SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 4, 1998 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 (I.R.S. Employer
of organization or incorporation) Identification Number)
15450 S.W. Koll Parkway
Beaverton, Oregon 97006-6063
(Address of principal executive offices, including zip code)
(503) 626-5700
(Registrant's telephone number, including area code)
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 report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
43,644,270 common shares were issued and outstanding as of May 12, 1998.
SEQUENT COMPUTER SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - April 4, 1998
and January 3, 1998 3
Consolidated Statements of Operations -
Three months ended April 4, 1998
and March 29, 1997 4
Consolidated Statements of Shareholders' Equity -
December 30, 1995 through April 4, 1998 5
Consolidated Statements of Cash Flows -
Three months ended April 4, 1998
and March 29, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
(a) Exhibit 11 - Statement regarding computation of
earnings per share. 18
(b) Exhibit 27.1 19
(c) Exhibit 27.2 20
(d) Exhibit 27.3 21
(e) No reports on Form 8-K were filed by the Company
during the fiscal quarter ended April 4, 1998.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
April 4, 1998 January 3, 1998
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 183,452 $ 133,299
Restricted deposits 67,724 68,791
Receivables, net 227,608 328,884
Inventories 118,366 112,228
Prepaid royalties and other 41,353 28,147
Total current assets $ 638,503 $ 671,349
Property and equipment, net 136,393 134,728
Capitalized software costs, net 68,103 66,244
Other assets, net 17,206 18,524
Total assets $ 860,205 $ 890,845
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 68,797 $ 69,893
Accounts payable and other 95,844 132,325
Accrued payroll 12,568 22,843
Unearned revenue 44,884 40,946
Income taxes payable 3,119 3,134
Current obligations under capital leases and debt 2,294 2,310
Total current liabilities 227,506 271,451
Other accrued expenses 8,320 8,700
Long-term obligations under capital leases and debt 9,433 9,910
Total liabilities 245,259 290,061
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized, 43,616 and 42,962 shares outstanding 436 430
Paid-in capital 517,740 508,858
Retained earnings 103,424 99,402
Foreign currency translation adjustment (6,654) (7,906)
Total shareholders' equity 614,946 600,784
Total liabilities and shareholders' equity $ 860,205 $ 890,845
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
(in thousands, except per share amounts)
Three Months Ended
April 4, 1998 March 29, 1997
Revenue:
Product $ 118,445 $ 105,567
Service 64,623 51,807
Total revenue 183,068 157,374
Costs and expenses:
Cost of products sold 62,906 50,455
Cost of service revenue 47,336 38,799
Research and development 17,064 15,442
Selling, general and administrative 49,620 50,250
Total costs and expenses 176,926 154,946
Operating income 6,142 2,428
Interest, net 621 (1,250)
Other, net (934) (142)
Income before provision for income taxes 5,829 1,036
Provision for income taxes 1,807 328
Net income $ 4,022 $ 708
Net income per share - basic $ .09 $ .02
Net income per share - diluted $ .09 $ .02
Shares used in the calculation
of net income per share - basic 43,184 34,427
Shares used in the calculation
of net income per share - diluted 45,395 36,675
See notes to consolidated financial statements.
<TABLE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<CAPTION> Foreign
currency
Common Stock Paid-in Retained translation
Shares Amount capital Earnings adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1995 33,221 $332 $304,343 $52,945 $(4,432) $353,188
Common shares issued 967 10 9,622 - - 9,632
Tax benefit of option exercises - - 175 - - 175
Warrants issued - - 1,176 - - 1,176
Net income - - - 7,771 - 7,771
Foreign currency translation adjustment - - - - 2,868 2,868
Rounding - - - (1) - (1)
Balance, December 28, 1996 34,188 342 315,316 60,715 (1,564) 374,809
Common shares issued 8,198 82 181,580 - - 181,662
Tax benefit of option exercises - - 3,021 - - 3,021
Conversion of debentures 576 6 8,941 - - 8,947
Net income - - - 38,687 - 38,687
Foreign currency translation adjustment - - - - (6,342) (6,342)
Balance, January 3, 1998 42,962 430 508,858 99,402 (7,906) 600,784
Common shares issued 654 6 8,626 - - 8,632
Tax benefit of option exercises - - 256 - - 256
Net income - - - 4,022 - 4,022
Foreign currency translation adjustment - - - - 1,252 1,252
Balance, April 4, 1998 (unaudited) 43,616 $436 $517,740 $103,424 $(6,654) $614,946
</TABLE>
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
(in thousands)
Three Months Ended
April 4, 1998 March 29, 1997
Cash flow from operating activities:
Net income $ 4,022 $ 708
Reconciliation of net income to
net cash and cash equivalents
provided by operating activities -
Depreciation and amortization 22,294 19,515
Changes in assets and liabilities -
Receivables, net 101,276 24,036
Inventories (6,138) (10,316)
Prepaid royalties and other (13,206) (4,161)
Accounts payable and other (36,481) (13,544)
Accrued payroll (10,275) (7,592)
Unearned revenue 3,938 4,236
Income taxes payable (15) (195)
Other, net 664 204
Net cash provided by operating activities 66,079 12,891
Cash flow from investing activities:
Restricted deposits 1,067 12,777
Purchases of property and equipment, net (15,985) (19,237)
Capitalized software costs (9,700) (8,388)
Net cash used for investing activities (24,618) (14,848)
Cash flow from financing activities:
Notes payable, net (1,096) (3,727)
Payments under capital lease obligations (495) (443)
Long-term debt proceeds, net - 11
Stock issuance proceeds, net 8,888 7,148
Net cash provided by financing activities 7,297 2,989
Effect of exchange rate changes on cash 1,395 (3,070)
Net increase (decrease) in cash and cash equivalents 50,153 (2,038)
Cash and cash equivalents at beginning of period 133,299 37,979
Cash and cash equivalents at end of period $ 183,452 $ 35,941
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 4, 1998
Basis of Presentation
The accompanying consolidated financial statements are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in the opinion of management include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998.
The Company's fiscal year is based on a 52-53 week year ending the Saturday
closest to December 31. The accompanying consolidated financial statements
include the accounts of Sequent Computer Systems, Inc. and its wholly owned
subsidiaries (the Company or Sequent). All significant intercompany accounts
and transactions have been eliminated. The results for interim periods are
not necessarily indicative of the results for the entire year.
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. Significant estimates and
judgments made by management of the Company include matters such as
collectibility of accounts receivable, realizability of inventory and
recoverability of capitalized software, prepaid royalties and deferred tax
assets.
Reclassifications
Reclassifications have been made to amounts in certain prior years. These
changes had no impact on previously reported results of operations.
Recently Issued Accounting Standards
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (FAS 130). This Statement requires
entities to report changes in equity that result from transactions and
economic events other than those with shareholders. The Company adopted the
standard as of January 4, 1998. The following table reports comprehensive
income for the three months ended April 4, 1998 and March 29, 1997.
Three Months Ended
April 4, March 29,
1998 1997
Net Income $ 4,022 $ 708
Other comprehensive income:
Foreign currency translation adjustment 1,252 (3,070)
Total comprehensive income (loss) $ 5,274 $ (2,362)
The cumulative translation adjustment consists of unrealized gains/losses from
translation adjustments and intercompany foreign currency transactions that
are of a long-term investment nature. These items are reflected in the
statement of shareholders' equity in accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (FAS
131). The objective of the standard is to provide information about the
different types of business activities in which an enterprise engages and the
different economic environments in which it operates. The Company adopted the
standard effective January 4, 1998. FAS 131 does not need to be applied to
interim periods in the initial year of application; however, comparative
information for interim periods in the initial year of application will be
reported in the financial statements for interim periods in fiscal 1999. This
Statement has no impact on reported earnings and management expects that it
will not have a significant impact on disclosure requirements as the Company
operates in predominantly one business segment.
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2, Software Revenue Recognition,
which supersedes SOP 91-1, Software Revenue Recognition. This Statement did
not significantly impact the Company's revenue recognition policies nor
reported earnings.
Accounts Receivable
At April 4, 1998, accounts receivable in the accompanying consolidated balance
sheet is net of $40 million received by the Company under its agreement to
sell its domestic accounts receivable. Additionally, the Company entered into
one transaction to factor certain foreign receivables, without recourse, at an
average rate of 8.75%.
Inventories
Inventories consist of the following:
(in thousands)
April 4, January 3,
1998 1998
Raw materials $ 19,590 $ 16,375
Work-in-progress 3,470 3,155
Finished goods 95,306 92,698
$ 118,366 $ 112,228
Property and Equipment
Property and equipment consist of the following:
(in thousands)
April 4, January 3,
1998 1998
Land $ 5,037 $ 5,037
Operational equipment 214,484 209,372
Furniture and office equipment 88,681 89,569
Leasehold improvements 27,030 22,889
335,232 326,867
Less accumulated depreciation (198,839) (192,139)
$ 136,393 $ 134,728
Research and Development
Amortization of capitalized software costs, generally based on a three-year
life, was $7.8 million and $6.2 million for the three month periods ended
April 4, 1998 and March 29, 1997, respectively.
Notes Payable
The Company has an unsecured line of credit agreement with a group of banks
which provides short-term borrowings of up to $80 million. The line of credit
agreement extends through April 3, 2001. At April 4, 1998, there was no
outstanding balance. At March 29, 1997, $20.5 million was outstanding under
this line of credit agreement. The interest rate on this borrowing at March
29, 1997 was 8.5%.
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 with terms of fourteen
days to three months. Proceeds from the borrowings are converted into U.S.
dollars and placed in a term deposit account with the foreign bank. At April
4, 1998, maximum borrowings allowed under the agreement were approximately
$81.3 million. The maximum borrowing limit is denominated in specified
foreign currencies and fluctuates with the change in foreign exchange rates.
Amounts outstanding were $67.8 million and $31.9 million at April 4, 1998 and
March 29, 1997, respectively.
In addition to the above borrowing agreements, the Company has entered into
certain other miscellaneous borrowing arrangements with a foreign bank. At
April 4, 1998 and March 29, 1997, $1.1 million and $1.6 million were
outstanding, respectively.
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.
The Convertible Debentures were convertible into the Company's common stock at
the option of the holders at an initial conversion price of $15.81 per share.
In conjunction with the Company's equity offering in 1993, $9.9 million of the
Debentures was converted into 626,000 shares of common stock. In August 1995,
an additional $1.0 million of the Debentures was converted into 63,000 shares
of common stock. In August and September 1997, the remaining $9.1 million of
the Debentures was converted into 576,000 shares of common stock; thus, there
was no outstanding long-term debt related to the Debentures at April 4, 1998.
The outstanding balance at March 27, 1997 was $9.1 million.
Income Taxes
The Company's general practice is to reinvest the earnings of its foreign
subsidiaries' operations, unless it would be advantageous to the Company to
repatriate the foreign subsidiaries' retained earnings. The effective tax
rate differs from the statutory tax rate principally due to the benefit from
the research tax credit and the Company's Foreign Sales Corporation.
Significant Customers
The Company operates primarily in one business segment which includes the
design, manufacture and marketing of high-performance computer systems and
operating environment software. Project-oriented offerings include consulting
and professional services to help customers solve complex information
technology problems. The Company had no single customer that represented
greater than 10% of total revenue for the first quarter of 1998.
Approximately 16% of the Company's revenue in the first quarter of 1997 was
from one customer.
Geographic Segment Information
Export and foreign revenue was $100.4 million (55% of total revenue) for the
three months ended April 4, 1998. Export and foreign revenue was $79.7
million (50% of total revenue) for the corresponding period in 1997. The
Company's United States operations generated operating income of $2.8 million
for the three months ended April 4, 1998 and foreign operations generated
operating income of $3.3 million. The results of comparable periods in 1997
were operating income of $8.5 million for the United States operations and net
operating losses of $6.1 million for the Company's foreign operations.
Subsequent Event
On April 14, 1998, the Company adopted a Shareholder Rights Plan. Pursuant to
the plan, the Company declared a dividend of one Right for each outstanding
share of Common Stock of the Company to shareholders of record at the close of
business on April 29, 1998. Each Right entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series A Preferred
Shares (the "Preferred Shares") at a Purchase Price of $130, subject to
adjustment. The Rights will be exercisable only if a person acquires
beneficial ownership of 15% or more of Sequent's Common Stock or commences a
tender offer which would result in stock ownership at that level or if the
Sequent Board of Directors determines that a person who has acquired more than
10% of Sequent Common Stock poses a threat to share value or the Company's
business strategy.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
Three Months Ended
(dollars in millions) April 4, March 29,
1998 1997
Total Revenue $ 183.1 $ 157.4
Product $ 118.4 $ 105.6
Service 64.7 51.8
US $ 82.7 $ 77.7
International 100.4 79.7
Net Income $ 4.0 $ 0.7
In the first quarter of 1998, the Company's revenue and net income
increased significantly over the same period in 1997. Revenue grew by
approximately 16% over the first quarter of 1997. Strong sales across all
geographies, but particularly in Europe and Asia Pacific, resulted in this
solid revenue growth. Along with revenue growth, decreases in selling,
general and administrative (SG&A) expenses contributed to the significant
increase in net income. Reductions to the Company's SG&A expenses in the
first quarter of 1998 were the result of cost control programs implemented in
the beginning of 1998. In addition, increased revenue and gross margins
within the Company's service organizations, particularly professional service,
contributed to the Company's overall growth during the first quarter of 1998
over the same period in 1997.
Product revenue increased 12% in the first quarter of 1998 over the same
quarter in 1997, with sales of the Company's NUMA-Q 2000 systems generating
approximately 81% of total product revenue. The Company's service revenues
increased in the same periods by approximately 20% and 35% from the customer
and professional services organizations, respectively. These increases were
mainly the result of growth in number and size of sales that included service
projects, including significant growth in new business in Europe.
International revenue was approximately 55% of the Company's total revenue in
the first quarter of 1998 compared to 51% in the same period in 1997. Solid
growth in Asia Pacific and Europe, particularly in the United Kingdom and
France, contributed to the overall increase in international revenue of
approximately 26% in the first quarter of 1998 over the first quarter in 1997.
The following table sets forth certain operating data as a percentage
of total revenue:
Three Months Ended
April 4, March 29,
1998 1997
Revenue:
Product 64.7% 67.1%
Service 35.3 32.9
Total revenue 100.0 100.0
Cost of product and service 60.2 56.7
Gross profit 39.8 43.3
Operating expenses:
Research and development 9.3 9.8
Selling, general and administrative 27.1 32.0
Total operating expenses 36.4 41.8
Operating income 3.4 1.5
Interest income (expense), net 0.3 (0.8)
Other expense, net (0.5) (0.1)
Income before provision
for income taxes 3.2 0.6
Provision for income taxes 1.0 0.2
Net income 2.2% 0.4%
COST OF SALES/GROSS MARGINS
Three Months Ended
April 4, March 29,
1998 1997
Cost of product sold as a percentage
of product revenue 53.1% 47.8%
Cost of service as a percentage
of service revenue 73.2 74.9
Total cost of sales as a percentage
of total revenue 60.2 56.7
The factors influencing gross margins in a given period include unit
volumes (which affect economies of scale), product configuration mix
(including the amount of third party products), 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 in the
first quarter of 1998 over the same period in 1997. Product cost of sales
continues to reflect increased sales of third-party product, which generally
yield lower margins than Sequent products. Also impacting the Company's
margins were sales of Symmetry products, which as expected, continue to
represent a lower percentage of the Company's overall sales, and which yield
lower gross margins than the Company's NUMA-Q products. These factors were
offset in part by an increase in higher margin sales of NUMA-Q 2000 systems.
In addition, the Company's gross margins were positively affected by service
margins, particularly from the professional service organization, which
increased substantially during the first quarter of 1998 over the same period
in 1997. The Company's total product gross margins were approximately 47% and
52% in the first quarter of 1998 and 1997, respectively, and service gross
margins were approximately 27% and 25%, respectively, during the same periods.
RESEARCH AND DEVELOPMENT
Three Months Ended
(dollars in millions) April 4, March 29,
1998 1997
Research and development expense $17.1 $15.4
As a percentage of total revenue 9% 10%
Software costs capitalized $ 9.7 $ 8.4
Research and development expense continued to increase in amount, by
approximately 11% in the first quarter of 1998 compared to the same period in
1997, as the Company continues to make enhancements to its NUMA-Q
architecture. During the first quarter of 1998, the Company made investments
in new software development for its next-generation of NUMA-Q products,
including the development of NUMA-Q architecture that is expected to run Unix
and Windows NT applications on a single system.
SELLING, GENERAL AND ADMINISTRATIVE
(dollars in millions) Three Months Ended
April 4, March 29,
1998 1997
Selling, general and administrative $49.6 $50.3
As a percentage of total revenue 27% 32%
Comparing the first quarter of 1998 to the same period in 1997, selling,
general and administrative expenses decreased slightly in amount. Given the
increase in sales volume, these expenses also decreased as a percentage of
total revenue over the corresponding periods, from 32% in the first quarter of
1997 to 27% in the first quarter of 1998. Factors contributing to the
decrease included the effects of cost control measures implemented by the
Company during the first quarter of 1998. The Company's headcount growth rate
slowed focusing additions primarily in engineering and sales.
INTEREST AND OTHER, NET
(dollars in millions) Three Months Ended
April 4, March 29,
1998 1997
Interest income $ 1.9 $ 0.7
Interest expense $ 1.3 $ 1.9
Other expense, net $ 0.9 $ 0.1
Interest income is primarily generated from invested cash and cash
equivalents and restricted deposits held at foreign and domestic banks. The
increase in interest income in the first quarter of 1998 is a result of
investment of cash proceeds from the Company's stock offering in August 1997.
Interest expense includes costs related to foreign currency hedging loans,
interim short-term borrowings, convertible debentures and capital lease
obligations. The decrease in interest expense in the first quarter of 1998
over the same period in 1997 is attributed to the decrease in the use of the
Company's line of credit in 1998 resulting from use of proceeds received from
the August 1997 stock offering and the conversion of the Company's Convertible
Subordinated Debentures to equity in August and September 1997.
Other expense consists primarily of net realized and unrealized foreign
exchange gains and losses.
INCOME TAXES
The Company provided $1.8 million for income taxes in the first quarter
of 1998 on a net profit before tax of $5.8 million. The effective tax rate of
31% for the first quarter of 1998 compares to an effective rate of 32% for the
same period in 1997. The difference between the statutory rate and the
effective tax rate is principally due to the benefit from the research tax
credit and the Company's Foreign Sales Corporation.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $411.0 million at April 4, 1998 compared to $399.9
million at January 3, 1998. The Company's current ratio increased to 2.8:1
from 2.5:1 since January 3, 1998.
Cash and cash equivalents increased $49.1 million during the first
quarter of 1998. The increase resulted primarily from operating cash flow of
approximately $66.1 million and issuances of common stock of approximately
$8.9 million offset by investing activities. Investments during the quarter
in property and equipment and capitalized software approximated $16 million
and $9.7 million, respectively.
The Company has a $40 million receivable sales facility with a group of
banks. At April 4, 1998, accounts receivable in the accompanying consolidated
balance sheet is net of $40 million received by the Company under this
agreement to sell its domestic accounts receivable. Additionally, the Company
entered into a specific transaction to factor certain foreign receivables,
without recourse, at an average rate of 8.75%. As of April 4, 1998, $3.5
million relating to this transaction was netted against accounts receivable in
the accompanying consolidated balance sheet.
The Company maintains an $80 million revolving line of credit agreement.
The line is unsecured and extends through April 3, 2001. The line contains
certain financial covenants and prohibits the Company from paying dividends
without the lenders' consent. At April 4, 1998, there was no outstanding
balance under the line of credit.
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 $81.3 million, of which $67.8 million was
outstanding at April 4, 1998 (based on currency exchange rates on such date).
The Company also maintains a miscellaneous borrowing arrangement with a
foreign bank. At April 4, 1998 $1.1 million was outstanding under this
agreement.
Management expects that current funds from operations and the bank lines
of credit will provide adequate resources to meet the Company's anticipated
operational cash requirements for at least the next twelve months.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's software programs and microcircuitry that have date-sensitive
features may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 Issue affects the Company's internal
systems as well as any of the Company's products that include date-sensitive
software. The Company is currently conducting a comprehensive review of its
computer systems and software products to identify the systems that could be
affected by the Year 2000 Issue and is in the process of implementing and
conducting the required processes to become Year 2000 compliant. Both
internal and external resources are being employed to identify, correct or
reprogram, and test the systems for Year 2000 compliance. The total cost of
the project is currently estimated to be approximately $4 million and is being
funded through operating cash flows. The Company is expensing all costs
associated with identification and resulting changes to these systems, but
does not expect the amounts to have a material effect on its financial
position or results of operations. The amount expensed in the first quarter
of 1998 related to this issue was insignificant. There can be no assurance,
however, that the systems or products of other companies on which the
Company's systems also rely will be timely converted or that any such failure
to convert by a vendor, customer or another company would not have an adverse
effect on the Company's systems. Additionally, we cannot completely ensure
that the Company's software products do not contain undetected problems
associated with Year 2000 compliance. Such problems, should they occur, may
result in adverse effects on future operating results.
FORWARD-LOOKING STATEMENTS
Information in this report that is not historical information, including
information regarding product development and year 2000 issues, constitutes
forward-looking statements that involve a number of risks and uncertainties.
A number of factors could cause actual results to differ materially from the
forward-looking statements. New product development may be delayed or
unsuccessful due to technical difficulties encountered, resource constraints
and other reasons. Factors that affect year 2000 issues are set forth above.
Additional information regarding factors that may affect the Company's future
results is set forth at the end of Item 1 in the Company's Annual Report on
Form 10-K for the year ended January 3, 1998. The Company's forward-looking
statements apply only as of the date made. The Company undertakes no
obligation to publicly release the results of any revisions to forward-looking
statements which may be made to reflect events or circumstances after the date
made or to reflect the occurrence of unanticipated events.
SIGNATURES
Pursuant to the requirements of the Securities and 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.
/s/ Robert S. Gregg
Robert S. Gregg
Sr. Vice President of Finance and
Chief Financial Officer
Date: May 15, 1998
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
11 Statement showing calculation of basic
and diluted earnings per share 18
27.1 Financial Data Schedule 19
27.2 Financial Data Schedule 20
27.3 Financial Data Schedule 21
EXHIBIT 11
<TABLE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT SHOWING CALCULATION
OF BASIC AND DILUTED
EARNINGS PER SHARE
(in thousands, except per share amounts)
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
Three Months Ended Three Months Ended Three Months Ended
April 4, March 29, April 4, March 29, April 4, March 29,
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common
shareholders $ 4,022 $ 708 43,184 34,427 $ 0.09 $ 0.02
Effect of Dilutive Securities
Stock options - - 2,104 2,091
Employee stock purchase plan - - 107 157
Diluted EPS
Income available to common
shareholders + assumed conversions $ 4,022 $ 708 45,395 36,675 $ 0.09 $ 0.02
</TABLE>
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<S> <C>
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<PERIOD-END> APR-04-1998
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0
0
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<S> <C> <C> <C> <C>
<C>
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9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-28-1996 DEC-28-1996 DEC-28-1996
DEC-28-1996
<PERIOD-END> DEC-31-1995 DEC-28-1996 MAR-30-1996 JUN-29-1996
SEP-28-1996
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45,950,000
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0
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175,385,000
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2,820,000
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78,278,000
<CURRENT-ASSETS> 354,220,000 397,454,000 343,778,000 325,718,000
328,778,000
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274,448,000
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147,994,000
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536,163,000
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145,661,000
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18,799,000
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0
0 0 0 0
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339,000
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364,625,000
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536,163,000
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282,327,000
<TOTAL-REVENUES> 540,345,000 595,362,000 120,745,000 263,332,000
412,117,000
<CGS> 188,232,000 197,702,000 38,653,000 86,147,000
132,425,000
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233,301,000
<OTHER-EXPENSES> 195,873,000 244,802,000 50,507,000 107,194,000
171,078,000
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0
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1,846,000
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7,216,000
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1,957,000
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0
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0
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0
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0
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5,259,000
<EPS-PRIMARY> 1.09 0.23 0.02 0.12
0.16
<EPS-DILUTED> 1.04 0.23 0.02 0.12
0.16
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<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-03-1998 JAN-03-1998 JAN-03-1998 JAN-03-1998
<PERIOD-END> JAN-03-1998 MAR-29-1997 JUN-28-1997 OCT-04-1997
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<RECEIVABLES> 332,005,000 188,775,000 240,526,000 278,687,000
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<INVENTORY> 112,228,000 84,807,000 82,262,000 107,035,000
<CURRENT-ASSETS> 671,349,000 373,080,000 454,279,000 600,382,000
<PP&E> 326,867,000 308,203,000 322,162,000 326,139,000
<DEPRECIATION> 192,139,000 168,223,000 183,000,000 184,999,000
<TOTAL-ASSETS> 890,845,000 595,754,000 676,862,000 830,050,000
<CURRENT-LIABILITIES> 271,451,000 194,857,000 261,978,000 234,709,000
<BONDS> 9,910,000 14,418,000 13,711,000 10,692,000
0 0 0 0
0 0 0 0
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