<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998
REGISTRATION NO. 333-40075
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE
AMENDMENT NO.2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PLATINUM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 36-350962
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181, TELEPHONE (630) 620-
5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LARRY S. FREEDMAN, ESQ.
PLATINUM TECHNOLOGY, INC.,
1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181,
TELEPHONE (630) 620-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MATTHEWS S. BROWN, ESQ.
MARK D. WOOD, ESQ.
KATTEN MUCHIN & ZAVIS
525 WEST MONROE STREET, SUITE 1600, CHICAGO, ILLINOIS 60661, TELEPHONE: (312)
902-5200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<PAGE>
PROSPECTUS
4,358,253 SHARES
LOGO
COMMON STOCK
The 4,358,253 shares of common stock, par value $.001 per share (the "Common
Stock"), covered by this Prospectus may be offered and issued from time to
time by PLATINUM technology, inc. (the "Company") in connection with
acquisitions of other businesses, real or personal properties, or securities
in business combination transactions in accordance with Rule 415(a)(1)(viii)
of Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"), or otherwise under Rule 415. This Prospectus may also be used, with the
Company's prior consent, by persons who have received or will receive shares
of Common Stock in connection with acquisitions and who wish to offer and sell
such shares under circumstances requiring or making desirable its use. See
"Securities Covered by this Prospectus" and see the inside back cover page
hereof for the identity of such persons, if any.
The Common Stock is traded on the Nasdaq National Market under the symbol
"PLAT". On May 7, 1998, the closing sale price of the Common Stock, as
reported by the Nasdaq National Market was $25 11/16 per share. See "Price
Range of Common Stock."
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE
COMMON STOCK.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Prospectus is , 1998.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................................... 2
Prospectus Summary.................................................. 3
Risk Factors........................................................ 7
Securities Covered by this Prospectus............................... 12
Price Range of Common Stock......................................... 13
Dividend Policy..................................................... 13
Selected Consolidated Financial Data................................ 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 15
Business............................................................ 27
Management.......................................................... 36
Certain Transactions................................................ 42
Security Ownership of Management and Principal Stockholders......... 43
Description of Capital Stock........................................ 45
Experts............................................................. 48
Index to Financial Statements and Financial Statement Schedules..... F-1
</TABLE>
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. In
addition, material filed by the Company can be inspected at the offices of The
Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. As used herein, the term "Registration
Statement" means the initial Registration Statement and any and all amendments
thereto. This Prospectus omits certain information contained in said
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto. Statements herein concerning the contents of
any contract or other document are not necessarily complete and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement, or otherwise, each
such document being qualified by and subject to such reference in all
respects.
DB2 and MVS are trademarks, and IBM is a registered trademark, of
International Business Machines Corporation. This Prospectus also includes
product names and other trade names and trademarks of the Company and its
subsidiaries and of other companies.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context suggests otherwise, references in this
Prospectus to "PLATINUM" or the "Company" mean PLATINUM technology, inc. and
its subsidiaries.
THE COMPANY
The Company develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve their
information technology ("IT") infrastructures, which consist of data, systems
and application. The Company's products and services help IT departments,
primarily in large and data intensive organizations, minimize risk and improve
service levels and leverage information to make better business decisions. The
Company's products typically perform fundamental functions, such as automating
operations, maintaining the operating efficiency of systems and applications,
and ensuring data access and integrity. The Company currently develops software
products through its four business units: database management, systems
management, application infrastructure management and data warehousing and
decision support. Addressing businesses' increasing demand for simplified
vendor relationships and complete solutions to IT problems, the Company's goal
is to become the leading provider of IT infrastructure management solutions by
offering a comprehensive set of "best in class" point products, product bundles
and integrated product suites. The Company also offers a wide array of
professional services, including consulting, systems integration and
educational programs, both in conjunction with and independent of software
product sales.
To achieve its goal, the Company identified key technologies and skill sets
required to better manage the IT infrastructure. Through a combination of an
aggressive acquisition program and vigorous internal product development
efforts, the Company assembled the competencies to create complete
infrastructure management solutions. Devoting substantial resources to
integrating its products and technologies, the Company is now leveraging the
breadth of its product lines and its professional services capabilities to
provide complete, customized solutions for IT infrastructure problems. These
solutions include single products; product suites, which are sets of integrated
products drawn together from multiple business units of the Company; and
product bundles, which are sets of software applications that are packaged
together but do not necessarily have the level of integration that defines a
suite; as well as design and implementation services provided by the Company's
professional services staff. These solutions also include ongoing product
upgrades, maintenance and support, sometimes pursuant to multi-year contracts.
Evidencing the increasing demand from the Company's customers for comprehensive
solutions, the Company completed 102 transactions of over $1 million during
1997, as compared to 55 such transactions during 1996 and only two such
transactions during 1995. Each of these large transactions included licenses
for software product bundles or suites, along with future upgrades and
maintenance; software consulting services; or both product licenses and related
consulting services.
The Company is focusing on the development of products and services that
offer its customers maximum flexibility and functionality. The Company's
products are designed to permit a customer to either purchase prepackaged
integrated suites or to choose individual products and later add other products
as needed. The cornerstone of the Company's integration efforts is POEMS
(PLATINUM Open Enterprise Management Services), an internally developed set of
shared components that give the Company's products a common look and feel,
common installation and distribution, and common communication, data and events
handling. POEMS integration is built into individual products so that, as
customers purchase additional PLATINUM products, the newly acquired and
previously installed products can begin working together immediately. In
February 1998, the Company released for general availability its ProVision
suite of integrated systems and database management
tools, which is the Company's most significant POEMS-enabled integrated
offering of products to date. ProVision initially includes nine tools within
the following key IT management disciplines: job management, performance
management and analysis, software distribution, problem resolution, security,
database utilities and database administration.
3
<PAGE>
The Company is also creating solutions for the needs of specific industries,
as well as general business needs. For example, during 1996, the Company
released PLATINUM RiskAdvisor, a data warehouse decision support application
developed specifically for the insurance industry. The Company also is enabling
its products and suites for application with intranets, the internet and the
web and offers a broad set of solutions for the Year 2000 problem.
Additionally, in late 1996, the Company formed specialty consulting practice
groups within its professional services business unit, including groups
dedicated to Year 2000 solutions and internet/intranet technologies.
The Company was incorporated in Delaware in 1987, and its executive offices
are located at 1815 South Meyers Road, Oakbrook Terrace, Illinois 60181. Its
telephone number at that address is (630) 620-5000, and its Web site is located
at http://www.platinum.com.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below has been derived from
the historical financial statements of the Company. The summary consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and related notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 623,503 $468,065 $ 326,411 $243,607 $190,623
Operating income
(loss)................. (115,792)(2) (79,404)(3) (127,377)(4) (517)(5) 3,062(6)
Net income (loss)....... (117,784)(2) (64,922)(3) (111,567)(4) (1,562)(5) 126(6)
Net income (loss) per
share.................. $ (1.90)(2) $ (1.14)(3) $ (2.50)(4) $ (0.04)(5) $ --(6)
Shares used in per share
calculation............ 62,042 56,968 44,671 41,294 39,375
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and investments........ $261,288 $185,673 $136,737 $126,215 $ 71,148
Working capital......... 288,349 217,157 127,990 90,500 43,672
Total assets............ 834,177 618,572 452,267 273,333 176,064
Long-term obligations
and acquisition-related
payables, less current
portion................ 285,144 118,305 11,389 9,080 3,465
Total stockholders'
equity................. $ 243,560 $295,760 $ 290,213 $160,126 $ 93,350
</TABLE>
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(1) The selected consolidated financial data give retroactive effect to the
Company's 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 financial position and results of operations are presented as if the
combining companies had been consolidated for all periods presented.
(2) Reflects a pre-tax charge for acquired in-process technology of $67,904,000
relating to the Company's acquisitions of GEJAC, Inc. ("GEJAC") and
ProMetrics Group Limited ("ProMetrics"), the purchase of certain product
technologies and other intangible assets from Intel Corporation ("Intel")
and the purchase of certain other product technologies. Also reflects a
pre-tax charge for merger costs of $8,927,000 relating to the Company's
acquisitions of ATR, I&S and Vayda Consulting, Inc. ("Vayda") and a pre-tax
charge of $57,319,000 for restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of $48,456,000
relating to the Company's acquisitions 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 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").
(4) Reflects a pre-tax charge for acquired in-process technology of $88,493,000
relating primarily to the Company's acquisitions 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.
("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 Computing Corporation
("Locus"), Altai, Inc. ("Altai"), Trinzic Corporation ("Trinzic") and
Softool Corporation ("Softool").
(5) Reflects a pre-tax charge for acquired in-process technology of $24,594,000
relating primarily to the Company's acquisitions of Dimeric Development,
Inc. ("Dimeric") and the net assets of Aston Brooke Software, Inc. ("Aston
Brooke") and AutoSystems Corporation ("AutoSystems").
(6) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to the Company's acquisition of Datura Corporation
("Datura") and pre-tax charge of $4,659,000 relating to Trinzic and Locus
restructuring costs.
5
<PAGE>
RECENT DEVELOPMENTS
On January 2, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "LBMS Reorganization Agreement"), pursuant to which the
Company has agreed to acquire Learmonth and Burchett Management Systems PLC
("LBMS"), a leading provider of process management solutions. Under the terms
of this acquisition, LBMS will become a wholly-owned subsidiary of the Company.
The Company has agreed to exchange approximately 2,775,000 shares of Common
Stock for all of the outstanding common shares of LBMS and has offered to
exchange options to purchase approximately 436,000 shares of Common Stock for
the outstanding LBMS options. This acquisition, which has been approved by the
shareholders of LBMS and is expected to be consummated in the second quarter of
1998, is subject to the sanction of the English High Court.
On March 14, 1998, the Company entered into an agreement and plan of merger,
pursuant to which the Company has agreed to acquire Logic Works, Inc.
("Logic"), a leading provider of data modeling tools. Under the terms of this
acquisition, Logic will become a wholly-owned subsidiary of the Company. The
Company has agreed to exchange approximately 7,240,095 shares of Common Stock
for all of the outstanding common shares of Logic and to assume stock options
which will convert into options to purchase approximately 1,272,072 shares of
Common Stock. This acquisition, which is expected to be consummated in mid-
1998, is subject to the approval of the stockholders of Logic and customary
legal and regulatory conditions.
On April 21, 1998, the Company completed the acquisition of Mastering, Inc.
("Mastering"), a leading provider of information technology training. Under the
terms of this acquisition, Mastering became a wholly-owned subsidiary of the
Company. Pursuant to the terms of the agreement and plan of merger (the
"Mastering Merger Agreement"), the Company exchanged 6,480,865 shares of Common
Stock for all of the outstanding common shares of Mastering and assumed stock
options which were converted into options to purchase 2,193,219 shares of
Common Stock.
The acquisitions of LBMS, Logic and Mastering are expected to be accounted
for as poolings of interests. Costs incurred in connection with these
transactions will be expensed in the periods in which the acquisitions are
consummated.
For the three months ended March 31, 1998, the Company's revenues were
$158,261,000, an increase of 37% over revenues of $115,623,000 for the three
months ended March 31, 1997. The Company's net income for the three months
ended March 31, 1998 was $3,665,000, or $0.05 per diluted share, compared to a
net loss of $25,269,000, or $0.41 per diluted share ($11,146,000, or $0.18 per
diluted share, excluding charges for merger costs and acquired in-process
technology), for the three months ended March 31, 1997.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Registration Statement contains certain "forward-looking statements" (as
defined in Section 27A of the Securities Act) that reflect the Company's
expectations regarding its future growth, results of operations, performance
and business prospects and opportunities. Words such as "anticipates,"
"believes," "plans," "expects," "estimates" and similar expressions have been
used to identify these forward-looking statements, but are not the exclusive
means of identifying these statements. These statements reflect the Company's
current beliefs and are based on information currently available to the
Company. Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors that could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks, uncertainties
and other factors include the Company's ability to develop and market existing
and acquired products for the IT infrastructure market; the Company's ability
to successfully integrate its acquired products, services and businesses and
continue its acquisition strategy; risks relating to the Year 2000 challenge;
the Company's ability to adjust to changes in technology, customer preferences,
enhanced competition and new competitors in the IT infrastructure and
professional services markets; currency exchange rate fluctuations, collection
of receivables, compliance with foreign laws and other risks inherent in
conducting international business; risks associated with conducting a
consulting services business; general economic and business conditions, which
may reduce or delay customers' purchases of the Company's products and
services; charges and costs related to acquisitions; the Company's ability 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; and the other factors discussed under
"Risk Factors" herein. The Company is not obligated to update or revise these
forward-looking statements to reflect new events or circumstances or otherwise.
6
<PAGE>
RISK FACTORS
Prospective purchasers of the shares of Common Stock offered hereby should
consider carefully the specific factors set forth below as well as the other
information contained in this Prospectus in evaluating an investment in the
Common Stock.
NET LOSSES; ABILITY TO SATISFY DEBT OBLIGATIONS
The Company experienced operating and net losses in 1995, 1996 and 1997.
There can be no assurance that the Company will not incur operating and net
losses in the future. The Company's future operating results will depend upon
a number of business factors, including other factors discussed in these "Risk
Factors," as well as general economic conditions. Furthermore, prior to a
given year or other fiscal period, the Company hires sales and product
development personnel and makes other decisions which will result in increased
expenses in such year or other period, based upon anticipated revenues for
such year or other period. Due to the seasonality and concentration of the
Company's revenues at the end of fiscal periods, particularly the fourth
quarter, the Company's lack of backlog and the Company's cost structure, the
Company's operating results would be materially adversely affected if revenue
targets are not met. See "--Seasonality and Variability of Quarterly Operating
Results." No assurances can be given that any of the Company's revenue
expectations will be fulfilled, and the Company's business, results of
operations and financial condition will be materially adversely affected if
these expectations are not fulfilled. If anticipated revenues and income are
not achieved, the Company's ability to pay interest on, or ultimately pay the
principal amount of, its indebtedness could become impaired. As of March 31,
1998, the Company had outstanding long-term obligations and acquisition-
related payables of approximately $300.0 million, requiring the Company to
make payments of principal and interest of approximately $35.0 million and
$36.0 million in 1998 and 1999, respectively. If the Company is unable to meet
its cash requirements out of cash flow from operations and its available
borrowings, there can be no assurance that it will be able to obtain
alternative financing or that it will be permitted to do so under the terms of
its existing financing arrangements. In the absence of such financing, the
Company's ability to respond to changing business and economic conditions, to
make future acquisitions, to absorb adverse operating results or to fund
capital expenditures or increased working capital requirements may be
adversely affected.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND MARKETS
The Company expects that the market for IT software products will continue
to be subject to frequent and rapid changes in technology and customer
preferences. Substantially all of the Company's products have maintained their
commercial viability for a significant period of time, as evidenced by the
fact that the Company has discontinued very few of its products. However, the
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
timing of releases of new products and enhancements of existing products by
the Company varies depending on customer demand and emerging technologies. The
Company's growth and future financial performance will depend upon its ability
to develop and introduce new products and enhancements of existing products
that accommodate the latest technological advances and customer requirements.
There can be no assurance that additional new products will be successfully
developed or marketed by the Company, that any new products will achieve
market acceptance, or that other software vendors will not develop and market
products which are superior to the Company's products or that such products
will not achieve greater market acceptance. Furthermore, customers may delay
purchases in anticipation of technological changes. The Company's ability to
develop and market software infrastructure products and other new products
depends upon its ability to attract and retain qualified employees. Any
failure by the Company to anticipate or respond adequately to the changes in
technology and customer preferences, to develop and introduce new products in
a timely fashion, or to attract and retain qualified employees, could
materially adversely affect the Company's business, results of operations and
financial condition.
7
<PAGE>
RELIANCE ON AND RISKS OF ACQUISITION STRATEGY
The Company expects to continue its strategy of identifying, acquiring and
developing software infrastructure products, services and technologies through
the acquisition of specific products and of businesses which have developed
such products, services and technologies. The Company from time to time
engages in, and is currently engaged in, discussions with potential
acquisition candidates, including discussions relating to acquisitions that
may be material in size and/or scope and which may involve issuances by the
Company of a significant number of shares of its Common Stock.
The Company believes that its future growth depends, in part, upon the
success of this acquisition strategy. There can be no assurance that the
Company will successfully identify, acquire on favorable terms or integrate
such businesses, products, services or technologies. The Company may in the
future face increased competition for acquisition opportunities, which may
inhibit the Company's ability to consummate suitable acquisitions and may
increase the costs of completing such acquisitions.
Acquisitions involve a number of special risks and challenges, including the
diversion of management's attention, assimilation of the operations and
personnel of acquired companies, incorporation of acquired products into
existing product lines, adverse short-term effects on reported operating
results, amortization of acquired intangible assets, assumption of liabilities
of acquired companies, possible loss of key employees and difficulty of
presenting a unified corporate image. No assurance can be given that any
potential acquisition by the Company will or will not occur, or that, if an
acquisition does occur, it will not ultimately have a material adverse effect
on the Company or that any such acquisition will succeed in enhancing the
Company's business.
The Company has historically issued its Common Stock as consideration for
business acquisitions and expects to continue to do so in the future. There
can be no assurances that such issuances will not be dilutive to the Company's
stockholders. Additionally, the Company has recorded charges for acquired in-
process technology and merger costs in connection with certain of its past
acquisitions, which materially reduced operating and net income for the
periods in which the acquisitions were recorded. The Company expects to
continue to incur such charges in connection with future acquisitions, which
could materially reduce operating and net income in the periods in which such
acquisitions are consummated.
HIGHLY COMPETITIVE MARKETS
The market for the Company's products is highly competitive. The Company
expects to encounter enhanced competition and new competitors as it continues
to penetrate the software infrastructure market, including competition from
relational database vendors and systems software companies. Many of the
Company's current and prospective competitors have significantly greater
financial, technical and marketing resources than the Company. Competitive
pressure could cause the Company's products to lose market acceptance or
result in significant price erosion, with a material adverse effect upon the
Company's results of operations.
A variety of external and internal factors could adversely affect the
Company's ability to compete in the software infrastructure market. Such
factors include the following: relative functionality, integration,
performance and reliability of the products offered by the Company and its
competitors; the success and timing of new product development efforts;
changes affecting the hardware, operating systems or database systems which
the Company currently supports; the level of demonstrable economic benefits
for users relative to cost; relative quality of customer support and user
documentation; ease of installation; vendor reputation, experience and
financial stability; and price.
The Company also encounters competition from a broad range of firms in the
market for professional services. Many of the Company's current and
prospective competitors in the professional services market have significantly
greater financial, technical and marketing resources than the Company. The
competitive factors affecting the market for the Company's professional
services include the following: breadth and quality of services offered,
vendor reputation and the ability to retain qualified technical personnel.
8
<PAGE>
DEPENDENCE ON PROPRIETARY TECHNOLOGY
PLATINUM's success is heavily dependent upon its proprietary software
technology. The Company relies on a combination of contractual rights,
trademarks, trade secrets, patents and copyright laws to establish or protect
its proprietary rights in its products. The Company's license agreements
restrict a customer's use of the Company's software and prohibit disclosure to
third persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of the Company's software products. The
Company registers its product names and other trademarks in the United States
and certain foreign countries. There can be no assurance that the steps taken
by the Company in this regard will be adequate to deter misappropriation of
its proprietary rights or independent third party development of functionally
equivalent technologies. Although the Company does not believe that it is
materially infringing on intellectual property rights of others, there can be
no assurance that such claims will not be successfully asserted against the
Company in the future or that any attempt to protect its technology will not
be challenged.
DEPENDENCE ON DB2
A significant portion of the Company's revenues will continue to be derived
from products that enhance the performance and functionality of IBM's DB2
relational database management software, which operates on IBM and compatible
mainframe computer systems running the MVS operating system. A decline or a
perceived decline in IBM's commitment to DB2 or a decline in the market's
acceptance and utilization of DB2 would have an adverse effect on the Company,
and such adverse effect could be material. Also, if IBM were to enhance DB2 or
its DB2 utilities so as to render the Company's products obsolete or
unnecessary, or devote more resources to developing and marketing IBM's own
DB2 tools and utilities, the Company's business could be materially adversely
affected.
DEPENDENCE ON RELATIONSHIPS WITH RELATIONAL DATABASE VENDORS
The Company believes that in order to address its markets, the Company must
develop, maintain and enhance close associations with, and obtain access to
the technical personnel of, leading relational database vendors. This may
become increasingly difficult due to competition among such vendors. The
Company has entered into alliances with, among others, Oracle Systems Corp.,
Sybase, Inc. and Informix Software, Inc. There can be no assurance that the
Company will be able to maintain existing relationships or enter into new
relationships with such vendors. The Company's failure to do so would have an
adverse effect on its business, results of operations and financial condition,
and such adverse effect could be material.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
The Company's revenues and results of operations will be subject to
fluctuations based upon general economic conditions. If there were a general
economic downturn or a recession in the United States or certain other
markets, the Company believes that certain of its customers might reduce or
delay their purchases of the Company's products or services, leading to a
reduction in the Company's revenues. The factors that might influence current
and prospective customers to reduce their IT budgets under these circumstances
are beyond the Company's control. In the event of an economic downturn, the
Company's business, results of operations and financial condition could be
materially adversely affected. There can be no assurance that growth in the
markets for the Company's products and services will occur or that such growth
will result in increased demand for the Company's products and services.
SEASONALITY AND VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having the highest total revenues and
operating income. Further, revenues for the Company's fourth quarters have
historically been higher than those for the first quarters of the following
years. Because operating expenses continued to increase in the first quarters
of those years, the Company realized substantially lower operating margins and
net income (excluding the effect of charges for acquired in-process technology
and merger costs)
9
<PAGE>
for such quarters. The Company expects this pattern to continue for the
foreseeable future. The Company believes the seasonality of its revenues
results primarily from the budgeting cycles of its software product customers
and the structure of the Company's sales commission and bonus programs.
The Company operates with relatively little order backlog and substantially
all of its software product revenues in each quarter result from sales made in
that quarter. Consequently, if near term demand for the Company's products
weakens or if sales do not close in any quarter as anticipated, the Company's
results of operations for that quarter would be adversely, and perhaps
materially, affected. In addition, the timing and amount of the Company's
revenues are subject to a number of factors that make estimation of operating
results prior to the end of a quarter extremely uncertain. Historically, a
substantial majority of the Company's quarterly software products revenues has
been recorded in the third month of any given quarter, with a concentration of
such revenues in the last week of that third month, further increasing the
difficulty of predicting operating results.
The Company's operating results may vary significantly from quarter to
quarter depending on other factors such as the size and timing of customer
orders, price and other competitive conditions in the industry, the timing of
new product announcements and releases by the Company and its competitors, the
ability of the Company to develop, introduce and market new and enhanced
versions of the Company's products on a timely basis, changes in the Company's
level of operating expenses, changes in the Company's sales incentive plans,
budgeting cycles of its customers, customer order deferrals in anticipation of
enhancements or new products offered by the Company or its competitors, the
cancellation of licenses during the warranty period or nonrenewal of
maintenance agreements, product life cycles, software bugs and other risks
discussed herein. See "--Rapid Technological Change; Dependence on New
Products and Markets" and "--Highly Competitive Markets."
RISKS OF INTERNATIONAL SALES
The risks inherent in conducting international business generally include
exposure to currency fluctuations, longer payment cycles, greater difficulties
in accounts receivable collection and the burdens of complying with a wide
variety of foreign laws. Approximately 32%, 30%, 29% and 30% of the Company's
revenues in 1995, 1996, 1997 and the first quarter of 1998, respectively, were
attributable to international sales. Exchange rate fluctuations can have a
material adverse effect on the total level of foreign sales and the
profitability of those sales. During the past several years, the Company has
changed the primary means of international distribution of its products from a
network of independent distributors to wholly-owned Company subsidiaries. The
Company may encounter difficulties in integrating and managing these new
overseas subsidiaries. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISKS OF CONSULTING SERVICES BUSINESS
The Company is subject to the risks associated with a consulting services
business, including dependence on its reputation with existing customers,
volatility of workload and dependence on ability to attract and retain
qualified technical personnel. Also, a substantial portion of the Company's
consulting services revenue may be derived from the performance of services
under fixed-price contracts. There can be no assurance that the Company can
consistently perform in a profitable manner under these contracts,
particularly in the field of software development, where cost overruns are
commonplace.
SUBSTANTIAL LEVERAGE
On December 16, 1997, the Company issued $150 million of convertible
subordinated notes, which bear interest at 6.25% annually and mature on
December 15, 2002. As a result of this additional indebtedness, the Company's
principal and interest obligations increased substantially. The degree to
which the Company is leveraged could materially and adversely affect the
Company's ability to obtain financing for working capital, acquisitions or
other purposes and could make it more vulnerable to industry downturns and
competitive pressures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
10
<PAGE>
DEPENDENCE ON KEY PERSONNEL
Competition for qualified personnel in the software industry is intense, and
there can be no assurance that the Company will be able to attract and retain
a sufficient number of qualified employees. The Company's success depends to a
significant degree upon the continued contributions of its key management,
marketing, product development, professional services and operational
personnel, including key personnel of acquired companies. As the business of
the Company grows, it may become increasingly difficult for it to hire, train
and assimilate the number of new employees required. In addition, it is
possible that the business changes or uncertainty brought about by recent
acquisitions may cause key employees to leave the Company, and certain key
members of the management of acquired companies may not continue with the
Company. Any difficulty in attracting and retaining key employees could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's success to date has depended in large part on the skills and
efforts of Andrew J. Filipowski, PLATINUM's President and Chief Executive
Officer, and Paul L. Humenansky, the Company's Executive Vice President--
Product Development and Chief Operations Officer. The Company has not entered
into non-competition agreements with Messrs. Filipowski or Humenansky or any
of its other key personnel, nor does the Company have "key man" life insurance
policies covering these individuals.
VOLATILITY OF THE COMPANY'S STOCK PRICE
The price of the Common Stock has historically been volatile. The Company
believes factors such as quarterly fluctuations in results of operations,
announcements of new products and acquisitions by the Company or by its
competitors, changes or anticipated changes in earnings estimates by analysts
or others, changes in accounting treatments or principles and other factors
may cause the market price of the Common Stock to fluctuate, perhaps
substantially. The market price of the Common Stock may be affected by the
Company's ability to meet or exceed analysts' or "street" expectations, and
any failure to meet or exceed such expectations could have a material adverse
effect on the market price of the Common Stock. In addition, stock prices for
many technology companies fluctuate widely for reasons which may be unrelated
to operating results. These fluctuations, as well as general economic,
political and market conditions, may adversely affect the market price of the
Common Stock in the future. In the past, following periods of volatility in
the market price of a company's securities, class action securities litigation
has often been instituted against such company. Any such litigation instigated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Price Range of Common Stock."
ANTITAKEOVER EFFECT OF RIGHTS AGREEMENT, CHARTER AND STATUTORY PROVISIONS
The Company has entered into a rights agreement (the "Rights Agreement"),
which provides that, in the event that 15% or more of the outstanding shares
of its Common Stock are acquired by a person or group of persons, the holder
of each outstanding share of Common Stock, other than such acquiring
person(s), shall have the right to purchase from the Company additional shares
of Common Stock having a market value equal to two times the exercise price of
such right. In addition, the Company's Restated Certificate of Incorporation,
as amended, provides that the Board of Directors of the Company (the "Board "
or "Board of Directors") shall be classified with respect to the terms for
which its members shall hold office by dividing the members into three
classes. The Company is also subject to Section 203 of the Delaware General
Corporation Law which, in general, imposes restrictions upon acquirers of 15%
or more of the Company's Common Stock. The Rights Agreement and these other
provisions may have the effect of delaying, deferring or preventing a change
of control of the Company, even if such event would be beneficial to
stockholders. See "Description of Capital Stock."
11
<PAGE>
SECURITIES COVERED BY THIS PROSPECTUS
The shares of Common Stock covered by this Prospectus are available for use
in future acquisitions of other businesses, real or personal properties, or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act or otherwise under
Rule 415. Such acquisitions may be made directly by the Company or indirectly
through a subsidiary, may relate to businesses or securities of businesses
similar or dissimilar to the Company's current IT infrastructure software,
consulting service or educational program businesses, and may be made in
connection with the settlement of litigation or other disputes. The
consideration offered by the Company in such acquisitions, in addition to the
shares of Common Stock offered by this Prospectus, may include cash, debt or
other securities (which may be convertible into shares of Common Stock covered
by this Prospectus), or assumption by the Company of liabilities of the
businesses, properties or securities being acquired or of their owners, or a
combination thereof. It is contemplated that the terms of acquisitions will be
determined by negotiations between the Company and the owners of the
businesses, properties or securities to be acquired, with the Company taking
into account such factors as the quality of management, the past and potential
earning power, growth and appreciation of the businesses, properties or
securities acquired, and other relevant factors, and it is anticipated that
shares of Common Stock issued in acquisitions will be valued at a price
reasonably related to the market value of the Common Stock either at the time
the terms of the acquisition are tentatively agreed upon or at or about the
time or times of delivery of the shares.
The Company may from time to time, in an effort to maintain an orderly
market in the Common Stock, negotiate agreements with persons receiving Common
Stock covered by this Prospectus that will limit the number of shares that may
be sold by such persons at specified intervals. Such agreements may be more
restrictive than restrictions on sales made pursuant to the exemption from
registration requirements of the Securities Act, including the requirements of
Rule 144 or Rule 145(d) thereunder, and certain persons party to such
agreements may not otherwise be subject to such Securities Act requirements.
The Company anticipates that, in general, such negotiated agreements will be
of limited duration and will permit the recipients of Common Stock issued in
connection with acquisitions to sell up to a specified number of shares per
business day or period of days.
With the consent of the Company, this Prospectus may also be used by persons
who have received or will receive from the Company Common Stock covered by
this Prospectus and who may wish to sell such stock under circumstances
requiring or making desirable its use. This Prospectus may also be used, with
the Company's consent, by pledgees, donees, or assignees of such persons. The
Company's consent to any such use may be conditioned upon such persons'
agreeing not to offer more than a specified number of shares following
supplements or amendments to this Prospectus, which the Company may agree to
use its best efforts to prepare and file at certain intervals. The Company may
require that any such offering be effected in an organized manner through
securities dealers.
The securities offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
securities may be sold by one or more of the following methods, without
limitation: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the securities as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of such exchange; (e) face-to-face
transactions between sellers and purchasers without a broker-dealer; and (f)
through the writing of options. At any time a particular offer of the
securities is made, a revised Prospectus or Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount and
type of securities being offered and the terms of the offering, including the
name or names of any underwriters, dealers or agents, any discounts,
commissions, concessions and other items constituting compensation from the
sellers and any discounts, commissions or concessions allowed or reallowed or
paid to dealers. Such Prospectus Supplement and, if necessary, a post-
effective amendment to the Registration Statement of which this Prospectus is
a part, will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of the securities.
12
<PAGE>
Stockholders may also offer shares of Common Stock covered by this
Prospectus by means of prospectuses under other registration statements or
pursuant to exemptions from the registration requirements of the Securities
Act, including sales which meet the requirements of Rule 144 or Rule 145(d)
under the Securities Act, and stockholders should seek the advice of their own
counsel with respect to the legal requirements for such sales.
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who have received shares of Common Stock for
whom the Company has consented to the use of this Prospectus in connection
with resales of such shares. See the inside back cover page of this Prospectus
for the identity of any such persons.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "PLAT". The following table sets forth, for the
quarters indicated, the range of high and low sales prices of the Common Stock
on Nasdaq.
<TABLE>
<CAPTION>
FISCAL PERIOD HIGH LOW
------------- --------- -------
<S> <C> <C>
1996
Quarter ended March 31..................................... $18 3/4 $11 1/4
Quarter ended June 30...................................... 18 3/4 12 3/4
Quarter ended September 30................................. 15 7/8 9 1/4
Quarter ended December 31.................................. 15 1/2 10 5/8
1997
Quarter ended March 31..................................... 17 7/8 10 7/8
Quarter ended June 30...................................... 14 13/16 10 1/2
Quarter ended September 30................................. 25 12 5/8
Quarter ended December 31.................................. 30 13/16 20 1/8
1998
Quarter ended March 31..................................... 31 1/8 22 1/8
Quarter beginning April 1 (through May 7, 1998) ........... 28 3/8 22 1/2
</TABLE>
On May 7, 1998, the last reported sales price of the Common Stock on Nasdaq
was $25 11/16. As of May 5, 1998, there were approximately 1,052 record
holders of the Company's Common Stock.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock, and the Board of
Directors intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes. The Company does not anticipate
paying any such dividends in the foreseeable future.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (1)
The selected consolidated financial data set forth below has been derived
from the historical financial statements of the Company. The 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 and related notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 623,503 $468,065 $326,411 $243,607 $190,623
Operating income
(loss)................. (115,792)(2) (79,404)(3) (127,377)(4) (517)(5) 3,062(6)
Net income (loss)....... (117,784)(2) (64,922)(3) (111,567)(4) (1,562)(5) 126(6)
Net income (loss) per
share.................. $ (1.90)(2) $ (1.14)(3) $ (2.50)(4) $ (0.04)(5) $ --(6)
Shares used in per share
calculation............ 62,042 56,968 44,671 41,294 39,375
Other operating data--
ratio of
earnings to fixed
charges (7)............ --(2)(8) --(3)(8) --(4)(8) 7.49(5) 10.47(6)
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and investments. $ 261,288 $185,673 $136,737 $126,215 $ 71,148
Working capital......... 288,349 217,157 127,990 90,500 43,672
Total assets............ 834,177 618,572 452,267 273,333 176,064
Long-term obligations
and acquisition-related
payables, less current
portion................ 285,144 118,305 11,389 9,080 3,465
Total stockholders'
equity................. $ 243,560 $295,760 $290,213 $160,126 $ 93,350
</TABLE>
- --------
(1) The selected consolidated financial data give retroactive effect to the
Company's acquisitions of ATR as of January 31, 1997 and 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 financial
position and results of operations are presented as if the combining
companies had been consolidated for all periods presented.
(2) Reflects a pre-tax charge for acquired in-process technology of
$67,904,000 relating to the Company's acquisitions of GEJAC and
ProMetrics, the purchase of certain product technologies and other
intangible assets from Intel and the purchase of certain other product
technologies. Also reflects a pre-tax charge for merger costs of
$8,927,000 relating to the Company's acquisitions of ATR, I&S and Vayda
and a pre-tax charge of $57,319,000 for restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of
$48,456,000 relating to the Company's acquisitions of AST, Software
Alternatives, Grateful Data and VREAM; substantially all of the assets of
Access Manager; and 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.
(4) Reflects a pre-tax charge for acquired in-process technology of
$88,493,000 relating primarily to the Company's acquisitions of ASC, SQL,
Reltech, Protellicess, AIB and BMS and the net assets of ViaTech,
BrownStone and 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 SII, Answer, Locus, Altai, Trinzic and Softool.
(5) Reflects a pre-tax charge for acquired in-process technology of
$24,594,000 relating primarily to the Company's acquisitions of Dimeric
and the net assets of Aston Brooke and AutoSystems.
(6) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to the Company's acquisition of Datura and a pre-tax
charge of $4,659,000 relating to Trinzic and Locus restructuring costs.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of rental expense which
represents interest).
(8) Earnings available for fixed charges of $(89,933,000), $(72,342,000) and
$(122,465,000) were inadequate to cover fixed charges of $9,130,000,
$1,825,000 and $782,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion and analysis below contains certain forward-looking
statements (as such term is defined in Section 27A of the Securities Act) that
are based on the beliefs of the management of the Company, as well as
assumptions made by, and information currently available to, the Company's
management. The Company's actual growth, results, performance and business
prospects and opportunities in 1998 and beyond could differ materially from
those expressed in, or implied by, such forward-looking statements. See
"Prospectus Summary--Special Note Regarding Forward-Looking Statements" on
page 6 for a discussion of risks, uncertainties and other factors that could
cause or contribute to such material differences.
GENERAL
The Company develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve
their IT infrastructures, which consist of data, systems and applications. The
Company's products and services help IT infrastructure departments, primarily
in large and data-intensive organizations, minimize risk, improve service
levels 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
consummated a number of acquisitions accounted for as purchases, in which
cases the acquired businesses have been included in the Company's results of
operations beginning with the effective dates of the acquisitions.
RESULTS OF OPERATIONS
The table below sets forth for the periods indicated: (1) line items from
the Company's consolidated statements of operations expressed as a percentage
of revenues, and (2) the percentage changes in these line items from the prior
period.
<TABLE>
<CAPTION>
PERCENTAGE OF YEAR-TO-YEAR
TOTAL REVENUES PERCENTAGE CHANGE
------------------ -----------------
YEARS ENDED
DECEMBER 31, 1997 1996
------------------ COMPARED COMPARED
1997 1996 1995 TO 1996 TO 1995
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software products.................... 57% 52% 49% 46% 54%
Maintenance.......................... 20 22 23 22 34
Professional services................ 23 26 28 16 33
--- --- ---
Total revenues..................... 100 100 100 33 43
--- --- ---
Costs and expenses:
Professional services................ 20 25 28 10 26
Product development and support...... 30 33 29 21 65
Sales and marketing.................. 37 39 35 25 60
General and administrative........... 10 9 11 58 15
Restructuring charges................ 9 -- -- * --
Merger costs......................... 2 1 9 54 (81)
Acquired in-process technology....... 11 10 27 40 (45)
--- --- ---
Total costs and expenses........... 119 117 139 35 21
--- --- ---
Operating loss......................... (19) (17) (39) * *
Other income, net...................... 3 1 1 219 27
--- --- ---
Loss before income taxes............... (16) (16) (38) * *
Income taxes........................... 3 (2) (4) * *
--- --- ---
Net loss............................... (19)% (14)% (34)% *% *%
=== === ===
</TABLE>
- --------
*Not meaningful.
15
<PAGE>
REVENUES
The Company's revenues are 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 Company's professional services business. Total revenues for 1997 were
$623,503,000, an increase of $155,438,000, or 33%, over 1996 total revenues of
$468,065,000. Total revenues in 1996 increased $141,654,000, or 43%, over 1995
revenues of $326,411,000.
The Company has a diversified customer base, with no single customer
representing greater than 10% of its total revenues generated in 1997, 1996 or
1995. The Company estimates that sales to repeat customers represented over
90% of its revenues generated in 1997.
Revenues from domestic (U.S.) customers represented 71%, 70% and 68% of the
Company's total revenues in 1997, 1996 and 1995, respectively. Domestic
revenues are generated primarily by the Company's direct sales force (which
visits customer sites to assist with trials, demonstrate product features and
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, principally in Western Europe,
represented 29%, 30% and 32% of the Company's total revenues in 1997, 1996 and
1995, respectively. The Company generates the majority of its international
revenues through a network of wholly-owned subsidiaries, primarily utilizing a
direct sales force. Over the past two years, the Company has invested
significantly in the global marketplace, increasing its focus on international
sales efforts and expanding its international operations.
The table below sets forth, for the periods indicated, the Company's primary
sources of revenues expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
---------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software products:
Licenses.................................. 41% 39% 46%
Upgrades.................................. 16 13 3
--------- --------- ---------
Total software products................. 57 52 49
--------- --------- ---------
Maintenance................................ 20 22 23
Professional services...................... 23 26 28
--------- --------- ---------
Total revenues.......................... 100% 100% 100%
========= ========= =========
</TABLE>
Software Products. Software products revenues represented 57%, 52% and 49%
of total revenues in 1997, 1996 and 1995, respectively. In 1997, software
products revenues increased 46% to $357,223,000 from $243,938,000 in 1996, as
a result of increases of 48%, 56%, 25% and 48%, respectively, experienced by
the Company's database management, systems management, application
infrastructure management, and data warehousing and decision support business
units. From 1995 to 1996, software product revenues increased 54% from
$158,597,000. The Company believes the growth in software products revenues
over the past three 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. The Company
has continuously increased its product offerings over the past three years, in
part through the acquisitions of businesses and technologies,
16
<PAGE>
which also contributed to the growth in software products revenues. The
substantial majority of the increases in software products revenues in 1997
and 1996 resulted from increases in the volume of sales of existing products.
A smaller, but still significant, portion of the increases related to sales of
newly introduced products, while only a small percentage was attributable to
price increases. During 1996 and 1997, the Company expanded its customer base,
increased sales of product bundles and integrated product suites, and executed
increasingly larger sales transactions. Additionally, TransCentury, the
Company's Year 2000 product suite, which was first introduced in the third
quarter of 1996, contributed significantly to the growth in revenues of the
data warehousing and decision support business unit during 1997. The Company's
database management (principally products relating to IBM's DB2 relational
database management software), systems management, application infrastructure
management and data warehousing and decision support business units
represented 40%, 30%, 10% and 20%, respectively, of total software products
revenues in 1997; 40%, 29%, 11% and 20%, respectively, of total software
products revenues in 1996; and 38%, 29%, 11% and 22%, respectively, of total
software products revenues in 1995.
Maintenance. Maintenance revenues in 1997 increased 22% over 1996 to
$125,245,000, and 1996 maintenance revenues of $102,364,000 represented an
increase of 34% over 1995 maintenance revenues of $76,498,000. 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
1997 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, the
increase in software licensing transactions also contributed to the increase
in maintenance revenues. In 1997, the Company's database management, systems
management, application infrastructure management, and data warehousing and
decision support business units represented 45%, 23%, 13% and 19%,
respectively, of total maintenance revenues.
Professional Services. Professional services revenues are associated with
the Company's consulting services business and educational programs. In 1997,
professional services revenues increased 16% over 1996 to $141,035,000 from
$121,763,000 in 1996. From 1995 to 1996, professional services revenues
increased 33% from $91,316,000. The growth in professional services revenues
during 1997 was primarily attributable to an increase in billable consultants,
as well as a higher ratio of billable hours to total hours worked. To a much
lesser extent, increases in rates charged per billable hour contributed to
this growth. Additionally, the revenues generated by the Company's new
specialty consulting services practices, established near the end of 1996,
contributed to the increase in professional services revenues during 1997. The
increase in professional services revenues during 1996 was primarily due to
the addition of established consulting practices through various acquisitions,
as well as the growth experienced within these acquired businesses.
COSTS AND EXPENSES
Total expenses for 1997 were $739,295,000, an increase of 35% over 1996
expenses of $547,469,000, which represented an increase of 21% over 1995
expenses of $453,788,000. Total expenses increased in 1997 due to greater
variable expenses related to higher revenue results, as well as increased
costs, including training and system-support expenses, associated with the
integration of recently acquired companies. Additionally, a restructuring
charge recorded in the second quarter of 1997 (as discussed below under "--
Restructuring Charges") contributed to the increase in total expenses.
Excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges in 1997 discussed under "--General
and Administrative" below, total expenses for 1997 were $591,632,000 an
increase of $98,401,000, or 20%, compared to $493,231,000 for 1996. Total
expenses, excluding merger costs and acquired in-process technology charges,
increased 47% in 1996 as compared to $334,476,000 in 1995. Total expenses,
excluding restructuring charges (in 1997 only), merger costs, acquired in-
process technology charges and the integration-related charges, represented
95%, 105% and 102% of total revenues for 1997, 1996 and 1995, respectively. As
a percentage of total revenues, total expenses, excluding restructuring
charges, merger costs, acquired in-process technology
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charges and the integration-related charges, decreased in 1997, as compared to
1996, primarily due to overall cost containment efforts and the savings
realized from the restructuring plan.
During 1996 and 1995, the Company incurred significant costs in supporting
its development laboratories and in building the infrastructure to support the
significantly larger combined company that resulted from the Company's
acquisitions in those years. 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 IT infrastructure systems issues and new products, providing additional
financial and technical support to the international subsidiaries established
in those years, translating product materials into numerous foreign languages,
and augmenting internal support systems. Greater commission and bonus expenses
associated with the increase in revenues during 1996, as compared to 1995,
also contributed to the increase in total expenses in 1996.
Professional Services. Costs of professional services increased to
$127,499,000 in 1997, from $116,133,000 in 1996 and $92,374,000 in 1995. The
increases in these expenses during 1997 and 1996 were related to salaries and
other direct employment expenses resulting from the Company's continued hiring
to support this business, as well as the costs incurred to integrate the
numerous consulting practices acquired over the past three years. Greater
commission and bonus expenses associated with higher professional services
revenues in each year also contributed to the increases. Costs of professional
services represented 90%, 95% and 101% of professional services revenues in
1997, 1996 and 1995, respectively. During 1997, as part of the Company's
overall restructuring plan, the Company realigned its professional services
business through the consolidation of redundant functions. The savings
realized from the restructuring plan, as well as the increased productivity of
the consulting staff, contributed to the decrease in professional services
expenses as a percentage of professional services revenues in 1997.
Product Development and Support. Product development and support expenses
increased to $187,383,000 in 1997, from $155,277,000 in 1996 and $94,027,000
in 1995. The increases in these expenses in 1997 and 1996 were primarily
attributable to an increase in the number of product development and support
personnel, from approximately 1,215 at December 31, 1995 to approximately
1,400 at December 31, 1996 and approximately 1,625 at December 31, 1997, and
to other higher employee-related expenses associated with expanded product
offerings in each year, as well as continued product integration and
internationalization efforts in 1997 and, to a lesser extent, 1996; increased
allocated charges for office space and overhead; an increase in information
technology costs to support the expanded development efforts and product
offerings; higher bonuses and royalty expenses related to greater revenues;
and higher travel expenses in 1997 and 1996 associated with the Company's
product integration efforts and expanded product offerings. Product
development and support expenses represented 30%, 33% and 29%, of total
revenues in 1997, 1996 and 1995, respectively. During 1997, the Company began
consolidating certain product development and support efforts to coincide with
its product integration focus. As a result of these consolidation efforts, the
Company reduced product development and support expenses as a percentage of
total revenues during 1997.
In 1997, 1996 and 1995, the Company capitalized $41,143,000, $27,246,000 and
$13,591,000, 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 $228,526,000 in 1997, $182,523,000 in 1996
and $107,618,000 in 1995, which amounted to 47%, 53% and 46%, respectively, of
software product and maintenance revenues for these years.
Sales and Marketing. Sales and marketing expenses increased to $228,387,000
in 1997, from $182,597,000 in 1996 and $113,978,000 in 1995. The increase in
sales and marketing expenses during 1997 was primarily attributable to the
significant expansion of the domestic and international outside sales force
and higher commission expenses relating to the increase in software products
revenues. During 1996, as compared to 1995, the Company incurred higher
commission expenses associated with the increase in software products revenues
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and greater marketing costs associated with the Company's expanded product
line. Sales and marketing expenses represented 37%, 39% and 35% of total
revenues in 1997, 1996 and 1995, respectively. During the second quarter of
1997, the Company realigned its inside sales force to be more compatible with
its strategy of providing complete IT infrastructure solutions and to
correspond with the restructuring plan. This realignment resulted in a
significant reduction in the inside sales force. The Company also consolidated
certain remote sales facilities. Consequently, sales and marketing expenses as
a percentage of total revenues decreased during 1997. The increase in sales
and marketing expenses as a percentage of total revenues in 1996, as compared
to 1995, was primarily attributable to costs associated with the significant
expansion of the domestic and international outside and inside sales forces
and the telemarketing organization.
General and Administrative. General and administrative expenses increased to
$61,876,000 in 1997, from $39,224,000 in 1996 and $34,097,000 in 1995. General
and administrative expenses represented 10%, 9% and 11% of total revenues in
1997, 1996 and 1995, respectively. The increase in general and administrative
expenses during 1997 was primarily due to total charges of $13,513,000
recorded during the second quarter of 1997 for write-offs of certain assets,
as well as severance and other employee-related expenses, related to the
integration procedures discussed below. In conjunction with the restructuring
plan executed during the second quarter of 1997, the Company performed
additional integration procedures related to past acquisition activity. The
Company evaluated the fair value of assets recorded through prior acquisitions
and identified certain trade receivables, prepaid expenses and intangible
assets that had no future value. The respective balances of these assets were
written-off during the second quarter of 1997. Additionally, the Company
expensed severance and other employee benefits, including guaranteed bonuses,
for certain employees of acquired companies who were terminated as a result of
the integration efforts, but not specifically as part of the restructuring
plan. The increase in general and administrative expenses in 1997 was also
attributable to the costs associated with integrating recently acquired
businesses and maintaining the infrastructure to support the restructured
company, including administrative system upgrade expenses and associated
consulting fees, as well as the amortization of intangible assets relating to
the Company's convertible debt offerings (see "--Liquidity and Capital
Resources"). Total general and administrative expenses in 1997, excluding the
charges related to the integration efforts, were $48,363,000, representing 8%
of total revenues. The Company believes the decrease in general and
administrative expenses as a percentage of total revenues, excluding the
integration charges, was the result of the Company's overall cost containment
efforts, as well as the savings realized by the restructuring plan.
The increase in general and administrative expenses in 1996 was primarily
related to salaries and other direct employment expenses attributable to an
expanded administrative staff both in the U.S. and in 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 reduction in these expenses as a percentage of total revenues.
Restructuring Charges. 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
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: $24,032,000 for facility-related costs,
including a reserve for estimated lease obligations associated with the
closing of office facilities; $3,510,000 for write-offs of excess equipment,
furniture and fixtures; $19,413,000 for write-offs of capitalized software
costs and other intangible assets related to the termination of development
efforts for certain discontinued products, as well as penalties for the
cancellation of distributorship agreements for such products;
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and $10,364,000 for severance and other employee-related costs of the
terminated staff. Of the $57,319,000 restructuring charge, the Company paid
out approximately $15,322,000 and wrote off $19,687,000 of non-cash charges
during 1997. Consequently, the Company had $22,310,000 of accrued
restructuring costs recorded as of December 31, 1997. The Company anticipates
that approximately $6,300,000 of these costs will be paid out during 1998. The
Company estimates that annual restructuring payments will be approximately
$3,300,000 to $4,000,000 for the years 1999 through 2002 and that the
remaining approximately $1,300,000 of cash disbursements related to the
restructuring plan will be paid out in 2003.
The Company currently expects to realize a reduction in annual operating
expenses of approximately $40,000,000 in 1998 and 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 on the
Company's operating results.
Merger Costs. Merger costs were $8,927,000, $5,782,000 and $30,819,000 in
1997, 1996 and 1995, respectively. Merger costs relate to acquisitions
accounted for as poolings of interests and include investment banking and
other professional fees, employee severance payments, costs of closing excess
office facilities and various other expenses. The Company from time to time
engages in, and is currently engaged in, discussions relating to acquisitions
that may be material in size and/or scope and may involve issuances by the
Company of a significant number of shares of Common Stock. The Company
continues 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. 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. See "--Recent Developments" for a description of
certain pending acquisitions.
Acquired In-Process Technology. Acquired in-process technology charges were
$67,904,000, $48,456,000 and $88,493,000 in 1997, 1996 and 1995, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies accounted for under the purchase method. In
these cases, portions of the purchase prices were allocated to acquired in-
process technology.
Prior to completing these acquisitions, the Company conducted reviews in
order to determine the fair market value of the organizations and technologies
to be acquired. These reviews consisted of an evaluation of existing products,
research and development in process (projects that had not reached
technological feasibility and had no alternative future use), customers,
financial position and other matters. The acquired in-process research and
development represents unique and emerging technologies, the application of
which is limited to the Company's IT 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 generally ranging from
six to 18 months from the dates of acquisition.
The Company has already devoted substantial resources to the development of
products from research and development purchased in 1997. The Company
estimates that up to an additional 12 months and approximately $9,000,000 in
cash expenditures will be required to develop commercially viable products
from this acquired research and development. With respect to research and
development acquired prior to 1997, the Company has either completed the
development of commercially viable products or discontinued the product
development efforts.
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.
OPERATING LOSS
For the reasons discussed above, the Company incurred an operating loss of
$115,792,000 in 1997, as compared to an operating loss of $79,404,000 in 1996
and an operating loss of $127,377,000 in 1995. The
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Company had operating margins of (19)%, (17)% and (39)% in 1997, 1996 and
1995, respectively. The significant restructuring charges, merger costs,
acquired in-process technology charges and integration-related charges
incurred in these years contributed significantly to the operating losses and
negative operating margins experienced by the Company. Excluding restructuring
charges, merger costs, acquired in-process technology charges and the
integration-related charges in 1997 discussed under "--General and
Administrative" below, the Company would have reported operating income of
$31,871,000 in 1997, an operating loss of $25,166,000 in 1996 and an operating
loss of $8,065,000 in 1995. Excluding such charges, the Company would have
reported operating margins of 5%, (5)% and (2)% in 1997, 1996 and 1995,
respectively. During 1997, the Company improved its operating margin,
excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges, through cost containment efforts
and the savings realized from the restructuring plan. The Company's operating
margin, excluding merger costs and acquired in-process technology charges,
decreased in 1996, as compared to 1995, due primarily to the significant costs
incurred to integrate the numerous acquisitions consummated during 1996 and
1995. Because acquisitions remain an important part of the Company's growth
strategy, the Company expects to continue to incur acquisition-related
charges, as well as expenses related to the integration of acquired
businesses, which could materially adversely affect operating results in the
periods in which such acquisitions are consummated and in subsequent periods.
OTHER INCOME
Other income was $16,729,000 in 1997 as compared to $5,237,000 in 1996 and
$4,130,000 in 1995. The increase in other income in 1997, as compared to 1996,
was primarily attributable to unrealized holding gains that resulted from the
reclassification of certain available-for-sale securities into the trading
classification; unrealized holding gains on trading securities, the market
values of which increased during 1997; and realized gains on the sales of
investment securities. The increase in other income during 1996, as compared
to 1995, was primarily attributable to realized gains on the sales of
investment securities 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 increase in other income
during 1997, as compared to 1996, was partially offset by interest expense on
the Company's convertible subordinated notes issued in November 1996 and
December 1997. To a lesser extent, the interest expense on the convertible
subordinated notes issued in November 1996 reduced the increase in other
income in 1996, as compared to 1995. See "--Liquidity and Capital Resources."
INCOME TAXES
The Company recognized income tax expense of $18,721,000 in 1997, and income
tax benefits of $9,245,000 in 1996 and $11,680,000 in 1995. The income tax
expense recorded in 1997 included an amount of $13,651,000 based on the
Company's 28% effective tax rate, plus an additional $5,070,000 recorded in
the second quarter of 1997 to reduce the Company's deferred tax asset balance.
The Company reduced its deferred tax asset balance so that it would reflect an
asset amount that will, more likely than not, be realized in future periods.
The Company has available approximately $294,715,000 of net operating loss
carryforwards and $14,000,000 of tax credit carryforwards, which are available
to reduce future Federal income taxes, if any, through the year 2012. Some of
the Company's tax carryforwards are subject to limitations as to the amounts
that may be used in any particular future year.
NET LOSS
For the reasons discussed above, the Company incurred a net loss of
$117,784,000 in 1997, as compared to $64,922,000 in 1996 and $111,567,000 in
1995. The significant restructuring charges, merger costs and acquired in-
process technology charges incurred in these years contributed significantly
to the net losses experienced by the Company. See "--Operating Loss" above.
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RECENT DEVELOPMENTS
On January 2, 1998, the Company entered into the LBMS Reorganization
Agreement, pursuant to which the Company has agreed to acquire LBMS, a leading
provider of process management solutions. Under the terms of this acquisition,
LBMS will become a wholly-owned subsidiary of the Company. The Company has
agreed to exchange approximately 2,775,000 shares of Common Stock for all of
the outstanding common shares of LBMS and has offered to exchange options to
purchase approximately 436,000 shares of Common Stock for the outstanding LBMS
options. This acquisition, which is expected to be consummated in the second
quarter of 1998, is subject to the sanction of the English High Court.
On March 14, 1998, the Company entered into an agreement and plan of merger,
pursuant to which the Company has agreed to acquire Logic, a leading provider
of data modeling tools. Under the terms of this acquisition, Logic will become
a wholly-owned subsidiary of the Company. The Company has agreed to exchange
approximately 7,240,095 shares of Common Stock for all of the outstanding
common stock of Logic and to assume stock options which will convert into
options to purchase approximately 1,272,072 shares of Common Stock. This
acquisition, which is expected to be consummated in mid-1998, is subject to
the approval of the stockholders of Logic and customary legal and regulatory
conditions.
On April 21, 1998, the Company completed the acquisition of Mastering, a
leading provider of information technology training. Under the terms of this
acquisition, Mastering became a wholly-owned subsidiary of the Company.
Pursuant to the terms of the Mastering Merger Agreement, the Company exchanged
6,480,865 shares of Common Stock for all of the outstanding common shares of
Mastering and assumed stock options which were converted into options to
purchase 2,193,219 shares of Common Stock.
The acquisitions of LBMS, Logic and Mastering are expected to be accounted
for as poolings of interests. Costs incurred in connection with these
transactions will be expensed in the periods in which the acquisitions are
consummated.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments were $261,288,000 and
$185,673,000 as of December 31, 1997 and 1996, respectively. For the year
ended December 31, 1997, cash and cash equivalents increased $37,355,000, from
$140,783,000 at the beginning of the year to $178,138,000 at the end of the
year. This increase was attributable primarily to net proceeds of $144,967,000
from the sale of $150,000,000 principal amount of 6.25% convertible
subordinated notes due 2002 (the "1997 Notes") and net cash provided by
operating activities of $32,586,000. The positive cash flow from operating
activities was reduced by an increase in trade and installment receivables,
net of proceeds from the sale of installment receivables. Previously, the
Company reported trade and installment receivables on a gross basis and the
sale of installment receivables as a financing activity. Of the $191,266,000
of cash provided by financing and operating activities, $153,911,000 was used
in investing activities. The principal components of investing activities were
purchases of marketable securities and the investment of resources in
purchased and developed software. For 1996, cash and cash equivalents
increased from $115,809,000 at the beginning of the year to $140,783,000 at
the end of the year, with the primary sources of cash being sales of
installment receivables and the net proceeds from the sale of $115,000,000
principal amount of 6.75% convertible subordinated notes due 2001 (the "1996
Notes"). For 1995, cash and cash equivalents increased from $80,110,000 at the
beginning of the year to $115,809,000 at the end of the year, with the
principal source of cash being the net proceeds from a public offering of
Common Stock.
In recent years, the Company's sources of liquidity have primarily been
funds from capital markets and sales of installment receivables. The Company
believes the funding available to it from these sources, as well as cash flows
from operations, will be sufficient to satisfy its working capital and debt
service requirements for the
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foreseeable future. The Company's capital requirements are primarily dependent
on management's business plans regarding the levels and timing of investments
in existing and newly acquired businesses and technologies. These plans and
the related capital requirements may change based upon various factors, such
as the Company's strategic opportunities, developments in the Company's
markets, the timing of closing and integrating acquisitions and the conditions
of financial markets.
The Company had trade and installment accounts receivable, net of
allowances, of $264,686,000 and $200,399,000 as of December 31, 1997 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 of the third
month. This trend results in a high balance of accounts receivable relative to
reported revenues at the end of any quarterly reporting period.
The Company 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. Over the past two
years, the Company 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 increased
significantly over the past two years. However, the Company expects to reduce
the volume of installment receivable sales, as a percentage of total revenues,
in 1998 as compared to 1997.
The Company receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of an amount representing
the interest to be earned by the finance company. The finance company collects
customer remittances over the term of the agreement. Proceeds from the sale of
receivables were $206,916,000, $129,328,000 and $2,903,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accounts receivable sold with
recourse were $19,373,000 and $2,993,000 for the years ended December 31, 1996
and 1995, respectively, and as of December 31, 1996 and 1995, potential
obligations for accounts receivable sold with recourse were $16,817,000 and
$5,177,000, respectively. There were no accounts receivable sold with recourse
for the year ended December 31, 1997, and as of December 31, 1997, there were
no remaining potential recourse obligations for accounts receivable sold with
recourse. The Company has an agreement with a third party that provides for
potential recourse obligations in the form of a loss pool based on the
performance of the related accounts receivable portfolio. Under the terms of
that agreement, potential recourse obligations at December 31, 1997 and 1996
were $14,600,000 and $9,300,000, respectively. There were no potential
recourse obligations in the form of a loss pool as of December 31, 1995. Based
on the credit ratings of the underlying obligors to the accounts receivable
and the performance history of the accounts receivable portfolio, the Company
has assessed the exposure related to these recourse obligations 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 $18,320,000 and
$2,502,000 and other long-term obligations of $266,824,000 and $115,803,000 as
of December 31, 1997 and 1996, respectively. The
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significant increase in long-term obligations from December 31, 1996 to
December 31, 1997 was attributable to the 1997 Notes issued by the Company in
December 1997. 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 $144,967,000 from the offering of the 1997 Notes. The
Company completed an offering of convertible subordinated notes due November
15, 2001 in November 1996 (the "1996 Notes"). The 1996 Notes bear interest at
6.75% annually and 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 total debt service obligations of approximately
$35,000,000 for 1998, consisting primarily of obligations to pay interest on
the 1996 Notes and the 1997 Notes, as well as acquisition-related payables.
Based on current outstanding indebtedness, the Company estimates its debt
service requirements to be approximately $36,000,000, $18,000,000,
$132,000,000 and $160,000,000 for 1999, 2000, 2001 and 2002, respectively,
which amounts include the outstanding principal balance of the 1996 Notes in
2001 and the outstanding principal balance of the 1997 Notes in 2002.
The Company currently has an unsecured bank line of credit of $55,000,000,
under which borrowings bear interest at rates ranging from approximately LIBOR
plus 1% to the bank's prime rate. As of March 31, 1998, the Company had no
outstanding borrowings under this line of credit, but had aggregate letters of
credit outstanding for approximately $3,982,000, with expiration dates ranging
from April 1998 to May 1999. These letters of credit reduce the available line
of credit balance. Under this credit agreement, the Company has agreed: (i) to
maintain a ratio of current assets to current liabilities of at least 1.0 to
1.0; (ii) to maintain a tangible net worth of not less than $100,000,000; and
(iii) not to permit its ratio of total liabilities to tangible net worth to at
any time exceed 1.0 to 1.0.
FOREIGN CURRENCY EXCHANGE RATES
To date, fluctuations in foreign currency exchange rates have not had a
material effect on the Company's results of operations or liquidity. However,
the Company closely monitors its foreign operations and net asset position to
ascertain the need for hedging foreign currency exchange risk. Since 1997, the
only exposure related to foreign currency exchange for which the Company has
considered hedging appropriate has been related to short-term intercompany
balances. These non-functional currency balances are hedged by purchases and
sales of forward exchange contracts to reduce this exchange rate exposure. At
December 31, 1997, the Company held an aggregate of approximately $26,800,000
in notional amount of forward exchange contracts. As the Company's operations
expand in international regions outside Western Europe, where the Company's
international operations are currently concentrated, the Company may
increasingly hedge foreign currency exchange risk.
YEAR 2000 CONSIDERATIONS
During 1997, the Company substantially completed the implementation of an
enterprise-wide financial accounting system which is Year 2000 compliant.
Further, the Company has evaluated its internal software and computer systems
and believes its potential liability relating to the Year 2000 problem is
minimal.
The Company believes that certain of its customers may allocate a
substantial portion of their 1998 and 1999 IT budgets to products and services
addressing the Year 2000 problem. The Company is unable to determine whether
this trend will negatively impact sales of its traditional product offerings,
but believes that it may lead to increased sales of its Year 2000 products and
services. The Company believes that, in 1997, sales of its Year 2000 products
and services were favorably affected by this trend. All of the Company's
current software product offerings are Year 2000 compliant.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 beginning
with its 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 November 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. SOP 97-2 is intended
to reduce diversity in current revenue recognition practices within the
software industry. The statement is not expected to have a material impact on
the Company's results of 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 in a given year. For example, 34% and 32% of the Company's
total revenues in 1997 and 1996, respectively, were generated in the fourth
quarter. Further, revenues for the fourth quarter of 1996 were higher than
revenues for the first quarter of 1997. The Company believes the seasonality
of its revenue results primarily from the budgeting cycles of its software
product customers 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 products revenues in each quarter result
from sales made in that quarter.
<TABLE>
<CAPTION>
1997
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues................. $115,623 $136,438 $160,201 $211,241
Operating income (loss)........ (33,086)(1) (77,336)(2) 10,553 (15,923)(3)
Net income (loss).............. (25,269)(1) (78,933)(2) 10,160 (23,742)(3)
Net income (loss) per share.... $ (0.41)(1) $ (1.28)(2) $ 0.16 $ (0.37)(3)
Shares used in computing net
income (loss) per share....... 60,947 61,477 65,328 63,615
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
1996
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues, as previously
reported(4)................... $82,471 $100,485 $113,430 $142,804
Adjustments(5)................. 6,588 6,712 6,884 8,691
Total revenues............... 89,059 107,197 120,314 151,495
Operating loss, as previously
reported(4)................... (32,374)(6) (10,072) (10,636)(7) (29,411)(8)
Adjustments(5)................. 293 271 209 2,316
Operating loss............... (32,081)(6) (9,801) (10,427)(7) (27,095)(8)
Net loss, as previously
reported(4)................... (24,504)(6) (5,791) (7,693)(7) (29,974)(8)
Adjustments(5)................. 283 235 208 2,314
Net loss..................... (24,221)(6) (5,556) (7,485)(7) (27,660)(8)
Net loss per share, as
previously reported(4)........ $ (0.45)(6) $ (0.10) $ (0.14)(7) $ (0.53)(8)
Net loss per share........... (0.43)(6) (0.10) (0.13)(7) (0.48)(8)
Shares used in computing net
loss per share, as previously
reported...................... 54,915 55,214 55,678 56,419
Shares used in computing net
loss per share.............. 56,341 56,625 57,070 57,823
</TABLE>
- --------
(1) Reflects a pre-tax charge for acquired in-process technology of
$10,417,000 relating to the Company's acquisition of GEJAC and the
purchase of certain product technologies. Also reflects a pre-tax charge
for merger costs of $3,706,000 relating to the Company's acquisitions of
ATR and I&S.
(2) Reflects a pre-tax charge for acquired in-process technology of $6,747,000
relating to the Company's acquisition of certain product technologies.
Also reflects a pre-tax charge of $57,319,000 for restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of
$50,740,000 relating to the Company's acquisition of ProMetrics, the
purchase of certain product technologies and other intangible assets from
Intel and the purchase of certain other product technologies. Also
reflects a pre-tax charge for merger costs of $5,221,000 relating
primarily to the Company's acquisition of Vayda.
(4) As reported under "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Comparisons" in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
(5) Adjustments reflect the effects of the acquisitions of ATR and I&S, each
of which has been accounted for using the pooling-of-interests method. See
Note 2 of the notes to the Company's consolidated financial statements
included elsewhere herein for a more detailed discussion of these
transactions.
(6) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to the Company's acquisition 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 acquisitions 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 acquisitions of VREAM and
substantially all of the assets of Access Manager.
26
<PAGE>
BUSINESS
The discussion below contains certain forward-looking statements (as such
term is defined in Section 27A of the Securities Act that are based on the
beliefs of the management of the Company, as well as assumptions made by, and
information currently available to, the Company's management. The Company's
actual growth, results, performance and business prospects and opportunities
in 1998 and beyond could differ materially from those expressed in, or implied
by, such forward-looking statements. See "Prospectus Summary--Special Note
Regarding Forward-Looking Statements" on page 6 for a discussion of risks,
uncertainties and other factors that could cause or contribute to such
material differences.
OVERVIEW
The Company develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve
their IT infrastructures, which consist of data, systems and applications. The
Company's products and services help IT departments, primarily in large and
data intensive organizations, minimize risk, improve service levels, and
leverage information to make better business decisions. The Company's products
typically perform fundamental functions, such as automating operations,
maintaining the operating efficiency of systems and applications, and ensuring
data access and integrity. The Company currently develops software products
through its four business units: database management, systems management,
application infrastructure management and data warehousing and decision
support. Addressing businesses' increasing demand for simplified vendor
relationships and complete solutions to IT problems, the Company's goal is to
become the leading provider of IT infrastructure management solutions by
offering a comprehensive set of "best in class" point products, product
bundles and integrated product suites. The Company also offers a wide array of
professional services, including consulting, systems integration and
educational programs, both in conjunction with and independent of software
product sales.
To achieve its goal, the Company identified key technologies and skill sets
required to better manage the IT infrastructure. Through a combination of an
aggressive acquisition program and vigorous internal product development
efforts, the Company assembled the competencies to create complete
infrastructure management solutions. Devoting substantial resources to
integrating its products and technologies, the Company is now leveraging the
breadth of its product lines and its professional services capabilities to
provide complete, customized solutions for IT infrastructure problems. These
solutions include single products; product suites, which are sets of
integrated products drawn together from multiple business units of the
Company; and product bundles, which are sets of software applications that are
packaged together but do not necessarily have the level of integration that
defines a suite; as well as design and implementation services provided by the
Company's professional services staff. These solutions also include ongoing
product upgrades, maintenance and support, sometimes pursuant to multi-year
contracts. Evidencing the increasing demand from the Company's customers for
comprehensive solutions, the Company completed 102 transactions of over $1
million during 1997, as compared to 55 such transactions during 1996 and only
two such transactions during 1995. Each of these large transactions included
licenses for software product bundles or suites, along with future upgrades
and maintenance; software consulting services; or both product licenses and
related consulting services.
The Company is focusing on the development of products and services that
offer its customers maximum flexibility and functionality. The Company's
products are designed to permit a customer to either purchase prepackaged
integrated suites or to choose individual products and later add other
products as needed. The cornerstone of the Company's integration efforts is
POEMS (PLATINUM Open Enterprise Management Services), an internally developed
set of shared components that give the Company's products a common look and
feel, common installation and distribution, and common communication, data and
events handling. POEMS integration is built into individual products so that,
as customers purchase additional PLATINUM products, the newly acquired and
previously installed products can begin working together immediately. In
February 1998, the Company released for general availability its ProVision
suite of integrated systems and database management
27
<PAGE>
tools, which is the Company's most significant POEMS-enabled integrated
offering of products to date. ProVision initially includes nine tools within
the following key IT management disciplines: job management, performance
management and analysis, software distribution, problem resolution, security,
database utilities and database administration.
The Company is also creating solutions for the needs of specific industries,
as well as general business needs. For example, during 1996, the Company
released PLATINUM RiskAdvisor, a data warehouse decision support application
developed specifically for the insurance industry. The Company also is
enabling its products and suites for application with intranets, the internet
and the web and offers a broad set of solutions for the Year 2000 problem.
Additionally, in late 1996, the Company formed specialty consulting practice
groups within its professional services business unit, including groups
dedicated to Year 2000 solutions and internet/intranet technologies.
MARKET OVERVIEW
Companies today rely on their IT infrastructures to keep their businesses
operating efficiently. As organizations have moved from host-based computing
systems to open systems environments, the deployment, management, maintenance
and productive use of IT has become increasingly complex. These open computing
environments service numerous end-users spread across various locations and
consist of a diverse set of applications, computing platforms (including
mainframes, minicomputers, workstations and desktop PCs/LANs), relational
database management systems ("RDBMS"), operating systems (including UNIX,
Windows, Windows NT, OS/400, OS/2, MVS and VMS) and media, including intranets
and the internet. These open environments are also dynamic; users, as well as
hardware and software resources, are frequently added, removed or changed; and
new, mission-critical applications are continually being developed and
deployed. The Company believes that, due to the complexities of these new
computing environments, organizations are increasingly seeking to purchase IT
management products and services from a smaller number of vendors that can
provide complete, flexible and integrated solutions for managing and improving
the IT infrastructures that run their businesses.
PRODUCTS
The Company provides software solutions that help organizations efficiently
operate and manage their complex IT infrastructures and related environments,
which contain multiple computing platforms, database management systems,
applications and operating systems. These tools increase the efficiency and
interoperability of these systems and applications in distributed environments
of any size. The Company's solutions support platforms and operating systems
that span mainframe, midrange and PC/LAN computing environments, including
MVS, UNIX, OS/2, OS/400, Windows and Windows NT. They also support multiple
database management systems, such as the DB2 family, Oracle, Sybase, Microsoft
SQL Service and Informix. In addition, the Company's solutions provide support
for packaged applications such as SAP, PeopleSoft and Oracle Financials.
The Company now offers over 160 robust and adaptable point products. While
point products are initially developed and supported through one of the
Company's four business units described below, the Company continues to build
integrated suites of products drawn from different business units, such as
ProVision, in order to provide comprehensive solutions to organizations' IT
needs.
Database Management Products -- The Company provides a leading set of tools
and utilities for centralized or distributed database administration,
performance analysis and monitoring and database backup and recovery for
heterogeneous database management systems. By automating administrative and
maintenance tasks, these software solutions enable users to achieve the
highest performance levels possible, increase data availability, automate
arduous administrative tasks, and deliver new products or enhancements to end-
users faster and with more flexibility. Principal database management products
include the following:
. Database Analyzer -- a DB2 direct access storage device and database
monitoring, analysis, validation, forecasting and tuning tool. It
provides extensive statistical reporting capabilities, automated
maintenance and auditing of internal structures, as well as a DB2 page
editor.
28
<PAGE>
. RC/Migrator -- a tool that automates DB2 object and data migrations and
alterations, while maintaining object dependencies and preserving data
security. Migrations may be performed on a one-to-one or one-to-many
basis.
. TSreorg -- a tablespace reorganization tool for heterogeneous databases
of any size. Tsreorg delivers fast reorganizations of entire
tablespaces, individual tables and indexes. It also provides efficient
fragmentation of used and free space and automatic data partitioning.
Tsreorg can run on UNIX, VMS or Windows NT-based server systems.
Systems Management Products -- The Company offers products that enable
organizations to automate routine systems maintenance tasks and processes,
thereby streamlining enterprise management, enhancing system reliability and
reducing costs. These products also simplify the management of disparate
systems and enterprise-wide applications, and increase end-user productivity.
Systems management product offerings span many disciplines, including job and
process management, enterprise automation, desktop management, output
management, problem resolution, security management, distribution management,
performance management, enterprise-wide resource management, storage
management, and networking and connectivity. The Company offers over 20
products that provide the functionality required by businesses, while scaling
across multiple platforms that include UNIX, Windows, Windows NT, OS/400,
OS/2, MVS and VMS. Principal systems management products include the
following:
. AutoSys -- a job scheduling and management tool that simplifies the task
of managing and monitoring multiple jobs in distributed environments. It
provides centralized control of job execution across heterogeneous
platforms and offers flexible features, such as self-correcting job
control and automated restart and recovery capabilities.
. DBVision -- a scaleable tool for continuous monitoring and centralized
management of heterogeneous databases in any size network. DBVision
collects and displays performance measurements in real time or
retrospect. It automatically detects and corrects performance problems
and predicts space shortages.
. AutoSecure -- a tool set that enables organizations to secure and manage
large, heterogeneous computing environments. It protects information by
preventing unauthorized access to data and system resources in
distributed environments; provides single sign-on for users to
applications and services they are authorized to use, whether they are
on mainframes, distributed systems or Pcs; and provides a single point
for user registration in other security systems.
Application Infrastructure Management Products -- The Company offers
products that enable organizations to establish an application development
process that is systematic, error-resistant and flexible to adapt to changing
business needs. These products include tools for integrated project and
process management, component modeling, construction, testing, application
deployment and software distribution, integrated change and configuration
management, help desk support and decision support. These products facilitate
the development of sophisticated, high-performance applications and improve
the overall productivity and quality of development efforts. Principal
application lifestyle management products include the following:
. ADvantage -- an integrated set of tools for managing the application
development infrastructure. ADvantage helps organizations automate and
improve the processes for building, managing and delivering applications
through solutions for component modeling (Paradigm Plus), integrated
project and process management (Process Continuum), integrated change
and configuration management (CCC/Harvest), rule-based application
development (AionDS) and decision support (ADvisor).
. ADvisor -- a decision-support tool, and key component of ADvantage, that
helps IT executives and development managers minimize the risks and
costs associated with the applications that run their businesses by
providing the information needed to ensure on-time, on-budget delivery
of applications. ADvisor delivers the critical project information
organizations need to manage application development as a core business
process.
Data Warehousing and Decision Support Products -- The Company offers an
integrated set of solutions for all major data warehousing functions,
including data transformation and movement, data warehouse management,
metadata management and repository, and decision support. These comprehensive
solutions help
29
<PAGE>
organizations build, manage and maintain data warehouses. A data warehouse is
a data store that gives end-users full access to periodically consolidated,
historical data for making business decisions and analyzing trends without
jeopardizing the performance of mission-critical operations. Warehousing tools
can capture data in many forms on numerous platforms, transfer it to multiple
database platforms and provide users with the means to access and manage such
information. Repository tools play a key role in data warehouses as places for
centralized control and as collection points for status information concerning
the warehouses and their activities.
The Company's products enable organizations to better leverage their
corporate data investments by allowing end-users to derive maximum value and
insight from information. These products ensure enterprise-wide data access
and enable complex data analysis and reporting so that users can effectively
identify business trends and make informed decisions. Principal data warehouse
products include the following:
. InfoPump -- a bi-directional data movement tool, InfoPump automates the
process of replicating, transferring and integrating data in
heterogeneous environments on a scheduled or event-driven basis.
. Repository -- serves as a central point of control, enabling
organizations to easily manage, maintain and access vast amounts of
corporate data, applications, and systems in a heterogeneous
environment. Repository provides information such as where data is
located, who created and who maintains data, what application processes
the data drives, and what relationship the data has with other data.
. Forest & Trees -- a rapid decision-support system development tool which
enables IT departments to deliver customized desktop applications that
provide the necessary components for intuitive navigation and data
investigation. Forest & Trees applications can simultaneously access
multiple data sources and combine data into information that makes sense
to the knowledge worker. Forest & Trees applications can monitor key
strategic, tactical and operational indicators for the business and
automatically alert users to specific conditions via the corporate
network or via the web.
. InfoBeacon -- a decision support tool that provides advanced online
analytical processing (OLAP) capabilities for data warehouse
environments. This product creates a virtual, multidimensional view on
top of the relational database. It provides end-users with advanced
analysis capabilities -- such as drill down, pivoting, ranking, ratios,
and exception- and date-handling -- without requiring the organization
to redundantly store and manage data in a proprietary multidimensional
database.
. Perspectives -- an environment for rapidly developing custom, server-
centric, OLAP-enabled decision-support systems. Combining the power of
tools with the speed of packaged applications, Perspectives provides the
benefits of rapid time to market without sacrificing flexibility for
future growth. Perspectives for Market Analysis helps profit/loss
managers (such as brand managers, product managers, VPs of marketing)
view and analyze complex relationships between multiple product
dimensions and measures so that they can understand and respond to
emerging trends.
New Product Suites -- In the past, businesses licensed products on a stand-
alone basis to address each of their needs as they arose. By combining tools
and technologies within and across its business units, the Company now
provides product suites that are complete solutions to businesses' IT
infrastructure problems. These integrated product offerings allow businesses
to experience comprehensive benefits without having to deal with multiple
products or multiple vendors. The Company has designed product suites that
address IT infrastructure problems that are shared by businesses from various
industries, as well as product suites that target IT infrastructure problems
that are unique to specific industries. The following provides a brief
description of some of the Company's recent product suite offerings:
. ProVision -- this integrated product suite, a combination of database
management and systems management tools, enables companies to reduce the
costs and risks associated with managing their IT infrastructures, while
improving service levels, availability, and productivity. ProVision
initially includes nine tools within the following key IT management
disciplines: job management, performance management and analysis,
software distribution, problem resolution, security, database utilities
and database administration. Because integration is built into each
ProVision tool, organizations can implement one or more tools, and add
more tools as needed, to solve their most immediate IT problems.
ProVision became generally available in February 1998.
30
<PAGE>
. TransCentury -- this product suite, developed through a combination of
tools and technologies made available through internal development,
acquisitions and marketing agreements, provides an end-to-end solution
to the problem created by the century date change, commonly known as the
Year 2000 problem. TransCentury applies a "find-it, fix-it, test-it"
approach that enables businesses to analyze, plan, implement and test
century date changes in an integrated manner. It helps organizations
ensure business continuity and compliance by minimizing exposure,
helping them more effectively plan resources, and reducing costs and
time associated with the Year 2000 problem.
PRODUCT LICENSES
The Company provides its software products to customers under non-exclusive,
non-transferable license agreements (including standard shrink-wrap licenses
for certain products). As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or
transfer title to its software products to customers. Under the Company's
current standard form license agreement, licensed software may be used solely
for the customers' internal operations and only on designated hardware at
specified sites, which may be comprised of a stand-alone computer, a single
network server with multiple terminals or multiple network servers with
multiple terminals.
Licenses for the Company's software are almost exclusively perpetual,
although annual and monthly licenses are also offered. License fees may be due
upon execution by the customer of the applicable product agreement or may be
payable over time for contracts involving multi-year commitments for
maintenance and product upgrades. List prices are based upon the size of the
processor, number of servers and/or number of users, depending upon the type
of license and product being licensed. The Company's published list prices
include discounts for suite, enterprise and multi-site licenses. Licenses
generally include more than one product. Under the Company's current standard
form license agreement, maintenance is renewed on an annual basis by the
customer paying the current maintenance fee. See "--Technical Support and
Maintenance."
PRODUCT DEVELOPMENT
The Company is pursuing its strategy by continuing its emphasis on
internally developing new software products and product enhancements,
acquiring products, technologies and businesses complementary to the Company's
existing product lines; and forming alliances with leading technology
companies. The Company has formed separate in-house development teams to
efficiently integrate acquired products and technologies into existing product
lines. During 1995, 1996 and 1997, product development and support expenses of
the Company were $94,027,000, $155,277,000 and $187,383,000, respectively. As
of April 30, 1998, the Company employed approximately 1,675 persons in product
development and support.
Internal Development. The Company will continue to rely on the internal
development of products to expand its product lines. The Company believes its
RDBMS expertise and experience give it a competitive advantage in developing
products that address increasingly complex environments and that meet evolving
customer needs. In order to fully exploit acquired software development
personnel, and to access new sources of talent, the Company has established
approximately 36 independent development laboratories, generally at the
locations of newly-acquired companies. These development laboratories are
interconnected via video conferencing, e-mail, Lotus Notes and other
communication technologies, and use various hardware, operating systems and
database systems which give the Company the ability to simulate the
environments of its customers. Laboratories have responsibility for their
product lines and receive guidance from POEMS teams to foster
interoperability.
Acquisitions. The Company continually reviews acquisition candidates with
leading-edge products and technologies that could enhance the Company's
product portfolio. The technologies associated with the products of the
acquired businesses are being incorporated into the Company's existing
internally developed products and are being used in developing new products.
In addition to providing the Company with new products and
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<PAGE>
technologies, these acquisitions have provided the Company with experienced
teams of product developers who now staff the Company's independent
development laboratories. The Company plans to continue to pursue acquisition
opportunities because it believes that acquisitions are an essential part of
the Company's strategy to compete effectively in its rapidly evolving
marketplace. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--Costs and Expenses--Merger
Costs" and "--Recent Developments."
Technology Relationships. To reinforce its commitment to providing
interoperable solutions for managing IT infrastructures, the Company has
implemented its PLATINUM Partners Program, whereby the Company has established
strategic and technology relationships with other leading IT vendors. The
Company believes that in order to provide solutions for heterogeneous
computing environments, it will need to continue to establish and maintain key
relationships with leading technology companies. PLATINUM's current partners
include Intel, IBM, Hewlett-Packard, Oracle, Microsoft, SAP and Lucent
Technologies. These technical and marketing alliances provide the Company
early access to product information and pre-release software.
PROFESSIONAL SERVICES
As part of its strategy to provide complete solutions for Global 10,000 IT
organizations, the Company offers a range of professional services, including
consulting services, systems integration, and educational programs, in support
of and independent of its products. These services help businesses plan,
construct and manage infrastructures in which complex software products can be
used. These services can improve and accelerate customization, implementation
and deployment of the Company's software products. The Company believes that
more rapid and effective implementation of its software products will lead to
increased customer satisfaction and greater follow-on sales. For these
reasons, the Company is now packaging professional services as a standard
feature of its product sales. As of April 30, 1998, the Company employed
approximately 1,660 persons in professional services.
Consulting Services. The Company is focusing significant effort on
developing and expanding its consulting services group. Primarily developed
through recent acquisitions of consulting services companies, this group
provides consulting services that help Global 10,000 companies manage risks,
manage the implementation of new technologies and products, and optimize their
current computing environments. Areas of expertise span systems and database
management, information management, security, Year 2000 reengineering,
application lifecycle management, internet/intranet development, and
electronic commerce. The Company's consultants provide flexible, customizable
solutions as well as prepackaged solutions. They can save all of an
organization's software consulting needs, from strategy and organization to
implementation.
Educational Programs. The Company believes that its training and education
services play an important role in increasing market awareness of its software
products among IT personnel, including application developers, database
administrators and end-users. Offering a comprehensive curriculum that
supports leading technologies, the Company conducts a set of training courses
designed to deal with the critical issue of skills management. These courses
cover several key technology areas of IT infrastructure management and are
held at various training centers in the United States and throughout the
Company's international operations. The Company also offers on-site computer-
based training courses and self-led internet-based training courses that users
may complete in their own offices or homes.
The Company continually reviews acquisition candidates that are leading-edge
IT education service providers. Most recently, the Company entered into an
agreement to acquire Mastering, Inc., a leading provider of IT technology
training to Fortune 1000 companies, universities and large governmental
agencies. The Company believes that, upon consummation, this acquisition will
significantly enhance the Company's educational service offerings. The Company
is also expanding its professional services through internal growth. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."
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<PAGE>
SALES AND MARKETING
The Company employs a multi-faceted sales strategy. For software products,
the Company utilizes telemarketers, an inside sales force, an outside sales
force, product seminars, user group participation, direct mail, print and web-
based advertising, and web promotions. The Company also utilizes certain
indirect sales channels, such as distributors, VAR and OEM relationships for
selected products.
Domestic (U.S.) Software Sales. 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. As of April 30, 1998, the Company
had approximately 470 domestic direct sales representatives.
Generally, for domestic software product licenses, the Company's
telemarketing specialists call prospective customers to identify and qualify
leads. Once a lead has been qualified, the prospective client is turned over
to the inside sales force, which predominantly supports the direct sales force
by developing sales leads and arranging product evaluations. Established sales
leads are then typically forwarded to the direct sales force, which visits
customer sites to assist with trials, demonstrate product features and close
sales transactions. For certain sales to smaller customers, as well as the
licensing of standard shrink-wrap products, the inside sales force may handle
the full sales cycle for completing such transactions.
International Software Sales. The Company generally markets its products
overseas through a network of wholly-owned subsidiaries. Generally, these
subsidiaries use an approach similar to that used by the Company domestically.
As of April 30, 1998, the Company had approximately 240 international (non-
U.S.) direct sales representatives and had subsidiaries in Australia, Austria,
Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Hong Kong,
Indonesia, Italy, Japan, Korea, Malaysia, the Netherlands, Norway, Singapore,
South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand and the United
Kingdom. The Company expects that it will establish other foreign subsidiaries
in the future to meet its strategic objectives. In a few countries, primarily
in South America and the Middle East, the Company markets its products through
independent distributors.
Global Accounts. The Company now designates certain large, geographically
dispersed entities as "global accounts." Each of these accounts is managed, on
a worldwide basis, by a single executive who focuses his or her attention on
the diverse needs of the enterprise.
Professional Services. The Company's consulting services and educational
programs are marketed by a specialized direct sales force.
User Group Leadership. The Company believes that its sales and marketing
efforts have also been greatly enhanced by participation in domestic and
international user groups. The Company plays a major role in the activities of
the International DB2 Users Group, the International Oracle Users Group, the
International Sybase Users Group and other smaller user groups, and expects to
continue to do so in the future.
TECHNICAL SUPPORT AND MAINTENANCE
The Company's in-house technical support group, situated at various sites
throughout the U.S., provides pre-sale, installation and post-sale support,
including toll-free telephone support during regular business hours, to
current users and potential customers evaluating the Company's products. The
technical support group also offers seven-day, 24-hour toll-free telephone
service for an additional fee. The Company believes that effective technical
support during product evaluation substantially contributes to product
acceptance and that post-sale support has been, and will continue to be, a
substantial factor in customer satisfaction.
The Company offers a maintenance program for its software products, which
consists of product enhancements, updated products and technical support.
Maintenance is typically provided without additional charge during the
warranty period defined in the Company's license agreements. Under the
Company's standard
33
<PAGE>
license agreement, customers renew maintenance support on an annual basis by
paying the current maintenance fee. Customers may also commit for maintenance
and product support over extended periods of time. Maintenance revenue
implicit in new product sales and recurring maintenance charges are recognized
ratably over the period the maintenance and support services are to be
provided.
COMPETITION
The Company operates in highly competitive markets and expects competition
to increase. The Company encountered substantially intensified competition as
it moved from the relational database tools market to the much larger IT
infrastructure products market and as it entered the consulting services
business. The Company also experienced many new competitors, including
relational database vendors and systems software companies. Many of the
Company's current and prospective competitors have significantly greater
financial, technical and marketing resources than the Company. In addition,
many prospective customers may have the internal capability to implement
solutions to their IT infrastructure problems.
The competitive factors affecting the market for the Company's software
products include the following: product functionality, integration,
performance and reliability; demonstrable economic benefits for users relative
to cost; quality of customer support and user documentation and ease of
installation; vendor reputation, experience and financial stability; and
price.
The Company believes that it has competed effectively to date and that its
ability to remain competitive will depend, to a great extent, upon its ongoing
performance in the areas of product development and customer support. To be
successful in the future, the Company must respond promptly and effectively to
the challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings. Performance in these areas
will, in turn, depend upon the Company's ability to attract and retain highly
qualified technical personnel in a competitive market for experienced and
talented software developers. The Company also expects to continue its
strategy of identifying and acquiring IT infrastructure products and
technologies and businesses which have developed such products and
technologies.
In addition, the Company encounters competition from a broader range of
firms in the market for professional services. Many of the Company's current
and prospective competitors in the professional services business have
significantly greater financial, technical and marketing resources than the
Company. The competitive factors affecting the market for the Company's
professional services include the following: breadth and quality of services
offered, vendor reputation and the ability to retain qualified technical
personnel.
INTELLECTUAL PROPERTY RIGHTS
The Company has historically relied upon a combination of contractual
rights, trademarks, trade secrets and copyright laws to establish and protect
its proprietary rights in its products. The Company also holds some patents
and believes that patents are becoming increasingly important to the software
industry. Consequently, the Company is taking actions to further protect its
proprietary rights through software patents. The Company's license agreements
restrict a customer's use of the Company's software and prohibit disclosure to
third persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of the Company's software products. The
Company believes that because of the rapid pace of technological change in the
computer software industry, the legal protections for its products are less
significant factors in the Company's success than the knowledge, ability and
experience of the Company's employees, the frequency of product enhancements,
and the timeliness and quality of support services provided by the Company.
The Company registers its product names and other trademarks in the United
States and certain foreign countries.
EMPLOYEES
As of April 30, 1998, the Company employed approximately 5,000 persons,
including 1,350 in sales, marketing and related activities, 1,675 in product
development and support, 1,660 in professional
34
<PAGE>
services, and 315 in management, administration and finance. The Company's
success is highly dependent on its ability to attract and retain qualified
employees. Competition for employees is intense in the software industry. None
of the Company's employees is represented by a labor union or is the subject
of a collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are good.
PROPERTIES
The Company's principal administrative, marketing, training, and product
development and support facilities are located in Oakbrook Terrace, Illinois,
where the Company leases approximately 334,000 square feet under leases
terminating in April 2003, with plans to lease additional space in the near
future. The Company also leases approximately 164,000 square feet of
administrative, marketing, sales and product development space in Lisle,
Illinois, near the Company's headquarters, under leases terminating in January
and October 2003. In addition, the Company leases space for approximately 75
sales offices and product development laboratories throughout the United
States, ranging in size from approximately 1,000 to 45,000 square feet. In
conjunction with the restructuring plan executed during the second quarter of
1997, the Company closed certain sales offices and product development
laboratories in the United States and certain foreign countries. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations-- Restructuring Charges."
LEGAL PROCEEDINGS
Computer Associates' International, Inc., and L'Agence pour la Protection
des Programmes v. La Societe Faster, S.A.R.L. (Commercial Court of Bobigny,
Paris, France). Altai, a wholly-owned subsidiary of the Company, is involved
in a suit in France which concerns copyright infringement claims identical to
those on which Altai previously prevailed against Computer Associates
International, Inc. ("CAI") in the United States. The French appellate court
granted Altai's request that the U.S. appellate court's copyright ruling
should bind the Commercial Court of Bobigny as a matter of law. In January
1995, the French appellate court issued a decision rejecting CAI's claim of
copyright infringement. CAI's subsequent appeal in the French appellate court
is still pending.
The Company is also subject to certain other legal proceedings and claims
which have arisen in the ordinary course of business and which have not been
fully adjudicated. Management currently believes the ultimate outcome of such
matters and those described above will not have a material adverse effect on
the Company's results of operations or financial position.
35
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, their ages at April 24,
1998, and their positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Andrew J. Filipowski................. 47 President, Chief Executive Officer and
Chairman of the Board of Directors
Paul L. Humenansky................... 40 Executive Vice President--Product
Development, Chief Operations Officer
and Director
Michael P. Cullinane................. 48 Executive Vice President, Chief
Financial Officer, Treasurer and
Director
Thomas A. Slowey..................... 37 Executive Vice President--Sales
Paul A. Tatro........................ 41 Executive Vice President--
International Operations
James E. Cowie(1)(2)................. 43 Director
Steven D. Devick(1)(2)............... 46 Director
Arthur P. Frigo(1)(2)................ 56 Director
Gian Fulgoni(1)...................... 50 Director
</TABLE>
- --------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
The Board of Directors consists of three classes, which serve staggered
three-year terms. Class I, the terms of whose members expire in 1999, is
comprised of Messrs. Cullinane and Humenansky. Class II, the terms of whose
members expire in 1998, is comprised of Messrs. Frigo and Fulgoni. Class III,
the terms of whose members expire in 2000, is comprised of Messrs. Filipowski,
Cowie and Devick. Directors hold office until their successors are elected and
qualified. The Board of Directors elects officers annually and such officers,
subject to the terms of certain employment agreements, serve at the discretion
of the Board. Messrs. Filipowski, Cullinane and Humenansky each have
employment agreements with the Company. See "--Executive Compensation--
Employment Agreements." There are no family relationships among any of the
directors or officers of the Company.
Mr. Filipowski, a founder of the Company, has been President, Chief
Executive Officer and Chairman of the Board of Directors since the Company's
formation in April 1987. Mr. Filipowski is also a director of Mastering, Inc.
("Mastering"), System Software Associates, Inc. and Platinum Entertainment,
Inc. ("PEI"), a publicly held integrated music recording and publishing
company.
Mr. Humenansky, a founder of the Company, was appointed Chief Operations
Officer of the Company effective January 1993. Mr. Humenansky also serves as
Executive Vice President--Product Development, a position he has held since
the Company's formation in April 1987. Mr. Humenansky is also a director of
PEI.
Mr. Cullinane joined the Company in March 1988 as Senior Vice President and
Chief Financial Officer, and was named Executive Vice President in March 1995.
He has also served as the Company's Treasurer since April 1989 and served as
its Secretary from April 1989 until October 1995. Mr. Cullinane is also a
director of PEI. In April 1998, Mr. Cullinane was elected a director of VASCO
Data Security International, Inc.
Mr. Slowey has served as Executive Vice President--Sales since joining the
Company in March 1988.
Mr. Tatro joined the Company in October 1987 as Director of Education and
was appointed Senior Vice President--Field Support and Affiliates in January
1990, a position he held until March 1995, when he was elected Executive Vice
President--International Operations.
36
<PAGE>
Mr. Cowie has been a General Partner of Frontenac Company, a Chicago-based
venture capital firm, since February 1989. Mr. Cowie is also a director of
Mastering, US Servis, Inc. and 3Com Corporation.
Mr. Devick is currently the President, Chief Executive Officer and Chairman
of the Board of Directors of PEI, which he co-founded in 1992. He is also the
Chief Executive Officer of a number of other entities, including DDE, Inc.,
and Platinum Development, a real estate development firm.
Mr. Frigo is a private investor and was the owner and Chairman of M.B.
Walton, a consumer products company, until its sale in January 1998. He is
currently the Chairman and Chief Executive Officer of Igoplx Inc., a Chicago-
based consumer venture company, and also serves on the Board of Directors of
The Levy Organization, Maxrad, Precision Extrusions, LaRabida Children's
Hospital and the Landmark Preservation Council of Illinois.
Mr. Fulgoni is Chief Executive Officer and a director of Information
Resources, Inc. ("IRI"), which provides a variety of information services
(primarily to consumer packaged goods companies) and computer decision support
services. He was elected Chief Executive Officer of IRI in 1991. From 1991 to
April 1995, Mr. Fulgoni also served as Chairman of IRI, from 1989 to 1991 as
its Vice Chairman, and from 1981 to 1989 he was its President.
DIRECTOR COMPENSATION
All non-employee directors of the Company are paid an annual fee of $2,500
and an attendance fee of $1,000 for each Board meeting attended and $500 for
each Committee meeting attended if such Committee meeting is not held in
conjunction with a meeting of the full Board. In addition, each non-employee
director participates in the Amended and Restated PLATINUM technology, inc.
1993 Directors' Stock Option Plan (the "Directors' Plan"). Pursuant to the
Directors' Plan, each non-employee director is granted, on the date of each
annual meeting after which such director continues to serve on the Board of
Directors, an option to purchase 10,000 shares of Common Stock at the fair
market value of the Common Stock on such date. See "--Stock Option Plans." The
Company provides no retirement benefits to non-employee directors. Directors
who are also employees of the Company receive no additional compensation from
the Company for services rendered in their capacity as directors.
37
<PAGE>
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and long-term
compensation for services in all capacities to the Company for the years ended
December 31, 1997, 1996 and 1995 of those persons who were at December 31,
1997 (i) the Chief Executive Officer and (ii) the four other executive
officers of the Company (collectively, with the Chief Executive Officer, the
"Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------ ------------
NAME AND PRINCIPAL POSITION AWARDS (1)
- --------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
SALARY OPTIONS COMPENSATION ($)
YEAR ($) BONUS ($) (#)(2) ----------------
---- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski, 1997 $772,000 $772,000 500,000 $264,590(3)
President, Chief Executive Officer 1996 702,000 -- -- 222,010
and Chairman of the Board 1995 520,000 -- 400,000 54,736
Paul L. Humenansky, 1997 $508,000 $406,400 300,000 $108,001(4)
Chief Operations Officer and 1996 462,000 -- -- 90,904
Executive Vice President-- 1995 330,000 -- 250,000 5,128
Product Development
Michael P. Cullinane, 1997 $490,000 $392,000 250,000 $ 97,150(5)
Executive Vice President, Chief 1996 445,500 -- -- 83,036
Financial Officer and Treasurer 1995 330,000 -- 150,000 6,624
Thomas A. Slowey, 1997 $300,000 $150,000 125,000 $ 22,313(6)
Executive Vice President--Sales 1996 273,000 -- -- 22,171
1995 210,000 -- 75,000 1,500
Paul A. Tatro, 1997 $300,000 $150,000 100,000 $ 21,192(7)
Executive Vice President-- 1996 273,000 -- -- 21,923
International Operations 1995 210,000 -- 75,000 1,500
</TABLE>
- --------
(1) None of the Named Officers had any restricted stock holdings as of
December 31, 1996.
(2) Except for an option to purchase 25,000 shares of Common Stock granted to
Mr. Slowey in January 1997 (the "Slowey Option"), these options were
granted in October 1996, subject to stockholder approval of an amendment
(the "Incentive Plan Amendment") to the PLATINUM technology, inc. Employee
Incentive Compensation Plan (the "Incentive Plan"), which approval was
obtained at the Company's 1997 annual meeting of stockholders. The Slowey
Option was also granted subject to stockholder approval of the Incentive
Plan Amendment.
(3) Includes $1,600 in Company matching contributions pursuant to the PLATINUM
technology, inc. 401(k) Savings Plan (the "Savings Plan"), $122,494 in
premiums paid by the Company for term life and disability insurance,
$15,723 in premiums paid by the Company for the term portion of split-
dollar life insurance, and $124,773 representing the dollar value of the
benefit to the Named Officer of the remainder of the premiums paid by the
Company for the split-dollar life insurance.
(4) Includes $1,600 in Company matching contributions pursuant to the Savings
Plan, $23,832 in premiums paid by the Company for term life and disability
insurance, $4,544 in premiums paid by the Company for the term portion of
split-dollar life insurance, and $78,025 representing the dollar value of
the benefit to the Named Officer of the remainder of the premiums paid by
the Company for the split-dollar life insurance.
(5) Includes $1,600 in Company matching contributions pursuant to the Savings
Plan, $28,125 in premiums paid by the Company for term life and disability
insurance, $4,946 in premiums paid by the Company for the term portion of
split-dollar life insurance, and $62,479 representing the dollar value of
the benefit to the Named Officer of the remainder of the premiums paid by
the Company for the split-dollar life insurance.
38
<PAGE>
(6) Includes $1,600 in Company matching contributions pursuant to the Savings
Plan, $931 in premiums paid by the Company for the term portion of split-
dollar life insurance, and $19,782 representing the dollar value of the
benefit to the Named Officer of the remainder of the premiums paid by the
Company for the split-dollar life insurance.
(7) Includes $1,600 in Company matching contributions pursuant to the Savings
Plan, $1,069 in premiums paid by the Company for the term portion of
split-dollar life insurance, and $18,523 representing the dollar value of
the benefit to the Named Officer of the remainder of the premiums paid by
the Company for the split-dollar life insurance.
OPTION GRANTS IN 1997. The following table provides information on grants of
stock options during fiscal 1997 to the Named Officers. No stock appreciation
rights were granted to the Named Officers during fiscal 1997.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
------------------------- ----------------------
PERCENT OF TOTAL EXERCISE
NUMBER OF SECURITIES OPTIONS GRANTED OR BASE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(2) FISCAL YEAR(3) ($/SH) DATE 5% ($) 10% ($)
- ---- -------------------- ---------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski.... 500,000 13.6% $13.6250 10/10/06 $4,284,345 $10,857,371
Paul L. Humenansky...... 300,000 8.2 13.6250 10/10/06 2,570,607 6,514,422
Michael P. Cullinane.... 250,000 6.8 13.6250 10/10/06 2,142,172 5,428,685
Thomas A. Slowey........ 100,000 2.7 13.6250 10/10/06 856,869 2,171,474
25,000 0.7 13.5625 01/08/07 213,235 540,378
Paul A. Tatro........... 100,000 2.7 13.6250 10/10/06 856,869 2,171,474
</TABLE>
- --------
(1) Potential realizable value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts represent certain assumed rates of appreciation only. Actual
gains will be dependent on the future performance of the Common Stock and
the option holder's continued employment throughout the vesting period.
The amounts reflected in the table may not necessarily be achieved.
(2) These options are all non-qualified stock options. Subject to certain
restrictions, these options become exercisable in four equal annual
installments, beginning on the first anniversary of the date of grant.
Except for the Slowey Option, these options were granted in October 1996,
subject to stockholder approval of the Incentive Plan Amendment, which
approval was obtained at the Company's 1997 annual meeting of
stockholders. The Slowey Option was granted in January 1997, subject to
stockholder approval of the Incentive Plan Amendment.
(3) The percentages shown do not reflect options granted in 1997 by companies
acquired by the Company.
39
<PAGE>
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END 1997 OPTION VALUES. The
following table provides information on the Named Officers' option exercises
in 1997 and unexercised options at December 31, 1997.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED YEAR-END 1997 (#) YEAR-END 1997 ($)(1)
ON EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski.... -- $ -- 2,082,500 675,000 $37,805,540 $8,862,784
Paul L. Humenansky...... 50,000 831,250 697,500 412,500 10,042,188 5,407,813
Michael P. Cullinane.... 81,500 1,915,250 617,500 300,000 10,197,438 4,012,500
Thomas A. Slowey........ 45,000 670,814 207,782 131,250 3,055,877 1,732,031
Paul A. Tatro........... 46,984 464,690 274,750 156,250 4,639,866 2,099,219
</TABLE>
- --------
(1) The value per option is calculated by subtracting the exercise price from
the closing price of the Common Stock on the Nasdaq National Market on
December 31, 1997, which was $28.25.
EMPLOYMENT AGREEMENTS. Effective March 1, 1991, the Company entered into
employment agreements with Messrs. Filipowski, Humenansky and Cullinane. These
agreements were amended and restated as of January 1, 1996 with respect to
Messrs. Filipowski and Cullinane and October 28, 1997 with respect to Mr.
Humenansky. Mr. Filipowski's employment agreement provides for an initial base
salary of $772,000 plus bonus compensation. Mr. Humenansky's employment
agreement provides for an initial base salary of $508,000 plus bonus
compensation. Mr. Cullinane's employment agreement provides for an initial
base salary of $490,000 plus bonus compensation. Each of the employment
agreements provides that the base salary is subject to review in accordance
with the Company's normal practice for executive salary review and cannot be
reduced without the consent of the executive. The agreements provide that all
bonus arrangements for Messrs. Filipowski, Humenansky and Cullinane are
established by the Compensation Committee of the Board of Directors. All of
the employment agreements also provide for continuation of salary, bonuses and
fringe benefits during the "Payout Period" (as defined below) following the
executive's termination of employment with the Company for any reason other
than "Good Cause," as defined in such agreements, or if the termination occurs
within a certain time period before or after a "Change in Control" (as defined
below) of the Company. The Payout Period under each of the employment
agreements is three years from the date of termination, unless the termination
is the result of a "Change in Control," in which case, the Payout Period is
five years. Under these agreements, a "Change in Control" of the Company
includes (a) certain reorganizations, consolidations or mergers of the
Company, (b) certain transfers of all or substantially all of the assets of
the Company, (c) the approval by the Company's stockholders of a plan of
liquidation or dissolution, (d) a change in the Company's Board of Directors
such that a majority of the members of the Company Board are not "continuing"
directors, and (e) a person's acquiring 20% or more of (i) the outstanding
shares of the Common Stock or (ii) the combined voting power of the Company's
then outstanding securities, with certain exceptions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Cowie, Devick and Frigo were the members of the Company's
Compensation Committee during 1997. Mr. Filipowski is an executive officer of
Platinum Venture Partners, Inc. ("PVP") and is the sole director of, and makes
compensation decisions for, PVP. Mr. Devick is an executive officer of PEI,
and Messrs. Filipowski, Humenansky and Cullinane, all of whom are executive
officers of the Company, are directors of PEI. Messrs. Filipowski and
Cullinane are also members of the compensation committee of PEI.
The Company and Mastering consummated a merger (the "Merger") pursuant to
the Mastering Merger Agreement, pursuant to which the Company acquired
Mastering. An amendment to the Merger Agreement (the
40
<PAGE>
"Amendment") was executed by the parties on April 7, 1998, and the Merger was
completed on April 21, 1998. Mr. Filipowski, the President, Chief Executive
Officer and Chairman of the Board of the Company, and Mr. Cowie, a director of
the Company, are both also directors of Mastering. Mr. Filipowski held options
to purchase 34,800 shares of common stock of Mastering (which were granted to
him in his capacity as a director of Mastering) and, through Platinum Venture
Partners I L.P. and Platinum Venture Partners II L.P. (together referred to as
the "Platinum Ventures"), indirectly owned approximately 22,000 shares of
common stock of Mastering. Mr. Cowie held options to purchase 34,800 shares of
common stock of Mastering (granted to him in his capacity as a director of
Mastering). Neither Mr. Filipowski nor Mr. Cowie participated in the original
deliberations or vote of the Board of Directors or the board of directors of
Mastering with respect to the Mastering Merger Agreement. Mr. Filipowski
participated in the deliberations of the Board of Directors regarding the
Amendment, but excused himself from the vote on the Amendment. Mr. Cowie did
not participate in the deliberations or vote of the Board of Directors on the
Amendment, and neither Mr. Filipowski nor Mr. Cowie participated in the
deliberations or vote of the board of directors of Mastering on the Amendment.
The Platinum Ventures owned a total of approximately 335,000 shares of common
stock of Mastering. Mr. Filipowski is the President, Chief Executive Officer
and a stockholder of PVP, the general partner of each of the Platinum
Ventures, and is a limited partner of each of the Platinum Ventures.
Additionally, each of the other executive officers and directors of the
Company indirectly owned shares of common stock of Mastering (collectively
totalling more than 20,000 shares). Pursuant to the terms of the Merger, the
shares of Mastering common stock and options to purchase shares of Mastering
common stock were converted into shares of Company Common Stock and options to
purchase shares of Company Common Stock, respectively.
STOCK OPTION PLANS
Directors' Plan
The Board of Directors originally adopted the Directors' Stock Option Plan
(the "Directors' Plan"), and it was approved by the stockholders of the
Company at the Company's 1994 Annual Meeting. The Directors' Stock Option Plan
was amended and restated by the Board in May 1996 and, as amended and
restated, was approved by the stockholders of the Company at the Company's
1996 Annual Meeting. The Directors' Plan is administered by the Company's
Board of Directors. Options are granted under the Directors' Plan only to non-
employee directors of the Company. Options may be granted with respect to a
total of not more than 500,000 shares of Common Stock under the Directors'
Plan, subject to antidilution and other adjustment provisions. If an option
expires or is terminated or canceled unexercised as to any shares, such
released shares may again be optioned. As of April 30, 1998, options and
awards covering an aggregate [114,000] shares of Common Stock had been granted
under the Directors' Plan.
Purchase Plan
The Board of Directors adopted the 1996 Stock Purchase Plan (the "Purchase
Plan"), and it was approved by the stockholders of the Company at the
Company's 1996 Annual Meeting. The Purchase Plan is administered by a
committee of the Board of Directors made up of directors who are not eligible
to participate in the Purchase Plan (the "Purchase Plan Committee") and is
operated on an annual basis from March 1 to the last day of the following
February (a "Plan Year"). As of April 30, 1998, a total of 3,228,048 shares of
Common Stock were available for purchase under the Purchase Plan, subject to
antidilution and other adjustment provisions. No participant may purchase
shares of Common Stock in any calendar year under the Purchase Plan with an
aggregate fair market value (generally determined as of the beginning of the
Plan Year) in excess of $25,000.
The Purchase Plan permits eligible employee participants to purchase Common
Stock through payroll deductions at a price per share which is equal to the
lesser of eighty-five percent (85%) of the fair market value of the Common
Stock on the grant date, which is the beginning of the Plan Year, or on the
following purchase date. On each purchase date, which is generally quarterly
on the last day of February, May, August and November, each Purchase Plan
participant's accrued payroll deductions are automatically applied to the
purchase of Common Stock.
41
<PAGE>
Employees eligible to participate in the Purchase Plan consist of all
persons employed by the Company and any subsidiaries designated by the Company
for participation in the Purchase Plan. The Purchase Plan excludes from
participation any employee whose customary employment is for 20 hours or less
per week or for not more than 5 months during a calendar year and any employee
who owns stock possessing 5% or more of the total combined voting power or
value of all classes of the Company's stock.
Employee Plan
The Board of Directors originally adopted the Employee Incentive
Compensation Plan (the "Employee Plan") in 1995 and amended the Employee Plan
in 1996 and 1997. The Employee Plan was approved by the stockholders of the
Company at the Company's 1995 special meeting in lieu of an annual meeting,
and the amendments were approved at the Company's 1996 annual meeting and 1997
annual meeting, respectively. The Board of Directors has adopted an amendment
to the Employee Plan (the "Amendment") and such amendment is subject to the
approval of the Company's stockholders at the Company's 1998 Annual Meeting.
If approved, the amendment would increase the number of shares of Common Stock
reserved and available for issuance under the Employee Plan by 5,000,000
shares (such additional shares being referred to herein as the "Amendment
Shares"). The Employee Plan permits the issuance of awards in a variety of
forms, including: (i) non-qualified and incentive stock options for the
purchase of Common Stock, (ii) stock appreciation rights ("SARs"), (iii)
restricted stock ("Restricted Stock"), (iv) deferred stock ("Deferred Stock"),
(v) bonus stock and awards in lieu of obligations, (vi) dividend equivalents,
(vii) other stock-based awards, and (viii) performance awards and cash
incentive awards. The persons eligible to participate in the Employee Plan are
directors, officers, employees and consultants of the Company or any
subsidiary of the Company. The Employee Plan is administered by the
Compensation Committee, unless the Board of Directors establishes a committee
whose sole purpose is the administration of the Employee Plan (in any case,
the "Employee Plan Committee"). No member of the Employee Plan Committee
participates in the Employee Plan. Subject to certain limitations, the
Employee Plan Committee in its discretion shall determine the persons to whom
options and awards shall be granted, the amount of options and awards to be
granted to each participant, the term, exercise, restriction, deferral and
payment periods for options and awards, and any other restrictions and
limitations on options and awards. As of April 30, 1998, there were no shares
of Common Stock available for issuance under the Employee Plan. However, if
the stockholders of the Company approve the Amendment, 5,000,000 shares will
become available for issuance under the Employee Plan. In March 1998, the
Company granted to its executive officers options to purchase a total of
1,530,000 shares of Common Stock, subject to stockholder approval of the
Amendment.
CERTAIN TRANSACTIONS
See the discussion under "Compensation Committee Interlocks and Insider
Participation" above for a description of certain transactions involving the
Company and its executive officers and directors.
42
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 30, 1998 unless otherwise
indicated below, certain information with respect to the beneficial ownership
of the Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of the Common Stock, (ii)
each director of the Company, (iii) each of the Named Officers and (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP(1) CLASS
---------------- ------------ -------
<S> <C> <C>
Andrew J. Filipowski(2)................................ 4,449,294 6.1%
T. Rowe Price Associates, Inc.(3)...................... 5,741,400 8.9
The Prudential Insurance Company of America(4)......... 5,324,850 8.2
Jennison Associates Capital Corp.(5)................... 5,261,600 8.1
Michael P. Cullinane(6)................................ 705,211 1.1
Paul L. Humenansky(7).................................. 702,864 1.1
Steven D. Devick(8).................................... 108,350 *
Thomas A. Slowey(9).................................... 284,167 *
Paul A. Tatro(10)...................................... 248,782 *
Gian Fulgoni(11)....................................... 25,966 *
James E. Cowie(12)..................................... 55,218 *
Arthur P. Frigo........................................ 90,200 *
All Executive Officers and Directors as a Group (9
persons)(13).......................................... 6,670,052 8.8
</TABLE>
- --------
*Less than one percent
(1) Unless otherwise indicated below, the persons in the above table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Includes (a) 2,098,752 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Filipowski within 60 days of April
30, 1998, (b) 189,000 shares held by a foundation established by Mr.
Filipowski and (c) 391,549 shares held by Platinum Ventures. Mr.
Filipowski disclaims beneficial ownership of the shares held by the
foundation. Mr. Filipowski disclaims beneficial ownership of the shares
owned by Platinum Ventures except to the extent of his pecuniary
interest. The address of Mr. Filipowski is c/o PLATINUM technology, inc.,
1815 South Meyers Road, Oakbrook Terrace, Illinois 60181.
(3) As reported on a Schedule 13G/A filed with the Securities and Exchange
Commission (the "Commission") on February 10, 1998 (the "Price 13G")
jointly by T. Rowe Price Associates, Inc. ("Price Associates") and T.
Rowe Price Science and Technology Fund, Inc. ("Price Fund"). According to
the Price 13G, Price Associates has sole voting power with respect to
156,500 shares and sole dispositive power with respect to all 5,741,400
shares, and Price Fund has sole voting power with respect to 2,500,000
shares. The address of Price Associates and Price Fund is 100 E. Pratt
Street, Baltimore, Maryland 21202.
(4) As reported on a Schedule 13G/A filed with the Commission on February 9,
1998 (the "Prudential 13G") by the Prudential Insurance Company of
America ("Prudential"). According to the Prudential 13G, Prudential has
sole voting power and sole dispositive power with respect to 6,900
shares, shared voting power with respect to 4,601,650 shares and shared
dispositive power with respect to 5,317,950 shares. The address of
Prudential is 751 Broad Street, Newark, New Jersey 07102-3777.
(5) As reported on a Schedule 13G/A filed with the Commission on February 12,
1998 (the "Jennison 13G") by Jennison Associates Capital Corp.
("Jennison"). According to the Jennison 13G, Jennison has sole
43
<PAGE>
voting power with respect to 6,600 shares, shared voting power with
respect to 4,538,700 shares and shared dispositive power with respect to
all 5,261,600 shares. The address of Jennison is 466 Lexington Ave., New
York, New York 10017.
(6) Includes (a) 617,500 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Cullinane within 60 days of April
30, 1998 and (b) 6,211 shares allocated to his account under the PLATINUM
Stock Purchase Plan.
(7) Includes (a) 697,500 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Humenansky within 60 days of April
30, 1998 and (b) 5,364 shares allocated to his account under the PLATINUM
Stock Purchase Plan.
(8) Includes 15,966 shares which may be acquired pursuant to the exercise of
stock options held by Mr. Devick within 60 days of April 30, 1998.
(9) Includes (a) 281,000 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Slowey within 60 days of April 30,
1998 and (b) 3,167 shares allocated to his account under the PLATINUM
Stock Purchase Plan.
(10) Includes (a) 207,782 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Tatro within 60 days of April 30,
1998, and (b) 41,000 shares held as co-trustee, with his wife, of trusts
for their benefit.
(11) Represents shares which may be acquired pursuant to the exercise of stock
options held by Mr. Fulgoni within 60 days of April 30, 1998.
(12) Includes 32,218 shares which may be acquired pursuant to exercise of
stock options held by Mr. Cowie within 60 days of April 30, 1998.
(13) Includes 3,983,284 shares which may be acquired pursuant to the exercise
of stock options within 60 days of April 30, 1998.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 180,000,000 shares
of Common Stock, $.001 par value per share (the "Common Stock"), and
10,000,000 shares of Class II Preferred Stock, $0.01 par value per share (the
"Preferred Stock"), 1,000,000 shares of which (subject to adjustment upward or
downward by the Board of Directors) have been designated as Series A Junior
Participating Preferred Stock, and 1,775,000 of which (subject to adjustment
upward or downward in accordance with the Company's Restated Certificate of
Incorporation, as amended (the "Charter")) have been designated as Series B
Preferred Stock. As of April 30, 1998, 71,444,627 shares of the Company Common
Stock were issued and outstanding; 1,768,421 shares of Series B Preferred
Stock were issued and outstanding, and no shares of the Series A Junior
Participating Preferred Stock were issued or outstanding. The following
description is a summary and is qualified in its entirety by reference to the
provisions of the Charter, and the bylaws of the Company (the "Bylaws"),
copies of which have been filed with and are available from the Commission and
the Company upon request.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of a
majority of the shares of Common Stock represented at a meeting can elect all
of the directors to be elected at that meeting. Holders of Common Stock are
not permitted to act by written consent. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. See "Dividend Policy."
In the event of a liquidation, dissolution, or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any then
outstanding Preferred Stock. Holders of Common Stock have no preemptive rights
and have no right to convert their Common Stock into any other securities.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares (of which 1,768,421 shares are
currently issued and outstanding) of Preferred Stock in one or more series and
to fix the voting powers, designations, preferences, and relative,
participating, optional, or other special rights, and qualifications,
limitations, and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series. Currently, the Company has two
outstanding series of preferred stock: Series B Preferred Stock and Series A
Junior Participating Preferred Stock. Because the Board of Directors has the
power to establish the preferences and rights of the shares of any such series
of Preferred Stock, it may afford holders of any Preferred Stock preferences,
powers, and rights (including voting rights), senior to the rights of holders
of Common Stock, which could adversely affect the rights of holders of the
Common Stock and could have the effect of delaying, deferring, or preventing a
change in control of the Company.
Series B Preferred Stock
Holders of shares of Series B Preferred Stock have voting rights only with
respect to actions by the Company which will materially and adversely change
any of the rights, privileges and preferences of the Series B Preferred Stock.
Shares of Series B Preferred Stock may only be transferred to the Company, or
any person or entity that, directly or indirectly, controls, is controlled by,
or is under common control with the holder of such shares. Shares of Series B
Preferred Stock are convertible, at any time, into shares of Common Stock at
the rate of one-for-one (subject to certain adjustments). Furthermore, each
share of Series B Preferred Stock shall automatically be converted into shares
of Common Stock at the rate of one-for-one (subject to certain adjustments)
upon the improper transfer of any shares of Series B Preferred Stock by any
holder thereof. In the event of any liquidation, dissolution, or winding up of
the Company, holders of Series B Preferred Stock are
45
<PAGE>
entitled to receive up to an amount equal to (i) $23.75 per share for each
share of Series B Preferred Stock then held by them, plus (ii) the amount of
declared but unpaid dividends thereon.
Preferred Stock Purchase Rights
The registered holders of Common Stock have the right (a "Right") to
purchase from the Company, for each share of Common Stock owned, one one-
hundredth of a share of Class II Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Rights Shares"), of the
Company at a price of $125.00 per one one-hundredth of a Preferred Rights
Share (the "Rights Purchase Price"), subject to adjustment. Each one-one
hundredth of a Preferred Rights Share is entitled to one vote, a dividend
equal to the dividend per share paid on the Common Stock, and a liquidation
payment equal to the liquidation payment per share paid on the Common Stock.
The description and terms of the Rights are set forth in a Rights Agreement
(the "Rights Agreement") between the Company and Harris Trust and Savings
Bank, as Rights Agent (the "Rights Agent").
The Rights are not exercisable until the earlier of (i) the close of
business on the tenth business day after the first public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 15% or more of the outstanding shares of the Common Stock (an
"Acquired Person"), or (ii) the close of business on the tenth business day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer, the consummation of which would result in the beneficial
ownership by such person or group of 15% or more of the outstanding shares of
Common Stock (the earlier of such dates being called the "Distribution Date").
Until the Distribution Date, the Rights will be evidenced by the certificates
for the Common Stock, will be transferable only by the transfer of the shares
of the Common Stock (including a transfer to the Company) will constitute a
transfer of the Rights. As described below, after a person or group becomes an
Acquiring Person, the Rights may not be redeemed or amended. The Rights will
expire on January 5, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are redeemed earlier by the
Company, in each case, as described below. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of the Company
as a result of the ownership of the Right, including, without limitation, the
right to vote or to receive dividends.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), certificates for the Common Stock issued upon the transfer or new
issuance of shares of Common Stock will contain a legend incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for shares of Common Stock will also constitute the transfer of
Rights associated with the shares of Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
the holders of record of shares of Common Stock as of the close of business on
the Distribution Date and such separate Rights Certificates alone will
evidence the Rights.
At any time after the Distribution Date, each holder of a Right (other than
those described in the next sentence) will thereafter have the right to
receive, upon exercise and in lieu of Preferred Rights Shares, shares of
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the Rights Purchase Price.
All Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be void.
At any time after the first date of public announcement by the Company or an
Acquiring Person that an Acquiring Person has become such (a "Shares
Acquisition Date"), if (i) the Company is the surviving corporation in a
merger with any other company or entity, (ii) the Company is acquired in a
merger or other business combination transaction, or (iii) 50% or more of the
Company's consolidated assets or earning power are sold, each holder of a
Right (other than those whose rights have become void) will thereafter have
the right to receive, upon the exercise thereof at the then current Rights
Purchase Price and in lieu of Preferred Rights Shares, that number of shares
of common stock of the surviving or acquiring company which at the time of
such transaction will have a market value of two times the exercise price of
such Right.
46
<PAGE>
At any time after a person or group becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the outstanding
shares of Common Stock, the Board of Directors may exchange the Rights (other
than Rights owned by such person or group which have become void), in whole or
in part, without any additional payment, for shares of Common Stock at an
exchange ratio equal to one share of Common Stock (or a share of a class or
series of the Company's preferred shares having equivalent rights, preferences
and privileges) per Right, subject to adjustment.
With certain exceptions, no adjustment in the Rights Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Rights Purchase Price. No fractional Rights Preferred Shares will be
issued (other than fractions which are integral multiples of one one-hundredth
of a Rights Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Rights Preferred Shares on the
last trading day prior to the date of exercise.
At any time prior to the Shares Acquisition Date, the Board of Directors of
the Company may redeem all, but not less than all, of the Rights at a price of
$.01 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption
Price.
Any provisions of the Rights may be amended by the Board of Directors of the
Company prior to the Shares Acquisition Date. After the Shares Acquisition
Date, the provisions of the Rights Agreement may be amended by the Board of
Directors of the Company in order to cure any ambiguity or to make changes
which do not adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person).
A copy of the Rights Agreement is available without charge from the Company.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
The Rights have certain anti-takeover effects. The Rights should not
interfere with any merger or business combination approved by the Board of
Directors because the Rights may be redeemed by the Company at the Redemption
Price prior to the time that a person or group has acquired beneficial
ownership of 15% or more of the outstanding shares of the Common Stock.
However, by causing substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Company's Board of Directors,
the Rights may interfere with certain acquisitions, including acquisitions
that may offer a premium over market price to some or all of the Company's
stockholders. The Board of Directors has stated that the Rights are not
intended to prevent an acquisition of the Company on terms that are favorable
and fair to all stockholders.
CERTAIN CHARTER AND BYLAWS PROVISIONS
The Charter and the Bylaws contain a number of provisions relating to
corporate governance and to the rights of the Company stockholders. Certain of
these provisions may be deemed to have a potential "anti-takeover" effect in
that such provisions may delay, defer or prevent a change of control of the
Company. These provisions include (i) the classification of the Company's
Board of Directors into three classes, each class serving for staggered three
year terms; (ii) restrictions on the removal of directors; (iii) a requirement
that special meetings of the Company's stockholders may be called only by the
Board of Directors and that stockholder action may be taken only at the
Company's stockholder meetings and not by written consent; (iv) the authority
of the Board of Directors to issue series of Preferred Stock with such voting
rights and other powers as it may determine; (v) a requirement that the
affirmative vote of greater than 80% of the voting power of shares entitled to
vote generally for the election of directors is required to amend provisions
of the Charter relating to (a) the classification of the Board of Directors,
(b) removal of directors, and (c) the inability of the Company's stockholders
to call special meetings and to take action by written consent; (vi) a
requirement that the Bylaws may only be amended (other than by the Board of
Directors) by the vote of the holders of 66% of the shares entitled to vote
generally for the election of directors; and (vii) notice requirements in the
Bylaws relating to
47
<PAGE>
nominations to the Board of Directors and to the raising of business matters
at the Company's stockholder meetings.
DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the DGCL
("Section 203"). Pursuant to Section 203, with certain exceptions, a Delaware
corporation may not engage in any of a broad range of business combinations,
such as mergers, consolidations and sales of assets with an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder, unless (i) the transaction that results in the
person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person
becomes an interested stockholder, (ii) upon consummation of the transaction
which results in the stockholder becoming an interested stockholder, the
interested stockholder owns 85% or more of the voting stock of the corporation
outstanding at the time the transaction commenced (other than certain excluded
shares), or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board
of directors and by holders of at least two-thirds of the corporation's
outstanding voting stock, excluding shares owned by the interested
stockholder, at a meeting of stockholders. Under Section 203, an "interested
stockholder" is defined as any person, other than the corporation and any
direct or indirect majority-owned subsidiaries of the corporation, that is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation and the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring the Company to
negotiate in advance with the Board of Directors because the stockholder
approval requirement would be avoided if a majority of the Company's directors
then in office approve either the business combination or the transaction
which results in the person becoming an interested stockholder. Such
provisions also may have the effect of preventing changes in management of the
Company. It is possible that such provisions could make it more difficult to
accomplish transactions that stockholders may otherwise deem to be in their
best interests.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
EXPERTS
The consolidated financial statements and related financial statement
schedule of PLATINUM technology, inc., as of December 31, 1997 and 1996, and
for each of the years in the three-year period ended December 31, 1997, have
been included in this Prospectus in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP........................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997,
1996 and 1995............................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Report on Schedule of KPMG Peat Marwick LLP............................... F-30
Schedule II--Valuation and Qualifying Accounts............................ F-31
</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, 1997 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, 1997.
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.
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 provide a reasonable basis
for our opinion.
In our opinion, based on our audits, 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, 1997
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, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 9, 1998, except for Note 18,
which is as of March 14, 1998
F-2
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
ASSETS 1997 1996
----------------------------------------------------- --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 178,138 $ 140,783
Short-term investment securities....................... 57,597 42,755
Trade accounts receivable, net of allowances of $1,613
and $2,503............................................ 212,731 165,131
Installment accounts receivable, net of allowances of
$878 and $395......................................... 30,043 13,603
Accrued interest and other current assets.............. 32,132 11,729
Refundable income taxes................................ 547 629
--------- ---------
Total current assets................................. 511,188 374,630
--------- ---------
Non-current investment securities........................ 25,553 2,135
Property and equipment, net.............................. 77,842 72,750
Purchased and developed software, net.................... 116,717 82,438
Excess of cost over net assets acquired, net of
accumulated amortization of $15,975 and $10,610......... 52,759 37,382
Non-current installment receivables, net of allowances of
$1,616 and $816......................................... 21,912 21,665
Other assets............................................. 28,206 27,572
--------- ---------
Total assets......................................... $ 834,177 $ 618,572
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables........................... $ 15,717 $ 7,872
Income taxes payable................................... 3,698 2,420
Accounts payable....................................... 16,091 15,436
Accrued commissions and bonuses........................ 13,357 10,622
Accrued royalties...................................... 7,070 3,913
Accrued restructuring costs............................ 6,308 --
Other accrued liabilities.............................. 42,905 29,798
Current maturities of long-term obligations............ 1,319 3,246
Deferred revenue....................................... 116,374 84,166
--------- ---------
Total current liabilities............................ 222,839 157,473
--------- ---------
Acquisition-related payables............................. 18,320 2,502
Deferred revenue......................................... 60,435 38,674
Deferred rent............................................ 6,197 8,360
Accrued restructuring costs.............................. 16,002 --
Long-term obligations, net of current maturities......... 266,824 115,803
--------- ---------
Total liabilities.................................... 590,617 322,812
--------- ---------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000, none issued and outstanding................... -- --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997....................... 18 --
Common stock, $.001 par value; authorized 180,000,
issued and outstanding 63,860 and 60,577.............. 64 61
Paid-in capital........................................ 565,371 487,417
Accumulated deficit.................................... (325,558) (208,788)
Unrealized holding gains on marketable securities...... 8,262 17,805
Foreign currency translation adjustment................ (4,597) (735)
--------- ---------
Total stockholders' equity........................... 243,560 295,760
--------- ---------
Total liabilities and stockholders' equity........... $ 834,177 $ 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,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Revenues:
Software products............................. $ 357,223 $243,938 $ 158,597
Maintenance................................... 125,245 102,364 76,498
Professional services......................... 141,035 121,763 91,316
--------- -------- ---------
Total revenues.............................. 623,503 468,065 326,411
--------- -------- ---------
Costs and expenses:
Professional services......................... 127,499 116,133 92,374
Product development and support............... 187,383 155,277 94,027
Sales and marketing........................... 228,387 182,597 113,978
General and administrative.................... 61,876 39,224 34,097
Restructuring charges......................... 57,319 -- --
Merger costs.................................. 8,927 5,782 30,819
Acquired in-process technology................ 67,904 48,456 88,493
--------- -------- ---------
Total costs and expenses.................... 739,295 547,469 453,788
--------- -------- ---------
Operating loss.................................. (115,792) (79,404) (127,377)
Other income, net............................... 16,729 5,237 4,130
--------- -------- ---------
Loss before income taxes........................ (99,063) (74,167) (123,247)
Income taxes.................................... 18,721 (9,245) (11,680)
--------- -------- ---------
Net loss........................................ $(117,784) $(64,922) $(111,567)
========= ======== =========
Net loss per share.............................. $ (1.90) $ (1.14) $ (2.50)
========= ======== =========
Shares used in computing per share amounts...... 62,042 56,968 44,671
</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,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock:
Balance at beginning of
year................... -- $ -- -- $ -- -- $ --
Stock subscribed........ 1,768 18 -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................... 1,768 $ 18 -- $ -- -- $ --
====== ========= ====== ========= ====== =========
Common stock:
Balance at beginning of
year................... 60,577 $ 61 54,598 $ 55 39,670 $ 40
Exercise of stock
options................ 939 1 517 1 803 1
Issuance of common
stock under Stock
Purchase Plan.......... 882 1 197 -- -- --
Issuance of common
stock.................. 1,461 1 5,265 5 14,125 14
Conversion of
subordinated notes..... 1 -- -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................... 63,860 $ 64 60,577 $ 61 54,598 $ 55
====== ========= ====== ========= ====== =========
Paid-in capital:
Balance at beginning of
year................... $ 487,417 $ 433,856 $ 191,194
Exercise of stock
options................ 7,067 2,380 4,754
Issuance of common
stock under Stock
Purchase Plan.......... 11,540 1,801 --
Issuance of common
stock.................. 17,514 49,515 237,907
Preferred stock
subscribed............. 41,848 -- --
Amortization of shelf
registration costs..... (25) (135) --
Conversion of
subordinated notes..... 10 -- --
Adjustment to conform
fiscal years of pooled
businesses............. -- -- 1
--------- --------- ---------
Balance at end of
year................... $ 565,371 $ 487,417 $ 433,856
========= ========= =========
Notes receivable:
Balance at beginning of
year................... $ -- $ (515) $ (333)
Issuance of notes
receivable............. -- -- (200)
Repayment of notes
receivable............. -- -- 18
Reclassification to
other assets........... -- 515 --
--------- --------- ---------
Balance at end of
year................... $ -- $ -- $ (515)
========= ========= =========
Accumulated deficit:
Balance at beginning of
year................... $(208,788) $(143,771) $ (30,958)
Net loss................ (117,784) (64,922) (111,567)
Adjustment for
immaterial pooled
businesses............. 1,014 45 --
Other................... -- -- (22)
Adjustment to conform
fiscal years of pooled
businesses............. -- (140) (1,224)
--------- --------- ---------
Balance at end of
year................... $(325,558) $(208,788) $(143,771)
========= ========= =========
Unrealized appreciation
in marketable
securities:
Balance at beginning of
year................... $ 17,805 $ -- $ --
Change in unrealized
holding gains, net of
tax.................... (9,543) 17,805 --
--------- --------- ---------
Balance at end of
year................... $ 8,262 $ 17,805 $ --
========= ========= =========
Foreign currency
translation adjustment:
Balance at beginning of
year................... $ (735) $ 588 $ 183
Translation
adjustment............. (3,862) (1,323) 405
--------- --------- ---------
Balance at end of
year................... $ (4,597) $ (735) $ 588
========= ========= =========
Total stockholders'
equity............... $ 243,560 $ 295,760 $ 290,213
========= ========= =========
</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,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(117,784) $(64,922) $(111,567)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 57,191 38,824 24,140
Acquired in-process technology............. 67,904 48,456 88,493
Write-off of fixed assets, capitalized
software and other intangible assets in
conjunction with the restructuring plan... 19,687 -- --
Unrealized holding gains on marketable
equity securities......................... (12,581) (920) --
Realized net gain on sales of investment
securities................................ (7,566) (1,032) (332)
Write-off of capitalized software in
connection with product stabilization and
mergers................................... -- 654 942
Noncash compensation....................... -- -- 78
Sales of trading securities.................. 9,489 -- --
Changes in assets and liabilities, net of
acquisitions:
Trade and installment receivables............ (62,316) (67,219) (53,845)
Deferred income taxes........................ 14,580 (16,337) (13,000)
Accrued interest and other current assets ... (10,394) (1,170) (3,134)
Accounts payable and accrued liabilities..... 32,547 (7,080) 6,888
Deferred revenue............................. 53,969 59,196 20,325
Income taxes payable......................... 1,092 993 2,615
Other........................................ (13,232) 6,657 16,073
--------- -------- ---------
Net cash provided by (used in) operating
activities.............................. 32,586 (3,900) (22,324)
--------- -------- ---------
Cash flows from investing activities:
Purchases of investment securities........... (66,957) (18,797) (61,484)
Sales of investment securities............... 87 30,223 75,519
Maturities of investment securities.......... 24,383 5,846 10,753
Purchases of property and equipment.......... (26,940) (35,542) (39,435)
Purchased and developed software............. (63,781) (41,279) (20,742)
Payments for acquisitions.................... (19,338) (17,853) (103,085)
Other assets................................. (1,365) (3,749) (482)
--------- -------- ---------
Net cash used in investing activities.... (153,911) (81,151) (138,956)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of issuance costs........................... -- -- 194,420
Proceeds from issuance of convertible notes,
net of issuance costs....................... 144,967 110,783 --
Proceeds from exercise of stock options and
Stock Purchase Plan......................... 18,609 4,182 4,144
Short-term borrowings........................ -- 1,115 8,205
Payments on borrowings....................... (4,896) (5,915) (7,331)
Other........................................ -- -- (256)
--------- -------- ---------
Net cash provided by financing
activities.............................. 158,680 110,165 199,182
--------- -------- ---------
Adjustment to conform fiscal years of pooled
businesses.................................... -- (140) (2,203)
--------- -------- ---------
Net increase in cash and cash equivalents...... 37,355 24,974 35,699
Cash and cash equivalents at beginning of
year.......................................... 140,783 115,809 80,110
--------- -------- ---------
Cash and cash equivalents at end of year....... $ 178,138 $140,783 $ 115,809
========= ======== =========
</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 organizations manage and improve
their information technology ("IT") infrastructures, which consist of data,
systems and applications. The Company's products and services help IT
departments, primarily in large and data-intensive organizations, minimize
risk, improve service levels and leverage information to make better business
decisions. The Company's products typically perform fundamental functions such
as automating operations, maintaining the operating efficiency of systems and
applications and ensuring data access and integrity. The Company currently
develops software products through its four business units: database
management, systems management, application infrastructure management and data
warehousing and decision support. 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 are 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 are satisfied and the collection of
the resulting receivables is 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 service 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 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 four
to thirty years, corporate bonds with original maturities of less than one
year and marketable equity securities. The Company classifies its investment
securities as either available-for-sale or trading and reports them at fair
value.
Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity and are not actively traded. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. For available-for-sale
F-7
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. For securities transferred from available-for-sale to the trading
classification, any unrealized holding gains or losses at the date of transfer
are recognized in pre-tax earnings immediately.
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 three
to seven years, of the various classes of property and equipment. Amortization
of leasehold improvements is computed over the shorter of the lease term or
the 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 10 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 temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. 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,
1997: cash and cash equivalents; trade and installment receivables; accrued
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 12.
F-8
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1997 are
recoverable in future periods.
Earnings Per Share
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which established new methods for computing and presenting
earnings per share ("EPS") and replaced the presentation of primary and fully-
diluted EPS with basic ("Basic") and diluted EPS. Basic earnings per share is
based on the weighted average number of shares outstanding and excludes the
dilutive effect of unexercised common stock equivalents. Diluted earnings per
share is based on the weighted average number of shares outstanding and
includes the dilutive effect of unexercised common stock equivalents. Because
the Company reported a net loss for the years ended December 31, 1997, 1996
and 1995, per share amounts have been presented under the Basic method only.
Had the Company reported net earnings for the years ended December 31, 1997,
1996 and 1995, the weighted average number of shares outstanding would have
potentially been diluted by the following common equivalent securities (not
assuming the effects of applying the treasury stock method to outstanding
stock options or the if-invested method to convertible securities):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Stock options............................... 11,861,865 10,143,622 8,404,911
Convertible subordinated notes (November
1996)...................................... 8,243,010 8,243,727 --
Convertible subordinated notes (December
1997)...................................... 4,160,600 -- --
---------- ---------- ---------
24,265,475 18,387,349 8,404,911
========== ========== =========
</TABLE>
Additionally, net earnings applicable to common stockholders for the years
ended December 31, 1997 and 1996 would have been increased by interest
expense, net of income taxes, related to the convertible subordinated notes of
$5,870,000 and $501,000, respectively.
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 statement of
operations.
Derivative Financial Instruments
In the ordinary course of business, the Company enters into forward exchange
contracts to minimize the short-term impact of foreign currency fluctuations
on assets and liabilities denominated in currencies other than the functional
currency of the reporting entity. All foreign exchange forward contracts
designated and effective as hedges of firm commitments are treated as hedges,
as required by generally accepted accounting principles.
Forward exchange contracts are reported at fair value within short-term
investment securities. Fair values of forward exchange contracts are
determined using published rates. Gains and losses on the forward exchange
contracts are included in other income and expense and offset foreign exchange
gains and losses from the revaluation of intercompany balances denominated in
currencies other than the functional currency of the reporting entity.
Realized and unrealized holding gains and losses on the forward exchange
contracts are reported within operating activities in the statement of cash
flows.
F-9
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. The Company sells installment
receivables to third party finance companies in the normal course of business.
During 1997, all such transactions were accounted for as sales in accordance
with SFAS No. 125.
Supplemental Cash Flow Disclosure
Income tax refunds received by the Company amounted to $524,000, $307,000
and $933,000 in 1997, 1996 and 1995, respectively. Cash paid for income taxes
in 1997, 1996 and 1995 was $1,173,000, $2,179,000 and
$987,000, respectively. Cash paid for interest in 1997, 1996 and 1995 was
$8,419,000, $787,000 and $824,000, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
2. ACQUISITIONS
Poolings of Interests
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.
F-10
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 1997, 1996
and 1995 amounted to $8,927,000, $5,782,000 and $30,819,000, respectively, of
which $3,155,000, $353,000 and $1,942,000, were included in other accrued
liabilities at December 31, 1997, 1996 and 1995, respectively. 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.
F-11
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following information reconciles total revenues and net 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, 1996 and 1995, as well as separate results of operations for 1997
of ATR and I&S during the periods preceding their acquisition. The 1997
results presented for ATR represent the one-month period ended January 31,
1997. The 1997 results for I&S represent the two-month period ended February
28, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ------------------
NET
NET INCOME NET INCOME INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
-------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PLATINUM(1)..... $439,190 $(67,962) $304,676 $(111,933)
ATR............. $ 511 $(56) 9,132 142 9,492 301
I&S............. 2,627 109 19,743 2,898 12,243 65
-------- -------- -------- ---------
Total....... $468,065 $(64,922) $326,411 $(111,567)
======== ======== ======== =========
</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 consolidated statement of operations for the year ended December 31,
1996 reflects the impact of ATR's operating results for the six months ended
June 30, 1996, which are also included in the year ended December 31, 1995
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of ATR included more than once were
$5,061,000 and $140,000, respectively.
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.
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.
On November 26, 1997, the Company consummated an immaterial acquisition
accounted for as a pooling of interests. 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. In addition, the Company assumed
stock options which converted into options to purchase 67,937 shares of Common
Stock. The Company did not restate the consolidated financial statements to
reflect the results of Vayda for the periods
F-12
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
preceding the acquisition. As a result, the retained earnings of Vayda were
recorded as of the acquisition date, causing an adjustment of $1,014,000 to
the Company's accumulated deficit in 1997. This adjustment is reflected in the
consolidated statement of stockholders' equity.
Purchase Transactions
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 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 that 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 IT infrastructure strategy.
Accordingly, these acquired technologies have no alternative future use.
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.
F-13
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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; 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.
F-14
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective February 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.
Internationally, effective October 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 contingent consideration of approximately $11,000,000, 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.
On December 23, 1997, the Company and Intel Corporation ("Intel") entered
into certain agreements providing for the sale and license to the Company by
Intel of certain product technologies and the payment to the Company by Intel
of certain cash consideration. In exchange, the Company agreed to issue to
Intel 1,768,421 shares of the Company's Class II Series B Preferred Stock
("Preferred Stock"), which had a Market Value of approximately $42,000,000 on
the date of the agreement, and to distribute certain products manufactured by
Intel. Additionally, the Company licensed certain product technologies to
Intel.
During 1997, the Company also acquired certain other software technologies
for an aggregate purchase price of approximately $6,800,000.
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
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>
1997 1996
--------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................. $ 632,150 $485,456
Net loss............................................. (120,431) (73,853)
Net loss per share................................... (1.92) (1.27)
</TABLE>
The Company estimates aggregate payments for acquisition-related payables in
connection with the acquisitions described above to be $15,717,000,
$17,682,000 and $638,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
The Company may be required to make additional payments in future years to
various former owners of acquired businesses based upon the attainment of
certain operating results by such businesses. The amount of these payments was
not determinable at December 31, 1997. 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 determinable.
3. INVESTMENT SECURITIES
At December 31, 1997, 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. Trading securities represent
those securities which the Company intends to buy or sell in the near term for
the purpose of generating profits on increases in market values. At December
31, 1997, net unrealized holding gains from available-for-sale securities of
$13,770,000, reduced by
F-15
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
income taxes of approximately $5,508,000, were included as a separate
component of stockholders' equity. For the year ended December 31, 1997,
available-for-sale securities amounting to $24,972,000 were reclassified to
trading securities. The Company reclassified its available-for-sale securities
to trading securities during 1997, because the Company intended to sell the
securities at various dates in the near future to benefit from increases in
the market price of those securities. Unrealized holding gains from
reclassified securities of approximately $19,829,000, previously reported as a
separate component of stockholders' equity in the amount of $11,897,000 (net
of income taxes), were recognized in pre-tax earnings for the year ended
December 31, 1997. The Company sold a portion of its trading securities during
1997 and consequently reclassified the corresponding unrealized gains to
realized gains. For the year ended December 31, 1997, the Company reported
unrealized holding gains of approximately $12,581,000 in pre-tax earnings.
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 that 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
$17,805,000, respectively. The cost and unrealized gain on the investment
transferred to the trading classification were approximately $1,125,000 and
$920,000, respectively.
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
U.S. Government
securities......... $ 7,571 $ 2 $ -- $ 7,573
State and municipal
bonds.............. 1,356 4 (36) 1,324
Corporate bonds..... 13,812 26 (2) 13,836
Marketable equity
securities......... 3,240 13,770 -- 17,010
------- ------- ----- -------
25,979 13,802 (38) 39,743
------- ------- ----- -------
Trading securities--
Marketable equity
securities......... 4,338 13,867 (351) 17,854
------- ------- ----- -------
$30,317 $27,669 $(389) $57,597
======= ======= ===== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $25,498 $ 55 $ -- $25,553
======= ======= ===== =======
</TABLE>
F-16
<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 investment securities at December 31, 1996
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 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>
The contractual maturities of debt securities at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
FAIR VALUE
--------------
(IN THOUSANDS)
<S> <C>
Due within one year........................................ $22,733
Due after one year through five years...................... 416
Due after five years....................................... 25,137
-------
$48,286
=======
</TABLE>
Using the specific identification method, the gross realized gains and gross
realized losses on the sale of available-for-sale securities were
approximately $44,000 and $0, respectively, for the year ended December 31,
1997, $1,032,000 and $0, respectively, for the year ended December 31, 1996
and $467,000 and $(135,000), respectively, for the year ended December 31,
1995. For the year ended December 31, 1997, the Company also sold investments
classified as trading securities. Gross realized gains and gross realized
losses related to these sales were $7,522,000 and $0, respectively.
F-17
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures................................. $ 28,070 $ 26,568
Computers and software................................. 65,717 62,338
Transportation......................................... 11,445 8,117
Leasehold improvements................................. 26,498 20,780
-------- --------
131,730 117,803
Less accumulated depreciation and amortization......... 53,888 45,053
-------- --------
$ 77,842 $ 72,750
======== ========
</TABLE>
5. PURCHASED AND DEVELOPED SOFTWARE
Purchased and developed software consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Purchased software..................................... $ 47,238 $ 34,618
Software development costs............................. 141,690 89,400
-------- --------
188,928 124,018
Less accumulated amortization.......................... 72,211 41,580
-------- --------
$116,717 $ 82,438
======== ========
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, $62,504,000,
$38,555,000 and $19,867,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $21,361,000, $11,309,000 and
$6,276,000 during 1997, 1996 and 1995, respectively. The Company recognized
amortization expense applicable to purchased software of $9,270,000,
$6,237,000 and $3,084,000 during 1997, 1996 and 1995, respectively. During
1997, the Company wrote-off $10,214,000 of capitalized software development
costs and $1,450,000 of purchased software related to the restructuring plan
executed in May 1997. During 1996, the Company wrote off $654,000 of
capitalized software development costs related to certain AIB, SII and other
product technologies.
F-18
<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>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current installment receivables....................... $ 42,753 $ 19,763
Allowance for uncollectible amounts................... (878) (395)
Deferred maintenance fees............................. (10,124) (5,058)
Unamortized discounts................................. (1,708) (707)
-------- --------
$ 30,043 $ 13,603
======== ========
Non-current installment receivables................... $ 58,889 $ 40,827
Allowance for uncollectible amounts................... (1,616) (816)
Deferred maintenance fees............................. (27,603) (16,347)
Unamortized discounts................................. (7,758) (1,999)
-------- --------
$ 21,912 $ 21,665
======== ========
</TABLE>
Installment accounts receivable 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 and
are recorded net of unamortized discounts, deferred maintenance fees and
allowances for uncollectible amounts.
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 1997 and 1996 were
approximately $206,916,000 and $129,328,000, respectively. There were no
accounts receivable sold with recourse for the year ended December 31, 1997.
Accounts receivable sold with recourse were $19,373,000 and $2,993,000 for the
years ended
December 31, 1996 and 1995, respectively. As of December 31, 1997, there were
no potential recourse obligations for accounts receivable sold with recourse.
As of December 31, 1996 and 1995, potential obligations for accounts
receivable sold with recourse were $16,817,000 and $5,177,000, respectively.
In addition to accounts receivable sold with recourse, the Company has an
agreement with a third party that provides for potential recourse obligations
in the form of a loss pool based on the performance of the related accounts
receivable portfolio. Based on the terms of that agreement, potential recourse
obligations at December 31, 1997 and 1996 were $14,632,000 and $9,300,000,
respectively. Based on the credit ratings of the underlying obligors to the
accounts receivable and the performance history of the accounts receivable
portfolio, the Company has assessed the exposure related to these recourse
obligations and determined the potential liability to be minimal. The fair
market value of the recourse obligations at December 31, 1997 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 $1,511,000, $1,071,000 and $406,000 in 1997, 1996 and 1995,
respectively.
F-19
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LINE OF CREDIT
At December 31, 1997, the Company had an unsecured bank line of credit for
$55,000,000, under which borrowings bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate. This line of credit is
subject to limitations based upon certain financial covenants. At December 31,
1997, there were no borrowings outstanding under this line of credit.
At December 31, 1997, the Company had aggregate letters of credit
outstanding for approximately $2,623,000, with expiration dates ranging from
March 1998 to December 1998. These letters of credit reduce the available line
of credit balance.
9. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
As of December 31, 1997, the Company and its subsidiaries had seven 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 for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net loss:
As reported............................. $(117,784) $(64,922) $(111,567)
Pro forma............................... (127,972) (70,866) (117,114)
Net loss per share:
As reported............................. $ (1.90) $ (1.14) $ (2.50)
Pro forma............................... (2.06) (1.24) (2.62)
</TABLE>
Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option plans and Stock Purchase Plan, before effects for
income taxes, was approximately $17,130,000, $9,940,000 and $9,326,000 in
1997, 1996 and 1995, respectively.
Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans ("Company Plans"). The Employee Incentive
Compensation 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 16,160,000 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, excluding the
Directors' Option Plan, during 1997, 1996 and 1995 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 and 1997 vest annually over a three-year period
beginning one year from the date of grant.
F-20
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As discussed in Note 2, the Company has assumed various option grants
related to certain acquisitions. The assumption of these option grants
resulted in the deemed issuance by the Company of options for 67,937, 430,582
and 1,206,566 shares in 1997, 1996 and 1995, 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.
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 each year to withhold between one and 50 percent of their
cash compensation through regular payroll deductions to purchase Common Stock,
subject to Internal Revenue Service limitations. 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 1 or September 1 for employees with a start
date between March 1 and August 31) 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, 1997, approximately 50% of eligible employees were participating
in the Stock Purchase Plan. Under the Stock Purchase Plan, the Company sold
882,229 and 197,165 shares to employees in 1997 and 1996, respectively.
The fair value of stock option grants is estimated using the Black-Scholes
option-pricing model, with the following weighted-average assumptions used for
stock option grants in 1997, 1996 and 1995, respectively: weighted-average
option price, which equals the fair market value at date of grant, of $14.61,
$12.03 and $16.56; expected dividend yields of 0% for all years; expected
volatility of 61%, 55% and 55%; risk-free interest rates of 5.66%, 6.37% and
6.12%; and an expected life of five years for all 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 1997 and 1996,
respectively: average fair market value of $13.75 and $10.75; average option
price of $11.69 and $9.14; expected dividend yield of 0% for both years;
expected volatility of 61% and 51%; average risk-free interest rate of 5.52%
and 5.42%; and expected life of three months for both years.
Stock option plan activity during the years ended December 31, 1997, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- ---------- -------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 10,143,622 $12.18 8,404,911 $11.87 6,813,468 $ 9.66
Granted................. 3,590,727 14.61 2,781,172 12.03 2,683,058 16.56
Exercised............... (938,817) 8.91 (517,219) 4.60 (738,030) 6.27
Canceled................ (933,667) 13.49 (525,242) 13.80 (353,585) 14.02
---------- ---------- ---------
Outstanding at end of
year................... 11,861,865 13.08 10,143,622 12.18 8,404,911 11.87
========== ========== =========
Options exercisable at
end of year............ 5,797,724 5,488,725 5,211,103
========== ========== =========
Weighted-average grant-
date fair value of op-
tions granted during
the year............... $ 8.35 $ 6.96 $ 11.36
</TABLE>
F-21
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------
RANGE OF WEIGHTED-AVG.
EXERCISE NUMBER OF REMAINING WEIGHTED-AVG. NUMBER OF WEIGHTED-AVG.
PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$.0025-
9.75 1,419,229 3.87 years $ 3.52 1,330,587 $ 3.39
10.13-
12.00 2,062,375 7.00 10.74 1,092,745 10.41
12.38-
14.00 4,174,778 7.75 13.08 1,462,639 12.95
14.06-
18.13 2,165,479 7.56 15.14 1,030,550 14.99
$18.25-
33.73 2,040,004 7.91 19.92 881,203 19.18
---------- ---------
11,861,865 7.15 13.08 5,797,724 11.59
========== =========
</TABLE>
During 1997, a wholly-owned subsidiary of the Company adopted a fixed stock
option plan (the "1997 Option Plan"). The 1997 Option Plan provides for the
granting of options to employees for up to an aggregate of 7,500,000 shares of
the subsidiary's common stock. Under this plan, the subsidiary has granted
non-qualified stock options. These options have an exercise price equal to the
fair market value of the subsidiary's stock on the date of grant, have a legal
life of ten years and vest on the sixth anniversary of the grant date. Options
granted under the 1997 Option Plan are exercisable in shares of the
subsidiary's common stock and are not convertible to the Company's Common
Stock. During 1997, the subsidiary granted 5,170,000 options at a fair market
value of $0.92. For the year ended December 31, 1997, 247,500 options were
canceled. The weighted-average grant-date fair value of these options was
$0.33 using the Minimum Value option-pricing method and a risk-free interest
rate of 5.80%.
10. PREFERRED STOCK
On December 23, 1997, the Company agreed, pursuant to a stock purchase
agreement, to issue to Intel 1,768,421 shares of its Preferred Stock, which
had a fair market value of approximately $42,000,000 on the date of
subscription, for certain product technologies and other intangible assets.
The shares of Preferred Stock were subscribed for as of December 31, 1997 and
subsequently issued on January 14, 1998.
The holders of the Preferred Stock have the option to convert, at any time,
each share of Preferred Stock into one share of Common Stock. Each share of
Preferred Stock will automatically convert into one share of Common Stock upon
the tranfer by any holder of Preferred Stock in a non-permitted transfer. In
the event of a liquidation of the Company, the holders of the Preferred Stock
are entitled to receive $23.75 per share plus the amount of any declared but
unpaid dividends. The conversion and liquidation terms are subject to
adjustment based upon subsequent changes in equity interests.
As of December 31, 1997, the Company had reserved 1,768,421 shares of its
authorized Common Stock to be issued upon conversion of the Preferred Stock.
11. INCOME TAXES
Income (loss) before income taxes for the years ended December 31, 1997,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S....................................... $(113,313) $(68,911) $(137,724)
Non-U.S................................... 14,250 (5,256) 14,477
--------- -------- ---------
Total................................. $ (99,063) $(74,167) $(123,247)
========= ======== =========
</TABLE>
F-22
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $ -- $ -- $ 315
State....................................... 241 175 133
Foreign..................................... 2,309 2,035 740
Deferred:
Federal..................................... 22,096 (7,838) (7,899)
State....................................... (3,295) (3,617) (4,969)
Foreign..................................... (2,630) -- --
------- ------- --------
$18,721 $(9,245) $(11,680)
======= ======= ========
</TABLE>
The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax computed at statutory rate...... $(34,672) $(25,959) $(43,137)
State income tax, net of Federal tax
benefit................................... (3,053) (3,442) (4,836)
Research and experimentation credits....... (3,514) (1,491) (1,213)
Foreign tax credit......................... (117) (59) (239)
Foreign taxes.............................. 1,271 751 240
Foreign sales corporation.................. (557) (1,036) (294)
Municipal interest......................... (80) (289) (554)
Stock acquisitions......................... 9,953 6,281 11,450
Nondeductible merger costs................. 443 1,440 4,625
Change in valuation allowance.............. 45,064 12,608 22,856
Other...................................... 3,983 1,951 (578)
-------- -------- --------
Effective tax.............................. $ 18,721 $ (9,245) $(11,680)
======== ======== ========
</TABLE>
F-23
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenue................................... $ 6,419 $ 1,152
Allowance for doubtful accounts.................... 561 749
Net operating loss carryforwards................... 118,475 95,190
Foreign net operating losses....................... 2,630 --
General business, AMT and state tax credits........ 12,907 9,544
Foreign tax credits................................ 952 1,138
Accrued expenses and reserves...................... 9,097 157
Rent abatement..................................... 2,471 1,957
Other.............................................. 5,856 5,128
--------- --------
Total gross deferred tax assets.................. 159,368 115,015
Less valuation allowance........................... (105,000) (59,936)
--------- --------
Net deferred tax assets.......................... 54,368 55,079
--------- --------
Deferred tax liabilities:
Capitalized software, net.......................... 36,420 23,908
Installment sales.................................. 819 826
Acquired technology................................ 1,000 3,124
Unrealized gain on marketable equity securities.... 11,161 12,499
--------- --------
Total gross deferred tax liabilities............. 49,400 40,357
--------- --------
Net deferred tax asset........................... $ 4,968 $ 14,722
========= ========
</TABLE>
The net change in the valuation allowance during 1997, 1996 and 1995 was an
increase of $45,064,000, $12,608,000 and $22,856,000, respectively.
The Company has reduced gross 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, 1997
reflects management's estimate of the amount that 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.
At December 31, 1997, the Company had approximately $294,715,000 of net
operating loss carryforwards and $14,000,000 of tax credit carryforwards,
which are available to reduce future Federal income taxes, if any, through the
year 2012. 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.
12. CONVERTIBLE SUBORDINATED NOTES
In November 1996, the Company issued $115,000,000 of convertible
subordinated notes (the "1996 Notes") due November 15, 2001, bearing interest
at 6.75% annually. Interest is payable semi-annually on May 15 and November
15. 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,
F-24
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. During
1997, $10,000 of the 1996 Notes were converted to Common Stock. As of December
31, 1997, $114,990,000 of the 1996 Notes were outstanding.
The Company estimated the fair value of the 1996 Notes as of December 31,
1997 at approximately $236,879,000, based upon their trading price on the
Nasdaq SmallCap Market on that date.
In December 1997, the Company issued $150,000,000 of convertible
subordinated notes (the "1997 Notes") due December 15, 2002, bearing interest
at 6.25% annually. Interest is payable semi-annually on June 15 and December
15, commencing June 15, 1998. 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 1997 Notes are redeemable at the
option of the Company, in whole or in part, at any time during the twelve-
month period commencing December 15, 2000 at 102.5% of their principal amount
and during the twelve-month period commencing December 15, 2001 at 101.25% of
their principal amount. As of December 31, 1997, $150,000,000 of the 1997
Notes were outstanding.
The Company estimated the fair value of the 1997 Notes as of December 31,
1997 at approximately $159,375,000, based upon their bid price in the
convertible debentures market on that date.
For the years ended December 31, 1998, 1999, 2000, 2001 and 2002, aggregate
annual maturities of the 1996 Notes and the 1997 Notes are $0, $0, $0,
$114,990,000 and $150,000,000, respectively.
13. RESTRUCTURING
In May 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 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 restructuring charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: facility-related costs, including a reserve
for estimated lease obligations associated with the closing of office
facilities; write-offs of excess equipment, furniture and fixtures; write-offs
of capitalized software costs and other intangible assets related to the
termination of development efforts for certain discontinued products, as well
as penalties for the cancellation of distributorship agreements for such
products; and severance and other employee-related costs of the terminated
staff.
F-25
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the Company's restructuring activity for the
year ended December 31, 1997:
<TABLE>
<CAPTION>
INTANGIBLE ASSETS AND PROPERTY
EXCESS SEVERANCE AND PENALTIES FOR CANCELLED AND
FACILITIES BENEFITS AGREEMENTS EQUIPMENT TOTAL
---------- ------------- ----------------------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997 restructuring
charges:
Cash-related charges.. $24,032 $10,364 $ 3,236 $ -- $ 37,632
Non-cash charges...... -- -- 16,177 3,510 19,687
------- ------- ------- ------ --------
$24,032 $10,364 $19,413 $3,510 57,319
======= ======= ======= ======
Payments made in 1997.............................................................. (15,322)
Write-offs taken in 1997........................................................... (19,687)
--------
Total accrued restructuring costs at December 31, 1997............................. 22,310
Less current portion............................................................... 6,308
--------
Long-term accrued restructuring costs ............................................. $ 16,002
========
</TABLE>
14. DERIVATIVE FINANCIAL INSTRUMENTS
The Company conducts business on a global basis in numerous major
international currencies and is, therefore, exposed to adverse movements in
foreign currency exchange rates. The Company has established a foreign
currency hedging program utilizing forward foreign exchange contracts to
reduce certain currency
exposures. These contracts hedge exposures associated with nonfunctional
currency assets and liabilities denominated in Japanese, Australian, numerous
Asian and various European currencies. At the present time, the Company hedges
only those currency exposures associated with certain nonfunctional currency
assets and liabilities resulting from intercompany balances and does not
generally hedge anticipated foreign currency cash flows. The Company does not
enter into forward exchange contracts for trading purposes.
Gains and losses on the foreign currency forward exchange contracts are
included in other income and offset foreign exchange gains and losses from the
revaluation of intercompany balances denominated in currencies other than the
functional currency of the reporting entity. The Company's forward contracts
generally have original maturities of one month.
The table below provides information as of December 31, 1997 about the
Company's foreign currency forward exchange contracts, including notional
values of outstanding forward contracts purchased and sold and the unrealized
gains or losses recorded for each contract.
<TABLE>
<CAPTION>
NOTIONAL NOTIONAL
VALUE VALUE UNREALIZED
PURCHASED SOLD GAINS (LOSSES)
--------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
European currencies................... $4,407 $(20,649) $(173)
Asian currencies...................... -- (412) 4
Japanese Yen.......................... -- (972) 4
Australian Dollar..................... -- (338) 11
--
------ -------- -----
Total............................. $4,407 $(22,371) $(154)
====== ======== =====
</TABLE>
While the notional or contract amounts of the Company's forward exchange
contracts provide one measure of the volume of these transactions, they do not
represent the Company's full exposure to credit risk. The Company faces
additional risks if the banking counterparties are unable to meet the terms of
the agreements.
F-26
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has established policies to minimize such risks and will only
execute forward exchange contracts with major financial institutions. The
Company has assessed the potential exposure related to default by such
institutions to be minimal.
15. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space and certain computer and telecommunications
equipment under long-term lease agreements expiring through the year 2016.
Total future minimum lease payments under noncancelable leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1998...................... $ 40,980
1999...................... 33,133
2000...................... 24,727
2001...................... 20,067
2002 and thereafter....... 35,226
--------
Total................. $154,133
========
</TABLE>
Future minimum lease payments have not been reduced by minimum sublease
rentals of $603,000 due in the future under noncancelable subleases. Total
rent expense under all operating leases, net of insignificant sublease rental
income, amounted to $32,021,000, $22,510,000 and $15,659,000 in 1997, 1996 and
1995, respectively.
Litigation
The Company is subject to certain legal proceedings and claims that 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.
16. OTHER INCOME, NET
Other income (expense), net, for the years ended December 31, 1997, 1996 and
1995 is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income............................... $ 5,365 $ 5,163 $4,637
Interest expense.............................. (9,130) (1,825) (782)
Foreign exchange gains (losses)............... 469 (35) 64
Net realized gains on sales of investments.... 7,566 1,032 332
Unrealized gains on marketable equity
securities................................... 12,581 920 --
Other......................................... (122) (18) (121)
-------- ------- ------
$ 16,729 $ 5,237 $4,130
======== ======= ======
</TABLE>
17. 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).
F-27
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents information about the Company by geographic
area for the years ended December 31, 1997, 1996 and 1995. 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>
1997
Revenues....................... $ 444,577 $119,919 $59,007 $ 623,503
Operating income (loss)........ (122,573) 4,135 2,646 (115,792)
Identifiable assets............ 690,127 89,958 54,092 834,177
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
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
</TABLE>
The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The domestic operating losses in 1997, 1996 and 1995
include all merger costs, restructuring costs and acquired in-process
technology charges.
No single customer accounted for 10% or more of total revenues in 1997, 1996
or 1995.
18. SUBSEQUENT EVENTS
On January 2, 1998, the Company entered into an agreement and plan of
merger, pursuant to which the Company has agreed to acquire Learmonth and
Burchett Management Systems PLC ("LBMS"), a leading provider of process
management solutions. Under the terms of this acquisition, LBMS will become a
wholly-owned subsidiary of the Company. The Company has agreed to exchange
approximately 2,745,000 shares of Common Stock for all of the outstanding
common shares of LBMS and has offered to exchange options to purchase
approximately 468,000 shares of Common Stock for the outstanding LBMS options.
This acquisition, which is expected to be consummated in the second quarter of
1998, is subject to the sanction of the English High Court, the approval of
the shareholders of LBMS and customary legal and regulatory conditions.
On February 18, 1998, the Company entered into an agreement and plan of
merger, pursuant to which the Company has agreed to acquire Mastering, Inc.
("Mastering"), a leading provider of information technology training. Under
the terms of this acquisition, Mastering will become a wholly-owned subsidiary
of the Company. The Company has agreed to exchange approximately 6,165,000
shares of Common Stock for all of the outstanding common shares of Mastering
and to assume stock options which will convert into options to purchase
approximately 2,143,000 shares of Common Stock. This acquisition, which is
expected to be consummated in the second quarter of 1998, is subject to the
filing of a registration statement with the Securities and Exchange
Commission, the approval of the stockholders of Mastering and customary legal
and regulatory conditions.
On March 14, 1998, the Company entered into an agreement and plan of merger,
pursuant to which the Company has agreed to acquire Logic Works, Inc.
("Logic"), a leading provider of data modeling tools. Under the terms of this
acquisition, Logic will become a wholly-owned subsidiary of the Company. The
Company has agreed to exchange approximately 7,240,095 shares of Common Stock
for all of the outstanding common stock
F-28
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Logic and to assume stock options which will convert into options to
purchase approximately 1,325,716 shares of Common Stock. This acquisition,
which is expected to be consummated in mid-1998, is subject to the filing of a
registration statement with the Securities and Exchange Commission, the
approval of the stockholders of Logic and customary legal and regulatory
conditions.
The acquisitions of LBMS, Mastering and Logic are expected to be accounted
for as poolings of interests. Costs incurred in connection with these
transactions will be expensed in the periods in which the acquisitions are
consummated.
The following unaudited pro forma information shows total revenues and net
income (loss) of PLATINUM, LBMS, Mastering and Logic during the three years
ended December 31, 1997, 1996 and 1995, as if the transactions had been
consummated as of the earliest period presented. This summary is provided for
informational 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>
1997 1996 1995
------------------ ------------------- ------------------
NET NET
INCOME NET INCOME INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
-------- --------- -------- ---------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM................ $623,503 $(117,784) $468,065 $(64,922) $326,411 $(111,567)
LBMS.................... 23,897 4,469 21,861 (16,318) 41,158 (784)
Mastering............... 40,966 3,606 21,018 520 10,168 518
Logic................... 50,513 4,605 42,540 (3,062) 30,688 1,407
-------- --------- -------- -------- -------- ---------
Total............... $738,879 $(105,104) $553,484 $(83,782) $408,425 $(110,426)
======== ========= ======== ======== ======== =========
Net loss per share.. $ (1.35) $ (1.17) $ (2.04)
========= ======== =========
</TABLE>
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
PLATINUM technology, inc.:
Under date of February 9, 1998 (except as to Note 18, which is as of March
14, 1998), we reported on the consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1997 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, 1997.
These consolidated financial statements and our report thereon are included
herein. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, based on our audits, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Chicago, Illinois
February 9, 1998, except for
Note 18, which is as of March
14, 1998
F-30
<PAGE>
SCHEDULE II
PLATINUM TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
FOR TRADE AND INSTALLMENT BEGINNING BAD DEBT ENDING
RECEIVABLES BALANCE EXPENSE WRITE-OFFS BALANCE
- ------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997..... $3,714,000 $9,146,000 $(8,753,000) $4,107,000
Year ended December 31, 1996..... 2,809,000 905,000 -- 3,714,000
Year ended December 31, 1995..... 1,522,000 1,287,000 -- 2,809,000
</TABLE>
F-31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee and the
Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 23,115
Nasdaq listing fee.............................................. 17,500
Blue Sky fees and expenses...................................... 5,000
Printing and engraving expenses................................. 50,000
Legal fees and expenses......................................... 40,000
Accounting fees and expenses.................................... 40,000
Miscellaneous................................................... 24,385
--------
Total....................................................... $200,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ten of the Company's Restated Certificate of Incorporation provides
that the Company shall indemnify its directors to the full extent permitted by
the Delaware General Corporation Law and may indemnify its officers to such
extent, except that the Company shall not be obligated to indemnify any such
person (i) with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense, or (ii) for any
amounts paid in settlement of an action indemnified against by the Company
without the prior written consent of the Company. With the approval of its
stockholders, the Company has entered into indemnity agreements with each of
its directors and certain of its officers. These agreements may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers, to advance expenses to them as they are incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification, and to
obtain directors' and officers' liability insurance if available on reasonable
terms.
In addition, Article Nine of the Company's Restated Certificate of
Incorporation provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
his or her fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware, or (iv) for any transaction
from which the director derives an improper personal benefit.
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.
The Company has purchased an insurance policy under which it is entitled to
be reimbursed for certain indemnity payments it is required or permitted to
make to its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1995, the Company issued 318,453 shares of Common Stock and paid
approximately $9,800,000 in cash to the stockholders of RELTECH Group, Inc.
("Reltech"), a vendor of repository technology, in connection with a merger
with Reltech. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.
II-1
<PAGE>
In June 1995, the Company issued 1,085,450 shares of Common Stock to the
stockholders 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 all of the outstanding
capital stock of SII in connection with a merger with SII. Such securities
were issued without registration under the Securities Act, in reliance upon
the exemption in Section 4(2) of the Securities Act.
In November 1995, the Company issued 1,452,708 shares of Common Stock to the
stockholders of Softool Corporation ("Softool"), a leading provider of
software change and configuration management technology, in exchange for all
of the outstanding capital stock of Softool in connection with a merger with
Softool. Such securities were issued without registration under the Securities
Act, in reliance upon the exemption in Section 4(2) of the Securities Act.
In November 1995, the Company issued 582,121 shares of Common Stock and paid
approximately $30,000,000 in cash to the stockholders of ProtoSoft, Inc.
("ProtoSoft"), a provider of portable, object-oriented analysis and design
software for building enterprise-wide applications, in exchange for
substantially all of the assets of ProtoSoft. Such securities were issued
without registration under the Securities Act, in reliance upon the exemption
in Section 4(2) of the Securities Act.
In December 1995, the Company issued 478,045 shares of Common Stock and paid
approximately $2,200,000 in cash to the stockholders of AIB Software
Corporation ("AIB"), a leading provider of multi-platform application
development and testing tools, in exchange for all of the outstanding capital
stock of AIB. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.
In December 1995, the Company issued 822,077 shares of Common Stock to the
stockholders of Protellicess Software, Inc. ("Protellicess"), a provider of
enterprise project and process management software, in exchange for all of the
outstanding capital stock of Protellicess. Such securities were issued without
registration under the Securities Act, in reliance upon the exemption in
Section 4(2) of the Securities Act.
In January 1996, the Company issued 344,640 shares of Common Stock and paid
approximately $445,000 in cash to the stockholders of Advanced System
Technologies, Inc. ("AST"), a developer of performance management tools, in
exchange for all of the outstanding capital stock of AST in connection with a
merger with AST. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.
In February 1996, the Company issued 2,126,913 shares of Common Stock to the
stockholders of Prodea Software Corporation ("Prodea"), a leading provider of
data warehousing and business intelligence tools, in exchange for all of the
outstanding capital stock of Prodea in connection with a merger with Prodea.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation D under the Securities Act.
In March 1996, the Company issued 125,000 shares of Common Stock to the
stockholders of Browning and Clements, Inc. ("B&C") in exchange for all of the
outstanding capital stock of B&C in connection with a merger with B&C. Such
securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.
In March 1996, the Company issued 762,503 shares of Common Stock to the
stockholders of Paradigm Systems Corporation ("Paradigm"), a leading provider
of information technology consulting services, in exchange for all of the
outstanding capital stock of Paradigm in connection with a merger with
Paradigm. Such securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.
II-2
<PAGE>
In March 1996, the Company issued 319,926 shares of Common Stock to the
stockholders of Axis Systems International, Inc. ("Axis"), a leading provider
of information technology consulting services, in exchange for all of the
outstanding capital stock of Axis in connection with a merger with Axis. Such
securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.
In August 1996, the Company issued 236,466 shares of Common Stock to the
stockholders of DB Tech Limited (d/b/a Symbiosis) ("DB Tech"), a leading
provider of training and consulting services, in exchange for all of the
outstanding capital stock of DB Tech in connection with a merger with DB Tech.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation S under the Securities Act.
In December 1996, the Company issued 760,383 shares of Common Stock to the
stockholders of VREAM, Inc. ("VREAM"), a leading provider of virtual reality
software for the World Wide Web and other interactive environments, in
exchange for all of the outstanding capital stock of VREAM. Such securities
were issued without registration under the Securities Act, in reliance upon
the exemption in Section 4(2) of the Securities Act.
In January 1997, the Company issued 313,784 shares of Common Stock to the
stockholders of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for all of
the outstanding capital stock of ATR in connection with a merger with ATR.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation S under the Securities Act.
In February 1997, the Company issued 1,089,867 shares of Common Stock to the
stockholders of I&S Informationstechnik and Services GmbH ("I&S"), a leading
provider of information technology consulting services, in exchange for all of
the outstanding capital stock of I&S in connection with a merger with I&S.
Such securities were issued without registration under the Securities Act, in
reliance upon Regulation S under the Securities Act.
In October 1997, the Company issued 364,396 shares of Common Stock and paid
approximately $2,000,000 in cash to the stockholders of ProMetrics Group
Limited ("ProMetrics"), a developer of productivity management software tools,
in exchange for all of the outstanding capital stock of ProMetrics in
connection with a merger with ProMetrics. Such securities were issued without
registration under the Securities Act, in reliance upon Regulation S under the
Securities Act.
In December 1997, the Company issued $150,000,000 principal amount of
convertible subordinated notes (the "1997 Notes") due December 15, 2002,
bearing interest at 6.25% annually. 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 1997 Notes are
redeemable at the option of the Company, in whole or in part, at any time
during the twelve-month period commencing December 15, 2000 at 102.5% of their
principal amount and during the twelve-month period commencing December 15,
2001 at 101.25% of their principal amount. The Company sold the 1997 Notes to
Deutsche Morgan Grenfell Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchasers") at a price equal to the principal
amount of the 1997 Notes less a discount of 3% of such principal amount,
pursuant to an agreement between the Company and the Initial Purchasers dated
December 11, 1997. The 1997 Notes were issued to the Initial Purchasers in
reliance upon the exemption from registration provided by Section 4(2) of the
Act. The Notes were then resold by the Initial Purchasers to "qualified
institutional buyers" (as defined in Rule 144A under the Act) in compliance
with Rule 144A and to persons outside the United States, other than United
States persons, pursuant to Regulation S under the Act.
In January 1998, the Company issued to Intel Corporation ("Intel") 1,768,421
shares of its Class II Series B Preferred Stock ("Preferred Stock") in
exchange for certain product technologies and other intangible assets. The
holders of the Preferred Stock have the option to convert, at any time, each
share of Preferred Stock into one share of Common Stock. Each share of
Preferred Stock will automatically convert into one share of Common Stock
(subject to certain adjustments) upon the transfer by any holder of Preferred
Stock in a non-permitted transfer. In the event of a liquidation of the
Company, the holders of the Preferred Stock are entitled to receive $23.75 per
share plus the amount of any declared but unpaid dividends. The shares of
Preferred Stock were issued to Intel in reliance upon the exemption from
registration provided by Section 4(2) of the Act.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
3.1 Conformed copy of Certificate of Incorporation of the Company,
as amended (incorporated by reference to Exhibit 3.1(d) to the
Company's Registration Statement of Form S-1, Registration
Statement No. 333-07783).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1,
Registration Statement No. 33-39233 (the "IPO S-1 Registration
Statement")).
4.1 Specimen stock certificate representing Common Stock
(incorporated by reference to Exhibit 4.1 to the IPO S-1
Registration Statement).
4.2 Rights Agreement dated as of December 21, 1995 between the
Company and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A, filed December 26, 1995 (the "1995 8-A")).
4.3 Certificate of Designations of the Class II Series A Junior
Participating Preferred Stock (incorporated by reference to
Exhibit 4.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (the "1995 10-K")).
4.4 Indenture between the Company and American National Bank and
Trust Company, as Trustee dated as of November 18, 1996
(incorporated by reference to Exhibit 4.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997
(the "1997 10-K")).
4.5 Form of Note for the Company's convertible subordinated notes
due 2001 (included in Exhibit 4.4).
4.6 Indenture between the Company and American National Bank and
Trust Company, as Trustee, dated as of December 15, 1997
(incorporated by reference to Exhibit 4.6 to the 1997 10-K).
4.7 Form of Note for the Company's convertible subordinated notes
due 2002 (included in Exhibit 4.6).
5.1* Opinion of Bell, Boyd & Lloyd
10.1 1989 Stock Option Plan (incorporated by reference to Exhibit
10.1 to the IPO S-1 Registration Statement).
10.2 Forms of Stock Option Agreements (incorporated by reference to
Exhibit 10.2 to the IPO S-1 Registration Statement).
10.3 Chief Executive Stock Option Plan (incorporated by reference to
Exhibit 10.3 to the IPO S-1 Registration Statement).
10.4 Chief Executive Stock Option Agreement (incorporated by
reference to Exhibit 10.4 to the IPO S-1 Registration
Statement).
10.5 1991 Stock Option Plan (incorporated by reference to Exhibit
10.5 to the IPO S-1 Registration Statement).
10.6 Amended and Restated Employment Agreement between Andrew J.
Filipowski and the Company, dated as of January 1, 1996
(incorporated by reference to Exhibit 10.6 to the 1997 10-K).
10.7 Amended and Restated Employment Agreement between Michael P.
Cullinane and the Company, dated as of January 1, 1996
(incorporated by reference to Exhibit 10.7 to the 1997 10-K).
10.8 Amended and Restated Employment Agreement between Paul L.
Humenansky and the Company, dated as of January 1, 1996
(incorporated by reference to Exhibit 10.8 to the 1997 10-K).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.9 Form of Indemnification Agreement between the Company and each
of Andrew J. Filipowski, Michael P. Cullinane, Paul L.
Humenansky, Casey G. Cowell, James E. Cowie, Steven D. Devick
and Gian Fulgoni (incorporated by reference to Exhibit 10.10 to
the IPO S-1 Registration Statement).
10.10 Forms of Affiliate Agreements (incorporated by reference to
Exhibit 10.11 to the IPO S-1 Registration Statement).
10.11 Form of Master Product License Agreement (incorporated by
reference to Exhibit 10.11 to the 1995 10-K).
10.12 Office Lease, dated May 6, 1992, between the Company and LaSalle
National Trust N.A. as Trustee (the "Oakbrook Terrace Lease")
(incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.13 PLATINUM technology, inc. 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.18 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (the "June 1994 10-Q")).
10.14 PLATINUM technology, inc. 1994 Stock Incentive Plan
(incorporated by reference to Exhibit 10.19 to the June 1994 10-
Q).
10.15 Amendments to the PLATINUM technology, inc. 1994 Stock Incentive
Plan (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8, Registration No.
33-85798 (the "1994 S-8")).
10.16 Form of Option Agreement under the PLATINUM technology, inc.
1993 Directors' Stock Option Plan (incorporated by reference to
Exhibit 4.4 to the 1994 S-8).
10.17 Form of Option Agreement under the PLATINUM technology, inc.
1994 Stock Incentive Plan (incorporated by reference to Exhibit
4.5 to the 1994 S-8).
10.18 Amendment Number One, dated as of May 3, 1993, to the Oakbrook
Terrace Lease (incorporated by reference to Exhibit 10.19 to the
1994 10-K).
10.19 Amendment Number Two, dated as of October 26, 1993, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.20 to the 1994 10-K).
10.20 Amendment Number Three, dated as of December 22, 1994, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.21 to the 1994 10-K).
10.21 Office Lease, dated August 8, 1994, between the Company and L.J.
Sheridan & Co. as court appointed receiver (incorporated by
reference to Exhibit 10.22 to the 1994 10-K).
10.22 PLATINUM technology, inc. Employee Incentive Compensation Plan
(incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-4, Registration No. 33-94410
(the "1995 S-4")).
10.23 Lease Agreement, dated as of March 30, 1995, between the Company
and Lisle Property Venture, Inc. (the "March 1995 Lisle Lease")
(incorporated by reference to Exhibit 10.24 to the 1995 S-4).
10.24 First Amendment, dated as of September 15, 1995, to the March
1995 Lisle Lease (incorporated by reference to Exhibit 10.25 to
the 1995 10-K).
10.25 Second Amendment, dated as of September 15, 1995, to the March
1995 Lisle Lease (incorporated by reference to Exhibit 10.26 to
the 1995 10-K).
10.26 Third Amendment, dated as of January 3, 1996, to the March 1995
Lisle Lease (incorporated by reference to Exhibit 10.27 to the
1995 10-K).
10.27 Lease Agreement, dated as of October 31, 1995, between Lisle
Property Venture, Inc. and the Company (the "October 1995 Lisle
Lease") (incorporated by reference to Exhibit 10.28 to the 1995
10-K).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.28 Amendment Number Four, dated as of March 9, 1995, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.29 to the 1995 10-K).
10.29 Loan Agreement, dated as of December 31, 1995, between the
Company and American National Bank and Trust Company of Chicago
(the "Loan Agreement") (incorporated by reference to Exhibit
10.30 to the 1995 10-K).
10.30 First Amendment, dated as of December 31, 1996, to the Loan
Agreement (incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 10-K")).
10.31 First Amendment, dated as of May 23, 1996, to the October 1995
Lisle Lease (incorporated by reference to Exhibit 10.31 to the
1996 10-K).
10.32 Second Amendment, dated as of May 24, 1996, to the October 1995
Lisle Lease (incorporated by reference to Exhibit 10.32 to the
1996 10-K).
10.33 Lease Agreement, dated as of July 17, 1996, between the Company
and Oakbrook Tower Limited Partnership (incorporated by
reference to Exhibit 10.33 to the 1996 10-K).
10.34 PLATINUM technology, inc. 1996 Stock Purchase Plan (incorporated
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8, Registration No. 333-03284 (the "April
1996 S-8")).
10.35 PLATINUM technology, inc. Amended and Restated 1993 Directors'
Stock Option Plan (incorporated by reference to Exhibit 4.2 to
the April 1996 S-8).
10.36 Amendment to the PLATINUM technology, inc. 1994 Stock Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 (the "June 1996 10-Q")).
10.37 First Amendment to the PLATINUM technology, inc. Employee
Incentive Compensation Plan (incorporated by reference to
Exhibit 10.3 to the June 1996 10-Q).
10.38 Second Amendment to the PLATINUM technology, inc. Employee
Incentive Compensation Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 (the "June 1997 10-Q")).
10.39 Amendment Number Five, dated as of December 1, 1996, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.2 to the June 1997 10-Q).
10.40 Amendment Number Six, dated as of April 30, 1997, to the
Oakbrook Terrace Lease (incorporated by reference to Exhibit
10.3 to the June 1997 10-Q).
10.41* Amendment Number Seven, dated as of September 16, 1997, to the
Oakbrook Terrace Lease.
10.42 Credit Agreement, dated as of December 22, 1997, between the
Company and American National Bank and Trust Company of Chicago,
as Agent (incorporated by reference to Exhibit 10.42 to the 1997
10-K).
21 Subsidiaries of the Company (incorporated by reference to
Exhibit 21 to the 1997 10-K).
23.1 Consent of KPMG Peat Marwick LLP with respect to the Company's
financial statements.
23.2* Consent of Bell, Boyd & Lloyd (contained in Exhibit 5.1).
24.1* Powers of Attorney (included on the signature page of this
registration statement).
</TABLE>
- --------
* Previously filed as part of this Registration Statement.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................. F-30
Schedule II--Valuation and Qualifying Accounts....................... F-31
</TABLE>
II-6
<PAGE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required under the related instructions, are not
applicable, or the information has been provided in the consolidated financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 14 above or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted against the Company by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF OAKBROOK TERRACE, STATE OF ILLINOIS, ON MAY 8,
1998.
PLATINUM technology, inc.
/s/ Michael P. Cullinane
By: _________________________________
Michael P. Cullinane
Executive Vice President
Chief Financial Officer and
Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON MAY 8, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Andrew J. Filipowski* President, Chief Executive Officer
___________________________________________ (principal executive officer) and
Andrew J. Filipowski Chairman of the Board of Directors
/s/ Michael P. Cullinane Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer (principal financial
Michael P. Cullinane and accounting officer) and Director
/s/ Paul L. Humenansky* Director
___________________________________________
Paul L. Humenansky
/s/ James E. Cowie* Director
___________________________________________
James E. Cowie
/s/ Steven D. Devick* Director
___________________________________________
Steven D. Devick
/s/ Arthur P. Frigo* Director
___________________________________________
Arthur P. Frigo
/s/ Gian M. Fulgoni* Director
___________________________________________
Gian M. Fulgoni
</TABLE>
/s/ Michael P. Cullinane
*By__________________________________
Michael P. Cullinane
Attorney-in-fact
II-8
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PLATINUM technology, inc.:
We consent to the use of our reports dated February 9, 1998 (except for
Note 18, which is as of March 14, 1998), relating to the consolidated balance
sheets of PLATINUM technology, inc. and subsidiaries as of December 31, 1997 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, 1997, and related financial statement schedule, included in this
registration statement on Form S-1 and to the reference to our firm under the
heading "Experts."
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
May 7, 1998
