<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 June 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 July 31, 1997, 78,878,060 shares of the Registrant's Common Stock, $.001 par
value, were outstanding.
<PAGE> 2
SYBASE, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
Part I: Financial Information
<S> <C>
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996. 3
Condensed Consolidated Statements of Operations for the 4
three months and six months ended June 30, 1997
and June 30, 1996.
Condensed Consolidated Statements of Cash Flows 5
for the six months ended June 30, 1997 and
June 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 4: Submission of Matters to a Vote of 19
Security Holders.
Item 6: Exhibits and Reports on Form 8-K. 19
Signatures 20
</TABLE>
-2-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands, except share data) 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 183,671 $ 156,796
Short-term cash investments 15,011 17,726
--------- ---------
Total cash and short-term cash investments 198,682 174,522
Accounts receivable, net 211,862 239,466
Deferred income taxes 13,727 13,729
Other current assets 23,207 17,551
--------- ---------
Total current assets 447,478 445,268
Property, equipment and improvements, net 172,904 191,328
Deferred income taxes 27,406 27,406
Capitalized software, net 38,136 19,974
Other assets 65,242 67,915
--------- ---------
TOTAL ASSETS $ 751,166 $ 751,891
========= =========
Current liabilities:
Accounts payable $ 16,049 $ 21,563
Accrued compensation and related expenses 41,417 47,829
Accrued income taxes 26,297 26,952
Other accrued liabilities 77,656 89,386
Deferred revenue 162,705 166,482
--------- ---------
Total current liabilities 324,124 352,212
Other liabilities 3,350 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; 78,774,902 shares issued
and outstanding (1996-72,608,794 shares) 79 77
Additional paid-in capital 383,051 359,161
Retained earnings 53,998 46,081
Accumulated translation adjustments (13,436) (8,511)
--------- ---------
Total stockholders' equity 423,692 396,808
--------- ---------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 751,166 $ 751,891
========= =========
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------------------------------
(In thousands, except per share data) 1997 1996 1997 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 128,870 $ 150,454 $ 264,043 $ 298,399
Services 108,768 99,433 215,497 195,152
--------- --------- --------- ---------
Total revenues 237,638 249,887 479,540 493,551
Costs and expenses:
Cost of license fees 6,148 7,585 14,206 14,702
Cost of services 61,673 62,846 123,551 118,985
Sales and marketing 116,674 137,197 231,271 267,490
Product development and engineering 33,707 46,085 69,007 89,176
General and administrative 14,443 19,735 31,806 38,461
--------- --------- --------- ---------
Total costs and expenses 232,645 273,448 469,841 528,814
--------- --------- --------- ---------
Operating income (loss) 4,993 (23,561) 9,699 (35,263)
--------- --------- --------- ---------
Other income and expense, net 1,740 2,197 2,746 4,691
--------- --------- --------- ---------
Income (loss) before income taxes 6,733 (21,364) 12,445 (30,572)
Provision for income taxes 2,357 3,200 4,528 898
--------- --------- --------- ---------
Net income (loss) $ 4,376 ($ 24,564) $ 7,917 ($ 31,470)
========= ========= ========= =========
Net income (loss) per share $ 0.06 ($ 0.33) $ 0.10 ($ 0.42)
========= ========= ========= =========
Shares used in per share computation 79,209 74,927 78,841 74,243
========= ========= ========= =========
</TABLE>
See accompanying notes.
-4-
<PAGE> 5
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Six Months Ended June 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) $ 7,917 ($ 31,470)
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 52,984 47,493
Changes in assets and liabilities:
Accounts receivable 27,015 (21,286)
Other current assets (5,574) (169)
Accounts payable (5,514) (5,865)
Accrued compensation and related expenses (6,412) 3,532
Other accrued liabilities (12,404) (10,015)
Deferred revenues (4,739) 15,137
Accrued income taxes (655) 1,305
Other 1,108 1,057
--------- ---------
Net cash provided (used) by operating activities 53,726 (281)
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of available-for-sale cash investments (16,517) (48,280)
Maturities of available-for-sale cash investments 11,054 52,725
Sales of available-for-sale cash investments 8,200 2,495
Business combinations, net of cash acquired (3,097) (873)
Purchases of property, equipment and improvements (23,125) (45,023)
Capitalized software development costs (9,674) (8,100)
Decrease(increase) in other assets (151) (3,654)
--------- ---------
Net cash used for investing activities (33,310) (50,710)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 11,892 21,861
--------- ---------
Net cash provided by financing activities 11,892 21,861
Effect of exchange rate changes on cash (5,433) (2,363)
--------- ---------
Net increase (decrease) in cash and cash equivalents 26,875 (31,493)
--------- ---------
Cash and cash equivalents, end of period 183,671 149,384
Cash investments, end of period 15,011 35,904
--------- ---------
Total cash, cash equivalents, and short term cash
investments, end of period $ 198,682 $ 185,288
========= =========
Supplemental disclosures:
Interest paid $ 419 $ 0
========= =========
Income taxes paid $ 5,554 $ 6,439
========= =========
</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 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 quarter and six months ended June 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 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.
-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>
Six Six
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
6/30/97 6/30/96 Change 6/30/96 6/30/96 Change
------- -------- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
License fees $ 128.9 $ 150.5 -14% $ 264.0 $ 298.4 -12%
Percentage of 54% 60% 55% 60%
total revenues
Services $ 108.7 $ 99.4 9% $ 215.5 $ 195.2 10%
Percentage of 46% 40% 45% 40%
total revenues
Total revenues $ 237.6 $ 249.9 -5% $ 479.5 $ 493.6 -3%
</TABLE>
Total revenues for the second quarter of 1997 decreased 5 percent to $237.6
million from the $249.9 million achieved in the second quarter of 1996. License
fees declined 14 percent to $128.9 million in the second quarter of 1997 from
$150.5 million recorded in the second quarter of last year. License fees
decreased 12 percent to $264.0 million in the first six months of 1997 from
$298.4 million in the same period of 1996. In the second quarter of 1997 license
fees, and as a consequence, total revenues did not meet the Company's
expectations due to lower than expected license revenues in the Company's
Enterprise and Tools Business Groups in North America and Europe. The Company
believes the decline in license revenue is due to lower productivity, and the
lack of new product coming to market in the first half of 1997.
Services revenues grew 9 percent to $108.7 million in the second quarter of
1997, up from $99.4 million recorded in the year earlier period. Services
revenues increased 10 percent to $215.5 million for the first six months of 1997
from $195.2 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 second quarter from 40 percent in the
same quarter of 1996. Service revenues for the six months ending June 30, 1997
increased to 45 percent from 40 percent in the same period of 1996.
Total revenues for the first six months of 1997 decreased 3 percent to $479.5
million from the $493.6 million achieved in the same period of 1996 as a result
of the factors described above.
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.
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 quarterly rate of service revenue growth from the first quarter of 1997 to
the second quarter of 1997 compared to the same period of 1996 declined due to
the decrease in license revenues for the first half in 1997. The Company expects
services revenues to continue to increase modestly each quarter in absolute
dollars in 1997, 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 second quarter and first half
of 1997 was not significant.
-7-
<PAGE> 8
GEOGRAPHICAL REVENUES
(Dollars in millions)
<TABLE>
<CAPTION>
Six Six
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
6/30/97 6/30/96 Change 6/30/96 6/30/96 Change
-------- -------- --- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
North American $ 137.2 $ 151.4 -9% $ 286.8 $ 302.2 -5%
Percentage of 58% 61% 60% 61%
total revenues
International
European $ 55.5 $ 57.0 -3% $ 110.8 $ 116.3 -5%
Percentage of 23% 23% 23% 24%
total revenues
Intercontinental $ 44.9 $ 41.5 8% $ 81.9 $ 75.1 9%
Percentage of 19% 17% 17% 15%
total revenues
Total international $ 100.4 $ 98.5 2% $ 192.7 $ 191.4 1%
Percentage of 42% 39% 40% 39%
total revenues
Total revenues $ 237.6 $ 249.9 -5% $ 479.5 $ 493.6 -3%
</TABLE>
North American revenues (United States, Canada and Mexico) decreased 9 percent
in the second quarter of 1997 to $137.2 million from $151.4 million in the
second quarter of 1996. North American revenues were down 5 percent in the first
half of 1997 to $286.8 million from $302.2 million in the same period in 1996.
International revenues increased 2 percent in the second quarter of 1997 to
$100.4 million from $98.5 million in the year earlier period, with European
revenues declining 3 percent and Intercontinental revenues (principally Asia,
Australia, and Latin America) increasing 8 percent. Over the first six months of
1997, International revenues increased 1 percent to $192.7 million from $191.4
million in the year earlier period, with European revenues declining 5 percent
and Intercontinental revenues increasing 9 percent from the year earlier period.
The Company believes the decline in license revenue is due to lower
productivity, and the lack of new product coming to market in the first half of
1997.
International revenues grew to 42 percent of total revenues in the second
quarter of 1997 from 39 percent in the second quarter of 1996. International
revenues comprised 40 percent of total revenues during the first six months of
1997 compared to 39 percent in the same period of 1996. The stronger
Intercontinental revenue growth rate of 9% in the first half of 1997 compared to
the North American and European growth rates for the same period reflects the
return on our previous investments in the Intercontinental region.
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."
-8-
<PAGE> 9
COSTS AND EXPENSES
(Dollars in millions)
<TABLE>
<CAPTION>
Six Six
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
6/30/97 6/30/96 Change 6/30/96 6/30/96 Change
-------- -------- --- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Cost of license fees $ 6.1 $ 7.6 -20% $ 14.2 $ 14.7 -3%
Percentage of 5% 5% 5% 5%
license fees
Cost of services $ 61.7 $ 62.8 -2% $ 123.6 $ 119.0 4%
Percentage of 57% 63% 57% 61%
services revenues
Sales and marketing $ 116.7 $ 137.2 -15% $ 231.3 $ 267.5 -14%
Percentage of 49% 55% 48% 54%
total revenues
Product development
and engineering $ 33.7 $ 46.1 -27% $ 69.0 $ 89.2 -23%
Percentage of 14% 18% 14% 18%
total revenues
General and
administrative $ 14.4 $ 19.7 -27% $ 31.8 $ 38.5 -17%
Percentage of 6% 8% 7% 8%
total revenues
</TABLE>
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 and cost of acquired technologies,
decreased 20 percent in the second quarter of 1997 as compared to the second
quarter of 1996, and represented 5 percent of license fees in each of the second
quarters of 1997 and 1996. Cost of license fees decreased 3 per cent to $14.2
million in the first six months of 1997 compared to $14.7 million in same period
of 1996, and represented 5 percent of license fees in each of the first six
months of 1997 and 1996. This decrease in cost of license fees is due, in part,
to a decrease in license fees and an increase in productivity in order and order
fulfillment, both in the second quarter and first half of 1997, as compared to
the same periods in 1996. Amortization of capitalized software costs included in
cost of license fees was $2.2 million in the second quarter of 1997, compared to
$2.0 in the second quarter of last year, and $4.2 million in the first half of
1997, compared to $3.8 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 57 percent in the second quarter of 1997 from 63 percent in the
second quarter of 1996, and to 57 percent from 61 percent for the first six
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 to control expenses 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 49 percent in the second quarter of 1997, from 55 percent in
the second 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 half of 1997, from 54 percent in the first half of 1996 and also
-9-
<PAGE> 10
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 aggressive cost containment program implemented in the third quarter
of 1996 combined with lower sales commissions paid on the lower than expected
license revenues realized in the second quarter and first half of 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 first quarter and for the first six months of
1997, compared to 18 percent in the same periods in 1996. The decrease in
product development and engineering expenses as a percent of total revenues in
the second quarter of 1997 is the result of the Company's third quarter 1996
restructuring costs which reduced levels of recurring expenses, combined with
improved productivity in product development and engineering. In absolute
dollars, product development and engineering expenses in the second quarter of
1997 decreased 27 percent compared to the second 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(TM) 11.5 Enterprise, SQL
Anywhere(TM), and Replication Server(R) products and certain other existing
database products; the Company's interoperability products, including
EnterpriseConnect(TM) and Powersoft(R) Jaguar CTS products; and application
development tools, including PowerBuilder(R), Powersoft PowerJ(TM),
PowerDesigner(TM) and Power++(TM). The Company capitalized approximately $5.6
million and $9.7 million of software development costs in the second quarter and
first half of 1997, respectively, compared to $3.4 million and $8.1 million for
the same periods in 1996. The capitalization of software development costs
represents 14% and 12% of gross product development and engineering expenditures
for the second quarter and first half of 1997, respectively. By comparison,
capitalization of software development costs for the same periods in 1996
represented 7% and 8% of such expenditures, respectively. This capitalization of
product development costs in the first half of 1997 reflects major development
programs such as Powersoft PowerJ, Powersoft Jaguar CTS, Adaptive Server 11.5
Enterprise and several EnterpriseConnect interoperability products, all of which
achieved technological feasibility for purposes of capitalization. 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.) The Company believes that product
development and engineering expenditures are essential to technology and product
leadership.
General and administrative. General and administrative expenses decreased to 6
percent of total revenues in the second quarter of 1997 compared to 8 percent in
the same period of 1996 and to 7 percent from 8 percent for the first six months
of 1997 compared to the same period in 1996. The absolute dollar amount of
expenses decreased to $14.4 million in the second quarter of 1997 from $19.7
million in the first quarter of 1996. The decrease in general and administrative
expenses, in absolute dollars, resulted partially from the Company's third
quarter 1996 restructuring costs which reduced levels of recurring expenses and
the Company's continuing emphasis on improving productivity. The Company plans
to continue tightly managing general and administrative expenses and limit
infrastructure growth in the near term.
-10-
<PAGE> 11
OPERATING INCOME (LOSS)
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Quarter Six Months Six Months
Ended Ended Percent Ended Ended Percent
6/30/97 6/30/97 Change 6/30/97 6/30/97 Change
------- ------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Operating income (loss) $5.0 ($23.6) * $10.0 ($35.3) *
Percentage of 2% -9% 2% -7%
total revenues
</TABLE>
* Not meaningful
The Company reported operating income of $5.0 million in the second quarter of
1997 compared to a $23.6 million operating loss in the second quarter of 1996.
The Company reported operating income of $10.0 million in the first six months
of 1997 compared to an operating loss of $35.3 million in the first six months
of 1996 as a result of the operating factors described above.
OTHER INCOME AND EXPENSE, NET
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Quarter Six Months Six Months
Ended Ended Percent Ended Ended Percent
6/30/97 6/30/97 Change 6/30/97 6/30/97 Change
------- ------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Other income/ expense, net $1.7 $2.2 -21% $2.7 $4.7 -41%
Percentage of 1% 1% 1% 1%
total revenues
</TABLE>
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 in absolute dollars, was
$1.7 million in the second quarter of 1997 compared to $2.2 million in the
second quarter of 1996. Other income/expense, net in absolute dollars, was $2.7
million in the first half of 1997 compared to $4.7 million in the first half of
1996. The decrease is largely due to lower effective returns resulting from a
shift in cash balances and investments from countries with higher yields to
countries with lower yields. Overall, net foreign exchange gains and losses
resulting from the Company's hedging activities were immaterial for all
periods covered.
-11-
<PAGE> 12
PROVISION FOR INCOME TAXES
(Dollars in millions)
<TABLE>
<CAPTION>
Six Six
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
6/30/97 6/30/97 Change 6/30/97 6/30/97 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Provision for
income taxes $2.4 $3.2 -26% $4.5 $0.9 404%
</TABLE>
The Company recorded an income tax provision of $2.4 million in the second
quarter of 1997 compared to $3.2 million in second quarter of 1996. The Company
recorded an income tax provision of $4.5 million in the first half of 1997
compared to $0.9 million in first half of 1996. The tax provision for the first
half of 1997 is primarily due to the generation of taxable income in certain
foreign jurisdictions.
Realization of the Company's net deferred tax assets, which total $41.1 million
at June 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 from tax credit carryforwards. The
amount of deferred tax assets considered realizable is subject to adjustment in
future periods if estimates of future taxable income are reduced and any such
adjustments could have an impact on the Company's effective tax rate in future
periods. See "Future Operating Results."
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
(in Millions, except per share amounts)
<TABLE>
<CAPTION>
Six Six
Quarter Quarter Months Months
Ended Ended Percent Ended Ended Percent
6/30/97 6/30/97 Change 6/30/97 6/30/97 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $4.4 ($24.6) * $7.9 ($31.5) *
Percentage of 2% -10% 2% -6%
total revenues
Net income (loss)
per share $.06 ($0.33) * $0.10 ($0.42) *
Shares used in per
share computation 79.2 74.9 6% 78.8 74.2 6%
</TABLE>
- ----------
* Not meaningful
The Company reported net income in the second quarter of 1997 of $4.4 million,
or $0.06 per share, compared to a net loss of $24.6 million, or $0.33 per share
in the second quarter of 1996. The Company reported net income in the first half
of 1997 of $7.9 million, or $0.10 per share, compared to a net loss of $31.5
million, or $0.42 per share in the first half of 1996.
-12-
<PAGE> 13
FINANCIAL CONDITION
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Six Months Percent
Ended 6/30/97 Ended 6/30/96 Change
------------- ------------- -------
<S> <C> <C> <C>
Working capital $123.4 $120.0 3%
Cash, cash equivalents and $198.7 $185.3 7%
short-term cash investments
Net cash provided (used) $53.7 ($0.3) *
by operating activities
Net cash used by $33.3 $50.7 -34%
investing activities
Net cash provided by $11.9 $21.9 -46%
financing activities
</TABLE>
- ----------
* Not meaningful
Net cash provided by operating activities was $53.7 million in the first six
months of 1997 compared to net cash used by operating activities of $0.3 million
in the first six months of 1996. Net cash provided by operating activities
during the first half of 1997 reflects net income of $7.9 million versus a loss
of $31.5 million in the year ago period. Additionally, increased net cash from
operating activities reflects a decrease of accounts receivable of $27.0 million
in the first half of 1997 compared to an accounts receivable increase of $21.3
million in the same period of 1996. Accounts payable and other accrued
liabilities decreased during the first half of 1997, resulting in a total cash
decline of $17.9 million over this period, compared to an decrease totaling
$15.9 million over the same period in 1996. Cash flows from operating activities
decreased as a result of a decrease deferred revenue balance of $4.7 million in
the first six months of 1997 compared to cash provided by an increase of $15.1
million in the same period of 1996. In the first half of 1997, a reduction in
accrued income taxes totaled $0.7 million compared to a increase in accrued
income taxes of $1.3 million in the same period of 1996.
Net cash used for investing activities decreased to $33.3 million in the first
half of 1997 compared to $50.7 million in the first half of 1996. Investing
activities included capital expenditures of $23.1 million in the first half of
1997 compared to $45.0 million in the first half of 1996, which reflects a
decrease in expenditures required to support the Company's employee base around
the world. During the first six months of 1997, there was a net decrease of cash
investments in the amount of $2.7 million compared to a net decrease of $6.9
million in the first half of 1996.
Net cash provided by financing activities for the first half of 1997 was $11.9
million compared to $21.9 million in the first half of 1996, all provided by the
issuance of common stock upon 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 $198.7 million
at June 30, 1997, compared to $185.3 million at June 30, 1996.
-13-
<PAGE> 14
The Company engages in business operations around the world and is therefore
exposed to foreign currency fluctuations. As of June 30 1997, the Company had
identifiable assets totaling $136 million associated with its European
operations and $118 million associated with its Intercontinental operations. The
Company experiences foreign exchange transaction exposures from short-term
intercompany payables and receivables denominated in different currencies. The
Company hedges certain of these short-term exposures under a plan approved by
the Sybase, 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.
-14-
<PAGE> 15
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 June 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's rate of year-over-year growth slowed significantly over the
past two years. 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.
Throughout 1996, the Company implemented a variety of changes to the sales
organization, including a new sales model, changes to sales compensation
programs, and an increased focus on sales through indirect channels. Although
such changes are intended to enhance overall revenues, such changes could, in
the short-run, materially and adversely affect the sales process and revenues.
For example, the Company believes that these changes may have contributed in
part to the lower than expected revenues in the first two quarters of 1996. In
the second quarter of 1996, the Company announced several management and
organizational changes, including changes in the senior management of the sales
and marketing organizations. In the third quarter of 1997, John Chen will become
the Company's President and Chief Operating Officer, and Chief Executive Officer
Mitchell Kertzman will succeed 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
-15-
<PAGE> 16
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 price. 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 has recently acquired operations in Chile, Argentina 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. 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 others.
The Company will introduce price and licensing changes from time to time in the
future. If recently implemented or future changes in the Company's products,
pricing structure, or existing or future competition, for example from
Microsoft, were to result in significant revenue declines, the Company's
business and financial results would be adversely affected.
The Company's future results will depend in part on its ability to enhance its
existing products and to introduce new products, on a timely and cost-effective
basis, that meet dynamic customer requirements. Customer requirements for
products can rapidly change as a result of innovations or changes within the
computer hardware and software industries. For example, the widespread use of
the Internet is rapidly giving rise to new customer requirements as well as new
-16-
<PAGE> 17
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 -- for
example, PowerBuilder(R) 6.0, a component-based application development tool
which was released in beta during the second quarter, and Adaptive Server(TM), a
new version of the Company's flagship relational database management system. The
Company currently plans to commence commercial shipment of these products in the
last half of 1997. 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, 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 the Company's new Adaptive Component
Architecture(TM) which was announced in April 1997, 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. Failure to meet existing
or future interoperability and performance requirements of certain independent
vendors marketing such applications in a timely manner has in the past and could
in the future adversely affect the market for Sybase's products. Certain leading
applications will not be interoperable with Sybase relational database
management systems ("RDBMSs") until certain features are added to the Company's
RDBMS, and others may never be available on Sybase's RDBMS. In addition, the
Company's application development tools, database design tools, and certain
connectivity products are designed for use with RDBMSs offered by the Company's
competitors. Vendors of non-Sybase RDBMSs and related products may become less
willing in the future to provide the Company with access to products, technical
information, and marketing and sales support. If existing and potential
customers of the Company who use non-Sybase RDBMSs refrain from purchasing such
products due to concerns that 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 or other factors that could affect customer perception,
such as the criticism of the scalability of the Company's SQL Server(TM) 10
database product experienced in 1995. 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 other future
periods, by the market share of the Company's products and by press reports
related to the foregoing.
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.
-17
<PAGE> 18
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 1996 and 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
will become the Company's President and Chief Operating Officer, and Chief
Executive Officer Mitchell Kertzman will become 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. The failure to effectively
recruit, train, and retain qualified personnel or high rates of employee
turnover, particularly among engineering or sales staff, could adversely affect
the Company's product development efforts, product sales, and other aspects of
the Company's operations and results. During 1996, the software industry
generally, and Sybase specifically, experienced higher than historical rates of
employee turnover.
Sybase currently enters most of its North American customer orders in its
Burlington, Massachusetts, operations center and ships all of its products in
North America (other than its Powersoft(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
small software technology company and three distributors in Latin America in the
first half of 1997. 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
restructuring charges sometime in the future.
-18-
<PAGE> 19
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Registrant was held on May
20, 1997. At the Annual Meeting, the following matters were submitted
to a vote of stockholders and were approved, with the votes cast on
each matter indicated:
1. Election of three Class II directors, each to serve a three-year term
expiring upon the 2000 Annual Meeting of Stockholders or until a
successor is duly elected and qualified. Richard C. Alberding, Robert
S. Epstein and Mitchell E. Kertzman were the only nominees and each
was elected (57,506,582 votes were cast for election of Mr. Alberding
and 1,800,506 were cast withholding authority to vote for his
election; 67,207,171 votes were cast for election of Mr. Epstein and
2,099,917 were cast withholding authority to vote for his election;
67,361,700 votes were cast for election of Mr. Kertzman and 1,945,388
were cast withholding authority to vote for his election. There were
no abstentions or non-votes.) In addition to these directors, the
Company's incumbent directors (Mark Hoffman (who resigned as a
director during the third quarter of 1997), L. William Krause, David
E. Liddle, Robert P. Wayman, Jeffrey T. Webber and Alan B. Salisbury)
had terms that continued after the 1997 Annual Meeting.
2. Approval of an amendment to the 1996 Stock Plan increasing the total
number of shares of Common Stock reserved for issuance thereunder by
2,450,000 shares (46,517,749 for, 22,579,373 votes against, 209,966
abstentions, and no non-votes.)
3. Approval of an amendment to the Amended and Restated 1991 Employee
Stock Purchase Plan and the Amended and Restated 1991 Foreign
Subsidiary Employee Stock Purchase Plan increasing the total number
of shares of Common Stock reserved for issuance thereunder by
1,300,000 shares (64,171,489 for, 4,911,431 against, 224,168
abstentions, and no non-votes.)
4. Ratification of the appointment of Ernst & Young, LLP as independent
auditors for the Company for the year ending December 31, 1997
(68,934,607 for, 170,303 against, 202,178 abstentions, and no
non-votes.)
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
-19-
<PAGE> 20
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.
August 14, 1997 SYBASE, INC.
By /s/ JACK L. ACOSTA
---------------------------
Jack L. Acosta
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
-20-
<PAGE> 21
EXHIBIT INDEX TO SYBASE, INC.
QUARTERLY REPORT ON FORM 10-Q
Exhibit Number Description
- -------------- -----------
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
-21-
<PAGE> 1
Exhibit 11.1
SYBASE, INC.
SUPPLEMENTAL COMPUTATIONS OF EARNINGS (LOSS) PER SHARE
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
--------------------- ------------------------
1997 1996 1997 1996
------ ------- ------ -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for the period:
Common stock 78,659 74,927 78,030 74,243
Dilutive employee stock options
and warrants (1) 550 -- 811 --
-------- -------- -------- --------
Total common and common
equivalent shares 79,209 74,927 78,841 74,243
======== ======== ======== ========
Net income (loss) 4,376 ($24,564) 7,917 ($31,470)
========= ========= ======== =========
Net income (loss) per share $ 0.06 ($ 0.33) $ 0.10 ($ 0.42)
======== ========= ======== =========
</TABLE>
(1) Computed using the treasury stock method. Not included if anti-dilutive.
-22-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SYBASE, INC. AS OF JUNE 30, 1997
AND FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 183,671
<SECURITIES> 15,011
<RECEIVABLES> 238,848
<ALLOWANCES> 26,986
<INVENTORY> 0
<CURRENT-ASSETS> 447,478
<PP&E> 427,105
<DEPRECIATION> 254,201
<TOTAL-ASSETS> 751,166
<CURRENT-LIABILITIES> 324,124
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 423,613
<TOTAL-LIABILITY-AND-EQUITY> 751,166
<SALES> 264,043
<TOTAL-REVENUES> 479,540
<CGS> 14,206
<TOTAL-COSTS> 369,028
<OTHER-EXPENSES> 100,813
<LOSS-PROVISION> 308
<INTEREST-EXPENSE> 419
<INCOME-PRETAX> 12,445
<INCOME-TAX> 4,528
<INCOME-CONTINUING> 7,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,917
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
