anticipate customer demand or
to 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 could delay the
introduction or adversely affect commercial acceptance of such products or give
rise to warranty or other customer claims, which could, in turn, adversely
affect the Company's financial results.
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("RDBMSs"). 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 RDBMSs until
certain features are added to the Company's RDBMS, and others may never be
available on Sybase's 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 the
development, quality, and support of products for non-Sybase RDBMSs will
diminish over time, 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
and its products, business, or competitors, or by the advertising or marketing
efforts of competitors that could affect customer perception. In addition,
customer perception of Sybase and its products could be adversely affected by
financial results, particularly revenues and profitability, reported for the
1996 fiscal year or future periods, by the market share of the Company's
products and by related press reports.
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 1997 to the Company's executive
management team. For example, David Litwack, Executive Vice President Products,
left the Company in May 1997. In the third quarter of 1997, John Chen became the
Company's President and Chief Operating Officer, and Mitchell Kertzman, Chief
Executive Officer, became Chairman of the Board. 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.
-18-
<PAGE> 19
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.
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(R) 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.
The Company has acquired a number of companies in the past, most recently a
distributor in Norway at the end of the third quarter of 1997, and a small
software technology company and three distributors in Latin America in the first
half of the year. The Company will likely 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 $49.2 million. The Company will continue to evaluate its business,
products, and results of operations, and accordingly, the Company may incur
further restructuring charges in the future.
-19-
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Following the Company's announcement on April 3, 1995 of its preliminary results
for the second 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 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
10.23 Employment Agreement between Sybase, Inc. and John Chen dated as
of July 11, 1997
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-20-
<PAGE> 21
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, 1997 SYBASE, INC.
By /s/ JACK L. ACOSTA
--------------------------------------
Jack L. Acosta
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
-21-
<PAGE> 22
EXHIBIT INDEX TO SYBASE, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.23 Employment Agreement between Sybase, Inc. and John Chen
dated as of July 11, 1997
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
</TABLE>
-22-
<PAGE> 1
Exhibit 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of July 11, 1997, by and between
Sybase, Inc., a Delaware corporation ("Company") and John Chen ("Employee").
Recitals
Sybase desires to employ Employee, and Employee desires to be employed
by the Company, as a regular full-time employee on the terms and conditions set
forth below.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Duties. Employee shall hold the title of President and Chief Operating
Officer, and shall perform such functions and duties in such capacity as
designated by the Chief Executive Officer. During the term of employment,
Employee shall be employed by the Company as a regular full-time employee, and
shall carry out his duties and responsibilities in a diligent, competent and
professional manner. For purposes of this Agreement, "Commencement Date" means
the later of August 4, 1997 or the date Employee first reports for work on a
full time basis at Sybase. If the Commencement Date has not occurred by August
15, 1997, Sybase may at its election terminate this Agreement and the stock
options described below.
2. Compensation.
(a) Base Salary. Employee's initial annual base salary hereunder shall
be $500,000.00, payable on a semi-monthly basis. Employee's base salary shall
be subject to periodic review and adjustment from time to time in accordance
with the Company's then-current policies. Currently, such review is made by the
Compensation Committee of the Board of Directors on an annual basis.
(b) Incentive Compensation. Employee shall also be eligible to
participate in the Company's executive incentive program (which is the same
program afforded to other senior executive officers reporting to the Chief
Executive Officer) with an annual target incentive compensation equal to 50% of
annual base salary. Under such plan, the amount of actual incentive
compensation paid will be based on achievement of specified corporate
objectives and mutually agreed upon individual objectives. Such annual
incentive bonuses are paid once per year. Notwithstanding the foregoing,
Employee will be paid incentive compensation for the 1997 calendar year,
regardless of achievement of individual or corporate objectives, in an amount
equal to the initial $250,000 annual target prorated based on the number of
days in the year from and after
-1-
<PAGE> 2
the Commencement Date. For example, if the Commencement Date is August 4, 1997,
Employee's incentive compensation will be $102,739.73 (150 days/365 days X
$250,000).
(c) Benefit Plans. Employee's prior employer maintained a term life
insurance, AD&D insurance and long term disability policies in the name of
Employee for Employee's benefit (the "Individual Policies"). Company shall
continue to maintain such Individual Policies during the term of Employee's
employment and any post-termination period specified in this Agreement.
Employee will be eligible to participate in and receive benefits under
the Company's employee benefit plans and policies in effect from time to time,
subject to the terms, conditions and eligibility requirements of the particular
plans. Such plans may include stock benefit plans, paid vacation, paid
sabbatical leave, health care, life insurance, accidental death and disability,
short- and long-term disability, and/or savings plans provided by, through, or
on behalf of the Company to employees in the United States. The Company may
change, amend, modify or terminate any benefit plan from time to time without
prior notice to Employee.
Sybase currently offers a cafeteria style benefits program and
allocates an amount ("Nautilus Benefit Allowance") to each employee for the
employee to allocate to various benefits that the employee can choose between.
The benefit coverages that Employee received from his prior employer are
specified in that certain "Siemens Pyramid Benefit Coverage for John Chen,
Chairman, President and CEO" previously provided to Mitchell Kertzman. The
benefit coverages appearing on such list, excluding the Individual Policies and
those under the heading "other", are referred to as the "Former Minimum
Benefits". The Company shall provide employee with benefits that are at least
substantially comparable to the Former Minimum Benefits (except that (i) the
maximum lifetime benefit under the group medical plan will be $1,000,000 and
(ii) to the extent the employer matching contribution under the 401(k) plan is
lower than under the Former Minimum Benefits, Employee shall be provided a
bonus equivalent to such difference, grossed up to reflect the pretax nature of
a 401(k) contribution), it being understood that the choice of benefit
provider is entirely at the discretion of the Company and, that to the extent
the benefits can be covered by the Nautilus Benefit Allowance, Employee will
apply such allowance to them. Any cost of providing the benefits substantially
comparable to the Former Minimum Benefits in excess of the Nautilus Benefit
Allowance shall be the Company's expense.
In addition, Company shall (i) reimburse employee for medical, legal,
financial planning and tax preparation expenses up to an aggregate maximum of
$10,000 per year (ii) permit Employee to fly first class on business trips
(other aspects of travel to be consistent with Company travel policies); and
(iii) provide a car allowance of $18,000 per year.
-2-
<PAGE> 3
Sybase employees accrue two weeks of vacation per year during each of
their first two years at Sybase. In addition to those two weeks per year,
Employee shall be entitled to take up to two additional weeks of paid vacation
per year during each of Employee's first two years of employment.
(d) Stock Option Grant. Employee will be granted stock options to
purchase an aggregate of 500,000 shares of the Company's Common Stock pursuant
to the Company's 1996 Stock Plan and/or 1988 Stock Option Plan. To the extent
permitted by law and the plans, the options so granted will be granted as
incentive stock options, with the balance granted as non-statutory stock
options. The exercise price per share will be the closing price as quoted on
NASDAQ on the date the option is granted. The options will vest as follows"
125,000 shares will vest on the Commencement Date and 1/48 of the total shares
(approximately 10,416 shares) will vest each month commencing with the
thirteenth month of employment following your Commencement Date through the
48th month. Subsequent option grants, if any, shall be entirely at the
discretion of the Compensation Committee. It is acknowledged that the
Compensation Committee's current practice is to make annual stock option grants
to executive officers in connection with its annual review of executive
compensation. It is also acknowledged that one guideline currently considered
within the Compensation Committee's current option philosophy framework
regarding option grants is to make subsequent annual grants such that the total
amount of an officer's unvested shares is comparable to the options that the
Company would have to then offer in order to recruit a new person into such
officer's position. The foregoing guideline is only one of several factors
considered by the Compensation Committee and that guideline together with any
other guidelines and factors may be changed at any time.
(e) Commencement of Benefits. The salary, incentive compensation and
other benefits specified in subsections (a), (b) and (c) shall not commence or
otherwise begin to accrue until the Commencement Date.
(c) Withholding; Deductions. Unless otherwise specified herein, the
Company shall make such deductions, withholdings and other payments from all
sums payable to Employee which Employee requests, or which are required by law
for taxes and other charges.
3. Board of Directors. The Board of Directors of the Company has authorized an
increase in the number of authorized directors and has proposed that you be
appointed as a director of the Company subject to your commencement of
employment. It is the intention of the Board of Directors following your
Commencement Date (the next currently scheduled meeting of the Board of
Directors after August 4, 1997 is September 12, 1997).
-3-
<PAGE> 4
4. Nondisclosure Agreement. Concurrently with the execution of this Agreement,
Employee shall execute an Employee Nondisclosure and Assignment of Inventions
Agreement in the form attached hereto ("Nondisclosure Agreement").
5. Change of Control. On the Commencement Date, Employee and the Company shall
enter into a Statement of Employment Terms in the form attached hereto
("Statement of Employment Terms"). In the event that Employee's employment is
terminated by the Company (or any successor thereto) at any time within
eighteen months following a Change of Control (as defined in the Statement of
Employment Terms), Employee shall be entitled to the severance benefits
specified in such Statement of Employment Terms and shall not be entitled to
severance in accordance with Section 6 below. Notwithstanding the foregoing, in
the event that Section 8 of the Statement of Employment Terms would preclude
acceleration of vesting of stock options, Employee shall be entitled to the
continuation of the vesting stock options provided in the applicable provisions
of Section 6 of this Agreement.
6. Compensation Upon Termination or Resignation.
(a) Voluntary or For Cause. Upon termination for Cause (as defined
below) or upon Employee's death, disability (as defined below) or voluntary
resignation (except as provided in Section 6(c), the Company shall pay to
Employee (or to his estate in the event of his death) in a lump sum all accrued
unpaid compensation earned by the Employee prior to the effective date of
termination. Employee's rights under the Company's benefit plans shall be
determined under the provisions of those plans.
(b) Termination by the Company Without Cause. In the event the Company
terminates Employee's employment other than for Cause prior to April 1, 1999,
the Company shall (i) pay to Employee the sum of 150% of the Employee's
then-current annual base salary, payable in three installments (net of all
applicable taxes and deductions) as follows: 50% of the amount within seven
days of the date of termination, 25% on the date six months following the date
of termination and 25% on the date one year following date of termination; (ii)
continue to make available, at the Company's expense, the benefits specified
in Section 2(c) above for a period of one year following such date of
termination; and (iii) provide for the stock options granted pursuant to
Section 2(d) above to continue to vest for a period of one year following the
date of termination (it being understood that such options shall become
non-statutory stock options on the date ninety (90) days following such date of
termination).
(c) Termination after January 1999. In selecting Employee for the
position undertaken hereunder by Employee, the Company's objective was to
recruit an individual that could create a close partnership with Mitchell
Kertzman in which Employee could both manage the Company's daily operations and
also fill the role of the identified successor to the position of chief
executive officer for succession planning
-4-
<PAGE> 5
purposes. The parties intend that at the Board of Director's first meeting in
1999 (but not later than February 15, 1999) the Board of Directors and Mitchell
Kertzman, in consultation with Employee, will determine whether Employee shall
be named Chief Executive Officer (reporting to Mitchell Kertzman as Chairman).
If Employee is not so promoted and communicates to the Board of Directors in
writing after February 15, 1999 (or, in the event the Board of Directors
decides prior to February 15, 1999 that Employee will not be promoted in the
future to Chief Executive Officer, the date the Board of Directors provides
written communication to Employee of such decision, which will be provided in
good faith) that he desires to resign as Chief Operating Officer and President
to pursue his career objectives elsewhere (the "Resignation Notice"), the
Company shall (A) pay to Employee an amount equal to the Employee's
then-current annual base salary, payable in one installment (net of all
applicable taxes and deductions) within seven days following the date of
termination; (B) continue to make available, at the Company's expense, the
benefits specified in Section 2(c) above for a period of one year following
such date of termination and (C) provide for the stock options granted pursuant
to Section 2(d) above to continue to vest for a period of one year following
the date of termination (it being understood that such options shall become
non-statutory options on the date ninety (90) days following such date of
termination). The Company's obligations under the preceding sentence are
subject to the conditions that (i) Employee agrees to continue to perform (and
does perform) his duties in good faith and in a reasonably cooperative and
satisfactory manner for a period of six weeks following the date of the
Resignation Notice and (ii) the Resignation Notice is received not later than
August 1, 1999. In the event that the Company terminates Employee without Cause
after April 1, 1999, Employee shall be entitled to the amounts specified in A,
B and C of this paragraph, except that the amount specified in A shall be
payable, not as a lump sum, but in three installments (net of all applicable
taxes and deductions) as follows: 50% of the amount within seven days of the
date of termination, 25% on the date six months following the date of
termination and 25% on the date one year following date of termination.
(d) Definition of Cause. For purposes of this Agreement, "Cause" shall
mean any of the following: (i) any act of personal dishonesty taken by the
Employee in connection with his or her responsibilities as an employee and
intended to result in substantial personal enrichment of the Employee, (ii) the
conviction of a felony, (iii) a willful act by the Employee which constitutes
gross misconduct or which the Employee intends to be or reasonably knows will
be seriously injurious to the Company or the Company's reputation or employees,
and (iv) Employee's willful or continued material failure to substantially
perform his job duties hereunder, provided however that if such Cause is
reasonably curable the Company shall not terminate Employee's employment
hereunder unless the Company first gives notice of its intention to terminate
and of the grounds for such termination and Employee has not within a
reasonable period of not less than thirty days following receipt of such notice
cured such Cause.
-5-
<PAGE> 6
(e) Disability. "Disability" shall have the meaning ascribed to it in
the Statement of Employment Terms.
(f) Involuntary Termination. Employee shall be deemed to have been
terminated by the Company other than for Cause in the event of an Involuntary
Termination. "Involuntary Termination" shall mean (i) without the Employee's
express written consent, the assignment to the Employee of any duties or the
significant reduction of the Employee's duties, either of which is materially
inconsistent with the Employee's position with the Company and responsibilities
in effect immediately prior to such assignment, or the removal of the Employee
form such position and responsibilities, which is not effected for Disability of
for Cause; (ii) a material reduction by the Company in the base salary and/or
target bonus of the Employee as in effect immediately prior to such reduction;
(iii) a material reduction by the Company in the kind or level of employee
benefits to which the Employee is entitled immediately prior to such reduction
with the result that the Employee's overall benefits package is significantly
reduced (other than a nondiscriminatory reduction affecting the Company's
employees generally); or (iv) the relocation of the Employee to a facility or a
location more than 75 miles from San Francisco, without the Employee's express
written consent.
(g) Breach of Nondisclosure Agreement. Notwithstanding any provisions
herein to the contrary, the Company's obligations under this Section 6 to pay
any severance or otherwise extend benefits or stock option vesting shall
terminate immediately upon any intentional breach by Employee of the
Nondisclosure Agreement.
7. No Conflict. Employee represents and warrants that execution of this
Agreement and the Nondisclosure Agreement, and performance of Employee's
obligations hereunder and thereunder, will not conflict with, or result in a
violation or breach of any other agreement to which Employee is a party, or any
judgment, order or decree to which Employee is subject.
8. Governing Law. This Agreement, shall be governed by and construed in
accordance with the laws of California.
9. Entire Agreement. This Agreement, together with the Statement of Employment
Terms and Nondisclosure Agreement, sets forth the entire agreement and
understandings of the parties with respect to the subject matter hereof, and
supersedes any other written or oral negotiations, agreements, understandings,
representations or practices. Any waiver, modification or amendment of this
Agreement shall be effective only if in writing and signed by the parties
hereto.
10. Arbitration. Any dispute or controversy arising under or in connection with
this Statement shall be settled exclusively by arbitration in Emeryville,
California, in
-6-
<PAGE> 7
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
SYBASE, INC. EMPLOYEE:
By: /s/ MITCHELL E. KERTZMAN /s/ JOHN S. CHEN
------------------------ -------------------------------
Its: Chief Executive Officer Address: 328 Pheasant Run Drive
Danville, CA 94506
-7-
<PAGE> 1
Exhibit 11.1
SYBASE, INC.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months Ended
Ended September 30, September 30,
------------------- -----------------
1997 1996 1997 1996
------ ----- ------ ------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for the period:
Common stock 79,282 75,748 78,456 74,755
Dilutive employee stock
options
and warrants (1) 771 0 830 0
-------- -------- -------- --------
Total common and common
equivalent shares 80,053 75,748 79,286 74,755
======== ======== ======== ========
Net income (loss) $ 5,216 ($52,629) $ 13,133 ($84,112)
======== ======== ======== ========
Net income (loss) per share $ 0.07 ($ 0.69) $ 0.17 ($ 1.13)
======== ======== ======== ========
</TABLE>
(1) Computed using the treasury stock method. Not included if anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SYBASE INC. AS OF SEPTEMBER 30,
1997 AND FOR THE NINE MONTHS ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 180,512
<SECURITIES> 49,443
<RECEIVABLES> 200,835
<ALLOWANCES> 30,781
<INVENTORY> 0
<CURRENT-ASSETS> 465,543
<PP&E> 434,069
<DEPRECIATION> (271,707)
<TOTAL-ASSETS> 777,199
<CURRENT-LIABILITIES> 334,240
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 440,497
<TOTAL-LIABILITY-AND-EQUITY> 777,199
<SALES> 395,657
<TOTAL-REVENUES> 723,739
<CGS> 20,769
<TOTAL-COSTS> 557,041
<OTHER-EXPENSES> 150,094
<LOSS-PROVISION> 1,136
<INTEREST-EXPENSE> 799
<INCOME-PRETAX> 20,856
<INCOME-TAX> 7,723
<INCOME-CONTINUING> 13,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,133
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
