UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 30, 1995 or
[ ] 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: 0-15627
SEQUENT COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0826369
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
15450 S.W. Koll Parkway, Beaverton, Oregon 97006-6063
(Address of principal executive offices, including zip code)
Registrant's telephone number, including are code: (503) 626-5700
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
______________________ ______________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at February 29, 1996, based on the closing price on such date on
the NASDAQ National Market System: $389,755,255.
Number of shares of Common Stock outstanding as of February 29, 1996:
33,360,076.
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
1995 Annual Report to Shareholders Parts II and IV
Proxy Statement for 1996 Annual
Meeting of Shareholders Part III
TABLE OF CONTENTS
Item of Form 10-K Page
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 4(a). Executive Officers of the Registrant 11
PART II
Item 5. Market for the Registrant's Common Equity and 12
Related Stockholder Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants 12
on Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 13
Item 11 Executive Compensation 13
Item 12 Security Ownership of Certain Beneficial Owners and 13
Management
Item 13 Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports 14
on Form 8-K
SIGNATURES 22
PART I
Item 1. Business.
Sequent Computer Systems, Inc. ("Sequent" or "the Company") is a provider
of large-scale open systems and client/server solutions for large
organizations spanning diverse industries. Sequent develops, manufactures and
sells symmetric multiprocessing (SMP) systems that support large-scale on-line
transaction processing (OLTP), decision support (DSS) and both intranet and
internet-based business communications applications. Sequent's project-
oriented offerings include consulting and professional services to link
companies' current and future information technology (IT) investments to their
business strategy. The Company partners with other vendors to deliver
complete solutions to its customers.
The Company was incorporated in Delaware in January 1983 and was
reincorporated in Oregon in December 1988. Unless the context otherwise
requires, references in this Report on Form 10-K to the "Company" or "Sequent"
refer to the prior Delaware corporation, the current Oregon corporation and
its subsidiaries. The Company's principal executive offices are located at
15450 S.W. Koll Parkway, Beaverton, Oregon 97006, and its telephone number at
that location is (503) 626-5700.
Market Overview
In the past decade, Sequent has developed the experience to guide large
organizations through complex changes faced in moving to open systems. These
changes include the renovation of business processes and information systems,
maximizing benefits of SMP architectures and open systems, widespread use of
relational database management software (RDBMS) applications and the
substitution of OLTP for traditional batch processing. Since the launch of
its SMP family of systems in 1984, Sequent has installed more than 7,500 SMP
open systems worldwide.
Information Systems Renovation. Global economies and intense competitive
pressures today prompt many companies to provide employees with access to data
to increase responsiveness to customer needs. This need for access to data
requires companies to reengineer or redesign their business processes to take
advantage of innovative open client/server architectures, systems and
products. Sequent offers a wide range of consulting, education and
implementation services to assess an organization's current systems and
processes, design new systems that support business objectives, and deliver
and implement systems, thereby providing a complete solution.
SMP Architectures. With dramatic improvement in the power and
price/performance characteristics of processors and the proven ability of SMP
architectures to incorporate multiple processors into a single large-scale
system or group of systems, customers are increasingly employing SMP systems
to meet their commercial computing needs. Sequent has had over a decade of
success with SMP systems. The adoption of SMP architectures by other major
computer systems providers ensures continued acceptance of SMP in the
commercial marketplace.
Open Systems. Historically, large organizations have relied upon
computing equipment based upon a single vendor's proprietary technology that
was generally incompatible with that of other vendors. In recent years,
proprietary systems have become increasingly unacceptable to companies that
want the flexibility to purchase computing equipment and software best suited
for a specific need without being constrained by the technology employed by a
specific computer vendor. Proprietary systems also make it difficult for the
PC user to access information and applications from the central computer. An
open system, by contrast, incorporates industry standard technology and
permits users to integrate computer equipment offered by different vendors.
An open systems environment also facilitates offloading applications from the
central computer to a less expensive department, desktop or special-purpose
computer. Many companies are replacing some or all of their proprietary
central computing systems, moving to a more open, distributed system when they
upgrade or expand their systems.
RDBMS and OLTP. RDBMS is the primary vehicle for managing information in
large organizations. RDBMS systems are also used to support OLTP, which is
increasingly replacing traditional batch processing of historical data in
businesses with centralized information needs and distributed operations. The
OLTP market includes any systems that support the day-to-day operational
processes of a corporation. The market demand for OLTP computing systems,
particularly those using RDBMS technology, spans a wide variety of industries
and applications and has increased dramatically as more businesses require
instantaneous processing of information.
Rapid Growth in Desktop and Network Computing. The dramatic growth of
the number of desktop PCs has been fueled by significant increases in the
power and performance of processors, rapid reduction in computer technology
costs, wide availability of PC applications software and growth in the
computer literacy rate among the workforce. Desktop PCs have become a
pervasive component of today's business environment, and in many cases are
used to run applications which are critical to a company's operations. In
recent years, companies have increasingly sought to improve the efficiency of
their computing systems by integrating PCs with centralized computing
resources to enable enterprise-wide communication, distributed processing and
instantaneous access to enterprise information (database) and computing
services (applications software).
Client/Server Computing. As more computing power shifts to the desktop
from large centralized computers, organizations are recognizing that the
traditional host-terminal model of computing, in which all information is
processed at central locations, is no longer cost effective. These
organizations are increasingly incorporating the client/server model, in which
processing takes place at many sites and computing tasks are shared between
desktop "clients" and remote "servers."
Sequent's Strategy
Sequent's strategy is to provide SMP systems that support highly
available large-scale OLTP, DSS and both intranet and internet-based business
communications applications. Sequent's project-oriented offerings include
consulting and professional services to help companies link information
technology to current and future business objectives. Sequent designs,
manufactures and partners to deliver large-scale SMP computing systems with
leading-edge technologies for RDBMS, OLTP, decision support and other
client/server applications.
Migration to Open Systems. Sequent concentrates on understanding the
business objectives and computing needs of the customer at all organizational
levels. The Company then works closely with the customer and suppliers of key
system components to design an open, integrated solution to meet the
customer's computing needs. The Company seeks to add value for the customer
by designing an integrated system that directly supports its business
objectives and conforms to a sound architectural infrastructure including
hardware, system software, networks, communications and applications. The
Company focuses on large-scale organizations that have centralized information
systems with distributed operations and are committed to migrating from a
proprietary system environment to open systems.
Leading-Edge Technologies. Sequent's Symmetry and WinServer systems,
recognized as some of the industry's leading SMP platforms, provide superior
price/performance and scalability for RDBMS, OLTP and client/server
applications. The performance benefits of SMP compared to single processor
systems are especially pronounced in transaction-intensive applications.
Sequent's systems currently use the Intel Pentium processors and can
incorporate up to 30 processors in a single system. Sequent intends to
maintain its leadership position in SMP, including upgrading to new Intel
processors as they become available and future non-uniform memory access
architectural advancements. Sequent also sells clustered systems which share
common data allowing increased computing power with high availability.
Commitment to Open Systems. Sequent's open system architecture
incorporates industry standards whenever possible, including the use of Intel
processors, the UNIX and Windows NT operating systems, and standard network
and communications interfaces. Sequent systems are designed to operate in a
multi-vendor heterogeneous environment and support a wide variety of third-
party software, including RDBMS,OLTP, decision support and business
commications applications.
"Partnering" with Leading Vendors. Sequent devotes substantial resources
to strategic marketing and product development relationships with those
companies it believes offer the best open systems technologies. The Company
has relationships with major providers of RDBMS software, including Oracle
Corporation, Informix Software Inc., Computer Associates (Ingres), and
Progress Software Corporation. Sequent also has strategic relationships with
Intel for joint research and development of future computer "building blocks";
with suppliers of other major operating systems, such as Microsoft for
Windows NT; with major suppliers of communications and network software,
including Novell; with emerging suppliers of client/server application
development products such as Forte' Software, Inc.; and with suppliers of
third-party applications software such as Oracle, PeopleSoft, Baan and SAP.
Platform Overview
Business automation and systems integration applications require
extensive amounts of computing power, memory and disk storage throughput.
Sequent systems are designed for customers with extensive computing
requirements. Sequent products are based on industry standards and are
designed to easily combine with other computing hardware in an open systems
environment. Sequent systems enable customers to implement cost-effective
computing, to automate business functions and to integrate enterprise-wide
computing operations.
The Company's Symmetry systems, currently based on Intel Pentium
processors, offer high levels of transaction processing and decision-support
performance at list prices ranging from $200,000 for a dual-processor system
to several million dollars for a 30-processor system serving thousands of
active users in a database environment.
Sequent's processor-independent architecture allows the Company to
incorporate technological advances in its product offerings more quickly and
inexpensively than manufacturers of computer systems with proprietary central
processing units. The Company's ongoing product development efforts leverage
advances in open systems technology, including processor enhancements, storage
technology, communications and user-interface enhancements. These
enhancements directly benefit customers who can upgrade their installed
Sequent systems without altering source programs, retraining users or
replacing hardware and software not directly affected by the upgrade. The
Company plans to introduce the 167 Megahertz Pentium Processor in its
Symmetry product line in 1996.
Sequent Symmetry systems are based on an open system architecture that
incorporates industry standards such as those in the UNIX operating system.
DYNIX/ptx, Sequent's version of UNIX, enhanced for SMP in the commercial
marketplace, allows Sequent systems to provide nearly linear improvements in
incremental performance as processors are added. DYNIX/ptx provides Sequent
customers access to a growing array of UNIX software applications. Sequent
Symmetry systems used in network and client/server applications link PCs and
department level and central computers to deliver applications and information
to desktop PCs through network and PC interfaces, allowing users access to
extensive processing power and information.
The Company's WinServer systems, which run Microsoft Windows NT operating
system, are based on Intel Pentium processors. The Windows NT-based systems
provide database and application services for workgroup, departmental and
enterprise-level computing requirements. The family of systems is designed to
support from 2 to 28 Intel processors.
Partnering with Leading Vendors
Relational Database Management Software. Sequent has strategic marketing
and development relationships with major independent providers of RDBMS
software, including Oracle Corporation, Informix Software, Inc., Computer
Associates (Ingres), and Progress Software Corporation. Sequent's SMP
architecture is designed to maximize the performance and scalability
requirements for managing extensive amounts of computing power required by
OLTP applications in conjunction with RDBMS software. In addition, this same
technology, coupled with the emerging capabilities provided by Sequent's RDBMS
partners, strengthens the decision-support performance required by large-scale
enterprises today. Sequent has chosen to run its partners' software in
support of its own enterprise needs. Sequent and these strategic partners
join forces in joint development programs, joint marketing programs, and sales
teaming efforts. The result is an exchange of technical personnel, dedicated
marketing expertise and a highly trained sales organization to help sell the
Company's and its partners' combined solutions. During the year ended
December 30, 1995, a significant portion of Sequent's solutions were sold with
RDBMS packages as a result of these relationships.
Operating Systems. The Company has committed significant resources to
supporting both the UNIX operating system and the emerging Windows NT system,
which the Company believes will be the two major operating systems for open,
enterprise-wide computing. The Company's continuing leadership in the
development of UNIX-based SMP systems has been acknowledged by the industry's
leading developers of commercial UNIX systems software. The Symmetry 2000 was
selected by AT&T's UNIX System Laboratories ("USL"), now owned by Santa Cruz
Operation, to develop its next-generation, multiprocessing version of UNIX
System V with enhanced security (System V.4 ES/MP), which introduces SMP
capabilities to the operating system.
The Company continues to enhance the DYNIX/ptx operating system,
currently as DYNIX/ptx 4.1 adding features to operate in mission critical
environments. These features include increased scalability, improved systems
management and support for highly available systems through clustering
software. Sequent's clustering technology is software based which enables the
Company to respond quickly to improvements in hardware technology as they are
introduced into the marketplace. The Company has worked closely with
Microsoft in joint development programs, including the exchange of technical
personnel, to ensure that the Windows NT operating system is compatible with
Sequent's SMP architecture. The Company regularly works with Microsoft to
enhance the scalability and performance of Windows NT.
Client/Server Application Software. Sequent maintains strategic
relationships with key software providers to assure the availability and
maximum performance of pivotal software products on the Sequent platform.
Sequent offers packaged and custom applications.
Packaged Applications: Packaged software applications provide a standard
pre-engineered solution for a common set of functional business problems.
Packaged applications offer the potential to trim the total cost of a
solution, reduce the time required for implementation, and lower overall
project risk. Sequent maintains a number of strategic relationships with
software partners who provide products in this area including Oracle,
PeopleSoft, Baan and SAP.
Customer software applications are used to build custom solutions in
situations where packaged applications do not meet business requirements or
where customers desire to build systems for a competitive edge. Sequent
maintains a number of strategic relationships with software partners who
provide products in this area including Oracle, Informix and Forte'.
Communications Software. The Company's systems support communications
products which allow Symmetry systems to interconnect its own and various
multivendor systems. These products include hardware which connect to Wide
and Local Area Networks of different media and software which support
protocols for open and proprietary systems.
Sequent's communications products are differentiated by Parallel STREAMS
Architecture which utilizes SMP architecture to produce high performance and
scalable communications. Parallel STREAMS are used for both low level
communications media software to drive Ethernet, Token Ring, fiber distributed
data interface ("FDDI") and synchronous lines as well as high level protocols.
In addition to open systems communications using protocols such as
tcp/ip, Open Systems Interconnections ("OSI") and X.25, Sequent communicates
directly with IBM and DEC systems via Systems Network Architecture ("SNA") or
DECnet/LAT protocols, respectively. The Company interfaces with many other
vendors utilizing these same protocols.
Third-Party Applications Programs. The rapidly expanding universe of
applications software can be easily ported to Sequent's UNIX-based Symmetry
multiprocessing systems. The Company recognizes that applications software is
a critical element in providing solutions to the enterprise and maintains
marketing programs to promote the development and support of third-party
applications software packages for the Company's systems. Currently, over 650
software application modules from approximately 300 vendors are available to
Sequent users. The software products offered drive core business applications
in the OLTP, DSS, both intranet and internet-based business communications as
well as key business applications, database technologies and development
environments. The software packages available address the needs of many
different vertical markets, including manufacturing, telecommunications,
health care, financial services and state and local governments. To
supplement the marketing efforts of the third-party suppliers, the Company
actively promotes these software partners to end users through joint sales
campaigns, demonstrations at its sales offices and trade shows, marketing
collateral, and joint marketing programs.
In addition, Sequent's WinServer systems support the thousands of
software applications developed by third-party companies for the Microsoft
Windows NT operating system.
Sales and Distribution
The Company sells its products and services through worldwide direct and
indirect distribution channels. The primary sales channel in North America
and Europe is through the direct sales force while sales channels in Asia and
the rest of the world are primarily distributors. The Company has 59 sales
offices worldwide, including 32 in North America and 14 in Europe. Indirect
sales channels utilized by the Company include value-added resellers, original
equipment manufacturers ("OEMs"), and foreign distributors.
As is common in the computer industry, a significant portion of orders is
generally received and shipped in the last month of a fiscal quarter. As a
result, the Company's product backlog is relatively small, is not necessarily
indicative of sales levels for future periods and is not material to
understanding the Company's business.
The Company had no single customer that represented greater than 10% of
total revenues in 1995, 1994 or 1993. International sales were approximately
55%, 48%, and 44% of the Company's total revenues in 1995, 1994 and 1993,
respectively.
Competition
The computer industry is intensely competitive and characterized by rapid
technological advances resulting in frequent new product introductions and
improvements in performance. Competitive factors include product quality and
reliability, professional services capability, architectural fit, relative
price/performance, ease of understanding and operation of the system,
capability of the operating system software, availability of applications
software, marketing capability, service and support, name recognition, and
corporate reputation and longevity.
Sequent's architectural consulting and professional services business is
positioned in the marketplace between traditional management consultants that
perform business process analysis and re-engineering, such as Nola, Norton &
Co., and McKinsey & Co., and technical system integration consultants, such as
Electronic Data Systems Corp. and Perot Systems Corp., that develop solutions
for narrowly defined system projects. Both management consultants and
technical system integration consultants compete with the Company. Some of
these competitors have financial, marketing and technical resources which
significantly exceed those of the Company. The Company believes that it can
compete favorably based on its expertise in tying the business process
analysis and re-engineering outcomes to solutions for specific system projects
on an enterprise-wide basis.
Within the commercial segment of the general purpose computing market,
Sequent competes against, among others, the major computer manufacturers,
including Hewlett-Packard, DEC and IBM. The size, reputation, installed base
and distribution strength of these companies make them significant
competitors. Although some of these competitors have financial, marketing,
distribution and technical resources which significantly exceed those of the
Company, the Company believes that it can compete favorably in the open
systems marketplace based on its technological advancements, professional
services expertise, price/performance and value to the customer.
Product Development
The Company's research and development programs are continually focused
on advancing hardware and software technologies. Sequent not only leverages
the availability of processor technology from Intel, but also leverages
systems management and backup/restore software products supplied by open
systems vendors. Sequent adds high-end capabilities to these products to
better satisfy customer needs.
At the end of 1996, Sequent expects to introduce systems based on its new
Cache Coherent Non-Uniform Memory Access (NUMA-Q) architecture. The NUMA-Q
architecture condenses four Intel Pentium Pro processors, memory and
input/output ports into a single building block for increased performance and
reliability. These four-processor "quads" will be interconnected with the
Company's IQ-Link technology which allows a large number of quads to become a
distributed shared memory SMP system. As with previous designs, the
performance will scale linearly as quads are added to a system. Sequent NUMA-
Q systems will be both software compatible and clustered systems compatible
with Sequent's current product line.
The Company's software development program is focused on improving the
performance of its parallel enabled operating system, providing highly
available clustering software, and enhancing its suite of communications,
network and client/server and third-party applications software. The Company
intends to continue making substantial investments in research and development
activities to maintain and enhance its competitive position in a market
characterized by rapid technological advances.
Professional Services and Product Support
Sequent offers a wide range of professional services to ensure that
every phase of a customer's project, from advance planning and architecture to
technology deployment and ongoing systems support, is successful.
Professional services include: Architectural and transition planning; DSS
design and implementation; packaged and custom OLTP design and implementation;
and enterprise management design and systems administration. The Company's
Professional Services group uses leading edge knowledge to deliver enterprise-
wide system solutions designed to meet customers' business requirements. In
addition, Sequent offers customers a comprehensive set of education and
training programs.
The Company also offers an array of customer service and support
programs, including hardware maintenance and service, software service and
upgrades and documentation support. In addition, hardware maintenance is
offered for many third-party peripheral products connected to the Sequent
system. The Company maintains a 24-hour toll-free telephone line for
technical consultation as well as remote log-in capability for diagnosing
customer hardware and software problems. In some cases, in-field hardware
service is contracted to third-party suppliers, which rely on Sequent for
customer interface and diagnostic support. The Company's standard warranty on
its products generally extends 90 days from the date of customer installation.
The Company believes that the quality and reliability of its computer
systems are important to customer satisfaction. Sequent's systems have proven
their high quality and reliability. High system uptime is a built-in
advantage of Sequent's architecture. Sequent personnel perform all
installations and hardware fault isolation and provide complete software
support for direct customers. Sequent systems are equipped with diagnostic
tools that allow the Company's service engineers to identify and disable a
failed component from remote locations. Replacement modules can be provided
quickly to restore the system to full capacity. The Company also offers
service and support programs in system performance evaluation and disaster
protection. Remote Analysis, Diagnostics and Resolution ("RADAR") provides
the advanced level of support traditionally found in proprietary mainframe
environments. A key element in RADAR is Sequent's software-based service
product, ProScan, which significantly increases system availability by
continuously monitoring Sequent Symmetry systems to detect and resolve
potential failure points.
Revenue generated from services and support was 27%, 24% and 21% of total
revenue during 1995, 1994 and 1993, respectively.
Manufacturing
The Company's manufacturing operations consist of procurement, assembly,
testing and quality control. Subcontractors are often used to assemble and
test subassemblies, such as printed circuit boards. The modular nature of the
Company's products, together with the standards-based open architecture,
permit ease of manufacture and system configuration. Once integrated, all
systems go through a fully operational, continuous burn-in cycle while
executing rigorous system stress and diagnostic tests. Final assembly and
testing occur only when a specific customer order is due for shipment (because
of the broad range of system configurations possible from a relatively few
basic modules and the many choices of peripherals). If a failure occurs or a
problem of unknown origin arises during work-in-progress testing, it is the
policy of the Company to halt shipment of products which may be affected while
the Company isolates and corrects the problem and determines whether the
problem may extend to other systems in manufacturing or at customer sites.
Such interruptions could cause fluctuations in quarterly results.
The Company generally obtains most parts and components from one vendor,
even where multiple sources are available, to maintain quality control and
enhance the working relationship with suppliers. These relationships include
joint engineering programs for new product development. The Company attempts
to reduce the risk of supply interruption through close supplier relationships
and greater inventory positions in certain sole-sourced components. The
failure of a supplier to deliver on schedule could delay or interrupt the
Company's delivery of products and thereby adversely affect the Company's
revenue and profits.
Patents and Licenses
Four U.S. and three United Kingdom patents have been issued to the
Company. The Company has filed three additional U.S. patent applications and
two foreign applications covering technology incorporated into its products,
which are still pending. The Company believes that the rapid pace of
technological change in the computer industry makes patent protection less
significant than factors such as its continued focus and efforts in research
and product development, its technical expertise and the management ability of
its personnel.
Employees
At December 31, 1995 the Company employed approximately 2,129 full-time
employees, of whom approximately 1,277 were employed in sales, marketing and
customer service, 343 in product development, 171 in manufacturing and 338 in
administrative and support services. The Company's continued success will
depend in part on its ability to attract and retain highly skilled and
motivated personnel who are in great demand throughout the industry. None of
the Company's employees is represented by a labor union. All full-time
Sequent employees are granted options to acquire Common Stock of the Company.
Sequent believes that its employee relations are excellent and believes that
its stock incentive plans, its challenging work environment and the
opportunities for advancement within the Company are key factors to its
ability to attract and retain qualified personnel.
Trademarks
Sequent, Symmetry, WinServer and DYNIX/ptx are registered trademarks and
Parallel STREAMS, NUMA-Q and IQ-Link are trademarks of Sequent Computer
Systems, Inc. This Report on Form 10-K also refers to trademarks held by
other corporations.
Forward Looking Statements
Information in this Report on Form 10-K that is not historical
information, including information regarding product development schedules,
constitutes forward-looking statements that involve a number of risks and
uncertainties. From time to time the Company may issue other forward-looking
statements. The following factors are among the factors that could cause
actual results to differ materially from the forward-looking statements:
business conditions and growth in the electronics industry and general
economies, both domestic and international; lower than expected customer
orders, delays in receipt of orders or cancellation of orders; competitive
factors, including increased competition, new product offerings by competitors
and price pressures; the availability of third party parts and supplies at
reasonable prices; changes in product mix and the mix between product and
service revenue; significant quarterly performance fluctuations due to the
receipt of a significant portion of customer orders and product shipments in
the last month of each quarter; and product shipment interruptions due to
manufacturing problems. Any forward-looking statements should be considered
in light of these factors.
Item 2. Properties.
The Company's headquarters and its product development and manufacturing
operations are located in facilities totaling approximately 500,000 square
feet in Beaverton, Oregon, 10 miles west of Portland. The Company occupies
these facilities under leases which expire from 2000 to 2006. On the
expiration dates of these leases, the Company generally has the option of
purchasing the leased facilities at fair market value or renewing the leases
for an additional five years. The Company also leases sales, marketing and
customer support offices in locations throughout the United States, Europe,
Canada, Japan, Singapore, Hong Kong, New Zealand and Australia. The Company
anticipates that it will need to expand its corporate and field facilities in
the next one to two years.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 4(a). Executive Officers of the Registrant.
Name Age Position
Karl C. Powell, Jr. 52 Chairman and Chief Executive Officer, Director
John McAdam 45 President and Chief Operating Officer, Director
Robert S. Gregg 42 Sr. Vice President of Finance and Legal
and Chief Financial Officer
Mr. Powell, a co-founder of the Company, is Chairman and Chief Executive
Officer, and has been a director since 1983. Mr. Powell has served as the
Company's sole Chief Executive Officer or shared the Office of the Chief
Executive with the co-founder of the Company since the Company's inception.
From 1974 to 1983, Mr. Powell was employed by Intel Corporation, where his
most recent position was General Manager for Microprocessor Operations. Mr.
Powell served on the National Board of Directors of the American Electronics
Association from 1985 to 1986. He holds a B.S. degree in mechanical
engineeering from the US Merchant Marine Academy.
Mr. McAdam joined the Company in August 1989 as U.K. Sales Director. He
became U.K. General Manager in January 1991, Vice President and General
Manager of European Operations in October 1992, and Senior Vice President of
European and Asian Operations in January 1994. He was promoted to President
and Chief Operating Officer in Feburary 1995, and was elected to the Board of
Directors in November 1995. Prior to joining the Company Mr. McAdam was
employed for 10 years by Data General U.K. Ltd., serving most recently as
Regional Manager, Public Sector, Finance and Goverment Market. Mr. McAdam
holds a B.Sc. first class honors degree in Computer Sciences from Glasgow
University.
Mr. Gregg joined the Company in 1983 as its Controller. He became
Director of Finance in 1984 and Vice President of Finance and Chief Financial
Officer in March 1986. He was promoted to Senior Vice President of Finance &
Legal and Chief Financial Officer in February 1995. Prior to joining the
Company, Mr. Gregg spent eight years at the public accounting firm of Price
Waterhouse LLP. Mr. Gregg holds a B.S. degree in business and accounting from
the University of Oregon.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The information required by this item is included under "Market
Information (unaudited)" in the Company's 1995 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data.
Information with respect to selected financial data is included under
"Selected Financial Data" in the Company's 1995 Annual Report to
Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Information with respect to management's discussion and analysis of
financial condition and results of operations is included under
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations" in the Company's 1995 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Information with respect to selected quarterly financial data is included
under "Quarterly Financial Data (unaudited)" in the Company's 1995 Annual
Report to Shareholders and is incorporated herein by reference. The
other information required by this item is included under "Consolidated
Financial Statements" and "Notes to Consolidated Financial Statements"
as listed in item 14 of this report and in the Company's 1995 Annual
Report to Shareholders which is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to directors of the Company will be included
under "Election of Directors" in the Company's Proxy Statement for its
1996 Annual Meeting of Shareholders and is incorporated herein by
reference. Information with respect to executive officers of the
Company is included under Item 4(a) of Part I of this Report.
Item 11. Executive Compensation.
Information with respect to executive compensation will be included under
"Summary Compensation Table", "Stock Option Grants in Last Fiscal Year",
"Stock Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values", and "Certain Transactions" in the Company's Proxy Statement for
its 1996 Annual Meeting of Shareholders and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information with respect to security ownership of certain beneficial
owners and management will be included under "Voting Securities and
Principal Shareholders" and "Election of Directors" in the Company's Proxy
Statement for its 1996 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information with respect to transactions with management will be included
under "Certain Transactions" in the Company's Proxy Statement for its
1996 Annual Meeting of Shareholders and is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements.
The following financial statements are included in the Company's
1995 Annual Report to Shareholders:
Sequent Computer Systems, Inc. and Subsidiaries:
Consolidated Statements of Operations - Fiscal Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994
Consolidated Balance Sheets - December 30, 1995 and December 31, 1994
Consolidated Statements of Shareholders' Equity - Fiscal Years Ended December
30, 1995, December 31, 1994 and January 1, 1994
Consolidated Statements of Cash Flows - Fiscal Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedules.
The following schedules and report of independent accountants are
filed herewith:
Page in this report
on Form 10-K
Schedule V Property and Equipment F-1
Schedule VI Accumulated Depreciation and Amortization
of Property and Equipment F-2
Schedule VIII Valuation and Qualifying Accounts F-3
Schedule IX Short-term Borrowings F-4
Schedule X Supplementary Income Statement Information F-5
Report of Independent Accountants on Financial
Statement Schedules F-6
All other schedules are omitted as the required information is inapplicable or
is presented in the financial statements or related notes thereto.
(a)(3) Exhibits.
Exhibit
Number Description
3.1 Articles of Incorporation, as amended, and Articles of Merger of
Sequent Computer Systems, Inc. (the "Company"). (Incorporated by
reference to Exhibit 4A to the Company's Registration Statement on
Form S-8 (file no. 33-63972).)
3.2 Bylaws, as amended, of the Company. (Incorporated by reference
to Exhibit 4B to the Company's Registration Statement on Form S-8
(file no. 33-39315).)
4.1 Note Purchase Agreement dated April 10, 1992 regarding 7.5%
Convertible Subordinated Notes due March 31, 2000, between the Company
and a group of institutional investors. (Incorporated by reference to
Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 28, 1992).
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company
agrees to furnish any other long term debt agreements to the Commission
upon request.
10.1A Amended and Restated Lease Agreement between KC Woodside and
the Company, as amended, dated May 8, 1987 ("First Building Lease"),
and related agreements. (Incorporated by reference to Exhibit 19.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended July 4,
1987 (file no. 0-15627).)
10.1B Second Amendment to First Building Lease, dated July 28, 1988.
(Incorporated by reference to Exhibit 10.3B to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1989 (file
no. 0-15627).)
10.1C Third Amendment to First Building Lease dated July 28, 1989.
(Incorporated by reference to Exhibit 10.3C to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1989 (file
no. 0-15627).)
10.1D Fourth Amendment to First Building Lease dated September 20,
1991. (Incorporated by reference to Exhibit 10.1D to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1991
(file no. 0-15627).)
10.1E Fifth Amendment to First Building Lease dated December 2, 1992.
(Incorporated by reference to Exhibit 10.1E to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
10.1F Sixth Amendment to First Building Lease dated April 5, 1993.
(Incorporated by reference to Exhibit 10.1F to the Company's Annual
Report on Form 10-K for the fiscal year ended January 1, 1994 (file no.
0-15627).)
10.1G Lease Agreement between KC Woodside and the Company, dated May
8, 1987 ("Second Building Lease"). (Incorporated by reference to
Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1987 (file no. 0-15627).)
10.1H First Amendment to Second Building Lease, dated July 28, 1988.
(Incorporated by reference to Exhibit 10.3E to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1989 (file no.
0-15627).)
10.1I Second Amendment to Second Building Lease dated September 13,
1991. (Incorporated by reference to Exhibit 10.1G to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1991
(file no. 0-15627).)
10.1J Third Amendment to Second Building Lease, dated December 2,
1992. (Incorporated by reference to Exhibit 10.1L to the Company's
Annual Report on Form 10-K for fiscal year ended January 2, 1993 (file
no. 0-15627).)
10.1K Fourth Amendment to Second Building Lease, dated April 5, 1993.
(Incorporated by reference to Exhibit 10.1K to the Company's Annual
Report on Form 10-K for the fiscal year ended January 1, 1994 (file
no. 0-15627).)
10.1L Lease Agreement, dated July 28, 1988 between KC Woodside and
the Company ("Third Building Lease"). (Incorporated by reference to
Exhibit 10.3F to the Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 1989 (file no. 0-15627).)
10.1M First Amendment to Third Building Lease, dated July 28, 1989.
(Incorporated by reference to Exhibit 10.3G to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1989 (file
no. 0-15627).)
10.1N Second Amendment to Third Building Lease dated September 13,
1991. (Incorporated by reference to Exhibit 10.1J to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1991
(file no. 0-15627).)
10.1O Third Amendment to Third Building Lease, dated December 2,
1992. (Incorporated by reference to Exhibit 10.1M to the Company's
Annual Report on Form 10-K for fiscal year ended January 2, 1993 (file
no. 0-15627).)
10.1P Fourth Amendment to Third Building Lease, dated April 5, 1993.
(Incorporated by reference to Exhibit 10.1P to the Company's Annual
Report on Form 10-K for the fiscal year ended January 1, 1994 (file no.
0-15627).)
10.1Q Lease Agreement, dated July 28, 1989 between KC Woodside and
the Company ("Fourth Building Lease"). (Incorporated by reference to
Exhibit 10.3H to the Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 1989 (file no. 0-15627).)
10.1R First Amendment to Fourth Building Lease dated September 13,
1991. (Incorporated by reference to Exhibit 10.1P to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1991
(file no. 0-15627).)
10.1S Second Amendment to Fourth Building Lease dated August 13,
1992. (Incorporated by reference to Exhibit 10.1P to the Company's
Annual Report on Form 10-K for fiscal year ended January 2, 1993 (file
no. 0-15627).)
10.1T Third Amendment to Fourth Building Lease dated December 2,
1992. (Incorporated by reference to Exhibit 10.1Q to the Company's
Annual Report on Form 10-K for fiscal year ended January 2, 1993 (file
no. 0-15627).)
10.1U Fourth Amendment to Fourth Building Lease dated April 5, 1993.
(Incorporated by reference to Exhibit 10.1U to the Company's Annual
Report on Form 10-K for fiscal year ended January 1, 1994 (file no.
0-15627).)
10.1V Triple Net Lease dated July 9, 1990 between KC Woodside and the
Company ("Fifth Building Lease"). (Incorporated by reference to
Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 29, 1990 (file no. 0-15627).)
10.1W First Amendment to Fifth Building Lease dated April 29, 1991.
(Incorporated by reference to Exhibit 10.1N to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1991 (file
no. 0-15627).)
10.1X Second Amendment to Fifth Building Lease dated April 29, 1991.
(Incorporated by reference to Exhibit 10.1O to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1991 (file
no. 0-15627).)
10.1Y Third Amendment to Fifth Building Lease dated June 10, 1991.
(Incorporated by reference to Exhibit 10.1P to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1991 (file
no. 0-15627).)
10.1Z Fourth Amendment to the Fifth Building Lease dated July 3,
1991. (Incorporated by reference to Exhibit 10.1Q to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1991
(file no. 0-15627).)
10.1aa Fifth Amendment to Fifth Building Lease dated September 13,
1991. (Incorporated by reference to Exhibit 10.1R to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28,
1991 (file no. 0-15627).)
10.1bb Sixth Amendment to Fifth Building Lease dated December 2,
1992. (Incorporated by reference to Exhibit 10.1X to the Company's
Annual Report on Form 10-K for fiscal year ended January 2, 1993 (file
no. 0-15627).)
10.1cc Seventh Amendment to Fifth Building Lease dated April 5, 1993.
(Incorporated by reference to Exhibit 10.1cc to the Company's Annual
Report on Form 10-K for fiscal year ended January 1, 1994 (file no.
0-15627).)
10.1dd Lease Agreement between KC Woodside and the Company, dated
June 10, 1991 (Umpqua). (Incorporated by reference to Exhibit 10.1Y
to the Company's Annual Report on Form 10-K for fiscal year ended
January 2, 1993 (file no. 0-15627).)
10.1ee Lease Agreement between KC Woodside and the Company, dated
June 10, 1991 (Charles). (Incorporated by reference to Exhibit
10.1Z to the Company's Annual Report on Form 10-K for fiscal year ended
January 2, 1993 (file no. 0-15627).)
10.1ff First Amendment to Lease, dated October 31, 1991 (Charles).
(Incorporated by reference to Exhibit 10.1aa to the Company's
Annual Report on Form 10-K for fiscal year ended January 2, 1993
(file no. 0-15627).)
10.1gg Second Amendment to Lease, dated May 6, 1992 (Charles).
(Incorporated by reference to Exhibit 10.1bb to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
10.1hh Third Amendment to Lease, dated January 8, 1993 (Charles).
(Incorporated by reference to Exhibit 10.1cc to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
10.1jj Lease Agreement between KC Woodside and the Company, dated
June 10, 1991 (S. Platte). (Incorporated by reference to Exhibit
10.1dd to the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1kk First Amendment to Lease, dated May 12, 1992 (Guadalupe).
(Incorporated by reference to Exhibit 10.1ff to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
10.1ll Business park Lease between KC Woodside and the Company, dated
June 10, 1991 (Hillsborough). (Incorporated by reference to Exhibit
10.1gg to the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1mm Fourth Amendment to Lease, dated July 21, 1995 (Charles).
(Incorporated by reference to Exhibit 10.1dd to the Company's Annual
Report on 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
10.1nn First Amendment to Lease, dated July 21, 1995 (South Platte).
(Incorporated by reference to Exhibit 10.1ee to the Company's Annual
Report on Form 10-K for fiscal year ended Janaury 2, 1993 (file no.
0-15627).)
10.1oo Second Amendment to Lease, dated July 21, 1995 (Guadalupe).
(Incorporated by reference to Exhibit 10.gg to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
10.2 Master Software License Agreement between Unix System
Laboratories, Inc. (formerly owned by American Telephone & Telegraph
Company) and the Company, dated effective as of April 18, 1985.
(Incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
10.2A Sublicensing Agreement dated January 28, 1986, as amended June
22, 1987 and August 10, 1987. (Incorporated by reference to Exhibit
10.2A to the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.2B Substitution Agreement between Unix System Laboratories, Inc.
and the Company, dated January 28, 1986. (Incorporated by reference to
Exhibit 10.2B to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.2C Amendment dated November 13, 1992 to Master Software License
Agreement and Sublicensing Agreement with Unix System Laboratories,
Inc.
10.2D License Agreement dated July 15, 1983 between The Regents of
University of California and the Company, as amended July 2, 1986.
(Incorporated by reference to Exhibit 10.2C to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993 (file no.
0-15627).)
+10.3 Distributorship Agreement between the Company and Oracle
Corporation, dated March 31, 1987, as amended on December 29, 1988,
August 30, 1989, May 28, 1990, May 31, 1991 and June 30, 1991.
(Incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for fiscal year ended January
2, 1993 (file no. 0-15627).)
*10.4 Aircraft Lease Agreement between the Company and B&K
Transportation, Inc., dated October 1, 1993, as amended November 1,
1993 and December 12, 1994. (Incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1994 (file no. 0-15627).)
* 10.5 Sequent Computer Systems, Inc. Incentive Stock Option Plan
and Nonstatutory Stock Option Plan adopted March 20, 1984, as
amended. (Incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (File no. 33-33444).)
* 10.6 Sequent Computer Systems, Inc. 1987 Employee Stock Option
Plan, as amended. (Incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (file no. 33-33444).)
* 10.7 Sequent Computer Systems, Inc. 1987 Nonstatutory Stock
Option Plan, as amended. (Incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-1 (file no.
33-33444).)
* 10.8 Sequent Computer Systems Inc. Restated Employee Stock
Purchase Plan. (Incorporated by reference to Appendix A to the
Company's Proxy Statement dated March 18, 1993).
* 10.9 Sequent Computer Systems, Inc. 1989 Stock Incentive Plan,
as amended. (Incorporated by reference to Appendix A to the
Company's Proxy Statement for its 1994 Annual Meeting of
Shareholders).
11 Statement regarding computation of earnings per share.
13 1995 Annual Report to Shareholders (portions not incorporated by
reference are not deemed filed).
21 Subsidiaries.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
________________________
+ Confidential treatment for portions of this contract has been
previously requested of the Commission.
* Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14(a) (3) of this Report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
last quarter of fiscal 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Sequent Computer Systems, Inc.
Date: March 26, 1996 By:__________________________________
Robert S. Gregg
Sr. Vice President of Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1996.
Signature Title
KARL C. POWELL, JR. Chairman and Chief Executive Officer
(Karl C. Powell, Jr.) and Director (Principal Executive Officer)
ROBERT S. GREGG Sr. Vice President of Finance and Legal
(Robert S. Gregg) and Chief Financial Officer
(Principal Accounting and Financial Officer)
JOHN MCADAM Director
(John McAdam)
DAVID R. HATHAWAY *
(David R. Hathaway) Director
ROBERT C. MATHIS *
(Robert C. Mathis) Director
MICHAEL S. SCOTT MORTON *
(Michael S. Scott Morton) Director
RICHARD C. PALERMO *
(Richard C. Palermo) Director
ROBERT W. WILMOT *
(Robert W. Wilmot) Director
By: ROBERT S. GREGG *
Robert S. Gregg, Attorney-in-fact
<TABLE>
SCHEDULE V
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
PROPERTY AND EQUIPMENT (1)
(In thousands)
<CAPTION>
Balance at Balance at
Beginning of Additions Other Charges End of
Period at Cost Retirements Add (Deducts) Period
<S> <C> <C> <C> <C> <C>
Year ended Jan. 1, 1994
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 75,112 36,471 15,688 0 95,895
Furniture and equipment 43,195 4,990 1,542 0 46,643
Leasehold improvements 8,510 2,951 268 0 11,193
$ 131,854 $ 44,412 $ 17,498 $ 0 $ 158,768
Year ended Dec. 31, 1994
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 95,895 38,053 14,413 0 119,535
Furniture and equipment 46,643 14,875 7,646 0 53,872
Leasehold improvements 11,193 1,707 559 0 12,341
$ 158,768 $ 54,635 $ 22,618 $ 0 $ 190,785
Year ended Dec. 30, 1995
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 119,535 25,162 9,800 0 134,897
Furniture and equipment 53,872 14,499 1,361 0 67,010
Leasehold improvements 12,341 3,711 78 0 15,974
$ 190,785 $ 43,372 $ 11,239 $ 0 $ 222,918
(1) Depreciation and amortization is provided on a straight-line basis
over the estimated life as follows:
Operational equipment 3 to 5 years
Furniture and equipment 3 to 5 years
Leasehold improvements 5 to 10 years
SCHEDULE VI
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
(In thousands)
Additions
Balance at Charged to Retirements Other Balance at
Beginning of Costs and Charged to Charges End of
Period Expenses Other Accts. Add (Deducts) Period
Year ended Jan. 1, 1994
Operational equipment $ 32,319 $ 18,501 $ 9,499 $ 0 $ 41,321
Furniture and equipment 21,322 6,777 643 0 27,456
Leasehold improvements 2,725 1,100 143 0 3,682
$ 56,366 $ 26,378 $ 10,285 $ 0 $ 72,459
Year ended Dec. 31, 1994
Operational equipment $ 41,321 $ 19,370 $ 5,060 $ 0 $ 55,631
Furniture and equipment 27,456 13,810 5,524 0 35,742
Leasehold improvements 3,682 1,613 97 0 5,198
$ 72,459 $ 34,793 $ 10,681 $ 0 $ 96,571
Year ended Dec. 30, 1995
Operational equipment $ 55,631 $ 18,183 $ 2,339 $ 0 $ 71,475
Furniture and equipment 35,742 12,490 2,389 0 45,843
Leasehold improvements 5,198 2,291 54 0 7,435
$ 96,571 $ 32,964 $ 4,782 $ 0 $ 124,753
SCHEDULE VIII
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions Additions
Balance at Charged to Charged to Write-offs Balance at
Beginning of Costs and Other Accts. Net of End of
Period Expenses Describe (1) Recoveries Period
Year ended Jan. 1, 1994
Allowance for doubtful
accounts $ 1,836 $ 468 $ (10) $ 513 $ 1,781
Accumulated amortization
capitalized software $ 19,191 $ 11,714 $ 0 $ 1,993 $ 28,912
Year ended Dec. 31, 1994
Allowance for doubtful
accounts $ 1,781 $ 898 $ 9 $ 355 $ 2,333
Accumulated amortization
capitalized software $ 28,912 $ 12,778 $ 0 $ 0 $ 41,690
Year ended Dec. 30, 1995
Allowance for doubtful
accounts $ 2,333 $ 1,089 $ (18) $ 588 $ 2,816
Accumulated amortization
capitalized software $ 41,690 $ 16,618 $ 0 $ 0 $ 58,308
(1) Foreign currency translation adjustment
SCHEDULE IX
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(In thousands)
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
End of Interest During the During the During the
Period Rate Period Period Period (1)
Year ended Jan. 1, 1994
Notes payable to bank $ 32,279 6.0% $ 32,279 $ 27,247 6.8%
Year ended Dec. 31, 1994
Notes payable to bank $ 59,437 5.5% $ 59,437 $ 44,772 5.6%
Year ended Dec. 30, 1995
Notes payable to bank $ 41,146 5.5% $ 61,529 $ 47,155 6.3%
(1) The weighted average interest rate during the period is calculated
using monthly weighted averages.
SCHEDULE X
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
Fiscal Year Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Depreciation and amortization:
Depreciation $ 34,972 $ 31,822 $ 27,259
Capitalized software amortization 16,618 12,778 11,714
Goodwill amortization 504 536 517
Total $ 52,094 $ 45,136 $ 39,490
Royalties $ 10,141 $ 6,374 4,380
Advertising $ 11,358 $ 11,674 $ 9,803
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Sequent Computer Systems, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 24, 1996 appearing on page 49 of the 1995 Annual Report to
Shareholders of Sequent Computer Systems, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of Financial Statement Schedules listed in
Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Portland, Oregon
January 24, 1996
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $540.3 million in 1995 compared to $450.8 million in
1994 and $353.8 million in 1993. The Company recorded net income in 1995 of
$35.1 million, compared to $33.1 million in 1994 and a net loss in 1993 of
$7.5 million, which included a pretax restructuring charge of $22.3 million.
The Company's total revenue for 1995 represents a 20% increase over 1994 and
is attributed to strong sales performance primarily in Europe and the Western
region of North America. Net earnings increased 6% in 1995 and were adversely
impacted by the increase in the Company's effective tax rate to approximately
26% from 15% in 1994.
The Company's total revenue growth rate of 27% from 1993 to 1994 was
primarily attributable to its transition from platform vendor to provider of
open systems, architecture and professional services and its success in
penetrating larger customer accounts. In addition to the increase in revenue,
net earnings in 1994 benefitted from management controls resulting in a slight
reduction in selling, general and administrative expenses as a percentage of
revenue.
In 1993, the Company recognized a restructuring charge of $22.3 million
related to a shift to open distributed client/server computing solutions,
professional service consulting and architecture-led selling, marketing and
engineering.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenue:
Fiscal Year Ended
December 30, December 31, January 1,
1995 1994 1994
Revenue:
End-user products 69.4% 70.6% 72.0%
OEM products 3.9 5.1 7.3
Service and other 26.7 24.3 20.7
Total revenue 100.0 100.0 100.0
Cost of products and service 54.8 53.7 51.8
Gross profit 45.2 46.3 48.2
Operating expenses:
Research and development 7.5 7.8 8.2
Selling, general and admin. 28.7 29.7 34.6
Restructuring charge -- -- 6.3
Total operating expenses 36.2 37.5 49.1
Operating income (loss) 9.0 8.8 (0.9)
Interest income (expense), net 0.2 (0.3) (0.5)
Other income (expense), net (0.4) 0.1 (0.4)
Income (loss) before provision
for income taxes 8.8 8.6 (1.8)
Provision for income taxes 2.3 1.3 0.3
Net income (loss) 6.5% 7.3% (2.1)%
REVENUE
End-user product revenue increased $56.7 million, or 18% from 1994 to
1995 and $63.5 million, or 25% from 1993 to 1994 primarily due to the North
American and United Kingdom sales operation's success in penetrating and
leveraging large customer accounts. Germany and the Asia-Pacific region also
showed significant percentage growth although at lower dollar magnitudes.
As anticipated, total OEM revenue continued to decline in 1995 compared
to 1994 and 1993 due to decreases in revenue from Unisys Corporation. Total
OEM revenue in 1995 and 1994 was $20.9 million and $23.1 million,
respectively, compared to $25.8 million in 1993.
During 1995 and 1994, the Company's service and other revenue continued
to increase in dollar amount and as a percentage of total revenue primarily
due to the growing installed customer base and associated customer
service/maintenance contracts, as well as the Company's emphasis on
professional services consulting.
The Company has continued to benefit from its significant investment in
developing worldwide sales and distribution channels. International revenue
increased as a percentage of total revenue from 48% in 1994 to 55% in 1995,
the majority of which is from Europe (particularly the United Kingdom), with
the balance coming from Asia-Pacific and Canada. During 1995, international
revenue increased $79.1 million, or 36% over 1994. European operations showed
continued success with large customer accounts and also professional services.
During 1994, international revenue increased 40% over 1993 and increased
as a percentage of total revenue (from 44% to 48%), primarily due to large
customer accounts in the United Kingdom, and a positive currency impact over
1993.
COST OF SALES
Fiscal Year Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Cost of products sold as a percentage
of product revenue 48% 48% 48%
Cost of service and other as a percentage
of service and other revenue 75 71 68
Total cost of sales as a percentage
of total revenue 55 54 52
The factors influencing gross margins in a given period include unit
volumes (which affect economies of scale), product configuration mix, changes
in component and manufacturing costs, product pricing and the mix between
product and service revenue.
Total cost of sales as a percentage of total revenue increased both in
1995 and 1994 compared to 1993 primarily due to product mix with lower margin
service increasing as a percentage of total revenue.
RESEARCH AND DEVELOPMENT
Research and development costs increased 17% in 1995 compared to 1994
and 21% in 1994 compared to 1993. The Company has continued to invest
significantly in new product development in addition to ongoing enhancements
to existing products. Research and development costs as a percentage of total
revenue were approximately 8% for 1995, 1994 and 1993. Management intends to
make significant investments during 1996 in order to deliver its next-
generation (NUMA-Q) products into the market by the end of 1996. This
investment is expected to result in increased research and development costs
during 1996.
Capitalized software amortization was approximately $16.6 million, $12.8
million, and $11.7 million in 1995, 1994 and 1993, respectively. The Company
has continued to increase its focus on software design for computing solutions
and its next-generation products, resulting in greater investments in software
development and products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs increased 16% in 1995 compared
to 1994 and 9% in 1994 compared to 1993 primarily due to costs associated with
increased revenue levels (including commissions and additional sales-related
personnel) and, in 1993, targeted marketing program costs. Selling, general
and administrative costs as a percentage of total revenue were 29% in 1995
compared to 30% in 1994 and 35% in 1993. Selling, general and administrative
costs as a percentage of total revenue have decreased due to management
controls and the impact resulting from obtaining larger orders in large
customer accounts. The company is in the process of making substantial
investments to strengthen its worldwide sales force and to strategically
position itself for the delivery of the NUMA-Q product line beginning in late
1996. As a result, selling, general and administrative expenses are expected
to increase both in dollars and as a percentage of revenue in 1996.
RESTRUCTURING CHARGES
During 1993, the Company provided for restructuring charges of $22.3
million in connection with management's decision to realign resources to
provide open distributed client/server computing solutions, professional
service consulting and architecture-led selling, marketing and engineering
strategies. These restructuring steps included a reduction in the Company's
workforce.
INTEREST AND OTHER INCOME (EXPENSE)
Interest expense includes costs related to the Convertible Debentures,
foreign currency hedging loans and capital lease obligations. Interest income
is primarily generated from restricted deposits held at a foreign bank, short
term investments and cash and cash equivalents. Interest income of $5.3
million exceeded interest expense of $4.2 million in 1995. Interest expense
of $4.7 million and $3.5 million exceeded interest income of $3.5 million and
$1.8 million in 1994 and 1993, respectively.
Other expense in 1995 of $2.3 million and other income in 1994 of
$500,000 includes foreign currency transaction gains and losses and other non-
operating charges. Other expense in 1993 of $1.4 million reflects losses in
the Company's Japanese joint venture, foreign currency transaction gains and
losses and other non-operating charges.
INCOME TAXES
The Company provided $12.3 million for income taxes in 1995 on a net
profit before tax of $47.3 million. The difference between the statutory rate
and the effective tax rate is principally due to the utilization of domestic
tax attributes carried forward from prior years. These carryforward benefits
were fully reserved in prior years. The 1995 effective tax rate of 25.9%
compares to effective rates of 14.6% in 1994 and 18.8% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio at December 30, 1995 increased to 2.5:1 from
2.3:1 at December 31, 1994. Cash flow from operations of $51.6 million and
$23 million from stock issuance proceeds provided the funds for (i)
investments in property and equipment of $38.9 million primarily related to
equipment requirements for product development, strategic partnerships
support, employee desktop enhancements and new employees and (ii) capitalized
software expenditures of $23.4 million related to development of new software
products and enhancements to existing software products.
The Company renegotiated its $50 million line of credit agreement during
1995, increased from $30 million. The line is unsecured and extends through
May 30, 1996. The line contains certain financial covenants and prohibits the
Company from paying dividends without the lenders' consent. No borrowings
were outstanding under the line of credit as of December 30, 1995.
The Company maintains a short-term borrowing agreement with a foreign
bank to cover foreign currency exposures. Maximum borrowings allowed under
the foreign bank agreement were $56.2 million, of which $39.6 million was
outstanding at December 30, 1995 (based on currency exchange rates on such
date).
The Company maintains a short-term borrowing agreement with a domestic
bank as an additional hedging facility to cover certain foreign currency
exposures. At December 30, 1995, no borrowings were outstanding under this
agreement.
In addition to the above borrowing agreements, the Company has entered
into certain other miscellaneous borrowing arrangements with a foreign bank
aggregating $1.5 million as of December 30, 1995.
Management expects that existing funds, funds generated from operations
and the bank line of credit will provide adequate resources to meet the
Company's anticipated cash requirements during 1996 resulting from its
operations and planned investments in its sales force and NUMA-Q product
technology.
FORWARD-LOOKING STATEMENTS
The Chairman's Letter and Management's Discussion and Analysis of
Financial Conditions and Results of operations contain information regarding
management's revenue growth and earnings expectations, planned expenditure
levels and comments relating to technology development and resulting release
of future products. These statements are forward-looking statements that
involve a number of risks and uncertainties. The following factors are among
the factors that could cause actual results to differ materially from the
forward-looking statements: business conditions and growth in the electronics
industry and general economies, both domestic and international; lower than
expected customer orders, delays in receipt of orders or cancellation of
orders; competitive factors, including increased competition, new product
offerings by competitors and price pressures; the availability of third party
parts and supplies at reasonable prices; changes in product mix and the mix
between product and service revenue; significant quarterly performance
fluctuations due to the receipt of a significant portion of customer orders
and product shipments in the last month of each quarter; and product shipment
interruptions due to manufacturing problems.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal Year Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Revenue:
Product $ 395,941 $ 341,504 $ 280,579
Service and other 144,404 109,319 73,227
Total revenue 540,345 450,823 353,806
Costs and expenses:
Cost of products sold 188,232 164,991 133,294
Cost of service and other revenue 107,721 77,238 49,988
Research and development 40,923 35,047 28,944
Selling, general and admin. 154,950 134,070 122,537
Restructuring charge --- --- 22,307
Total costs and expenses 491,826 411,346 357,070
Operating income (loss) 48,519 39,477 (3,264)
Interest income 5,340 3,515 1,819
Interest expense (4,207) (4,687) (3,474)
Other income (expense), net (2,325) 495 (1,412)
Income (loss) before provision
for income taxes 47,327 38,800 (6,331)
Provision for income taxes 12,254 5,666 1,193
Net income (loss) $ 35,073 $ 33,134 $ (7,524)
Net income (loss) per share $ 1.04 $ 1.03 $ (.26)
Weighted average number of common
and common equivalent shares
outstanding 33,665 32,028 29,335
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Dec. 30, 1995 Dec. 31, 1994
ASSETS
Current assets:
Cash and cash equivalents $ 61,939 $ 46,291
Restricted deposits 39,642 59,437
Receivables, net 178,322 133,571
Inventories 60,853 48,698
Prepaid royalties and other 13,464 12,812
Total current assets 354,220 300,809
Property and equipment, net 98,165 94,214
Capitalized software costs, net 45,381 38,555
Intangible assets and other, net 6,157 2,399
Total assets $ 503,923 $ 435,977
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 41,146 $ 59,437
Accounts payable and other 60,095 46,744
Accrued payroll 11,723 11,794
Unearned revenue 21,466 9,716
Income taxes payable 4,981 3,850
Current obligations under capital
leases and debt 60 800
Total current liabilities $ 139,471 $ 132,341
Other accrued expenses 2,158 2,100
Long-term obligations under
capital leases and debt 9,106 10,341
Total liabilities 150,735 144,782
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, $.01 par value,
5,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value, 100,000
shares authorized, 33,221 and 31,360
shares outstanding 332 314
Paid-in capital 302,186 278,145
Retained earnings 52,945 17,872
Foreign currency translation adjustment (2,275) (5,136)
Total shareholders' equity 353,188 291,195
Total liabilities and
shareholders' equity $ 503,923 $ 435,977
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<TABLE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<CAPTION>
Retained Foreign
earnings currency
Preferred Stock Common Stock Paid-in (accumulated translation
Shares Amount Shares Amount capital deficit) adjustment Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1993 1,500 $ 15 22,450 $ 225 $ 186,027 $ (7,738) $ (6,027) $ 172,502
Common shares issued,
net of repurchases - - 4,795 47 79,883 - - 79,930
Conversion of preferred
stock (1,500) (15) 3,000 30 - - - 15
Net loss - - - - - (7,524) - (7,524)
Foreign currency
translation adjustment - - - - - - (1,435) (1,435)
Balance, January 1, 1994 - - 30,245 302 265,910 (15,262) (7,462) 243,488
Common shares issued - - 1,115 12 12,235 - - 12,247
Net income - - - - - 33,134 - 33,134
Foreign currency translation
adjustment - - - - - - 2,326 2,326
Balance, December 31, 1994 - - 31,360 314 278,145 17,872 (5,136) 291,195
Common shares issued - - 1,798 18 18,298 - - 18,316
Tax benefit of option exercises - - - - 4,743 - - 4,743
Conversion of debentures - - 63 - 1,000 - - 1,000
Net income - - - - - 35,073 - 35,073
Foreign currency translation
adjustment - - - - - - 2,861 2,861
Balance, December 30, 1995 - $ - 33,221 $ 332 $ 302,186 $ 52,945 $ (2,275) $ 353,188
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Fiscal Year Ended
Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 35,073 $ 33,134 $ (7,524)
Reconciliation of net income (loss)
to net cash and cash equivalents provided
by operating activities-
Depreciation and amortization 52,094 44,600 39,490
Restructuring charge not affecting cash -- -- 14,286
Changes in assets and liabilities-
Receivables, net (44,751) (18,010) (32,055)
Inventories (12,155) (2,833) (18,208)
Prepaid royalties and other (652) (403) (3,033)
Accounts payable and other 13,351 (17,072) 32,714
Accrued payroll (71) 891 339
Unearned revenue 11,750 2,593 2,025
Income taxes payable 1,131 2,835 (226)
Other accrued expenses (4,204) 314 267
Net cash provided by
operating activities 51,566 46,049 28,075
Cash flow from investing activities:
Restricted deposits 19,795 (27,158) (2,283)
Investments -- 5,000 (5,000)
Purchases of property and equipment, net (38,923) (40,256) (40,032)
Capitalized software costs (23,444) (19,116) (21,012)
Foreign currency translation adjustment 2,861 2,326 (1,435)
Other, net -- 399 454
Net cash used for investing activities (39,711) (78,805) (69,308)
Cash flow from financing activities:
Notes payable, net (18,291) 27,158 3,634
Payments under capital lease obligations (719) (3,293) (2,635)
Long-term debt payments, net (256) (51) (1,190)
Stock issuance proceeds, net 23,059 12,247 70,045
Net cash provided by financing activities 3,793 36,061 69,854
Net increase in cash and cash equivalents 15,648 3,305 28,621
Cash and cash equivalents at beginning
of period 46,291 42,986 14,365
Cash and cash equivalents at end of period $ 61,939 $ 46,291 $ 42,986
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</TABLE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sequent Computer Systems, Inc. and subsidiaries ("Sequent" or the
"Company") was incorporated in January 1983 and was in the development stage
until product shipments began in December 1984. Sequent is a provider of
large open systems and client/server solutions for large organizations
spanning diverse industries. Sequent develops, manufactures and sells
symmetric multiprocessing (SMP) systems that support large-scale on-line
transaction processing (OLTP), decision support (DSS) and Internet-based
business communications applications. Sequent's project-oriented offerings
include consulting and professional services to link companies' current and
future IT investments to their business strategy. The Company partners with
other systems vendors to deliver complete solutions to its customers.
Principles of Consolidation. The Company's fiscal year is based on a
52-53 week year ending the Saturday closest to December 31. The consolidated
financial statements of the Company include accounts of Sequent Computer
Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and profits have been eliminated.
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currencies and translated into
U.S. dollars for purposes of consolidation. Translation adjustments are
accumulated as a separate component of shareholders' equity. Gains and losses
resulting from transactions denominated in a currency other than an entity's
functional currency are included in other income (expense) in the consolidated
statements of operations. During 1995 and 1993 the Company realized a net
pretax loss of $0.8 million and $0.2 million, respectively, resulting from
such transactions. During 1994 the Company realized a net pretax gain of $1.1
million as a result of positive impact of changes in exchange rates, primarily
in the United Kingdom.
Revenue Recognition and Receivables. Revenue from product sales is
generally recognized upon shipment; however, depending upon contract terms,
revenue recognition may be deferred until customer acceptance or clarification
of funding. Revenue is recognized as earned on the straight-line basis over
the term of customer service/maintenance contracts, and on the percentage-of-
completion basis for professional service contracts.
Receivables are shown net of allowance for doubtful accounts of $2.8
million at December 30, 1995 and $2.3 million at December 31, 1994.
In July 1994, the Company entered into a two year agreement with a group
of banks to sell, without recourse, undivided ownership interests in a
revolving pool consisting of substantially all of the Company's domestic
accounts receivable for a maximum of $20 million. At December 30, 1995 and
December 31, 1994, accounts receivable in the accompanying consolidated
balance sheets is net of $14 million and $8 million, respectively, received by
the Company under this agreement.
The Company had no single customer that represented greater than 10% of
total revenue in 1995, 1994 and 1993.
Inventories. Inventories are stated at the lower of cost or market.
Costs are determined using the first-in, first-out (FIFO) method and include
material, labor and manufacturing overhead.
Prepaid Royalties. The Company has entered into agreements with various
vendors which provide for prepayment of future royalties based on sales of
certain software. Prepaid royalties were $3.6 million at December 30, 1995
and $4.2 million at December 31, 1994, and are stated at the lower of cost or
net realizable value. Such prepaid amounts are realized by receipt of reverse
royalties from the vendors based upon software sales by the vendor, and by
charging cost of products sold for certain software sales by the Company.
Property and Equipment. Property and equipment are stated at cost and
depreciated over their estimated useful lives, ranging from three to five
years, on the straight-line method. Leasehold improvements and equipment held
under capital leases are amortized on the straight-line basis over the shorter
of the asset life or lease term. Maintenance and repairs are expensed as
incurred.
Research and Development. Software development costs for certain
projects are capitalized from the time technological feasibility is
established to the time the resulting software product is first shipped.
Capitalized software costs are stated at the lower of cost or net realizable
value and are shown net of accumulated amortization of $58.3 million at
December 30, 1995 and $41.7 million at December 31, 1994. Amortization,
generally based on a three-year straight-line basis, was $16.6 million in
1995, $12.8 million in 1994 and $11.7 million in 1993. All other research and
development costs are expensed as incurred.
Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting For Income
Taxes".
The Company's general practice is to reinvest the earnings of its foreign
subsidiaries in those operations, unless it would be advantageous to the
Company to repatriate the foreign subsidiaries' retained earnings.
Per Share Information. Primary earnings per share is computed based on
the weighted average number of common and dilutive common equivalent shares
outstanding. Outstanding stock options, net of assumed buy-back, and
preferred stock are common stock equivalents.
The computation of fully dilutive earnings per share also assumes
conversion of the remaining 7.5% Convertible Subordinated Debentures issued
April 1992 when it would be dilutive. A fully diluted earnings per share
amount is not shown as the effect of the debentures would be antidilutive.
Consolidated Statement of Cash Flows. The Company considers short-term
investments which are highly liquid, readily convertible into cash and having
original maturities less than three months to be cash equivalents for purposes
of the statement of cash flows.
Total cash expenditures for income taxes were $5.3 million, $2.3 million
and $.8 million during 1995, 1994 and 1993, respectively. Interest paid does
not differ materially from interest expense.
Non-cash investing and financing activities include the following: 1995 -
$1 million of Convertible Debentures were converted into 63,000 shares of
common stock. 1993 - In connection with the equity offering, all outstanding
shares of preferred stock were converted into 3 million shares of common stock
and $9.9 million of the Convertible Debentures were converted into 626,000
shares of common stock.
Management Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
New Accounting Pronouncements. In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets...". SFAS
121 requires recognition of impairment of long-lived assets in the event the
net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. The adoption of SFAS 121 is not expected to have a
material impact on the Company's financial position or results of operations.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 allows companies to choose whether to account for stock-based compensation
on a fair value method or to continue to account for stock-based compensation
under the current intrinsic value method as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company plans to adopt SFAS
123 during 1996 and to continue to follow the provisions of APB Opinion No.
25. Accordingly, management of the Company believes that the impact of
adoption will not have a significant effect on the Company's financial
position or results of operations.
2. INVENTORIES
(in thousands)
December 30, December 31,
1995 1994
Raw materials $ 9,385 $ 5,377
Work-in-progress 1,736 2,065
Finished goods 49,732 41,256
$ 60,853 $ 48,698
Finished goods inventory includes evaluation systems aggregating
$15.7 million and $10.4 million as of December 30, 1995 and December 31, 1994,
respectively. Such systems are located at potential customer sites for
demonstration and garner of sales.
3. PROPERTY AND EQUIPMENT
(in thousands)
December 30, December 31,
1995 1994
Land $ 5,037 $ 5,037
Operational equipment 134,897 119,535
Furniture and office equipment 67,010 53,872
Leasehold improvements 15,974 12,341
222,918 190,785
Less accumulated depreciation
and amortization (124,753) (96,571)
$ 98,165 $ 94,214
Depreciation and amortization charged to expense totaled $35.0 million in
1995, $31.8 million in 1994 and $27.3 million in 1993.
4. NOTES PAYABLE
The Company has an unsecured line of credit agreement with a group of
banks which provides short-term borrowings up to $50 million (increased in the
second quarter of 1995 from $30 million). The line of credit agreement
contains financial covenants, including covenants relating to net worth, ratio
of liabilities to net worth and limitations on net operating losses, and
prohibits the Company from paying dividends without the group of banks'
consent. The line of credit agreement extends through May 30, 1996. At
December 30, 1995 and December 31, 1994 there were no borrowings outstanding
under this line of credit agreement.
The Company has a short-term borrowing agreement with a foreign bank as a
hedge to cover certain foreign currency exposures. Borrowings under the
agreement are denominated in various foreign currencies. Proceeds from the
borrowings are converted into U.S. dollars and placed in a term deposit
account with the foreign bank. The deposits, which are classified as
restricted deposits in the accompanying consolidated balance sheets, are
pledged to the foreign bank so long as borrowings under the agreement are
outstanding. During July 1995, the Company re-negotiated the agreement and
extended it through July 1996. The foreign bank, without cause, can terminate
the agreement at any time. At December 30, 1995, maximum borrowings allowed
under the agreement were $56.2 million. Amounts outstanding were $39.6
million and $49 million at December 30, 1995 and December 31, 1994,
respectively. The maximum borrowing limit is denominated in specified foreign
currencies and fluctuates with the change in foreign exchange rates. The
average interest rate on these borrowings at December 30, 1995 was 6.4%.
In July 1994, the Company entered into an agreement with a domestic bank
for an additional hedging facility to cover certain foreign currency
exposures. Borrowings under this agreement are denominated in foreign
currencies. Proceeds from the borrowings are converted into U.S. dollars and
placed in a term deposit account. The deposits are classified as restricted
deposits in the accompanying consolidated balance sheets and are pledged to
the bank so long as borrowings under the agreement are outstanding. The
agreement is for a maximum of $10 million, excluding foreign currency gain or
loss fluctuations, and expires May 30, 1996. At December 30, 1995, there were
no borrowings outstanding under this agreement. At December 31, 1994,
borrowings of $10.4 million, after translation, were outstanding under this
agreement. The interest rate on these borrowings was 6% at December 31, 1994.
In addition to the above borrowing agreements, the Company has entered
into certain other miscellaneous borrowing arrangements with a foreign bank
aggregating $1.5 million as of December 30, 1995. The interest rate on these
borrowings was 1.7% at December 30, 1995.
5. OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT
In April 1992, the Company issued $20 million of 7.5% Convertible
Subordinated Debentures ("Convertible Debentures" or "Debentures") due March
31, 2000. In conjunction with the Company's equity offering in 1993 (see
Shareholders' Equity footnote), $9.9 million of the Debentures were converted
into 626,000 shares of common stock and are no longer classified as long-term
debt. The Convertible Debentures are convertible into the Company's common
stock at the option of the holders at an initial conversion price of $15.81
per share. Under this provision, in August 1995, an additional $1.0 million
of the debentures were converted into 63,000 shares of common stock, further
reducing long-term debt. Beginning on June 30, 1997, the Company is required
to make quarterly principal payments of $1.7 million through 1998 to retire
the outstanding Debentures. The balance outstanding on the Debentures was
$9.1 million and $10.1 million at December 30, 1995 and December 31, 1994,
respectively. The Convertible Debentures are callable at the option of the
Company after five years (in certain circumstances, after three years). The
Debentures contain certain financial covenants, including restrictions on
additional debt, minimum net worth levels and a prohibition on the payment of
dividends.
Sequent leases certain equipment under five-year capital leases. These
lease terms require maintenance of certain financial ratios and generally
include a fair market value purchase option at the end of the lease. The cost
of equipment under capital leases was $.4 million and $4.1 million at the end
of 1995 and 1994, respectively. Accumulated amortization was $.3 million and
$3.8 million, respectively. These leased assets are pledged as security for
capital lease obligations.
Included in the above are capital leases arising from sale-leaseback
transactions whereby the Company has sold certain equipment to leasing
companies and then leased back the same equipment under capital leases. Such
transactions have resulted in gains which have been deferred. The Company
amortizes these gains over terms of the respective leases. Total deferred
gains at December 30, 1995 and December 31, 1994 were $0 and $122,000,
respectively. The short-term portion of these gains is reflected in the
balance sheets as accounts payable and other, while the long-term portion is
included in other accrued expenses.
Aggregate payments due on obligations under capital leases and debt
subsequent to 1995 are: 1996 - $.1 million, 1997 - $5.0 million, and 1998 -
$4.1 million.
6. OPERATING LEASE COMMITMENTS
Sequent is committed under operating leases for office space and
manufacturing facilities. Future minimum lease payments are as follows:
(In thousands)
1996 $ 14,565
1997 12,119
1998 11,113
1999 9,812
2000 8,515
2001 and thereafter $ 15,746
Rent expense for operating leases was $14.9 million, $15.1 million and
$14.7 million in 1995, 1994 and 1993, respectively.
7. INCOME TAXES
Pre-tax income (loss) from continuing operations for the last three
fiscal years was taxed under the following jurisdictions:
(in thousands)
Fiscal Fiscal Fiscal
1995 1994 1993
Domestic $ 29,556 $ 27,332 $ (3,989)
Foreign 17,771 11,468 (2,342)
Total $ 47,327 $ 38,800 $ (6,331)
The provision (benefit) for income taxes was as follows:
Fiscal Fiscal Fiscal
1995 1994 1993
Current:
Federal $ 5,890 $ 1,420 $ 611
Foreign 5,435 3,769 697
State 355 96 --
11,680 5,285 1,308
Deferred:
Federal -- -- --
Foreign 574 381 (115)
State -- -- --
574 381 (115)
Total provision $ 12,254 $ 5,666 $ 1,193
Deferred tax liabilities (assets) are comprised of the following
components:
(in thousands)
Dec. 30, Dec. 31,
1995 1994
Research and development $ 17,534 $ 14,830
Depreciation (798) (112)
Other 2,929 1,408
Gross deferred tax liabilities 19,665 16,126
Net operating loss carryforwards:
Domestic (21,677) (26,416)
Foreign (8,733) (9,051)
Credit carryforwards (10,720) (5,873)
Expenses not currently deductible (7,586) (4,735)
Revenue currently taxable (945) (746)
Inventory basis differences (1,337) (1,563)
Restructuring costs (188) (786)
Gross deferred tax assets (51,186) (49,170)
Deferred tax asset valuation allowance 31,542 32,999
Net deferred tax liability (asset) $ 21 $ (45)
The provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory federal tax rate to income (loss)
from continuing operations due to the following:
Fiscal Fiscal Fiscal
1995 1994 1993
Statutory federal tax rate 35.0% 35.0% (34.0)%
State taxes, net of federal benefit 4.2 4.2 (4.3)
Tax provision (benefit) from Foreign
Sales Corporation (1.6) (3.9) 9.6
Tax provision on foreign earnings (2.1) (0.1) 9.2
Tax effect of fully reserving
changes in net deferred tax asset -- -- 38.3
Realized benefit from net
operating losses (9.6) (20.9) --
Other, net 0.3 --
25.9% 14.6% 18.8%
The deferred tax asset valuation allowance in fiscal years 1993-1995 is
attributed to U.S. federal and state deferred tax assets. Management believes
sufficient uncertainty exists with regard to the realizability of such assets
that a valuation allowance of $31.5 million has been provided at December 30,
1995. When and if these reserved deferred tax assets are ultimately realized,
$16.0 million will reduce the Company's federal and state tax provision and
$15.5 million will be credited to paid-in capital (related to stock option
deductions).
In accordance with FAS 109, the valuation allowance is allocated pro-rata
to federal and state current and non-current deferred tax assets. Net
deferred tax liability at December 30, 1995 reflects foreign liabilities of
$578,000 offset by $557,000 of U.S. assets. The net deferred tax asset at
December 31, 1994 related to foreign operations.
The Company has accumulated unused research and development credits of
$3.9 million for income tax purposes. These credits expire from 1998-2005.
The Company also has Alternative Minimum Tax Credits (AMT) which may be
carried forward indefinitely and certain state tax credits which expire from
1996-2000.
The Company may realize tax benefits as a result of the exercise of
certain employee stock options. For financial reporting purposes, any
reduction in income tax obligations as a result of these tax benefits is
credited to paid-in capital. During 1995, $4.7 million of benefits were
credited to paid-in capital with a related reduction in current taxes payable.
No benefits were recognized in 1994 or 1993.
An income tax provision has not been recorded for U.S. or additional
foreign taxes on undistributed earnings of foreign subsidiaries as the
undistributed earnings have been and will continue to be reinvested.
8. RESTRUCTURING CHARGES
During 1993, the Company provided for restructuring charges of $22.3
million in connection with management's decision to realign resources to
provide open distributed client/server computing solutions, professional
service consulting and architecture-led selling, marketing and engineering
strategies. These restructuring steps included a reduction in the Company's
workforce of approximately 5%. The realignment of resources is progressing
according to plan. The $.5 million remaining accrual is primarily related to
obligations associated with closed facility leases and future extended
employee benefit costs. Management expects that the remaining accrual is
adequate and will be fully utilized according to the realignment plan.
9. SHAREHOLDERS' EQUITY
Common and Preferred Stock. In February 1993, the Company sold 3 million
shares of common stock in an equity offering. Net proceeds to the Company,
after deducting the underwriting discount and offering expenses, were
approximately $60 million. In connection with such offering, all outstanding
shares of preferred stock were converted into 3 million shares of common stock
and $9.9 million of the Debentures were converted into 626,000 shares of
common stock. In 1995, an additional $1.0 million of the Debentures were
converted into 63,000 shares of common stock.
Stock Option Plans. Sequent grants options under compensatory and
noncompensatory plans to employees and nonemployees. Option prices generally
have been at 85% or greater of the fair market value of the common stock on
the date of grant. Employee and nonemployee options vest over varying time
periods as long as, in the case of employees, the optionee remains employed by
Sequent. Options generally expire ten years from the date of the grant.
The following table summarizes the stock option transactions:
(In thousands, except per share)
Shares Under
Option Price Range
Balance at January 2, 1993 4,564 $1.20 - $22.31
Options granted 968 $10.31 - $21.13
Options cancelled (454) $5.05 - $20.63
Options exercised (609) $1.20 - $15.41
Balance at January 1, 1994 4,469 $1.20 - $22.31
Options granted 1,214 $10.47 - $19.63
Options cancelled (603) $6.32 - $20.50
Options exercised (648) $1.20 - $17.85
Balance at December 31, 1994 4,432 $1.20 - $22.31
Option granted 2,328 $12.22 - $24.38
Options cancelled (636) $6.80 - $24.38
Options exercised (1,056) $1.20 - $19.23
Balance at December 30, 1995 5,068 $1.20 - $24.38
Exercisable at December 30, 1995 1,276 $1.20 - $22.31
Available for grant at
December 30, 1995 544
Employee Stock Purchase Plan. In September 1987, Sequent
established an Employee Stock Purchase Plan. Under the plan, Sequent is
authorized to grant rights to purchase up to 4,150,000 shares of common stock
in a series of eighteen-month offerings. At December 30, 1995, there were
957,000 shares available for future purchase. Substantially all employees are
eligible to receive rights under the plan. The purchase price is the lesser
of 85% of the fair market value of the common stock on the date of plan
enrollment or on the date of purchase. During 1995, 1994 and 1993, Sequent
issued 576,000, 467,000 and 535,000 shares under the plan, respectively.
10. GEOGRAPHIC SEGMENT INFORMATION
Information about the Company's foreign operations and export sales is
provided in the table below. Foreign revenue is that which is produced by
identifiable assets located in foreign countries while export revenue is that
which is generated by identifiable assets located in the United States.
(in thousands)
Fiscal Fiscal Fiscal
1995 1994 1993
Revenue:
United States $ 244,029 $ 233,246 $ 197,724
Foreign:
Europe 242,133 177,320 127,595
Other 32,784 24,624 19,953
Export:
Europe -- -- --
Other 21,399 15,633 8,534
$ 540,345 $ 450,823 $ 353,806
Operating income (loss):
United States $ 27,184 $ 27,773 $ 304
Foreign:
Europe 18,290 9,444 (4,249)
Other 3,045 2,260 681
$ 48,519 $ 39,477 $ (3,264)
Identifiable assets:
United States $ 367,196 $ 321,857 $ 308,651
Foreign:
Europe 123,614 105,232 61,963
Other 13,113 8,888 4,810
$ 503,923 $ 435,977 $ 375,424
Intercompany sales between geographic areas, primarily from the United
States to Europe, were $131.0 million during 1995, $111.1 million during 1994
and $81.6 million during 1993.
11. FOREIGN CURRENCY EXPOSURE
A substantial portion of the Company's business is conducted overseas
through its foreign subsidiaries, primarily in Europe. This exposes the
Company to risks associated with foreign currency rate fluctuations which can
impact the Company's revenue and net income. To mitigate this risk the
Company enters into foreign currency transactions with foreign and domestic
banks on a continuing basis in amounts and timing consistent with the
underlying currency exposure so that gains and losses on these transactions
offset gains and losses on the underlying exposure. The Company does not
engage in any speculative trading activity. See related discussion in Note 4.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments.
Cash and cash equivalents, restricted deposits, investments, receivables,
notes payable, accounts payable and other and current obligations under
capital leases and debt are reflected in the consolidated financial statements
at fair value because of the short-term maturity of these instruments.
The fair value of long-term obligations under capital leases was
estimated by discounting the future cash flows using market interest rates and
does not differ significantly from the amount reflected in the consolidated
financial statements.
Due to the private nature of the Company's Convertible Debentures and the
subjectivity of assessing the impact of the Company's future common stock
price, the fair value of long-term debt is judged to be materially the same as
that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sequent Computer Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Sequent Computer Systems, Inc. and its subsidiaries at December 30, 1995 and
December 31, 1994, and the results of their operations and their cash flows
for each of the years ended December 30, 1995, December 31, 1994 and January
1, 1994 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
January 24, 1996
QUARTERLY FINANCIAL DATA (unaudited)
(In thousands, except per share amounts)
Total Gross Net Earnings
Revenue Profit Income Per Share
Fiscal 1995
First quarter $ 116,099 $ 52,689 $ 5,953 $ .18
Second quarter 139,207 65,082 11,010 .33
Third quarter 133,215 59,565 7,441 .22
Fourth quarter 151,824 67,056 10,668 .31
Year $ 540,345 $ 244,392 $ 35,073* $ 1.04
Fiscal 1994
First quarter $ 93,871 $ 45,017 $ 4,720 $ .15
Second quarter 108,797 48,579 7,155 .23
Third quarter 121,247 54,321 8,874 .28
Fourth quarter 126,908 60,677 12,385 .38
Year $ 450,823 $ 208,594 $ 33,134 $ 1.03*
*The sum of quarterly earnings per share does not equal annual earnings
per share as a result of the computation of quarterly versus annual average
shares outstanding. The sum of quarterly net income does not equal annual net
income due to rounding.
MARKET INFORMATION (unaudited)
Sequent's Common Stock has been traded on the NASDAQ National Market
System since April 1987 under the symbol SQNT. The following table sets
forth, for the fiscal quarters indicated, the high and low sales prices for
the common stock as reported on the NASDAQ National Market System.
High Low
1995:
First quarter $ 20.63 $ 15.56
Second quarter $ 18.63 $ 14.44
Third quarter $ 25.25 $ 17.88
Fourth quarter $ 19.50 $ 14.38
1994:
First quarter $ 16.13 $ 12.88
Second quarter $ 15.25 $ 11.25
Third quarter $ 18.00 $ 12.00
Fourth quarter $ 20.38 $ 16.75
At December 30, 1995, there were approximately 1.1 thousand shareholders
of record of the Company's common stock and 33.2 million shares outstanding.
The Company has never paid cash dividends on its common stock. The Company
intends to retain earnings for use in its business and, therefore, does not
anticipate paying cash dividends in the foreseeable future. In addition, the
Company's bank line of credit agreement and the agreements relating to the
Company's Convertible Debentures prohibit payment of dividends without the
lenders' consent.
EXHIBIT 11
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT SHOWING CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING AND EARNINGS
PER AVERAGE COMMON SHARE
(in thousands, except per share amounts)
Three Months Ended Year Ended
December 30, 1995 December 30, 1995
Weighted average number
of common shares outstanding 33,075 32,228
Application of the "treasury
stock" method to the stock option
and employee stock purchase plans 920 1,510
Weighted average of common stock
equivalent shares attributable
to convertible debentures 575 607
Total common and common
equivalent shares, assuming
full dilution 34,570 34,345
Net income $ 10,668 $ 35,073
Add:
Interest on convertible debentures,
net of applicable income taxes 122 533
Net income, assuming full dilution $ 10,790 $ 35,606
Net income per common share,
assuming full dilution (A) $ 0.31 $ 1.04
(A) In accordance with generally accepted accounting principles, fully-
diluted earnings per share may not exceed primary earnings per share.
The difference between primary and fully-diluted earnings per share is
due to rounding.
The computation of primary net income per common share is not included as
the computation can be clearly determined from the material contained in
this report.
EXHIBIT 21
SEQUENT COMPUTER SYSTEMS, INC. - SUBSIDIARIES
ENTERPRISE FINANCE COMPANY (Oregon)
SEQUENT EXPORT, INC. (Barbados)
CANADA:
SEQUENT COMPUTER SYSTEMS (CANADA) LIMITED
EUROPE:
SEQUENT COMPUTER SYSTEMS LIMITED (United Kingdom)
SEQUENT COMPUTER SYSTEMS A.B.(Sweden)
SEQUENT COMPUTER SYSTEMS GmbH (Germany)
SEQUENT COMPUTER SYSTEMS, S.A. (France)
SEQUENT COMPUTER SYSTEMS, B.V.(Netherlands)
SEQUENT COMPUTER SYSTEMS, spol. s r.o. (Czechoslovakia)
OPEN TOOL INTERNATIONAL, B.V. (Netherlands)
JAPAN:
SEQUENT COMPUTERS JAPAN CO., LTD.
ASIA:
SEQUENT COMPUTER SYSTEMS (N.Z.) LIMITED (New Zealand)
SEQUENT COMPUTER SYSTEMS AUSTRALIA PTY. LIMITED
SEQUENT COMPUTER SYSTEMS ASIA LIMITED (Hong Kong)
SEQUENT COMPUTER SYSTEMS (SINGAPORE) PTE. LIMITED
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-16428, 33-16463, 33-33338, 33-36836,
33-39315, 33-39657, 33-40941, 33-40942, 33-63972, 33-63974, 33-59147 and
33-59611) of Sequent Computer Systems, Inc. of our report dated January 24,
1996 appearing on page 49 of the Annual Report to Shareholders which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedules,
which appears on page F-6 of this Form 10-K.
PRICE WATERHOUSE LLP
Portland, Oregon
January 27, 1995
EXHIBIT 24
POWER OF ATTORNEY
(Form 10-K)
The undersigned hereby constitutes and appoints Robert S. Gregg his true
and lawful attorney and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the year ended
December 30, 1995 and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting until each attorney and
agent full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that the attorney
and agent or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Dated: March 27, 1996
DAVID R. HATHAWAY
ROBERT C. MATHIS
MICHAEL S. SCOTT MORTON
RICHARD C. PALERMO
ROBB WILMOT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 101,581,000
<SECURITIES> 0
<RECEIVABLES> 181,138,000
<ALLOWANCES> 2,816,000
<INVENTORY> 60,853,000
<CURRENT-ASSETS> 354,220,000
<PP&E> 222,918,000
<DEPRECIATION> 124,753,000
<TOTAL-ASSETS> 503,923,000
<CURRENT-LIABILITIES> 139,471,000
<BONDS> 9,106,000
<COMMON> 332,000
0
0
<OTHER-SE> 352,856,000
<TOTAL-LIABILITY-AND-EQUITY> 503,923,000
<SALES> 395,941,000
<TOTAL-REVENUES> 540,345,000
<CGS> 188,232,000
<TOTAL-COSTS> 295,953,000
<OTHER-EXPENSES> 195,873,000
<LOSS-PROVISION> 1,127,000
<INTEREST-EXPENSE> 4,418,000
<INCOME-PRETAX> 0
<INCOME-TAX> 12,254,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,073,000
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
EXHIBIT 10.1nn
Second AMENDMENT TO LEASE
EARLY TERMINATION
That certain lease dated May 21, 1991, by and between Petula Associates Ltd.,
and Koll Woodside Associates, Landlord, and Sequent Computer Systems, Inc.,
Tenant, for the premises located at 15125 S.W. Koll Parkway, Beaverton,
Oregon 97006, Building 4, Units B-K, consisting of 12,124 square feet, is
amended this _________ day of ________________, 1995, solely as hereinafter
described.
Effective at midnight on the 31st day of July, 1995, the above referenced
Lease Agreement shall be terminated, and Sequent shall be relieved from all
further responsibility outlined in the Lease Agreement. This early
termination shall be contingent on Sequent Computer's execution of the Lease
Amendments for Woodside Buildings 2 and 3. If Sequent fails to execute
Amendments for Buildings 2 and 3, this Early Termination shall be null and
void, and all terms and conditions of the above described Lease shall remain
in full force and effect.
Landlord: PETULA ASSOCIATES, LTD., an Iowa Corporation and
KOLL WOODSIDE ASSOCIATES, a California General partners
By: TIMOTHY E. MINTON, VICE PRESIDENT & SECRETARY
JOHN N. URBAN, VICE PRESIDENT
Tenant SEQUENT COMPUTER SYSTEMS, INC.
By: ROBERT B. WITT, VICE PRESIDENT & CIO
Date: JULY 21, 995
EXHIBIT 10.1nn
First AMENDMENT TO LEASE
ADDITION OF SQUARE FEET
That certain lease dated June 10, 1991, by and between Petula Associates
Ltd., and Koll Woodside Associates, Landlord, and Sequent Computer Systems,
Inc., Tenant, for the premises located at 15275 S.W. Koll Parkway, Beaverton,
Oregon 97006, Building 3, Units A, B, D, and E, is amended this _________ day
of ________________, 1995, solely as hereinafter described.
Effective the 1st day of JANUARY, 1996, the portions of the Lease as numbered
below shall be amended to read as follows:
1.e. PREMISES AREA
- Unit C consisting of 6,238 square feet shall be added to the
premises area.
- Total Amended Premises Area shall be 25,653 square feet.
1.f. PROJECT AREA: 131,017 square feet.
1.g. PREMISES PERCENT OF PROJECT: 19.58%
1.j. RENT ADJUSTMENT:
01/01/98 $ 22,257
06/01/98 23,509
06/01/01 - 5/31/03 25,025
All other terms and conditions of the above described Lease shall remain in
full force and effect.
Landlord: PETULA ASSOCIATES, LTD., an Iowa Corporation and
KOLL WOODSIDE ASSOCIATES, a California General partners
By: TIMOTHY E. MINTON, VICE PRESIDENT & SECRETARY
JOHN N. URBAN, VICE PRESIDENT
Tenant: SEQUENT COMPUTER SYSTEMS, INC.
By: ROBERT B. WITT, VICE PRESIDENT & CIO
Date: JULY 21, 995
EXHIBIT 101.mm
Fourth AMENDMENT TO LEASE
ADDITION OF SQUARE FEET
That certain lease dated June 10, 1991, by and between Petula Associates
Ltd., and Koll Woodside Associates, Landlord, and Sequent Computer Systems,
Inc., Tenant, for the premises located at 15425 S.W. Koll Parkway, Beaverton,
Oregon 97006, Building 2, Units A2, B, C, D, and E, is amended this
_________ day of ________________, 1995, solely as hereinafter described.
Effective the 1st day of JANUARY, 1996, the portions of the Lease as numbered
below shall be amended to read as follows:
1.e. PREMISES AREA
- The square footage for A2, B, C, D and E shall be amended from
35,561 square feet to 36,592 square feet, with no resulting
change to rent schedule.
- United A1 consisting of 4,135 square feet shall be added to the
premises area.
- Total Amended Premises Area shall be 40,727 square feet.
1.f. PROJECT AREA: 131,017 square feet.
1.g. PREMISES PERCENT OF PROJECT: 31.09%
1.j. RENT ADJUSTMENT:
01/01/96 $ 38,651
06/01/96 35,505
09/01/96 35,236
06/01/97 33,345
06/01/98 - 5/31/01 35,717
All other terms and conditions of the above described Lease shall remain in
full force and effect.
Landlord: PETULA ASSOCIATES, LTD., an Iowa Corporation and
KOLL WOODSIDE ASSOCIATES, a California General partners
By: TIMOTHY E. MINTON, VICE PRESIDENT & SECRETARY
JOHN N. URBAN, VICE PRESIDENT
Tenant: SEQUENT COMPUTER SYSTEMS, INC.
By: ROBERT B. WITT, VICE PRESIDENT & CIO
Date: JULY 21, 995
<TABLE>
EXHIBIT 13
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<CAPTION>
Fiscal Year Ended
Dec. 30, Dec. 31, Jan. 1, Jan. 2, Dec. 28,
1995 1994 1994 1993 1991
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Total revenue $ 540,345 $ 450,823 $ 353,806 $ 307,274 $ 213,272
Income (loss) before income taxes $ 47,327 $ 38,800 $ (6,331) $ 15,884 $ (52,379)
Net income (loss) $ 35,073 $ 33,134 $ (7,524) $ 14,433 $ (48,661)
Net income (loss) per share $ 1.04 $ 1.03 $ (.26) $ .55 $ (2.10)
Average shares outstanding 33,665 32,028 29,335 26,120 23,188
BALANCE SHEET DATA
Working capital $ 214,749 $ 168,468 $ 134,156 $ 86,914 $ 65,672
Total assets $ 503,923 $ 435,977 $ 375,424 $ 278,759 $ 246,280
Long-term obligations $ 9,106 $ 10,341 $ 10,906 $ 24,034 $ 7,198
Shareholders' equity $ 353,188 $ 291,195 $ 243,488 $ 172,502 $ 149,461
</TABLE>
