<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 March 31, 1999
[ ] 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 March 31, 1999, 82,389,602 shares of the Registrant's Common Stock, $.001 par
value, were outstanding.
<PAGE> 2
SYBASE, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 1999 and 3
December 31, 1998
Condensed Consolidated Statements of Operations for the three months 4
ended March 31, 1999 and March 31, 1998
Condensed Consolidated Statements of Stockholders' Equity for the three 5
months ended March 31, 1999 and March 31, 1998
Condensed Consolidated Statements of Cash Flows for the three months 6
ended March 31, 1999 and March 31, 1998
Notes to Condensed Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 25
Signature 26
Exhibit Index 27
</TABLE>
2
<PAGE> 3
ITEM 1: FINANCIAL STATEMENTS
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands, except share and per share data) 1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 234,700 $ 224,665
Short-term cash investments 20,651 23,967
------------ ------------
Total cash, cash equivalents and short-term cash investments 255,351 248,632
Accounts receivable, net 153,982 199,303
Deferred income taxes 20,903 20,903
Other current assets 10,913 8,862
------------ ------------
Total current assets 441,149 477,700
Long-term cash investments 41,777 981
Property, equipment and improvements, net 90,682 101,433
Deferred income taxes 20,177 20,152
Capitalized software, net 35,199 35,773
Other assets 61,275 60,565
------------ ------------
Total assets $ 690,259 $ 696,604
============ ============
Current liabilities:
Accounts payable $ 8,500 $ 12,747
Accrued compensation and related expenses 44,634 49,061
Accrued income taxes 28,977 26,736
Other accrued liabilities 101,800 112,856
Deferred revenue 190,454 190,631
Other current liabilities 1,311 1,490
------------ ------------
Total current liabilities 375,676 393,521
Other liabilities 2,054 2,011
Commitments and contingent liabilities
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; 82,495,755 shares issued and 82,389,602
outstanding (1998-81,769,334 shares issued and 81,169,334
outstanding) 82 82
Additional paid-in capital 421,622 416,501
Accumulated deficit (96,596) (102,471)
Accumulated other comprehensive loss (11,746) (9,702)
Cost of 106,153 shares of treasury stock (1998-600,000 shares) (833) (3,338)
------------ ------------
Total stockholders' equity 312,529 301,072
------------ ------------
Total liabilities and stockholders' equity $ 690,259 $ 696,604
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
(In thousands, except per share data) 1999 1998
--------- ---------
<S> <C> <C>
Revenues:
License fees $ 98,270 $ 96,004
Services 109,998 110,813
--------- ---------
Total revenues 208,268 206,817
Costs and expenses:
Cost of license fees 12,296 10,098
Cost of services 54,042 62,782
Sales and marketing 81,285 108,434
Product development and engineering 37,178 37,133
General and administrative 17,051 16,425
Cost of restructuring -- 51,694
--------- ---------
Total costs and expenses 201,852 286,566
--------- ---------
Operating income (loss) 6,416 (79,749)
Interest income 3,287 2,702
Interest expense and other, net (247) (627)
--------- ---------
Income (loss) before income taxes 9,456 (77,674)
Provision for income taxes 3,581 3,520
--------- ---------
Net income (loss) $ 5,875 $ (81,194)
========= =========
Basic net income (loss) per share $ 0.07 $ (1.01)
========= =========
Shares used in computing basic net income (loss) per share 81,781 80,409
========= =========
Diluted net income (loss) per share $ 0.07 $ (1.01)
========= =========
Shares used in computing diluted net income (loss) per share 82,924 80,409
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SYBASE, INC.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Additional Other
------------------- Paid-In Accumulated Comprehensive Treasury
(In thousands) Shares Amount Capital Deficit Loss Stock Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 79,998 $ 80 $ 397,925 $ (9,343) $ (17,147) -- $ 371,515
Common stock issued under stock
option and stock purchase plans 825 1 7,211 -- -- -- 7,212
----------------------------------------------------------------------------------
Subtotal 80,823 81 405,136 (9,343) (17,147) -- 378,727
----------------------------------------------------------------------------------
Net loss -- -- -- (81,194) -- -- (81,194)
Foreign currency translation adjustment -- -- -- -- (1,915) -- (1,915)
----------------------------------------------------------------------------------
Comprehensive loss (83,109)
----------------------------------------------------------------------------------
Balances at March 31, 1998 80,823 $ 81 $ 405,136 $ (90,537) $ (19,062) -- $ 295,618
==================================================================================
Balances at December 31, 1998 81,169 $ 82 $ 416,501 $(102,471) $ (9,702) $ (3,338) $ 301,072
Common stock issued under stock
option and stock purchase plans 1,358 -- 5,121 -- -- 3,584 8,705
Purchase of treasury stock (137) -- -- -- -- (1,079) (1,079)
----------------------------------------------------------------------------------
Subtotal 82,390 82 421,622 (102,471) (9,702) (833) 308,698
----------------------------------------------------------------------------------
Net income -- -- -- 5,875 -- -- 5,875
Foreign currency translation adjustment -- -- -- -- (2,044) -- (2,044)
----------------------------------------------------------------------------------
Comprehensive income 3,831
----------------------------------------------------------------------------------
Balances at March 31, 1999 82,390 $ 82 $ 421,622 $ (96,596) $ (11,746) $ (833) $ 312,529
==================================================================================
</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,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash and cash equivalents, beginning of year $ 224,665 $ 188,876
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 5,875 (81,194)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 23,889 30,476
Write off of assets in restructuring -- 23,126
Loss on disposal of assets 2,672 --
Deferred income taxes (24) --
Changes in assets and liabilities:
Accounts receivable 44,340 9,430
Other current assets (3,098) (8,161)
Accounts payable (4,247) (11,535)
Accrued compensation and related expenses (4,427) (2,252)
Accrued income taxes 2,241 (3,716)
Other accrued liabilities (8,447) 12,183
Deferred revenues (177) 1,491
Other 21 (176)
--------- ---------
Net cash provided by (used for) operating activities 58,618 (30,328)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash deposits -- (13,276)
Purchases of available-for-sale cash investments (46,759) (14,319)
Maturities of available-for-sale cash investments 6,784 11,742
Sales of available-for-sale cash investments 2,495 7,009
Business combinations, net of cash acquired (8,047) (5,000)
Purchases of property, equipment and improvements (4,551) (9,262)
Capitalized software development costs (4,103) (3,619)
Decrease in other assets 2,512 314
--------- ---------
Net cash used for investing activities (51,669) (26,411)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in other current liabilities (157) (10,862)
Proceeds from issuance of common stock 8,705 7,212
Purchase of treasury stock (1,079) --
--------- ---------
Net cash provided by (used for) financing activities 7,469 (3,650)
Effect of exchange rate changes on cash (4,383) (5,773)
--------- ---------
Net increase (decrease) in cash and cash equivalents 10,035 (66,162)
Cash and cash equivalents, end of period 234,700 122,714
Cash investments, end of period 62,428 52,827
--------- ---------
Total cash, cash equivalents, and cash investments,
end of period $ 297,128 $ 175,541
========= =========
Supplemental disclosures:
Interest paid $ 11 $ 298
========= =========
Income taxes paid $ 3,582 $ 6,908
========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
SYBASE, INC.
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements include the accounts of Sybase, Inc. and its subsidiaries
("Sybase" or the "Company"), 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, stockholders' equity and cash flows as of and for the dates and
periods stated. The condensed consolidated balance sheet as of December 31, 1998
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 included in its Annual Report to
Stockholders for the year ended December 31, 1998. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of results
for the entire fiscal year ending December 31, 1999.
2. Business Combinations. In February, 1999, the Company acquired Data Warehouse
Network (DWN), an Ireland-based, privately held provider of packaged,
industry-specific business intelligence applications. Under terms of the
acquisition agreement, the Company paid $2.7 million in cash for certain assets
and assumed certain liabilities of DWN. In addition, pursuant to the terms of
the agreement, the Company is obligated to make contingent payments based on
certain agreed upon performance criteria. The maximum additional amount payable
over an aggregate three-year period is $5.3 million. The transaction was
accounted for as a purchase. Of the amount paid, $2.7 million was allocated to
purchased software and intangible assets. The results of operations of DWN are
not material in relation to those of the Company and are included in the
consolidated results of operations for periods subsequent to the acquisition
date.
In March, 1999, the Company paid $5.4 million for Convertible Secured Promissory
Notes due December 31, 2002 issued by Demica PLC (Demica), a provider of a
wholesale banking application using the Company's technology. The notes bear
interest at 8 percent per annum and are convertible into 29.9 percent of the
share capital of Demica. The Company accounts for this entity under the equity
method of accounting.
On February 2, 1998, Sybase acquired Intellidex Systems, L.L.C. (Intellidex), a
provider of meta data management technology for deploying and managing data
warehouse environments. Under terms of the acquisition agreement, Sybase paid
$5,000,000 in cash for certain assets and assumed certain liabilities of
Intellidex. Of the amount paid, $3,737,000, was allocated to purchased software
and the balance of $1,263,000 was allocated to intangible assets. In addition,
pursuant to the terms of the agreement, Sybase is obligated to make contingent
payments based on certain agreed upon performance criteria. The maximum
additional amount payable over an aggregate three-year period is equal to
$10,000,000. The transaction was accounted for as a purchase. The results of
operations of Intellidex are not material in relation to those of the Company
and are included in the consolidated results of operations for periods
subsequent to the acquisition date.
7
<PAGE> 8
SYBASE, INC.
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Restructuring Costs. In February 1998, the Company announced and began to
implement a restructuring plan aimed at reducing costs, restoring profitability
to operations and focusing the Company's products around its core businesses.
This restructuring activity consisted primarily of terminating 1,097 employees
company-wide, 1,039 of which were terminated by March 31, 1999, terminating
certain product lines, vacating certain facilities and canceling real estate
leases as a result of the employee terminations. Through March 31, 1999, these
actions resulted in aggregate charges of $74,167,000, of which $23,289,000 was
paid during 1998 and $7,637,000 was paid during the three months ended March 31,
1999.
The following table summarizes the activity related to the restructuring
liability for the three months ended March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Accrued Amounts Accrued
Liabilities at Paid or Liabilities at
December 31, 1998 Written off March 31,1999
----------------- ----------- --------------
<S> <C> <C> <C>
Severance and related charges $12,483 $ 6,605 $ 5,878
Lease cancellations and commitments 9,538 1,571 7,967
Write-off on disposal of assets and other 5,297 3,635 1,662
------- ------- -------
$27,318 $11,811 $15,507
======= ======= =======
</TABLE>
The Company expects that the remaining $15,507,000 accrued liability balance at
March 31, 1999 will be expended over the next nine months.
4. Net income (loss) per share. Shares used in computing basic and diluted net
income (loss) per share are based on the weighted average shares outstanding in
each period, excluding treasury stock. Basic net income (loss) per share
excludes any dilutive effects of stock options. Diluted net income (loss) per
share includes the dilutive effect of the assumed exercise of stock options
using the treasury stock method. The following table shows the computation of
basic and diluted net income (loss) per share:
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Three
Months Months
Ended Ended
3/31/99 3/31/98
-------- --------
<S> <C> <C>
Net income (loss) $ 5,875 $(81,194)
Shares used in computing basic net income (loss) per share 81,781 80,409
Effect of dilutive securities - stock options 1,143 --(a)
-------- --------
Shares used in computing diluted net income (loss) per share 82,924 80,409
Basic net income (loss) per share $ 0.07 $ (1.01)
======== ========
Diluted net income (loss) per share $ 0.07 $ (1.01)
======== ========
</TABLE>
(a) The effect of outstanding stock options is excluded from the calculation of
diluted net loss per share as their inclusion would be antidilutive.
8
<PAGE> 9
SYBASE, INC.
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. New Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" (Statement
133). The Company is required to adopt this statement for the year ending
December 31, 2000. Statement 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The Company has not determined
the effect, if any, that adoption will have on its financial position or results
of operations.
The Company adopted Statement of Position 97-2, "Software Revenue Recognition,"
("SOP 97-2") and Statement of Position 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4") as of
January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing revenue
on software transactions and supersede Statement of Position 91-1, "Software
Revenue Recognition" ("SOP 91-1"). The adoption of SOP 97-2 and SOP 98-4 did not
have a material impact on the Company's financial results. However, full
implementation guidelines for these standards have not been issued. Once
available, the current revenue recognition accounting practices may need to
change and such changes could affect the Company's future revenues and results
of operations.
In December 1998, the American Institute of Certified Public accountants issued
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends
SOP 98-4 to extend the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4 through fiscal years beginning after March 15, 1999.
The Company has not yet determined the effect of the final adoption of SOP 98-9
on its future revenues and results of operations.
6. Segment Information. The Company helps businesses integrate, manage and
deliver applications, content and data anywhere they are needed. The Company's
software products, combined with its professional services and partner
technologies, provide a comprehensive platform for delivering the integrated
solutions businesses need to be successful. Leveraging its existing strengths in
enterprise data management and enterprise application development, the Company
is focused on delivering end-to-end solutions for mobile and embedded computing,
data warehousing and Web computing environments.
The Company is organized into four separate business divisions which provide the
foundation for its operational structure. Each of these divisions maintain its
own profit and loss accountability, dedicated product development and
engineering, sales and product marketing, partner relationship management and
customer support teams.
The Company's Enterprise Solutions Division (ESD) delivers the products and
professional services that businesses require for developing and maintaining
operational systems. The Company's Mobile and Embedded Computing Division (MEC)
provides solutions which enable
9
<PAGE> 10
SYBASE, INC.
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
customers to synchronize data seamlessly across their mobile business systems,
from laptops, to handheld computing devices and pagers, to intelligent
appliances. The Company's Internet Applications Division (IAD) delivers a
combination of technologies, consulting, training and technical support designed
to help businesses develop and deploy complex internet-enabled applications. The
Company's Business Intelligence Division (BID) combines technology with business
strategy to give customers a database management system specifically designed
for warehousing and a full suite of warehouse design tools and central meta data
management facilities.
Beginning in the first quarter of 1999, the Company reported its ESD, MEC and
IAD divisions as reportable segments. The Company combined the results of
operations of its BID division with ESD in accordance with the aggregation
criteria specified in Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
The Company has not presented the reportable segments discussed above for the
three months ended March 31, 1998 as the Company did not launch these segments
until 1999 and it is impractical to restate prior periods on this basis. The
Company identified two reportable segments in 1998, license fees and
professional services. The Company's statements of operations disclose the
available data for the two reportable segments identified above for the three
months ended March 31, 1999 and 1998.
In 1999, the Company's Chief Operating Decision Maker ("CODM"), which is the
President and Chief Executive Officer, evaluates performance based upon a
measure of segment operating profit or loss which includes an allocation of
common operating costs and expenses. Segment revenue includes transactions
between the segments. These revenues are transferred to the applicable segments
less amounts retained which are intended to reflect the costs incurred by the
transferring segment. Allocated common costs and expenses are allocated on
measurable drivers of expense. Unallocated costs and expenses represent
corporate expenditures which are not specific to the segments. The Company's
CODM does not view segment results below operating profit (loss), therefore,
interest income, interest expense and other, net and the provision for income
taxes are not broken out by segment. In 1998, the CODM evaluated performance
based upon a measure of segment gross profit or loss. The Company does not
account for or report to the CODM its assets or capital expenditures by segment.
10
<PAGE> 11
SYBASE, INC.
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of the segment financial information reported to the CODM for the
three months ended March 31, 1999 is presented below:
<TABLE>
<CAPTION>
(in thousands) Consolidated
ESD IAD MEC Elimination Total
-------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees $ 74,348 $ 15,360 $ 8,562 -- $ 98,270
Services 109,998 -- -- -- 109,998
Direct revenues from external customers 184,346 15,360 8,562 -- 208,268
Intersegment revenues 300 8,196 7,154 (15,650) --
Total revenues 184,646 23,556 15,716 (15,650) 208,268
Total allocated costs and expenses 173,993 19,740 12,571 (15,650) 190,654
Operating income before unallocated expenses 10,653 3,816 3,145 -- 17,614
Unallocated expenses 11,198
Operating income 6,416
Interest income and expense, net 3,040
Income before income taxes 9,456
</TABLE>
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVENUES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
-------- -------- -------
<S> <C> <C> <C>
License fees $ 98.3 $ 96.0 2%
Percentage of total revenues 47% 46%
Services $ 110.0 $ 110.8 (1%)
Percentage of total revenues 53% 54%
Total revenues $ 208.3 $ 206.8 1%
</TABLE>
Total revenues for the three months ended March 31, 1999 increased 1 percent to
$208.3 million as compared to $206.8 million for the three months ended March
31, 1998. License fees revenues increased 2% to $98.3 million in the three
months ended March 31, 1999, up from $96.0 million achieved in the three months
ended March 31, 1998. Services revenue decreased 1 percent to $110.0 million for
the three months ended March 31, 1999 as compared to $110.8 million in the three
months ended March 31, 1998. Services revenues consist primarily of consulting,
education and other services related to the development and deployment of
applications using the Company's software products, and product support and
maintenance fees. Services revenues as a percentage of total revenues decreased
to 53 percent for the three months ended March 31, 1999 as compared to 54
percent for the three months ended March 31, 1998.
GEOGRAPHICAL REVENUES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
------- ------- -------
<S> <C> <C> <C>
North America $ 127.1 $ 121.1 5%
Percentage of total revenues 61% 59%
International
Europe $ 56.9 $ 62.9 (10%)
Percentage of total revenues 27% 30%
Intercontinental $ 24.3 $ 22.8 7%
Percentage of total revenues 12% 11%
Total International $ 81.2 $ 85.7 (5%)
Percentage of total revenues 39% 41%
Total revenues $ 208.3 $ 206.8 1%
</TABLE>
12
<PAGE> 13
North American revenues (United States, Canada and Mexico) increased 5 percent
to $127.1 million during the three months ended March 31, 1999 as compared to
$121.1 million during the three months ended March 31, 1998. This increase was
primarily due to higher license fees revenue in North America. International
revenues decreased 5 percent for the three months ended March 31, 1999 to $81.2
million from $85.7 million for the three months ended March 31, 1998. European
revenues decreased 10 percent for the three months March 31, 1999 compared to
the same period of 1998. The decrease in European revenues was due to lower
license fees revenue. Intercontinental revenues (Japan, Asia Pacific and South
America) increased 7 percent for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998. The increase in
Intercontinental revenues is due to higher license fees revenue as well as
higher services revenue.
International revenues were 39 percent of total revenues for the three months
ended March 31, 1999, compared to 41 percent for the three months ended March
31, 1998
Although the Company takes into account changes in exchange rates over time in
its pricing strategy, the Company's business and results of operations could be
materially and adversely affected by unanticipated fluctuations in foreign
currency exchange rates. Changes in foreign currency exchange rates, the
strength of local economies, and the general volatility of software markets may
result in a higher or lower proportion of foreign revenues as a percentage of
total revenues in the future.
COSTS AND EXPENSES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
------- ------- -------
<S> <C> <C> <C>
Cost of license fees $ 12.3 $ 10.1 22%
Percentage of license fees revenues 13% 11%
Cost of services $ 54.0 $ 62.8 (14%)
Percentage of services revenues 49% 57%
Sales and marketing $ 81.3 $ 108.5 (25%)
Percentage of total revenues 39% 52%
Product development and Engineering $ 37.2 $ 37.1 --
Percentage of total revenues 18% 18%
General and administrative $ 17.1 $ 16.4 4%
Percentage of total revenues 8% 8%
Cost of restructuring -- $ 51.7 --
Percentage of total revenues -- 25%
</TABLE>
Cost of License Fees. Cost of license fees, consists primarily of product costs
(media and documentation), amortization of purchased software and capitalized
software development costs and third-party royalty costs. These costs increased
to $12.3 million for the three months ended
13
<PAGE> 14
March 31, 1999, up from $10.1 million for the three months ended March 31, 1998.
These costs were 13 percent and 11 percent of license fees revenue for the three
months ended March 31, 1999 and 1998, respectively. The increase in the cost of
license fees was primarily due to an increase in royalties payable to third
parties. Amortization of capitalized software costs included in cost of license
fees was $5.1 million for the three months ended March 31, 1999 as compared to
$5.4 million in the three months ended March 31, 1998.
Cost of Services. Cost of services consists primarily of maintenance, consulting
and education expenses and, to a lesser degree, services-related product costs
(media and documentation). These costs decreased 14 percent to $54.0 million in
the three months ended March 31, 1999 as compared to $62.8 million in the three
months ended March 31,1998. These costs were 49 percent and 57 percent of
services revenues in the three months ended March 31, 1999 and 1998,
respectively. The decrease in cost of services in absolute dollars and as a
percentage of services revenues is primarily due to the Company's restructuring
program initiated in 1998.
Sales and Marketing. Sales and marketing expenses decreased 25% to $81.3 million
in the three months ended March 31, 1999 as compared to $108.5 million in the
three months ended March 31, 1998. These costs decreased as a percentage of
total revenues to 39 percent in the three months ended March 31, 1999 as
compared to 52 percent in the three months ended March 31, 1998. This decrease
in sales and marketing expense in absolute dollars and as a percent of total
revenues is primarily due to the Company's restructuring program initiated in
1998.
Product Development and Engineering. Product development and engineering
expenses (net of capitalized software development costs) increased to $37.2
million in the three months ended March 31, 1999 as compared to $37.1 million in
the three months ended March 31, 1998. These costs represented 18 percent of
total revenues in both periods. The Company capitalized approximately $4.1
million of software development costs in the three months ended March 31, 1999
as compared to $3.6 million in the three months ended March 31, 1998. In the
first quarter of 1999, capitalized software costs included costs incurred for
the development of Adaptive Server(R) Enterprise 12.0 and Enterprise Application
Studio(TM) 3.0. The Company believes that product development and engineering
expenditures are essential to technology and product leadership and expects
product development and engineering expenditures to continue to be significant,
both in absolute dollars and as a percentage of total revenues.
General and Administrative. General and administrative expenses represented 8
percent of total revenues in the three months ended March 31, 1999 and 1998.
These expenses remained relatively flat in absolute dollars with $17.1 million
incurred in the three months ended March 31, 1999 as compared to $16.4 in the
three months ended March 31, 1998.
Cost of Restructuring. In February 1998, the Company announced and began to
implement a restructuring plan aimed at reducing costs and focusing the
Company's products and personnel around its core businesses. The Company's
restructuring actions consisted primarily of terminating certain product lines,
terminating employees and vacating certain facilities, and canceling real estate
leases as a result of employee terminations. These actions resulted in a charge
to operations in the first quarter of 1998 of approximately $51.7 million,
including approximately $12.1 million for employee severance and related items,
$15.5 million for facilities
14
<PAGE> 15
consolidation, and $24.1 million for disposition expenses and write-off of
capitalized software development costs related to discontinued products and
other restructuring related items.
OPERATING INCOME (LOSS)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
------- ------- -------
<S> <C> <C> <C>
Operating income (loss) $ 6.4 $ (79.7) *
Percentage of total revenues 3% 39%
Operating income (loss) exclusive of cost of
restructuring $ 6.4 $ (28.0) *
Percentage of total revenues 3% 14%
</TABLE>
- ---------------
* Not meaningful
Operating income was $6.4 million for the three months ended March 31, 1999
compared to an operating loss of $28.0 million (exclusive of $51.7 million in
cost of restructuring) in the three months ended March 31, 1998. This increase
is primarily due to a reduction in expenses associated with the Company's
restructuring plan implemented in 1998.
OTHER INCOME AND EXPENSE, NET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
------- ------- -------
<S> <C> <C> <C>
Interest income $ 3.3 $ 2.7 22%
Percentage of total revenues 2% 1%
Interest expense and other, net $ (0.2) $ (0.6) 61%
Percentage of total revenues * *
</TABLE>
- ---------------
* Not meaningful
Other income and expense, net consists primarily of interest earned on cash
investments, expenses from bank fees and net gains and losses resulting from the
Company's foreign currency transactions and the related hedging activities
including the cost of hedging foreign currency exposures. Interest income in
absolute dollars for the three months ended March 31, 1999 increased $0.6
million as compared to the three months ended March 31,1998. This increase is
due primarily to larger average invested cash balances in 1999. The decrease in
interest expense and other, net in absolute dollars for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998 is primarily
due to lower net cost of hedging activities.
15
<PAGE> 16
PROVISION FOR INCOME TAXES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
------- ------- -------
<S> <C> <C> <C>
Provision for income taxes $3.6 $3.5 2%
</TABLE>
The Company recorded income tax provisions of $3.6 million in the three months
ended March 31, 1999 as compared $3.5 million in the three months ended March
31, 1998. The income tax provisions for these periods are primarily the result
of tax on earnings generated from operations and withholding taxes on revenues
in certain international jurisdictions.
The Company has a net deferred tax asset of $41.1 million at March 31, 1999. The
deferred tax asset includes a valuation allowance of $42.6 million. Realization
of the Company's net deferred tax assets 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 a material
adverse impact on the Company's effective tax rate and results of operations in
future periods.
NET INCOME (LOSS) PER SHARE
(DOLLARS AND SHARES IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
------- ------- -------
<S> <C> <C> <C>
Net income (loss) $5.9 $(81.2) *
Percentage of total revenues 3% -39%
Basic and diluted net income (loss) per share $0.07 $(1.01) *
Shares used in computing basic net income
(loss) per share 81.8 80.4 2%
Shares used in computing diluted net income
(loss) per share 82.9 80.4 3%
</TABLE>
- ---------------
* Not meaningful
The Company reported net income of $5.9 million in the three months ended March
31, 1999 as compared to a net loss of $81.2 million in the three months ended
March 31, 1998. The net loss in the three months ended March 31, 1998 includes a
cost of restructuring of $51.7 million. The increase in net income for the three
months ended March 31, 1999 as compared to the same period of 1998 is primarily
due to the implementation of the restructuring plan which occurred in the first
and fourth quarters of 1998. This program was aimed at reducing costs, restoring
profitability to operations and realigning the Company's sales force, product
teams and professional services into four new divisions, each focused upon one
of four key markets: Enterprise Solutions, Mobile and Embedded Computing,
Internet Applications and Business Intelligence. The basic and diluted net
income per share was $0.07 for the three months ended
16
<PAGE> 17
March 31, 1999 compared to a net loss per share of $1.01 for the three months
ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended Percent
3/31/99 3/31/98 Change
------- ------- -------
<S> <C> <C> <C>
Working capital $ 65.5 $ (2.4) *
Cash, cash equivalents and cash investments $297.1 $175.5 69%
Net cash provided by (used for) operating activities $ 58.6 $(30.3) 293%
Net cash used for investing activities $ 51.7 $ 26.4 96%
Net cash provided by (used for) financing activities $ 7.5 $ (3.7) 303%
</TABLE>
- ---------------
* Not meaningful
Net cash provided by operating activities was $58.6 million for the three months
ended March 31, 1999 compared to net cash used for operating activities of $30.3
million for the three months ended March 31, 1998. Depreciation and amortization
charges, which are included in the net results of operations, but do not require
the use of cash, amounted to $23.9 million for the three months ended March 31,
1999 compared to $30.5 million in the three months ended March 31, 1998. This
decrease in depreciation and amortization was primarily due to the write-off of
assets in connection with the restructuring plan implemented during 1998.
Additionally, net cash provided by operating activities reflects a decrease in
accounts receivable of $44.3 million in the three months ended March 31, 1999 as
compared to a decrease of $9.4 million in the three months ended March 31, 1998.
Net cash used for investing activities increased to $51.7 million for the three
months ended March 31, 1999 compared to net cash used for investing activities
of $26.4 million in the three months ended March 31, 1998. Investing activities
included capital expenditures of $4.6 million for the three months ended March
31, 1999 compared to $9.3 million in the same period for 1998. This decrease in
1999 reflects a reduction in capital expenditures required to support the
Company's employee base as well as in systems and infrastructure investments.
The Company's headcount was reduced to 4,133 at March 31, 1999 from 5,152 at
March 31, 1998. Additionally, for the three months ended March 31, 1999,
investing activities included $8.0 million of cash used for business
combinations compared to $5.0 million in the three months ended March 31, 1998,
as well as net purchases of investments amounting to $37.5 million in the three
months ended March 31, 1999 compared to net redemptions of $4.4 million in the
three months ended March 31, 1998. Also, in the three months ended March 31,
1998, the Company collateralized its obligation to a lessor by pledging $13.3
million in cash deposits.
Net cash provided by financing activities for the three months ended March 31,
1999 was $7.5 million compared to net cash used for financing activities of $3.7
million in the same period for 1998. The net cash provided by financing
activities for the three months ended March 31, 1999 was due primarily to the
issuance of common stock associated with the Company's stock option and employee
stock purchase plans.
17
<PAGE> 18
The Company engages in business operations around the world and is therefore
exposed to foreign currency fluctuations. As of March 31, 1999, the Company had
identifiable assets totaling $151.8 million associated with its European
operations and $70.0 million associated with its Intercontinental operations.
The Company experiences foreign exchange transaction exposure from certain
balances denominated in different currencies. The Company hedges certain of
these short-term exposures under a plan approved by the Board of Directors (see
Note 1 of Notes to Consolidated Financial Statements in the 1998 Sybase Annual
Report to Stockholders). The Company also experiences foreign exchange
translation exposure on its net assets denominated in different currencies. As
certain of these net assets are considered by Sybase, Inc., the U.S. parent
company, to be a permanent investment in the respective subsidiaries, the
related foreign currency translation gains and losses are reflected in an
accumulated other comprehensive loss account in stockholders' equity.
Cash, cash equivalents and cash investments totaled $297.1 million at March 31,
1999, compared to $175.5 million at March 31, 1998.
During the first quarter of 1999, the Company repurchased an additional 137,500
shares of its common stock for $1.1 million pursuant to the Board of Directors'
authorization on February 18, 1998 to repurchase up to $25.0 million of the
Company's outstanding common stock.
The Company believes that it has the financial resources needed to meet its
presently anticipated business requirements, including capital expenditures and
strategic operating programs, for the foreseeable future.
FUTURE OPERATING RESULTS
The Company's future operating results may vary substantially from period to
period. The 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
significant risks, including but not limited to the specific risks identified
below. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of results for the year ending December 31, 1999 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 revenues from license fees 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 generally experienced a
seasonal pattern of license fees 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. 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
18
<PAGE> 19
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
license fees 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 quarter of 1998. Failure to achieve revenues, earnings,
and other operating and financial results as forecast or anticipated by
brokerage firms and industry analysts have previously resulted in, and in the
future could result in, an immediate and substantial adverse effect on the
market price of the Company's stock. The Company may not achieve, in the future,
the relatively high rates of growth experienced by the Company in and prior to
1994 or the rates of growth projected for the software markets in which Sybase
competes.
The Company recently realigned its sales force, product teams and professional
services capabilities into four new divisions, each one focused upon one of four
key markets: Enterprise Solutions, Mobile and Embedded Computing, Internet
Applications and Business Intelligence. This reorganization took effect in
January 1999. Although such changes are intended to enhance overall revenues and
profitability, they could, in the short-term, materially and adversely affect
the sales process, revenues and results of operations. In 1998 and early 1999,
there were a number of changes in the Company's executive management. In the
fall of 1998, the Company completed an executive management transition pursuant
to which John Chen replaced Mitchell Kertzman as the Company's Chief Executive
Officer and Chairman of the Board. In early 1999, Pieter Van der Vorst became
the Company's Chief Financial Officer. The Company's divisional reorganization
also resulted in the appointment of one general manager for each division, and a
number of other executive reassignments at the end of 1998 and beginning of
1999. The Company will 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 the Company's results of
operations.
The market for the Company's stock is highly volatile. The trading price of the
Company's common stock has fluctuated widely in 1995 through 1999 and may
continue to fluctuate in the future 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 revenues and revenue growth rates for the
Company as a whole or for individual geographic areas, business units, products
or product categories, as well as other events or factors could also affect the
Company's stock prices. 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.
For example, due to a variety of factors, the Company's stock price declined
significantly during the first quarter of 1996 and the first quarter of 1998. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations that have particularly affected the
19
<PAGE> 20
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. In the first quarter of 1999,
revenues from its international operations represented 39 percent of the
Company's total revenues. During 1998, the Company closed subsidiaries in Mexico
and Thailand and began the process of closing its subsidiaries in Chile, Peru
and Venezuela. In addition, there have been several management and
organizational changes within the international operations. For example, during
1998 and in early 1999, the country managers in Australia, Switzerland and Japan
and the European General Manager resigned or were replaced. 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
or closure 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, the introduction of
the Euro currency unit, political instability in emerging markets, and
difficulties in staffing and managing foreign operations, as well as other risks
associated with international activities. For example, the economic unrest and
currency devaluations in Asia in late 1997 adversely affected collection of
receivables, particularly dollar denominated receivables and the recognition of
revenue in the fourth quarter of 1997 and during 1998.
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, Microsoft Corporation, Informix 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. In addition,
many of these competitors offer additional categories of products, such as
operating systems, that the Company does not offer and which may provide those
companies with a competitive advantage in various circumstances. New or enhanced
products, many of which have been announced and many of which are continually
introduced by existing or future competitors in the software industry, could
increase the competition faced by the Company's products from time to time and
result in greater price pressure on certain of the Company's products,
especially to the extent that market acceptance for personal computer-oriented
and Windows NT technologies increases at the expense of UNIX-based systems. 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.
The Company's future results of operations will depend in part on its ability to
enhance existing products and to introduce new products that meet dynamic
customer requirements on a timely and cost-effective basis. 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
20
<PAGE> 21
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.
During 1998, the Company achieved a number of milestones, including the shipment
to several application partners of Adaptive Server(R) Enterprise with row-level
locking capabilities. In October 1998, the Company also announced the general
availability of Adaptive Server(R) Anywhere for Windows CE. The Company has been
in the process of combining a number of its products into integrated product
sets such as Enterprise Application Studio(TM), which includes Jaguar CTS(TM)
and PowerDynamo(TM); and SQL Anywhere(TM) Studio, which includes Adaptive Server
Anywhere, InfoMaker(R) and jConnect(TM) for JBDC. Creation of such integrated
product sets is intended to enhance the ability of the Company's partners and
direct sales force to market and sell more complete solutions to customers in a
single package. While such integration is intended to improve productivity,
revenues and profitability, the elimination of the availability of individual
products subsumed within integrated product sets could have an adverse effect on
license fees and service revenues, particularly if such product sets are not
well received in the marketplace.
Sybase's results of operations will also depend increasingly on the ability of
its products to interoperate and perform well with existing and future leading,
industry-standard application software products intended to be used in
connection with relational database management systems (RDBMSs). Failure to meet
existing or future interoperability and performance requirements of certain
independent vendors marketing such applications in a timely manner has in the
past and could in the future adversely affect the market for Sybase's products.
Certain leading applications are not interoperable with Sybase RDBMSs, and
others may never be available on Sybase's RDBMSs. In addition, the Company's
application development tools, database design tools, and certain connectivity
products are designed for use with RDBMSs offered by the Company's competitors.
Vendors of non-Sybase RDBMSs and related products may become less willing in the
future to provide the Company with access to products, technical information,
and marketing and sales support. If existing and potential customers of the
Company who use non-Sybase RDBMSs refrain from purchasing such products due to
concerns that the development, quality, and support of products for non-Sybase
RDBMSs will diminish over time, the Company's business, results of operations,
and financial condition could be materially and adversely affected. The
Company's products are used by many customers to build and deploy their own
custom applications. Increased reliance on prepackaged applications and
diversion of internal information technology budgets to rectify Year 2000
compliance issues has and may in the future continue to have the effect of
reducing the internal development of custom applications overall. Such a
reduction has and may in the future continue to have a material and adverse
impact on the market for the Company's products and the Company's business,
results of operations and financial condition. Furthermore, many products
licensed by the Company contain components developed by third parties. If the
Company's products or such third party products are not Year 2000 compliant, or
cannot be determined to be compliant, market acceptance of the Company's
products could be adversely affected.
Commercial acceptance of the Company's products and services could be adversely
affected by critical or negative statements or reports by brokerage firms,
industry and financial analysts, and industry periodicals concerning the Company
and its products, business, or competitors, or by the advertising or marketing
efforts of competitors that could affect customer perception. In addition,
customer perception of Sybase and its products could be adversely affected by
financial results,
21
<PAGE> 22
particularly revenues and profitability, reported for the 1999 fiscal year or
future periods, by reductions in the applicable market share of the Company's
products and by related press reports.
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
1998 and early 1999, there were a number of changes in the Company's executive
management team. For example, in the fall of 1998, the Company completed an
executive management transition pursuant to which John Chen replaced Mitchell
Kertzman as the Company's Chief Executive Officer and Chairman of the Board and
in early 1999, Pieter Van der Vorst became the Company's Chief Financial
Officer. Moreover, in connection with the Company's reorganization into four
operating divisions and the appointment of one general manager for each
division, a number of executives changed responsibilities at the end of 1998 and
in early 1999. Further changes in management, the reduction in the overall
number of Sybase employees made during 1998, and the Company's financial and
stock price performance relative to companies with which Sybase competes for
employees, could affect the amount of employee turnover. The Company has
experienced in recent quarters a high rate of employee turnover. The failure to
effectively recruit, train, and retain qualified personnel or high rates of
employee turnover, particularly among consulting, engineering or sales staff,
could adversely affect the Company's product development efforts, sales of
products and services and other aspects of the Company's operations and results.
Sybase currently ships most of its products in North America from its
Emeryville, California and Massachusetts distribution facilities. Because of the
pattern of recording a high percentage of quarterly revenues within the last
two weeks of the quarter, the closure or inoperability of one or more of these
facilities (or a disruption of business operations generally) 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 and, therefore, on the overall results of operations for such quarter.
The Company has acquired a number of companies in the past. During 1998, the
Company acquired Intellidex Systems, L.L.C., a provider of meta data management
technology for deploying and managing data warehouse environments. In 1999, the
Company acquired Data Warehouse Network Limited, a provider of industry specific
data warehouse solutions and purchased a 29.9 percent interest in Demica PLC, a
provider of a wholesale banking application using the Company's technology. 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
22
<PAGE> 23
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 1998, the Company incurred restructuring charges of $74.2 million. The
Company does not currently anticipate that it will incur additional
restructuring charges in 1999. However, as this is a forward-looking statement,
future actual results may differ based on the actual results of operations
experienced in 1999 and the various factors described above that affect future
results.
Effective January 1, 1998, the Company adopted the American Institute of
Certified Public Accountants (AICPA) Statement of Position No. 97-2, "Software
Revenue Recognition" (SOP 97-2), which supercedes SOP 91-1 and which prohibits
the restatement of prior financial statements. SOP 97-2 addresses software
revenue recognition matters primarily from a conceptual level and detailed
implementation guidelines have not been issued. In March 1998, the AICPA issued
Statement of Position No. 98-4, "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition", which defers for one year the
application of certain provisions of SOP 97-2. These provisions limit what is
considered vendor-specific objective evidence of the fair value of the various
elements in a multiple-element arrangement. All other provisions of SOP 97-2
remain in effect. These and future changes to, and interpretations of,
accounting standards and rules could adversely affect the amount and timing of
recognition of revenue.
YEAR 2000
The Company is aware of and is addressing the issues associated with the
programming code in existing computer systems as the year 2000 approaches. The
"Year 2000" issue is pervasive and complex, as many computer systems will be
affected in some way by the rollover of the two-digit year value to 00. Systems
that do not properly recognize such information could generate erroneous data or
cause a system to fail. The "Year 2000" issue creates potential risk for the
Company from unforeseen problems in its own computer systems, from third parties
with whom the Company deals on financial transactions worldwide and in its own
software products licensed to customers. Failures of the Company's and/or third
parties' computer systems could have a material impact on the Company's ability
to conduct its business. Not all products previously licensed by the Company
meet current standards for Year 2000 compliance, and many of these products are
still in use by customers. Complex software products, such as the type licensed
by the Company and its competitors, generally are not completely free from
"bugs" and other defects. The existence of such "bugs" may give rise to legal
claims against the Company, notwithstanding standard provisions in the Company's
license agreements with its customers disclaiming express and implied warranties
against such errors. Such legal claims or claims that products previously
licensed by the Company are not Year 2000 compliant could have a material
adverse impact on the Company's business and results of operations.
As of March 1999, the Company completed its assessment of all of its critical
worldwide infrastructure systems (e.g., computer and telephone systems) and
business systems (e.g., revenue, sales and marketing and finance functions) and
also completed much of the remedial
23
<PAGE> 24
work necessary to make these systems Year 2000 compliant. The outstanding list
of such nonconforming applications and systems is small and the Company believes
it has identified upgrade or replacement solutions to make all of these systems
Year 2000 compliant. Most outstanding items are scheduled for installation of
certified upgrades from suppliers which have been received or are expected to be
received by May 1999, and the Company expects to effect all solutions by July
1999. The Company believes that the risk of Year 2000 problems in the Company's
internal applications has been low because the Company's systems are generally
run using its own technology and its partners' products, and relatively little
development work other than assessment and testing has been required to insure
Year 2000 compliance. Notwithstanding the foregoing, there is no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted and that they will not have an adverse effect on the Company's
systems. As such, the Company is in the process of developing a contingency plan
in the event its internal systems are not converted on a timely basis. The
Company does not believe that the cost of such actions will have a material
adverse effect on the Company's results of operations or financial condition.
There are no assurances, however, that there will not be a delay in, or
increased cost associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse effect on
future results of operations. Factors that could cause unusual costs and delays
include the availability and cost of personnel trained in this area, and the
ability to locate and correct all relevant computer codes and other
uncertainties.
24
<PAGE> 25
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
25
<PAGE> 26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
May 12, 1999 SYBASE, INC.
By /s/ PIETER VAN DER VORST
--------------------------------------------
Pieter Van der Vorst
Vice President and Chief Financial Officer
(Principal Financial Officer)
By /s/ MARTIN HEALY
--------------------------------------------
Martin Healy
Vice President and Corporate Controller
(Principal Accounting Officer)
26
<PAGE> 27
EXHIBIT INDEX TO SYBASE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SYBASE INC. AS OF MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 234,700
<SECURITIES> 20,651
<RECEIVABLES> 184,248
<ALLOWANCES> (30,266)
<INVENTORY> 0
<CURRENT-ASSETS> 441,149
<PP&E> 365,565
<DEPRECIATION> (274,883)
<TOTAL-ASSETS> 690,259
<CURRENT-LIABILITIES> 375,676
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 421,622
<TOTAL-LIABILITY-AND-EQUITY> 690,259
<SALES> 98,270
<TOTAL-REVENUES> 208,268
<CGS> 12,296
<TOTAL-COSTS> 147,623
<OTHER-EXPENSES> 54,229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 9,456
<INCOME-TAX> 3,581
<INCOME-CONTINUING> 5,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,875
<EPS-PRIMARY> 0.07<F1>
<EPS-DILUTED> 0.07
<FN>
<F1>REFLECTS BASIC EPS ACCORDING TO SFAS 128, EARNINGS PER SHARE.
</FN>
</TABLE>
