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EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
The unaudited pro forma condensed combining financial information for Sybase,
Inc.("Sybase") set forth below gives effect to the acquisition of HFN. The
historical financial information set forth below has been derived from, and is
qualified by reference to the consolidated financial statements of Sybase and
HFN, and should be read in conjunction with those financial statements and the
notes referred to below. The unaudited pro forma condensed combining statement
of operations data for the year ended December 31, 1999 set forth below give
effect to the acquisition as if it occurred on January 1,1999. The unaudited pro
forma condensed combining balance sheet as of December 31, 1999 set forth below
gives effect to the acquisition of HFN as if it occurred on December 31, 1999.
The unaudited pro forma condensed combining financial information set forth
below reflects certain adjustments, including among others, adjustments to
reflect the amortization of the excess purchase price. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes to the financial statements of Sybase which are incorporated by
reference herein from Sybase's Annual Reports on Form 10-K for the year ended
December 31, 1999 and HFN's audited financial statements and notes to the
financial statements for the years ended December 31, 1999 and 1998. The
unaudited pro forma condensed combining financial information set forth below
does not purport to represent what the consolidated results of operations or
financial condition of Sybase would actually have been if the HFN acquisition
and related transaction had in fact occurred on such date or to project the
future consolidated results of operations or financial condition of Sybase.
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UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SYBASE AS OF HFN AS OF BUSINESS AS OF
DECEMBER 31, DECEMBER 31, COMBINATION DECEMBER 31,
1999 1999 COMBINED ADJUSTMENTS 1999
------------ ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........ $ 250,103 $ 1,589 $ 251,692 (3) $ (25,916) $ 225,776
Short-term cash
investments ..................... 59,094 881 59,975 -- 59,975
Accounts receivable,
net ............................. 182,708 3,436 186,144 -- 186,144
Deferred income taxes ............ 15,826 -- 15,826 -- 15,826
Other current assets ............. 14,924 239 15,977 -- 15,977
--------- --------- --------- --------- ---------
Total current assets .............. 522,655 6,145 528,800 (25,916) 502,884
Long-term cash investments ........ 43,702 -- 43,702 -- 43,702
Property, equipment and
improvements, net ................ 67,587 1,593 69,180 -- 69,180
Deferred income taxes ............. 25,238 -- 25,238 -- 25,238
Capitalized software, net ......... 35,934 -- 35,934 -- 35,934
Other assets ...................... 42,219 86 42,305 (1)(3) 155,520 197,825
--------- --------- --------- --------- ---------
Total assets ...................... $ 737,335 $ 7,824 $ 745,159 $ 129,604 $ 874,763
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................. $ 8,349 $ 3,272 $ 11,621 $ -- $ 11,621
Accrued compensation and related
expenses ........................ 57,625 -- 57,625 -- 57,625
Other accrued liabilities ........ 101,876 -- 101,876 500 102,376
Deferred revenue ................. 187,323 613 187,936 -- 187,936
Accrued income taxes ............. 40,253 -- 40,253 -- 40,253
--------- --------- --------- --------- ---------
Total current
liabilities ...................... 395,426 3,885 399,311 -- 399,811
Other liabilities ................. 5,799 32 5,831 -- 5,831
Stockholders' equity:
Common stock ..................... 83 8 91 (3) 8 91
(3) (8)
Preferred stock ................... -- 12 12 (3) (12) --
Additional paid-in
capital ......................... 432,352 28,929 461,281 (3) 141,003 573,355
(3) (28,929)
Accumulated deficit .............. (48,037) (23,386) (71,423)(1)(2) (8,000) (56,037)
(3) 23,386
Unearned compensation ............ -- (1,656) (1,656) (3) 1,656 --
Accumulated other
comprehensive loss .............. (16,426) -- (16,426) -- (16,426)
--------- --------- --------- --------- ---------
Subtotal .......................... 367,972 3,907 371,879 129,604 500,983
Less: Cost of shares of
treasury stock ................... (31,862) -- (31,862) (31,862)
--------- --------- --------- --------- ---------
Total stockholders'
equity ........................... 336,110 3,907 340,017 129,604 469,121
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity ............. $ 737,335 $ 7,824 $ 745,159 $ 129,604 $ 874,763
========= ========= ========= ========= =========
</TABLE>
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See accompanying notes to the Unaudited Pro Forma Condensed Combining Financial
Information.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SYBASE HFN PRO FORMA
FOR THE YEAR FOR THE YEAR PRO FORMA FOR THE YEAR
ENDED ENDED BUSINESS ENDED
DECEMBER 31, DECEMBER 31, COMBINATION DECEMBER 31,
1999 1999 COMBINED ADJUSTMENTS 1999
------------ ------------ --------- ----------- ------------
Revenues:
<S> <C> <C> <C> <C> <C>
License fees ......................... $ 421,645 $ 948 $ 422,593 $ -- $ 422,593
Services ............................. 449,988 4,388 454,376 -- 454,376
--------- --------- --------- --------- ---------
Total revenues ......................... 871,633 5,336 876,969 876,969
Cost and expenses:
Cost of license fees ................. 46,241 -- 46,241 (1) 3,000 49,241
Cost of services ..................... 217,053 2,714 219,767 -- 219,767
Product development
and engineering .................... 136,272 4,964 141,236 141,236
Sales and marketing .................. 310,774 6,137 316,911 316,911
General and
administrative ...................... 68,876 3,145 72,021 -- 72,021
Amortization of goodwill
and other purchased
intangibles 13,920 -- 13,920 (1) 18,789 32,709
Cost of restructuring
(reversals) ......................... (8,528) -- (8,528) -- (8,528)
--------- --------- --------- --------- ---------
Total costs and expenses ............... 784,608 16,960 801,568 21,789 823,357
--------- --------- --------- --------- ---------
Operating income (loss) ................ 87,025 (11,624) 75,401 (21,789) 53,612
Interest income ........................ 13,626 536 14,162 -- 14,162
Interest expense and other,
net .................................. 147 1,000 1,147 -- 1,147
--------- --------- --------- --------- ---------
Income(loss) before
income taxes ......................... 100,798 (10,088) 90,710 (21,789) 68,921
Provision (benefit)for income
taxes ................................. 38,303 -- 38,303 (5) (3,530) 34,773
--------- --------- --------- --------- ---------
Net income (loss) ...................... $ 62,495 $ (10,088) $ 52,407 $ (18,259) $ 34,148
========= ========= ========= ========= =========
Pro forma net income (loss) per
share--Basic (4) ...................... $ 0.76 $ (1.25) $ .38
========= ========= =========
Pro forma net income (loss) per
share--Diluted (4) .................... $ 0.74 $ (1.25) $ .37
========= ========= =========
Number of shares used in
pro forma per share
calculation--Basic
(4) ................................... 81,817 8,087 7,382 89,199
========= ========= ========= =========
Number of shares used in
pro forma per share
calculation--Diluted
(4) ................................... 84,156 8,087 7,641 91,797
========= ========= ========= =========
</TABLE>
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NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL INFORMATION
On January 20, 2000, Sybase acquired HFN in a transaction accounted for as a
purchase. The total purchase cost was approximately $167.4 million, consisting
of the following:
<TABLE>
<S> <C>
(In millions, except share amounts)
Issuance of 7,817,471 Sybase shares $129.8
HFN stock options assumed ......... 11.2
Cash .............................. 25.9
Merger costs, legal and accounting .5
------
Total Purchase Consideration ...... $167.4
======
</TABLE>
The estimated fair value of the common stock to be issued is based on the
average closing price of the Sybase common stock on the two days before and
after the acquisition was announced on December 1, 1999. The estimated fair
value of the HFN options assumed, which will be exchanged for cash and Sybase
options, is based on the Black-Scholes model using the following assumptions:
- Expected lives of 0.4 to 4.0 years
- Expected volatility factor of 68.24%
- Risk-free interest rate of 5.51%
- Expected dividend rate of 0%
Pro forma adjustments for the unaudited pro forma condensed combining balance
sheet as of December 31, 1999 and statement of operations for the year ended
December 31, 1999 are as follows:
(1) Reflects the allocation of the purchase price and the amortization of the
cost over the fair value of net assets acquired for the HFN acquisition (as if
the transaction occurred at December 31, 1999). The allocation has resulted in a
charge for purchased in-process research and development of $8.0 million and the
established customer list of $20.0 million, developed technology of $18.0
million and goodwill of $117.5 million. The established customer list, the
developed technology and the goodwill are being amortized on a straight-line
basis over periods of 10 years, 6 years and 7 years, respectively.
The total estimated purchase price for the HFN acquisition was allocated to
assets and liabilities based on management's best estimate of their fair value
with the excess costs over the net assets acquired allocated to goodwill,
in-process research and development and other intangibles. The allocation
between goodwill, in-process research and development, and the other purchased
intangibles was based on a valuation prepared by an independent third-party
appraiser.
The Company allocated $8.0 million of the total purchase price of approximately
$167.4 million to purchased in-process research and development. As part of the
process of analyzing this acquisition, the decision was made to buy technology
that had not yet been commercialized rather than develop the technology
internally. This decision was based on factors such as the amount of and costs
it would take to bring the technology to market.
The Company estimated the fair value of in-process research and development
using an income approach. This involved estimating the fair value of the
in-process research and development using the present value of the estimated
after-tax cash flows expected to be generated by the purchased in-process
research and development, using risk adjusted discount rates and revenue
forecasts as appropriate. The selection of the discount rate was based on
consideration of our weighted average cost of capital, as well as factors
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including the useful life of each technology, profitability levels of each
technology, the uncertainty of technology advances that was known at the time,
and the stage of completion of each technology. The Company believes that the
estimated in-process research and development amount so determined represent
fair value and do not exceed the amount another third party would pay for the
projects.
At the date of the acquisition, the in-process research and development projects
had not yet reached technological feasibility and had no alternative future
uses. Accordingly, the value allocated to these projects was immediately
expensed at acquisition. If the projects are not successful or completed on
time, management's product pricing and growth rate estimates may not be achieved
and we may not realize the financial benefits expected from the projects.
HFN Transaction and Project Overview
HFN was a software company involved in the development of technologies that
enable financial institutions to deliver their services to customers via the
Internet. At the acquisition date, HFN was conducting development and
qualification activities related to a suite of products encompassing bill
presentment, small business functions, alternative service delivery methods and
related underlying software technology.
Financial Statement Assumptions
The following section provides information pertaining to the financial statement
assumptions utilized in the analysis. These paragraphs contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, particularly statements regarding our expectations, including percentage
of completion, expected product release dates, dates for which we expect to
begin generating benefits from projects, expected product capabilities and
product life cycles, costs and efforts to complete projects, growth rates,
projected revenue and expense information used by us to calculate discounted
cash flows and discount rates. These forward-looking statements involve risks
and uncertainties and various factors that could cause actual results to differ
materially from those predicted in any such forward-looking statement. Such
factors include but are not limited to, delays in the development of in-process
technologies or the release of products into the market, the complexity of the
technology, our ability to successfully manage product introductions, lack of
customer acceptance, competition and changes in technological trends, and market
or general economic considerations. In addition, there can be no assurance that
any of the new products discussed below will be completed, that such products
will achieve either technological or commercial success or that we will receive
any economic benefit from such products as a result of delays in the development
of the technology, the complexity of the technology, changes in customer needs,
or for other reasons, including those described above.
Revenue
Revenue estimates were based on relevant market size and growth factors,
expected industry trends, individual product sales cycles and the estimated life
of each product's underlying technology. The analysis of the in-process
technology was determined by incorporating revenue related to the expected
evolution of the technology over time. Once developed, the estimated lifecycle
of the product suite was estimated to be approximately 5 to 7 years. As a whole,
HFN was expected to exhibit compound annual growth of approximately 38% in the
period from 2000 through 2007.
Operating Expenses
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Operating expenses included selling, general and administrative expenses, and
research and development expenses. Total research and development was divided
into: (i) the costs to complete the in-process research and development projects
and (ii) costs for developed products that have already been introduced to the
market, or maintenance research and development. Costs to complete in-process
projects were estimated by management. These costs were allocated in 2000 based
on an analysis of completion efforts expected completion dates. Costs to
complete were further allocated between in-process and future revenues based on
an analysis of the evolution of the respective technologies.
EBIT Margin
The resultant expected target margin that HFN expected to achieve from the
in-process products was approximately 37%. However, in the first several years
profitability was expected to be significantly lower than in the latter years of
the product suite's lifecycle, due to greater anticipated sales and marketing
expenses as a percentage of revenue.
The financial forecasts utilized in the analysis included solely the economics
that could potentially be generated by HFN on a standalone basis. Synergies
resulting from the combination of Sybase were not incorporated into the
analysis.
Charges for the Use of Contributory Assets
In our analysis, we considered charges for the use of contributory assets. These
charges represent the required return on the assets employed to generate enough
cash flow to provide a fair return (to the owner[s] of the capital employed in
such assets). These assets include working capital, fixed assets, and other
intangible assets. Charges were computed by quantifying the payments required to
amortize the return on the asset at the specified return for the indicated
economic life of the respective asset.
Consideration of Completed Research and Development
To properly analyze the research and development efforts that had been
accomplished to date and exclude the effort to be completed on the development
efforts underway, it was necessary to adjust the overall forecasts associated
with the research and development projects to reflect only the accomplishments
made as of the date of the acquisition towards the ultimate completion of the
projects. The relative contribution made on the research and development efforts
was assessed based on a variety of factors including absolute development time
(costs) incurred to date, management estimates, and a detailed analysis of each
of the primary tasks completed versus the tasks required to complete the efforts
and the associated risks.
Overall, HFN's in-process research and development projects were estimated to be
approximately 75% complete. HFN estimated that the projects would be completed
in March 2000, after which time it expected to begin generating economic
benefits from the completed projects. As of the valuation date, approximately 86
man months totaling $650,000 had been expended on the in-process research and
development projects. In total, costs to complete HFN's in-process research and
development are expected to be approximately $150,000 and require 23 man months
of work. Completion of these projects was expected to require significant
efforts involving continued software development as well as the testing and
re-qualification efforts required to turn a new-to-the world software suite into
a set of bug-free, commercial-ready products. These remaining tasks involved
substantial risk due to the complex nature of the activities involved.
Historically, many of HFN's in-process research and
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development projects have required rework and additional expenditures in
comparable stages of development.
Other Key Valuation Assumptions
Projected future net cash flows attributable to HFN's in-process research and
development, assuming successful development, were discounted to net present
value using a discount rate of 20%. This discount rate was based on
consideration of HFN's weighted average cost of capital, as well as other
factors including the useful life of each project, the anticipated profitability
of each project, the uncertainty of technology advances that were known at the
time and the stage of completion of each project. If successfully developed, the
suite of products resulting from the in-process research and development
efforts, were expected to begin generating revenue in 2000 and positive cash
flow in 2001.
(2) The pro forma condensed combining statement of operations for the year ended
December 31, 1999 does not include the purchased research and development
related charge of $8.0 million since it is considered a non-recurring charge.
(3) To reflect the purchase of all of the outstanding stock of HFN.
(4) Pro forma net income (loss) reflects the impact of the adjustments above.
Pro forma basic net income (loss) per share is computed using the
weighted-average number of shares of common stock outstanding after the issuance
of Sybase Common Stock to acquire the outstanding shares of HFN. Pro forma
diluted net income (loss) per share is computed as described above and also
gives effect to any dilutive options and warrants. Dilutive options and warrants
are excluded from the computation during loss periods as their effect is
antidilutive.
(5) The pro forma tax provision was adjusted downward to reflect the benefit the
combined group would have received from HFN's losses.
(6) Pro forma reclassifications are made to conform the HFN presentation to the
Sybase presentation.
