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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 27, 1998
PLATINUM technology, inc
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19058 36-3509662
- ---------------------------- ----------- -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of incorporation) File Number Identification No.
1815 S. Meyers Road, Oakbrook Terrace, IL 60181
----------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (630) 620-5000
<PAGE>
Item 5. Other Events.
During the first quarter of 1997, PLATINUM technology, inc. (the "Company")
acquired Australian Technology Resources Pty Limited and I&S Informationstechnik
and Services GmbH (collectively, the "Acquisitions"). As a result of the
Acquisitions, the Company believes that certain of the information and
disclosures previously reported by the Company pursuant to the requirements of
the Securities Exchange Act of 1934, as amended, should be updated and amended
to reflect the Company's current situation. Accordingly, the Company is filing
this Current Report on Form 8-K which contains an updated version of "Selected
Consolidated Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated Financial Statements
of the Company and related notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, in each case restated to
reflect the Acquisitions as poolings of interests. The information contained
herein does not include certain recent developments nor reflect the current
financial condition of the Company, and therefore, should be read in conjunction
with the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 and the Company's other filings with the Securities and Exchange
Commission.
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Report under the captions "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Report relate to future events and expectations and, as such,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things: the maturation and success of the Company's software infrastructure
systems strategy; currency exchange rate fluctuations, collection of
receivables, compliance with foreign laws and other risks inherent in conducting
international business; risks associated with conducting a professional services
business; adverse general economic and business conditions, which may reduce or
delay customer purchases of the Company's products and services; charges and
costs related to acquisitions; the ability of the Company to develop and market
existing and acquired products for the software infrastructure systems market;
the ability of the Company to successfully integrate its acquired products,
services and businesses; the ability of the Company to adjust to changes in
technology, customer preferences, enhanced competition and new competitors in
the software infrastructure and professional services markets; and the ability
of the Company to protect its proprietary software rights from infringement or
misappropriation, to maintain or enhance its relationships with relational
database vendors, and to attract and retain key employees. The Company
undertakes no obligation to release publicly any revisions to any such forward-
looking statements that may reflect events or circumstances after the date of
this Report, or to reflect the occurrence of unanticipated events.
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SELECTED CONSOLIDATED FINANCIAL DATA(1)
The selected consolidated financial data set forth below have been derived
from the historical financial statements of the Company. The historical
consolidated financial statements of the Company as of December 31, 1995 and
1996 and for the years ended December 31, 1994, 1995 and 1996 have been audited
by KPMG Peat Marwick LLP, independent certified public accountants, whose report
thereon appears elsewhere herein. The selected consolidated financial data set
forth below as of December 31, 1992, 1993 and 1994, and for the years ended
December 31, 1992 and 1993 have been derived from the Company's unaudited
internal financial statements and reflect all adjustments which management
considers necessary for a fair and consistent presentation of the results of
operations for those periods. These selected consolidated financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and related notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- --------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues................ $156,721 $190,623 $243,607 $ 326,411 $468,065
Operating income (loss)....... 3,263 (2) 3,062(3) (517)(4) (127,377)(5) (79,404)(6)
Net income (loss)............. (2,232)(2) 126(3) (1,562)(4) (111,567)(5) (64,922)(6)
Net income (loss) per share... $ (0.06)(2) $ --(3) $ (0.04)(4) $ (2.50)(5) $ (1.14)(6)
Shares used in per share
calculation.................. 36,911 39,375 41,294 44,671 56,968
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
investments.................. $ 61,174 $ 71,148 $126,215 $ 136,737 $185,673
Working capital............... 40,812 43,672 90,500 127,990 217,157
Total assets.................. 140,487 176,064 273,333 452,267 618,572
Long-term obligations and
acquisition-related
payables, less current
portion...................... 301 3,465 9,080 11,389 118,305
Total stockholders' equity.... $ 84,083 $ 93,350 $160,126 $ 290,213 $295,760
</TABLE>
__________________
(1) The Selected Consolidated Financial Data give retroactive effect to the
acquisitions of Australian Technology Resources Pty Limited ("ATR") as of
January 31, 1997 and I&S Informationstechnik and Services GmbH ("I&S") as
of February 28, 1997, each of which has been accounted for as a pooling of
interests for financial reporting purposes. As a result, the balance sheet
data and statement of operations data are presented as if the combining
companies had been consolidated for all periods presented. The Selected
Consolidated Financial Data should be read in conjunction with the other
financial information included in this Report .
(2) Reflects a pre-tax charge of $7,873,000 relating to Trinzic Corporation
("Trinzic") restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to the Company's acquisition of the stock of Datura
Corporation ("Datura") and a pre-tax charge of $4,659,000 relating to
Trinzic and Locus Computing Corporation ("Locus") restructuring costs.
(4) Reflects a pre-tax charge for acquired in-process technology of $24,594,000
relating primarily to the Company's acquisitions of the stock of Dimeric
Development, Inc. ("Dimeric") and the net assets of Aston Brooke Software,
Inc. ("Aston Brooke") and AutoSystems Corporation ("AutoSystems").
(5) Reflects a pre-tax charge for acquired in-process technology of $88,493,000
relating primarily to the Company's acquisitions of the outstanding capital
stock of Advanced Software Concepts, Inc. ("ASC"), SQL Software Corporation
("SQL"), RELTECH Group, Inc. ("Reltech"), Protellicess Software, Inc.
("Protellicess"), AIB Software Corporation ("AIB") and BMS Computer, Inc.
("BMS") and the net assets of ViaTech Development, Inc. ("ViaTech"),
BrownStone Solutions, Inc.
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("BrownStone") and ProtoSoft, Inc. ("ProtoSoft") and to certain product
acquisitions. Also reflects a pre-tax charge for merger costs of
$30,819,000 relating to the Company's acquisitions of Software Interfaces,
Inc. ("SII"), Answer Systems, Inc. ("Answer"), Locus, Altai, Inc.
("Altai"), Trinzic and Softool Corporation ("Softool").
(6) Reflects a pre-tax charge for acquired in-process technology of $48,456,000
relating to the Company's acquisitions of the outstanding capital stock of
Advanced Systems Technologies, Inc. ("AST"), Software Alternatives, Inc.
(d/b/a System Software Alternatives) ("Software Alternatives"), Grateful
Data, Inc. (d/b/a TransCentury Data Systems) ("Grateful Data") and VREAM,
Inc. ("VREAM"); substantially all of the assets of the Access Manager
business unit of the High Performance Systems division of International
Computers Limited ("Access Manager"); and the purchase of certain product
technologies. Also reflects a pre-tax charge for merger costs of $5,782,000
relating primarily to the Company's acquisitions of Prodea Software
Corporation ("Prodea"), Paradigm Systems Corporation ("Paradigm") and Axis
Systems International, Inc. ("Axis").
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve their
IT infrastructures--data, systems and applications. The Company's products and
services help IT departments, primarily in large and data intensive
organizations, minimize risk and improve service levels for their organizations
and leverage information to make better business decisions. As an integral part
of the Company's growth strategy, it has consummated a number of significant
business combinations, including acquisitions of SII, Answer, Locus, Altai,
Trinzic, Softool, Prodea, Paradigm, Axis, ATR and I&S, each of which has been
accounted for using the pooling-of-interests method. As a result, the Company's
consolidated financial statements are presented as if the Company and such
acquired companies had been consolidated for all periods presented. Information
regarding the Company in this Management's Discussion and Analysis of Financial
Condition and Results of Operations gives retroactive effect to these
acquisitions. In addition, the Company has also consummated a number of
acquisitions accounted for as purchases.
Results of Operations
The table below sets forth for the periods indicated (1) each line item
from the statement of operations items expressed as a percentage of revenues and
(2) the percentage change in each line item from the prior period.
<TABLE>
<CAPTION>
Percentage Period-to-Period
of Total Percentages
Revenues Change
---------------- ------------------
Years Ended
December 31, 1995 1996
---------------- Compared Compared
1994 1995 1996 to 1994 to 1995
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues:
Software products 47% 49% 52% 39% 54%
Maintenance 24 23 22 30 34
Professional services 29 28 26 29 33
--- --- ---
Total revenues 100 100 100 34 43
--- --- ---
Costs and expenses:
Professional services 27 28 25 39 26
Product development and support 21 29 33 83 65
Sales and marketing 30 35 39 56 60
General and administrative 12 11 9 17 15
Merger costs -- 9 1 * (81)
Acquired in-process technology 10 27 10 260 (45)
--- --- ---
Total costs and expenses 100 139 117 86 21
--- --- ---
Operating loss -- (39) (17) * *
Other income, net 1 1 1 45 27
--- --- ---
Income (loss) before income taxes 1 (38) (16) * *
Income taxes (2) (4) 2 * *
--- --- ---
Net loss (1)% (34)% (14)% *% *%
=== === ===
</TABLE>
- -----------------
* Not meaningful.
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Revenues
The Company's revenues are currently derived from three sources: (1)
license and upgrade fees for licensing the Company's proprietary and other
parties' software products and providing additional processing capacity on
already-licensed products, (2) maintenance fees for maintaining, supporting and
providing updates and enhancements to software products, and (3) revenues from
the professional services business. Total revenues for fiscal 1996 were
$468,065,000, an increase of $141,654,000, or 43%, over 1995 total revenues of
$326,411,000. Total revenues in 1995 increased $82,804,000, or 34%, over 1994
revenues of $243,607,000.
Revenues from domestic (U.S.) customers represented 74%, 68% and 70% of the
Company's total revenues in 1994, 1995 and 1996, respectively. Domestic revenues
are generated primarily by the Company's direct sales force (which visits
customer sites to assist with trials, to demonstrate product features and to
close sales transactions) and inside sales force (which predominantly supports
the direct sales force by developing sales leads and arranging product
evaluations), 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 26%, 32% and 30% of the
Company's total revenues in 1994, 1995 and 1996, respectively. The Company
generates the majority of its international revenues through a network of
wholly-owned subsidiaries, utilizing direct and inside sales forces. Since 1995,
the Company has invested significantly in the global marketplace and has
increased its focus on international sales efforts and expansion of its
international operations.
Software Products. Software products revenues represented 47%, 49% and 52%
of total revenues in 1994, 1995 and 1996 respectively. From 1994 to 1995,
software products revenues increased 39% from $113,749,000 to $158,597,000. In
1996, software products revenues increased 54% over 1995 to $243,938,000 as a
result of increases of 64%, 50%, 66% and 38%, respectively, experienced by the
Company's database management, systems management, application lifecycle and
data warehouse business units. The Company believes the growth in software
products revenues over the past two years has resulted from the continued
marketplace acceptance of the Company's products across all business units and
the Company's aggressive expansion of its sales and marketing efforts, as well
as new product offerings. During 1996, the Company expanded its customer base,
increased sales of product bundles and integrated product suites and executed
increasingly larger sales transactions. The Company's database management,
systems management, application lifecycle and data warehouse business units
represented 47%, 24%, 12% and 17%, respectively, of total software products
revenues in 1994; 38%, 29%, 11% and 22%, respectively, of total software
products revenues in 1995; and 40%, 29%, 11% and 20%, respectively, of total
software products revenues in 1996.
Maintenance. Maintenance revenues in 1996 increased 34% over 1995 to
$102,364,000, and 1995 maintenance revenues of $76,498,000 represented an
increase of 30% over 1994 maintenance revenues of $58,837,000. Maintenance
revenues are derived from recurring fees charged to perpetual license customers
and the implicit first-year maintenance fees bundled in certain software product
sales. 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 increases during 1995 and 1996 were
primarily attributable to the expansion of the Company's installed customer
base, from which maintenance fees are derived. Because maintenance fees are
implicit in certain new software product licenses, an increase in software
licensing transactions also contributed to the increase in maintenance revenues.
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Professional Services. Professional services revenues are associated with
the Company's consulting services business and educational programs. In 1996,
professional services revenues increased 33% over 1995 to $121,763,000. From
1994 to 1995, professional services revenues increased 29% from $71,021,000 to
$91,316,000. The increases in professional services revenues during 1995 and
1996 were primarily due to the addition of established consulting practices
through various acquisitions during these years, as well as the growth
experienced within these acquired businesses.
Costs and Expenses
Total expenses for 1996 were $547,469,000, an increase of 21% over 1995
expenses of $453,788,000, which increased 86% over 1994 expenses of
$244,124,000. Total expenses for 1996, excluding merger costs and acquired in-
process technology charges, were $493,231,000, an increase of $158,755,000, or
47%, compared to $334,476,000 for 1995. Total expenses, excluding merger costs
and acquired in-process technology charges, increased 52% in 1995 as compared to
$219,530,000 in 1994. During 1995 and 1996, the Company incurred significant
costs in supporting its development laboratories and in building the
infrastructure to support the significantly larger combined company that is the
result of the Company's acquisitions. These costs were primarily associated with
the expansion of the inside and outside sales forces; hiring of product
developers and support technicians plus key management personnel; training all
personnel in software infrastructure systems issues and new products; providing
additional financial and technical support to the international subsidiaries
established in recent years; translating product materials into numerous foreign
languages; and augmenting internal support systems. Management believes that
such investments have been necessary to fully exploit the market opportunity for
the newly acquired products and to adequately manage the significantly larger
enterprise.
Professional Services. Costs of professional services increased to
$116,133,000 in 1996, from $92,374,000 in 1995 and $66,242,000 in 1994. Costs of
professional services represented 93%, 101% and 95% of professional services
revenues in 1994, 1995 and 1996, respectively. The increases in these expenses
during 1995 and 1996 were related to salaries and other direct employment
expenses as a result of the Company's continued hiring to support this business,
the increased use of external consultants and the addition of established
consulting practices through various acquisitions. Greater commission and bonus
expenses associated with higher professional services revenues also contributed
to the increases.
Product Development and Support. Product development and support expenses
increased to $155,277,000 in 1996, from $94,027,000 in 1995 and $51,404,000 in
1994. Product development and support expenses represented 21%, 29% and 33% of
total revenues in 1994, 1995 and 1996, respectively. The increases in these
expenses in 1995 and 1996 were primarily attributable to higher employee-related
expenses associated with expanded product offerings as well as continued product
integration and internationalization efforts; increased allocated charges for
office space and overhead; an increase in information technology costs to
support the expanded development efforts and product offerings; higher travel
expenses and product documentation costs associated with the Company's product
integration efforts and expanded product offerings; and higher bonuses and
royalty expenses related to greater revenues.
In 1994, 1995 and 1996, the Company capitalized $5,987,000, $13,591,000 and
$27,246,000, respectively, of internal 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." Product development and
support expenses plus capitalized internal software development costs, net of
related amortization expense, were $57,391,000 in 1994, $107,618,000 in 1995 and
$182,523,000 in 1996, which amounted to 33%, 46% and 53%, respectively, of
software product and maintenance revenues during those periods.
Sales and Marketing. Sales and marketing expenses increased to $182,597,000
in 1996, from $113,978,000 in 1995 and $72,850,000 in 1994. Sales and marketing
expenses represented 30%, 35% and
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39% of total revenues in 1994, 1995 and 1996, respectively. The continuous
increase in these expenses as a percentage of total revenues from 1994 to 1996
was primarily attributable to costs associated with the significant expansion of
the domestic and international outside and inside sales forces and the
telemarketing organization. Additionally, the Company incurred higher commission
expenses associated with the increase in software products revenues during 1995
and 1996 and greater marketing costs associated with the Company's expanded
product line.
General and Administrative. General and administrative expenses increased
to $39,224,000 in 1996, from $34,097,000 in 1995 and $29,034,000 in 1994.
General and administrative expenses represented 12%, 11% and 9% of total
revenues in 1994, 1995 and 1996, respectively. The increase in these expenses
from 1994 to 1995 was primarily related to salaries and other direct employment
expenses attributable to an expanded administrative staff in both the U.S and
international subsidiaries, amortization of excess of cost over net assets
acquired related to the Company's acquisitions accounted for as purchases and
increased professional fees. During 1996, a concerted effort to consolidate
redundant administrative functions at the Company's various domestic locations
resulted in a significant reduction in these expenses as a percentage of total
revenues.
Merger Costs. Merger costs were $5,782,000 and $30,819,000 in 1996 and
1995, respectively. The Company incurred no merger costs in 1994. 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 various other expenses. The
Company expects to incur merger costs in connection with future acquisitions
accounted for as poolings of interests. These costs will be expensed in the
periods in which the transactions are consummated.
Acquired In-Process Technology. Acquired in-process technology charges were
$48,456,000, $88,493,000 and $24,594,000 in 1996, 1995 and 1994, 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 represent
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 18 months from the
dates of acquisition. The Company expects to 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. The Company plans to continue to pursue merger and acquisition
opportunities, because it believes that acquisitions are an essential part of
the Company's strategy to compete effectively in its rapidly evolving
marketplace.
Other Income
Other income was $5,237,000 in 1996 as compared to $4,130,000 in 1995 and
$2,848,000 in 1994. The increase in other income in 1995 over 1994 was primarily
attributable to interest earned on higher cash and investment balances
maintained during 1995 as compared to 1994. The increase in other income during
1996 as compared to 1995 was primarily attributable to realized gains on the
sale of
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investment securities classified as available-for-sale and unrealized holding
gains on trading securities. 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 increases in
other income in 1996, as compared to the comparable prior-year periods, were
partially offset by interest expense on the Company's convertible subordinated
notes issued in November 1996. See "--Liquidity and Capital Resources."
Income Taxes
The Company recognized an income tax benefit of $9,245,000 in 1996 and
$11,680,000 in 1995 and income tax expense of $3,893,000 in 1994.
The Company has available approximately $234,891,000 of net operating loss
carryforwards and $10,682,000 of tax credit carryforwards for Federal income tax
purposes, expiring through the year 2011. Some of the Company's tax
carryforwards are subject to limitations as to the amounts which may be used in
any particular future year.
Recent Developments
On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading provider
of information technology consulting services, in exchange for 313,784 shares of
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. 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.
On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("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.
During the second quarter of 1997, the Company executed a restructuring
plan to consolidate its sales, marketing, business development and product
development operations to achieve cost efficiencies through the elimination of
redundant functions. These redundancies resulted primarily from businesses
acquired over the last three years. The Company also realigned its business
units and inside sales force to redirect focus on its strongest product lines
and better integrate the efforts of certain product
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development teams. As part of the plan, the Company reduced its worldwide work
force by approximately 10%, eliminating approximately 400 positions, primarily
in the areas of product development and support, marketing and inside sales and,
to a lesser extent, professional services and administration.
The Company recorded a one-time charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: $23,834,000 for facility-related costs,
including a reserve for estimated lease obligations associated with the closing
of office facilities; $3,708,000 for write-offs of excess equipment, furniture
and fixtures; $16,859,000 for write-offs of capitalized software costs and other
intangible assets related to the redirection of product development efforts as
well as penalties for the cancellation of distributorship agreements; and
$12,918,000 for severance and other employee-related costs of the terminated
staff.
The Company currently expects to realize a reduction in annual operating
expenses of approximately $40,000,000 in subsequent years as a result of the
restructuring, without an adverse impact on revenues. However, there can be no
assurance as to the ultimate effects of the restructuring plan on the Company's
operating results.
On October 3, 1997, the Company acquired all of the outstanding capital
stock of ProMetrics Group Limited ("ProMetrics"), a leading provider of
productivity management software, in exchange for approximately $8,000,000 in
cash plus 364,396 shares of Common Stock, which had a Market Value of
approximately $9,500,000 at the time of the acquisition, plus additional
consideration as specified in the acquisition agreement. The Company's issuance
of Common Stock was substantially used to retire approximately $7,000,000 of
assumed debt under the acquisition agreement. 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 fourth quarter of 1997.
On November 26, 1997, the Company acquired all of the outstanding capital
stock of Vayda Consulting, Inc. ("Vayda"), a leading provider of information
technology consulting services, in exchange for 580,231 shares of Common Stock,
which had a market value of approximately $15,300,000 at the time of the
acquisition. This acquisition was accounted for as a pooling of interests. Costs
incurred in connection with this transaction were expensed in the fourth quarter
of 1997. The historical financial statements of the Company have not been
restated to reflect this acquisition, as the effects of the acquisition are not
material.
On December 16, 1997, the Company issued $150,000,000 of convertible
subordinated notes (the "1997 Notes"). The 1997 Notes bear interest at 6.25%
annually and mature on December 15, 2002. The holders of the 1997 Notes have
the option to convert them into shares of Common Stock, at any time prior to
maturity, at a conversion price of $36.05 per share. The Company received
proceeds, net of issuance costs, of approximately $145,000,000 after the
offering of the 1997 Notes.
The Company and Intel Corporation ("Intel") entered into a stock purchase
agreement dated as of December 23, 1997, in which the Company issued to Intel
1,768,421 shares of its Class II Series B Preferred Stock. In connection with
the stock purchase agreement, Intel agreed to license to the Company certain
intellectual property and the Company agreed to distribute certain products
manufactured by Intel.
The Company entered into an agreement and plan of merger dated as of
January 2, 1998, pursuant to which the Company has agreed to acquire Learmonth
and Burchett Management Systems PLC ("LBMS"). Under the terms of the
acquisition, LBMS will become a wholly-owned subsidiary of the Company. The
Company has agreed to exchange approximately $70 million in shares of Common
Stock for all of the outstanding common shares, stock options and other equity
interests of LBMS. The acquisition is subject to legal and
regulatory conditions customary in such agreements and to the approval of
shareholders of LBMS and the sanction of the English High Court.
Liquidity and Capital Resources
The Company's cash, cash equivalents and investments were $126,215,000 as
of December 31, 1994, $136,737,000 as of December 31, 1995 and $185,673,000 as
of December 31, 1996. See "--Cash Flows" below.
The Company had trade and installment accounts receivable, net of
allowances, of $132,058,000 and $200,399,000 as of December 31, 1995 and 1996,
respectively. 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
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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 sales of installment
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. Installment receivables represent amounts collectible on long-
term financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years, with
interest payable on the license and upgrade portions only. Since 1995, the
Company has executed an increasingly greater number and higher dollar value of
sales transactions having long-term financing arrangements, primarily
attributable to sales of product bundles and integrated product suites.
Consequently, the Company's volume of installment receivable sales has increased
significantly since 1995.
The Company receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of interest payable by the
Company. The finance company collects customer remittances over the term of the
agreement. Proceeds from the sale of receivables were $2,903,000 and
$129,328,000, respectively, for the years ended December 31, 1995 and 1996. The
Company did not sell installment receivables prior to 1995. A portion of the
receivables were sold with recourse provisions. As of September 30, 1997, the
Company's maximum exposure under recourse provisions was approximately
$19,600,000. 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 long-term acquisition-related payables of $9,756,000 and
$2,502,000 and other long-term obligations of $1,633,000 and $115,803,000 as of
December 31, 1995 and 1996, respectively. The significant increase in long-term
obligations from December 31, 1995 to December 31, 1996 was attributable to the
$115,000,000 of convertible subordinated notes (the "1996 Notes") issued by the
Company in November 1996. The 1996 Notes bear interest at 6.75% annually and
mature on November 15, 2001. The holders of the 1996 Notes have the option to
convert them into shares of Common Stock, at any time prior to maturity, at a
conversion price of $13.95 per share. The Company received proceeds, net of
issuance costs, of $110,783,000 from the offering of the 1996 Notes.
The Company currently has an unsecured bank line of credit of $55,000,000,
under which borrowings generally bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate. As of December 31, 1997,
the Company had no outstanding borrowings under this line of credit. The Company
currently has aggregate letters of credit outstanding for approximately
$2,623,000, with expiration dates ranging from March 1998 through December 1998.
These letters of credit reduce the available line of credit balance.
12
<PAGE>
CASH FLOWS
Cash provided from operating activities was $31,142,000 in 1994. Cash used
in operating activities was $25,227,000 in 1995 and $133,228,000 in 1996. Cash
provided by operating activities in 1994 was attributable to the net effect of
the following factors: a net loss of $1,562,000, after the effects of
depreciation and amortization of $13,640,000 and acquired in-process technology
of $24,594,000; an increase in trade and installment receivables of $25,137,000,
partially offset by an increase in deferred revenue of $9,494,000, which were
both due to high year-end sales volume; a net increase in working capital
accounts of $2,163,000; and a decrease in other non-current assets of
$6,429,000.
The utilization of cash from operating activities in 1995 was primarily due
to a significant increase in trade and installment receivables (before sales to
third parties) of $56,748,000, partially offset by an increase in deferred
revenue of $20,325,000. This increase in receivables was attributable to the
high concentration of sales near the end of 1995, plus a slowdown in collections
due to the transition process associated with the numerous acquisitions
consummated in the second half of 1995. In 1995, the Company incurred a net loss
of $111,567,000, after a deferred tax benefit of $11,680,000, which was
substantially offset by non-cash charges of $24,140,000 for depreciation and
amortization as well as $88,493,000 for acquired in-process technology. A net
increase of $6,369,000 in working capital accounts and a decrease of $16,073,000
in other non-current assets resulted in sources of cash from operations during
1995.
During 1996, the Company incurred a net loss of $64,922,000 after the
deferred tax benefit of $9,245,000. This net loss was offset by non-cash
charges, including depreciation and amortization of $38,824,000 and acquired in-
process technology of $48,456,000. A high concentration of sales in the fourth
quarter of 1996 was largely responsible for an increase in trade and installment
receivables, before sales to third parties, of $196,547,000. This increase in
receivables was partially offset by an increase in deferred revenue of
$59,196,000 and proceeds from the sale of installment receivables of
$129,328,000 (see the discussion of financing activities below). Deferred
revenue increased primarily because of the high sales volume near the end of
1996, the emergence of multi-year maintenance contracts, as well as heightened
activity of installment receivable sales.
Cash used in investing activities was $52,524,000 in 1994, $138,956,000 in
1995 and $81,151,000 in 1996. Beginning in 1994, the Company executed an
aggressive acquisition program in order to assemble the core competencies to
create complete software infrastructure solutions. This acquisition plan
resulted in the investment of substantial resources during 1994, 1995 and 1996,
including cash payments of $22,756,000, $103,085,000 and $17,853,000,
respectively. The Company also invested resources for property and equipment of
$14,250,000, $39,435,000 and $35,542,000 in 1994, 1995 and 1996, respectively.
The substantial increase in capital expenditures in 1995 and 1996 as compared to
1994 related to the building of the infrastructure to support the significantly
larger combined company that is the result of these acquisitions. In 1994, 1995
and 1996, the Company invested $10,898,000, $20,742,000 and $41,279,000,
respectively, for purchased and developed software costs. During 1996, the
Company invested heavily in the development and integration of its products,
including the acquisition of new product technologies. The Company expects to
continue to actively invest in internally developed point products, product
bundles and integrated product suites, as well as strategic business and
technology acquisitions. Proceeds from the sales and maturities of investment
securities, net of purchases, were $24,788,000 and $17,272,000 during 1995 and
1996, respectively. Cash expended during 1994 for purchases of investment
securities, net of sales and maturities, was $6,169,000.
Cash flows from financing activities were $70,201,000 in 1994, $202,085,000
in 1995 and $239,493,000 in 1996. The Company executed a public offering of
Common Stock in December 1994, which provided cash of $66,051,000, net of
issuance costs. In October 1995, the Company completed
13
<PAGE>
another public offering of Common Stock, which provided $194,420,000 in
proceeds, net of issuance costs. Sales of installment receivables became a
significant source of liquidity for the Company during 1996, providing funds of
$129,328,000. The Company also completed the offering of the 1996 Notes in
November 1996 and received proceeds, net of issuance costs, of $110,783,000. The
proceeds from the 1996 Notes offering and the sale of installment receivables
were used primarily for the operating and investing activities discussed above.
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 would not have had a significant impact on the
Company's EPS amounts for 1994, 1995 or 1996.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Company is required to adopt SFAS. No. 130
for periods beginning after December 15, 1997. This statement establishes
standards for reporting comprehensive income and its components in a full set of
general purpose financial statements. The standard requires all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The standard is not
expected to have a material impact on the Company's current presentation of
income.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company is required to adopt the disclosures of SFAS No. 131 in the December 31,
1998 annual financial statements. This statement establishes standards for the
way companies are to report information about operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is currently evaluating the
impact of this standard on its financial statements.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition." The
Company is required to adopt SOP 97-2 on January 1, 1998. The SOP is intended to
reduce diversity in current revenue recognition practices within the software
industry. The Company is currently evaluating the effects of this SOP on
operations.
QUARTERLY COMPARISONS
The following tables set forth an unaudited summary of quarterly financial
data. This quarterly information has been prepared on the same basis as the
annual consolidated financial statements and, in management's opinion, reflects
all adjustments necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest total revenues and
operating income. For example, 32% of the Company's total revenues in both 1995
and 1996 were generated in the fourth quarter. Further, revenues for the fourth
quarter of 1995 were higher than revenues for the first quarter of 1996. The
Company believes the seasonality of its revenue results primarily from the
budgeting cycles of its software product customers
14
<PAGE>
and the structure of the Company's sales commission and bonus programs. In
addition, the Company's software products revenues may vary significantly from
quarter to quarter depending upon other factors such as the timing of new
product announcements and releases by the Company and its competitors. The
Company operates with relatively little backlog, and substantially all of its
software product revenues in each quarter result from sales made in that
quarter.
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Total revenues, as previously
reported................... $ 63,060 $71,796 $ 71,787 $ 98,033 $ 82,471 $100,485 $113,430 $142,804
Adjustments(1)............... 4,826 4,989 5,531 6,389 6,588 6,712 6,884 8,691
Total revenues............... 67,886 76,785 77,318 104,422 89,059 107,197 120,314 151,495
Operating loss, as previously
reported................... (17,318)(2) (3,604)(3) (38,134)(4) (69,106)(5) (32,374)(6) (10,072) (10,636)(7) (29,411)(8)
Adjustments(1)............... (255) (94) 202 932 293 271 209 2,316
Operating income (loss)...... (17,573)(2) (3,698)(3) (37,932)(4) (68,174)(5) (32,081)(6) (9,801) (10,427)(7) (27,095)(8)
Net loss, as previously
reported................... (14,006)(2) (2,311)(3) (28,744)(4) (66,872)(5) (24,504)(6) (5,791) (7,693)(7) (29,974)(8)
Adjustments(1)............... (360) (196) 94 828 283 235 208 2,314
Net income (loss)............ (14,366)(2) (2,507)(3) (28,650)(4) (66,044)(5) (24,221)(6) (5,556) (7,485)(7) (27,660)(8)
Net loss per share, as
previously reported........ $ (0.34)(2) $ (0.06)(3) $ (0.69)(4) $ (1.31)(5) $(0.45)(6) $(0.10) $(0.14)(7) $ (0.53)(8)
Net income (loss) per share.. (0.34)(2) (0.06)(3) (0.67)(4) (1.26)(5) (0.43)(6) (0.10) (0.13)(7) (0.48)(8)
Shares used in computing loss
per share, as previously
reported................... 40.738 41,283 41,460 51,032 54,915 55,214 55,678 56,419
Shares used in computing net
income (loss) per share..... 42,142 42,687 42,864 52,436 56,341 56,625 57,070 57,823
</TABLE>
15
<PAGE>
(1) Adjustments reflect the effect of acquisitions accounted for as poolings of
interests on the amounts previously reported in the Company's Annual Report
on Form 10-K. See Note 2 to the consolidated financial statements for a
more detailed discussion of these transactions.
(2) Reflects a pre-tax charge for acquired in-process technology of $18,799,000
relating primarily to the Company's acquisitions of the outstanding capital
stock of SQL and Reltech, and the net assets of Viatech and BrownStone.
(3) Reflects a pre-tax charge for acquired in-process technology of $1,354,000
relating to the purchase of certain product technologies. Also reflects a
pre-tax charge for merger costs of $2,152,000 relating to the Company's
acquisition of SII.
(4) Reflects a pre-tax charge for acquired in-process technology of $5,300,000
relating to the acquisition of the outstanding capital stock of ASC. Also
reflects a pre-tax charge for merger costs of $22,612,000 relating to the
Company's acquisition of Answer, Locus, Altai and Trinzic.
(5) Reflects a pre-tax charge for acquired in-process technology of $63,040,000
relating primarily to the acquisitions of the outstanding capital stock of
AIB, Protellicess and BMS, and the net assets of ProtoSoft. Also reflects a
pre-tax charge for merger costs of $6,055,000 relating to the Company's
acquisition of Softool.
(6) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to the Company's acquisition of the outstanding capital stock of
AST and the purchase of certain product technologies. Also reflects a pre-
tax charge for merger costs of $5,782,000 relating primarily to the
Company's acquisitions of Prodea, Paradigm and Axis.
(7) Reflects a pre-tax charge for acquired in-process technology of $4,090,000
relating to the Company's acquisition of the outstanding capital stock of
Software Alternatives and Grateful Data.
(8) Reflects a pre-tax charge for acquired in-process technology of $37,361,000
relating to the Company's acquisition of the outstanding capital stock of
VREAM and substantially all of the assets of Access Manager.
16
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of KPMG Peat Marwick LLP...................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996......................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996.......................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1995 and 1996............................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996.......................................................................................... F-6
Notes to Consolidated Financial Statements........................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
PLATINUM technology, inc.:
We have audited the accompanying consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. In 1994, we did not audit the
financial statements of Trinzic Corporation, Locus Computing Corporation, and
Softool Corporation, wholly-owned subsidiaries, which statements reflect total
revenue constituting 34 percent of the related consolidated total for that year.
Those statements were audited by other auditors whose reports have been
furnished to us and our opinion, in so far as it relates to the amounts for
Trinzic Corporation, Locus Computing Corporation, and Softool Corporation, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of PLATINUM technology, inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 28, 1997
F-2
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
As of December 31,
-----------------------
ASSETS 1995 1996
------ --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 115,809 $ 140,783
Short-term investment securities........................................................ 7,802 42,755
Trade accounts receivable, net of allowances of $2,695 and $2,503....................... 125,473 165,131
Installment accounts receivable, net of allowances of $103 and $395..................... 6,058 13,603
Accrued interest and other current assets............................................... 10,568 11,729
Refundable income taxes................................................................. 355 629
--------- ---------
Total current assets.................................................................. 266,065 374,630
--------- ---------
Non-current investment securities......................................................... 13,126 2,135
Property and equipment, net............................................................... 51,420 72,750
Purchased and developed software, net..................................................... 52,271 82,438
Excess of cost over net assets acquired, net of accumulated amortization
of $6,249 and $10,610.................................................................... 35,526 37,382
Non-current installment receivables, net of allowances of $11 and $816.................... 527 21,665
Other assets.............................................................................. 33,332 27,572
--------- ---------
Total assets.......................................................................... $ 452,267 $ 618,572
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Acquisition-related payables............................................................ $ 12,518 $ 7,872
Income taxes payable.................................................................... 1,068 2,420
Accounts payable........................................................................ 16,899 15,436
Accrued commissions and bonuses......................................................... 8,598 10,622
Accrued royalties....................................................................... 1,637 3,913
Other accrued liabilities............................................................... 31,227 29,798
Current maturities of long-term obligations............................................. 7,151 3,246
Deferred revenue........................................................................ 58,977 84,166
--------- ---------
Total current liabilities............................................................. 138,075 157,473
--------- ---------
Acquisition-related payables.............................................................. 9,756 2,502
Deferred revenue.......................................................................... 3,795 38,674
Deferred rent............................................................................. 8,795 8,360
Long-term obligations, net of current maturities.......................................... 1,633 115,803
--------- ---------
Total liabilities..................................................................... 162,054 322,812
--------- ---------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized 10,000, none
issued and outstanding................................................................. -- --
Common stock, $.001 par value; authorized 180,000, issued and
outstanding 54,598 and 60,577.......................................................... 55 61
Paid-in capital......................................................................... 433,856 487,417
Notes receivable........................................................................ (515) --
Accumulated deficit..................................................................... (143,771) (208,788)
Unrealized holding gains on marketable securities....................................... -- 17,805
Foreign currency translation adjustment................................................. 588 (735)
--------- ---------
Total stockholders' equity............................................................ 290,213 295,760
--------- ---------
Total liabilities and stockholders' equity............................................ $ 452,267 $ 618,572
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Software products.......................................................... $113,749 $ 158,597 $243,938
Maintenance................................................................ 58,837 76,498 102,364
Professional services...................................................... 71,021 91,316 121,763
-------- --------- --------
Total revenues.......................................................... 243,607 326,411 468,065
Costs and expenses:
Professional services...................................................... 66,242 92,374 116,133
Product development and support............................................ 51,404 94,027 155,277
Sales and marketing........................................................ 72,850 113,978 182,597
General and administrative................................................. 29,034 34,097 39,224
Merger costs............................................................... -- 30,819 5,782
Acquired in-process technology............................................. 24,594 88,493 48,456
-------- --------- --------
Total costs and expenses................................................ 244,124 453,788 547,469
-------- --------- --------
Operating loss............................................................... (517) (127,377) (79,404)
Other income, net............................................................ 2,848 4,130 5,237
-------- --------- --------
Income (loss) before income taxes............................................ 2,331 (123,247) (74,167)
Income taxes................................................................. 3,893 (11,680) (9,245)
-------- --------- --------
Net loss..................................................................... $ (1,562) $(111,567) $(64,922)
======== ========= ========
Net loss per share........................................................... $(0.04) $(2.50) $(1.14)
======== ========= ========
Shares used in computing per share amounts................................... 41,294 44,671 56,968
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1994 1995 1996
------------------ ------------------- -------------------
Shares Amount Shares Amount Shares Amount
------- --------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock:
Balance at beginning of year............................ 34,956 $ 35 39,670 $ 40 54,598 $ 55
Exercise of stock options............................... 1,186 1 803 1 517 1
Issuance of common stock under Stock Purchase
Plan.................................................. -- -- -- -- 197 --
Issuance of common stock................................ 3,629 4 14,125 14 5,265 5
Repurchase of common stock.............................. (100) -- -- -- -- --
Adjustment to conform fiscal years of pooled
businesses............................................ (1) -- -- -- -- --
------ -------- ------ --------- ------ ---------
Balance at end of year.................................. 39,670 $ 40 54,598 $ 55 60,577 $ 61
====== ======== ====== ========= ====== =========
Paid in capital:
Balance at beginning of year............................ $122,353 $ 191,194 $ 433,856
Exercise of stock options............................... 5,083 4,754 2,380
Income tax benefit related to stock options............. 108 -- --
Issuance of common stock under Stock Purchase
Plan.................................................. -- -- 1,801
Issuance of common stock................................ 65,065 237,907 49,515
Repurchase of common stock.............................. (1,413) -- --
Amortization of shelf registration costs................ -- -- (135)
Adjustment to conform fiscal years of pooled
businesses............................................ (2) 1 --
-------- --------- ---------
Balance at end of year.................................. $191,194 $ 433,856 $ 487,417
======== ========= =========
Notes receivable:
Balance at beginning of year............................ $ (247) $ (333) $ (515)
Exercise of stock options............................... (7) -- --
Issuance of notes receivable............................ (79) (200) --
Repayment of note receivable............................ -- 18 --
Reclassification to non-current asset................... -- -- 515
--------- --------- ---------
Balance at end of year.................................. $ (333) $ (515) $ --
======== ========= =========
Accumulated deficit:
Balance at beginning of year............................ $(28,475) $ (30,958) $(143,771)
Net loss................................................ (1,562) (111,567) (64,922)
Other................................................... (296) (22) --
Adjustment for immaterial pooled business............... -- -- 45
Adjustment to conform fiscal years of pooled
businesses............................................ (625) (1,224) (140)
-------- --------- ---------
Balance at end of year.................................. $(30,958) $(143,771) $(208,788)
======== ========= =========
Unrealized appreciation in marketable securities:
Balance at beginning of year............................ $ -- $ -- $ --
Net unrealized holding gains, net of income taxes....... -- -- 17,805
--------- --------- ---------
Balance at end of year.................................. $ -- $ -- $ 17,805
========= ========= =========
Foreign currency translation adjustment:
Balance at beginning of year............................ $ (316) $ 183 $ 588
Translation adjustment.................................. 476 405 (1,323)
Adjustment to conform fiscal years of pooled
businesses............................................ 23 -- --
-------- --------- ---------
Balance at end of year.................................. 183 588 (735)
-------- --------- ---------
Total stockholders' equity................................ $160,126 $ 290,213 $ 295,760
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1994 1995 1996
--------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................................ $ (1,562) $(111,567) $ (64,922)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization......................................................... 13,640 24,140 38,824
Acquired in-process technology........................................................ 24,594 88,493 48,456
Unrealized holding gains on marketable equity securities.............................. -- -- (920)
Realized net gain on sales of investment securities................................... -- (332) (1,032)
Write-off of capitalized software in connection with product stabilization
and mergers.......................................................................... -- 942 654
Noncash compensation.................................................................. 186 78 --
Changes in assets and liabilities, net of acquisitions:
Trade and installment receivables................................................... (25,137) (56,748) (196,547)
Deferred income taxes............................................................... 1,335 (13,000) (16,337)
Accrued interest and other current assets........................................... 496 (3,134) (1,170)
Accounts payable and accrued liabilities............................................ 3,901 6,888 (7,080)
Deferred revenue.................................................................... 9,494 20,325 59,196
Income taxes refundable (payable)................................................... (2,234) 2,615 993
Other............................................................................... 6,429 16,073 6,657
-------- --------- ---------
Net cash provided by (used in) operating activities.............................. 31,142 (25,227) (133,228)
-------- --------- ---------
Cash flows from investing activities:
Purchases of investment securities...................................................... (25,079) (61,484) (18,797)
Sales of investment securities.......................................................... -- 75,519 30,223
Maturities of investment securities..................................................... 18,910 10,753 5,846
Purchases of property and equipment..................................................... (14,250) (39,435) (35,542)
Purchased and developed software........................................................ (10,898) (20,742) (41,279)
Payments for acquisitions............................................................... (22,756) (103,085) (17,853)
Other assets............................................................................ 1,549 (482) (3,749)
-------- --------- ---------
Net cash used in investing activities............................................ (52,524) (138,956) (81,151)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs........................... 66,051 194,420 --
Proceeds from issuance of convertible notes, net of issuance costs...................... -- -- 110,783
Repurchase of common stock.............................................................. (1,413) (2) --
Proceeds from exercise of stock options and Stock Purchase Plan......................... 3,826 4,144 4,182
Income tax benefit from stock option exercises.......................................... 108 -- --
Proceeds from the sale of receivables................................................... -- 2,903 129,328
Short-term borrowings................................................................... 6,921 8,205 1,115
Payments on borrowings.................................................................. (4,058) (7,331) (5,915)
Other................................................................................... (1,234) (254) --
-------- --------- ---------
Net cash provided by financing activities........................................ 70,201 202,085 239,493
-------- --------- ---------
Adjustment to conform fiscal years of pooled businesses................................... 276 (2,203) (140)
-------- --------- ---------
Net increase in cash and cash equivalents................................................. 49,095 35,699 24,974
Cash and cash equivalents at beginning of year............................................ 31,015 80,110 115,809
-------- --------- ---------
Cash and cash equivalents at end of year.................................................. $ 80,110 $ 115,809 $ 140,783
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
PLATINUM technology, inc. and its subsidiaries (collectively, the "Company"
or "PLATINUM") develop, market and support software products, and provide
related professional services, that help chief information officers ("CIOs")
better manage their software infrastructures. The Company's products and
services increase the performance and interoperability of computing systems and
databases and provide users, primarily in large and data intensive
organizations, with more reliable and productive access to and use of critical
information. The Company's products typically perform fundamental functions and
mission-critical automation, such as maintenance of data integrity, systems
security, systems scheduling, project and process management, and end-user
specific analysis and reporting. The Company develops software products under
four business units: database management, systems management, application
lifecycle and data warehouse. The Company markets and supports its products and
services principally through its own sales organization, including an
international network of wholly-owned subsidiaries.
Use of Estimates
In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, the Company's management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of PLATINUM
technology, inc. and its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenues from software product sales of perpetual and fixed-term license
agreements are recognized upon product delivery and customer acceptance, when
all significant contractual obligations have been satisfied and the collection
of the resulting receivables are reasonably assured. Software product sales
under extended payment terms are discounted to present value. Revenues from
maintenance fees implicit in software product sales or separately priced
maintenance agreements are recognized on a straight-line basis over the
maintenance period.
Professional services revenues are derived from the Company's consulting
services business and educational programs. These revenues are comprised of both
time and material contracts and fixed-price contracts. Time and material
contract revenues are recognized as services are performed. Fixed-price contract
revenues are recognized based on the percentage-of-completion method.
Cash Equivalents and Investment Securities
Cash equivalents are comprised of certain highly liquid investments with
original maturities of three months or less. Investment securities consist
primarily of state and municipal bonds with original maturities generally
ranging from two to ten years, corporate bonds with original maturities
generally ranging from six months to one year and equity securities. The Company
classifies its investment securities as either available-for-sale or trading and
reports them at fair value.
F-7
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity and are not actively traded. For
available-for-sale securities, unrealized holding gains and losses, net of
income taxes, are reported as a separate component of stockholders' equity. For
trading securities, unrealized holding gains and losses are reflected in pre-tax
earnings.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, generally five
years, of the various classes of property and equipment. Amortization of
leasehold improvements is computed over the shorter of the lease term or
estimated useful life of the asset.
Purchased and Developed Software
Software development costs are accounted for 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." Costs associated
with the planning and designing phase of software development, including coding
and testing activities necessary to establish technological feasibility, are
classified as product development and expensed as incurred. Once technological
feasibility has been determined, additional costs incurred in development,
including coding, testing and documentation, are capitalized.
Amortization of purchased and developed software is provided on a product-
by-product basis over the estimated economic life of the software, generally
four years, using the straight-line method. This method generally results in
greater amortization expense per year than the method based on the ratio of
current year gross product revenue to current and anticipated future gross
product revenue. Amortization commences when a product is available for general
release to customers. Unamortized capitalized costs determined to be in excess
of the net realizable value of a product are expensed at the date of such
determination.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized on a straight-line
basis over the expected period to be benefited, generally seven to ten years.
Adjustments to the carrying value of excess of cost over net assets acquired are
made if the sum of expected future net cash flows from the business acquired is
less than book value.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in earnings in the
period of enactment.
Fair Value of Financial Instruments and Long-Lived Assets
The Company has reviewed the following financial instruments and determined
that their fair values approximated their carrying values as of December 31,
1996: cash and cash equivalents; trade and installment receivables; accrued
F-8
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
interest and other current assets; refundable income taxes; acquisition-related
payables; accounts payable and other accrued liabilities; and long-term
obligations, excluding convertible subordinated notes. Investment securities are
discussed in note 3, and convertible subordinated notes are discussed in note
11.
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
under which the Company has reviewed long-lived assets and certain intangible
assets and determined that their carrying values as of December 31, 1996 are
recoverable in future periods.
Earnings Per Share
Net income per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of common stock equivalents using
the treasury stock method. Net loss per share is based on the weighted average
number of shares outstanding and does not include the effect of unexercised
common stock equivalents.
Foreign Currency Translation and Transactions
The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated into U.S. dollars using
current exchange rates as of the balance sheet date. Revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments arising from differences in exchange rates are included as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.
Stock-Based Compensation
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits entities to recognize the compensation
expense associated with the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and provide pro forma net income and earnings per
share disclosures as if the fair value method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosures of SFAS No. 123.
Supplemental Cash Flow Disclosure
Income tax refunds received by the Company amounted to $72,000, $933,000
and $307,000 in 1994, 1995 and 1996, respectively. Cash paid for income taxes in
1994, 1995 and 1996 was $4,248,000, $987,000 and $2,179,000, respectively. Cash
paid for interest in 1994, 1995 and 1996 was $377,000, $824,000 and $787,000,
respectively.
Reclassifications
Certain prior year balance sheet items have been reclassified to conform to
the 1996 presentation. In addition, certain prior years' costs and expenses have
been reclassified to conform to the 1996 presentation.
F-9
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. ACQUISITIONS
On June 15, 1995, the Company acquired all of the outstanding capital stock
of Software Interfaces, Inc. ("SII"), a leading provider of data access,
reporting and data conversion utilities for relational and non-relational
database management systems, in exchange for 1,085,450 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 $20,000,000 at the time of the acquisition.
In addition, the Company assumed stock options which converted into options to
purchase 14,377 shares of Common Stock.
On August 9, 1995, the Company acquired all of the outstanding capital
stock and warrants of Answer Systems, Inc. ("Answer"), a pioneer in
client/server help desk solutions, in exchange for 1,567,946 shares of Common
Stock, which had a Market Value of approximately $38,000,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted into
options to purchase 42,176 shares of Common Stock.
On August 16, 1995, the Company acquired all of the outstanding capital
stock of Locus Computing Corporation ("Locus"), a leading provider of consulting
services for information technology users and suppliers, in exchange for
1,452,445 shares of Common Stock, which had a Market Value of approximately
$33,000,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 231,905 shares of Common
Stock.
On August 23, 1995, the Company acquired all of the outstanding capital
stock of Altai, Inc. ("Altai"), a vendor of integrated automated operations
software for open computing, in exchange for 1,098,295 shares of Common Stock,
which had a Market Value of approximately $23,000,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted into
options to purchase 52,696 shares of Common Stock.
On August 25, 1995, the Company acquired all of the outstanding capital
stock of Trinzic Corporation ("Trinzic"), a major provider of data warehousing
and open systems tools and services, in exchange for 6,654,484 shares of Common
Stock, which had a Market Value of approximately $150,000,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted into
options to purchase 620,948 shares of Common Stock.
On November 17, 1995, the Company acquired all of the outstanding capital
stock of Softool Corporation ("Softool"), a leading provider of software change
and configuration management technology, in exchange for 1,452,708 shares of
Common Stock, which had a Market Value of approximately $25,000,000 at the time
of the acquisition.
On February 8, 1996, the Company acquired all of the outstanding capital
stock of Prodea Software Corporation ("Prodea"), a leading provider of data
warehousing and business intelligence tools, in exchange for 2,126,913 shares of
Common Stock, which had a Market Value of approximately $36,000,000 at the time
of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 212,427 shares of Common Stock.
On March 26, 1996, the Company acquired all of the outstanding capital
stock of Paradigm Systems Corporation ("Paradigm"), a leading provider of
information technology consulting services, in exchange for 762,503 shares of
Common Stock, which had a Market Value of approximately $12,800,000 at the time
of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 87,912 shares of Common Stock.
F-10
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 29, 1996, the Company acquired all of the outstanding capital
stock of Axis Systems International, Inc. ("Axis"), a leading provider of
information technology consulting services, in exchange for 319,926 shares of
Common Stock, which had a Market Value of approximately $6,300,000 at the time
of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 59,986 shares of Common Stock.
On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading provider
of information technology consulting services, in exchange for 313,784 shares of
Common Stock, which had a Market Value of approximately $5,000,000 at the time
of the acquisition.
On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("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.
Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated as if the combining companies had been combined for all periods
presented. Merger costs relating to the acquisitions consummated in 1995 and
1996 amounted to $30,819,000 and $5,782,000, respectively, of which $1,942,000
and $353,000, respectively, were included in other accrued liabilities at
December 31, 1995 and 1996. These costs included investment banking and other
professional fees, write downs of certain assets, employee severance payments,
costs of closing excess office facilities and various other expenses.
The following information reconciles total revenues and net income (loss)
of PLATINUM technology, inc. as previously reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 with the amounts
presented in the accompanying consolidated statements of operations for the
years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
1994 1995 1996
--------------------- --------------------- ---------------------
Net income Net income Net income
Revenues (loss) Revenues (loss) Revenues (loss)
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
PLATINUM(1)................................................. $225,439 $(2,644) $304,676 $(111,933) $439,190 $(67,962)
ATR......................................................... 10,634 1,016 9,492 301 9,132 142
I&S......................................................... 7,534 66 12,243 65 19,743 2,898
-------- ------- -------- --------- -------- --------
Total.................................................. $243,607 $(1,562) $326,411 $(111,567) $468,065 $(64,922)
======== ======= ======== ========= ======== ========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM technology, inc. without
considering the effect of the poolings of interests consummated during 1997.
All merger costs and acquired in-process technology charges are reflected in
the historical results of PLATINUM.
The following information sets forth the 1996 results of Prodea, Paradigm,
Axis, ATR and I&S during the periods preceding their acquisition. The 1996
results presented for Prodea represent the one month ended January 31, 1996. The
1996 results for Paradigm and Axis are for the three months ended March 31,
1996. The 1996 ATR and I&S results are for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Net income
Revenue (loss)
------- ----------
(in thousands)
<S> <C> <C>
Prodea.................................... $ 40 $ (264)
Paradigm.................................. 3,837 261
Axis...................................... 1,844 112
ATR....................................... 9,132 142
I&S....................................... 19,743 2,898
</TABLE>
F-11
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of Trinzic's operating results for the quarter ended
March 31, 1995, which are also included in the year ended December 31, 1994
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of Trinzic included more than once were
$12,553,000 and $215,000, respectively.
The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of certain operating results included more than once,
due to the differences in reporting periods of Altai and Locus relative to that
of PLATINUM. The revenues and net income of Altai included more than once were
$2,514,000 and $441,100, respectively. The revenue and net income of Locus
included more than once were $3,197,000 and $568,000, respectively.
The consolidated statement of operations for the year ended December 31,
1994 reflects the impact of certain operating results also included in the year
ended December 31, 1993 statement of operations due to the differences in
reporting periods of certain companies relative to that of PLATINUM. The
following summarizes each company, the period included more than once, and
revenues and net income included in the statements of operations for both the
years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Six months Net
ended Revenues income
------------- -------- ------
(in thousands)
<S> <C> <C> <C>
Altai.................................................. July 31, 1994 $ 7,143 $267
Answer................................................. June 30, 1994 3,126 257
SII.................................................... June 30, 1994 1,517 101
------- ----
Total............................................ $11,786 $625
======= ====
</TABLE>
During 1996, the Company consummated an immaterial acquisition accounted
for as a pooling of interests. The Company did not restate the consolidated
financial statements to reflect the results of this entity for the periods
preceding the acquisition. As a result, the retained earnings of this entity
were recorded as of the acquisition date, causing a $45,000 adjustment to the
Company's accumulated deficit in 1996. This adjustment is reflected in the
consolidated statement of stockholders' equity.
The Company has also made a number of acquisitions that have been accounted
for under the purchase method. Accordingly, purchase prices have been allocated
to identifiable tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values. Amounts allocated to acquired in-process
technology have been expensed at the time of acquisition. Excess of cost over
net assets acquired is amortized on a straight-line basis over the expected
period to be benefited, generally seven to ten years. The consolidated
statements of operations reflect the results of operations of the purchased
companies since the effective dates of the acquisitions.
To determine the fair market value of the acquired in-process technology,
the Company considered the three traditional approaches of value: the cost
approach, the market approach and the income approach. The Company relied
primarily on the income approach, whereupon fair market value is a function of
the future revenues expected to be generated by an asset, net of all allocable
expenses and charges for the use of contributory assets. The future net revenue
stream is discounted to present value based upon the specific level of risk
associated with achieving the forecasted asset
F-12
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
earnings. The income approach focuses on the income producing capability of the
acquired assets and best represents the present value of the future economic
benefits expected to be derived from these assets.
The Company determined that the acquired in-process technologies had not
reached technological feasibility based on the status of design and development
activities which required further refinement and testing. The development
activities required to complete the acquired in-process technologies included
additional coding, cross-platform porting and validation, quality assurance
procedures and customer beta testing.
The acquired technologies represent 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.
Effective August 1994, the Company acquired all of the outstanding capital
stock of Dimeric Development, Inc. ("Dimeric"), a developer of database tools,
for approximately $7,600,000.
Effective September 1994, the Company acquired the net assets of Aston
Brooke Corporation ("Aston Brooke"), a developer of performance management
tools, for approximately $6,500,000.
Effective December 1994, the Company acquired the net assets of AutoSystems
Corporation ("AutoSystems"), a leading provider of job management tools for
commercial UNIX workstations and open systems, for approximately $10,000,000.
During 1994, the Company also acquired certain software technologies with
an aggregate purchase price of approximately $1,900,000.
The Company also terminated its agreements with three of its former
European affiliates and established wholly-owned subsidiaries for these
operations during 1994. Prior to their termination, these affiliates were
independent organizations that contracted with the Company to support and
promote the Company's software products and educational services. The aggregate
amount paid in these transactions was approximately $10,000,000.
Effective March 1995, the Company acquired all of the outstanding capital
stock of SQL Software Corporation ("SQL"), a provider of Windows-based
development tools for managing multiple relational databases, for approximately
$2,000,000; the assets of Viatech Development, Inc. ("Viatech"), a provider of
electronic distribution tools, for approximately $5,300,000; and the assets of
BrownStone Solutions, Inc. ("BrownStone"), a vendor of repository technology,
for approximately $6,300,000. Also effective March 1995, the Company acquired
all of the outstanding capital stock of RELTECH Group, Inc. ("Reltech"), a
vendor of repository technology, for approximately $9,800,000 in cash plus
318,453 shares of Common Stock, which had a Market Value of approximately
$7,500,000 at the time of the acquisition.
Effective July 1995, the Company acquired all of the outstanding capital
stock of Advanced Software Concepts, Inc. ("ASC"), a leading provider of
distributed storage network management solutions for heterogeneous environments,
for approximately $7,000,000.
Effective November 1995, the Company acquired substantially all of the
assets of ProtoSoft, Inc. ("ProtoSoft"), a pioneer in portable, object-oriented
analysis and design software for building enterprise-wide applications and the
developer of Paradigm Plus, for approximately $30,000,000 in cash plus 582,121
shares of Common Stock, which had a Market Value of approximately $10,000,000 at
the time of the acquisition.
Effective December 1995, the Company purchased all of the outstanding
capital stock of AIB Software Corporation ("AIB"), a leader in multi-platform
application development and testing tools, for approximately $2,200,000 in cash
plus 478,045 shares of Common Stock, which had a Market Value of approximately
$9,000,000 at the time of the acquisition;
F-13
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Protellicess Software, Inc. ("Protellicess"), a leader in enterprise project and
process management software, in exchange for 822,077 shares of Common Stock,
which had a Market Value of approximately $15,000,000 at the time of the
acquisition; and BMS Computer, Inc. ("BMS"), a leader in integrated chargeback
systems that provide job accounting, chargeback, cost analysis and resource
reporting for heterogeneous environments, for approximately $6,900,000. In
conjunction with the acquisitions of AIB and Protellicess, the Company assumed
stock options which converted into options to purchase 116,144 and 128,320
shares of Common Stock, respectively.
During 1995, the Company also acquired certain software technologies with
an aggregate purchase price of approximately $10,227,000.
Internationally, during 1995, the Company acquired Echo-Soft Technologies
Sarl, a software sales and consulting firm located in France, Krystal Software
SA, an international affiliate of the Company in France, and Sequel UK Ltd., an
international affiliate of the Company in the United Kingdom. The Company also
terminated its agreements with four other international affiliates and
established wholly-owned subsidiaries for these operations. The aggregate price
for these transactions was approximately $11,563,000.
Effective January 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc. ("AST"), a leading developer of
performance management tools, in exchange for approximately $445,000 in cash
plus 344,640 shares of Common Stock, which had a Market Value of approximately
$5,800,000 at the time of the acquisition.
Effective July 1996, the Company acquired all of the outstanding capital
stock of Software Alternatives, Inc. (d/b/a System Software Alternatives)
("Software Alternatives"), a leading provider of production scheduling software,
for approximately $1,900,000. Also effective July 1996, the Company acquired all
of the outstanding capital stock of Grateful Data, Inc. (d/b/a TransCentury Data
Systems) ("Grateful Data"), a Year 2000 solution provider, for $100,000 in cash
plus 333,333 shares of Common Stock, which had a Market Value of approximately
$4,000,000 at the time of the acquisition.
Effective December 1996, the Company acquired all of the outstanding
capital stock of VREAM, Inc. ("VREAM"), a leading provider of virtual reality
software for the World Wide Web and other interactive environments, in exchange
for 760,383 shares of Common Stock, which had a Market Value of approximately
$10,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 70,257 shares of Common
Stock.
During 1996, the Company also acquired certain software technologies for an
aggregate purchase price of approximately $3,513,000.
Internationally, effective December 1996, the Company acquired
substantially all of the assets of the Access Manager business unit of the High
Performance Systems division of International Computers Limited ("Access
Manager"), a leading provider of single-sign-on security computer software for
enterprise computing technology, in exchange for 2,286,222 shares of Common
Stock, which had a Market Value of approximately $30,000,000 at the time of the
acquisition.
In conjunction with 1996 acquisitions accounted for as purchases, the
Company assumed liabilities of approximately $7,300,000. These liabilities were
primarily composed of costs for involuntary termination of employees, legal
expenses and other professional services expenses. The plan of termination
includes severance and related costs of employees of the acquired companies and
is planned to be completed in 1997. Any significant adjustments to amounts
provided for under the plan will be treated as adjustments to excess of cost
over net assets acquired.
The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions accounted for as purchases had occurred at the
beginning of each period. This summary is provided for informational
F-14
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
purposes only. It does not necessarily reflect the actual results that would
have occurred had the acquisitions been made as of those dates or of results
that may occur in the future.
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(in thousands, except
per share data)
<S> <C> <C>
Revenues............................................................. $ 354,992 $472,782
Net loss............................................................. (113,415) (72,076)
Net loss per share................................................... (2.54) (1.27)
</TABLE>
The Company estimates aggregate payments for acquisition-related payables,
in connection with the acquisitions described above, to be $7,872,000,
$1,892,000 and $610,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
The Company may be required to make payments in future years to various
former owners of acquired businesses based upon the attainment of certain
operating results by such businesses. The amounts of these payments cannot be
estimated. These additional payments will be charged to compensation expense or
recorded as an adjustment to the respective purchase price in the periods in
which such payments are made.
3. INVESTMENT SECURITIES
At December 31, 1996, the Company classified its marketable debt and equity
securities as either available-for-sale or trading. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity and are not actively traded. For investment securities
classified as available-for-sale, net unrealized holding gains of approximately
$29,936,000, reduced by income taxes of approximately $12,131,000, are recorded
as a separate component of stockholders' equity. For trading securities,
unrealized holding gains of approximately $920,000 are reflected in pre-tax
earnings for the year ended December 31, 1996.
At December 31, 1995, all marketable securities were classified as
available-for-sale and were carried at amortized cost, which approximated the
fair market value.
During 1996, certain cost-basis equity investments became marketable equity
securities and were reclassified as either available-for-sale or trading. The
Company owns equity interests in certain technology companies which executed
initial public offerings during 1996. As a result, the Company reclassified
these investments based upon future trading intentions. The cost and unrealized
gain, net of income taxes, on the investment transferred to the available-for-
sale classification were approximately $8,383,000 and $17,800,000, respectively.
The cost and unrealized gain on the investment transferred to the trading
classification were approximately $1,125,000 and $920,000, respectively.
F-15
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and aggregate fair value of investments at December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
1995
----
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Gains Holding Losses Fair Value
---------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
(in thousands)
Current:
Available-for-sale:
U.S. Government
bonds............................................ $ 2,015 $ -- $ (4) $ 2,011
State and municipal
bonds............................................ 5,276 6 (16) 5,266
Other............................................. 511 -- -- 511
------- ------- ------- -------
$ 7,802 $ 6 $ (20) $ 7,788
======= ======= ======= =======
Non-current:
Available-for-sale:
U.S. Government
bonds............................................ $ 116 $ -- $ -- $ 116
State and municipal
bonds............................................ 7,110 65 (22) 7,153
Other............................................. 5,900 21 -- 5,921
------- ------- ------- -------
$13,126 $86 $ (22) $13,190
======= ======= ======= =======
</TABLE>
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and aggregate fair value of investment securities at December 31,
1996 were as follows:
<TABLE>
<CAPTION>
1996
----
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Gains Holding Losses Fair Value
---------- --------------- --------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Current:
Available-for-sale:
State and municipal
bonds................................................ $ 402 $ 1 $ -- $ 403
Corporate bonds....................................... 2,002 -- (1) 2,001
Marketable equity
securities........................................... 8,383 29,923 -- 38,306
------- ------- ------- -------
10,787 29,924 (1) 40,710
------- ------- ------- -------
Trading securities:
Marketable equity
securities........................................... 1,125 920 -- 2,045
------- ------- ------- -------
$11,912 $30,844 $ (1) $42,755
======= ======= ======= =======
Non-current:
Available-for-sale:
State and municipal
bonds............................................... $ 2,122 $ 51 $ (38) $ 2,135
======= ======= ======= =======
</TABLE>
F-16
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contractual maturities of debt securities at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Fair Value
------------
(in thousands)
<S> <C>
Due within one year.................................... $2,404
Due after one year through five years.................. 1,466
Due after five years................................... 669
------
$4,539
======
</TABLE>
Under the specific identification method, the gross realized gains and
gross realized losses on the sale of available-for-sale securities were
approximately $467,000 and $(135,000), respectively, for the year ended December
31, 1995 and $1,032,000 and $0, respectively, for the year ended December 31,
1996.
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------- --------
(in thousands)
<S> <C> <C>
Furniture and fixtures......................... $20,072 $ 26,568
Computers and software......................... 38,891 62,338
Transportation................................. 8,132 8,117
Leasehold improvements......................... 13,908 20,780
------- --------
81,003 117,803
Less accumulated depreciation and amortization.. 29,583 45,053
------- --------
$51,420 $ 72,750
======= ========
5. PURCHASED AND DEVELOPED SOFTWARE
Purchased and developed software consists of the following:
1995 1996
------- --------
(in thousands)
Purchased software.............................. $24,812 $ 34,618
Software development costs...................... 51,499 89,400
------- --------
76,311 124,018
Less accumulated amortization................... 24,040 41,580
------- --------
$52,271 $ 82,438
======= ========
</TABLE>
During the years ended December 31, 1994, 1995 and 1996, $10,898,000,
$19,867,000 and $38,555,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $4,911,000, $6,276,000 and
$11,309,000 during 1994, 1995 and 1996, respectively. The Company recognized
amortization expense applicable to purchased software of $868,000, $3,084,000,
and $6,237,000, during 1994, 1995 and 1996, respectively. During 1995, the
Company wrote-off $942,000 of capitalized software costs related to certain
Trinzic product technologies. During 1996, the Company wrote-off $654,000 of
capitalized software costs related to certain AIB, SII and other product
technologies.
The increase in purchased software costs in 1996 as compared to 1995 is
primarily attributable to the Company's acquisitions and purchases of certain
product technologies.
F-17
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INSTALLMENT ACCOUNTS RECEIVABLE
Installment accounts receivable consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
(in thousands)
<S> <C> <C>
Current installment receivables.................. $ 8,682 $ 19,763
Allowance for uncollectible amounts.............. (103) (395)
Unamortized discount and maintenance fees........ (2,521) (5,765)
------- --------
$ 6,058 $ 13,603
======= ========
Non-current installment receivables.............. $ 1,777 $ 40,827
Allowance for uncollectible amounts.............. (11) (816)
Unamortized discount and maintenance fees........ (1,239) (18,346)
------- --------
$ 527 $ 21,665
======= ========
</TABLE>
The Company offers long-term license agreements, bundling perpetual
license, upgrade and maintenance fees, with financing terms typically ranging
from three to five years. The resulting installment receivables are recorded net
of unamortized discounts and deferred maintenance fees.
The Company sells a significant portion of its installment receivables to
third parties. When these receivables are sold, the Company reduces the gross
installment receivable balance. Additionally, the Company reclassifies the
deferred maintenance to an obligation, which was previously reflected as a
reduction of the related installment receivable balance. The deferred
maintenance is recognized ratably into income over the term of the maintenance
agreement.
Proceeds from the sale of installment receivables for 1995 and 1996 were
approximately $2,903,000 and $129,328,000, respectively. A portion of the
receivables were sold with recourse in 1995 and 1996. As of December 31, 1996,
the Company's maximum exposure under recourse provisions was approximately
$26,100,000. The Company assessed the exposure related to these recourse
provisions and determined the potential liability to be minimal. The fair market
value of the recourse obligation at December 31, 1996 was not determinable.
7. EMPLOYEE BENEFIT PLANS
The Company has various defined contribution retirement plans (401(k) and
profit sharing) for qualified employees. Employer contributions made under the
plans totaled $241,000, $406,000 and $1,071,000, in 1994, 1995 and 1996,
respectively.
8. LINES OF CREDIT
At December 31, 1996, the Company had unsecured bank lines of credit for
$26,015,000, under which borrowings generally bear interest ranging from LIBOR
plus 1% to the bank's prime rate. These lines of credit are subject to
limitations based upon certain financial covenants. At December 31, 1996, there
were no borrowings outstanding under these lines of credit.
At December 31, 1996, the Company had aggregate letters of credit
outstanding for approximately $1,300,000, with expiration dates ranging from
March 1997 to March 1998. These letters of credit reduce the available line of
credit balance.
F-18
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
As of December 31, 1996, the Company had six stock option plans, which are
described below, as well as several plans that have been assumed pursuant to
acquisitions. The Company applies APB Opinion No. 25 in accounting for its
plans. Accordingly, no compensation cost has been recognized for its fixed stock
option plans and its employee stock purchase plan (the "Stock Purchase Plan").
Had compensation cost for the Company's stock option plans and the Stock
Purchase Plan been determined consistent with SFAS No. 123, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996
------------ -----------
(in thousands, except
per share data)
<S> <C> <C>
Net loss:
As reported................................ $(111,567) $(64,922)
Pro forma.................................. (115,022) (71,022)
Net loss per share:
As reported................................ $ (2.50) $ (1.14)
Pro forma.................................. (2.57) (1.25)
</TABLE>
Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option and Stock Purchase Plan, before effects for income taxes,
was approximately $5,809,000 and $10,200,000 in 1995 and 1996, respectively.
Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans ("Company Plans"). The 1995 Employee Incentive Plan,
1994 Stock Incentive Plan, 1991 Option Plan and 1989 Option Plan provide for the
granting of options to employees and non-employee directors for up to an
aggregate of 12,560,000 shares. Under the Chief Executive Option Plan, the
Company has authority to grant options for up to 1,600,000 shares to its Chief
Executive Officer and President. Under the Directors' Option Plan, the Company
may grant options for up to 500,000 shares to non-employee directors.
In general, the options granted under the Company Plans during 1995 and
1996, excluding the Directors' Option Plan, have similar provisions. Under these
plans, the Company has granted both non-qualified and incentive stock options.
These options have an exercise price equal to the closing market price of the
Company's stock on the date of grant, have a legal life of ten years, and
typically vest in equal annual installments over a four-year period beginning
one year from the date of grant. Certain options granted prior to 1995 have a
legal life of fifteen years. The specific provisions of any grant are determined
by the Compensation Committee of the Board of Directors or another designated
committee.
Under the Directors' Option Plan, only non-qualified options have been
granted. These options have an exercise price equal to the closing market price
of the Company's stock on the date of grant and have a legal life of ten years.
The options granted in 1995 under this plan vested immediately, while those
granted in 1996 vest annually over a three-year period beginning one year from
the date of grant.
As discussed in note 2, the Company has assumed various option grants
related to certain acquisitions in 1995 and 1996. The assumption of these option
grants resulted in the deemed issuance by the Company of options for 1,206,566
and 430,582 shares in 1995 and 1996, respectively. The options assumed reflect
outstanding options at the time of acquisition. The provisions of the assumed
options are generally the same as those provided for in the original option
agreements.
F-19
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1996, the Company began offering the Stock Purchase Plan to its
employees who work more than 20 hours per week. Under this plan, the Company is
authorized to issue up to 5,000,000 shares of Common Stock. Under terms of the
Stock Purchase Plan and current policies of the administrative committee,
employees may elect to withhold 1 to 20 percent of their cash compensation
through regular payroll deductions to purchase Common Stock each year. The
purchase price of the stock is 85 percent of the lower of the price at the grant
date, which is the beginning of the plan year (March 1st) or the exercise date,
which is the end of each plan quarter (February 28, May 31, August 31 and
November 30). As of December 31, 1996, approximately 41% of eligible employees
had participated in the Stock Purchase Plan since inception. Under the Stock
Purchase Plan, the Company sold 197,165 shares to employees in 1996.
The fair value of the stock option grants is estimated using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used for stock option grants in 1995 and 1996, respectively: option price, which
equals the fair market value at date of grant, of $18.97 and $12.39; expected
dividend yields of 0% for both years; expected volatility of 55% for both years;
risk-free interest rates of 6.12% and 6.37%; and expected life of 4.5 years for
both years. The fair value of the employees' purchase rights pursuant to the
Stock Purchase Plan are estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for purchase rights granted
in 1996: fair market value of $10.75; option price of $9.14; expected dividend
yield of 0%; expected volatility of 51%; risk-free interest rate of 5.42%; and
expected life of three months.
Stock option plan activity during the years ended December 31, 1994, 1995
and 1996 was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ----------------------- ---------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Fixed Options Shares price Shares price Shares price
------------- ----------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year................................. 6,165,392 $ 7.55 6,853,673 $ 9.45 8,026,949 $12.09
Granted............................................ 2,055,334 12.83 2,493,753 18.97 2,606,687 12.39
Exercised.......................................... (1,084,377) 4.21 (742,482) 6.29 (516,874) 4.60
Canceled........................................... (282,676) 12.59 (577,995) 7.60 (265,407) 14.61
---------- ---------- ----------
Outstanding at end
of year........................................... 6,853,673 9.45 8,026,949 12.09 9,851,355 12.41
========== ========== ==========
Options exercisable
at year-end....................................... 3,719,479 3,915,068 4,777,941
========== ========== ==========
Weighted-average
fair value of
options granted
during the year................................... $9.76 $6.41
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ---------------------------
Weighted-avg.
Range of Number of remaining Weighted-avg. Number of Weighted-avg.
exercise prices shares contractual life exercise price shares exercise price
--------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$.0025- 9.75 1,689,672 5.71 yrs. $ 3.10 1,516,126 $ 3.04
10.13-12.00 1,875,341 9.78 10.57 954,951 10.40
12.38-14.00 2,597,393 9.39 12.68 951,890 12.83
14.13-18.19 1,708,715 10.48 15.25 735,913 15.29
$18.25-57.30 1,980,234 8.56 19.28 619,061 19.58
--------- ---------
9,851,355 8.86 12.41 4,777,941 10.49
========= =========
</TABLE>
F-20
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1994, 1995
and 1996 consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------ -------- -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal............................... $1,084 $ 315 $ --
State................................. 190 133 175
Foreign............................... 1,256 740 2,035
Deferred:
Federal............................... 985 (7,899) (7,838)
State................................. 378 (4,969) (3,617)
------ -------- -------
$3,893 $(11,680) $(9,245)
====== ======== =======
</TABLE>
The reconciliation of income taxes computed using the Federal statutory
rate of 35% to the income tax provision is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Income tax computed at statutory rate........................ $ 816 $(43,137) $(25,959)
State income tax, net of Federal tax benefit................. 568 (4,836) (3,442)
Research and experimentation credits......................... (1) (1,213) (1,491)
Foreign tax credit........................................... (60) (239) (59)
Foreign taxes................................................ 1,423 240 751
Foreign sales corporation.................................... (401) (294) (1,036)
Municipal interest........................................... (431) (554) (289)
Utilization of net operating losses.......................... (302) -- --
Stock acquisitions........................................... 2,626 11,450 6,281
Change in valuation allowance................................ (2,293) 22,856 12,608
Nondeductible merger costs................................... -- 4,625 1,440
Other........................................................ 1,948 (578) 1,951
------- -------- --------
Effective tax................................................ $ 3,893 $(11,680) $ (9,245)
======= ======== ========
</TABLE>
The tax effects of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities at December 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- -------
(in thousands)
--------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue.............................................. $ 5,804 $ 1,152
Allowance for doubtful accounts............................... 964 749
Net operating loss carryforwards.............................. 53,685 95,190
Foreign net operating losses.................................. 3,006 --
General business, AMT and state tax credits................... 6,365 9,544
Foreign tax credits........................................... 1,270 1,138
Accrued expenses and reserves................................. 856 157
Rent abatement................................................ 2,143 1,957
Other......................................................... 1,197 5,128
-------- --------
Total gross deferred tax assets............................. 75,290 115,015
Less valuation allowance........................................ (47,328) (59,936)
-------- --------
Net deferred tax assets.................................... 27,962 55,079
-------- --------
Deferred tax liabilities:
Capitalized software, net..................................... 12,566 23,908
Installment sales............................................. 1,175 826
Acquired technology........................................... 2,952 3,124
Unrealized gain on marketable equity securities............... -- 12,499
Other......................................................... 766 --
-------- --------
Total gross deferred tax liabilities........................ 17,459 40,357
-------- --------
Net deferred tax asset...................................... $ 10,503 $ 14,722
======== ========
</TABLE>
The net change in the total valuation allowance during 1994, 1995 and 1996 was
a decrease of $2,293,000, an increase of $22,856,000 and an increase of
$12,608,000, respectively. The
F-21
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company has reduced the deferred tax assets by a valuation allowance to reflect
the estimated amount of deferred tax assets which will, more likely than not, be
realized. The net deferred tax asset at December 31, 1996 reflects management's
estimate of the amount which will be realized as a result of future
profitability. The amount of the deferred tax asset considered realizable could
be reduced if estimates of future taxable income are reduced.
The exercise of certain stock options results in state and Federal income
tax benefits to the Company. The benefit is equal to the difference between the
market price at the date of exercise and the option price at the applicable tax
rate. The current tax benefit does not flow through the statement of operations,
but is credited directly to paid-in capital. As a result of stock option
exercises during 1994, 1995 and 1996, $108,000, $0 and $0, respectively, were
credited to paid-in capital.
At December 31, 1996, the Company had approximately $234,891,000 of net
operating loss carryforwards and $10,682,000 of tax credit carryforwards, which
are available to reduce future Federal income taxes, if any, through the year
2011. The Company's ability to utilize the net operating loss carryforwards and
available tax credits may be limited due to changes in ownership as a result of
business combinations.
11. CONVERTIBLE SUBORDINATED NOTES
As of December 31, 1996, the Company had $115,000,000 in convertible
subordinated notes (the "Notes") outstanding, bearing interest at 6.75%
annually. The Notes mature on November 15, 2001. Interest is payable semi-
annually on May 15 and November 15, commencing May 15, 1997. The holders of the
Notes have the option to convert them into shares of Common Stock, at any time
prior to maturity, at a conversion price of $13.95 per share. The Notes are
redeemable at the option of the Company, in whole or in part, at any time during
the twelve-month period commencing November 15, 1999 at 102.7% of their
principal amount and during the twelve-month period commencing November 15, 2000
at 101.35% of their principal amount.
The Company estimated the fair value of the Notes as of December 31, 1996
at approximately $140,013,000, based upon their trading price on the Nasdaq
SmallCap Market on that date.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space, computer and telecommunications equipment
under long-term lease agreements expiring through the year 2007. Total future
minimum lease payments under noncancelable leases are as follows:
F-22
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
1997........................................... $ 34,612
1998........................................... 30,123
1999........................................... 24,123
2000........................................... 18,354
2001 and thereafter............................ 41,270
--------
$148,482
========
</TABLE>
Total rent expense under all operating leases amounted to $12,598,000,
$15,659,000 and $22,510,000 in 1994, 1995 and 1996, respectively.
Litigation
The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of business and have not been fully adjudicated.
Management currently believes the ultimate outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position.
13. OTHER INCOME (EXPENSE)
Other income (expense) for the years ended December 31, 1994, 1995 and 1996
is comprised of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
(in thousands)
--------------
<S> <C> <C> <C>
Interest income......................................... $2,850 $4,637 $ 5,163
Interest expense........................................ (359) (782) (1,825)
Foreign exchange gain (loss)............................ 278 64 (35)
Net realized gain on sale of investments................ -- 332 1,032
Unrealized gain on marketable equity securities......... -- -- 920
Other................................................... 79 (121) (18)
------ ------ -------
$2,848 $4,130 $ 5,237
====== ====== =======
</TABLE>
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment. The Company markets and
services its products in the United States and in foreign countries through its
direct sales organization and affiliates (which are non-controlled product
representatives).
The following table presents information about the Company by geographic
area. Export sales and certain income and expense items are reported in the
geographic area where the final sale is made rather than where the transaction
originates.
<TABLE>
<CAPTION>
Domestic Europe Other Total
(in thousands)
<S> <C> <C> <C> <C>
1994
Revenues.............................................. $ 179,562 $40,156 $23,889 $ 243,607
Operating income (loss)............................... (12,276) 9,865 1,894 (517)
Identifiable assets................................... 233,388 21,977 17,968 273,333
1995
Revenues.............................................. $ 222,568 $67,906 $35,937 $ 326,411
Operating income (loss)............................... (137,672) 9,885 410 (127,377)
Identifiable assets................................... 365,799 59,465 27,003 452,267
1996
Revenues.............................................. $ 326,673 $97,708 $43,684 $ 468,065
Operating loss........................................ (74,742) (1,892) (2,770) (79,404)
Identifiable assets................................... 498,500 84,201 35,871 618,572
</TABLE>
F-23
<PAGE>
PLATINUM technology, inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The revenues and operating income (loss) amounts above exclude the effect
of intercompany royalties. The domestic operating losses in 1994, 1995 and 1996
include all merger costs, restructuring costs and acquired in-process technology
charges.
No single customer accounted for 10% or more of total revenues in 1994,
1995 or 1996.
15. SUBSEQUENT EVENTS
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. 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.
F-24
<PAGE>
Item 7. Financial Statements and Exhibits
(c) Exhibits
23.1 Consent of KPMG Peat Marwick LLP with respect to the Company's
financial statements.
23.2 Consent of Deloitte & Touche LLP with respect to Trinzic's financial
statements.
23.3 Consent of Arthur Andersen LLP with respect to Locus' financial
statements.
23.4 Consent of Arthur Andersen LLP with respect to Softool's financial
statements.
27 Financial Data Schedule.
99.1 Report of Deloitte & Touche LLP on Trinzic's financial statements.
99.2 Report of Arthur Andersen LLP on Locus' financial statements.
99.3 Report of Arthur Andersen LLP on Softool's financial statements.
F-25
<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 hereunto duly authorized.
PLATINUM technology, inc.
Dated: January 26, 1998 By: /s/ Larry S. Freedman
--------------------------
Larry S. Freedman
Senior Vice President, General Counsel and
Secretary
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit # Item
- --------------- -----------------------------------------------------------
<C> <S>
23.1 Consent of KPMG Peat Marwick LLP with respect to the
Company's financial statements.
23.2 Consent of Deloitte & Touche LLP with respect to Trinzic's
financial statements.
23.3 Consent of Arthur Andersen LLP with respect to Locus'
financial statements.
23.4 Consent of Arthur Andersen LLP with respect to Softool's
financial statements.
27 Financial Data Schedule.
99.1 Report of Deloitte & Touche LLP on Trinzic's financial
statements.
99.2 Report of Arthur Andersen LLP on Locus' financial
statements.
99.3 Report of Arthur Andersen LLP on Softool's financial
statements.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PLATINUM technology, inc.:
We consent to incorporation by reference in the registration statements
(Nos.33-41248, 33-85798, 33-96762, 333-00454, 333-03284 and 333-20897) on Form
S-8 of PLATINUM technology, inc. of our report dated February 28, 1997, relating
to the consolidated balance sheets of PLATINUM technology, inc. and subsidiaries
as of December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders equity and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the current
report on Form 8-K of PLATINUM technology, inc. Our report was based in part on
the reports of other auditors.
We also consent to the reference to our firm under the heading Selected
Consolidated Financial Data."
KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statements No.
333-03284, 333-20897, 333-00454, 33-41248, 33-85798 and 33-96762 on Form S-8 of
PLATINUM technology, inc. of our report dated April 28, 1995 relating to the
consolidated financial statements of Trinzic Corporation, appearing in this
Current Report on Form 8-K of PLATINUM technology, inc.
Deloitte & Touche LLP
San Jose, California
January 26, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report for Locus Computing Corporation dated March 20, 1995
appearing in this Current Report on Form 8-K into PLATINUM technology, inc.'s
previously filed Form S-8 registration statements (Registration Nos. 333-20897,
333-03284, 333-00454, 33-96762, 33-85798 and 33-41248).
Arthur Andersen LLP
Los Angeles, California
January 26, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report for Softool Corporation dated August 29, 1995 (except
with respect to the matter discussed in Note 14, as to which the date is
November 17, 1995) appearing in this Current Report on Form 8-K into PLATINUM
technology, inc.'s previously filed S-8 registration statements (Registration
Nos. 333-20897, 333-03284, 333-00454, 33-96762, 33-85798 and 33-41248).
Arthur Andersen LLP
Los Angeles, California
January 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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<PAGE>
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Trinzic Corporation:
We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of Trinzic Corporation and subsidiaries for the year
ended March 31, 1995 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Trinzic
Corporation and subsidiaries for the year ended March 31, 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
San Jose, California
April 28, 1995
<PAGE>
EXHIBIT 99.2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Locus Computing Corporation:
We have audited the consolidated statements of operations, shareholders'
equity and cash flows of LOCUS COMPUTING CORPORATION (a California corporation)
AND SUBSIDIARIES for the year ended January 31, 1995 (not presented herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of LOCUS
COMPUTING CORPORATION AND SUBSIDIARIES for the year ended January 31, 1995 in
conformity with generally accepted accounting principles.
As discussed further in Note 6, the Company's Articles of Incorporation
allow for a redemption privilege of the Series A preferred stock together with
accrued dividends on March 27, 1992. While the ultimate outcome is uncertain, it
is the belief of management that total redemption would not currently be allowed
under California law. Management has reached an agreement with the remaining
Series A preferred stockholders that the Company will make redemptions based on
cash flows, current profitability, and planned future profitability, as defined.
As there is no assurance that amounts will be redeemed in the next year, the
Company has not included the redemption amount in current liabilities at January
31, 1995 (see Note 6).
Arthur Andersen LLP
Los Angeles, California
March 20, 1995
<PAGE>
EXHIBIT 99.3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Softool Corporation:
We have audited the combined and consolidated statements of operations,
shareholders' equity and cash flows of SOFTOOL CORPORATION (a California
corporation) AND SUBSIDIARIES AND SOFTOOL INTERNATIONAL CORPORATION (a
California corporation) for the year ended December 31, 1994 (not presented
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Softool
Corporation and Subsidiaries and Softool International Corporation for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Los Angeles, California
August 29, 1995 (except with respect to
the matter discussed in Note 14, as to
which the date is November 17, 1995).
