<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 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 of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 April 30, 1997, 78,679,325 shares of the Registrant's Common Stock, $.001 par
value, were outstanding.
1
<PAGE> 2
AMENDED FILING OF FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1997
RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION
In January 1998, the Company discovered that certain accounting practices in its
Japanese subsidiary were not in accordance with U.S. generally accepted
accounting principles and company policies. As a result of these irregularities,
the Company has restated revenues and the results of operations in its interim
financial statements for the three months ended March 31, 1997 (see Note 1 to
the Unaudited Condensed Consolidated Financial Statements).
Net loss per share for the three months ended March 31, 1997 and 1996 have also
been restated to reflect the application of Statement of Financial Accounting
Standards No. 128, "Earnings per Share."
Unless otherwise stated, information in the originally filed Form 10-Q is
presented as of the original filing date, and has not been updated in this
amended filing.
Quarterly financial statement information and related disclosures included in
this amended filing reflect, where appropriate, changes as a result of the
restatements.
2
<PAGE> 3
SYBASE, INC.
FORM 10-Q/A
QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information (Unaudited and Restated - see Note 1)
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at March 31, 4 1997 and December 31,
1996. 4
Condensed Consolidated Statements of Operations for the 5
three months ended March 31, 1997
and March 31, 1996.
Condensed Consolidated Statements of Cash Flows 6
for the three months ended March 31, 1997 and
March 31, 1996.
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of 10
Financial Condition and Results of Operations.
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K. 24
Signatures 25
</TABLE>
3
<PAGE> 4
PART I
ITEM 1: FINANCIAL STATEMENTS
SYBASE, INC.
------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands, except share data) 1997 1996
--------- ---------
<S> <C> <C>
(Restated)
Current assets:
Cash and cash equivalents $ 176,260 $ 156,796
Short-term cash investments 17,798 17,726
--------- ---------
Total cash and short-term cash investments 194,058 174,522
Accounts receivable, net 214,880 239,466
Deferred income taxes 13,726 13,729
Other current assets 24,603 17,551
--------- ---------
Total current assets 447,267 445,268
Property, equipment and improvements, net 181,649 191,328
Deferred income taxes 27,406 27,406
Capitalized software, net 34,721 19,974
Other assets 67,365 67,915
--------- ---------
TOTAL ASSETS $ 758,408 $ 751,891
========= =========
Current liabilities:
Accounts payable $ 21,549 $ 21,563
Accrued compensation and related expenses 39,309 47,829
Accrued income taxes 25,127 26,952
Other accrued liabilities 80,151 89,386
Deferred revenue 169,152 166,482
Other current liabilities 9,667 --
--------- ---------
Total current liabilities 344,955 352,212
Other liabilities 2,996 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; 78,445,297 shares issued
and outstanding (1996-76,608,794) 78 77
Additional paid-in capital 382,030 359,161
Retained earnings 39,921 46,081
Accumulated translation adjustments (11,572) (8,511)
--------- ---------
Total stockholders' equity 410,457 396,808
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 758,408 $ 751,891
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SYBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------
(In thousands, except per share data) 1997 1996
--------- ---------
<S> <C> <C>
(Restated)
Revenues:
License fees $ 127,392 $ 147,945
Services 104,809 95,719
--------- ---------
Total revenues 232,201 243,664
Costs and expenses:
Cost of license fees 8,058 7,117
Cost of services 61,878 56,139
Sales and marketing 114,597 130,293
Product development and engineering 35,300 43,091
General and administrative 17,363 18,726
--------- ---------
Total costs and expenses 237,196 255,366
--------- ---------
Operating loss (4,995) (11,702)
Other income and expense, net 1,006 2,494
--------- ---------
Loss before income taxes (3,989) (9,208)
Provision (benefit) for income taxes 2,171 (2,302)
--------- ---------
Net loss $ (6,160) ($ 6,906)
========= =========
Net loss per share - basic and diluted ($ 0.08) ($ 0.09)
========= =========
Shares used in calculation of per share
amounts 77,504 73,630
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SYBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended March 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
(Restated)
Cash and cash equivalents, beginning of period $ 156,796 $ 180,877
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 6,160) ($ 6,906)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization 26,282 23,348
Deferred income taxes 3 1,148
Changes in assets and liabilities:
Accounts receivable 25,388 (12,114)
Other current assets (6,973) (2,213)
Accounts payable (14) (6,222)
Accrued compensation and related (8,520) (6,568)
expenses
Other accrued liabilities (10,168) (8,181)
Deferred revenues 1,941 8,780
Accrued income taxes (1,825) (276)
Other (63) 874
--------- ---------
Net cash provided (used) by operating activities 19,891 (8,330)
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of available-for-sale cash investments (12,228) (28,994)
Maturities of available-for-sale cash investments 3,978 35,612
Sales of available-for-sale cash investments 8,200 0
Business combinations, net of cash acquired (3,031) (6,151)
Purchases of property, equipment and improvements (11,569) (22,582)
Capitalized software development costs (4,088) (4,683)
Decrease(increase) in other assets 1,328 (796)
--------- ---------
Net cash used for investing activities (17,410) (27,594)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Increase in other current liabilities 9,667 --
Net proceeds from issuance of common stock 10,870 23,950
--------- ---------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
(In thousands) Three Months Ended March 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
(Restated)
Net cash provided by financing activities 20,537 23,950
Effect of exchange rate changes on cash (3,554) (1,065)
--------- ---------
Net increase (decrease) in cash and cash equivalents 19,464 (13,039)
--------- ---------
Cash and cash equivalents, end of period $ 176,260 $ 167,838
Cash investments, end of period 17,798 36,226
--------- ---------
Total cash, cash equivalents, and cash investments,
end of period $ 194,058 $ 204,064
========= =========
Supplemental disclosures:
Interest $ 140 $ 0
paid
========= =========
Income taxes paid $ 4,465 $ 4,702
========= =========
</TABLE>
See accompanying notes.
7
<PAGE> 8
SYBASE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Subsequent to the filing of its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 with the Securities and Exchange Commission,
the Company discovered that certain accounting practices in its Japanese
subsidiary were not in accordance with U.S. generally accepted accounting
principles and Company policies. These irregularities were primarily the
result of a lack of compliance with, or circumvention of, the Company's
established procedures and controls, and were committed by a small group of
individuals. Additionally, the Company became aware of certain undisclosed
agreements with a number of resellers. As a result of these undisclosed
agreements, which were entered into in 1997, significant concessions or
allowances have, or could reduce revenue that was previously reported as
earned. In addition, the Company has discovered a number of transactions
that were not recorded in the Japanese subsidiary's financial statements. In
January 1998 the Company performed certain procedures to determine the
extent of the policy violations, undisclosed agreements and unrecorded
transactions. The results of these procedures, as well as other relevant
information now known or disclosed, has enabled the Company to conclude that
certain transactions were improperly reported as revenue for all interim
periods in the year ended December 31, 1997.
As a result of the foregoing, consolidated revenues and the results of
operations for the three months ended March 31, 1997 have been restated as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
-------------------------
(In thousands)
<S> <C> <C>
(As reported) (Restated)
Net revenues
License fees $ 135,173 $ 127,392
Services 106,729 104,809
Total revenues 241,902 232,201
Operating income 4,706 (4,995)
(loss)
Net income (loss) 3,541 (6,160)
Net income (loss) $ 0.05 ($0.08)
per share
</TABLE>
<TABLE>
March 31, 1997
-------------------------
<S> <C> <C>
Retained earnings $ 49,622 $ 39,921
Other current liabilities 0 9,667
</TABLE>
Other current liabilities in the condensed consolidated balance sheet at
March 31, 1997 represent amounts accrued related to actual and potential
liabilities to Japanese financial institutions resulting from the
irregularities discussed above.
2. The accompanying unaudited consolidated financial statements include the
accounts of Sybase and its subsidiaries, and, in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary to fairly state the Company's consolidated financial position,
results of operations and cash flows for the periods presented. The
condensed consolidated balance sheet as of December 31, 1996 has been
prepared from the audited financial statements of the Company.
This report on Form 10-Q/A should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1996 and notes
included therein. The results of operations for the three months ended March
31, 1997 are not necessarily indicative of results for the entire fiscal
year ending December 31, 1997.
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 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 transaction was accounted for as a purchase. 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 FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (Statement 128). Statement 128
replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share
8
<PAGE> 9
and includes the dilutive effect of the assumed exercise of stock options
using the treasury stock method. Shares used in computing basic and diluted
net loss per share are based on the weighted average shares outstanding in
each period. The effect of outstanding stock options is excluded from the
calculation of diluted loss per share as their inclusion would be
antidilutive. Net loss per share amounts for all periods have been presented
and, where appropriate, restated to conform to the Statement 128
requirements.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In January 1998, the Company discovered that certain accounting practices in its
Japanese subsidiary were not in accordance with U.S. generally accepted
accounting principles and Company policies. As a result of these irregularities,
the Company restated its interim financial statements for the three months ended
March 31, 1997. Accordingly, certain information included herein reflects
changes as a result of restating the financial statements.
Revenues
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Three Months
Ended 3/31/97 Ended 3/31/96 Percent Change
------------- ------------- --------------
(Restated)
<S> <C> <C> <C>
License fees $127.4 $147.9 -14%
Percentage of 55% 61%
total revenues
Services 104.8 95.7 10%
Percentage of 45% 39%
total revenues
Total revenues $232.2 $243.7 -5%
</TABLE>
Total revenues for the first quarter of 1997 decreased $11.5 million, or 5
percent, to $232.2 million from the $243.7 million achieved in the first quarter
of 1996. Of this decrease, $9.7 million is attributable to the restatement of
revenues in the Company's Japanese subsidiary.
License fees decreased $20.6 million, or 14 percent, to $127.4 million in the
first quarter of 1997, from $147.9 million recorded in the first quarter of last
year. Of this decrease, $7.8 million is the result of the Japanese subsidiary's
restatement of license revenues, as discussed above. The total decrease in
Japanese license revenue from the first quarter of 1996 to the first quarter of
1997 after the restatement was $8.5 million. The remaining decrease is
attributable to a $9.3 million and $4.8 million decline in North American and
European license fees, respectively, offset by a modest increase of $2.2 million
in the Intercontinental region, exclusive of Japanese revenue.
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 45 percent in
the first quarter of 1997 from 39 percent in the same period of 1996. Services
revenues grew $9.1 million, or 10 percent, to $104.8 million in the first
quarter of 1997, up from $95.7 million recorded in the year earlier period. The
increase in services revenues was the result of increases of $6.7 million, $0.9
million, and $2.0 million in North America, Europe and the Intercontinental
region (exclusive of Japanese revenue amounts), respectively. Service revenue in
the Japanese subsidiary was reduced by $1.9 million in the first quarter of 1997
as a result of the restatement discussed above. After
10
<PAGE> 11
this restatement, services revenues for the Japanese subsidiary decreased by
$0.5 million from the first quarter of 1996 to the comparable period in 1997.
The overall 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 Company expects services revenues to continue to increase modestly in
absolute dollars in 1997, due partially to a larger installed base of customers.
However, as this is a forward-looking statement, actual future results may
differ. See "Future Operating Results."
The impact of price changes on the increase in revenues during the first quarter
of 1997 was not significant.
11
<PAGE> 12
Geographical Revenues
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Three Months
Ended 3/31/97 Ended 3/31/96 Percent Change
------------- ------------- --------------
(Restated)
<S> <C> <C> <C>
North American $ 149.5 $ 150.8 -1%
Percentage of
total revenues 64% 62%
International:
European $ 55.3 $ 59.3 -7%
Percentage of
total revenues 24% 24%
Intercontinental $ 27.4 $ 33.6 -18%
Percentage of
total revenues 12% 14%
Total international $ 82.7 $ 92.9 -11%
Percentage of
total revenues 36% 38%
Total revenues $ 232.2 $ 243.7 -5%
</TABLE>
North American revenues (United States, Canada and Mexico) declined 1 percent in
the first quarter of 1997 to $149.5 million from $150.8 million in the first
quarter of 1996. International revenues decreased 11 percent in the first
quarter of 1997 to $82.7 million from $92.9 million in the year earlier period,
with European revenues decreasing 7 percent and Intercontinental revenues
(principally Asia, Australia, and Latin America) decreasing 18 percent. The
Company attributes reduced North American, European and Intercontinental
revenues to the overall decline in license revenues.
International revenues comprised 36 and 38 percent of total revenues in each of
the first quarters of 1997 and 1996, respectively. The decrease in
Intercontinental revenue growth rate in the first quarter compared to the North
American and European growth rates reflects, in part, the effects of the
restatement of certain Japanese license and service revenue transactions,
discussed above.
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."
12
<PAGE> 13
Costs and Expenses
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/97 3/31/96 Change
----- ----- ------
(Restated)
<S> <C> <C> <C>
Cost of license fees $ 8.1 $ 7.1 13%
Percentage of 6% 5%
license fees
Cost of services $ 61.9 $ 56.1 10%
Percentage of 59% 59%
services revenues
Sales and marketing $ 114.6 $ 130.3 -12%
Percentage of 49% 53%
total revenues
Product development
and engineering $ 35.3 $ 43.1 -18%
Percentage of 15% 18%
total revenues
General and $ 17.4 $ 18.7 -7%
administrative
Percentage of 7% 8%
total revenues
</TABLE>
Cost of license fees. Cost of license fees, consisting primarily of product
costs (media and documentation); amortization of capitalized software
development costs; cost of acquired technologies; and third-party royalty costs,
represented 6 percent of license fees in the first quarter of 1997 and 5 percent
in the same period of 1996, totaling $8.1 million and $7.1 million,
respectively. The increase in cost of licenses over the prior year, both in
dollars and as a percent of license revenues, is partially due to certain
required payments required under royalty agreements, a higher proportion from
tools products which have a greater cost of license associated with them and
increased amortization of capitalized software. Amortization of capitalized
software costs included in cost of license fees was $2.0 million in the first
quarter of 1997, up from $1.7 million in the first quarter of last year due to
increased capitalized software over the preceding quarters.
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), remained unchanged as a percentage of
services revenues representing 59 percent in the first quarters of 1997 and
1996. The increase in absolute dollars in the first quarter compared to the same
period in 1996 reflects the expansion of the customer support and the
professional services organizations, made in order to better support the growth
in customer sites, to enable the
13
<PAGE> 14
migration of the Company's customer base to the latest versions of Sybase(R)
database products, and to better enable customers to develop and deploy the
Company's existing and new software products.
Sales and marketing. Sales and marketing expenses decreased as a percentage of
total revenues to 49 percent in the first quarter of 1997 compared to 53 percent
in the first quarter of 1996. Total expenses decreased to $114.6 million in the
first quarter of 1997 from $130.3 million in the first quarter of 1996. The
decrease in total expenses and expenses as a percentage of revenues are due to
expense reduction efforts that commenced with a third quarter 1996 restructuring
which reduced levels of reoccurring expenses, combined with less than expected
license revenues which impacted the first quarter of 1996.
Product development and engineering. Product development and engineering
expenses (net of capitalized software development costs) declined as a percent
of revenues to 15 percent in the first quarter of 1997 compared to 18 percent in
the same period in 1996. The decrease in product development and engineering
expenses as a percent of total revenues in the first three months of 1997 is
primarily the result of the Company's third quarter 1996 restructuring which
reduced levels of reoccurring expenses, combined with lower than anticipated
license revenues in the first three months of 1996. In absolute dollars, product
development and engineering expenses in the first quarter of 1997 decreased 18
percent compared to the first quarter of 1996. Much of the reduction in expenses
between 1997 and 1996 were the result of discontinuation of certain product
lines in 1996. These product lines included interactive television, wireless
messaging and multimedia authoring tools. Expenditures in the first quarter of
1997 were made to further develop the System 11(TM) suite of products, including
enhancements to Sybase(R) SQL Server(TM), SQL Anywhere(TM), and Replication
Server(R) products and certain other existing database products; the Company's
interoperability products, including EnterpriseConnect(TM) products; and
application development tools, including PowerBuilder(R), PowerJ(TM),
PowerDesigner(TM) and Power++(TM). The Company capitalized approximately $4.1
million and $4.7 million of software development costs in the first quarter of
1997 and 1996, respectively, representing 12 percent and 11 percent,
respectively, of gross product development and engineering expenditures in each
period. The capitalization of product development costs in the first three
months of 1997 reflects major development programs such as Powersoft PowerJ,
Powersoft Jaguar CTS(TM) 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
cost of $12.7 million in connection with its 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 7
percent of revenues in the first quarter of 1997 compared to 8 percent in the
same period of 1996. The absolute dollar amount of expenses decreased to $17.4
million in the first quarter of 1997 from $18.7 million in the first quarter of
1996. The decrease in general and administrative expenses, in absolute dollars,
resulted partially from the Company's third quarter 1996 restructuring which
reduced levels of reoccurring expenses. The Company plans to continue tightly
managing general and administrative expenses and limit infrastructure growth in
the near-term. The decline in general and administrative expenses as a percent
of revenues was due primarily to less than expected revenues in the first
quarter of 1996.
14
<PAGE> 15
Operating Loss
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/97 3/31/96 Change
----- ----- ------
(Restated)
<S> <C> <C> <C>
Operating loss ($ 5.0) ($ 11.7) -57%
Percentage of
total revenues 2% 5%
</TABLE>
The impact on operating loss resulting from the restatement associated with
actions by the Company's Japanese subsidiary was $9.7 million. The resultant
operating loss (on a restated basis) for the first quarter of 1997 was $5.0
million compared to an operating loss of $11.7 million in the same period of
1996, and was the result of the operating factors described above.
Other Income and Expense, Net
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
3/31/97 3/31/96
------- -------
<S> <C> <C>
Other income and expense, net $ 1.0 $ 2.5
Percentage of total revenues 0% 1%
</TABLE>
Other income consists primarily of interest earned on cash investments. Other
expense and other (net) includes interest expense from capital lease obligations
incurred in prior years, bank fees and expenses, net gains and losses resulting
from the Company's foreign currency exposures and hedging activities and the
related costs. The decrease in interest income in absolute dollars in the first
quarter of 1997 is largely due to smaller average invested cash balances than in
the year earlier period. Net foreign exchange gains and losses resulting from
the Company's hedging activities were immaterial for all periods covered.
15
<PAGE> 16
Provision (Benefit) for Income Taxes
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/97 3/31/96 Change
----- ----- ------
<S> <C> <C> <C>
Provision (benefit)
for income taxes $2.2 ($2.3) *
</TABLE>
* Not meaningful
The Company recorded an income tax provision of $2.2 million in the first
quarter of 1997 and a benefit of $2.3 million in the first quarter of 1996.
Realization of the Company's net deferred tax assets, which totaled $41.1
million at March 31, 1997, is dependent upon the Company generating sufficient
taxable income in future years in appropriate tax jurisdictions to obtain
benefit from the reversal of temporary differences and from net operating loss
and tax credit carryforwards. The amount of deferred tax assets considered
realizable is subject to adjustment in future periods if estimates of future
taxable income are reduced and any such adjustments could have an impact on the
Company's effective tax rate in future periods. See "Future Operating Results."
Net Loss and Net Loss Per Share
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Three
Months Months Percent
Ended Ended Change
3/31/97 3/31/96
----- ----- ------
(Restated)
<S> <C> <C> <C>
Net loss ($ 6.2) ($ 6.9) -11%
Percentage of total revenues 3% 3%
Net loss per share -
basic and diluted ($ 0.08) ($ 0.09) -11%
Shares used in calculation
of per share amounts 77.5 73.6
</TABLE>
As a result of the restatement of the Company's financial statements for the
first quarter of 1997 the Company realized a net loss of $6.2 million, or $0.08
per share, in the first quarter of 1997 compared to a net loss of $6.9 million,
or $0.09 per share, in the first quarter of 1996. Shares used in the calculation
of per share amounts increased 5 percent from the first quarter of 1996 to the
first quarter of 1997 as a result of shares issued under employee stock option
and stock purchase plans and in connection with business combinations.
16
<PAGE> 17
Financial Condition
(Dollars in millions)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/97 3/31/96 Change
-------- ------- -------
(Restated)
<S> <C> <C> <C>
Working capital $ 102.3 $ 144.7 -29%
Cash, cash equivalents and
cash investments $ 194.1 $ 204.1 -5%
Net cash provided (used) by
operating activities $ 19.9 ($8.3) *
Net cash used for investing
activities $ 17.4 $ 27.6 -37%
Net cash provided by
financing activities $ 20.5 $ 24.0 -14%
</TABLE>
* not meaningful
Net cash provided by operating activities was $19.9 million in the first quarter
of 1997 compared to $8.3 million used in the first quarter of 1996. Net cash
provided by operating activities during the first quarter of 1997 reflects a net
loss of $6.2 million compared to a net loss of $6.9 million in the first quarter
of 1996. Additionally, net cash provided by operating activities was impacted by
a decrease in accounts receivable of $25.4 million in the first quarter of 1997
compared to an increase of $12.1 million in the first quarter of 1996.
Net cash used for investing activities decreased to $17.4 million in the first
quarter of 1997 compared to $27.6 million in the first quarter of 1996.
Investing activities included capital expenditures of $11.6 million in the first
three months of 1997 compared to $22.6 million in the first three months of
1996, which reflect lower expenditures required to support the Company's
employee base around the world. The Company's headcount has been reduced to
5,471 at March 31, 1997 from 6,191 at March 31, 1996.
Net cash provided by financing activities for the first quarter of 1997 was
$20.5 million compared to $24.0 million in the first quarter of 1996. Financing
activities in both periods consisted of the issuance of common stock upon the
exercise of employee stock options and the sale of shares through employee stock
purchase plans, as well as an increase in other current liabilities of $9.7
million due to the restatement discussed above.
The Company engages in business operations around the world and is therefore
exposed to foreign currency fluctuations. As of March 31, 1997, the Company had
identifiable assets totaling $141.0 million associated with its European
operations and $100.7 million associated with its
17
<PAGE> 18
Intercontinental operations. The Company experiences foreign exchange
transaction exposures from short-term intercompany payables and receivables
denominated in different currencies. The Company hedges certain of these
short-term exposures under a plan approved by the Sybase Board of Directors (see
Note 2 of Notes to Consolidated Financial Statements of 1996 Sybase Annual
Report). The Company also experiences foreign exchange translation exposure on
its other net assets denominated in different currencies. Substantially all of
the other net assets were considered by Sybase, the U.S. parent company, to be a
permanent investment in each subsidiary. The foreign currency translation gains
and losses related thereto are reflected in stockholders' equity as part of
accumulated foreign currency translation adjustments.
Cash, cash equivalents, and cash investments totaled $194.1 million at March 31,
1997 compared to $204.1 million at March 31, 1996.
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.
18
<PAGE> 19
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 March 31, 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 (although revenues for the first quarter of 1997 were lower than expected
due to the accounting irregularities in the Company's Japanese subsidiary). 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 in each
of the past seven quarters compared to the year earlier periods. The Company may
not achieve, in the future, the relatively high rates of growth experienced by
the Company in 1991 through 1994 or the rates of growth projected for the
software markets in which Sybase competes.
Throughout 1996, the Company implemented a variety of changes to the sales
organization, including a new sales model, changes to sales compensation
programs, and an increased focus on sales through indirect channels. Although
such changes are intended to enhance overall revenues, such changes could, in
the short-run, materially and adversely affect the sales process and revenues.
For example, the Company believes that these changes may have contributed in
part to the lower than expected revenues in the first two quarters of 1996. In
the second quarter of 1996, the Company announced several other management and
organizational changes, including changes in the senior management of the sales
and marketing organizations. In the third quarter of 1996, Mitchell Kertzman
succeeded Mark Hoffman as the Company's President and Chief Executive
19
<PAGE> 20
Officer, with Mr. Hoffman continuing as the Company's Chairman of the Board.
Also in the third quarter of 1996 Jack Acosta became the Company's Chief
Financial Officer. 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.
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 and Argentina. 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. From the first quarter of 1997 the Company was
required to restate revenues due to accounting irregularities in the Company's
Japanese subsidiary.
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
20
<PAGE> 21
certain of the Company's database products, especially to the extent that market
acceptance for personal computer oriented technologies increases. A failure by
the Company to compete successfully with its existing competitors or with new
competitors could have a material adverse effect on the Company's business and
results of operations and on the market price of the Company's common stock.
Existing and future competition or changes by the Company in its product
offerings or product pricing structure could result in an immediate reduction in
the prices of the Company's products. The Company introduced changes in its
pricing and licensing structure in the first quarter of 1996 that increased the
prices for certain products or configurations and reduced the prices for other
products and configurations. The Company will introduce price and licensing
changes from time to time in the future. If recently implemented or future
changes in the Company's products, pricing structure, or existing or future
competition, for example from Microsoft, were to result in significant revenue
declines, the Company's business and financial results would be adversely
affected.
The Company's future results will depend in part on its ability to enhance its
existing products and to introduce new products, on a timely and cost-effective
basis, that meet dynamic customer requirements. Customer requirements for
products can rapidly change as a result of innovations or changes within the
computer hardware and software industries. For example, the widespread use of
the Internet is rapidly giving rise to new customer requirements as well as new
methods and practices of selling, marketing, and distributing products and
services. Sybase's future results will depend in part on its success in
developing new products, making generally available products that have been
previously announced, enhancing its existing products and adapting its existing
products to changing customer requirements, and ultimately on the market
acceptance received by such new or enhanced products. The Company has announced
the development and anticipated availability dates of several products -- for
example, PowerJ, a rapid application development tool for Java 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 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,
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
21
<PAGE> 22
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 RDBMS offered by the Company's competitors. Vendors of non-Sybase
RDBMSs and related products may become less willing in the future to provide the
Company with access to products, technical information, and marketing and sales
support. If existing and potential customers of the Company who use non-Sybase
RDBMSs refrain from purchasing such products due to concerns that over time the
development, quality, and support of products for non-Sybase RDBMSs will
diminish, the Company's business, results of operations, and financial condition
could be materially and adversely affected.
Commercial acceptance of the Company's products and services could be adversely
affected by critical or negative statements or reports by brokerage firms,
industry and financial analysts, and industry periodicals concerning the Company
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 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.
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. 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 and 1997, 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(TM) products) from its Emeryville,
California, distribution facility. Because of the pattern
22
<PAGE> 23
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 two distributors in Latin America in the
first quarter of 1997. The Company will 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.
As previously announced, the Company's restatement of its interim financial
statements for 1997 reflects significant reductions in reported earned income
and resulted in net losses for each of the previously reported quarters. In
addition, the restatement negatively impacted working capital throughout 1997.
The Company's public announcement of the pending restatement of its interim
financial statements and the related uncertainty regarding the Company's
financial condition may adversely affect the Company's ability to market its
products. The Company is unable to estimate the amount of any additional
financial exposure from possible claims that might be asserted as a result of
the restatement of its interim financial statements for 1997. These factors may
have a material adverse effect on the Company's business, including its
financial condition and results of operations.
23
<PAGE> 24
PART II: OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2(1) Bylaws, as amended
11.1 Supplemental Computations of Net Loss Per Share
27 Financial Data Schedule
(1) Incorporated by reference to exhibits filed in response to Item 6(a),
"Exhibits and Reports on Form 8-K" on Form 10-Q for the quarter ended March 31,
1997.
(b) Reports on Form 8-K:
None.
24
<PAGE> 25
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.
March 24, 1998 SYBASE, INC.
By /s/ JACK L. ACOSTA
-------------------------------
Jack L. Acosta
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
By /s/ PIETER VAN DER VORST
-------------------------------
Pieter Van der Vorst
Vice President, and
Corporate Controller
(Principal Accounting Officer)
25
<PAGE> 26
EXHIBIT INDEX TO SYBASE, INC.
QUARTERLY REPORT ON FORM 10-Q/A
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.2(1) Bylaws, as amended
11.1 Supplemental Computations of Net Loss Per Share
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to exhibits filed in response to Item 6(a),
"Exhibits and Reports on Form 8-K" on Form 10-Q for the quarter ended March 31,
1997.
26
<PAGE> 1
EXHIBIT 11.1
Sybase, Inc.
SUPPLEMENTAL COMPUTATIONS OF NET LOSS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1997 1996
-------- --------
(Restated) (Restated)
<S> <C> <C>
Weighted average common shares
outstanding for the period 77,504 73,630
======== ========
Net Loss ($ 6,160) ($ 6,906)
======== ========
Net loss per share-basic and diluted ($ 0.08) ($ 0.09)
======== ========
</TABLE>
The effect of employee stock options has not been included in the calculation of
net loss per share as their inclusion would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
RESTATED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SYBASE INC. AS OF MARCH
31, 1997 AND 1996 AD FOR THE THREE MONTHS PERIODS THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-01-1996
<CASH> 176,260 167,838
<SECURITIES> 17,798 36,226
<RECEIVABLES> 246,932 223,575
<ALLOWANCES> 35,052 18,617
<INVENTORY> 0 0
<CURRENT-ASSETS> 447,267 453,963
<PP&E> 414,967 357,147
<DEPRECIATION> (233,318) (157,170)
<TOTAL-ASSETS> 758,408 767,443
<CURRENT-LIABILITIES> 344,955 309,236
<BONDS> 0 0
0 0
0 0
<COMMON> 78 74
<OTHER-SE> 410,379 451,766
<TOTAL-LIABILITY-AND-EQUITY> 758,408 767,443
<SALES> 127,392 147,945
<TOTAL-REVENUES> 232,201 243,664
<CGS> 8,058 7,117
<TOTAL-COSTS> 184,533 193,549
<OTHER-EXPENSES> 52,663 61,817
<LOSS-PROVISION> 401 1,106
<INTEREST-EXPENSE> 140 86
<INCOME-PRETAX> (3,989) (9,208)
<INCOME-TAX> 2,171 (2,302)
<INCOME-CONTINUING> (6,160) (6,906)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,160) (6,906)
<EPS-PRIMARY> (0.08) (0.09)<F1>
<EPS-DILUTED> (0.08) (0.09)
<FN>
<F1>REFLECTS BASIC EPS ACCORDING TO SFAS 128, EARNINGS SHARE
</FN>
</TABLE>
