<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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: MARCH 31, 1997
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 May 12, 1997, there were outstanding 61,379,585 shares of common
stock, par value $.001, of the registrant.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1997
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 March 31, 1997 (unaudited)
and December 31, 1996 (unaudited)............................ 4
Consolidated Statements of Operations for the three months
ended March 31, 1997 (unaudited) and 1996 (unaudited)........ 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997
(unaudited) and 1996 (unaudited)............................. 6
Notes to Consolidated Financial Statements................... 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations................................................... 9-15
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................ 16
Item 6. Exhibits and Reports on Form 8-K............................. 16
SIGNATURES............................................................... 17
</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 March 31, 1997, and the related consolidated statements
of operations for the three month periods ended March 31, 1997 and 1996 and
cash flows for the three month periods ended March 31, 1997 and 1996. 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.
KPMG Peat Marwick LLP
Chicago, Illinois
April 29, 1997
3
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996 *
--------------------------------------------------- --------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 108,310 $ 141,472
Short-term investment securities..................... 51,741 42,755
Trade accounts receivable, net of allowances of
$2,733 and $2,503................................... 141,333 170,475
Installment accounts receivable, net of allowances of
$294 and $395....................................... 9,319 13,603
Accrued interest and other current assets............ 16,067 11,748
Refundable income taxes.............................. 471 629
--------- ---------
Total current assets............................... 327,241 380,682
--------- ---------
Non-current investment securities...................... 1,923 2,135
Property and equipment, net............................ 73,876 73,060
Purchased and developed software, net.................. 95,342 82,439
Excess of cost over net assets acquired, net of
accumulated amortization of $11,006
and $9,458............................................ 36,375 37,352
Non-current installment receivables, net of allowances
of $672 and $816...................................... 16,367 21,665
Other assets........................................... 39,710 27,576
--------- ---------
Total assets....................................... $ 590,834 $ 624,909
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables......................... $ 3,622 $ 7,872
Income taxes payable................................. 1,783 2,420
Accounts payable..................................... 14,570 15,938
Accrued commissions and bonuses...................... 3,593 10,622
Accrued royalties.................................... 4,721 3,913
Other accrued liabilities............................ 32,003 34,634
Current maturities of long-term obligations.......... 4,325 3,075
Deferred maintenance................................. 81,859 84,223
--------- ---------
Total current liabilities.......................... 146,476 162,697
--------- ---------
Acquisition-related payables........................... 2,502 2,502
Deferred maintenance................................... 45,627 38,674
Deferred rent.......................................... 8,389 8,361
Long-term obligations, net of current maturities....... 117,027 116,892
--------- ---------
Total liabilities.................................. 320,021 329,126
--------- ---------
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
61,351 and 60,577................................... 61 61
Paid-in capital...................................... 496,823 487,477
Accumulated deficit.................................. (234,049) (208,780)
Unrealized holding gains on marketable securities.... 11,089 17,805
Foreign currency translation adjustment.............. (3,111) (780)
--------- ---------
Total stockholders' equity......................... 270,813 295,783
--------- ---------
Total liabilities and stockholders' equity......... $ 590,834 $ 624,909
========= =========
</TABLE>
- --------
* The consolidated balance sheet as of December 31, 1996 has been restated to
give retroactive effect to mergers accounted for using the pooling-of-
interests method.
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
MARCH 31,
------------------
1997 1996 *
-------- --------
<S> <C> <C>
Revenues:
Software products........................................ $ 57,639 $ 39,355
Maintenance.............................................. 28,947 22,536
Professional services.................................... 29,037 27,168
-------- --------
Total revenues......................................... 115,623 89,059
-------- --------
Costs and expenses:
Professional services.................................... 28,510 26,538
Product development and support.......................... 44,136 34,609
Sales and marketing...................................... 50,472 38,748
General and administrative............................... 11,468 8,458
Merger costs............................................. 3,706 5,782
Acquired in-process technology........................... 10,417 7,005
-------- --------
Total costs and expenses............................... 148,709 121,140
-------- --------
Operating loss............................................. (33,086) (32,081)
Other income............................................... 2,306 561
-------- --------
Loss before income taxes................................... (30,780) (31,520)
Income taxes............................................... (5,511) (7,299)
-------- --------
Net loss................................................... $(25,269) $(24,221)
======== ========
Net loss per share......................................... $ (0.41) $ (0.43)
======== ========
Shares used in computing per share amounts................. 60,947 56,341
======== ========
</TABLE>
- --------
*Results for the three months ended March 31, 1996 are restated for mergers
accounted for using the pooling-of-interests method.
See accompanying notes to consolidated financial statements.
5
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------
1997 1996 *
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(25,269) $(24,221)
Adjustments to reconcile net loss to net cash provided by
(used in) operating
activities:
Depreciation and amortization.......................... 12,244 7,218
Acquired in-process technology......................... 10,417 7,005
Unrealized holding gains on marketable equity
securities............................................ (2,511) --
Realized net (gain) loss on sales of investment
securities............................................ (39) 33
Changes in assets and liabilities, net of acquisitions:
Trade and installment receivables........................ (8,459) (2,753)
Deferred income taxes.................................... (5,696) (7,681)
Accrued interest and other current assets................ (4,227) 2,585
Accounts payable and accrued liabilities................. (16,731) (2,890)
Deferred maintenance..................................... 4,589 1,999
Income taxes payable..................................... (479) (611)
Other.................................................... (3,964) (465)
-------- --------
Net cash used in operating activities................ (40,125) (19,781)
-------- --------
Cash flows from investing activities:
Purchases of investment securities....................... (18,005) (12,009)
Sales of investment securities........................... 77 12,067
Maturities of investment securities...................... 1,000 2,071
Purchases of property and equipment...................... (5,444) (8,402)
Purchased and developed software......................... (12,081) (8,010)
Payments for acquisitions................................ (4,128) (4,834)
Other assets............................................. (1,685) (1,206)
-------- --------
Net cash used in investing activities................ (40,266) (20,323)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and Stock
Purchase Plan........................................... 2,470 608
Proceeds from the sale of receivables.................... 47,374 3,720
Short-term borrowings.................................... -- 1,000
Payments on borrowings................................... (2,615) (2,598)
Other.................................................... -- 200
-------- --------
Net cash provided by financing activities............ 47,229 2,930
-------- --------
Adjustment to conform fiscal years of pooled businesses.... -- (210)
-------- --------
Net decrease in cash and cash equivalents.................. (33,162) (37,384)
Cash and cash equivalents at the beginning of the period... 141,472 115,547
-------- --------
Cash and cash equivalents at the end of the period......... $108,310 $ 78,163
======== ========
</TABLE>
- --------
* Cash flows for the three months ended March 31, 1996 are restated for
mergers accounted for using the pooling-of-interests method.
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 of
PLATINUM technology, inc. and its subsidiaries (collectively, the "Company" or
"PLATINUM") 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 Australian Technology Resources Pty Limited ("ATR")
and I&S Informationstechnik and Services ("I&S") during the first quarter of
1997 are being treated as poolings of interests for accounting purposes,
consolidated financial statements for the periods prior to the acquisitions
have been restated to reflect the assets, liabilities and operating results of
these companies (See "Business Combinations" at Note 3). As a result of these
transactions, the restated balance sheet at December 31, 1996, included
herein, is unaudited. 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, 1996, included in the Company's Annual Report on
Form 10-K (the "Form 10-K"), as filed with the Securities and Exchange
Commission. The consolidated financial statements included in the Form 10-K
have not been restated for the poolings of interests consummated in the first
quarter of 1997.
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 31, 1997, the Company acquired all of the outstanding capital
stock of ATR, a leading provider of information technology consulting
services, in exchange for 313,784 shares of the Company's Common Stock, $.001
par value, (the "Common Stock"), which had a market value, based upon the
trading price of the Common Stock on the Nasdaq National Market ("Market
Value"), of approximately $5,000,000 at the time of the acquisition. This
acquisition was accounted for as a pooling of interests.
On February 18, 1997, the Company acquired all of the outstanding capital
stock of GEJAC, Inc. ("GEJAC"), a leading provider of UNIX and NT charge-back
software, in exchange for 412,801 shares of Common Stock, which had a Market
Value of approximately $6,800,000 at the time of the acquisition. These shares
of Common Stock were issued pursuant to the Company's Registration Statement
on Form S-1 (Registration No. 333-07783). 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 1997. The
pro forma operating results (as if GEJAC had been acquired at the beginning of
each period presented) are not material to the accompanying consolidated
financial statements.
On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S, a leading provider of information technology consulting
services, in exchange for 1,089,867 shares of Common Stock, which had a Market
Value of approximately $17,200,000 at the time of the acquisition. This
acquisition was accounted for as a pooling of interests.
7
<PAGE>
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. Such expenses were recorded
as part of the purchase price in connection with the GEJAC acquisition. For
the acquisitions accounted for as poolings of interests, these expenses were
recorded as merger costs in the first quarter of 1997.
The following unaudited information reconciles total revenues and net income
(loss) of PLATINUM technology, inc. as reported in the Form 10-K with the
amounts presented in the accompanying unaudited statements of operations for
the three months ended March 31, 1996, as well as the separate results of
operations for the three months ended March 31, 1997 of ATR and I&S during the
periods preceding their acquisition. The 1997 results for ATR represent the
one month ended January 31, 1997. The 1997 results for I&S represent the two
months ended February 28, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------- -------------------
NET INCOME NET INCOME
REVENUES (LOSS) REVENUES (LOSS)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
PLATINUM (1)............................ $82,471 $(24,504)
ATR..................................... $ 511 $(56) 2,561 210
I&S..................................... 2,627 109 4,027 73
------- --------
Total................................. $89,059 $(24,221)
======= ========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM technology, inc. without
considering the effect of the pooling of interests transactions. All
merger costs are reflected in the historical results of PLATINUM.
8
<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 ATR as
of January 31, 1997 and I&S as of February 28, 1997, each of which was
accounted for using the pooling-of-interests method, and as a result, the
results of operations for the three months ended March 31, 1997 and 1996 are
presented as if the combining companies had been consolidated for all periods
presented.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1997 1996
------ ------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Software products....................................... 50% 44%
Maintenance............................................. 25 25
Professional services................................... 25 31
------ ------
Total revenues:....................................... 100 100
------ ------
Costs and expenses:
Professional services................................... 25 30
Product development and support......................... 38 39
Sales and marketing..................................... 44 43
General and administrative.............................. 10 10
Merger costs............................................ 3 6
Acquired in-process technology.......................... 9 8
------ ------
Total costs and expenses.............................. 129 136
------ ------
Operating loss............................................ (29) (36)
Other income.............................................. 2 1
------ ------
Loss before income taxes.................................. (27) (35)
Income taxes.............................................. (5) (8)
------ ------
Net loss.................................................. (22)% (27)%
====== ======
</TABLE>
REVENUES
The Company's revenues currently are derived from three sources: 1) license
fees for licensing the Company's proprietary and other parties' software
products, 2) maintenance fees for maintaining, supporting and providing
current upgrades of software products, and 3) revenues from the Company's
professional services business. Total revenues for the first quarter of 1997
were $115,623,000, an increase of $26,564,000, or 30%, as compared to
$89,059,000 for the first quarter of 1996.
Revenues from domestic (U.S.) customers represented 70% of total revenues
for the first quarter of both 1997 and 1996. Domestic revenues are generated
primarily by the Company's direct and inside sales forces, as well as a
telemarketing organization. Since January 1, 1997, the Company has organized
its domestic direct sales force by regions throughout the United States. The
Company formerly combined the domestic and Canadian sales forces to represent
the North American sales force. The Canadian sales team is now part of the
Company's international sales force.
Revenues from international customers represented 30% of total revenues for
the first quarter of both 1997 and 1996. The Company's domestic and
international revenues both grew 30% in the first quarter of 1997 as compared
to the same period in 1996. As a result, the proportion of international to
worldwide revenues remained
9
<PAGE>
constant between periods. The Company generates the majority of its
international revenues through a network of wholly-owned subsidiaries,
utilizing direct and inside sales forces.
SOFTWARE PRODUCTS. Software products revenues for the first quarter of 1997
were $57,639,000, an increase of $18,284,000, or 46%, as compared to
$39,355,000 for the first quarter of 1996. The Company has continued to
experience growth in software products revenues across all business units.
During the first quarter of 1997, the Company merged its business intelligence
and recently established vertical applications solutions business units into
its data warehouse business unit. This consolidation facilitates the Company's
product integration efforts for data extraction, distribution and analysis
functions, including decision support solutions designed for specific
industries. The growth in software products revenues in the first quarter of
1997, as compared to the first quarter of 1996, resulted from increases of
11%, 45%, 39% and 148%, respectively, experienced by the Company's database
management, systems management, application lifecycle and newly combined data
warehouse business units and was primarily attributable to the continued
marketplace acceptance of the Company's point products, product bundles and
integrated product suites.
MAINTENANCE. Maintenance revenues for the first quarter of 1997 were
$28,947,000, an increase of $6,411,000, or 28%, as compared to $22,536,000 for
the first quarter of 1996. Maintenance revenues are derived from recurring
fees charged to perpetual license customers and the implicit first year
maintenance fees bundled in certain software product licenses. The Company
provides maintenance customers with technical support and product
enhancements. Maintenance revenues are deferred and recognized ratably over
the term of the agreement. The increase in maintenance revenues was primarily
attributable to the expansion of the Company's installed customer base, from
which maintenance fees are derived. Maintenance fees implicit in certain new
software product licenses also contributed to the increase.
PROFESSIONAL SERVICES. Professional services revenues are associated with
the Company's consulting services business and educational programs.
Professional services revenues for the first quarter of 1997 were $29,037,000,
an increase of $1,869,000, or 7%, as compared to $27,168,000 for the first
quarter of 1996. The growth in professional services revenues was primarily
attributable to an increase in billable consultants from the first quarter of
1996 to the first quarter of 1997.
COSTS AND EXPENSES
Total expenses for the first quarter of 1997 were $148,709,000, an increase
of $27,569,000, or 23%, over the first quarter of 1996 expenses of
$121,140,000. Total expenses for the first quarter of 1997, excluding merger
costs and acquired in-process technology costs, were $134,586,000, an increase
of $26,233,000, or 24%, as compared to $108,353,000 for the first quarter of
1996. Total expenses, excluding merger costs and acquired in-process
technology costs, represented 116% and 122% of total revenues for the first
quarter of 1997 and 1996, respectively. Total expenses increased from the
first quarter of 1996 to the first quarter of 1997 due primarily to greater
variable expenses related to higher revenue results, as well as increased
costs, including training and system support expenses, associated with
integrating recently acquired companies and managing the larger combined
company. During the first quarter of 1997, the Company continued to focus on
overall cost containment efforts. As a result, total expenses, excluding
acquired in-process technology charges and merger costs, decreased as a
percentage of revenues for the first quarter of 1997, as compared to the first
quarter of 1996. The Company expects to intensify its cost control efforts, as
demonstrated by the restructuring plan announced during the second quarter of
1997. See "Recent Developments" below.
PROFESSIONAL SERVICES. Costs of professional services for the first quarter
of 1997 were $28,510,000, an increase of $1,972,000, or 7%, as compared to
$26,538,000 for the first quarter of 1996. Professional services expenses
represented 98% of professional services revenues for the first quarter of
both 1997 and 1996. The increase in professional services expenses is
primarily due to higher international employee-related expenses, which are the
result of the recent acquisitions of ATR and I&S, as well as the overall
expansion of the international services business. The Company began realigning
the professional services business during the first
10
<PAGE>
quarter of 1997 through the consolidation of redundant functions at various
remote locations. The Company anticipates that professional services expenses
will decrease as a percentage of professional services revenues as the savings
from the recent restructuring are realized, and as the productivity of the
Company's consultants increases.
PRODUCT DEVELOPMENT AND SUPPORT. Product development and support expenses
for the first quarter of 1997 were $44,136,000, an increase of $9,527,000, or
28%, as compared to $34,609,000 for the first quarter of 1996. Product
development and support expenses represented 38% and 39% of total revenues for
the first quarter of 1997 and 1996, respectively. The increase in these
expenses were primarily attributable to higher occupancy and employee related
expenses and system support costs related to the product development effort,
as well as the expansion of the Company's product groups through recent
acquisitions.
The Company has continued to devote substantial resources to the development
and integration of its products and technologies to provide complete,
customized management solutions for software infrastructure problems. The
Company has also been enabling its products and suites for application with
intranets, the Internet and the World Wide Web. During the first quarter of
1997, the Company began consolidating certain product development and support
efforts to coincide with its product integration focus. As a result of these
consolidation efforts, the Company expects to further reduce development and
support expenses as a percentage of total revenues.
For the first quarter of 1997 and 1996, the Company capitalized $8,477,000
and $5,645,000, respectively, of software development costs net of related
amortization expense, in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed."
SALES AND MARKETING. Sales and marketing expenses for the first quarter of
1997 were $50,472,000, an increase of $11,724,000, or 30%, as compared to
$38,748,000 for the first quarter of 1996. Sales and marketing expenses
represented 44% and 43% of total revenues for the first quarter of 1997 and
1996, respectively. The increase in these expenses for the first quarter of
1997, as compared to the first quarter of 1996, was primarily attributable to
costs related to the significant expansion of the domestic and international
outside and inside sales forces and telemarketing organizations. Also
contributing to the increase were higher commission expenses associated with
the increase in software products revenues for the first quarter of 1997, as
compared to the first quarter of 1996. During the second quarter of 1997, the
Company realigned its inside sales force to be more compatible with its
strategy of providing complete software infrastructure solutions and to
correspond with the restructuring plan discussed in "Recent Developments"
below. This realignment resulted in an approximate 45% reduction in the inside
sales force. The Company is also in the process of consolidating remote sales
facilities. Consequently, the Company anticipates that sales and marketing
expenses will decrease as a percentage of total revenues in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first quarter of 1997 were $11,468,000, an increase of $3,010,000, or 36%, as
compared to $8,458,000 for the first quarter of 1996. General and
administrative expenses represented 10% of total revenues for the first
quarter of both 1997 and 1996. Through the third quarter of 1996, the Company
expanded its administrative staff in order to build the infrastructure to
support the recently acquired businesses. Although the Company has reduced
hiring of administrative staff since the fourth quarter of 1996, an overall
head count increase in the first quarter of 1997 versus the first quarter of
1996 contributed significantly to the increase in general and administrative
expenses. The increase in these expenses was also attributable to the
amortization of excess of cost over net assets acquired related to the
Company's acquisitions accounted for as purchases. The Company expects general
and administrative expenses as a percentage of total revenues to decrease as
the streamlining of the workforce and the consolidation of remote facilities
under the Company's restructuring plan are executed.
MERGER COSTS. Merger costs were $3,706,000 and $5,782,000 for the first
quarter of 1997 and 1996, respectively. 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 and
11
<PAGE>
various other expenses. The Company may continue to incur merger costs in
connection with future acquisitions accounted for as poolings of interests.
These costs will be expensed in the period in which the transactions are
consummated.
ACQUIRED IN-PROCESS TECHNOLOGY. Acquired in-process technology charges were
$10,417,000 and $7,005,000 for the first quarter of 1997 and 1996,
respectively. Acquired in-process technology charges relate to acquisitions of
software companies and product technologies. These acquisitions were accounted
for under the purchase method, and portions of the purchase prices were
allocated to acquired in-process technology.
Prior to completing these acquisitions, the Company conducted reviews in
order to determine the fair market value of the organizations and technologies
to be acquired. These reviews consisted of an evaluation of existing products,
research and development in process (projects that had not reached
technological feasibility and had no alternative future use), customers,
financial position and other matters. The acquired in-process research and
development represents unique and emerging technologies, the application of
which is limited to the Company's software infrastructure 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 dates 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 first quarter of 1997 was $2,306,000, an increase of
$1,745,000, or 311%, as compared to $561,000 for the first quarter of 1996.
The increase in other income was primarily attributable to unrealized holding
gains that resulted from the reclassification of certain available-for-sale
securities into the trading classification. Because unrealized holding gains
and losses for trading securities are reflected in pre-tax earnings,
fluctuations in the market value of these securities are continuously recorded
as additions to or deductions from other income until the securities are sold.
The increase in other income for the first quarter of 1997, as compared to the
first quarter of 1996, was partially offset by interest expense on the
Company's convertible subordinated notes issued in November 1996.
INCOME TAXES
The Company's effective tax rate, excluding the Federal tax effect of
charges for acquired in-process technology relating to certain acquisitions,
was 33% for the first quarter of both 1997 and 1996. For the first quarter of
1997, the Company reported an income tax benefit of $5,511,000, on a pre-tax
loss of $30,780,000, which increased the net deferred tax asset balance as of
March 31, 1997. In conjunction with the restructuring plan discussed below,
the Company will reevaluate its deferred tax position during the second
quarter of 1997.
RECENT DEVELOPMENTS
On May 1, 1997, the Company announced its plan to consolidate its sales,
marketing, business development and product development operations to achieve
cost efficiencies through the elimination of redundant functions. The Company
also realigned its business units and inside sales force to redirect focus on
its strongest product lines and better integrate the development efforts of
certain product groups. Approximately 10% of the Company's worldwide work
force was reduced, primarily in the areas of product development and support,
marketing, and inside sales, and, to a lesser extent, professional services
and administration. The Company also plans to consolidate certain remote sales
and product development office locations.
The restructuring process is expected to result in a one-time charge ranging
from approximately $40,000,000 to $45,000,000, which will be expensed in the
second quarter of 1997. This charge is expected to include costs of closing
excess office facilities, employee severance payments, losses on disposal of
assets and various other expenses. The Company currently expects to realize a
reduction in annual operating expenses
12
<PAGE>
of approximately $40,000,000 as a result of this restructuring. However, there
can be no assurance as to the actual cost savings the Company will ultimately
realize from this plan.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company held approximately $161,974,000 of cash,
cash equivalents, and investments as compared to $186,362,000 as of December
31, 1996. See "Cash Flows" below.
The Company had trade and installment accounts receivable, net of allowances,
of $167,019,000 and $205,743,000 at March 31, 1997 and December 31, 1996,
respectively. The Company licenses software products and provides 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.
In recent years, the Company's sources of liquidity have primarily been funds
from capital markets, including bank facilities, and the sale of receivables.
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 primarily dependent on
management's business plan 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.
The Company sells a significant portion of its installment receivables to
third parties. Proceeds from the sale of receivables for the first quarter of
1997 and 1996 were $47,374,000 and $3,720,000, respectively. A portion of the
receivables were sold with recourse provisions. As of March 31, 1997, the
Company's maximum exposure under recourse provisions was approximately
$14,700,000. The Company has assessed the exposure related to these recourse
provisions and determined the potential liability to be minimal.
The Company's installment receivables are recorded net of unamortized
discounts and deferred maintenance fees. When these receivables are sold, the
Company reduces the gross installment receivable balance. Additionally, the
Company reclassifies the deferred maintenance, which was previously reflected
as a reduction of the related installment receivable balance, to an obligation.
The deferred maintenance is recognized into income ratably over the term of the
maintenance agreement.
The Company had other long-term obligations of $117,027,000 and $116,892,000
as of March 31, 1997 and December 31, 1996, respectively. In November 1996, the
Company issued $115,000,000 of convertible subordinated notes due November 15,
2001, which constitute the majority of the long-term obligations balance at
March 31, 1997 and December 31, 1996.
The Company currently has an unsecured bank line of credit of $25,000,000,
under which borrowings bear interest at rates ranging from approximately LIBOR
plus 1% to the bank's prime rate. As of May 12, 1997, the Company had no
outstanding borrowings under this line of credit and had aggregate letters of
credit outstanding for approximately $2,031,000, with expiration dates ranging
from July 1997 through April 1998. These letters of credit reduce the available
line of credit balance. The Company is in the process of increasing its line of
credit.
CASH FLOWS
Cash used in operating activities was $40,125,000 and $19,781,000 in the
first quarter of 1997 and 1996, respectively. Cash used in operating activities
in the first quarter of 1997 was attributable to the net effect of the
following factors: a net loss of $25,269,000, including a deferred tax benefit
of $5,511,000, substantially offset
13
<PAGE>
by non-cash charges of $12,244,000 for depreciation and amortization and
$10,417,000 for acquired in-process technology; an increase in trade and
installment receivables, before sales to third parties, of $8,459,000,
partially offset by an increase in deferred maintenance of $4,589,000, which
were both due to high quarter-end sales volume; a net decrease in accounts
payable and other accrued liabilities, the most significant being accrued
commissions and bonuses, of $16,731,000; a net increase in other working
capital accounts of $4,706,000; and a net increase in other non-current assets
of $3,964,000. Cash used in operating activities in the first quarter of 1996
was attributable to the net effect of the following factors: a net loss of
$24,211,000, including a deferred tax benefit of $7,299,000, partially offset
by non-cash charges of $7,218,000 for depreciation and amortization and
$7,005,000 for acquired in-process technology; an increase in trade and
installment receivables, before sales to third parties, of $2,753,000,
partially offset by an increase in deferred maintenance of $1,999,000; a net
decrease in accounts payable and other accrued liabilities of $2,890,000; a
net decrease in other working capital accounts of $1,974,000; and a net
increase in other non-current assets of $465,000.
Cash used in investing activities was $40,266,000 in the first quarter of
1997 as compared to $20,323,000 in the first quarter of 1996. During the first
quarter of 1997 and 1996, the Company invested $12,081,000 and $8,010,000,
respectively, in purchased and developed software. The increased investment in
software development costs in the first quarter of 1997, as compared to the
first quarter of 1996, was the result of an expanded product base due to
recent acquisitions. The Company also invested resources for property and
equipment of $5,444,000 and $8,402,000 in the first quarter of 1997 and 1996,
respectively. The Company paid $5,813,000 and $6,040,000 for acquisitions and
other equity investments in the first quarter of 1997 and 1996, respectively.
Cash expended in the first quarter of 1997 for purchases of investment
securities, net of maturities and sales, was $16,928,000. Proceeds from sales
and maturities of investment securities, net of purchases, were $2,129,000 for
the first quarter of 1996.
Cash flows from financing activities were $47,229,000 and $2,930,000 in the
first quarter of 1997 and 1996, respectively. Sales of installment receivables
were $47,374,000 in the first quarter of 1997 as compared to $3,720,000 in the
first quarter of 1996. The Company has significantly increased installment
receivable sales since the first quarter of 1996 and anticipates that such
sales will continue to be a significant source of liquidity for the
foreseeable future.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." Implementation of SFAS No. 128 is required for
periods ending after December 15, 1997. The standard establishes new methods
for computing and presenting earnings per share ("EPS") and replaces the
presentation of primary and fully-diluted EPS with basic and diluted EPS. The
new methods under this standard are not expected to have a significant impact
on the Company's EPS amounts.
SAFE HARBOR PROVISION
This Form 10-Q contains certain statements which reflect the Company's
expectations regarding its future growth, results of operations, performance
and business prospects and opportunities. Wherever possible, words such as
"anticipate," "plan," "expect," "believe" and similar expressions have been
used to identify these "forward-looking" statements. These statements reflect
the Company's current beliefs and specific assumptions with respect to future
business decisions and are based on information currently available to the
Company. Accordingly, these statements are subject to significant risks,
uncertainties and contingencies which could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks,
uncertainties and contingencies include the maturation and success of the
Company's software infrastructure system strategy, risks inherent in
conducting international business, risks associated with conducting a
professional services business, changes in the Company's product and service
mix and product and service pricing, the effectiveness of the Company's
efforts to control operating expenses, general economic and business
conditions in the United States and other countries in which the
14
<PAGE>
Company sells its products and services, charges and costs related to
acquisitions, and the Company's ability to: develop and market existing and
acquired products for the software infrastructure market; successfully
integrate its acquired products, services and businesses and continue its
acquisition strategy; adjust to changes in technology, customer preferences,
enhanced competition and new competitors in the software infrastructure and
professional services markets; protect its proprietary software rights from
infringement or misappropriation; maintain or enhance its relationships with
relational database vendors; and attract and retain key employees. The Company
is not obligated to update or revise these forward-looking statements to
reflect new events or circumstances.
15
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the Form 10-K for a discussion of Computer Associates' International,
Inc., and L'Agence pour la Protection des Programmes v. La Societe Faster,
S.A.R.L. (Commercial Court of Bobigny, Paris, France).
The Company is also subject to certain other legal proceedings and claims
which have arisen in the ordinary course of business and which have not been
fully adjudicated. Management currently believes the ultimate outcome of such
matters and the matter referred to above will not have a material adverse
effect on the Company's results of operations or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<C> <S>
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:
The Company filed a Current Report on Form 8-K, dated February 12, 1997,
to report the Company's issuance of 313,784 shares of Common Stock pursuant
to its acquisition of ATR. Such shares were issued upon reliance on
Regulation S under the Securities Act of 1933, as amended ("Regulation S").
The Company filed a Current Report on Form 8-K, dated March 11, 1997, to
report the Company's issuance of 1,089,867 shares of Common Stock pursuant
to its acquisition of I&S. Such shares were issued upon reliance on
Regulation S.
16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Platinum technology, inc.
/s/ Andrew J. Filipowski
By: _________________________________
Date: May 14, 1997
Andrew J. Filipowski,
President, Chief Executive Officer
(principal executive officer) and
Chairman of the Board of Directors
/s/ Michael P. Cullinane
By: _________________________________
Date: May 14, 1997
Michael P. Cullinane,
Executive Vice President, Chief
Financial
Officer (principal financial and
accounting
officer), Treasurer and a Director
17
<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-1 and Form S-8 of PLATINUM
technology, inc., we acknowledge our awareness of the use therein of our report
dated April 29, 1997 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
April 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 108,310
<SECURITIES> 53,664
<RECEIVABLES> 144,066
<ALLOWANCES> 2,733
<INVENTORY> 0
<CURRENT-ASSETS> 327,241
<PP&E> 122,646
<DEPRECIATION> 48,770
<TOTAL-ASSETS> 590,834
<CURRENT-LIABILITIES> 146,476
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 270,752
<TOTAL-LIABILITY-AND-EQUITY> 590,834
<SALES> 0
<TOTAL-REVENUES> 115,623
<CGS> 0
<TOTAL-COSTS> 148,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 194
<INTEREST-EXPENSE> 2,079
<INCOME-PRETAX> (30,780)
<INCOME-TAX> (5,511)
<INCOME-CONTINUING> (25,269)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,269)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
