<PAGE>
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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: JUNE 30, 1996
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 : 0-19058
PLATINUM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3509662
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 620-5000
----------------
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
As of August 12, 1996, there were outstanding 55,695,274 shares of common
stock, par value $.001, of the registrant.
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<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Auditors' Review Report......................... 3
Consolidated Balance Sheets as of June 30, 1996 (unaudited)
and December 31, 1995...................................... 4
Consolidated Statements of Operations for the three months
and six months ended June 30, 1996 (unaudited) and 1995
(unaudited)................................................ 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 (unaudited) and 1995 (unaudited)....... 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8-12
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders......... 13
Item 6. Exhibits and Reports on Form 8-K............................ 14
SIGNATURES.............................................................. 15
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
PLATINUM technology, inc.:
We have reviewed the consolidated balance sheet of PLATINUM technology, inc.
and subsidiaries as of June 30, 1996, and the related consolidated statements
of operations for the three and six month periods ended June 30, 1996 and 1995
and cash flows for the six month periods ended June 30, 1996 and 1995. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of PLATINUM technology, inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated March 29, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1995, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
Chicago, Illinois
August 13, 1996
3
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------ ---------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 53,902 $ 111,847
Short-term investment securities.................... 9,393 7,802
Trade accounts receivable, net of allowances of
$2,484 and $2,695.................................. 107,477 115,876
Installment accounts receivable..................... 11,683 6,058
Accrued interest and other current assets........... 7,589 10,545
Refundable income taxes............................. 374 355
--------- ---------
Total current assets.............................. 190,418 252,483
--------- ---------
Noncurrent investment securities...................... 5,004 13,126
Property and equipment................................ 62,265 51,004
Purchased and developed software...................... 64,474 52,268
Excess of cost over net assets acquired, net of
accumulated amortization of $7,800 and $5,100........ 34,778 35,494
Other assets.......................................... 56,187 33,813
--------- ---------
$ 413,126 $ 438,188
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables........................ $ 8,738 $ 12,518
Income taxes payable................................ 307 1,068
Accounts payable.................................... 14,613 16,001
Accrued commissions and bonuses..................... 6,427 8,598
Accrued royalties................................... 2,985 1,637
Other accrued liabilities........................... 25,109 27,700
Current maturities of long-term obligations......... 1,629 1,313
Deferred maintenance................................ 56,739 56,969
--------- ---------
Total current liabilities......................... 116,547 125,804
--------- ---------
Acquisition-related payables.......................... 8,026 9,756
Deferred maintenance.................................. 14,270 3,795
Deferred rent......................................... 8,287 8,795
Long-term obligations, net of current maturities...... 746 1,586
Stockholders' equity:
Class II preferred stock, $.01 par value. Authorized
10,000, none outstanding........................... -- --
Common stock, $.001 par value. Authorized 180,000,
issued and outstanding 55,350 and 53,194........... 55 53
Paid-in capital..................................... 441,041 433,103
Notes receivable.................................... (315) (515)
Accumulated deficit................................. (174,956) (144,662)
Foreign currency translation adjustment............. (575) 473
--------- ---------
Total stockholders' equity........................ 265,250 288,452
--------- ---------
$ 413,126 $ 438,188
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ------------------
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software products..................... $ 52,768 $37,335 $ 92,123 $ 67,226
Maintenance........................... 25,128 18,215 47,664 35,575
Professional services................. 22,589 16,246 43,169 32,055
-------- ------- -------- --------
Total revenues...................... 100,485 71,796 182,956 134,856
-------- ------- -------- --------
Costs and expenses:
Professional services................. 19,172 15,959 38,012 30,326
Product development and support....... 38,927 20,440 74,431 38,180
Sales and marketing................... 42,998 28,323 82,255 50,880
General and administrative............ 9,460 7,172 17,918 14,087
Merger costs.......................... -- 2,152 5,782 2,152
Acquired in-process technology........ -- 1,354 7,005 20,153
-------- ------- -------- --------
Total costs and expenses............ 110,557 75,400 225,403 155,778
-------- ------- -------- --------
Operating loss.......................... (10,072) (3,604) (42,447) (20,922)
Other income............................ 1,560 1,075 2,104 2,421
-------- ------- -------- --------
Loss before income taxes................ (8,512) (2,529) (40,343) (18,501)
Income taxes............................ (2,721) (218) (10,048) (2,184)
======== ======= ======== ========
Net loss................................ $ (5,791) $(2,311) $(30,295) $(16,317)
======== ======= ======== ========
Net loss per share...................... $ (0.10) $ (0.06) $ (0.55) $ (0.40)
======== ======= ======== ========
Shares used in computing per share
amounts................................ 55,214 41,283 55,085 41,086
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(30,295) $(16,317)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 15,853 9,048
Acquired in-process technology.......................... 7,005 20,153
Changes in assets and liabilities, net of acquisitions:
Trade and installment receivables......................... (47,014) (6,093)
Deferred income taxes..................................... (10,529) 318
Accrued interest and other current assets................. 3,036 (5,225)
Accounts payable.......................................... (1,484) 1,886
Accrued liabilities....................................... (4,876) 1,054
Deferred maintenance...................................... 9,396 4,115
Income taxes payable...................................... (780) 7
Other..................................................... (1,811) (5,393)
-------- --------
Net cash provided by (used in) operating activities... (61,499) 3,553
-------- --------
Cash flows from investing activities:
Purchases of investment securities........................ (17,765) (17,484)
Sales of investment securities............................ 10,348 24,811
Maturities of investment securities....................... 13,948 4,785
Purchases of property and equipment....................... (17,315) (17,521)
Capitalized software development costs.................... (18,201) (9,190)
Payments for acquisitions................................. (8,792) (33,745)
Other assets.............................................. (2,156) (2,535)
-------- --------
Net cash used in investing activities................... (39,933) (50,879)
-------- --------
Cash flows from financing activities:
Proceeds from the sale of common stock.................... -- 178
Proceeds from exercise of stock options................... 2,157 1,017
Proceeds from the financing of future revenues and the
sale of receivables...................................... 41,718 --
Long-term borrowings, net................................. (588) 568
Other..................................................... 200 --
-------- --------
Net cash provided by financing activities............... 43,487 1,763
-------- --------
Adjustment to conform fiscal years of pooled businesses..... -- 53
-------- --------
Net decrease in cash and cash equivalents................... (57,945) (45,510)
Cash and cash equivalents at the beginning of the year...... 111,847 78,458
-------- --------
Cash and cash equivalents at the end of the second quarter.. $ 53,902 $ 32,948
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented. All such
adjustments are of a normal recurring nature. Because the Company's
acquisitions of Prodea Software Corporation (Prodea), Paradigm Systems
Corporation (Paradigm), and Axis Systems International, Inc. (Axis) during the
first quarter of 1996 are being treated as poolings of interests for
accounting purposes, all consolidated financial statements for the periods
prior to the acquisitions have been restated to include the assets,
liabilities, and operating results of these companies (See "Business
Combinations" at Note 3). All intercompany accounts and transactions have been
eliminated.
These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the year ended December 31, 1995, included in the Company's Registration
Statement on Form S-1, as amended, Registration No. 333-07783, as filed with
the Securities and Exchange Commission.
Certain prior period costs and expenses have been reclassified to conform to
the current period presentation.
NOTE 2--EARNINGS PER SHARE
Net loss per share is based on the weighted average number of shares
outstanding and does not include the effect of unexercised stock options.
NOTE 3--BUSINESS COMBINATIONS
On January 17, 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc. (AST), a developer of performance
management tools, in exchange for approximately $445,000 in cash plus 344,640
shares of the Company's common stock (the "Common Stock"), which had a market
value (based upon the trading price on the Nasdaq National Market) of
approximately $5,800,000 at the time of the acquisition. This acquisition was
accounted for under the purchase method, and a significant portion of the
purchase price was charged to acquired in-process technology in the first
quarter of 1996.
On February 8, 1996, the Company acquired all of the outstanding capital
stock of Prodea, a leading provider of data warehousing and business
intelligence tools, in exchange for 2,126,913 shares of Common Stock. In
addition, the Company assumed stock options which converted into options to
purchase 212,426 shares of Common Stock.
On March 26, 1996, the Company acquired all of the outstanding capital stock
of Paradigm, a leading provider of Information Technology consulting services,
in exchange for 762,503 shares of Common Stock. In addition, the Company
assumed stock options which converted into options to purchase 55,228 shares
of Common Stock.
On March 29, 1996, the Company acquired all of the outstanding capital stock
of Axis, a leading provider of Information Technology consulting services, in
exchange for 319,926 shares of Common Stock. In addition, the Company assumed
stock options which converted into options to purchase 59,986 shares of Common
Stock.
The acquisitions of Prodea, Paradigm, and Axis were accounted for as
poolings of interests.
The Company incurred significant costs and expenses in connection with these
acquisitions, including investment banking and other professional fees,
employees' severance, and various other expenses. These costs were expensed in
the first quarter of 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth the percentages that selected items in the
Consolidated Statements of Operations bear to total revenues. The Consolidated
Statements of Operations give retroactive effect to the acquisitions of Prodea
Software Corporation as of February 8, 1996, Paradigm Systems Corporation as of
March 26, 1996, and Axis Systems International, Inc. as of March 29, 1996, each
of which was accounted for using the pooling-of-interests method, and as a
result, the results of operations for the three and six months ended June 30,
1996 and 1995 are presented as if the combining companies had been consolidated
for all periods presented.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------- ------------
1996 1995 1996 1995
------ ------ ----- -----
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Software products........................... 53% 52% 50% 50%
Maintenance................................. 25 25 26 26
Professional services....................... 22 23 24 24
------ ------ ----- -----
Total revenues:........................... 100 100 100 100
------ ------ ----- -----
Costs and expenses:
Professional services....................... 19 22 21 23
Product development and support............. 39 29 40 28
Sales and marketing......................... 43 39 45 38
General and administrative.................. 9 10 10 10
Merger costs................................ -- 3 3 2
Acquired in-process technology.............. -- 2 4 15
------ ------ ----- -----
Total costs and expenses.................. 110 105 123 116
------ ------ ----- -----
Operating loss................................ (10) (5) (23) (16)
Other income.................................. 1 2 1 2
------ ------ ----- -----
Loss before income taxes...................... (9) (3) (22) (14)
Income taxes.................................. 3 * 5 2
------ ------ ----- -----
Net loss...................................... (6)% (3)% (17)% (12)%
====== ====== ===== =====
</TABLE>
- --------
*Not meaningful.
REVENUES
The Company's revenues currently are derived from three sources: 1) license
fees for licensing the Company's proprietary software products, 2) maintenance
fees for maintaining, supporting, and providing current upgrades of the
Company's software products, and 3) revenues from the Company's professional
services business. Total revenues for the second quarter of 1996 were
$100,485,000, an increase of $28,689,000, or 40%, as compared to $71,796,000,
for the same period in 1995. Total revenues for the first six months of 1996
were $182,956,000, an increase of $48,100,000, or 36%, as compared to
$134,856,000 for the same period in 1995.
Revenues from customers in North America, as a percentage of total revenues,
represented 79% and 82% for the second quarter of 1996 and 1995, respectively,
and 78% and 81%, for the first six months of 1996 and 1995, respectively. North
America revenue is generated primarily by the Company's direct sales force and
telemarketing organization.
8
<PAGE>
Revenue from international customers, as a percentage of total revenues,
represented 21% and 18% for the second quarter of 1996 and 1995, respectively,
and 22% and 19% in the first six months of 1996 and 1995, respectively.
International revenue is generated primarily by the Company's subsidiaries and
by PLATINUM international affiliates, which are organizations that contract
with the Company to support and promote the Company's software products and
professional services. The Company anticipated that its significant investment
in the international market would have yielded higher revenue in the first
half of 1996.
SOFTWARE PRODUCTS. Software products revenue for the second quarter of 1996
was $52,768,000, an increase of $15,433,000, or 41%, as compared to
$37,335,000 for the second quarter of 1995. Software products revenue for the
first six months of 1996 was $92,123,000, an increase of $24,897,000, or 37%,
as compared to $67,226,000 for the first six months of 1995. The growth in
software products revenue is primarily in the categories of database
management, systems management, business intelligence, and application
lifecycle, and is primarily attributable to the continued marketplace
acceptance of the Company's products, the aggressive expansion of its sales
and marketing efforts, as well as new product offerings.
MAINTENANCE. Maintenance revenue for the second quarter of 1996 was
$25,128,000, an increase of $6,913,000, or 38%, as compared to $18,215,000 for
the second quarter of 1995. Maintenance revenue for the first six months of
1996 was $47,664,000, an increase of $12,089,000, or 34%, as compared to
$35,575,000 for the first six months of 1995. The growth in maintenance
revenue is primarily in the categories of database management, data
warehousing, and systems management. The increase in maintenance revenue is
primarily attributable to the expansion of the installed customer base, which
supports recurring fees for maintenance, and increased revenues associated
with first year maintenance fees implicit in certain license sales. Management
believes maintenance revenue should continue to increase as the installed base
of the Company's software products increases and matures and as software
product license revenue increases.
PROFESSIONAL SERVICES. Professional services revenue is revenue associated
with the Company's consulting services business and educational programs.
Professional services revenue for the second quarter of 1996 was $22,589,000,
an increase of $6,343,000, or 39%, as compared to $16,246,000 for the second
quarter of 1995. Professional services revenue for the first six months of
1996 was $43,169,000, an increase of $11,114,000, or 35%, as compared to
$32,055,000 for the first six months of 1995. The growth in revenue is due
primarily to the increase in the number of professional services personnel, as
well as the addition of established consulting practices through various
acquisitions.
COSTS AND EXPENSES
Total expenses for the second quarter of 1996, excluding merger costs and
acquired in-process technology costs, were $110,557,000, an increase of
$38,663,000, or 54%, as compared to $71,894,000 for the second quarter of
1995. Total expenses for the six months ended June 30, 1996, excluding merger
costs and acquired in-process technology costs, were $212,616,000, an increase
of $79,143,000 or 59%, as compared to $133,473,000 for the six months ended
June 30, 1995. Total expenses, excluding merger costs and acquired in-process
technology costs, as a percentage of total revenues for the second quarter and
first six months of 1996 were 110% and 116%, respectively, as compared to 100%
and 99% for the same periods in 1995. During the first six months of 1996, the
Company continued to incur significant costs in supporting its open enterprise
development laboratories and in building the infrastructure to support the
significantly larger Company that is the result of the recent acquisitions.
These costs were associated with the hiring of product developers, technical
writers, and in-house and field technical support personnel; expanding the
inside and outside sales forces; informing customers of the Company's
technical strategy; training all personnel in open systems issues and new
products; accelerated hiring of key management personnel; and augmenting
internal support systems. Management believes that these investments were
required in order to fully exploit the market opportunity for the products
from the acquired companies and to adequately manage the significantly larger
Company.
9
<PAGE>
PROFESSIONAL SERVICES. Costs of professional services for the second quarter
of 1996 were $19,172,000, an increase of $3,213,000, or 20%, as compared to
$15,959,000 for the second quarter of 1995. Costs of professional services for
the first six months of 1996 were $38,012,000, an increase of $7,686,000, or
25%, as compared to $30,326,000 for the first six months of 1995. Professional
services expenses as a percentage of professional services revenue for the
second quarter and first six months of 1996 were 85% and 88%, respectively, as
compared to 98% and 95% for the same periods in 1995. The increase in these
expenses is related to salaries and other direct employment expenses as a
result of the Company's rapid hiring to support this business. The decrease in
these expenses as a percentage of professional services revenue is primarily
attributable to improved utilization of resources.
PRODUCT DEVELOPMENT AND SUPPORT. Product development and support expenses
for the second quarter of 1996 were $38,927,000, an increase of $18,487,000,
or 90%, as compared to $20,440,000 for the second quarter of 1995. Product
development and support expenses for the first six months of 1996 were
$74,431,000, an increase of $36,251,000, or 95%, as compared to $38,180,000
for the first six months of 1995. Product development and support expenses as
a percentage of total revenues for the second quarter and first six months of
1996 were 39% and 40%, respectively, as compared to 29% and 28% for the same
periods in 1995. The increase in these expenses and expenses as a percentage
of revenues for the second quarter and for the first six months of 1996, as
compared to the same periods in 1995, is primarily attributable to the hiring
of additional product developers, in-house as well as field technical support
personnel and technical writers; increased allocated charges for office space
and overhead; and increased hardware and software costs relating to the
product development effort. Also contributing to the increase was higher bonus
and royalty expenses associated with increased software products revenue.
The Company has invested heavily in the development of systems software
products for enterprise-wide information systems that integrate mainframes,
minicomputers, workstations, PC's, and client/server networks. The Company
believes that these actions were required in order to strengthen its
competitive position in the open enterprise marketplace, enhance existing
products, and satisfactorily support the Company's growing customer base.
For the second quarters of 1996 and 1995, the Company capitalized $6,476,000
and $3,484,000, respectively, of software development costs net of related
amortization expense, in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed." For the first six months of 1996 and 1995, the
Company capitalized $11,989,000 and $6,052,000, respectively, of software
development costs net of related amortization expense.
SALES AND MARKETING. Sales and marketing expenses for the second quarter of
1996 were $42,998,000, an increase of $14,675,000, or 52%, as compared to
$28,323,000 for the second quarter of 1995. Sales and marketing expenses for
the first six months of 1996 were $82,255,000, an increase of $31,375,000, or
62%, as compared to $50,880,000 for the first six months of 1995. Sales and
marketing expenses as a percentage of total revenues for the second quarter
and first six months of 1996 were 43% and 45%, respectively, as compared to
39% and 38% for the same periods in 1995. The increase in these expenses and
expenses as a percentage of revenues for the second quarter and for the first
six months of 1996, as compared to the same periods in 1995, is primarily
attributable to costs associated with the significant expansion of the outside
sales force, inside sales force, and telemarketing organizations in the U.S.
and in international subsidiaries. Also contributing to the increase were
higher commission expenses associated with the increase in software product
revenue, increased product marketing costs associated with an expanded product
line, increased costs related to travel by the expanded outside sales force,
higher costs for sponsorship of seminars and user groups, and increased
allocated charges for office space and overhead. The Company believes the
large investment in sales and marketing was necessary in order to build the
sales organization required to distribute the Company's expanded product line
and exploit significant new market opportunities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
second quarter of 1996 were $9,460,000, an increase of $2,288,000, or 32%, as
compared to $7,172,000 for the second quarter of 1995. General and
administrative expenses for the first six months of 1996 were $17,918,000, an
increase of
10
<PAGE>
$3,831,000, or 27%, as compared to $14,087,000 for the first six months of
1995. General and administrative expenses as a percentage of total revenues
for the second quarter and first six months of 1996 were 9% and 10%,
respectively, as compared to 10% for each of the same periods in 1995. The
increase in these expenses and expenses as a percentage of revenues for the
second quarter and for the first six months of 1996, as compared to the same
periods in 1995, is primarily related to salaries and other direct employment
expenses attributable to an expanded administrative staff. Also contributing
to the increase was amortization of costs in excess of net assets acquired
related to the Company's acquisitions accounted for as purchases, and
increased professional fees.
MERGER COSTS. The Company did not incur merger costs during the second
quarter of 1996. Merger costs were $5,782,000 for the six months ended June
30, 1996. Merger costs relate to acquisitions accounted for as poolings of
interests and include investment banking and other professional fees, employee
severance payments, costs of closing excess office facilities, write downs of
certain assets, and various other expenses. The Company may continue to incur
such costs and expenses in connection with possible future mergers. These
costs will be expensed in the period in which the transactions are
consummated.
ACQUIRED IN-PROCESS TECHNOLOGY. The Company did not incur acquired in-
process technology costs during the second quarter of 1996. Acquired in-
process technology costs for the six months ended June 30, 1996 were
$7,005,000. These costs relate to acquisitions accounted for under the
purchase method.
Acquired in-process technology costs incurred in the first quarter of 1996
relate primarily to the acquisition of Advanced Systems Technologies, Inc.
Prior to completing this acquisition, the Company conducted reviews which
included the evaluation of existing products and of research and development
in process (projects that had not reached technological and economic
feasibility and had no alternative future use to the Company). The Company
also conducted reviews of customers and financial and other matters, in order
to determine fair market value. This acquisition was completed primarily for
the research and development in process, and was not completed for the
existing earnings, cash flow or net assets. All of the acquired in-process
research and development represents unique and emerging technologies, the
application of which is limited to the Company's open enterprise systems
software strategy. Accordingly, these acquired technologies have no
alternative future use. The Company believes it has budgeted adequate research
and development resources to complete the contemplated projects over time
periods ranging from six to eighteen months from the date of acquisition. The
Company may continue to incur charges for acquired in-process technology in
connection with future acquisitions, which will reduce operating and net
income for the periods in which the acquisitions are consummated.
OTHER INCOME
Other income for the second quarter of 1996 was $1,560,000, an increase of
$485,000, or 45%, as compared to $1,075,000 for the second quarter of 1995.
Other income for the first six months of 1996 was $2,104,000, a decrease of
$317,000, or 13%, as compared to $2,421,000 for the first six months of 1995.
The increase in other income for the second quarter of 1996, as compared to
the second quarter of 1995 is primarily attributable to a decrease in interest
expense related to short-term borrowings. The decrease in other income for the
first six months of 1996, as compared to the same period in 1995 is primarily
attributable to the costs associated with the financing of future revenues.
INCOME TAXES
The effective tax rate for the second quarter and for the first six months
of 1996, excluding the Federal tax effect of charges for acquired in-process
technology relating to certain acquisitions, was 33%. This compares to an
effective tax rate of 33% for the same periods in 1995. The Company reported
an income tax benefit of $2,721,000, on a pre-tax loss of $8,512,000, for the
second quarter of 1996. The Company recorded an income tax benefit of
$10,048,000, on a pre-tax loss of $40,343,000, for the first six months of
1996.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company held approximately $68,299,000 of cash,
cash equivalents, and investments as compared to $132,775,000 as of December
31, 1995. The decrease is primarily attributable to approximately $61,499,000
used in operations, approximately $8,792,000 in payments relating to
acquisitions, approximately $17,315,000 for capital expenditures, and
approximately $18,201,000 in capitalized software development costs, net of
approximately $43,487,000 provided by financing activities.
The Company had trade and installment accounts receivable, net of
allowances, of $132,154,000 and $126,539,000 at June 30, 1996 and December 31,
1995, respectively. Total trade and installment receivables include non-
current installment receivables which are classified in other assets in the
consolidated balance sheets. The Company sells software products and services
to customers in diversified industries and geographic regions and, therefore,
has no significant concentration of credit risk. Historically, a substantial
amount of the Company's revenues have been recorded in the third month of any
given quarter, with a concentration of such revenues in the last week of the
third month. This trend results in a high balance of accounts receivable
relative to reported revenues at the end of any quarterly reporting period.
The Company closely monitors its accounts receivable and has never experienced
significant losses relating to collectibility.
The Company had long-term acquisition-related payables of $8,026,000 and
$9,756,000 as of June 30, 1996 and December 31, 1995, respectively. The
Company has secured and unsecured bank lines of credit totaling $28,000,000,
under which borrowings bear interest at rates ranging from approximately LIBOR
plus 1% to the bank's prime rate. As of August 12, 1996, the Company had no
outstanding borrowings under these lines of credit. The Company is in the
process of increasing its lines of credit.
The Company's sources of liquidity have traditionally been cash generated
from operations and funds from capital markets, including bank facilities.
During the second quarter of 1996, the financing of future revenues and the
sale of receivables became a significant source of liquidity. The Company
believes the funding available to it from these sources will be sufficient to
satisfy its working capital requirements for the foreseeable future. The
Company's capital requirements are dependent on management's business plans
regarding the levels and timing of investments in existing and newly-acquired
businesses and technologies. These plans and the related capital requirements
may change, based upon various factors, such as the Company's strategic
opportunities, developments in the Company's markets, the timing of closing
and integrating acquisitions, and the conditions of financial markets.
SAFE HARBOR PROVISION
The statements contained in this MD&A that are not historical facts are
forward-looking statements subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. A number of important factors could
cause the Company's actual consolidated results, performance or achievements
for 1996 and beyond to differ materially from the results, performance or
achievements expressed in, or implied by any forward-looking statements made
by, or on behalf of, the Company, including without limitation, the maturation
and success of the Company's open enterprise system strategy, risks inherent
in conducting international business, general economic and business
conditions, charges and costs related to acquisitions, and the ability of the
Company to: develop and market existing and acquired products for the open
enterprise systems market; successfully integrate its acquired products,
services and businesses; adjust to changes in technology, customer
preferences, enhanced competition and new competitors in the open systems,
systems software and professional services markets; and maintain or enhance
its relationships with relational database vendors. These and other factors
are more fully described in the Company's other filings with the Securities
and Exchange Commission, including, without limitation, the Company's
Registration Statement on Form S-1, Registration No. 333-07783, filed July 8,
1996.
12
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) An Annual Meeting of Stockholders of the Company was held on May 21,
1996.
(c) 1. The stockholders voted to elect two Class I directors to the
Company's Board of Directors.
<TABLE>
<CAPTION>
AUTHORITY BROKER
DIRECTORS FOR WITHHELD NON-VOTES
--------- ---------- --------- ---------
<S> <C> <C> <C>
Michael P. Cullinane......................... 43,477,751 481,103 --
Paul L. Humenansky........................... 43,477,751 481,103 --
</TABLE>
2. The Stockholders voted to approve a proposal to amend the Company's
Restated Certificate of Incorporation to provide for an increase in the
authorized number of the Company's Common Stock from 120,000,000 shares to
180,000,000 shares.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
38,299,323 5,581,584 77,947 --
</TABLE>
3. The Stockholders voted to approve the Amended and Restated PLATINUM
technology, inc. 1993 Directors' Stock Option Plan.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
41,281,154 1,924,300 269,399 484,001
</TABLE>
4. The Stockholders voted to approve the PLATINUM technology, inc. 1996
Stock Purchase Plan.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
40,763,463 2,621,064 90,326 484,001
</TABLE>
5. The Stockholders voted to approve an amendment to the PLATINUM
technology, inc. Employee Incentive Compensation Plan to provide the
Employee Plan Committee with greater flexibility in the administration of
the Plan.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
39,504,524 3,849,424 120,905 484,001
</TABLE>
6. The Stockholders voted to approve an amendment to the PLATINUM
technology, inc. 1994 Stock Incentive Plan to provide the 1994 Plan
Committee with greater flexibility in the administration of the Plan.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
39,445,884 3,901,907 127,062 484,001
</TABLE>
7. The Stockholders voted to ratify the appointment of KPMG Peat Marwick
LLP as independent auditors of the Company's consolidated financial
statements for the fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C>
43,539,494 75,243 344,117 --
</TABLE>
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<C> <S>
Exhibit 3.1(c) Certificate of Amendment of Restated Certificate of
Incorporation of the Company, incorporated by reference to
Exhibit 3.1(c) to the Company's Registration Statement on
Form S-1, filed July 8, 1996.
Exhibit 3.1(d) Conformed copy of Certificate of Incorporation of the
Company, as amended, incorporated by reference to Exhibit
3.1(d) to the Company's Registration Statement on Form S-
1, filed July 8, 1996.
Exhibit 10.1 PLATINUM technology, inc. 1996 Stock Purchase Plan,
incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8, filed April 5, 1996.
Exhibit 10.2 PLATINUM technology, inc. Amended and Restated 1993
Directors' Stock Option Plan, incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on
Form S-8, filed April 5, 1996.
Exhibit 10.3 Amendment to the PLATINUM technology, inc. Employee
Incentive Compensation Plan.
Exhibit 10.4 Amendment to the PLATINUM technology, inc. 1994 Stock
Incentive Plan.
Exhibit 15 Acknowledgment of Independent Certified Public Accountants
Regarding Independent Auditors' Review Report.
Exhibit 27 Financial Data Schedule
</TABLE>
B. Reports on Form 8-K:
None.
14
<PAGE>
Exhibit 10.3
AMENDMENT NO. 1 TO
PLATINUM TECHNOLOGY, INC.
EMPLOYEE INCENTIVE COMPENSATION PLAN
------------------------------------
The PLATINUM technology, inc. Employee Incentive Compensation Plan (the
"Plan") is hereby amended, effective as of May 21, 1996, as follows:
The second sentence of Section 6.6 of the Plan is hereby amended to read as
follows:
"Unless otherwise provided in an agreement or determined by the Committee,
if the Participant incurs a Termination of Employment which is either (a)
voluntary on the part of the Participant (and is not due to Retirement) or
(b) with Cause, the Option shall terminate immediately."
As herein amended, the Plan shall remain in full force and effect.
<PAGE>
Exhibit 10.4
AMENDMENT NO. 4 TO
PLATINUM TECHNOLOGY, INC.
1994 STOCK INCENTIVE PLAN
-------------------------
The PLATINUM technology, inc. 1994 Stock Incentive Plan (the "Plan") is
hereby amended, effective as of May 21, 1996, as follows:
The second sentence of Section 6.6 of the Plan is hereby amended to read as
follows:
"Unless otherwise provided in an agreement or determined by the Committee,
if the Participant incurs a Termination of Employment which is either (a)
voluntary on the part of the Participant (and is not due to Retirement) or
(b) with Cause, the Option shall terminate immediately."
As herein amended, the Plan shall remain in full force and effect.
<PAGE>
EXHIBIT 15
ACKNOWLEDGMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
REGARDING INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
PLATINUM technology, inc.:
With respect to the registration statements on Form S-8 of PLATINUM technology,
inc., we acknowledge our awareness of the use therein of our report dated August
13, 1996 related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Chicago, Illinois
August 13, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 53,902 53,902
<SECURITIES> 14,397 14,397
<RECEIVABLES> 109,961 109,961
<ALLOWANCES> 2,484 2,484
<INVENTORY> 0 0
<CURRENT-ASSETS> 190,418 190,418
<PP&E> 96,865 96,865
<DEPRECIATION> 34,600 34,600
<TOTAL-ASSETS> 413,126 413,126
<CURRENT-LIABILITIES> 116,547 116,547
<BONDS> 0 0
<COMMON> 55 55
0 0
0 0
<OTHER-SE> 265,195 265,195
<TOTAL-LIABILITY-AND-EQUITY> 413,126 413,126
<SALES> 0 0
<TOTAL-REVENUES> 100,485 182,956
<CGS> 0 0
<TOTAL-COSTS> 110,557 225,403
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,153) 416
<INCOME-PRETAX> (8,512) (40,343)
<INCOME-TAX> (2,721) (10,048)
<INCOME-CONTINUING> (5,791) (30,295)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,791) (30,295)
<EPS-PRIMARY> (0.10) (0.55)
<EPS-DILUTED> (0.10) (0.55)
</TABLE>
