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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-19395
SYBASE, INC.
(Exact name of registrant as Specified in its Charter)
Delaware 94-2941005
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6475 Christie Avenue, Emeryville, California 94608
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (510) 922-3500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Preferred Share Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on March
24, 2000 as reported on the NASDAQ National Market System, was approximately
$2,110,475,333. Shares of Common Stock held by each officer and director and by
each person who owns 10% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes. As of March 24, 2000, Registrant had 89,851,184 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-K PARTS DOCUMENT INCORPORATED BY REFERENCE
--------------- ----------------------------------
III Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 25, 2000
(to be filed within 120 days of Registrant's fiscal year ended December 31, 1999)
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risk and
uncertainties that could cause the actual results of Sybase, Inc. and its
consolidated subsidiaries (Sybase, or the Company) to differ materially from
those expressed or implied by such forward-looking statements. These risks
include sales productivity, particularly in North America; possible disruptive
effects of organizational changes; shifts in customer or market demand for the
Company's products and services; public perception of the Company, its
technology vision and future prospects; rapid technological changes; competitive
factors; delays in scheduled product availability dates (which could result from
various occurrences including development or testing difficulties, software
errors, shortages in appropriately skilled software engineers and project
management problems); interoperability of the Company's products with other
software products, and other risks detailed from time to time in the Company's
Securities and Exchange Commission filings.
Expectations, forecasts, and projections that may be contained in this report
are by nature forward-looking statements, and future results cannot be
guaranteed. The words "anticipate," "believe," "estimate," "expect," "intend,"
"will," and similar expressions in this document, as they relate to Sybase and
its management, may identify forward-looking statements. Such statements reflect
the current views of Sybase with respect to future events and are subject to
certain risks, uncertainties and assumptions. Forward-looking statements that
were true at the time made may ultimately prove to be incorrect or false, or may
vary materially from those described as anticipated, believed, estimated,
intended or expected. The Company does not intend to update these
forward-looking statements.
PART I
ITEM 1. BUSINESS
The Company is a leading global provider of software solutions that help
businesses manage and deliver information wherever it is needed across
distributed mixed computing environments, including the Internet.
Sybase was founded and incorporated in California on November 15, 1984, and
re-incorporated in Delaware on July 1, 1991. The Company's business is organized
into four principal operating divisions:
- ENTERPRISE SOLUTIONS (ESD) products and solutions provide vertical
applications to give enterprises the ability to integrate, move and manage very
large amounts of data and applications across diverse computing environments.
ESD also provides technical support and professional services required by
businesses to develop and maintain operational systems, including e-Business
infrastructures.
- MOBILE AND EMBEDDED COMPUTING (MEC) products and solutions extend
enterprise systems to remote and wireless devices to enable e-Business anywhere,
anytime.
- BUSINESS INTELLIGENCE (BID) products and solutions let businesses
consolidate and analyze large amounts of information from data warehouses and
data marts to facilitate better decision-making and gain a competitive edge in
sales and marketing, customer satisfaction, trend and risk analysis, and other
critical areas.
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- INTERNET APPLICATIONS (IAD) products and solutions allow businesses to
design, build and deploy distributed and Web-based applications, and to extend
existing distributed client/server applications (generally unsuitable for direct
access on the Internet) into the new Web environment.
A summary of financial results for the Company's four divisions is found in Note
Nine to the Consolidated Financial Statements, Part II, Item 8, incorporated
here by reference.
CUSTOMERS
Sybase's customers are primarily Fortune 1000 companies in North America or
their equivalents in other geographic regions. The Company's primary markets
include financial services, insurance, telecommunications, healthcare, defense
and government agencies. No single customer accounted for more than 10% of total
revenues during 1999, 1998 or 1997. The following were among Sybase's customers
during 1999:
- A multi-billion dollar banking institution using ADAPTIVE SERVER(R)
ENTERPRISE to create a global real-time fully-automated trading system that can
be used by investors and their intermediaries to trade warrants issued by the
bank via the Internet, intranet or leased phone line. A "warrant" is a right to
buy or sell shares at a particular time for an agreed price. The system
automatically calculates the prices, and the deal is confirmed with a
mouse-click.
- An international video game developer deploying an ADAPTIVE SERVER(R)
ANYWHERE application to gather real-time sales information from 75,000 game
machines in 850 amusement centers. This critical feedback allows the company to
develop and refine video game releases and maintain its competitive edge in a
fast-moving market.
- A major U.S. commercial airline using ADAPTIVE SERVER(R) IQ to develop
and deploy its new passenger revenue tracking system. With Adaptive Server IQ,
the airline's new system can economically store and rapidly access massive
amounts of data. While the old system's capacity was 3 months worth of data, the
new system using Adaptive Server IQ gives users ready access to a 150-gigabyte
database storing 13 months worth of data. Also, queries that on average took
more than 25 minutes now are returned in 1-1/2 minutes.
- A large state health insurance company using ENTERPRISE APPLICATION
SERVER(TM) to replace its existing intranet-based customer service system. EA
Server was used to integrate new customer service data with existing logic
located on an IBM mainframe. EA Server also helped the company retain the "look
and feel" of the existing user interface, resulting in less training time and
expense. With EA Server, the company has the added ability to extend its
customer service application to the Web to give customers easy, self-service
access to their account information.
PRODUCTS
Sybase products are available on hardware platforms manufactured by Compaq
(Digital), Hewlett-Packard, IBM, Sun Microsystems and others. The Company also
makes products that connect these platforms to other hardware platforms with
large installed bases. Our products are also available for a wide range of
operating systems including various UNIX environments, Windows, Windows NT, and
Linux. A description of each division's principal products in 1999 is set forth
below:
ENTERPRISE SOLUTIONS DIVISION (ESD)
ADAPTIVE SERVER(R) ENTERPRISE (ASE) is the Company's flagship database server
designed to integrate, store, retrieve, update and manage large amounts of
corporate data at high speed across heterogeneous computing environments. A
"heterogeneous" computing environment exists when an enterprise has multiple
computing systems with different features and functions. A typical heterogeneous
environment might result, for example, from a merger of companies having
different databases, different locations or different computer hardware systems.
ASE significantly streamlines operations in a broad range of applications useful
in e-Business, financial services, telecommunications, healthcare, and
government and
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other large enterprises. Adaptive Server Enterprise 12.0 became available in
December 1999, and includes these new product features:
- The Java Virtual Machine (JVM) that allows developers to write
procedures in Java object-oriented computer language, specifically adapted for
execution over the Internet, and to mix Java with SQL language, the industry
standard language for relational database products.
- Added support for eXtensible Mark-up Language (XML). XML is a World
Wide Web Consortium standard language for business information exchange on the
Internet.
- Robust failover architecture using a two-node cluster. This means that
one data processing location or "node" watches over another node. If the first
node fails, the standby node takes over processing, resulting in more continual
processing "up time".
REPLICATION SERVER(R) and REPLICATION AGENT(TM) allow remote sites to share data
from a primary data site, and to automatically receive updated data from the
primary site. Replication Server uses "store-and-forward asynchronous
replication" that monitors and copies changes made at the primary data site,
then automatically forwards those changes to all replicated sites. As a result,
Replication Server can provide near real-time data replication to multiple
remote sites. Replication Server 12.0 became available in January 2000, and is
designed to support Adaptive Server Enterprise 12.0 (discussed above).
OMNICONNECT(TM), ENTERPRISECONNECT(TM), DIRECTCONNECT(TM) and OPEN SERVER(TM)
are among Sybase's core data access and integration products. These products
allow users to use a single language to access varied types of data and
applications (e.g., real-time data feeds, stored data) from multiple sources as
if they were contained in a single database.
ENTERPRISE EVENT BROKER, Sybase's latest data messaging product, became
available in August 1999. It is designed for enterprises needing real-time event
and information delivery. For instance, if a customer places a rush order with
an Internet company, Enterprise Event Broker allows the order processing
application to "flag" the rush to the shipping application, which in turn can
trigger the shipping process immediately.
MOBILE AND EMBEDDED COMPUTING (MEC)
ADAPTIVE SERVER(R) ANYWHERE is Sybase's market-leading "small footprint"
database engine specifically designed for embedded and mobile computing
environments. This product works with Adaptive Server Enterprise and Replication
Server (see discussion above) to create an end-to-end, small-to-large data
management platform within a single enterprise.
SQL ANYWHERE STUDIO(TM) WITH MOBILINK(TM) AND ULTRALITE(TM) is the
industry-leading mobile database for use on workgroup servers, laptops and
handheld devices, and supports applications used by single or multiple users.
The UltraLite deployment option minimizes memory and system requirements for
applications found in devices such as smart phones and intelligent appliances.
SQL Anywhere Studio technology allows scalable bidirectional synchronization of
e-Business information between enterprise systems and remote devices. This
means that mobile users can send and receive critical data ensuring that
up-to-date information is always available at their fingertips and at the head
office.
INTERNET APPLICATION DIVISION (IAD)
ENTERPRISE APPLICATION SERVER(TM) (EA Server) is the Sybase cornerstone for Web
and distributed applications. This product allows large enterprises to add
Web-enabled capabilities to their existing applications, and also lets
Web-enabled users input and receive data on the Internet. During 1999, for
example, a national European movie theater chain with multiple theaters used
EA Server to automate the purchase of movie tickets on the Internet, resulting
in increased sales and cost savings to the company. In another case, a military
agency used EA Server to transform a paper-based user satisfaction survey to a
Web-based model. This resulted in cost savings and a dramatic reduction in the
time needed to collect feedback and improve the agency's programs.
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SYBASE FINANCIAL SERVER(TM) incorporates EA Server and is designed specifically
for the financial services industry, including banking, securities and
insurance. The product is intended to reduce the expense of financial protocol
standards, including those used for on-line banking and securities trading.
ENTERPRISE APPLICATION STUDIO(TM) combines a development edition of EA Server
with Sybase's enhanced development tools, POWERBUILDER(R), POWERJ(TM) and
INFOMAKER(R). These products offer software developers a complete toolset to
build, deploy and manage Web-based applications, as well as extend existing
client/server applications to the Internet. Enterprise Application Studio 3.5,
PowerBuilder 7.0, PowerJ 3.0 and InfoMaker 7.0 all became available in 1999. IAD
also offers a range of other tools, such as POWERDESIGNER(TM) version 7.0 which
became available in 1999, with additional Web development capabilities.
BUSINESS INTELLIGENCE (BID)
ADAPTIVE SERVER(R) IQ is a data warehouse server that incorporates an innovative
indexing technology to provide quick responses with a minimum of tuning. It also
incorporates intelligent storage, compression and retrieval features that reduce
storage requirements for data, and minimize associated hardware costs of data
warehousing. Adaptive Server IQ 12.0 became available in 1999.
INDUSTRY WAREHOUSE STUDIOS(TM) combine technology acquired by Sybase as a result
of its 1999 acquisition of Data Warehouse Network Limited, a provider of
packaged industry-specific data warehouse applications, and its 1998 acquisition
of Intellidex Systems, L.L.C., a provider of data management technology. These
solutions provide a core set of integrated business intelligence applications
that let businesses analyze their customers' behavior and its impact on the
business. The IWS products offer a prepackaged solution that can be customized
for industries such as retail banking, capital markets, insurance, healthcare
and telecommunications.
WORLDWIDE SERVICES
TECHNICAL SUPPORT. Sybase's Customer Service and Support organizations offer
technical support for the entire family of Sybase products. The Company
currently maintains regional support centers in North America, Europe, and Asia
Pacific that can provide 24 x 7 technical services (i.e., 24 hours a day, seven
days a week) in all time zones around the world. Sybase end users and partners
have access to technical information sources and newsgroups on Sybase's support
web site, including a problem-solving library and certain download-able software
fixes. End users generally can choose a technical support program that best
suits their business needs. All of the following support programs are priced on
a per-product basis and include updates and new version releases during the
support period:
- BASIC SUPPORT is generally geared toward smaller local enterprises,
and includes business-day support for up to two customer support contacts.
- EXTENDED SUPPORT is the minimum support level recommended for Sybase
database products, and includes 24 x 7 coverage for up to four customer support
contacts.
- ENTERPRISE SUPPORT offers personalized high-availability support for
companies with mission-critical projects. Services includes 24 X 7 coverage and
other specialized options.
- WORKPLACE SUPPORT programs apply to designated workplace-level
products, and are geared toward developers. Under these programs, updates and
new version releases are not included and must be purchased separately.
Each Sybase division also offers a variety of support services to its partners,
including value added resellers (VARs), systems integrators (SIs), original
equipment manufacturers (OEMs) and independent software developers.
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CONSULTING. The Sybase Professional Services (SPS) organization offers customers
comprehensive consulting, training and integration services designed to optimize
their business solutions using both Sybase and non-Sybase products. Service
offerings include assistance with data and system migration, custom application
design and development, implementation, performance improvement, knowledge
transfer and system administration. SPS also provides extensive SQL and Sybase
product training.
EDUCATION. Sybase provides a broad education curriculum allowing customers and
partners to increase their proficiency in Sybase products. Basic and advanced
courses are offered at Sybase education centers throughout North America, South
America, Europe and Asia Pacific (including Australia and New Zealand).
Specially tailored customer classes and self-paced training are also available.
A number of the Company's distributors and authorized education providers also
provide training in Sybase products.
SALES AND DISTRIBUTION
LICENSING MODEL. Consistent with software industry practice, Sybase does not
sell or transfer to its customers title to the Company's software products.
Instead, customers generally purchase nonexclusive, nontransferable perpetual
licenses in exchange for a fee that varies depending on the mix of products and
services, the number and type of users, the number of servers, and the type of
operating system. License fees range from several hundred dollars for
single-user desktop products to several million dollars for solutions that can
support hundreds or thousands of users. Sybase also licenses many of its
products for use in connection with customer applications on the Internet. The
Company's products and services are offered in a wide variety of configurations
depending on each customer's needs and hardware environment.
DISTRIBUTION METHOD. All Sybase products and services generally are sold through
direct sales organizations and indirect sales channels. "Indirect channels"
include VARs, SIs, OEMs, international distributors and other resellers.
INTERNATIONAL BUSINESS. Thirty-nine percent of the Company's total revenues were
from international operations in 1999, with European operations accounting for
27% of total revenues, and intercontinental operations (principally Japan, Asia
Pacific and South America) accounting for 12% of total revenues. Most of
Sybase's international sales are made by foreign subsidiaries. However, certain
sales were made in international markets from the United States. The Company
also licenses its products through distributors in those regions. A summary of
Sybase's geographical revenues is set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A) - Geographical
Revenues", Part II, Item 7, and Note Nine to the Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference. For a discussion of
the risks associated with Sybase's foreign operations, see "MD&A - Future
Operating Results - International Operations", Part II, Item 7, incorporated
here by reference.
INTELLECTUAL PROPERTY RIGHTS
Sybase relies on a combination of trade secret, copyright, patent and trademark
laws, as well as contractual terms, to protect its intellectual property rights.
As of March 24, 2000, the Company had 44 issued patents, expiring between 2013
and 2017, covering various aspects of our technology. We believe that our
patents and other intellectual property rights have value, but no single patent
is essential to the Company as a whole. Additionally, any of our proprietary
rights could be challenged, invalidated or circumvented, or may not provide
significant competitive advantage. For a discussion of additional risks
associated with Sybase's intellectual property, see "MD&A - Future Operating
Results - Intellectual Property", Part II, Item 7, incorporated here by
reference.
RESEARCH AND DEVELOPMENT
Since inception, the Company has made substantial investments in research and
product development. The Company believes that timely development of new
products and enhancements to its existing products is essential to maintaining a
strong position in its market. During 1999, the Company invested $136.3
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million, or 16% of its total revenue in research and development. Sybase
intends to continue to invest heavily in these areas. However, future operations
could be affected if the Company fails to timely enhance existing products or
introduce new products to meet customer demands. For a further discussion of the
risks associated with product development, see "MD&A - Future Operating Results
- - Product Development", Part II, Item 7, incorporated here by reference. As is
common in the software industry, the Company's backlog is typically small and is
not material to an understanding of our business.
COMPETITION
The market for the Company's products and services is fast-paced and extremely
competitive, and is marked by dynamic customer demands, short product life
cycles, and the rapid emergence of the Internet marketplace. For a discussion of
the risks associated with competition, see "MD&A - Future Operating Results -
Competition", Part II, Item 7, incorporated here by reference.
EMPLOYEES
As of March 24, 2000, the Company and its subsidiaries had 4,136 employees.
Information regarding Sybase's executive officers is set forth in "Executive
Officers of the Registrant" at the end of Part I of this Report.
ITEM 2. PROPERTIES
The Company is headquartered in Emeryville, California, where it leases
administrative and product development facilities consisting of approximately
446,000 square feet. The leases for these facilities are due to expire as
follows: approximately 129,700 square feet in 2001, 95,900 square feet in 2002
and 220,308 square feet in 2003. The Company has renewal options, generally at
the fair market value, under each of these leases. As of January 28, 2000,
Sybase entered into a lease agreement for new headquarters facilities in Dublin,
California, consisting of approximately 420,000 square feet. Finalization of the
lease is subject to satisfaction of certain financing conditions, environmental
due diligence and governmental approval requirements. Currently, Sybase intends
to move its Emeryville operations to the new facility during the last half of
2001. For a further discussion regarding the Dublin lease, see Note Thirteen to
the Consolidated Financial Statements, Part II, Item 8, incorporated here by
reference.
The area of Emeryville in which the Company's headquarters facilities are
currently located includes significant amounts of landfill, and was historically
used for industrial purposes. Prior to Sybase's occupancy of certain of these
facilities, underground fuel storage tanks and soil contaminated from leaked
fuel were removed. The cost of monitoring and treating these sites has been less
than $40,000 per year.
The Company maintains an engineering center in Milpitas, California, where it
leases approximately 20,749 square feet of office space through 2003. The
Company also maintains engineering centers in Boulder, Colorado; Paris, France;
Waterloo, Canada; and Singapore. The North American engineering centers focus on
product development for the Company's divisions, and the Singapore facility is
primarily focused on product localization and development relating to Sybase's
Asian markets.
As of December 31, 1999, the Company's field operations, professional service
organizations and subsidiaries occupied leased facilities in approximately 82
locations throughout North America, South America, Europe and Asia (including
Australia and New Zealand), aggregating approximately 1.2 million square feet.
In 1999, the Company sold a building in Concord, Massachusetts consisting of
approximately 44,600 square feet. During the year, Sybase also completed a
sale/leaseback transaction and executed a five-year lease extension on two other
buildings in Concord. The leases for all three buildings expire in June 2006. In
1999, the Company sold a building consisting of approximately 10,500 square feet
located in Maidenhead, England. The Company is in the process of leasing
additional premises in various locations.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference to Note
Eleven to the Consolidated Financial Statements, Part II, Item 8.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a stockholder vote in the quarter ended December
31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 24, 2000 are:
JOHN S. CHEN Mr. Chen has served Sybase in his present
Chairman, President and capacity since November 1996. From February
Chief Executive Officer through November 1998, he served as co-Chief
Age 44 Executive Officer. Mr. Chen joined Sybase in
August 1997 as Chief Operating Officer and
served in that capacity until February 1998.
From March 1995 to July 1997, Mr. Chen was
President of the Open Enterprise Computing
Division, Siemens Nixdorf, and Chief
Executive Officer and Chairman of Siemens
Pyramid, a Subsidiary of Siemens Nixdorf.
He has also served as a Board member of
Beyond.com since March 1999.
RICHARD N. LABARBERA Mr. LaBarbera has served Sybase in his
Sr. Vice President & GM present capacity since December 1998. Prior
Enterprise Solutions to that, he was Senior Vice President,
Division Services starting in June 1998. Mr. LaBarbera
Age 51 joined Sybase in December 1997 and served as
Vice President, Customer Service and Support
through June 1998. Before joining Sybase, he
was Vice President and General Manager of
Customer Services at Siemens Pyramid between
November 1995 and December 1997.
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ERIC L. MILES Mr. Miles has served in his present capacity
Sr. Vice President & GM since December 1998. Between December 1997,
Business Intelligence when he joined Sybase, and December 1998, he
Division was Senior Vice President, Product
Age 53 Operations. From November 1995 until he
joined Sybase, Mr. Miles served as Vice
President, Product Development at Informix
Corporation.
RAJ NATHAN Dr. Nathan has served in his present capacity
Sr. Vice President & GM since December 1998. Joining Sybase in
Internet Applications November 1997, he served as Senior Vice
Division President, Corporate Program Office until
Age 46 December 1998 From May through November 1997,
he served as President and Chief Executive
Officer of Siemens Pyramid, and held a number
of executive positions with Siemens Pyramid
prior to that.
TERRY STEPIEN Mr. Stepien has served in his present
Sr. Vice President & GM capacity since March 1999. From September
Mobile and Embedded 1998 to March 1999, he was Vice President and
Computing Division General Manager, Mobile and Embedded
Age 41 Computing Division. From September 1996 to
September 1998, he served as Vice President,
Marketing for Database Products. Mr. Stepien
was Vice President, Marketing for Workplace
Database Products from February 1995 to
September 1996.
PIETER VAN DER VORST Mr. Van der Vorst has served in his present
Vice President and capacity since January 1999. Between November
Chief Financial Officer 1997 and January 1999, he served as Corporate
Age 45 Controller, and prior to that, he served as
Vice President, Tax and Corporate Accounting
beginning in April 1997. Mr. Van der Vorst
has held various other positions since
joining Sybase in 1991.
PAMELA J. GEORGE Ms. George has served in her present capacity
Vice President since April 1999. Prior to that she was Vice
Corporate Marketing President of Corporate Communications at
Age 54 Maxager Technology, beginning in December
1997. From October 1991 through October 1995,
Ms. George was Director of Corporate
Communications for Cisco Systems.
DANIEL R. CARL Mr. Carl has served in his present capacity
Vice President and since April 1999. Immediately prior to that,
General Counsel he served as Director of European Legal
Age 47 Affairs, beginning in January 1997. Mr. Carl
has been a Vice President of Sybase since May
1996, and served as Associate General Counsel
from 1992 to April 1999.
MARTIN J. HEALY Mr. Healy has served in his present capacity
Vice President and since January 1999. Between January 1997 and
Corporate Controller January 1999, he served as Vice President,
Age 37 Intercontinental Operations. Mr. Healy was
Director of Finance, Asia (excluding Japan)
from January 1994 to December 1997, and prior
to that held various positions within the
Company's finance organization. Before
joining Sybase in 1989, Mr. Healy was
Financial Reporting Manager at WordStar
International.
NITA C. WHITE-IVY Ms. White-Ivy has served in her present
Vice President Worldwide capacity since March 1998. Prior to that, she
Human Resources was a human resources consultant to Sybase
Age 53 beginning in January 1998. Before joining
Sybase, she was with Siemens Pyramid, serving
as Vice President of Worldwide Human
Resources from February 1994 to October 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Sybase, Inc. Common Stock, par value $.001, is traded on the NASDAQ National
Market System under the symbol "SYBS." Following is the range of low and high
closing prices for the Company's stock as reported on the NASDAQ for the
quarters indicated.
High Low
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Fiscal 1998
Quarter ended March 31, 1998 $ 10.69 $ 7.00
Quarter ended June 30, 1998 $ 10.38 $ 6.50
Quarter ended September 30, 1998 $ 10.06 $ 5.84
Quarter ended December 31, 1998 $ 8.03 $ 4.53
Fiscal 1999
Quarter ended March 31, 1999 $ 11.00 $ 5.53
Quarter ended June 30, 1999 $ 11.00 $ 6.48
Quarter ended September 30, 1999 $ 13.19 $ 10.00
Quarter ended December 31, 1999 $ 18.50 $ 10.63
The Company has never paid cash dividends on its capital stock, and does not
anticipate doing so in the foreseeable future. The closing sale price of the
Company's stock on the NASDAQ on March 24, 2000 was $23.50. The number of
stockholders of record on that date was 1,808.
On February 21, 1997, the Company issued 750,000 shares of Common Stock pursuant
to Section 4(2) of the Securities Act to two individuals in exchange for all of
the outstanding common stock of Purchase Net, Inc., a privately-held developer
of application development software. The resale of the Sybase common stock
issued in connection with this merger transaction was registered under the Act.
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(In thousands, except per share data) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Revenues:
License fees $ 421,645 $ 421,454 $ 471,036 $ 605,491 $ 615,642
Services 449,988 446,015 432,901 406,054 340,944
----------- ----------- ----------- ----------- -----------
Total revenues 871,633 867,469 903,937 1,011,545 956,586
Costs and expenses:
Cost of license fees 46,241 37,573 31,356 29,859 29,736
Cost of services 217,053 235,574 248,625 246,273 205,019
Sales and marketing 324,694 392,979 469,161 523,159 481,404
Product development and engineering 136,272 148,583 138,590 164,676 151,902
General and administrative 68,876 65,406 62,607 72,561 67,888
Cost (reversal) of restructuring (8,528) 74,167 -- 49,232 --
Cost of merger -- -- -- -- 24,017
Purchase of in-process technology -- -- -- -- 19,965
----------- ----------- ----------- ----------- -----------
Total costs and expenses 784,608 954,282 950,339 1,085,760 979,931
----------- ----------- ----------- ----------- -----------
Operating income (loss) 87,025 (86,813) (46,402) (74,215) (23,345)
Interest income and expense, net 13,773 7,748 5,646 7,507 8,603
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 100,798 (79,065) (40,756) (66,708) (14,742)
Provision for income taxes 38,303 14,063 14,668 12,298 4,760
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 62,495 $ (93,128) $ (55,424) $ (79,006) $ (19,502)
=========== =========== =========== =========== ===========
Basic net income (loss) per share $ 0.76 $ (1.15) $ (0.70) $ (1.05) $ (0.27)
----------- ----------- ----------- ----------- -----------
Shares used in computing basic
net income (loss) per share 81,817 80,893 78,794 75,160 71,292
=========== =========== =========== =========== ===========
Diluted net income (loss) per share $ 0.74 $ (1.15) $ (0.70) $ (1.05) $ (0.27)
----------- ----------- ----------- ----------- -----------
Shares used in computing
diluted net income (loss) per share 84,156 80,893 78,794 75,160 71,292
=========== =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA
(In thousands)
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Cash, cash equivalents and cash investments $352,899 $249,613 $246,137 $174,522 $223,721
Working capital 127,229 84,179 67,510 93,056 140,306
Total assets 737,335 696,604 781,625 751,891 766,292
Long-term obligations 5,799 2,011 1,959 2,871 5,452
Stockholders' equity 336,110 301,072 371,515 396,808 439,649
Historical financial results of operations of Sybase prior to February 1995
contained in this Annual Report on Form 10-K have been restated to include
results of operations of Powersoft Corporation, acquired by Sybase that year.
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12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Sybase reported net income of $62.5 million for 1999, compared to a net loss of
$93.1 million in 1998. The Company's return to profitability resulted largely
from a corporate restructuring program initiated in 1998 that decreased
operating expenses from 1998 levels by $87.0 million (excluding cost (reversal)
of restructuring).
The Company's revenues for 1999 also increased to $871.6 million, compared to
$867.5 million in 1998. The increase was primarily attributable to higher sales
in North America, particularly in the second half of 1999. During the first half
of 1999, many businesses allocated available technology and financial resources
toward Year 2000 compliance efforts. As businesses began to complete these
preparations, previously committed resources once again became available for new
technology investment. Sybase believes this development contributed to its
increased revenues in 1999.
As of December 31, 1999, the Company had $352.9 million in cash, cash
equivalents and cash investments, and stockholders' equity of $336.1 million.
Days sales outstanding in accounts receivable was 69 days for the quarter ended
December 31, 1999.
During 1999, the Company organized into four separate divisions, each focused
upon one of four key market segments -- Enterprise Solutions (ESD), Mobile and
Embedded Computing (MEC), Internet Applications (IAD) and Business Intelligence
(BID). For a discussion of the business of each of these divisions, see
"Business", Part I, Item 1, incorporated here by reference.
The Company, with its market focus and end-to-end e-Business solutions, believes
it is in a strong position to extend beyond its traditional enterprise software
offerings, aggressively pursue new market driven opportunities, and quickly
deliver to customers leading industry-specific computing solutions. For a
discussion of significant new product releases in 1999, see "Business", Part I,
Item 1, incorporated here by reference.
Sybase believes its strong customer base, market-focused divisional structure,
and sound financial position will be key to achieving its long-term goals of
profitability and sustained revenue growth.
RESULTS OF OPERATIONS
REVENUES
(Dollars in millions)
1999 Change 1998 Change 1997
--------- --------- --------- -------- --------
License fees $421.6 -- $421.5 (11%) $471.0
Percentage of total revenues 48% 49% 52%
Services $450.0 1% $446.0 3% $432.9
Percentage of total revenues 52% 51% 48%
Total revenues $871.6 -- $867.5 (4%) $903.9
Total revenues for 1999 increased slightly to $871.6 million, compared to $867.5
million in 1998. Total revenues in 1998 decreased 4 percent from $903.9 million
in 1997. The Company believes the decline in 1998 from 1997 was primarily due to
lower revenues in North America, due to businesses reallocating their available
technology resources toward Year 2000 compliance programs.
License fees revenues remained flat at $421.6 million in 1999, compared to
$421.5 million in 1998. License fees revenues decreased 11 percent in 1998 from
$471.0 million in 1997. In 1999, license fees
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13
revenues from sales of certain product lines included in the MEC and BID
divisions increased but were offset by sales decreases in certain product lines
included in the ESD and IAD divisions. The decline in license fees revenues in
1998 compared to 1997 resulted from factors described above. Product lines that
contributed to this decline in license fees revenues in 1998 include the
Company's database, tools and middleware product lines.
Services revenues grew 1 percent to $450.0 million in 1999, compared to $446.0
million in 1998. Service revenues grew 3 percent in 1998, compared to $432.9
million in 1997. Services revenues are derived primarily from consulting,
education and technical support services relating to the Company's products. For
a discussion of Sybase's services, see "Business - Worldwide Services", Part I,
Item 1, incorporated here by reference.
As a percentage of total revenues, Sybase's service revenues increased to 52
percent in 1999 from 51 percent in 1998, and 48 percent in 1997. This increase,
both in absolute dollars and as a percentage of total revenues, was primarily
attributable to increased support and maintenance fees revenues from directly
supported sites, additional users, and the renewal of maintenance contracts. The
increase was partially offset by a decrease in consulting revenues related to
management changes in the Sybase consulting organization during 1999, which
adversely affected revenues.
GEOGRAPHICAL REVENUES
(Dollars in millions)
1999 Change 1998 Change 1997
--------- --------- --------- -------- --------
North America $531.5 6% $503.3 (12%) $571.5
Percentage of total revenues 61% 58% 63%
International:
Europe $231.9 (8%) $253.2 9% $232.6
Percentage of total revenues 27% 29% 26%
Intercontinental $108.2 (2%) $111.0 11% $ 99.8
Percentage of total revenues 12% 13% 11%
Total International $340.1 (7%) $364.2 10% $332.4
Percentage of total revenues 39% 42% 37%
Total revenues $871.6 -- $867.5 (4%) $903.9
North America revenues (United States, Canada and Mexico) increased 6 percent in
1999 to $531.5 million from $503.3 million in 1998. The increase was largely
attributable to license fees revenues growth in certain product lines included
in the ESD, MEC and BID divisions, partially offset by a decrease in revenues
associated with certain product lines included in the IAD division. North
America revenues decreased 12 percent in 1998 from $571.5 million in 1997 due to
factors described above in "Results of Operations".
International revenues decreased 7 percent in 1999 to $340.1 million from $364.2
million in 1998, and increased 10 percent in 1998 from $332.4 million in 1997.
European revenues declined 8 percent in 1999 due to a decline in revenues from
certain product lines included in the ESD, MEC and IAD divisions, partially
offset by increased revenues from certain product lines included in the BID
division. Management changes in Europe also adversely affected revenues in 1999.
See "Future Operating Results - Human Resources" below for a further discussion
of management changes. In 1998, European revenues increased 9 percent from
growth in both license fees revenues and services revenues. In 1999,
intercontinental revenues (principally Japan, Asia Pacific and South America)
decreased 2 percent due to a decline in the revenues generated by certain
product lines included in the ESD division. In 1998, intercontinental revenues
increased by 11% over 1997 due to increased services revenues. International
revenues comprised 39 percent of total revenues in 1999, down from 42 percent in
1998, and up from 37 percent in 1997.
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14
In Europe and the Intercontinental region, most revenues and expenses are
denominated in local currencies. The effect of foreign currency exchange rate
changes on revenues was not material in 1999 and 1998. However, throughout 1997,
the U.S. dollar strengthened against major European and Intercontinental
currencies. This resulted in lower revenues and expenses recorded for these
regions when translated into U.S. dollars compared with 1998. Although Sybase
takes into account changes in exchange rates over time in its pricing strategy,
the Company's business and results of operations could be materially and
adversely affected by fluctuations in foreign currency exchange rates. Changes
in foreign currency exchange rates, the strength of local economies, and the
general volatility of software markets may result in a higher or lower
proportion of international revenues as a percentage of total revenues in the
future. For additional risks associated with currency fluctuation, see
"Financial Risk Management - Foreign Exchange Risk" and "Future Operating
Results - Euro Currency", below.
COST AND EXPENSES
(Dollars in millions)
1999 Change 1998 Change 1997
---- ------ ---- ------ ----
Cost of license fees $ 46.2 23% $ 37.6 20% $ 31.4
Percentage of license fees revenues 11% 9% 7%
Cost of services $217.1 (8%) $235.6 (5%) $248.6
Percentage of services revenues 48% 53% 57%
Sales and marketing $324.7 (17%) $393.0 (16%) $469.2
Percentage of total revenues 37% 45% 52%
Product development and engineering $136.3 (8%) $148.6 7% $138.6
Percentage of total revenues 16% 17% 15%
General and administrative $ 68.9 5% $ 65.4 4% $ 62.6
Percentage of total revenues 8% 8% 7%
Cost (reversal) of restructuring $ (8.5) * $ 74.2 * --
Percentage of total revenues 1% 9% --
- ------
* Not meaningful
COST OF LICENSE FEES
Cost of license fees consists primarily of product costs (media and
documentation), amortization of capitalized software development costs and third
party royalty costs. In 1999, these costs increased 23 percent to $46.2 million
from $37.6 million in 1998, and 20 percent from $31.4 million in 1997. The 1999
increase was primarily due to increased third party royalties. The increase in
1998 was attributed to increased amortization of capitalized software. Cost of
license fees was 11 percent of license fees revenues in 1999, 9 percent in 1998
and 7 percent in 1997. Amortization of capitalized software costs was $20.0
million in 1999, $19.5 million in 1998 and $9.7 million in 1997. Amortization
costs remained relatively flat from 1999 to 1998. In 1998, the increase in the
amortization of capitalized software was related to the release of Adaptive
Server Enterprise 11.9, featuring row-level locking, in the second quarter of
1998.
COST OF SERVICES
Cost of services consists primarily of maintenance, consulting and education
expenses and, to a lesser degree, services-related product costs (media and
documentation). These costs decreased 8 percent to $217.1 million in 1999,
compared to $235.6 million in 1998, and 5 percent from $248.6 million in 1997.
These costs decreased as a percentage of services revenues to 48 percent in
1999, compared to 53 percent and 57 percent in 1998 and 1997, respectively. The
decrease, in absolute dollars and as a percentage of services revenues in 1999
over 1998 and in 1998 over 1997, is primarily due to a decrease in salaries and
facility costs (including rent and depreciation) as a result of the Company's
restructuring program initiated in 1998.
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15
SALES AND MARKETING
Sales and marketing expenses decreased to $324.7 million in 1999 from $393.0
million in 1998, a 17 percent decrease. In 1998, the costs decreased 16 percent
from $469.2 million in 1997. These costs decreased in absolute dollars and as a
percentage of total revenues to 37 percent in 1999, as compared to 45 percent in
1998 and 52 percent in 1997. The decreases in sales and marketing expense, in
absolute dollars and as a percentage of total revenues in 1999 compared to 1998
and 1998 compared to 1997, is primarily due to a decrease in salary cost,
facility costs including rent, and depreciation as a result of the Company's
restructuring plan initiated in 1998. The decrease in 1999, was also partially
offset by an increase in allocated common costs pertaining to the Company's
litigation costs. The Company allocates such costs, as well as other common
costs such as accounting, human resources, external consulting, employee
benefits, and facilities expenses, to sales and marketing, product development
and engineering, and general and administrative expenses.
PRODUCT DEVELOPMENT AND ENGINEERING
Product development and engineering expenses (net of capitalized software
development costs) decreased 8 percent to $136.3 million in 1999 from $148.6
million in 1998, a 7 percent increase from $138.6 million in 1997. These
expenses decreased as a percentage of total revenues to 16 percent in 1999
compared to 17 percent and 15 percent in 1998 and 1997, respectively. The
decrease in 1999 was primarily due to an increase in software development costs
capitalized during the year, and a decrease in salary cost, facility costs
including rent, and depreciation as a result of the restructuring plan initiated
in 1998. These decreases were partially offset by an increase in allocated
common costs. The increased costs in 1998 compared to 1997, in absolute dollars
and as a percentage of total revenues, were partially due to the acquisition in
February 1998 of Intellidex Systems, L.L.C. (Intellidex), a provider of data
management technology. The product development and engineering costs incurred by
Intellidex since the date of acquisition have been included in the "Results of
Operations".
The Company capitalizes its product development and engineering costs during the
period between achievement of technological feasibility and general availability
of the product. Amounts capitalized totaled approximately $18.7 million in 1999,
$10.8 million in 1998 and $21.7 million in 1997. In 1999, capitalized software
costs included costs incurred for the development of Adaptive Server Enterprise
12.0, Enterprise Event Broker, Sybase Financial Server 1.0, Enterprise
Application Studio 3.5, PowerJ 3.0, Replication Server 12.0, and PowerDesigner
7.0. During 1998, Sybase capitalized software costs in connection with the
Company's acquisition of Intellidex, development of Adaptive Server Enterprise
11.9, and enhancements to Replication Server and Jaguar CTS(TM). During 1997,
the Company released Adaptive Server Enterprise 11.5 and PowerBuilder 6.0.
The Company believes that product development and engineering expenditures are
essential to technology and product leadership and expects product development
and engineering expenditures to continue to be significant, both in absolute
dollars and as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 5 percent to $68.9 million in 1999
compared to $65.4 million in 1998. In 1998, the costs increased 4 percent from
$62.6 million in 1997. General and administrative expenses represent 8 percent
of total revenues in both 1999 and 1998, compared to 7 percent in 1997. The
increases in absolute dollars, in 1999 and 1998 and as a percentage of total
revenues compared to 1997, were primarily due to increases in allocated common
costs.
COST (REVERSAL) OF RESTRUCTURING
In February 1998, the Company announced and began to implement a restructuring
plan (the 1998 Plan) aimed at improving productivity per employee. The 1998 Plan
included reductions in sales and marketing and product development and
engineering expenses. The Company intended to significantly reduce its annual
operating expenses by realigning its resources around core product initiatives.
The 1998 Plan included
-15-
16
estimated restructuring charges of $70.0 million to be incurred in 1998. As part
of the 1998 Plan, the Company terminated approximately 1,100 employees,
consolidated or closed more than 45 facilities worldwide, abandoned certain
property, equipment and improvements (principally leasehold improvements and
computer hardware and software), wrote off costs of terminating certain product
lines and closed down subsidiaries in Mexico, Thailand, Chile, Peru and
Venezuela.
In the first phase of the 1998 Plan, the Company focused its efforts on
eliminating product lines not core to the business. It also reduced personnel
and related facilities costs to achieve an immediate reduction in its overall
cost structure. In the fourth quarter of 1998, the Company focused its
restructuring efforts on reducing costs and realigning its sales force, product
teams and professional service capabilities into four new divisions. The charges
included reductions of personnel and related facilities costs. The amounts
included in the restructuring charges for 1998 were as follows:
(Dollars in millions) Q1 1998 Q4 1998 Total
-------- -------- --------
Termination payments to employees and other related costs $ 11,631 $ 14,957 $ 26,588
Lease cancellations and commitments 6,267 9,930 16,197
Write-downs of:
Property, equipment and improvements 7,660 838 8,498
Capitalized software 3,726 (85) 3,641
Prepaid royalties 3,953 -- 3,953
Other 1,441 (153) 1,288
Costs related to closing of subsidiaries, including
write-off of goodwill 7,681 1,815 9,496
Estimated product and employee termination liabilities 6,676 (5,013) 1,663
Other 2,659 184 2,843
-------- -------- --------
$ 51,694 $ 22,473 $ 74,167
======== ======== ========
Termination payments to employees and other related costs
In the first quarter of 1998, the Company incurred a restructuring charge of
approximately $11.6 million for severance payments and termination benefits in
connection with the termination of approximately 450 employees. In the fourth
quarter of 1998, the Company incurred additional restructuring charges of
approximately $15.0 million for severance payments and termination benefits paid
in connection with the additional termination of approximately 650 employees.
The severance payments and termination benefits were accrued and charged to
restructuring costs in the period that both the benefit amounts were determined
and such amounts were communicated to the affected employees.
Lease cancellation and commitments
In the first quarter of 1998, the Company incurred restructuring charges of $6.3
million for facilities consolidated or closed in Burlington, Massachusetts,
Mexico and Japan. In the fourth quarter of 1998, the Company incurred a
restructuring charge of $9.9 million for facilities consolidated or closed,
including sales offices in the United States, Europe and Asia. These offices
were primarily responsible for the sale of all the Company's software products,
professional services and customer support. These restructuring charges reflect
the remaining contractual obligations under facility leases net of anticipated
sublease income from the date of abandonment to the end of the lease term.
Certain facilities described above continued in use during the completion of the
restructuring. The Company continued to record monthly rent expense on these
facilities as an operating expense until the facilities were abandoned.
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17
Write-downs of property, equipment and improvements
In the first and fourth quarters of 1998, the Company incurred restructuring
charges of $7.7 million and $0.8 million, respectively, related to the carrying
values of property, equipment and leaseholds abandoned in connection with the
restructuring. The specific assets charged to restructure included: personal
computers and equipment used by employees terminated; office equipment and
leaseholds in connection with closure or consolidation of facilities and
subsidiaries in the United States, Asia (including Japan) and Latin America;
and, certain internal use software abandoned in connection with the
restructuring. The assets were all taken out of service and held for disposal at
the date that they were identified for inclusion in the restructure except for
the assets of the Japanese subsidiary which remained in use for three months.
The assets of the Japanese subsidiary were depreciated for the three months they
remained in use.
Write-downs of capitalized software/prepaid royalties
In the first quarter of 1998, the Company incurred restructuring charges of $3.7
million related to the carrying value of capitalized software development costs
for those product lines which Sybase had eliminated as part of the 1998
Restructuring Plan. The products eliminated included Sybase MPP(TM) on certain
platforms, certain APT products, dbQueue(TM), Web.SQL(TM), Lego Rom and
PowerBuilder for Mac. In the first quarter of 1998, the Company also incurred
restructuring charges of $4.0 million related to the carrying value of prepaid
royalties paid by Sybase to third-party licensors. These prepaid royalties
related to technologies either embedded in abandoned products or technologies
abandoned because they were no longer core to the Company's business.
Costs related to closing of subsidiaries, including write-off of goodwill
In the first quarter of 1998, the Company accrued approximately $7.7 million for
costs associated with the closure of certain subsidiaries. Of this amount,
approximately $7.4 million represented costs associated with the closure of the
Company's Mexican subsidiary. In the fourth quarter of 1998, the Company
recorded additional restructuring charges of $1.8 million associated with the
closing of subsidiaries consisting principally of the write-off of goodwill
related to the Company's subsidiary in Chile. The fourth quarter charge was
partially offset by the recovery of $0.9 million of certain accounts receivable
of the Mexican subsidiary previously charged to restructuring costs in the first
quarter of 1998.
Estimated product and employee termination liabilities
In the first quarter of 1998, the Company recorded restructuring charges of
approximately $6.7 million associated with anticipated liabilities for claims
resulting from the abandonment of products no longer core to the Company's
business and from the termination of employees. The amounts accrued were based
on the Company's previous experience with obligations associated with
end-of-life products and employee terminations, including payments made in
connection with restructuring in 1996.
In the fourth quarter of 1998, the Company reevaluated this liability. Based on
actual claims received, amounts paid to date and legal counsel's estimate of
future obligations to customers and employees, the Company reduced the liability
by approximately $5.0 million.
During 1999, the Company reversed by credit to operating expenses $8.5 million
of restructuring costs related to the 1998 Plan. The reversals included $3.8
million related to termination payments to employees and other related costs;
$4.2 million related to lease cancellations and commitments; and $0.5 million of
legal and other fees. The significant components of the reversal to the accrual
for termination payments to employees and other related costs included:
termination payments due to employees who were terminated as part of the 1998
Plan, which were not claimed by the affected employees or were not utilized
because the employee did not stay a specified period to qualify for the benefit;
termination payments due to employees who were terminated as part of the 1998
Plan but were asked to stay with the Company to fill open positions; and an
accrual relating to an employee note receivable that was subsequently collected
by the Company. The significant components of the reversal relating to the
accrual for lease cancellations and commitments included accruals where the
Company was able to sublet certain closed facilities earlier than anticipated or
was able to negotiate a settlement with the landlord for the termination of the
leases on certain closed facilities for an amount less than the amount provided
in the 1998 Plan.
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18
The following table summarizes the activity related to the restructuring
liability at December 31, 1999 (dollars in thousands):
Accrued Accrued
liabilities Amounts liabilities
at written Amounts Amounts at
12/31/98 off paid reversed 12/31/99
------- ------- ------- ------- -------
Termination payments to employees
and other related costs $12,483 -- $ 8,208 $ 3,833 $ 442
Lease cancellations and commitments 9,538 -- 4,041 4,201 1,296
Costs related to closing of
subsidiaries, including write-off
of goodwill 2,730 2,730 -- -- --
Other 2,567 -- 1,701 494 372
------- ------- ------- ------- -------
$27,318 $ 2,730 $13,950 $ 8,528 $ 2,110
======= ======= ======= ======= =======
The Company has substantially completed all actions associated with its
restructuring and believes that it has achieved the desired results. Operating
expenses, excluding cost (reversal) of restructuring, decreased by $87.0 million
in 1999, compared to 1998. The Company believes that this decrease was largely
due to the benefit of the restructuring, partially offset by higher third party
royalty expense, legal fees and litigation costs. In 1999, total employee
related expenses decreased by approximately $54.5 million, depreciation expense
decreased by approximately $18.2 million, and rent expense decreased by
approximately $22.7 million, each of which was primarily due to the
restructuring. The amount of the cost reduction achieved during 1999 was
consistent with the objectives of the restructuring plan.
The remaining restructuring reserve primarily relates to certain lease payments
contractually required of the Company on certain closed facilities, net of
associated sublease amounts, and certain severance payments and termination
benefits payable to approximately eight employees terminated as part of the 1998
Plan. The leases expire at various dates through 2003, and substantially all the
remaining severance payments and termination benefits are expected to be paid in
the first quarter of 2000. The remaining severance payments and termination
benefits include those payable to four employees in Europe, who were notified in
1998 that their positions would be eliminated as certain general and
administrative functions were eliminated from selected European subsidiaries.
These employees were notified in 1998 that they would be entitled to such
payments if they stayed until such activities were completed. The remaining
severance payments and termination benefits also includes severance payments due
to four employees terminated in 1998 in Brazil, who refused to collect their
severance payments and instead chose to file a claim for additional money from
the Company. These claims and related severance accruals were still outstanding
at December 31, 1999.
OPERATING INCOME/LOSS
(Dollars in millions)
1999 Change 1998 Change 1997
---- ------ ---- ------ ----
Operating income/(loss) $ 87.0 * $ (86.8) * $(46.4)
Percentage of total revenues 10% 10% 5%
- ----------
* Not meaningful
Operating income was $87.0 million in 1999 compared to losses of $86.8 million
and $46.4 million in 1998 and 1997, respectively. In 1999, operating income
included a reversal to restructuring of $8.5 million while the 1998 operating
loss includes $74.2 million in restructuring charges. The operating loss of
$46.4 million in 1997 includes charges of $68.5 million related to the
restatement of revenues recorded by the
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19
Company's Japanese subsidiary. These charges include $43.0 million related to
the restatement of revenues for the nine months ended September 30, 1997 and
$25.5 million for the three months ended December 31, 1997 related to the
adoption of the cash method of recognizing revenue of our Japanese subsidiary,
under which revenue is not recognized until cash is received from the customer.
As a result of the large number of transactions not collected by its Japanese
subsidiary, which resulted in a significant restatement of quarterly revenue in
1997, the Company currently believes that it is not appropriate for its Japanese
subsidiary to recognize future revenues prior to the collection of cash.
The $173.8 million increase in operating income in 1999, compared to 1998,
primarily resulted from lower operating expenses ensuing from the 1998 Plan, and
the absence of the 1998 restructuring charge.
INTEREST INCOME AND INTEREST EXPENSE AND OTHER, NET
(Dollars in millions)
1999 Change 1998 Change 1997
---- ------ ---- ------ ----
Interest income $13.6 35% $10.1 10% $ 9.2
Percentage of total revenues 2% 1% 1%
Interest expense and other, net $ 0.2 * $(2.3) (34%) $(3.5)
Percentage of total revenues 0% 0.3% 0.4%
- ----------
* Not meaningful
Interest income increased 35 percent to $13.6 million in 1999 compared to $10.1
million in 1998. In 1998, interest income increased 10% from $9.2 million in
1997. Interest income consists primarily of interest earned on investments. The
increases in 1999 and 1998 were primarily due to the build-up of larger
average-invested cash balances since 1997.
Interest expense and other, net was $.2 million in 1999, compared to $(2.3)
million in 1998 and $(3.5) million in 1997. Interest expense and other, net
includes interest expense from capital lease obligations incurred in prior
years; gains from the disposition of certain real estate; bank fees; expenses,
net gains and losses resulting from the Company's foreign currency transactions
and the related hedging activities; and the cost of hedging foreign currency
exposures. The increase in interest expense and other, net in 1999 over 1998 and
1997 is primarily due to the gain on the sale of European real estate in 1999.
PROVISION FOR INCOME TAXES
(Dollars in millions)
1999 Change 1998 Change 1997
---- ------ ---- ------ ----
Provision for income taxes $ 38.3 172% $ 14.1 (4%) $ 14.7
The Company recorded a $38.3 million provision for income taxes in 1999, up from
$14.1 million in 1998 and $14.7 million in 1997. The 1999 tax provision is
primarily the result of taxable earnings generated from operations in both the
United States and certain international jurisdictions. The Company has a net
deferred tax asset of $41.1 million at December 31, 1999. The deferred tax asset
includes a valuation allowance of $20.6 million. As of December 31, 1999, the
Company has research and development tax credits of $11.8 million and foreign
tax credits of $8.1 million. The research and development tax credits expire in
years from 2005 and through 2011 and the foreign tax credits expire in 2000 and
2001. Realization of the Company's net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years in appropriate tax
jurisdictions to obtain benefit from the reversal of temporary differences and
from tax credit carryforwards. The amount of deferred tax assets considered
realizable is subject to adjustment in future periods if estimates of future
taxable income are reduced and any such adjustments could have an impact on the
Company's effective tax rate in future periods.
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20
NET INCOME (LOSS) PER SHARE
(Dollars and shares in millions)
1999 Change 1998 Change 1997
---- ------ ---- ------ ----
Net income (loss) $ 62.5 * $(93.1) 68% $(55.4)
Percentage of total revenues 7% (11%) (6%)
Basic:
Net income (loss) per share $ 0.76 * $(1.15) 64% $(0.70)
Shares used in computing basic
net income (loss) per share 81.8 1% 80.9 3% 78.8
Diluted:
Net income (loss) per share $ 0.74 * $(1.15) 64% $(0.70)
Shares used in computing diluted
net income (loss) per share 84.2 4% 80.9 3% 78.8
- ----------
* Not meaningful
The Company recorded net income in 1999 of $62.5 million compared to net losses
of $93.1 million and $55.4 million in 1998 and 1997, respectively. The basic and
diluted net income per share in 1999 was $0.76 and $0.74 per share,
respectively. The basic and diluted net losses per share were $1.15 in 1998 and
$0.70 in 1997. Shares used in computing basic net income (loss) per share
increased 1 percent in 1999 and 3 percent in 1998, primarily due to the exercise
of employee stock options and the increase of shares outstanding under the
employee stock purchase plan. Shares used in computing diluted net income (loss)
per share increased 4 percent in 1999 compared to 1998, primarily due to the
effect of outstanding stock options excluded from the calculation of diluted net
loss per share in 1998 and 1997, as their inclusion would be antidilutive.
LIQUIDITY AND CAPITAL RESOURCES
(Dollars in millions)
1999 Change 1998 Change 1997
---- ------ ---- ------ ----
Working capital $127.2 51% $ 84.2 25% $ 67.5
Cash, cash equivalents and cash investments $352.9 41% $249.6 1% $246.1
Net cash provided by operating activities $170.8 93% $ 88.5 19% $ 74.2
Net cash used for investing activities $118.0 466% $ 20.8 (81%) $109.6
Net cash provided by (used for) financing
activities $(22.2) (27%) $(30.2) (141%) $ 73.7
Net cash provided by operating activities was $170.8 million compared to $88.5
million in 1998 and $74.2 million in 1997. Net cash provided by operating
activities during 1999 reflects net income of $62.5 million compared to net
losses of $93.1 million in 1998 and $55.4 million in 1997. Depreciation and
amortization, which are included in net income (loss), but do not require the
use of cash, amounted to $90.0 million in 1999 compared to $107.8 million in
1998 and $104.7 million in 1997. The decrease in depreciation and amortization
in 1999 was primarily due to the write-off of assets in connection with the 1998
restructuring plan. The increase of depreciation and amortization in 1998
compared to 1997 resulted principally from increases in the amortization of
capitalized software development costs. The Company incurred a non-cash
restructuring charge to operations in the amount of $23.6 million in 1998. Net
cash provided by
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operating activities also reflects a decrease in accounts receivable of $16.1
million in 1999 compared to a decrease of $6.6 million in 1998 and $25.9 million
in 1997.
Net cash used for investing activities increased to $118.0 million compared to
$20.8 million in 1998 and $109.6 million in 1997. The increase over 1998 was
primarily the result of the $77.8 million net increase in cash investments
during 1999 compared to a net decrease of $32.3 million in 1998 and a net
increase of $39.5 million in 1997. Investing activities also included capital
expenditures of $28.0 million in 1999 compared to $38.9 million in 1998 and
$36.4 million in 1997. The decrease in 1999 capital expenditures compared to
1999 reflected a reduction in capital expenditures required to support the
Company's employee base around the world as well as systems and infrastructure
investments. Additionally, 1999 investing activities included a cash use of $8.2
million (net of cash acquired) for business combinations compared to $6.6
million and $4.5 million in 1998 and 1997, respectively; and capitalized
software development costs of $18.7 million in 1999, compared to $10.8 million
and $21.7 million in 1998 and 1997, respectively.
Net cash used for financing activities was $22.2 million in 1999 compared to
$30.2 million in 1998. During 1999, cash of $60.7 million was used by the
Company to repurchase its common stock. In 1999, $32.0 million was generated
from the issuance of common stock and reissuance of treasury stock associated
with the Company's stock option and employee stock purchase plans. Net cash used
for financing activities in 1998 was primarily related to the repayment by the
Company of amounts received from Japanese financial institutions in prior years
for financing transactions related to sale arrangements in the Company's
Japanese subsidiary. The Company was obligated to make approximately $46.9
million of repayments, because of undisclosed side arrangements between the
Japanese subsidiary and certain customers that made such customers' payment
obligations conditional. These side arrangements were not disclosed by certain
employees of the Company's Japanese subsidiary to the financial institutions
upon the sale of the receivables. As a result, upon the discovery of such side
arrangements, the Company determined that it could not enforce the non-recourse
provisions under the terms of the factoring contracts. The 1998 cash used for
financing activities was partially offset by cash generated from the issuance of
common stock associated with the exercise of stock options.
The Company engages in business operations around the world and is therefore
exposed to foreign currency fluctuations. As of December 31, 1999, the Company
had identifiable assets totaling $149.6 million associated with its European
operations and $74.2 million associated with its Intercontinental operations.
The Company experiences foreign exchange transaction exposures from certain
balances denominated in different currencies. The Company hedges certain of
these short-term exposures under a plan approved by the Board of Directors (see
Note One of Notes to Consolidated Financial Statements). The Company also
experiences foreign exchange translation exposure on its net assets denominated
in different currencies. As certain of these net assets are considered by
Sybase, the U.S. parent company, to be a permanent investment in the respective
subsidiaries, the related foreign currency translation gains and losses are
reflected in accumulated foreign translation adjustments in stockholders'
equity.
Cash, cash equivalents and cash investments totaled $352.9 million at December
31, 1999 compared to $249.6 million at December 31, 1998, compared to $246.1
million at December 31, 1997.
In 1999, the Company sold its facility in Concord, Massachusetts and
simultaneously entered into a sales-leaseback agreement. Under the terms of this
agreement, the Company entered into a seven-year operating lease. The sales
price of $5.3 million resulted in a book gain of $2.8 million, which will be
amortized over the seven-year lease period.
In 1998, the Board of Directors authorized the Company to repurchase up to $25
million in shares of its outstanding common stock in open market transactions
from time to time, subject to price and market conditions. During 1999, an
additional $75 million was authorized under this program and on February 2,
2000, an additional $50 million was authorized by the Board of Directors. During
1999, the Company repurchased 4,931,254 shares under this program at a cost of
$60.7 million. During 1999, 3,499,753 shares of treasury stock were reissued in
connection with the Company's stock options and employee stock
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purchase plans. During 1998, the Company repurchased 600,000 shares of treasury
stock under this program at a cost of $3.3 million.
The Company believes that it has the financial resources needed to meet its
presently anticipated business requirements, including capital expenditures and
strategic operating programs, for the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statement" (SAB 101). SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements. All registrants are expected to apply the
accounting and disclosures described in SAB 101. The Company is currently
evaluating SAB 101 and has not completed its assessment of the impact of
adoption. Any change in the Company's revenue recognition policy resulting from
SAB 101 will be reported as a change in accounting principles in the quarter
ending June 30, 2000.
In June of 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (Statement 133). Statement 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. In
June 1999, the FASB issued Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which amended Statement No. 133 by deferring the effective
date to the fiscal year beginning after June 30, 2000. The Company has not
determined the effect, if any, that adoption will have on its consolidated
financial position or results of operations.
The Company adopted Statement of Position 97-2, "Software Revenue Recognition"
(SOP 97-2) and Statement of Position 98-4 "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition" (SOP 98-4) as of January
1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing revenue on
software transactions and supersede Statement of Position 91-1, "Software
Revenue Recognition". The adoption of SOP 97-2 and SOP 98-4 did not have a
material impact on the Company's consolidated financial results.
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions" (SOP 98-9). SOP 98-9 amends
SOP 98-4 to extend the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4 through fiscal years beginning after March 15, 1999.
The Company does not expect a material impact from the final adoption of SOP
98-9 on its future revenues and results of operations.
FINANCIAL RISK MANAGEMENT
Foreign Exchange Risk
As a global concern, the Company faces exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on the Company's
financial position and results of operations. Historically, the Company's
primary exposures have related to nondollar-denominated sales and expenses in
Europe, Asia Pacific, including Japan and Australia, and Latin America. In order
to reduce the effect of foreign currency fluctuations, the Company utilizes
foreign currency forward exchange contracts (forward contracts) to hedge
certain foreign currency transaction exposures outstanding during the period
(usually 35 days or less). The gains and losses on the forward contracts
mitigate the gains and losses on the Company's outstanding foreign currency
transactions. The Company does not enter into forward contracts for trading
purposes. All foreign currency transactions and all outstanding forward
contracts are marked-to-market at the end of the period with unrealized gains
and losses included in interest expense and other, net. The unrealized gain
(loss) on the outstanding forward contracts as of December 31, 1999 was
immaterial to the Company's consolidated financial statements.
The tables below provide information about the Company's foreign currency
forward and option contracts as of December 31, 1999 and 1998. All of the
outstanding forward contracts mature approximately 30 days from December 31.
The fair value of these outstanding forward contracts were not material as of
December 31, 1999 and 1998.
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(Amounts in thousands except exchange rates)
Average
Notional contract
Forward Contracts - 1999 amount rate
- -------------------------------------------- --------------- ---------------
Contracts for the purchase of US Dollars:
Australian Dollar $ 515 1.5524
Japanese Yen 5,595 101.8700
Swiss Franc 822 1.5815
Taiwan Dollar 158 31.7200
UK Pound 2,088 .6226
Contracts for sale of US Dollars:
Canadian Dollars $10,155 .6770
Euro 5,076 1.0152
Indonesian Rupiah 263 .0001
Thai Baht 886 .0264
Contracts for purchase of Euros:
Norwegian Krone $ 816 8.0918
Swedish Krona 799 8.6313
UK Pound 8,912 .6301
Contract for purchase of HK Dollars:
Thai Baht $ 893 4.8823
-------
Total $36,978
=======
Average
Notional contract
Forward Contracts - 1998 amount rate
- -------------------------------------------- -------------- ---------------
Contracts for the purchase of US Dollars:
Canadian Dollar $ 8,400 1.5474
French Franc 5,435 5.6225
Indonesia Rupiah 354 8170.0000
Thai Baht 849 36.5300
Contracts for the sale of US Dollars:
Belgium Franc $ 838 34.5800
German Mark 893 1.6776
Japanese Yen 1,499 113.0000
Netherland Guilder 9,006 1.8840
Swiss Franc 1,084 1.3800
Taiwan Dollar 1,987 32.4700
UK Pound 2,317 0.6050
Contracts for the purchase of Netherland Guilders:
Canadian Dollar $ 4,006 1.2175
Swiss Franc 1,012 1.3652
Contract for the sale of Netherland Guilders:
Belgium Franc $ 4,015 18.3546
French Franc 10,303 2.9843
German Mark 15,241 1.1230
Italian Lira 3,617 879.4690
Norwegian Krone 3,217 4.0547
Portuguese Escudo 2,501 91.4010
Swedish Krona 1,728 4.2945
Spanish Peso 3,919 75.4990
UK Pound 3,641 3.1143
Contracts for the purchase of Hong Kong dollars:
Australia Dollars $ 674 4.7458
Thai Baht 795 4.7154
-------
Total $87,331
=======
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates to
the Company's investment portfolio, which consists of taxable, short-term money
market instruments and debt securities with maturities between 90 days and two
years. The Company has no investments in equity securities. The Company does not
use derivative financial instruments in its investment portfolio. The Company
places its investments with high credit quality issuers and, by policy, limits
the amount of credit exposure to any one issuer.
The Company mitigates default risk by investing in only the safest and highest
credit quality securities and by monitoring the credit rating of investment
issuers. The portfolio includes only marketable securities with active secondary
or resale markets to ensure portfolio liquidity.
The Company has no cash flow exposure due to rate changes for cash equivalents
and cash investments as all of these investments are at fixed interest rates.
The table below presents principal (or notional) amounts and related average
interest rates by year of maturity for the Company's investment portfolio as of
December 31, 1999.
Weighted
average 1999 1998
interest Principal Principal
(In thousands) rate amounts amounts
---------- ---------- ---------
Cash equivalents 3.68% $102,091 $ 99,995
Short-term cash investments (maturities of one year or 5.63% 59,094 23,967
less)
Cash investments (maturities of one to two years) 5.89% 43,702 981
FUTURE OPERATING RESULTS
Sybase's future operating results may vary substantially from period to period
due to a variety of significant risks, some of which are discussed in this
Report on Form 10-K. We strongly urge current and prospective investors to
carefully consider the cautionary statements and risks contained in this Report.
Stock Price Volatility
Sybase's ability to exceed, or its failure to achieve, expected operating
results for any period could significantly impact the Company's stock price.
Inevitably, some investors will experience gains while others will experience
losses depending on the timing of their investment. The market for the Company's
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stock is highly volatile, and the trading price of the Company's Common Stock
has fluctuated widely during the past 5 years. The stock price may continue to
fluctuate in the future in response to various factors, including the Company's
financial results, press and industry analyst reports, market acceptance of our
products and pricing policies, activities of competitors, and other events. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations that have categorically affected the market price for
high-technology companies, but which often have been unrelated to the operating
performance of these companies.
Revenue-Related Factors
The timing and amount of Sybase's revenues are subject to a number of factors
that make it difficult to accurately estimate revenues and operating results on
a quarterly or annual basis. In the Company's experience, license fees revenues
tend to decline between the fourth quarter of one year and the first quarter of
the next year. This has contributed to lower total revenues and earnings in the
first quarter compared to the prior fourth quarter. We currently anticipate that
this seasonal pattern will continue.
Since the Company operates with little or no backlog, quarterly revenues depend
largely on orders booked and shipped in that quarter. Historically, the Company
has recorded 50% to 70% of its quarterly revenues in the last month of each
quarter, particularly during the final two weeks of that month. The Company's
customers include many large enterprises that make substantial investments in
our products and services. Therefore, the inability to record one or more large
orders from a customer at the very end of a quarter could materially and
adversely impact our results or operations. The Company's operating expenses are
based on projected annual and quarterly revenue levels, and are generally
incurred ratably throughout each quarter. Since our operating expenses are
relatively fixed in the short term, failure to realize projected revenues for a
specified period could impact operating results, causing an operating loss for
that period, as occurred in the first quarter of 1998.
In North America, Sybase currently ships most of its products from its
California and Massachusetts distribution facilities. Because we tend to record
a high percentage of revenues during the last two weeks of each quarter,
disruption of operations at either facility at that time (due to natural
calamity or systems failure, for example) could directly harm the Company's
ability to record revenues for such quarter. This could, in turn, have an
adverse impact on operating results.
Competition
The market for the Company's products and services is fast-paced and extremely
competitive, and is marked by dynamic customer demands, short product life
cycles, and the rapid emergence of the Internet marketplace. Sybase has numerous
competitors, including large companies such as Oracle Corporation, Microsoft
Corporation, and IBM Corporation, and smaller highly aggressive Internet firms.
Many of these companies may have greater financial, technical, sales, and
marketing resources, and a larger installed base than Sybase. In addition, our
competitors' advertising and marketing efforts could adversely influence
customer perception of our products and services, and harm our business and
prospects as a result. To remain competitive, Sybase must be able to develop new
products, enhance existing products and retain competitive pricing policies in a
timely manner. The Company's failure to compete successfully with new or
existing competitors could have a material adverse impact on the Company's
business, and on the market price of the Company's Common Stock.
Product Development
Increasing widespread use of the Internet may significantly alter how the
Company does business in the future. This, in turn, could affect our ability to
timely meet the demand for new or enhanced products and services at competitive
prices.
During 1998 and 1999, Sybase created certain integrated product sets intended to
offer customers more complete packaged solutions. As a result, certain
individual products incorporated into the product sets were no longer available
for sale separately. Such integration is intended to address customer needs in a
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more comprehensive way and improve Company revenues and profitability. However,
the elimination of certain products for individual sale could adversely affect
license fees and service revenues if this change is not well received in the
marketplace.
Sybase's future results may also be affected if its products cannot interoperate
and perform well with software products of other companies. Certain leading
applications currently are not interoperable with Sybase products, and others
may never be. In addition, many of Sybase's principal products are designed for
use with products offered by competitors. In the future, vendors of non-Sybase
products may become less willing to provide the Company with access to their
products, technical information, and marketing and sales support, which could
harm the Company's business and prospects.
Divisional Sales Model
In January 1999, the Company realigned its direct sales force, product teams and
professional services capabilities into four divisions. This reorganization was
intended to enhance overall Company revenues and profitability by providing
increased focus on each of four key markets: Enterprise Solutions, Mobile and
Embedded Computing, Internet Applications and Business Intelligence. If the
Company has misjudged the demand for its products and services in these markets,
or if the divisions are unable to coordinate their respective sales efforts in a
focused and efficient way, the change could materially and adversely affect
Sybase's business and prospects.
International Operations
Sybase derives a substantial portion of its revenues from its international
operations. In 1999, these revenues represented 39% of the Company's total
revenues. As a global concern, the Company faces exposure to adverse movements
in foreign currency exchange rates. For a discussion of risks associated with
currency fluctuation, see "Financial Risk Management -- Foreign Exchange Risk"
above, incorporated here by reference.
The Company's revenues from international operations could also fluctuate due to
the relative immaturity of some markets, rapid growth in other markets, and
organizational changes made by Sybase to accommodate these conditions. During
1998 and 1999, for example, the Company closed subsidiaries in Mexico, Thailand,
Chile, Peru and Venezuela. Several significant management and organizational
changes occurred in the same period, including the resignation or replacement of
several country managers in Europe and Asia and the European General Manager.
Other factors that could affect aspects of our international operations include:
- Changes in political, regulatory, or economic conditions
- Changes or limitations in trade protection laws
- Changes in tax treaties or laws favorable to Sybase
- Natural disasters
Intellectual Property
The Company's inability to obtain adequate copyright, patent or trade secret
protection for our products in certain countries may have a material adverse
impact on future operating results. Also, as the number of software products and
associated patents increase, it is possible that software developers will become
subject to more frequent infringement claims.
In the past, third parties have claimed that their patents or other proprietary
rights were violated by Sybase products. It is possible that such claims will be
asserted in the future. Regardless of whether these claims have merit, they can
be time consuming and expensive to defend or settle, and can harm the Company's
business and
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reputation. We do not believe our products infringe any third party patents or
proprietary rights, but there is no guarantee that we can avoid claims or
findings of infringement in the future.
Human Resources
The Company's inability to hire and retain qualified technical, managerial,
sales and other employees could harm our product development and sales efforts,
other aspects of Company operations, and our financial results. Competition for
such personnel is intense, particularly with the increase in pre-IPO Internet
"dot-com" companies that attract many skilled and knowledgeable individuals. The
Company's financial and stock price performance relative to the "dot-com"
companies and other companies with whom Sybase competes for employees could
also impact the degree of future employee turnover.
During 1998 and 1999, the Company experienced a number of changes in its
executive management team. For example, John Chen became the Company's Chairman
of the Board, President and Chief Executive Officer in 1998. In early 1999,
Pieter Van der Vorst became the Company's Chief Financial Officer, Pamela George
was named Vice President, Corporate Marketing, and Daniel Carl became Vice
President and General Counsel. Additionally, when the Company established its
operating divisions in 1999, it appointed a general manager for each division.
This resulted in changing or reassigning the prior job responsibilities of a
number of executives. Further changes involving executives and managers could
increase the current rate of employee turnover, particularly in consulting,
engineering and sales.
Acquisitions
Sybase frequently explores possible acquisitions and strategic ventures with
third parties as a way of expanding and enhancing its business. Sybase has
acquired a number of companies during the past several years, and will likely
acquire other companies, products, or technologies in the future. In 1999,
Sybase acquired Data Warehouse Network, a provider of industry-specific
business intelligence applications. During 1998, the Company acquired
Intellidex, a provider of data management technology for deploying and managing
data warehouse environments. For a further discussion of the Company's recent
acquisitions, see Note Ten to the Consolidated Financial Statements, Part II,
Item 8, incorporated here by reference.
The Company may not achieve the desired benefits of its acquisitions,
particularly if it is unable to successfully assimilate an acquired company's
management team, business infrastructure, company culture, or other important
factors. Additionally, dedication of additional Company resources to handle
these integration tasks could temporarily divert attention from other important
Company business. Such acquisitions could also result in costs, liabilities,
or additional expenses that could harm the Company's results of operations and
financial condition.
Recent Accounting Pronouncements
For a discussion of risks associated with recent accounting pronouncements, see
"New Accounting Pronouncements", above.
Year 2000 Update
Since January 1, 2000, Sybase's worldwide operations have not experienced any
significant problems or issues associated with the "Year 2000" issue.
Additionally, our customer support organizations have not reported any
significant Year 2000 problems experienced by customers as a result of using our
products. The "Year 2000" issue arose from uncertainty regarding how many
computer systems would be affected by the rollover at the end of 1999 of the
two-digit year value from 99 to 00. Systems that could not properly recognize
such information were in danger of generating incorrect data or suffering system
failure.
Well before the end of 1999, Sybase assessed all of its critical worldwide
infrastructure systems (e.g., computer and telephone systems) and business
systems (e.g., revenue, sales and marketing and finance functions) and also
completed the remedial work necessary to make these systems Year 2000 compliant.
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The costs associated with these actions did not have a significant effect on the
Company's results of operations or financial condition. The Company does not
believe it will experience any significant Year 2000-related issues, but it will
continue to monitor its operations throughout the remainder of the year. The
Company believes it is adequately prepared to resolve any Year 2000 issues that
may arise, and that the cost of doing so will not have a material effect on the
Company's results of operations or financial condition. There is no guarantee
that Sybase will not encounter Year 2000-related issues in the future.
Euro Currency
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversation rates between their existing currencies and the
Euro. The participating countries adopted the Euro as their common legal
currency on that date. The transition period will last through January 1, 2001.
There was no significant impact on the Company's worldwide operations caused by
the adoption of the Euro. The introduction and the use of the Euro has not
materially affected, and is not expected to affect in the future, the Company's
foreign exchange activities, its use of derivatives and other financial
instruments, or result in any material cost to the Company. The Company will
continue to assess the impact of the introduction of the Euro currency over the
transition period as well as the period subsequent to the transition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference to "MD&A -
Financial Risk Management", Part II, Item 7, incorporated here by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Page
Report of Independent Auditors 28
Consolidated Balance Sheets as of December 31, 1999 and 1998 29
Consolidated Statements of Operations for the Three Years Ended December 31, 1999,
1998 and 1997 30
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1999,
1998 and 1997 31
Consolidated Statements of Cash Flows for the Three Years Ended December 31,
1999, 1998 and 1997 32
Notes to Consolidated Financial Statements 33
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sybase, Inc.
We have audited the accompanying consolidated balance sheets of Sybase, Inc., as
of December 31, 1999 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Sybase,
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
January 20, 2000 except for Note Thirteen
as to which the date is
February 2, 2000
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29
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data) December 31,
1999 1998
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 250,103 $ 224,665
Short-term cash investments 59,094 23,967
--------- ---------
Total cash, cash equivalents and short-term cash investments 309,197 248,632
Accounts receivable, less allowance for doubtful accounts of $31,452
(1998 - $31,770) 182,708 199,303
Deferred income taxes 15,826 20,903
Other current assets 14,924 8,862
--------- ---------
Total current assets 522,655 477,700
Long-term cash investments 43,702 981
Property, equipment and improvements, net 67,587 101,433
Deferred income taxes 25,238 20,152
Capitalized software, net 35,934 35,773
Other assets 42,219 60,565
--------- ---------
Total assets $ 737,335 $ 696,604
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 8,349 $ 12,747
Accrued compensation and related expenses 57,625 49,061
Accrued income taxes 40,253 26,736
Other accrued liabilities 101,876 114,346
Deferred revenue 187,323 190,631
--------- ---------
Total current liabilities 395,426 393,521
--------- ---------
Other liabilities 5,799 2,011
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $0.001 par value, 8,000,000 shares authorized; none
issued or outstanding -- --
Common stock, $0.001 par value; 200,000,000 shares authorized;
82,952,192 shares issued and 80,920,691 shares outstanding (1998 -
81,769,334 shares issued and 81,169,334 shares outstanding) 83 82
Additional paid-in capital 432,352 416,501
Accumulated deficit (48,037) (102,471)
Accumulated other comprehensive loss (16,426) (9,702)
Cost of 2,031,501 shares of treasury stock (1998 - 600,000 shares) (31,862) (3,338)
--------- ---------
Total stockholders' equity 336,110 301,072
--------- ---------
Total liabilities and stockholders' equity $ 737,335 $ 696,604
========= =========
See accompanying notes.
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data) For the years ended December 31,
1999 1998 1997
--------- --------- ---------
Revenues:
License fees $ 421,645 $ 421,454 $ 471,036
Services 449,988 446,015 432,901
--------- --------- ---------
Total revenues 871,633 867,469 903,937
Costs and expenses:
Cost of license fees 46,241 37,573 31,356
Cost of services 217,053 235,574 248,625
Sales and marketing 324,694 392,979 469,161
Product development and engineering 136,272 148,583 138,590
General and administrative 68,876 65,406 62,607
Cost (reversal) of restructuring (8,528) 74,167 --
--------- --------- ---------
Total costs and expenses 784,608 954,282 950,339
--------- --------- ---------
Operating income (loss) 87,025 (86,813) (46,402)
--------- --------- ---------
Interest income 13,626 10,077 9,184
Interest expense and other, net 147 (2,329) (3,538)
--------- --------- ---------
Income (loss) before income taxes 100,798 (79,065) (40,756)
Provision for income taxes 38,303 14,063 14,668
--------- --------- ---------
Net income (loss) $ 62,495 $ (93,128) $ (55,424)
========= ========= =========
Basic net income (loss) per share $ 0.76 $ (1.15) $ (0.70)
========= ========= =========
Shares used in computing basic net income (loss)
per share 81,817 80,893 78,794
========= ========= =========
Diluted net income (loss) per share $ 0.74 $ (1.15) $ (0.70)
========= ========= =========
Shares used in computing diluted net income
(loss) per share 84,156 80,893 78,794
========= ========= =========
See accompanying notes.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands) Three years ended December 31, 1999
Retained Accumulated
Additional earnings other
Common stock paid-in (accumulated comprehensive Treasury
Shares Amount capital deficit) loss stock Total
--------- ----- --------- --------- --------- --------- ---------
Balances at December 31, 1996 76,609 $ 77 $ 359,161 $ 46,081 $ (8,511) $ -- $ 396,808
Common stock issued in connection
with business combinations 750 1 11,999 -- -- -- 12,000
Common stock issued under stock
option and stock purchase plans 2,639 2 26,765 -- -- -- 26,767
--------- ----- --------- --------- --------- --------- ---------
Subtotal 79,998 80 397,925 46,081 (8,511) -- 435,575
Net loss -- -- -- (55,424) -- -- (55,424)
Foreign currency translation
adjustments -- -- -- -- (8,636) -- (8,636)
---------
Comprehensive loss (64,060)
--------- ----- --------- --------- --------- --------- ---------
Balances at December 31, 1997 79,998 $ 80 $ 397,925 $ (9,343) $ (17,147) -- $ 371,515
Common stock issued under stock
option and stock purchase plans 1,771 2 13,201 -- -- -- 13,203
Acquisition of treasury stock (600) -- -- -- -- (3,338) (3,338)
Tax benefit of exercise of stock options -- -- 5,375 -- -- -- 5,375
--------- ----- --------- --------- --------- --------- ---------
Subtotal 81,169 82 416,501 (9,343) (17,147) (3,338) 386,755
Net loss -- -- -- (93,128) -- -- (93,128)
Foreign currency translation
adjustments -- -- -- -- 7,445 -- 7,445
---------
Comprehensive loss (85,683)
--------- ----- --------- --------- --------- --------- ---------
Balances at December 31, 1998 81,169 $ 82 $ 416,501 $(102,471) $ (9,702) $ (3,338) $ 301,072
Common stock issued and treasury stock
reissued under stock option and
stock purchase plans 4,683 1 7,951 (8,061) -- 32,133 32,024
Acquisition of treasury stock (4,931) -- -- -- -- (60,657) (60,657)
Tax benefit of exercise of stock
options -- -- 7,900 -- -- -- 7,900
--------- ----- --------- --------- --------- --------- ---------
Subtotal 80,921 83 432,352 (110,532) (9,702) (31,862) 280,339
Net income -- -- -- 62,495 -- -- 62,495
Foreign currency translation
adjustments -- -- -- -- (6,724) -- (6,724)
---------
Comprehensive income 55,771
--------- ----- --------- --------- --------- --------- ---------
Balances at December 31, 1999 80,921 $ 83 $ 432,352 $ (48,037) $ (16,426) $ (31,862) $ 336,110
========= ===== ========= ========= ========= ========= =========
See accompanying notes.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) For the years ended December 31,
1999 1998 1997
--------- --------- ---------
Cash and cash equivalents, beginning of year $ 224,665 $ 188,876 $ 156,796
Cash flows from operating activities:
Net income (loss) 62,495 (93,128) (55,424)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 90,009 107,798 104,739
Write-off of assets in restructuring (883) 23,560 --
Loss on disposal of assets 3,176 3,036 --
Deferred income taxes (9) (5) 85
Changes in assets and liabilities:
Accounts receivable 16,051 6,610 25,876
Other current assets (7,110) 9,274 (589)
Accounts payable (4,398) (6,774) (2,042)
Accrued compensation and related expenses 8,564 5,087 (3,855)
Accrued income taxes 13,517 (5,064) 4,848
Other accrued liabilities (8,347) 17,262 1,152
Deferred revenue (3,308) 20,158 2,521
Other 1,066 668 (3,130)
--------- --------- ---------
Net cash provided by operating activities 170,823 88,482 74,181
Cash used for investing activities:
Purchases of available-for-sale cash investments (124,541) (42,588) (76,652)
Maturity of available-for-sale cash investments 39,164 44,755 20,385
Sale of available-for-sale cash investments 7,529 30,146 16,732
Business combinations, net of cash acquired (8,155) (6,550) (4,533)
Purchase of property, equipment and improvements (27,952) (38,910) (36,362)
Proceeds from sale of property, equipment and improvements 11,109 7,274 --
Capitalized software development costs (18,744) (10,819) (21,658)
Increase (decrease) in other assets 3,561 (4,150) (7,516)
--------- --------- ---------
Net cash used for investing activities (118,029) (20,842) (109,604)
Cash provided by (used for) financing activities:
Increase (decrease) in other current liabilities (1,431) (45,474) 46,907
Net proceeds from issuance of common stock and reissuance of treasury stock 32,024 13,203 26,767
Tax benefit of exercise of stock options 7,900 5,375 --
Acquisition of treasury stock (60,657) (3,338) --
--------- --------- ---------
Net cash provided by (used for) financing activities (22,164) (30,234) 73,674
Effect of exchange rate changes on cash (5,192) (1,617) (6,171)
--------- --------- ---------
Net increase in cash and cash equivalents 25,438 35,789 32,080
--------- --------- ---------
Cash and cash equivalents, end of year 250,103 224,665 188,876
--------- --------- ---------
Cash investments, end of year 102,796 24,948 57,261
Total cash, cash equivalents and cash investments,
end of year $ 352,899 $ 249,613 $ 246,137
========= ========= =========
Supplemental disclosures:
Acquisition of Purchase Net, Inc. in exchange for common stock $ -- $ -- $ 12,000
--------- --------- ---------
Facility acquired and sold under sale and leaseback
arrangement $ -- $ 13,016 $ --
--------- --------- ---------
Interest paid $ 282 $ 489 $ 1,168
--------- --------- ---------
Income taxes paid $ 16,585 $ 19,584 $ 15,987
--------- --------- ---------
See accompanying notes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Sybase, Inc. (Sybase or the Company), one of the largest global independent
software companies in the world, helps businesses gain competitive advantage by
enabling them to integrate, manage and deliver applications, content and data
anywhere they are needed. The Company's software products and professional
consulting services provide a comprehensive platform for delivering the
integrated solutions businesses need to be successful. Through its enterprise
portal strategy, Sybase provides solutions that allow businesses to build the
e-Business infrastructures that provide their employees, customers, partners and
shareholders with a personalized, seamless integration of content, commerce and
communities.
The Company is organized into four separate business divisions, each of which
maintains financial accountability for its operating results, dedicated product
development and engineering, sales and product marketing, partner relationship
management and customer support teams.
The Enterprise Solutions Division (ESD) delivers products, technical support
and professional services required by businesses for developing and maintaining
operational systems including e-Business infrastructures. The Mobile and
Embedded Computing Division (MEC) provides solutions that deliver enterprise
information and applications to any location where business transactions occur,
whether it be at a self-service kiosk, a remote branch office, or in the field
using a hand-held device for remote access. The Internet Applications Division
(IAD) delivers a combination of technologies used in the development and
deployment of complex Internet-enabled applications. The Business Intelligence
Division (BID) delivers database management systems, warehouse design tools
and central meta data management facilities that enable customers to develop
business intelligence solutions that integrate and transform data from multiple
data sources.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sybase and its
subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation.
In January 1998, the Company discovered that certain accounting practices in its
Japanese subsidiary were not in accordance with U.S. generally accepted
accounting principals and the Company's policies. As a result of these
irregularities, the Company restated its revenues and results of operations for
the quarters ended September 30, 1997, June 30, 1997 and March 31, 1997. The
restatement resulted in a decrease in previously reported revenues for those
quarters totaling approximately $43 million.
The Company translates the accounts of its foreign subsidiaries using the local
foreign currency as the functional currency. For foreign subsidiaries in
countries with highly inflationary economies, the accounts are translated as if
the U.S. dollar was the functional currency. The assets and liabilities of
foreign subsidiaries are translated into U.S. dollars using current exchange
rates, and gains and losses from this translation process are credited or
charged to the "accumulated other comprehensive loss" account included in
stockholders' equity. Foreign currency transaction gains and losses, which
historically have not been material, are included in interest expense and other,
net in the consolidated statements of operations.
In order to reduce the effect of foreign currency fluctuations on its results of
operations, the Company hedges its exposure on certain transactional balances
that are denominated in foreign currencies through the use of foreign currency
forward exchange contracts. For the most part, these exposures consist of
intercompany accounts receivable owed to the Company as a result of local sales
of software licenses by the Company's international subsidiaries. These
exposures are denominated in Canadian, European and Asia Pacific currencies,
primarily the Canadian dollar, Yen, Euro and the Hong Kong dollar. These forward
exchange contracts are recorded at fair value and the resulting gains or losses,
as well as the associated
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premiums or discounts, are recorded in interest expense and other, net in the
consolidated statements of operations and are offset by corresponding gains and
losses from foreign exchange contracts on hedged balances.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the shorter of the
estimated useful life of the asset or the lease term.
CAPITALIZED SOFTWARE
The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", under which certain software
development costs incurred subsequent to the establishment of technological
feasibility may be capitalized and amortized over the estimated lives of the
related products. The Company determines technological feasibility to be
established upon the internal release of the product for acceptance testing.
Upon the general release of the product to customers, development costs for that
product are amortized over periods not exceeding three years, based on the
estimated economic life of the product. Capitalized software costs amounted to
$97.3 million, $77.1 million, and $69.4 million at December 31, 1999, 1998 and
1997, respectively, and related accumulated amortization was $61.3 million,
$41.4 million and $25.2 million, respectively. Software amortization charges
included in cost of license fees were $20.0 million, $19.5 million and $9.7
million for 1999, 1998 and 1997, respectively.
INTANGIBLE ASSET
Intangible assets, which have generally resulted from business combinations
accounted for as purchases (Note Ten), are recorded at amortized cost and are
included in other assets. Amortization is computed using the straight-line
method over periods of three to eight years. Management periodically reviews the
carrying amounts of the Company's intangible assets for indications of
impairment.
LONG-LIVED ASSETS
The Company evaluates their long-lived assets in accordance with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations, such as property, equipment and
improvements, and intangible assets, when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amount of the assets.
REVENUE RECOGNITION
The Company licenses software under noncancellable license agreements. License
fees revenues are recognized when a noncancellable license agreement is in
force, the product has been shipped, the license fee is fixed or determinable,
and collectibility is reasonably assured. If the fee is not fixed or
determinable, revenue is recognized as payments become due from the customer.
Sublicense fees are recognized as reported to the Company by its licensees.
License fees revenue for certain application development and data access tools
is recognized upon direct shipment to the end user or through an initial
reseller channel to the end user. If collectibility is not considered probable,
revenue is recognized when the fee is collected.
Maintenance and support revenues are recognized ratably over the term of the
related agreements, which in most cases is one year. Revenues from consulting
services under time and materials contracts and for training are recognized as
services are performed. Revenues from other contract services are generally
recognized under the percentage-of-completion method.
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The Company adopted Statement of Position 97-2, "Software Revenue Recognition,"
(SOP 97-2) and Statement of Position 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2, Software Revenue Recognition," (SOP 98-4) as of
January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing revenue
on software transactions and supercede Statement of Position 91-1, "Software
Revenue Recognition" (SOP 91-1). The adoption of SOP 97-2 and SOP 98-4 did not
have a material impact on the Company's financial results.
In December 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions" (SOP 98-9). SOP
98-9 amends SOP 98-4 to extend the deferral of the application of certain
passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. The
Company does not expect a material impact from the final adoption of SOP 98-9 on
its future revenues and results of operations.
TRANSFER OF FINANCIAL ASSETS
The Company finances certain software license and service agreements with
customers through the sale, assignment and transfer of the future payments under
those agreements to financing institutions, principally on a non-recourse basis.
The Company records such transfers as sales of the related accounts receivable
when it is considered to have surrendered control of such receivables under the
provisions of Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," (Statement 125). The Company adopted Statement 125 effective
January 1, 1997. The adoption of this statement did not have a material effect
on the Company's consolidated financial statements.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (Statement 123) encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based employee
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees, and Related Interpretations." Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of the
quoted market price of the Company stock at the date of the grant over the
amount an employee must pay to acquire the stock.
NET INCOME (LOSS) PER SHARE
Shares used in computing basic and diluted net income (loss) per share are based
on the weighted average shares outstanding in each period, excluding treasury
stock. Basic net income (loss) per share excludes any dilutive effects of stock
options. Diluted net income per share includes the dilutive effect of the
assumed exercise of stock options using the treasury stock method. However, the
effect of outstanding stock options has been excluded from the calculation of
diluted net loss per share in 1998 and 1997 as their inclusion would be
antidilutive. Accordingly, the calculation of diluted net loss per share does
not include the common stock equivalent effect (using the treasury stock method)
of 12,037,963 and 10,685,969 shares of common stock which may be issued under
outstanding stock options at December 31, 1998 and 1997, respectively.
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The following shows the computation of basic and diluted net income (loss) per
share at December 31:
(Dollars in thousands, except per share data) 1999 1998 1997
-------- -------- --------
Net income (loss) $ 62,495 $(93,128) $(55,424)
Shares used in computing basic net income
(loss) per share 81,817 80,893 78,794
Effect of dilutive securities - stock options 2,339 (a) (a)
Shares used in computing diluted net income
(loss) per share 84,156 80,893 78,794
Basic net income (loss) per share $ 0.76 $ (1.15) $ (0.70)
Diluted net income (loss) per share $ 0.74 $ (1.15) $ (0.70)
(a) The effect of outstanding stock options is excluded from the calculation of
diluted net loss per share, as their inclusion would be antidilutive.
COMPREHENSIVE INCOME
In 1997, the FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (Statement 130) which requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement. The
Company's components of comprehensive income (loss) consist of net income (loss)
and foreign currency translation adjustments.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
In 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(Statement 131), which establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements. Statement 131 requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. In addition, it establishes standards for related disclosures
about products and services, geographic areas and major customers. See Note
Nine.
NEW PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities," (Statement
133). Statement 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. In June 1999, the FASB issued Statement No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133," which amended Statement No. 133 by deferring
the effective date to the fiscal year beginning after June 30, 2000. The Company
is required to adopt Statement 133 for the year ending December 31, 2001. The
Company has not determined the effect, if any, that adoption will have on its
consolidated financial position or results of operations.
REVENUE RECOGNITION IN FINANCIAL STATEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statement (SAB 101). SAB 101
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements. All registrants are expected to apply the accounting and
disclosures described in SAB 101. The Company is currently evaluating SAB 101
and has not completed the assessment of the impact of adoption. Any change in
the Company's revenue recognition policy resulting from SAB 101 will be reported
as a change in accounting principles in the quarter ending June 30, 2000.
NOTE TWO: FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENT
Cash equivalents are highly liquid investments which consist principally of
taxable, short-term money market instruments with insignificant interest rate
risk and original maturities of three months or less. Cash equivalents are
stated at amounts which approximate fair value, based on quoted market prices.
Cash investments consist principally of taxable, short-term money market
instruments with maturities between 90 days and up to two years and are stated
at amounts which approximate fair value, based on quoted market
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prices. In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (Statement
115) management determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. At December 31, 1999 and 1998, the Company has classified
all of its debt and equity securities as available-for-sale pursuant to
Statement 115. The available-for-sale securities are recorded as follows at
December 31 (dollars in thousands):
1999 1998
-------- -------
Cash equivalents $102,091 $99,995
Short-term cash investments (maturities of one year or less) $ 59,094 $23,967
Cash investments (maturities of one to two years) $ 43,702 $ 981
Unrealized gains and losses at December 31, 1999 and 1998 and realized gains and
losses for the years then ended were not significant. Accordingly, the Company
has not made a provision for such amounts in its consolidated balance sheets.
The cost of securities sold is based on the specific identification method.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
At December 31, 1999, the Company had outstanding forward contracts, all having
maturities of approximately 30 days, to exchange various foreign currencies for
U.S. dollars in the amounts of $9.2 million and to exchange U.S. dollars, Euros
and Hong Kong dollars into various foreign currencies in the amounts of $16.4
million, $10.5 million, and $0.9 million, respectively. At December 31, 1998,
the Company had outstanding forward exchange contracts, all having maturities of
approximately 30 days, to exchange various foreign currencies for U.S. dollars,
and Dutch Guilders in the amounts of $15.0 million and $5.0 million,
respectively, and to exchange U.S. dollars, Dutch Guilders, and Hong Kong
dollars into various foreign currencies in the amounts of $17.6 million, $48.2
million and $1.5 million, respectively. Neither the cost nor the fair value of
these foreign currency forward contracts was material at December 31, 1999 or
1998. Two major U.S. multinational banks are counterparty to all of these
contracts during both 1999 and 1998.
NOTE THREE: PROPERTY, EQUIPMENT AND IMPROVEMENTS
The components of property, equipment and improvements are as follows at
December 31 (dollars in thousands):
Estimated useful
1999 1998 lives
---- ---- ----------------
Real property $ -- $ 4,467 20-25 years
Computer equipment and software 229,635 241,134 3 years
Furniture and fixtures 76,620 76,676 5 years
Leasehold improvements 44,173 44,075 lease term
--------- ---------
350,428 366,352
--------- ---------
Less accumulated depreciation (282,841) (264,919)
--------- ---------
Net property, equipment and improvements $ 67,587 $ 101,433
========= =========
Depreciation expense amounted to $54.2 million, $71.0 million and $81.5 million
in 1999, 1998 and 1997, respectively.
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NOTE FOUR: OTHER ASSETS
The components of other assets are as follows at December 31 (dollars in
thousands):
1999 1998
------- -------
Intangible assets, less accumulated amortization of $69,739
(1998 - $57,065) $24,528 $39,314
Deposits 3,929 5,548
Other 13,762 15,703
------- -------
$42,219 $60,565
======= =======
NOTE FIVE: LEASE OBLIGATIONS AND OTHER LIABILITIES AND COMMITMENTS
The Company leases certain office facilities and certain furniture and equipment
under operating leases expiring through 2010, which generally require Sybase to
pay operating costs, including property taxes, insurance and maintenance. These
facility leases generally contain renewal options and provisions adjusting the
lease payments based upon changes in the consumer price index, increases in real
estate taxes and operating expenses or in fixed increments. Rent expense is
reflected on a straight-line basis over the term of the lease. Capital lease
obligations incurred for equipment acquisitions have not been material.
In September 1999, the Company sold its facility in Concord, Massachusetts and
simultaneously entered into a sales-leaseback agreement. Under the terms of this
agreement, the Company entered into a seven-year operating lease. The sales
price of $5.3 million resulted in a book gain of $2.8 million, which will be
amortized on a straight-line basis over the seven-year lease period.
In September 1998, the Company terminated a five-year lease for its research and
development facility in Boulder, Colorado by exercising the option to purchase
the property for $13.0 million. As a result, the Company satisfied its
obligation to the lessor resulting in the release of $13.3 million in restricted
cash deposits. The Company subsequently entered into a sale-leaseback agreement
for the facility, which resulted in an immaterial gain. Under the terms of the
leaseback agreement, the Company entered into a twelve-year operating lease.
Future minimum lease payments under noncancellable operating leases having
initial terms in excess of one year as of December 31, 1999 are as follows
(dollars in thousands):
2000 $ 40,791
2001 31,217
2002 23,194
2003 14,152
2004 9,169
Thereafter 17,941
--------
Total minimum lease payments* $136,464
========
* Minimum payments have not been reduced by minimum sublease rentals of $11.5
million due in the future under noncancellable subleases.
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The following schedule shows the composition of total rental expense for all
operating leases except those with terms of a month or less that were not
renewed (dollars in thousands):
Year ending December 31,
------------------------
1999 1998 1997
------- ------- -------
Minimum rentals $31,507 $52,608 $44,923
Less: sublease rentals 3,779 2,180 2,601
------- ------- -------
$27,728 $50,428 $42,322
======= ======= =======
At December 31, 1999, the Company had outstanding letters of credit in the
amount of $1.6 million.
NOTE SIX: STOCKHOLDERS' EQUITY
PREFERRED STOCK RIGHTS
Under the Company's stockholder rights plan, each stockholder receives one right
to purchase one one-thousandth of a share of Series A Participating Preferred
Stock (a Right) for each share of common stock owned by the stockholder. Holders
of the Rights are entitled to purchase for $250.00 one one-thousandth of one
share of the Company's Series A Participating Preferred Stock in certain limited
circumstances involving acquisitions of, or offers for, 15 percent or more of
the Company's common stock. After any such acquisition is completed, each Right
entitles its holder to purchase for $250.00 an amount of common stock of the
Company, or in certain circumstances securities of the acquirer, having a then
current market value of two times the exercise price of the Right. In connection
with the stockholder rights plan, the Company has designated 200,000 shares of
its 8,000,000 shares of authorized but unissued Preferred Stock as "Series A
Participating Preferred Stock." Each one one-thousandth of each share of Series
A Participating Preferred Stock will generally be afforded economic rights
similar to one share of the Company's common stock. The Rights are redeemable
for a specified period at a price of $0.01 per Right and expire in March 2002.
STOCK OPTION PLANS
Pursuant to the terms of the Company's 1988 Stock Option Plan, an aggregate of
17,930,480 shares of common stock has been issued or reserved for issuance upon
the exercise of options granted to qualified employees and consultants of the
Company. The Board of Directors, directly or through committees, administers the
Plan and establishes the terms of option grants. The exercise price per share of
all incentive stock options granted under the 1996 Stock Option Plan must be at
least equal to the fair market value of the shares at the date of the grant.
Options granted prior to January 1, 1997 generally expire over terms not
exceeding ten years from the grant date, one month after termination of
employment, and six months after death or permanent disability of the optionee.
Options granted subsequent to January 1, 1997 generally expire over terms not
exceeding ten years from the grant date, three months after termination of
employment, two years after death, and one year after permanent disability of
the optionee. Options, in all of these cases, are exercisable to the extent
vested. Vesting generally occurs at the rate of 12.5 percent after 6 months and
the balance in equal installments over the following 42 months.
Pursuant to the 1996 Stock Option Plan, an aggregate of 9,727,000 shares of
common stock were reserved for issuance upon the exercise of options granted to
qualified employees and consultants of the Company. The Board of Directors,
directly or through committees, administers the Plan and establishes the terms
of option grants. The exercise price per share of all incentive stock options
granted under the Plan must be at least equal to the fair market value of the
shares at the date of the grant. The exercise price of all nonstatutory stock
options granted under the 1996 Stock Option Plan must be at least 85% of the
fair market value of the common stock on the date granted. Options generally
expire over terms not exceeding ten years from the grant date, three months
after termination of employment, two years after death, one year after permanent
disability, or at the end of the option's term in the case of retirement.
Options are
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exercisable to the extent vested. Vesting generally occurs at the rate of 12.5
percent after 6 months and the balance in equal installments over the following
42 months.
Pursuant to the 1999 Nonstatutory Stock Option Plan, an aggregate of 4,000,000
shares of common stock were reserved for issuance upon the exercise of options
granted to qualified employees and consultants of the Company. The Board of
Directors, directly or through committees, administers the Plan and establishes
the terms of option grants. The exercise price per share of all incentive stock
options granted under the Plan must be at least equal to the fair market value
of the shares at the date of the grant. The exercise price of all nonstatutory
stock options granted under the 1999 Stock Option Plan must be at least 85% of
the fair market value of the common stock on the date granted. Options generally
expire over terms not exceeding ten years from the grant date, three months
after termination of employment, two years after death, one year after permanent
disability, or at the end of the option's term in the case of retirement.
Options are exercisable to the extent vested. Vesting occurs at various rates
and over various time periods.
An aggregate of 700,000 shares of common stock has been issued or reserved for
issuance under the 1992 Director Stock Option Plan. All grants of options under
the Plan are automatic and nondiscretionary and may be granted only to
nonemployee directors. The exercise price of all options granted under the Plan
must be the fair market value of the shares at the date of grant. Options expire
in ten years from the date of grant and vest ratably over four years from the
grant date.
Price data and activity for the Company's option plans, including options
assumed by the Company in mergers with other companies (adjusted for the merger
exchange ratio) are summarized as follows:
Weighted average
Outstanding options exercise price
number of shares per share
---------------- ---------
Balance at December 31, 1996 12,762,192 $ 18.27
Granted 4,090,400 14.87
Exercised (1,402,285) 7.43
Cancelled (4,764,338) 21.14
-----------
Balance at December 31, 1997 10,685,969 $ 17.11
Granted 17,920,121 7.38
Exercised (128,078) 4.08
Cancelled (16,440,049) 13.60
-----------
Balance at December 31, 1998 12,037,963 $ 7.56
Granted 7,706,380 10.44
Exercised (3,398,910) 6.87
Cancelled (3,251,087) 7.92
-----------
Balance at December 31, 1999 13,094,346 $ 9.34
===========
At December 31, 1999, options to purchase 3,912,772 shares were exercisable at
prices ranging from $4.38 to $49.38. Shares available for grant totaled
7,674,573 at December 31, 1999.
In June 1998, the Board of Directors approved a stock option repricing program
pursuant to which all employees of the Company (excluding certain executive
officers) could elect to exchange or amend their then outstanding employee stock
options for new employee stock options having an exercise price of $6.88 per
share (equal to the then fair market value), with exercisability generally
prohibited until April 5, 1999. A total of 11,426,021 options with exercise
prices ranging from $8.00 to $45.69 per share were exchanged or amended under
the program. The exchange of such options are presented in the preceding table
as cancellations and corresponding grants.
The income tax benefits that accrue to the Company from exercises of
nonqualified stock options and disqualifying dispositions of incentive stock
options are recorded as additional paid-in capital.
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EMPLOYEE STOCK PURCHASE PLANS
The Company has an Employee Stock Purchase Plan and a Foreign Subsidiary
Employee Stock Purchase Plan (collectively the Plans), which allow eligible
employees to purchase common stock through payroll deductions. The Plans consist
of 6-month exercise periods. The shares can be purchased at the lower of 85
percent of the fair market value of the common stock at the first day of each
6-month exercise period or at the last day of each 6-month exercise period.
Purchases are limited to 10 percent of an employee's eligible compensation,
subject to an annual maximum as defined in the Plans.
As of December 31, 1999, an aggregate of 9,800,000 shares of common stock had
been reserved under the Plans, of which 1,836,282 shares remained available for
issuance. Employees purchased 1,284,250 shares in 1999, 1,642,993 shares in 1998
and 1,236,696 shares in 1997.
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION PLANS
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for grants to employees under its stock-based compensation plans, described
above. As a result, no compensation cost has been recognized for grants to
employees under its fixed stock option plans or its employee stock purchase
plan. Compensation cost for the estimated fair value of grants to nonemployee
consultants of stock-based compensation has not been material. Had compensation
cost been charged to expense for grants to employees under the Company's fixed
stock option plans and its employee stock purchase plan based on the fair value
at the grant dates for awards under those plans, consistent with the method
encouraged by Statement of Financial Accounting Standards No. 123, the Company's
net loss and net loss per share would have been increased to the pro forma
amounts indicated below:
(dollars in thousands) 1999 1998 1997
----------- ----------- -----------
Net income/(loss) As reported $62,495 $ (93,128) $(55,424)
Pro forma $35,479 $(139,541) $(63,797)
Basic net income/(loss) per share As reported $ 0.76 $ (1.15) $ (0.70)
Pro forma $ 0.43 $ (1.73) $ (0.81)
Diluted net income/(loss) per share As reported $ 0.74 $ (1.15) $ (0.70)
Pro forma $ 0.42 $ (1.73) $ (0.81)
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
Stock option plans Purchase plans
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Expected volatility 68.24% 68.36% 54.90% 68.24% 68.36% 54.90%
Risk-free interest rates 5.51% 5.15% 6.50% 4.86% 5.00% 5.60%
Expected lives (years) 4.25 3.50 4.25 .50 .50 .50
Expected dividend yield -- -- -- -- -- --
The weighted-average grant-date fair value of options granted in 1999, 1998 and
1997 was $5.98, $3.84 and $7.52 per share, respectively.
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The following table summarizes information about fixed stock options outstanding
at December 31, 1999:
Options outstanding Options exercisable
------------------- -------------------
Weighted-
average Weighted- Weighted-
remaining average average
contractual exercise exercise
Ranges of exercisable prices Shares life price Shares price
- ---------------------------- ---------- ----------- --------- ---------- ---------
$ 4.38 to $ 4.94 660,598 8.76 $ 4.94 175,751 $ 4.93
$ 5.75 to $ 6.88 5,000,747 7.26 $ 6.85 2,939,568 $ 6.86
$ 7.00 to $10.69 2,881,543 9.18 $ 9.19 428,785 $ 8.64
$10.81 to $49.38 4,551,458 9.27 $12.81 368,668 $27.67
---------- ----------- --------- ---------- ---------
$ 4.38 to $49.38 13,094,346 8.46 $ 9.34 3,912,772 $ 8.93
========== =========
NOTE SEVEN: INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and income tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
The following is a geographical breakdown of consolidated income (loss) before
income taxes (including intercompany royalties and expenses) by income tax
jurisdiction (dollars in thousands):
1999 1998 1997
-------- -------- --------
United States $ 23,576 $(46,786) $(30,899)
Foreign 77,222 (32,279) (9,857)
-------- -------- --------
Total $100,798 $(79,065) $(40,756)
======== ======== ========
The provisions (credits) for income taxes consist of the following (dollars in
thousands):
1999 1998 1997
-------- -------- --------
Federal
Current $ 10,745 $ (900) $ (4,496)
Deferred -- -- --
-------- -------- --------
10,745 (900) (4,496)
State
Current 4,373 375 750
Deferred -- -- --
-------- -------- --------
4,373 375 750
Foreign
Current 23,175 14,593 18,329
Deferred 10 5 85
-------- -------- --------
23,185 14,588 18,414
-------- -------- --------
Total $ 38,303 $ 14,063 $ 14,668
======== ======== ========
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The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The sources and
tax effects of the differences are as follows (dollars in thousands):
1999 1998 1997
-------- -------- --------
Tax (credit) at U.S. statutory rate $ 35,279 $(27,673) $(14,265)
State tax, net of federal benefit, before valuation
allowance 4,373 (1,408) (401)
Effect of foreign operations 4,070 27,618 21,035
Amortization of intangible assets 4,352 2,398 2,435
Research and development tax credits (745) -- --
Utilization of net operating loss and credit
carryforwards (11,941) -- --
Effect of valuation allowance -- 13,699 3,272
Other 2,915 (571) 2,592
-------- -------- --------
Total $ 38,303 $ 14,063 $ 14,668
======== ======== ========
Deferred income taxes result principally from temporary differences between
years in the recognition of certain revenue and expense items for Financial and
tax reporting purposes. Significant components of the Company's net deferred tax
assets were as follows at December 31 (dollars in thousands):
1999 1998
--------- ---------
Depreciation $ 21,122 $ 16,898
Deferred revenue 8,315 9,032
Accrued expenses 20,432 18,679
Allowance for doubtful accounts 9,599 10,548
Purchased software 156 373
Net operating loss carryovers and tax credits
carryforwards 24,184 40,366
Other assets 9,373 12,005
--------- ---------
Gross deferred tax asset 93,181 107,901
Unremitted foreign earnings (18,110) (5,095)
Capitalized R&D expenses (13,362) (18,105)
Other liabilities (65) (322)
--------- ---------
Gross deferred tax liability (31,537) (23,522)
Total before valuation allowance 61,644 84,379
Valuation allowance (20,580) (43,324)
--------- ---------
Net deferred tax assets $ 41,064 $ 41,055
Recorded as:
Current deferred tax assets $ 15,826 $ 20,903
Noncurrent deferred tax assets 25,238 20,152
--------- ---------
$ 41,064 $ 41,055
========= =========
The valuation allowance decreased by $22.7 million in 1999, including reductions
of deferred tax assets and the related valuation allowance previously recorded
for certain tax assets utilized during 1999 ($18.3 million) and reductions to
the deferred tax assets and the related valuation allowance previously recorded
($4.3 million). Deferred tax assets relating to carryforwards as of December 31,
1999 include approximately $10.7 million associated with stock option activity
for which any subsequently recognized tax benefits will be credited directly to
stockholders' equity. As of December 31, 1999, the Company had research and
development tax credits of $11.8 million that expire in years from 2005 through
2011 and foreign tax credits of $8.1 million expiring in 2000 and 2001.
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Realization of the Company's net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years in appropriate tax
jurisdictions to obtain benefit from the reversal of temporary differences and
from tax credit carryforwards. The amount of deferred tax assets considered
realizable is subject to adjustment in future periods if estimates of future
taxable income are reduced
No provision has been made for federal income taxes on unremitted earnings of
certain of the Company's foreign subsidiaries (approximately $2.8 million at
December 31, 1999) since the Company plans to permanently reinvest all such
earnings.
NOTE EIGHT: RETIREMENT PLAN
The Company has a retirement plan under Section 401(k) of the Internal Revenue
Code. Discretionary Company contributions are based on achieving certain
operating profit goals. There were no such discretionary Company contributions
made in 1999, 1998 or 1997.
NOTE NINE: SEGMENT AND GEOGRAPHICAL INFORMATION
The Company is organized into four separate business divisions, each of which
maintains financial accountability for its operating results, dedicated product
development and engineering, sales and product marketing, partner relationship
management and customer support teams.
The Enterprise Solutions Division (ESD) delivers products, technical support and
professional services required by businesses for developing and maintaining
operational systems including eBusiness infrastructures that allow companies to
present a personalized, seamless integration of content, commerce and
communities. The Mobile and Embedded Computing Division (MEC) provides solutions
that deliver enterprise information and applications to any locations where
business transactions occur, whether it be a self-service kiosk, a remote branch
office, or in the field using a hand-held devise for remote access. The Internet
Applications Division (IAD) delivers a combination of technologies used in the
development and deployment of complex Internet-enabled applications. The
Business Intelligence Division (BID) delivers industry specific database
management systems, warehouse design tools and central meta data management
facilities that enable customers to develop business intelligence solutions that
integrate and transform data from multiple data sources.
The Company reports its ESD, MEC, IAD and BID divisions as reportable segments
in accordance with Statement 131). The Company has not presented the reportable
segments discussed above for the year ended December 31, 1998, since these
segments were not established until 1999, and it would be impractical to restate
prior periods on this basis. The Company had two reportable segments in 1998:
license fees and professional services. The Company's consolidated statements of
operations disclose the available data for the two reportable segments
identified above for the years ended December 31, 1999, 1998 and 1997
In 1999, the Company's Chief Operating Decision Maker (CODM), which is the
President and Chief Executive Officer, evaluates performance based upon a
measure of segment operating profit or loss which includes an allocation of
common expenses, but excludes certain unallocated expenses. Segment revenue
includes transactions between the segments. These revenues are transferred to
the applicable segments less amounts retained which are intended to reflect the
costs incurred by the transferring segment. Allocated common costs and expenses
are allocated on measurable drivers of expense. Unallocated expenses represent
corporate expenditures that are not specifically allocated to the segments. The
Company's CODM does not view segment results below operating profit (loss), and
therefore, interest income, interest expense and other, net and the provision
for income taxes are not broken out by segment. The Company does not account for
or report to the CODM its assets or capital expenditures by segment.
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A summary of the segment financial information reported to the CODM for the year
ended December 31, 1999 is presented below (dollars in thousands):
Consolidated
ESD IAD MEC BID Elimination total
--------- --------- --------- --------- --------- ---------
Revenues:
License fees $ 311,455 $ 64,755 $ 37,244 $ 8,191 $ -- $ 421,645
Services 449,141 -- 233 614 -- 449,988
--------- --------- --------- --------- --------- ---------
Direct revenues from external customers 760,596 64,755 37,477 8,805 -- 871,633
Intersegment revenues 1,203 30,133 38,814 13,838 (83,988) --
--------- --------- --------- --------- --------- ---------
Total revenues 761,799 94,888 76,291 22,643 (83,988) 871,633
Total allocated costs and expenses 678,469 81,824 55,136 34,736 (83,988) 766,177
--------- --------- --------- --------- --------- ---------
Operating income (loss) before
Unallocated expenses 83,330 13,064 21,155 (12,093) -- 105,456
Unallocated expenses 18,431
---------
Operating income 87,025
Interest income, interest expense and
other, net 13,773
---------
Income before income taxes $100,798
=========
The Company operates in one industry segment (the development and marketing of
computer software and related services) and markets its products and services
internationally through both foreign subsidiaries and distributors located in
the Americas, Europe, Asia, Australia and New Zealand. Intersegment revenues,
which are eliminated in the consolidated financial statements, represent
royalties from license and service fees generated by the foreign operations.
Other includes operations in Asia, Australia, Canada, New Zealand and Latin
America.
The following table presents a summary of operating information and certain
year-end balance sheet information by geographic region (dollars in thousands)
Other includes operations in Asia, Australia, Canada, New Zealand and Latin
America:
1999 1998 1997
-------- -------- --------
Revenues:
Unaffiliated customers:
United States $504,217 $475,949 $537,485
Europe 231,862 253,162 232,561
Other 135,554 138,358 133,891
-------- -------- --------
Total $871,633 $867,469 $903,937
======== ======== ========
Long-lived assets, net:
United States $100,329 $150,120 $210,232
Europe 16,150 10,908 18,735
Other 11,570 15,492 17,843
-------- -------- --------
Total $128,049 $176,520 $246,810
======== ======== ========
NOTE TEN: BUSINESS COMBINATIONS
In March 1999, the Company paid $5.4 million for Convertible Secured Promissory
Notes due December 31, 2002 issued by Demica PLC (Demica), a provider of a
wholesale banking application using the Company's technology. The notes bear
interest at 8 percent per annum and are convertible into 29.9 percent of the
share capital of Demica. The Company accounts for its investment in this entity
under the equity method of accounting.
In February 1999, the Company acquired Data Warehouse Network Limited (DWN), an
Irish-based, privately held provider of packaged, industry-specific business
intelligence applications. Under terms of the acquisition
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agreement, the Company paid $2.7 million in cash for certain assets and assumed
certain liabilities of DWN. In addition, pursuant to the terms of the agreement,
the Company is obligated to make contingent payments based on certain
agreed-upon performance criteria. The aggregate maximum additional amount
payable over a three-year period is $5.3 million. The transaction was accounted
for as a purchase. Substantially all of the amount paid was allocated to
purchased software and intangible assets. The results of operations of DWN have
not been material in relation to those of the Company and are included in the
consolidated results of operations for periods subsequent to the acquisition
date.
In February 1998, the Company acquired Intellidex Systems, L.L.C., (Intellidex)
a provider of data management technology for deploying and managing data
warehouse environments. Under terms of the acquisition agreement, the Company
paid $5.0 million in cash for certain assets and assumed certain liabilities of
Intellidex. Of the amount paid, $3.7 million was allocated to purchased software
and the balance of $1.3 million was allocated to goodwill. In addition, pursuant
to the terms of the agreement, the Company is obligated to make contingent
payments based on certain agreed upon performance criteria. The maximum
additional amount payable over an aggregate three-year period is equal to $10.0
million. The transaction was accounted for as a purchase. The results of
operations of Intellidex are not material in relation to those of the Company
and have been included in the consolidated results of operations for periods
subsequent to the acquisition date.
In February 1997, the Company acquired Purchase Net, Inc., a developer of
application development software. The Company issued 750,000 shares of its
common stock with a fair market value of approximately $12.0 million for all the
outstanding shares of common stock of Purchase Net, Inc. The transaction was
accounted for as a purchase. The total purchase cost was $12.8 million,
including direct cost and expenses related to the acquisition, of which $12.7
million was allocated to purchased software and included in capitalized software
in the consolidated balance sheet. The results of operations of Purchase Net,
Inc., which are not material in relation to those of the Company, have been
included in the consolidated results of operations for periods subsequent to the
acquisition date.
In addition to the transactions discussed above, in 1997, the Company acquired
several distributors of its products in various countries in transactions
accounted for as purchases. The Company paid cash for the businesses totaling
$4.3 million. Amounts recorded as intangible assets from these transactions were
$8.3 million. These intangible assets are being amortized over periods of five
to seven years, which amounts were recorded as additional intangible assets.
There were no such purchases in 1999 and 1998. The Company paid approximately
$1.6 million and $2.8 million in 1998 and 1997, respectively, related to
earn-out provisions for transactions consummated in the current and prior years.
The results of operations of these entities prior to the acquisitions were not
material in relation to those of the Company. Results of operations of these
entities have been included in the consolidated results of operations for the
periods subsequent to the respective acquisition dates.
NOTE ELEVEN: LITIGATION
Following the Company's announcements on January 2, 1998 and January 21, 1998
regarding its preliminary results of operations for the quarter and year ended
December 31, 1997, several class action lawsuits were filed against the Company
and certain of its officers and directors in the United States District Court,
Northern District of California ("Northern California District Court"). The
complaints are similar and allege violations of federal and state securities
laws and request unspecified monetary damages. A consolidated, amended class
action complaint was served in June 1998 and named Sybase KK, the Company's
Japanese subsidiary, and Yoshi Ogawa, the Company's former Japan country
manager, as additional defendants. Plaintiffs filed a second amended complaint
in November 1999. The parties are currently engaged in settlement negotiations.
On January 27, 1998, a purported shareholder derivative action was filed in the
Superior Court of the State of California, County of Alameda ("Alameda County
Superior Court"). The complaint alleges that certain of the Company's present
and former officers and/or directors breached fiduciary duties owed to the
Company in connection with the underlying circumstances alleged in the
securities class action complaints described above. Sybase is a nominal
defendant in the action and no damages are sought from it. The Company filed a
demurrer to the complaint and the Court ruled against issuing a demurrer. Two
similar
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derivative actions were also filed in Alameda County Superior Court, and the
three derivative actions have now been consolidated. Pretrial discovery has
begun in those actions. On April 15, 1998, a derivative complaint was filed in
the Northern California District Court. A second similar derivative complaint
was also filed in the same court. These cases were dismissed by the Plaintiffs.
In addition, a similar complaint was filed in the Chancery Court in Delaware.
The parties have agreed to stay the Delaware case in light of the California
action.
Management believes that the claims contained in the actions described above are
without merit and the Company intends to defend against the claims vigorously.
In the opinion of management, resolution of this litigation is not expected to
have a material adverse effect on the financial position of the Company.
However, depending on the amount and timing, an unfavorable resolution of these
matters could materially affect the Company's future operations or cash flows in
a particular period.
Following the Company's announcement on April 3, 1995 of its preliminary results
of operations for the quarter ended March 31, 1995, several class action
lawsuits were filed against the Company and certain of its officers in the
Northern California District Court. The complaints are similar and allege
violations of federal and state securities laws and request unspecified monetary
damages. A consolidated amended class action complaint was served in August
1995. On March 25, 1996, the Court denied Sybase's motion to dismiss the amended
complaint in its entirety and granted the defendants' motion to dismiss certain
individual defendants. The Company filed a motion for summary judgment. Prior to
the judge ruling on the summary judgment, the parties agreed in April 1999 to
settle the case for $14.8 million, with Sybase responsible for $1.5 million of
such amount plus its accumulated legal expenses. The Company's insurers are
responsible for the balance. Sybase and the insurers paid the settlement amount
into an escrow account maintained by Sybase's outside attorneys pending approval
of the settlement by the Court. After settlement was reached, the court ruled in
favor of Sybase on the summary judgment motion and dismissed the case. The
plaintiffs appealed, and the Ninth Circuit Court of Appeals vacated the judgment
which dismissed the case, remanding the matter to the trial court for a hearing
on the settlement agreement. The settlement amount of $1.5 million, and the
related legal expenses were accrued by the Company during 1998. The settlement
amount was still held in escrow as of December 31, 1999.
The Company is also a party to various legal disputes and proceedings arising
from the ordinary course of business. In the opinion of management, resolution
of those matters is not expected to have a material adverse effect on the
consolidated financial position of the Company. However, depending on the amount
and timing of such resolution, an unfavorable resolution of some or all of these
matters could materially affect the Company's future results of operations or
cash flows in a particular period. The Company believes it has adequately
accrued for these matters at December 31, 1999.
NOTE TWELVE: RESTRUCTURING COSTS
In February 1998, the Company announced and began to implement a restructuring
plan (the 1998 Plan) aimed at improving productivity per employee. The plan
included reductions in sales and marketing and product development and
engineering expenses. The Company intended to significantly reduce its annual
operating expenses by realigning its resources around core product initiatives.
The 1998 Plan included estimated restructuring charges of $70.0 million to be
incurred in 1998. As part of the 1998 Plan, the Company terminated approximately
1,100 employees, consolidated or closed more than 45 facilities worldwide,
abandoned certain property, equipment and improvements (principally leasehold
improvements and computer hardware and software), wrote off costs of terminating
certain product lines and closed down subsidiaries in Mexico, Thailand, Chile,
Peru and Venezuela.
In the first phase of the restructuring, the Company focused its efforts on
eliminating product lines not core to the business. It also reduced personnel
and related facilities costs to achieve an immediate reduction in the Company's
cost structure. In the fourth quarter of 1998, the Company focused its
restructuring efforts on reducing costs, and realigning its sales force, product
teams and professional service capabilities into four new divisions. The charges
included reductions of personnel and related facilities costs.
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The amounts included in the restructuring charges for 1998 were as follows:
Q1 1998 Q4 1998 Total
-------- -------- --------
Termination payments to employees and other
related costs $ 11,631 $ 14,957 $ 26,588
Lease cancellations and commitments 6,267 9,930 16,197
Write-downs of:
Property, plant and equipment 7,660 838 8,498
Capitalized software 3,726 (85) 3,641
Prepaid royalties 3,953 -- 3,953
Other 1,441 (153) 1,288
Costs related to closing of subsidiaries, including
write-off of goodwill 7,681 1,815 9,496
Estimated product and employee termination liabilities 6,676 (5,013) 1,663
Other 2,659 184 2,843
-------- -------- --------
$ 51,694 $ 22,473 $ 74,167
======== ======== ========
Termination payments to employees and other related costs
In the first quarter of 1998, the Company incurred a restructuring charge of
approximately $11.6 million for severance payments and termination benefits in
connection with the termination of approximately 450 employees. In the fourth
quarter of 1998, the Company incurred additional restructuring charges of
approximately $15.0 million for severance payments and termination benefits paid
in connection with the additional termination of approximately 650 employees.
The severance payments and termination benefits were accrued and charged to
restructuring costs in the period that both the benefit amounts were determined
and such amounts were communicated to the affected employees.
Lease cancellation and commitments
In the first quarter of 1998, the Company incurred restructuring charges of $6.3
million for facilities consolidated or closed in Burlington, Massachusetts,
Mexico and Japan. In the fourth quarter of 1998, the Company incurred a
restructuring charge of $9.9 million for facilities consolidated or closed,
including sales offices in the United States, Europe and Asia. These offices
were primarily responsible for the sale of all the Company's software products,
professional services and customer support. These restructuring charges reflect
the remaining contractual obligations under facility leases net of anticipated
sublease income from the date of abandonment to the end of the lease term.
Certain facilities described above continued in use during the completion of the
restructuring. The Company continued to record monthly rent expense on these
facilities as an operating expense until the facilities were abandoned.
Write-downs of property, plant and equipment
In the first and fourth quarters of 1998, the Company, incurred restructuring
charges of $7.7 million and $0.8 million, respectively, related to the carrying
values of property, equipment and leaseholds abandoned in connection with the
restructuring. The specific assets charged to restructure included: personal
computers and equipment used by employees terminated; office equipment and
leaseholds in connection with closure or consolidation of facilities and
subsidiaries in the United States, Asia (including Japan) and Latin America;
and, certain internal use software abandoned in connection with the
restructuring. The assets were all taken out of service and held for disposal at
the date that they were identified for inclusion in the restructure, except for
the assets of the Japanese subsidiary which remained in use for three months.
The assets of the Japanese subsidiary were depreciated for the three months they
remained in use.
Write-downs of capitalized software/ prepaid royalties
In the first quarter of 1998, the Company incurred restructuring charges of $3.7
million related to the carrying value of capitalized software development costs
for those product lines which Sybase had eliminated as part of the 1998 Plan.
The products eliminated included Sybase MPP(TM) on
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certain platforms, certain APT products, dbQueue(TM), Web.SQL(TM), Lego Rom and
PowerBuilder(R) for Mac. In the first quarter of 1998, the Company also incurred
restructuring charges of $4.0 million related to the carrying value of prepaid
royalties paid by Sybase to third-party licensors. These prepaid royalties
related to technologies either embedded in abandoned products or technologies
abandoned because they were no longer core to the Company's business.
Costs related to closing of subsidiaries, including write off of goodwill
In the first quarter of 1998, the Company accrued approximately $7.7 million for
costs associated with the closure of certain subsidiaries. Of this amount,
approximately $7.4 million represented costs associated with the closure of the
Company's Mexican subsidiary. In the fourth quarter of 1998, the Company
recorded additional restructuring charges of $1.8 million associated with the
closing of subsidiaries consisting principally of the write-off of goodwill
related to the Company's subsidiary in Chile. The fourth quarter charge was
partially offset by the recovery of $0.9 million of certain accounts receivable
of the Mexican subsidiary previously charged to restructuring costs in the first
quarter of 1998.
Estimated product and employee termination liabilities
In the first quarter of 1998, the Company recorded restructuring charges of
approximately $6.7 million associated with anticipated liabilities for claims
resulting from the abandonment of products no longer core to the Company's
business and from the termination of employees. The amounts accrued were based
on the Company's previous experience with obligations associated with
end-of-life products and employee terminations, including payments made in
connection with the restructuring in 1996.
In the fourth quarter of 1998, the Company reevaluated this liability and based
on actual claims received, amounts paid to date and legal counsel's estimate of
future obligations to customers and employees, the Company reduced the liability
by approximately $5.0 million.
During 1999, the Company reversed by credit to operating expenses $8.5 million
of restructuring costs related to the 1998 Plan. The reversals included $3.8
million related to termination payments to employees and other related costs;
$4.2 million related to lease cancellations and commitments; and, $.5 million of
legal and other fees. The significant components of the reversal to the accrual
for termination payments to employees and other related costs included:
termination payments due to employees who were terminated as part of the 1998
Plan, which were not claimed by the affected employees or were not utilized
because the employee did not stay a specified period to qualify for the benefit;
termination payments due to employees who were terminated as part of the 1998
Plan but were asked to stay with the Company to fill open positions; and, an
accrual relating to an employee note receivable that was subsequently collected
by the Company. The significant components of the reversal relating to the
accrual for lease cancellations and commitments included: accruals where the
Company was able to sublet certain closed facilities earlier than anticipated or
was able to negotiate a settlement with the landlord for the termination of the
leases on certain closed facilities for an amount less than the amount provided
in the 1998 Plan.
The following table summarizes the activity related to the restructuring
liability at December 31, 1999 (in thousands):
Accrued Accrued
liabilities Amounts liabilities
at written Amounts Amounts at
12/31/98 off paid reversed 12/31/99
-------- ------- ---- -------- --------
Termination payments to employees and other related
costs $12,483 -- $ 8,208 $ 3,833 $ 442
Lease cancellations and commitments 9,538 -- 4,041 4,201 1,296
Costs related to closing of subsidiaries, including
write-off of goodwill 2,730 2,730 -- -- --
Other 2,567 -- 1,701 494 372
------- ------- ------- ------- -------
$27,318 $ 2,730 $13,950 $ 8,528 $ 2,110
======= ======= ======= ======= =======
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The remaining restructuring reserve primarily relates to certain lease payments
contractually required of the Company on certain closed facilities, net of
associated sublease amounts, and certain severance payments and termination
benefits payable to approximately eight employees terminated as part of the 1998
Plan. The leases expire at various dates through 2003, and substantially all the
remaining severance payments and termination benefits are expected to be paid in
the first quarter of 2000. The remaining severance payments and termination
benefits include four employees in Europe, who were notified in 1998 that their
positions would be eliminated as general and administrative functions were
eliminated from selected European subsidiaries. These employees were notified in
1998 that they would be entitled to such payments if they stayed until such
activities were completed. The remaining severance payments and termination
benefits also includes severance payments due to four employees terminated in
1998 in Brazil, who refused to collect their severance payments and instead
chose to file a claim for additional money from the Company. These claims and
related severance accruals were still outstanding at December 31, 1999.
NOTE THIRTEEN: SUBSEQUENT EVENTS
On February 2, 2000, the Board of Directors authorized the Company to repurchase
up to $50 million of its outstanding common stock in open market transactions
from time to time, subject to price and market conditions. This action increased
the $100 million which had previously been authorized under this program.
On January 28, 2000, the Company entered into a 15-year non-cancelable lease of
a new facility to be built in Dublin, California. The lessor has committed to
securing funding to acquire the land and to build two buildings with a total of
approximately 420,000 rentable square feet. The lease agreement provides for
five major milestones that if not met, within agreed upon dates, allow for
termination of the lease agreement. Payments under this lease will commence
after the successful completion of building A of the project, no earlier than
May 1, 2001. The company has the option to renew the lease for up to two
five-year extensions, subject to certain conditions.
The base rent shall be increased by four percent each year, commencing on the
month following the anniversary of the first completion date and thereafter on
each anniversary date of the adjustment date. The lease generally requires
Sybase to pay operating costs, including property taxes, insurance and
maintenance in addition to ordinary operating expenses (such as utilities). The
company has not entered into an agreement to purchase the facilities at the end
of the initial lease or at the end of the five-year lease extensions.
Future minimum payments under the lease agreement are as follows (dollars in
thousands):
2001 $ 5,200
2002 10,608
2003 11,302
2004 11,474
2005 11,933
--------
Thereafter 157,728
--------
Total minimum lease payments $208,245
========
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51
On January 20, 2000, the Company acquired Home Financial Networks (HFN), an
Internet financial services company specializing in the development of
customized e-Finance Web sites. The Company issued, or is expecting to issue,
7,817,471 shares of its common stock with a fair market value of approximately
$129.8 million and $25.9 million in cash for all the outstanding shares of
preferred and common stock of HFN. The share total (7,817,471) assumes the
exercise of all warrants and all vested and outstanding HFN options. In addition
to the HFN shares, the Company acquired certain assets and assumed certain
liabilities of HFN. The acquisition is accounted for as a purchase, and the
estimated excess of the purchase price over the fair value of the net assets
acquired has been preliminarily valued at $154.9 million. Of this excess, $20.0
million was allocated to customer list, $18.0 million was allocated to developed
Technology, $108.9 million was allocated to goodwill, and $8.0 million allocated
to in-process research and development. The amount allocated to in-process
research and development will be charged to expense as a non-recurring charge
during 2000 since the in-process research and development has not yet reached
technological feasibility and has no alternative future uses. The amount
allocated to customer list, developed technology and goodwill will
be amortized on a straight-line basis over an average of 7 years.
The following unaudited pro forma financial information presents the combined
results of operations of Sybase Inc. and HFN as if the acquisition had occurred
as of the beginning of 1998 and 1999, after giving effect to certain
adjustments, including amortization of goodwill and other intangible assets,
and excluding the write-off of acquired in-process research and development.
The pro forma financial information does not necessarily reflect the results
of operations that would have occurred had the two companies constituted a
single entity during such periods.
(In thousands except for per share data) 1999 1998
--------- ---------
Revenue $ 876,969 $ 868,815
Net income (loss) $ 33,955 (117,250)
Basic net income (loss) per share $ 0.39 (1.32)
Diluted net income (loss) per share $ 0.38 (1.32)(a)
(a) The effect of outstanding stock options is excluded from the calculation of
diluted net loss per share, as their inclusion would be antidilutive.
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QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Three months ended (in thousands, March 31, June 30, September 30, December 31,
except per share and stock price data) 1999 1999 1999 1999 1999
--------- --------- --------- --------- ---------
Revenues:
License fees $ 98,270 $ 95,703 $ 104,216 $ 123,456 $ 421,645
Services 109,998 114,484 111,887 113,619 449,988
--------- --------- --------- --------- ---------
Total revenues: 208,268 210,187 216,103 237,075 871,633
Costs and expenses:
Cost of license fees 12,296 8,492 9,204 16,249 46,241
Cost of services 54,042 52,110 55,880 55,021 217,053
Sales and marketing 81,285 80,884 79,135 83,390 324,694
Product development and engineering 37,178 35,385 34,823 28,886 136,272
General and administrative 17,051 17,736 16,630 17,459 68,876
Cost (reversal) of restructure -- (5,619) -- (2,909) (8,528)
--------- --------- --------- --------- ---------
Total costs and expenses 201,852 188,988 195,672 198,096 784,608
--------- --------- --------- --------- ---------
Operating income 6,416 21,199 20,431 38,979 87,025
Interest income and expense, net 3,040 3,581 4,728 2,424 13,773
--------- --------- --------- --------- ---------
Income before income taxes 9,456 24,780 25,159 41,403 100,798
Provision for income taxes 3,581 10,480 9,103 15,139 38,303
--------- --------- --------- --------- ---------
Net income $ 5,875 $ 14,300 $ 16,056 $ 26,264 $ 62,495
========= ========= ========= ========= =========
Basic net income per share $ 0.07 $ 0.17 $ 0.20 $ 0.32 $ 0.76
Diluted net income per share $ 0.07 $ 0.17 $ 0.19 $ 0.31 $ 0.74
Stock prices:
High $ 11.00 $ 11.00 $ 13.19 $ 18.50 $ 18.50
Low $ 5.53 $ 6.48 $ 10.00 $ 10.63 $ 5.53
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53
Three months ended (in thousands, March 31, June 30, September 30, December 31,
except per share and stock price data) 1998 1998 1998 1998 1998
--------- --------- --------- --------- ---------
Revenues:
License fees $ 96,004 $ 105,920 $ 98,759 $ 120,771 $ 421,454
Services 110,813 111,950 111,498 111,754 446,015
--------- --------- --------- --------- ---------
Total revenues: 206,817 217,870 210,257 232,525 867,469
Costs and expenses:
Cost of license fees 10,098 8,934 8,921 9,620 37,573
Cost of services 62,782 56,064 57,807 58,921 235,574
Sales and marketing 108,434 103,412 87,684 93,449 392,979
Product development and engineering 37,133 33,260 36,865 41,325 148,583
General and administrative 16,425 14,588 15,016 19,377 65,406
Cost of restructuring 51,694 -- -- 22,473 74,167
--------- --------- --------- --------- ---------
Total costs and expenses 286,566 216,258 206,293 245,165 954,282
--------- --------- --------- --------- ---------
Operating income (loss) (79,749) 1,612 3,964 (12,640) (86,813)
Interest income and expense, net 2,075 2,338 1,743 1,592 7,748
--------- --------- --------- --------- ---------
Income (loss) before income taxes (77,674) 3,950 5,707 (11,048) (79,065)
Provision for income taxes 3,520 3,500 3,500 3,543 14,063
--------- --------- --------- --------- ---------
Net income (loss) $ (81,194) $ 450 $ 2,207 $ (14,591) $ (93,128)
========= ========= ========= ========= =========
Basic net income (loss) per share $ (1.01) $ .01 $ .03 $ (0.18) $ (1.15)
Diluted net income (loss) per share $ (1.01) $ .01 $ .03 $ (0.18) $ (1.15)
Stock prices:
High $ 10.69 $ 10.38 $ 10.06 $ 8.03 $ 10.69
Low $ 7.00 $ 6.50 $ 5.84 $ 4.53 $ 4.53
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this item with respect to identification of
directors is incorporated by reference to "Election of Directors" in Sybase's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held May
25, 2000 (Proxy Statement). The Proxy Statement will be filed with the
Commission within 120 days after the end of Sybase's fiscal year ended December
31, 1999. For information regarding the Company's executive officers, see
"Executive Officers of the Registrant" at the end of Part I of this Report on
Form 10-K.
The information required by this item with respect to the information required
under Item 405 of Regulation S-K is incorporated by reference to "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to "Executive
Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to "Stock
Ownership of Management and Beneficial Owners" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
"Employment Agreements and Certain Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form 10-K:
1. Financial Statement Schedules. The following financial statement
schedules of Sybase, Inc. for the years ended December 31, 1999, 1998 and 1997
are filed as part of this Report on Form 10-K and should be read in conjunction
with the Consolidated Financial Statements in Part II, Item 8, and related
notes.
Form 10-K
Schedule Page
- -------- ----
II Valuation and Qualifying Accounts 58
Schedules not listed above have been omitted because they are either (i) not
applicable or are not required, or (ii) the information is included in the
Consolidated Financial Statements and related notes, Part II, Item 8.
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2. Exhibits Required by Item 601 of Regulation S-K. The management
contracts and compensatory plans required to be filed as part of, or
incorporated by reference into, this Report are: (i) 1988 Stock Option Plan, as
amended, Exhibit 10.1, (ii) 1991 Employee Stock Purchase Plan, as amended, and
1991 Foreign Subsidiary Employee Stock Purchase Plan, as amended, Exhibit 10.2,
(iii) Sybase Key Management Incentive Program, Exhibit 10.3, (iv) Sybase, Inc.
401(K) Plan, as amended, Exhibit 10.4, (v) 1992 Director Stock Option Plan, as
amended, Exhibit 10.5, (vi) Executive Deferred Compensation Plan, Exhibit 10.6,
(vii) 1996 Stock Plan, as amended, and form of Stock Option Agreement, Exhibit
10.7, (viii) Retirement Agreement and General Release dated as of November 5,
1998 between Mitchell Kertzman and the Sybase, Inc., Exhibit 10.12, (ix) Loan
and Security Agreement dated as of January 7, 1998 between Sybase, Inc. and
Mitchell E. Kertzman, Exhibit 10.13, (x) Agreement of Employment Terms dated as
of August 1, 1996 between Sybase, Inc. and Jack Acosta, Exhibit 10.14, (xi) Form
of Statement of Employment Terms, Exhibit 10.20, (xii) Form of Amendment to Form
of Statement of Employment Terms, Exhibit 10.21, (xiii) Retirement Agreement and
General Release between Sybase, Inc. and Michael Forster dated as of March 11,
1998, Exhibit 10.22, (xiv) Employment Agreement between Sybase, Inc. and John S.
Chen dated as of July 11, 1997, Exhibit 10.23, (xv) Promissory Note of Eric
Miles in favor of Sybase, Inc. dated as of January 2, 1998, Exhibit 10.26, (xvi)
Promissory Note of Richard LaBarbera in favor of Sybase, Inc. dated as of
December 17, 1997, Exhibit 10.27, (xvii) Offer Letter dated February 12, 1998
between Michael Gardner and Sybase, Inc., Exhibit 10.9, (xviii) 1999
Nonstatutory Stock Plan, and form of Stock Option Agreement, Exhibit 10.28, and
(xiv) Severance Agreement and General Release between Sybase, Inc. and Michael
S. Gardner dated March 26, 1999, Exhibit 10.29, (xv) Home Financial Network,
Inc. 1995 Stock Plan, and form of Stock Option Agreement, Exhibit 10.30.
The following Exhibits are filed as part of, or incorporated by
reference into, this Report on Form 10-K:
Exhibit No. Description
----------- -----------
3.1(4) Restated Certificate of Incorporation of Registrant, as
amended
3.2(9) Bylaws of Registrant, as amended
4.1 Preferred Share Rights Agreement dated as of March 24,
1992 between Registrant and The First National Bank of
Boston, as amended, (incorporated herein by reference to
Exhibit 4.2 of the Registrant's Registration Statement on
Form S-8 (file no. 33-81692) filed July 18, 1994)
10.1(6) 1988 Stock Option Plan and Forms of Incentive Stock Option
Agreements and Nonstatutory Stock Option Agreements, as
amended
10.2(9) 1991 Employee Stock Purchase Plan and 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended
10.3(9) Sybase Key Management Incentive Program
10.4(1) Sybase, Inc. 401(k) Plan, as amended
10.5(9) 1992 Director Stock Option Plan, as amended
10.6(9) Executive Deferred Compensation Plan, as amended
10.7(9) 1996 Stock Plan, as amended, and form of Stock Option
Agreement
10.8(1) Standard Office Lease dated April 17, 1989 between
Registrant and P.O. Partners
10.9(9) Offer Letter dated February 12, 1998 between Michael
Gardner and Sybase, Inc.
10.10(9) Form of Indemnification Agreement
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56
10.11(3) Lease dated October 1, 1992 between JS-Bay Center
Associates and the Registrant
10.12(9) Retirement Agreement and General Release dated November 5,
1998 between Mitchell Kertzman and the Registrant
10.13(6) Loan and Security Agreement dated as of January 7, 1998
between Sybase, Inc. and Mitchell E. Kertzman
10.14(6) Agreement of Employment Terms dated as of August 1, 1996
between Sybase, Inc. and Jack Acosta
10.15(5) Powersoft Corporation 1984 Incentive Stock Option Plan, as
amended
10.16(5) Powersoft Corporation Form of Incentive Option Granted
under the 1984 Incentive Stock Option Plan
10.17(5) Powersoft Corporation 1994 Amended and Restated Incentive
and Non-Qualified Stock Option Plan
10.18(5) Powersoft Corporation Forms of Incentive and Non-Qualified
Stock Option Granted under the 1994 Amended and Restated
Incentive and Non-Qualified Stock Option Plan
10.19(5) Powersoft Corporation 1994 Amended and Restated Employee
Stock Purchase Plan
10.20(7) Form of Statement of Employment Terms
10.21(9) Form of Amendment No. 1 to Form of Statement of Employment
Terms
10.22(6) Retirement Agreement and General Release between Sybase,
Inc. and Michael Forster dated as of March 11, 1998
10.23(8) Employment Agreement between Sybase, Inc. and John S. Chen
dated as of July 11, 1997
10.24(6) Office Lease dated March 17, 1998, Building A - Bay Center
between Sybase, Inc. and JS Bay Center Associates
10.25(6) Office Lease dated March 17, 1998, Building C - Bay Center
between Sybase, Inc. and JS Bay Center Associates
10.26(6) Promissory Note of Eric Miles in favor of Sybase, Inc.
dated as of January 2, 1998
10.27(9) Promissory Note of Richard LaBarbera in favor of Sybase,
Inc. dated as of December 17, 1997
10.28 1999 Nonstatutory Stock Plan, and form of Stock Option
Agreement
10.29 Severance Agreement and General Release between Sybase, Inc. and
Michael S. Gardner dated March 26, 1999.
10.30 Home Financial Network, Inc. 1995 Stock Plan, and form of
Stock Option Agreement(10)
13.1(2) Proxy for 2000 Annual Meeting of Stockholders
21 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
27 Financial Data Schedules
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57
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
33-41549) declared effective on August 13, 1991.
(2) To be filed with Securities and Exchange Commission not later than 120 days
after the end of the period covered by this Report on Form 10-K.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, filed on March 29, 1993.
(4) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 filed March 8, 1994 (File No. 33-75462).
(5) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (file no. 33-89334) filed on February 10, 1995.
(6) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(7) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(8) Incorporated by reference to exhibits filed in response to Item 6(a),
"Exhibits and Reports on Form 8K" of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(9) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
(10) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (file no. 333-95079) filed on January 20, 2000.
(b) Reports on Form 8-K. The Company filed no Reports on Form 8-K during the
quarter ended December 31, 1999.
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
--------------------
SYBASE, INC.
COL. A COL. B COL. C COL. D COL. E
Additions
----------------------------
Charged
Balance at to Costs Charged Balance at
Beginning and to Other End of
Description of Period Expenses Accounts(A) Deletions(B) Period
- ---------------------------------------- ----------- ----------- ----------- ----------- -----------
Year ended December 31, 1999:
Deduced from asset accounts:
Allowance for doubtful accounts $31,770,000 $ 1,000 $11,448,000 $11,767,000 $31,452,000
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $30,673,000 $ 2,020,000 $12,191,000 $13,114,000 $31,770,000
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $28,242,000 $ 1,484,000 $45,582,000C $44,635,000 $30,673,000
A Sales returns and credit memos allowances
B Uncollectible accounts written off and recoveries
C Adjustments to quarterly revenue of the Company's Japanese Subsidiary
in 1997 for transactions which were not in compliance with the
Company's revenue recognition policy.
The required information regarding the valuation allowance for deferred tax
assets is included in Note 7 to the Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf of the undersigned, thereunto duly authorized.
SYBASE, INC.
By: /s/ JOHN S. CHEN
---------------------------------
March 27, 2000 John S. Chen
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on 10-K has been signed by the following persons in the capacities
and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ JOHN S. CHEN Chairman of the Board, President, March 27, 2000
- ---------------------------------- Chief Executive Officer (Principal
(John S. Chen) Executive Officer) and Director
/s/ PIETER VAN DER VORST Vice President and March 27, 2000
- --------------------------- ------ Chief Financial Officer (Principal
(Pieter Van der Vorst) Financial Officer)
/s/ MARTIN J. HEALY Vice President and Corporate March 27, 2000
- ---------------------------------- Controller (Principal Accounting
(Martin J. Healy) Officer)
/s/ RICHARD C. ALBERDING Director March 27, 2000
- ----------------------------------
(Richard C. Alberding)
/s/ L. WILLIAM KRAUSE Director March 27, 2000
- ----------------------------------
(L. William Krause)
/s/ ALAN B. SALISBURY Director March 27, 2000
- ----------------------------------
(Alan B. Salisbury)
/s/ ROBERT P. WAYMAN Director March 27, 2000
- ----------------------------------
(Robert P. Wayman)
/s/ CECILIA CLAUDIO Director March 27, 2000
- ----------------------------------
(Cecilia Claudio)
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1(4) Restated Certificate of Incorporation of Registrant, as
amended
3.2(9) Bylaws of Registrant, as amended
4.1 Preferred Share Rights Agreement dated as of March 24,
1992 between Registrant and The First National Bank of
Boston, as amended, (incorporated herein by reference to
Exhibit 4.2 of the Registrant's Registration Statement on
Form S-8 (file no. 33-81692) filed July 18, 1994)
10.1(6) 1988 Stock Option Plan and Forms of Incentive Stock Option
Agreements and Nonstatutory Stock Option Agreements, as
amended
10.2(9) 1991 Employee Stock Purchase Plan and 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended
10.3(9) Sybase Key Management Incentive Program
10.4(1) Sybase, Inc. 401(k) Plan, as amended
10.5(9) 1992 Director Stock Option Plan, as amended
10.6(9) Executive Deferred Compensation Plan, as amended
10.7(9) 1996 Stock Plan, as amended, and form of Stock Option
Agreement
10.8(1) Standard Office Lease dated April 17, 1989 between
Registrant and P.O. Partners
10.9(9) Offer Letter dated February 12, 1998 between Michael
Gardner and Sybase, Inc.
10.10(9) Form of Indemnification Agreement
10.11(3) Lease dated October 1, 1992 between JS-Bay Center
Associates and the Registrant
10.12(9) Retirement Agreement and General Release dated November 5,
1998 between Mitchell Kertzman and the Registrant
10.13(6) Loan and Security Agreement dated as of January 7, 1998
between Sybase, Inc. and Mitchell E. Kertzman
10.14(6) Agreement of Employment Terms dated as of August 1, 1996
between Sybase, Inc. and Jack Acosta
10.15(5) Powersoft Corporation 1984 Incentive Stock Option Plan, as
amended
10.16(5) Powersoft Corporation Form of Incentive Option Granted
under the 1984 Incentive Stock Option Plan
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10.17(5) Powersoft Corporation 1994 Amended and Restated Incentive
and Non-Qualified Stock Option Plan
10.18(5) Powersoft Corporation Forms of Incentive and Non-Qualified
Stock Option Granted under the 1994 Amended and Restated
Incentive and Non-Qualified Stock Option Plan
10.19(5) Powersoft Corporation 1994 Amended and Restated Employee
Stock Purchase Plan
10.20(7) Form of Statement of Employment Terms
10.21(9) Form of Amendment No. 1 to Form of Statement of Employment
Terms
10.22(6) Retirement Agreement and General Release between Sybase,
Inc. and Michael Forster dated as of March 11, 1998
10.23(8) Employment Agreement between Sybase, Inc. and John S. Chen
dated as of July 11, 1997
10.24(6) Office Lease dated March 17, 1998, Building A - Bay Center
between Sybase, Inc. and JS Bay Center Associates
10.25(6) Office Lease dated March 17, 1998, Building C - Bay Center
between Sybase, Inc. and JS Bay Center Associates
10.26(6) Promissory Note of Eric Miles in favor of Sybase, Inc.
dated as of January 2, 1998
10.27(9) Promissory Note of Richard LaBarbera in favor of Sybase,
Inc. dated as of December 17, 1997
10.28 1999 Nonstatutory Stock Plan, and form of Stock Option
Agreement
10.29 Severance Agreement and General Release between Sybase, Inc. and
Michael S. Gardner dated March 26, 1999.
10.30 Home Financial Network, Inc. 1995 Stock Plan, and form of
Stock Option Agreement (10)
13.1(2) Proxy for 2000 Annual Meeting of Stockholders
21 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
27 Financial Data Schedules
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
33-41549) declared effective on August 13, 1991.
(2) To be filed with Securities and Exchange Commission not later than 120 days
after the end of the period covered by this Report on Form 10-K.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, filed on March 29, 1993.
(4) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 filed March 8, 1994 (File No. 33-75462).
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(5) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (file no. 33-89334) filed on February 10, 1995.
(6) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(7) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(8) Incorporated by reference to exhibits filed in response to Item 6(a),
"Exhibits and Reports on Form 8K" of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(9) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
(10) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (file no. 333-95079) filed on January 20, 2000.
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