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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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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, 2000
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
26, 2001, as reported on the NASDAQ National Market System, was approximately
$1,139,000,000. 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 26, 2001, Registrant had 90,704,571 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-K PARTS DOCUMENT INCORPORATED BY REFERENCE
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III...... Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 24, 2001 (to be filed within 120
days of Registrant's fiscal year ended December 31, 2000)
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FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that involve risk
and uncertainties that could cause the actual results of Sybase, Inc. and its
consolidated subsidiaries (Sybase, or "we" or "us") 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 our
products and services; public perception of Sybase, our 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 our products with other software products, risks
inherent in completing the acquisition of other companies, the ability to
integrate acquired companies into our business, and other risks detailed from
time to time in our 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
our management, may identify forward-looking statements. Such statements reflect
the current views of our management with respect to future events and are
subject to 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. We do not intend to update these forward-looking
statements.
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PART I
ITEM 1. BUSINESS
Sybase provides the "heavy-lifting" infrastructure necessary to integrate
and manage large enterprises on the Web. Our products and services include
enterprise portal solutions, mobile and wireless solutions, and solutions in
such vertical markets as financial services, telecommunications, the public
sector and healthcare. Sybase was founded and incorporated in California on
November 15, 1984, and re-incorporated in Delaware on July 1, 1991. Our business
is organized into five principal operating divisions, two of which are wholly-
owned subsidiaries:
- ENTERPRISE SOLUTIONS (ESD) products and solutions let enterprises
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.
- IANYWHERE SOLUTIONS, INC. (IAS) products and solutions extend enterprise
systems to remote and wireless devices to enable e-Business and
m-Business (mobile business) anywhere, anytime. iAS is our wholly-owned
subsidiary, created to continue the business of the former Mobile and
Embedded Computing (MEC) division.
- 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 mission-critical areas.
- INTERNET APPLICATIONS (IAD) products and solutions allow businesses to
design, build and deploy distributed applications targeted for
business-to-employee, business-to-business, business-to-consumer, and
wireless markets. The products and solutions also form the foundation for
our middleware solutions and extend existing distributed client/server
applications (generally unsuitable for direct access on the Internet)
into the new Web environment.
- FINANCIAL FUSION, INC. (FFI) e-finance solutions and its global service
and support network enable financial institutions to integrate financial
services, channels, platforms, technologies and applications for delivery
to capital markets and retail clients. FFI is a wholly-owned subsidiary
created to carry on the business of Home Financial Network, Inc. (HFN),
which we acquired in January 2000.
A summary of financial results for these divisions and subsidiaries is
found in Note Ten to the Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference.
CUSTOMERS
Our customers are primarily Fortune 1000 companies in North America and
their equivalents in other geographic regions. Our primary markets include
financial services, insurance, telecommunications, healthcare, defense and
government agencies. No single customer accounted for more than 10% of total
revenues during 2000, 1999, or 1998. The following were among our customers
during 2000:
- A leading distributor of natural gas in North America using ADAPTIVE
SERVER(R) ENTERPRISE to rapidly implement a customer service system that
increased productivity for employees and customers and cut response time
from as high as 20 - 40 minutes down to a few seconds.
- A pre-eminent U.S. university using ADAPTIVE SERVER(R)ENTERPRISE and
SYBASE JAGUAR CTS(R) to provide access through the Web to its non-book
museum and archive collections, including more than one million records
linked to tens of thousands of digital images.
- A nation-wide U.S. bank using FINANCIAL FUSION SERVER(TM) and CONSUMER
E-FINANCE SUITE to deliver bill payment, content and customer care
features for its online delivery channel. Financial Fusion's
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technology allows the bank's customers to access their financial data
through wireless devices like a PDA (Personal Digital Assistant) or on a
Web-enabled phone.
- A regional utility using SQL ANYWHERE(R) STUDIO to create a new
information infrastructure enabling linemen to access maps of buried
electrical lines from their laptops, thus reducing paper waste and
reducing the risk of accidental power outages.
- A world-leading telecommunications provider using ENTERPRISE APPLICATION
SERVER(TM) to develop a business and financial reporting system allowing
worldwide senior management to monitor business performance in near
real-time using Web technology.
PRODUCTS
Sybase Enterprise Portal, introduced in 2000, provides a platform for
integrating vast stores of data and applications, and making them available over
the Web to enable e-Business anytime, anywhere. The Sybase Enterprise Portal
offers open architecture, which allows users to get their businesses on the Web
faster and at less cost than with our main competitor. Sybase Enterprise Portal
version 2.0 became available in March 2001.
Sybase Enterprise Portal also leverages our leadership in mobile and
wireless technology, enabling e-Business and m-Business (mobile business) as far
as enterprises reach, using cellular phones, alpha pagers, and personal digital
assistants (PDAs).
Sybase Enterprise Portal supports vertical solutions that are
content-specific to a particular industry, and horizontal solutions designed for
business-to-business (B2B) collaboration, business-to-customer (B2C)
transactions, and business-to-employee (B2E) telecommunications.
All of our products are available on hardware platforms manufactured by
Compaq (Digital), Hewlett-Packard, IBM, Sun Microsystems and others. We also
make 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 follows:
ENTERPRISE SOLUTIONS DIVISION (ESD)
Adaptive Server(R) Enterprise (ASE) is an information management system
designed to support the demanding requirements of both traditional and
e-Business mission critical applications. ASE, the portal-ready database,
delivers the unique features for increased developer productivity, continuous
availability of mission-critical applications and integration of disparate
operational systems, thus enabling the efficient and rapid delivery of
e-Business applications for the global economy.
Replication Server(R) and Replication Agents(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. Sybase
replication technology offers the first practical architecture for building
cost-effective, high-performance, robust distributed systems and supplies a
flexible approach to information delivery that can rapidly adapt to changing
business needs.
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 enables today's corporate enterprise databases with
a non-intrusive multi-platform message component framework. Event Broker enables
custom applications to transmit information to other applications within the
enterprise. Event Broker completely automates the capture and delivery of
business events while giving customers the flexibility to define the mapping
between events to better meet the needs of their enterprise requirements.
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IANYWHERE SOLUTIONS (IAS)
SQL Anywhere(R) Studio 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.
iAnywhere Wireless Server(R) is a scalable and reliable wireless
application server that provides data synchronization, messaging, content and
session management to extend e-Business to wireless devices. It is also a
gateway for secure wireless connectivity between IT and communications networks
(such as cellular networks and packet radio networks). By providing "always
available" access to corporate information even when a network connection is
unavailable, the iAnywhere Wireless Server enables organizations to transform
their business for the wireless revolution. iAnywhere Wireless Server became
available in May 2000.
INTERNET APPLICATION DIVISION (IAD)
Enterprise Application Server(TM) (EA Server) is the cornerstone for all of
our e-Business, wireless, and vertical solutions. This highly scalable and
robust J2EE compliant product is the foundation on which all classes of
enterprises can build new applications and extend existing applications to meet
the demands of the emerging business requirements. EA Server comes with
POWERJ(TM), a 4G1 Java tool for enterprise application development.
PowerDesigner(TM) is the Sybase product focused on the design requirements
of application development. PowerDesigner is a leading product in the market
place, with data, object, and process modeling capabilities supporting UML and
repositories.
PowerBuilder(R) is a high productivity application development tool
targeted for the client/server and Web application markets.
BUSINESS INTELLIGENCE DIVISION (BID)
Adaptive Server(R) IQ Multiplex (IQ-M) delivers a new generation of
capabilities for e-Business intelligence and Web enabled data warehousing. IQ-M
delivers data access, query performance and data loading 10 to 100 times faster
than traditional relational databases. Because of IQ's multiplexing
capabilities, this performance is maintained even as the number of users and the
amounts of data increases dramatically. IQ-M compresses even terabytes of data
and does not require continuous, laborious tuning and maintenance.
Industry Warehouse Studios(TM) (IWS) offer strategic, end-to-end business
intelligence infrastructure, which encompasses data acquisition, data modeling,
metadata management, data analysis, data storage and analytic applications. The
IWS products offer prepackaged solutions that can be customized for industries
such as retail banking, capital markets, insurance, healthcare and
telecommunications. These solutions provide the basic framework that enables an
organization to analyze their customers' behavior and its impact on the
business. This value chain solution results in an infrastructure that can be
implemented by customers with reduced risk and accelerated implementation and
usage of business intelligence applications.
FINANCIAL FUSION, INC. (FFI)
Financial Fusion Server(TM) provides a single strategic technology platform
that "fuses" e-finance applications, back-end systems, services and markets for
retail and institutional banking and brokerage services, both on the Web and
wirelessly. The solution bridges multiple languages, currencies and geographies
for global functionality.
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WORLDWIDE SERVICES
Technical Support. Our Customer Service and Support organizations offer
technical support for the entire family of Sybase products. We currently
maintain 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. Our end users and partners have access
to technical information sources and newsgroups on our 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.
- DEVELOPER 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 of our major divisions and subsidiaries 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.
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. We provide a broad education curriculum allowing customers and
partners to increase their proficiency in our 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 our distributors and authorized education providers also provide
training in our products.
SALES AND DISTRIBUTION
Licensing Model. Consistent with software industry practice, we do not sell
or transfer to our customers title to our 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. We also license many of our products for use in connection with
customer applications on the Internet. Our 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 2000, with European operations accounting
for 26% of total revenues, and intercontinental operations (principally Asia
Pacific (including Japan) and South America) accounting for 13% of total
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revenues. Most of our international sales are made by foreign subsidiaries.
However, certain sales were made in international markets from the United
States. We also license our products through distributors in those regions. A
summary of our 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 Ten to the
Consolidated Financial Statements, Part II, Item 8, incorporated here by
reference. For a discussion of the risks associated with our foreign operations,
see "MD&A -- Future Operating Results -- International Operations", Part II,
Item 7, incorporated here by reference.
INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of trade secret, copyright, patent and trademark
laws, as well as contractual terms, to protect our intellectual property rights.
As of March 26, 2001, we had 46 issued patents, expiring between 2013 and 2018,
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 Sybase 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 our
intellectual property, see "MD&A -- Future Operating Results -- Intellectual
Property", Part II, Item 7, incorporated here by reference.
RESEARCH AND DEVELOPMENT
Since inception, we have made substantial investments in research and
product development. We believe that timely development of new products and
enhancements to our existing products is essential to maintaining a strong
position in our market. During 2000, we invested $126.7 million, or 13% of our
total revenue in research and development. We intend to continue to invest
heavily in these areas. However, future operations could be affected if we fail
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, our backlog is typically small and is not material to an understanding
of our business.
COMPETITION
The market for our products and services is fast-paced, 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 26, 2001, Sybase and its subsidiaries had 4,864 employees.
Information regarding our executive officers is included in "Executive
Officers of the Registrant", at the end of Part I of this Report.
ITEM 2. PROPERTIES
Sybase is headquartered in Emeryville, California, where we lease
administrative and product development facilities consisting of approximately
446,000 square feet. The leases for these facilities are due to expire as
follows: approximately 225,600 square feet in 2002 and 220,470 square feet in
2003. We have renewal options, generally at the fair market value, under each of
these leases. As of January 28, 2000, we entered into a lease agreement for new
headquarters facilities in Dublin, California, consisting of approximately
406,000 square feet. Currently, we intend to move our Emeryville operations to
the new facility during the first half of 2002. For a further discussion
regarding the Dublin lease, see Note Six to the Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference.
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We maintain an engineering center in Milpitas, California, where we lease
approximately 20,749 square feet of office space through 2003. We also maintain
engineering centers in Boulder, Colorado; Paris, France; Waterloo, Canada; and
Singapore. The North American engineering centers focus on product development
for our divisions, and the Singapore facility is primarily focused on product
localization and development relating to our Asian markets.
As of December 31, 2000, our 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, we sold a building in Concord, Massachusetts consisting of
approximately 44,600 square feet. During that year, we 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, we sold a building consisting of approximately 10,500 square feet located
in Maidenhead, England. We are 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
Twelve to the Consolidated Financial Statements, Part II, Item 8.
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, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 26, 2001 are:
JOHN S. CHEN Mr. Chen has served Sybase in his present capacity since
Chairman, Chief Executive November 1998. From February through November 1998, he
Officer and President served as co-Chief Executive Officer. Mr. Chen joined Sybase
Age 45 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 is currently a director of The CIT Group, Inc..
ERIC L. MILES Mr. Miles has served in his present capacity since December
Sr. Vice President & GM 1998. Between December 1997, when he joined Sybase, and
Business Intelligence Division December 1998, he was Senior Vice President, Product
Age 54 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 since December
Sr. Vice President & GM 1998. Joining Sybase in November 1997, he served as Senior
Internet Applications Division Vice President, Corporate Program Office until December
Age 47 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.
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TERRY STEPIEN Mr. Stepien has served in his present capacity since May
President 2000. Prior to that he had served as Senior Vice President
iAnywhere Solutions, Inc. and General Manager of Mobile and Embedded Computing
Age 42 Division (MEC) since March 1999. From September 1998 to
March 1999, he was Vice President and General Manager of
MEC. 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 capacity since
Vice President and January 1999. Between November 1997 and January 1999, he
Chief Financial Officer served as Corporate Controller, and prior to that, he served
Age 46 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 since April
Vice President 1999. Prior to that she was Vice President of Corporate
Corporate Marketing Communications at Maxager Technology, beginning in December
Age 55 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 since April
Vice President and 1999. Immediately prior to that, he served as Director of
General Counsel European Legal Affairs, beginning in January 1997. Mr. Carl
Age 48 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 since January
Vice President and 1999. Between January 1997 and January 1999, he served as
Corporate Controller Vice President, Intercontinental Operations. Mr. Healy was
Age 38 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 capacity since March
Vice President Worldwide 1998. Prior to that, she was a human resources consultant to
Human Resources Sybase beginning in January 1998. Before joining Sybase, she
Age 54 was with Siemens Pyramid, serving as Vice President of
Worldwide Human Resources from February 1994 to October
1997.
MARTY BEARD Mr. Beard has served in his present capacity since August
Vice President 2000. Before joining Sybase, Mr. Beard was Vice President of
Corporate Development Oracle Online from June 1999 through July 2000. Prior to
Age 38 that he served as Senior Director, Mid-market Business
Solutions for Oracle Corporation beginning in July 1997.
From June 1993 through June 1997, Mr. Beard was Staff
Director, Corporate Strategy and Development for Pacific
Telesis Group.
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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 our stock as reported on the NASDAQ for the quarters
indicated.
HIGH LOW
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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
FISCAL 2000
Quarter ended March 31, 2000............................... $29.75 $16.50
Quarter ended June 30, 2000................................ $24.94 $18.25
Quarter ended September 30, 2000........................... $28.50 $21.13
Quarter ended December 31, 2000............................ $24.31 $17.56
We have never paid cash dividends on our capital stock, and we do not
anticipate doing so in the foreseeable future. The closing sale price of our
stock on the NASDAQ on March 26, 2001, was $16.57. The number of stockholders of
record on that date was 1,503.
On January 20, 2000, we issued 7,817,471 shares of Common Stock pursuant to
Section 4(2) of the Securities Act to the former shareholders of HFN in exchange
for all of the outstanding common stock of HFN, a privately-held developer of
financial software. The resale of the Sybase common stock issued in connection
with this merger transaction was registered under the Act. For further
discussion of this acquisition, see Note Eleven to the Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference.
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998 1997 1996
-------- -------- -------- -------- ----------
Revenues:
License fees....................... $468,501 $421,645 $421,454 $471,036 $ 605,491
Services........................... 491,957 449,988 446,015 432,901 406,054
-------- -------- -------- -------- ----------
Total revenues............. 960,458 871,633 867,469 903,937 1,011,545
Costs and expenses:
Cost of license fees............... 45,120 46,241 37,573 31,356 29,859
Cost of services................... 245,837 217,053 235,574 248,625 246,273
Sales and marketing................ 345,149 310,774 377,774 457,441 511,316
Product development and
engineering..................... 126,689 136,272 148,583 138,590 164,676
General and administrative......... 67,267 68,876 65,406 62,607 72,561
Amortization of goodwill and other
purchased intangibles........... 32,730 13,920 15,205 11,720 11,843
In-process research and
development..................... 8,000 -- -- -- --
Cost (reversal) of restructuring... (791) (8,528) 74,167 -- 49,232
-------- -------- -------- -------- ----------
Total costs and expenses... 870,001 784,608 954,282 950,339 1,085,760
-------- -------- -------- -------- ----------
Operating income (loss).............. 90,457 87,025 (86,813) (46,402) (74,215)
Interest income and expense, net..... 17,035 13,773 7,748 5,646 7,507
Minority interest.................... 94 -- -- -- --
-------- -------- -------- -------- ----------
Income (loss) before income taxes.... 107,586 100,798 (79,065) (40,756) (66,708)
Provision for income taxes........... 35,461 38,303 14,063 14,668 12,298
-------- -------- -------- -------- ----------
Net income (loss).................... $ 72,125 $ 62,495 $(93,128) $(55,424) $ (79,006)
======== ======== ======== ======== ==========
Basic net income (loss) per share.... $ 0.82 $ 0.76 $ (1.15) $ (0.70) $ (1.05)
-------- -------- -------- -------- ----------
Shares used in computing basic net
income (loss) per share............ 87,711 81,817 80,893 78,794 75,160
======== ======== ======== ======== ==========
Diluted net income (loss) per
share.............................. $ 0.78 $ 0.74 $ (1.15) $ (0.70) $ (1.05)
-------- -------- -------- -------- ----------
Shares used in computing diluted net
income (loss) per share............ 92,150 84,156 80,893 78,794 75,160
======== ======== ======== ======== ==========
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Cash, cash equivalents and cash
investments......................... $354,612 $352,899 $249,613 $246,137 $174,522
Working capital....................... 157,486 127,229 84,179 67,510 93,056
Total assets.......................... 915,040 737,335 696,604 781,625 751,891
Long-term obligations................. 5,795 5,799 2,011 1,959 2,871
Stockholders' equity.................. 490,752 336,110 301,072 371,515 396,808
Certain previously reported amounts have been reclassified to conform to
the current presentation format.
9
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We reported net income of $72.1 million for the year 2000, a 15% increase
over our reported net income for 1999 of $62.5 million. Our increase in
profitability primarily resulted from a 10% or $88.8 million increase in our
revenues and an increase in our operating margin, before restructuring credits
and charges relating to acquisitions, from 10.8% to 14.0%. The benefit from
these two items was offset by an increase of $29.6 million in amortization and
write-off charges relating to acquired intangibles primarily arising from our
2000 acquisition of HFN and a $7.7 million decrease in restructuring credits.
Our revenue growth during the year was due to strong performances in both
our core technologies and services, and our growth initiatives in enterprise
portals, wireless computing, and the financial services vertical. As of December
31, 2000, we had $354.6 million in cash, cash equivalents and cash investments,
and stockholders' equity of $490.8 million. Days sales outstanding in accounts
receivable was 74 days for the quarter ended December 31, 2000.
We are organized into five separate business segments, each focused upon
one of five key market segments -- Enterprise Solutions (ESD); iAnywhere
Solutions, Inc. (iAS), formerly our Mobile and Embedded Computing (MEC)
division; Internet Applications (IAD); Business Intelligence (BID); and
Financial Fusion, Inc. (FFI). For a discussion of each of these business
segments, see "Business", Part I, Item 1, incorporated here by reference.
With our focus on enterprise portals, wireless computing and vertical
solutions we believe we are in a strong position to succeed in very competitive
markets. We believe that these initiatives along with our strong customer base,
market-focused segment structure, and sound financial position allow for
continued financial stability and earnings growth.
RESULTS OF OPERATIONS
REVENUES
(Dollars in millions)
2000 CHANGE 1999 CHANGE 1998
------ ------ ------ ------ ------
License fees........................... $468.5 11% $421.6 -- $421.5
Percentage of total revenues......... 49% 48% 49%
Services............................... $492.0 9% $450.0 1% $446.0
Percentage of total revenues......... 51% 52% 51%
Total revenues............... $960.5 10% $871.6 -- $867.5
Total revenues for 2000 increased 10 percent over 1999. Total 1999 revenues
increased slightly compared to 1998 total revenues. The increase in 2000 from
1999 was due to strong license revenue growth in our core enterprise software,
wireless, and e-finance products, and growth in both our maintenance and
professional services revenues.
License fees revenues increased 11 percent over 1999 license fee revenues.
License fees revenues remained flat in 1999 when compared to 1998. In 2000, the
increase in license fees revenues was primarily due to increased sales in
certain product lines included in the ESD and MEC divisions and the revenues
from our FFI subsidiary, newly added in 2000. In 1999, license fees 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.
Services revenues grew 9 percent in 2000 compared to services revenues in
1999. Services revenues grew 1 percent between 1998 and 1999. The increase in
services revenues during 2000 was attributable to a 10 percent increase in
revenue from support and maintenance fees and an 8 percent increase in
professional services, education and consulting revenues. The increase in
support and maintenance revenues was primarily due to an increase in our
installed base. The increase in professional services revenues primarily related
to the
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13
professional services of FFI, which was formed in 2000 after our acquisition of
HFN. The increase between 1998 and 1999 was primarily attributable to increased
support and maintenance fees revenues from directly supported sites, additional
users, and the renewal of maintenance contracts
Services revenues are derived primarily from consulting, education and
technical support services relating to our products. For a discussion of our
services, see "Business -- Worldwide Services", Part I, Item 1, incorporated
here by reference. As a percentage of total revenues, our services revenues
decreased to 51 percent in 2000 from 52 percent in 1999, and were consistent
with 51 percent in 1998.
GEOGRAPHICAL REVENUES
(Dollars in millions)
2000 CHANGE 1999 CHANGE 1998
------ ------ ------ ------ ------
North America.............................. $586.7 10% $531.5 6% $503.3
Percentage of total revenues............. 61% 61% 58%
International:
Europe................................... $247.8 7% $231.9 (8)% $253.2
Percentage of total revenues.......... 26% 27% 29%
Intercontinental......................... $126.0 16% $108.2 (2)% $111.0
Percentage of total revenues.......... 13% 12% 13%
Total International.............. $373.8 10% $340.1 (7)% $364.2
Percentage of total revenues............. 39% 39% 42%
Total revenues................... $960.5 10% $871.6 -- $867.5
North America revenues (United States, Canada and Mexico) increased 10
percent between 1999 and 2000. There was an increase in both license fees
revenues and services revenues between 1999 and 2000. The increase in license
fee revenue was mostly attributable to increased revenue from certain product
lines, including iAS mobile and wireless solutions, as well as license fees
generated by FFI. Increases in both support and maintenance revenues, and
professional services revenues contributed to the overall increase in services
revenue.
North America revenues increased 6 percent between 1998 and 1999, largely
due to license fees revenues growth in certain product lines included in the
ESD, MEC and BID divisions, and partially offset by a decrease in revenues
associated with certain product lines included in the IAD division.
International revenues increased 10 percent in 2000 over 1999, after
decreasing 7 percent in 1999 compared to 1998. European revenues increased 7
percent in 2000 primarily due to increased license fee revenues in certain
product lines, including ESD and iAS products, as well as license revenues from
FFI. European revenues declined 8 percent from 1998 to 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 -- International Operations" and "Human
Resources" below for a further discussion of management changes. In 2000,
Intercontinental revenues (principally Asia Pacific and South America) increased
16 percent due to increased license fees revenues in certain product lines
included in the ESD division along with an increase in support and maintenance
revenues. In 1999, Intercontinental revenues decreased 2 percent from the 1998
revenues total due to a decline in the revenues generated by certain product
lines included in the ESD division. International revenues comprised 39 percent
of total revenues in 2000 and 1999, down from 42 percent in 1998.
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 2000, 1999, or 1998.
Although we take into account changes in exchange rates over time in our
pricing strategy, our 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
11
14
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)
2000 CHANGE 1999 CHANGE 1998
------ ------ ------ ------ ------
Cost of license fees....................... $ 45.1 (2)% $ 46.2 23% $ 37.6
Percentage of license fees revenues...... 10% 11% 9%
Cost of services........................... $245.8 13% $217.1 (8)% $235.6
Percentage of services revenues.......... 50% 48% 53%
Sales and marketing........................ $345.1 11% $310.8 (18)% $377.8
Percentage of total revenues............. 36% 36% 44%
Product development and engineering........ $126.7 (7)% $136.3 (8)% $148.6
Percentage of total revenues............. 13% 16% 17%
General and administrative................. $ 67.3 (2)% $ 68.9 5% $ 65.4
Percentage of total revenues............. 7% 8% 8%
Amortization of goodwill and other
purchased intangibles.................... $ 32.7 135% $ 13.9 (9)% $ 15.2
Percentage of total revenues............. 3% 2% 2%
In-process research and development........ $ 8.0 * -- * --
Percentage of total revenues............. 1% -- --
Cost (reversal) of restructuring........... $ (.8) * $ (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 2000, these costs decreased 2 percent from 1999. The
cost of license fees expense increased 23 percent in 1999 over 1998. The 2000
decrease in cost of license fees was primarily due to decreased third party
royalties which were partially offset by increases in amortization of
capitalized software costs and the amortization of purchased technology acquired
in the HFN transaction. The 1999 increase was primarily due to increased third
party royalties. Cost of license fees was 10 percent of license fees revenues in
2000, 11 percent in 1999 and 9 percent in 1998.
Amortization of capitalized software costs was $22.4 million in 2000, $20.0
million in 1999 and $19.5 million in 1998. In 2000, the increase in amortization
of capitalized software costs was primarily related to Adaptive Server
Enterprise 12.0, PowerBuilder 7.0, Jaguar CTS 3.0 and 3.5, and Sybase Enterprise
Portal 1.0. Amortization costs remained relatively flat from 1999 to 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 increased 13 percent during 2000 and
decreased 8 percent between 1999 and 1998. These costs increased as a percentage
of services revenues to 50 percent in 2000, compared to 48 percent in 1999, and
were 53 percent of services revenues in 1998. The increase in cost of services
in absolute dollars and as a percentage of services revenues in 2000 over 1999
was primarily due to an increase in the number of consulting personnel located
in North America (partially attributable to the acquisition of HFN), and market
driven increases in the labor costs associated with consulting personnel. The
decrease, in absolute dollars and as a percentage of services revenues in 1999
12
15
over 1998, was primarily due to a decrease in salaries and facility costs
(including rent and depreciation) as a result of the restructuring program
initiated in 1998.
SALES AND MARKETING
Sales and marketing expenses increased 11 percent during 2000 compared to
1999 and decreased 18 percent from 1998 to 1999. Sales and marketing expenses
remained consistent at 36 percent of total revenues in 2000 and 1999, as
compared to 44 percent in 1998. The increase in sales and marketing expenses in
absolute dollars in 2000 compared to 1999 was primarily due to sales expenses
associated with increased revenues including the addition of FFI, and certain
marketing programs undertaken during the year. The increase in sales and
marketing expense was partially offset by a decrease in allocated common costs.
We allocate various common costs including certain legal expenses, accounting,
human resources, external consulting, employee benefits, and facilities costs to
sales and marketing, product development and engineering, and general and
administrative expenses. The common costs in 1999 were higher than those in 2000
due to certain litigation costs during 1999, the costs associated with internal
Y2K compliance, and the streamlining of certain back office functions during
2000. The decrease in sales and marketing expense, in absolute dollars and as a
percentage of total revenues in 1999 compared to 1998, was primarily due to a
decrease in salary cost, facility costs including rent, and depreciation as a
result of the restructuring plan initiated in 1998. The decrease in 1999 was
partially offset by an increase in allocated common costs primarily pertaining
to litigation costs.
PRODUCT DEVELOPMENT AND ENGINEERING
Product development and engineering expenses (net of capitalized software
development costs) decreased 7 percent in 2000 as compared to 1999, and
decreased 8 percent in 1999 from 1998. These expenses decreased as a percentage
of total revenues to 13 percent in 2000 compared to 16 percent and 17 percent in
1999 and 1998, respectively. The decrease in product development and engineering
expenses, in absolute dollars and as a percentage of total revenues in 2000 as
compared to 1999, was primarily due to a decrease in personnel expenses and
allocated common costs. 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. The 1999 decrease was partially offset by
an increase in allocated common costs.
We capitalize product development and engineering costs during the period
between achievement of technological feasibility and general availability of the
product. Amounts capitalized totaled approximately $20.2 million in 2000, $18.7
million in 1999 and $10.8 million in 1998. In 2000, capitalized software costs
included costs incurred for the development of the Sybase Enterprise Portal,
Adaptive Server Enterprise 12.5, Adaptive Server IQ 12.4.2 and 12.5,
DirectConnect 12.0 and 12.5, Enterprise Application Server, and
MainframeConnect(TM) 12.0 and 12.5. In 1999, capitalized software costs included
costs incurred for the development of Adaptive Server Enterprise 12.0,
Enterprise Event Broker, Sybase Financial Server(TM) 1.0, Enterprise Application
Studio 3.5, PowerJ 3.0, Replication Server 12.0, and PowerDesigner 7.0. During
1998, we capitalized software costs in connection with our acquisition of
Intellidex, development of Adaptive Server Enterprise 11.9, and enhancements to
Replication Server and Jaguar CTS.
We believe that product development and engineering expenditures are
essential to technology and product leadership and expect 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 decreased 2 percent in 2000 compared to
1999. In 1999, the costs increased 5 percent from 1998. General and
administrative expenses represented 7 percent of total revenues in 2000 compared
to 8 percent in both 1999 and 1998. The decrease in general and administrative
expenses in absolute dollars and as a percentage of total revenues in 2000
compared to 1999 was primarily due to a
13
16
decrease in allocated common costs which were partially offset by the costs
associated with FFI. The increase in absolute dollars in 1999 compared to 1998
was primarily due to an increase in allocated common costs.
AMORTIZATION OF GOODWILL AND OTHER PURCHASED INTANGIBLES
Amortization of goodwill and other purchased intangibles increased 135
percent during 2000 compared to 1999. In 1999, the costs decreased 8 percent
from 1998. These costs were 3 percent of total revenues in 2000 compared to 2
percent in both 1999 and 1998. The increase in amortization of goodwill and
other purchased intangibles in absolute dollars in 2000 compared to 1999 and
1998 is attributable to amortization of goodwill and the established customer
list associated with the HFN acquisition. The decrease in amortization of
goodwill and other purchased intangibles between 1999 and 1998 was due to
certain intangibles that became fully amortized during early 1999.
IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition of HFN in the quarter ended March 31,
2000, we allocated $8.0 million of the $167.6 million purchase price to
in-process research and development. As part of the process of analyzing this
acquisition, the decision was made to buy technology that had not yet been
commercialized rather than to develop the technology internally. This decision
was based on factors such as the amount of time and costs it would take to bring
the technology to market.
HFN had been involved in the development of technologies that enable
financial institutions to deliver their services to customers via the Internet.
At the acquisition date, HFN was conducting development and qualification
activities related to a suite of products encompassing bill presentment, small
business functions, alternate service delivery methods and related underlying
software technology. At that time, the in-process research and development
projects had not yet reached technological feasibility and had no alternative
future uses. Accordingly, the value allocated to these projects was immediately
expensed at the date of acquisition.
We estimated the fair value of in-process research and development using an
income approach. This involved estimating the fair value of the in-process
research and development by determining the present value of the estimated
after-tax cash flows expected to be generated by the purchased in-process
research and development, using risk adjusted discount rates. The selection of
the discount rate was based on a weighted average cost of capital, adjusted to
reflect risks associated with the useful life of each technology, profitability
levels of each technology, the uncertainty of technology advances known at the
time, and each technologies' degree of completion. Projected future net cash
flows attributable to HFN's in-process research and development, assuming
successful development, were discounted to net present value using a discount
rate of 20 percent. We believe that the estimated in-process research and
development amount so determined represents fair value and does not exceed the
amount another third party would pay for the projects.
Revenue estimates were based on relevant market size and growth factors,
expected industry trends, individual product sales cycles and the estimated life
of each product's underlying technology. The analysis of the in-process
technology was determined by incorporating the revenue related to the expected
evolution of the technology over time. Once developed, the estimated lifecycle
of the product suite was estimated to be approximately 5 to 7 years. As a whole,
HFN is expected to exhibit compound annual growth of approximately 38 percent in
the period from 2000 through 2007.
It was projected that the suite of products resulting from the in-process
research and development efforts would begin generating revenue in 2000 and
positive cash flow in 2001. Operating expenses included selling, general and
administrative expenses, and research and development expenses. Total research
and development was divided into: (i) the costs to complete the in-process
research and development projects and (ii) costs for developed products that had
already been introduced to the market, including product maintenance. Costs to
complete in-process projects were estimated by management. These costs were
allocated based on an analysis of expected project completion dates.
The resultant target margin that HFN expected to achieve from the
in-process products was approximately 37 percent. Profitability was expected to
be significantly lower in the first several years of the product
14
17
suite's lifecycle compared to the latter years due to a higher level of sales
and marketing expenses as a percentage of revenue in the earlier years. The
financial forecasts only included results that were projected to be generated by
HFN on a standalone basis. Synergies resulting from the combination of Sybase
were not incorporated into the analysis.
To properly analyze the research and development efforts that had been
accomplished to date and exclude the effort to be completed on the development
efforts underway, it was necessary to adjust the overall forecasts associated
with the research and development projects to reflect only the accomplishments
made as of the date of the acquisition towards the ultimate completion of the
in-process R&D projects. The relative contribution made on the research and
development efforts was assessed based on a variety of factors including
absolute development time (costs) incurred to date, management estimates, and a
detailed analysis of each of the primary tasks completed compared to the tasks
required to complete the efforts and the associated risks. Overall, HFN's
in-process research and development projects were estimated to be approximately
75 percent complete. HFN estimated that the projects would be completed in March
2000, after which time it expected to begin generating economic benefits from
the completed projects. As of the valuation date, approximately 86 man months
totaling $650,000 had been expended on the in-process research and development
projects. In total, costs to complete HFN's in-process research and development
were expected to be approximately $150,000 and require 23 man months of work.
Completion of these projects was expected to require significant efforts
involving continued software development as well as the testing and
re-qualification efforts required to turn a "new-to-the-world" software suite
into a set of bug-free, commercial-ready products. These remaining tasks
involved substantial risk due to the complex nature of the activities involved.
Historically, many of HFN's in-process research and development projects have
required rework and additional expenditures in comparable stages of development.
The research and development efforts described above are substantially
complete and actual results to date have been consistent, in all material
respects, with our assumptions at the time of the acquisition.
COST (REVERSAL) OF RESTRUCTURING
In February 1998, we announced and began to implement a restructuring plan
(the 1998 Plan) aimed at improving productivity per employee, including
reductions in sales and marketing, and product development and engineering
expenses. Our goal was to significantly reduce annual operating expenses by
realigning resources around our core product initiatives. The 1998 Plan included
estimated restructuring charges of $70.0 million to be incurred in 1998. The
1998 Plan included the termination of at least 1,000 employees, the termination
of certain product lines, and the consolidation or closure of certain facilities
and subsidiaries. As a result of the 1998 Plan, we 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, we focused our efforts on
eliminating product lines not core to the business. We also reduced personnel
and related facilities costs to achieve an immediate reduction in our cost
structure. In the fourth quarter of 1998, we focused our restructuring efforts
on reducing costs, and realigning our sales force, product teams and
professional service capabilities into four new divisions. The charges
15
18
included reductions of personnel and related facilities costs. The amounts
included in the restructuring charges for 1998 were as follows (Dollars in
thousands):
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, we 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, we 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, we incurred restructuring charges of $6.3
million for facilities consolidated or closed in Burlington, Massachusetts,
Mexico and Japan. In the fourth quarter of 1998, we 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 our 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. We 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, we 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 that remained in use for three months. The
assets of the Japanese subsidiary were depreciated for the three months they
remained in use.
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Write-downs of capitalized software/prepaid royalties
In the first quarter of 1998, we incurred restructuring charges of $3.7
million related to the carrying value of capitalized software development costs
for those product lines which we had eliminated as part of the 1998 Plan. The
products eliminated included Sybase MPP(TM) on certain platforms, certain APT
products, dbQueue(TM), Web.SQL(TM), Lego Rom and PowerBuilder(R) for Mac. In the
first quarter of 1998, we also incurred restructuring charges of $4.0 million
related to the carrying value of prepaid royalties paid by us 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
our business.
Costs related to closing of subsidiaries, including write off of goodwill
In the first quarter of 1998, we 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 our
Mexican subsidiary. In the fourth quarter of 1998, we recorded additional
restructuring charges of $1.8 million associated with the closing of
subsidiaries consisting principally of the write-off of goodwill related to our
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, we recorded restructuring charges of
approximately $6.7 million associated with anticipated liabilities for claims
resulting from the abandonment of products no longer core to our business and
from the termination of employees. The amounts accrued were based on our
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, we 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, we reduced the liability by
approximately $5.0 million.
During 1999, we 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. During 2000, we reversed by credit to operating
expenses $0.8 million of restructuring costs related to the 1998 Plan. The
reversals consisted primarily of lease cancellations and commitments and other
costs.
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The following tables summarize the activity related to the restructuring
liability at December 31, 2000 and 2001 (dollars in thousands):
ACCRUED ACCRUED
LIABILITIES AMOUNTS AMOUNTS AMOUNTS LIABILITIES
AT 12/31/98 WRITTEN OFF PAID REVERSED AT 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
======= ====== ======= ====== ======
ACCRUED ACCRUED
LIABILITIES AMOUNTS AMOUNTS LIABILITIES
AT 12/31/99 PAID REVERSED AT 12/31/00
----------- ------- -------- -----------
Termination payments to employees and other
related costs................................. $ 442 $ 254 $188 $ --
Lease cancellations and commitments............. 1,296 755 410 131
Other........................................... 372 179 193 --
------ ------ ---- ----
$2,110 $1,188 $791 $131
====== ====== ==== ====
The remaining restructuring reserve relates to certain lease payments
contractually required of us on certain closed facilities, net of associated
sublease amounts. The remaining lease amounts will be paid during 2001.
OPERATING INCOME/LOSS
(Dollars in millions)
2000 CHANGE 1999 CHANGE 1998
----- ------ ----- ------ ------
Operating income/(loss).................. $90.5 4% $87.0 * $(86.8)
Percentage of total revenues........... 9% 10% 10%
- ---------------
* Not meaningful
Operating income in 2000 increased 4 percent over 1999. We had a
significant loss in 1998. In 2000 and 1999, operating income included a reversal
to restructuring charges of $0.8 million and $8.5 million, respectively, while
the 1998 operating loss includes $74.2 million in restructuring charges.
The increase in operating income in 2000, compared to 1999, is primarily
due to an increase in total revenues, and the continued benefit from the
restructure actions taken in 1998 that have kept sales and marketing, product
development and engineering, and general and administrative expenses equal to or
lower than the levels obtained 1999, as a percentage of revenue. The increase
was partially offset by an increase in cost of services and expenses associated
with the amortization of goodwill and established customer lists, the write-off
of in-process research and development and the amortization of purchased
technology relating to the acquisition of HFN. 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.
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OTHER INCOME (EXPENSE), NET
(Dollars in millions)
2000 CHANGE 1999 CHANGE 1998
----- ------ ----- ------ -----
Interest income........................... $17.9 32% $13.6 35% $10.1
Percentage of total revenues............ 2% 2% 1%
Interest expense and other, net........... $(0.8) * $ 0.2 * $(2.3)
Percentage of total revenues............ (0.1)% 0% (0.3)%
Minority interest......................... $ 0.1 * * * *
Percentage of total revenues............ * * *
- ---------------
* Not meaningful
Interest income increased 32 percent from 1999 to 2000. In 1999, interest
income increased 35 percent from 1998. Interest income consists primarily of
interest earned on investments. The increase between 2000 and 1999 was
attributable to larger average-invested cash balances, and an increase in the
interest rate yields of the cash balances invested. The increase in interest
income between 1998 and 1999 due primarily to the build-up of larger
average-invested cash balances.
Interest expense and other, net was $(0.8) million in 2000, compared to
$0.2 million in 1999 and $(2.3) million in 1998. Interest expense and other, net
includes interest expense from capital lease obligations incurred in prior
years; gains from the disposition of certain real estate and investments; bank
fees; expenses, net gains and losses resulting from foreign currency
transactions and the related hedging activities; and the cost of hedging foreign
currency exposures. The decrease in interest expense and other, net during 2000
compared to 1999, was due to the 1999 sale of certain European real estate.
PROVISION FOR INCOME TAXES
(Dollars in millions)
2000 CHANGE 1999 CHANGE 1998
----- ------ ----- ------ -----
Provision for income taxes................ $35.5 (7)% $38.3 172% $14.1
In 2000, income taxes were recorded at a rate of 33 percent on pre-tax
income compared to a 38 percent rate in 1999. In 1998 we recorded income taxes
of $14.1 million, primarily related to withholding taxes, and income taxes in
those foreign jurisdictions where we had income. The 2000 and 1999 tax
provisions were the result of taxable earnings generated from operations in both
the US and certain international jurisdictions. The 2000 provision benefited
from a $9.7 million reversal of a previously recorded valuation allowance on our
deferred tax asset. The valuation allowance reversed related to certain research
and development tax credits that we believe will generate a tax benefit in
future periods given their carryforward periods. The reversal of the valuation
allowance is a non-recurring benefit, and will not impact our provision for
income taxes in future years. The benefit of the valuation allowance reversal
was offset somewhat in 2000 by an increase in expenses that were not deductible
for tax purposes. These expenses were primarily the amortization of goodwill and
established customer lists, the write-off of in-process research and development
and the amortization of purchased technology relating to the acquisition of HFN.
We had a deferred tax asset of $47.6 million at December 31, 2000. This
deferred tax asset included a valuation allowance of $10.4 million. As of
December 31, 2000, the deferred tax asset included research and development tax
credits of $9.7 million and foreign tax credits of $9.7 million. The research
and development tax credits expire in years from 2005 through 2020, and the
foreign tax credits expire in years from 2001 through 2005. In order to realize
the net deferred tax assets we must generate sufficient taxable income in future
years in appropriate tax jurisdictions so that we can obtain benefit from the
reversal of temporary differences and from tax credit carryforwards. The amount
of the deferred tax assets considered realizable is subject to adjustment in
future periods if estimates of future taxable income are reduced. Any such
adjustments could have an impact on our effective tax rate in future periods.
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NET INCOME (LOSS) PER SHARE
(Dollars and shares in millions)
2000 CHANGE 1999 CHANGE 1998
------ ------ ------ ------ -------
Net income (loss)..................... $72.1 15% $62.5 * $ (93.1)
Percentage of total revenues........ 8% 7% (11)%
Basic:
Net income (loss) per share......... $ 0.82 8% $ 0.76 * $ (1.15)
Shares used in computing basic net
income (loss) per share.......... 87.7 7% 81.8 1% 80.9
Diluted:
Net income (loss) per share......... $ 0.78 5% $ 0.74 * $ (1.15)
Shares used in computing diluted net
income (loss) per share.......... 92.2 10% 84.2 4% 80.9
- ---------------
* Not meaningful
Our net income in 2000 increased by 15 percent over 1999. The reasons for
this increase have been discussed in the preceding paragraphs. The basic and
diluted net income per share in 2000 was $0.82 and $0.78 per share,
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 loss per share was
$1.15 in 1998. Shares used in computing basic net income (loss) per share
increased 7 percent in 2000 primarily due to the shares issued in 2000 in
connection with the acquisition of HFN. Shares used in computing basic net
income (loss) per share increased 1 percent in 1999 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 10 percent in 2000 primarily due to the shares issued
in connection with the acquisition of HFN. 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, as their inclusion would be antidilutive.
LIQUIDITY AND CAPITAL RESOURCES
(Dollars in millions)
2000 CHANGE 1999 CHANGE 1998
------ ------ ------ ------ ------
Working capital........................ $157.5 24% $127.2 51% $ 84.2
Cash, cash equivalents and cash
investments.......................... $354.6 0% $352.9 41% $249.6
Net cash provided by operating
activities........................... $171.1 (4)% $178.7 90% $ 93.9
Net cash used for investing
activities........................... $123.0 4% $118.0 466% $ 20.8
Net cash used for financing
activities........................... $ 57.1 90% $ 30.1 (15)% $ 35.6
Our working capital increased 24 percent in 2000 over 1999, and 51 percent
in 1999 compared to 1998. The increases in both 2000 and 1999 were primarily due
to increased cash flow from operations. Net cash provided by operating
activities decreased 4 percent from the cash provided by operating activities in
1999. Net cash provided by operating activities during 2000 reflects net income
of $72.1 million compared to $62.5 million in 1999 and net loss of $93.1 million
in 1998. The decrease between net cash provided by operating activities in 2000
and 1999 was primarily due to the increase in accounts receivables and deferred
revenue balances at 2000 compared to 1999. Days sales outstanding in accounts
receivable was 74 days for the quarter ended December 31, 2000 compared to 69
days for the same period in 1999. The accounts receivable increased due to both
an overall increase in revenues and a decrease in the allowance for doubtful
accounts. The increase in deferred revenue was related both to the increase in
overall revenues and an increase in deferred support and maintenance fees
revenues in connection with directly supported sites, additional users, and the
continuing renewal of maintenance contracts. The impact of these increased
balances on cash provided by operating activities was offset by a $17.9 million
increase in depreciation and amortization, which are included in net income
(loss), but do not require the use of cash. The increase in depreciation and
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amortization in 2000 was primarily due to the amortization of goodwill and other
purchased intangibles in connection with the HFN acquisition, excluding the
write off of in-process research and development for HFN that resulted in a
non-cash charge of $8.0 million in the first quarter of 2000.
Net cash provided by operating activities increased 90 percent between 1998
and 1999. The primary reason for the increase was a $155.6 million increase in
year over year net income as we returned to profitability, partially offset by a
decrease in depreciation and amortization. The decrease in depreciation and
amortization in 1999 was primarily due to the write-off of assets in connection
with the 1998 restructuring plan. We also incurred a non-cash restructuring
charge to operations in the amount of $23.6 million in 1998.
Net cash used for investing activities increased 4 percent between 1999 and
2000. This increase was primarily attributable to $33.6 million used for
business combinations, namely our acquisition of HFN, the use of $15.7 million
to purchase minority equity investments in five early-stage e-Business companies
and a $18.0 million security deposit on a 15-year non-cancelable lease of a new
facility to be built in Dublin, California. This increase was partially offset
by a $59.6 million year over year decrease in cash investments.
Net cash used for investing activities increased 466 percent from 1998 to
1999. The primary reason for this increase were the cash investments of $77.8
million we made during 1999, compared to the liquidation of $32.3 million in
cash investments during 1998.
In 1999, we sold our facility in Concord, Massachusetts and simultaneously
entered into a sales-leaseback agreement. Under the terms of this agreement, we
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, we terminated a five-year lease for our research and development
facility in Boulder, Colorado by exercising the option to purchase the property
for $13.0 million. As a result, we satisfied our obligation to the lessor
resulting in the release of $13.3 million in restricted cash deposits. We
subsequently entered into a sale-leaseback agreement for the facility, which
resulted in an immaterial gain. Under the terms of the leaseback agreement, we
entered into a twelve-year operating lease
The year over year increase in net cash used for financing activities
between 1999 and 2000 was $27.0 million, compared to a year over year $5.5
million decrease between 1998 and 1999. The increase over 1999 was primarily the
result of cash used to repurchase our common stock. In 1998, our Board of
Directors authorized us to repurchase up to $25.0 million of our common stock
through open market transactions from time to time, subject to price and market
conditions. During 1999, an additional $75.0 million was authorized under this
program, and in 2000 an additional $150.0 million was authorized bringing the
aggregate total amount authorized to $250.0 million. Under this program, we
repurchased 3.9 million shares of our common stock in 2000 at a cost of $89.1
million, 4.9 million shares in 1999 at a cost of $60.7 million and 0.6 million
shares in 1998 at a cost of $3.3 million.
Net cash used for financing activities in 1998 was primarily related to the
repayment of amounts received from Japanese financial institutions in prior
years for financing transactions related to sales arrangements in our Japanese
subsidiary. We were 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 our Japanese
subsidiary to the financial institutions upon the sale of the receivables. As a
result, upon the discovery of such side arrangements, we determined that we
could not enforce the non-recourse provisions under the terms of the factoring
contracts.
We engage in global business operations and are therefore exposed to
foreign currency fluctuations. As of December 31, 2000, we had identifiable
assets totaling $205.3 million associated with our European operations and $91.7
million associated with our Asia and Latin American operations. We experience
foreign exchange transaction exposure on our net assets denominated in different
currencies. As certain of these assets are considered by Sybase Inc., 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 other comprehensive loss" under "Stockholders' equity" on the
balance sheet. We also experience foreign exchange translation exposure from
certain balances denominated in the non-functional currency of the originating
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entity. We hedge certain of these short-term exposures under a plan approved by
the Board of Directors. See "MD&A -- Financial Risk Management", Part II, Item
7.
Cash, cash equivalents and cash investments totaled $354.6 million at
December 31, 2000 compared to $352.9 million at December 31, 1999, compared to
$249.6 million at December 31, 1998.
We had no significant commitments for capital expenditures at December 31,
2000. We believe that we have the financial resources needed for the foreseeable
future to meet our presently anticipated business requirements, including
capital expenditures and strategic operating programs.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2000, the Emerging Issues Task Force issued EITF 00-15,
"Classification in the Statement of Cash Flows of the Income Tax Benefit
Realized by a Company upon Employee Exercise of a Nonqualified Stock Option."
EITF 00-15 states that the income tax benefit realized by the company upon
employee exercise should be classified in the operating section of the statement
of cash flows. The EITF is effective for all quarters ending after July 31,
2000. All comparative financial statements have been restated to reflect the
change in classification within the Statements of Cash Flows from financing
activities to operating activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (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 disclosure requirements described in SAB 101, and any changes
resulting from SAB 101 must be reported as a change in accounting principles in
our fourth quarter ending December 31, 2000. The adoption of SAB 101 did not
have a material impact on our financial statements.
In June 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. In June 2000, the FASB
issued Statement No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities -- an Amendment to FASB Statement No. 133" which
amended Statement 133 with respect to four specific issues. We are required to
adopt Statement 133 as amended, for the year ending December 31, 2001. The
adoption of Statement 133 did not have a material effect on our consolidated
financial position or results of operations.
We 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 9-1, "Software Revenue
Recognition" (SOP 91-1). The adoption of SOP 97-2 and SOP 98-4 did not have a
material impact on our 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 adoption of SOP 98-9 did not have a material impact on our consolidated
financial results.
FINANCIAL RISK MANAGEMENT
FOREIGN EXCHANGE RISK
As a global concern, we face 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 our financial
position and results of operations. Historically, our primary exposures have
related to non dollar-
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25
denominated sales and expenses in Europe, Asia Pacific, and Latin America. In
order to reduce the effect of foreign currency fluctuations, we utilize foreign
currency forward exchange contracts (forward contracts) to hedge certain foreign
currency transaction exposures outstanding during the period (approximately 30
days). The gains and losses on the forward contracts mitigate the gains and
losses on our outstanding foreign currency transactions. We do 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, 2000 was immaterial to our consolidated financial statements.
The tables below provide information about our foreign currency forward and
option contracts as of December 31, 2000 and 1999. All of the outstanding
forward contracts at December 31, 2000, had maturities of approximately 30 days.
The fair value of these outstanding forward contracts was not material as of
December 31, 2000 and 1999. (Amounts in thousands except exchange rates)
NOTIONAL AVERAGE
FORWARD CONTRACTS -- 2000 AMOUNT CONTRACT RATE
------------------------- -------- -------------
Contracts for the purchase of US Dollars:
Japanese Yen.............................................. $ 5,719 113.6500
Contracts for sale of US Dollars:
Canadian Dollars.......................................... 1,406 0.6694
Euro...................................................... 8,275 0.9403
Contracts for purchase of Euros:
Swedish Krona............................................. $ 2,409 8.8881
Swiss Franc............................................... 3,277 1.5278
UK Pound.................................................. 13,683 0.6305
Norwegian Krone........................................... 2,035 8.3224
------- --------
Total............................................. $ 36,80
======= ========
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
======= ========
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates to our
investment portfolio, which consists of taxable, short-term money market
instruments and debt securities with maturities between 90 days and two years.
We do not use derivative financial instruments in our investment portfolio. We
place our
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investments with high credit quality issuers and, by policy, we limit the amount
of credit exposure to any one issuer.
We mitigate 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.
We have 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 by year of maturity for our
investment portfolio. (Amounts in thousands except interest rates)
2000
WEIGHTED
AVERAGE 2000 1999
INTEREST PRINCIPAL PRINCIPAL
RATE AMOUNTS AMOUNTS
-------- --------- ---------
Cash equivalents.................................... 5.22% $140,016 $102,091
Short-term cash investments (maturities of one year
or less).......................................... 6.19% 78,386 59,094
Long-term cash investments (maturities over one
year)............................................. 6.88% 40,638 43,702
FUTURE OPERATING RESULTS
Our 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
Our ability to exceed, or its failure to achieve, expected operating
results for any period could significantly impact our stock price. Inevitably,
some investors will experience gains while others will experience losses
depending on the timing of their investment. The market for our stock and for
technology stocks in general 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 our 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 our 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 our 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 we operate with little or no backlog, quarterly revenues depend
largely on orders booked and shipped in that quarter. Historically, we have
recorded 50% to 70% of our quarterly revenues in the last month of each quarter,
particularly during the final two weeks of that month. Our 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. Our 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.
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In North America, we currently ship most of our products from our
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 our ability to
record revenues for such quarter. This could, in turn, have an adverse impact on
operating results.
Competition
The market for our 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 e-Business marketplace. We have numerous
competitors, including large companies such as Oracle Corporation, Microsoft
Corporation, and IBM Corporation, and smaller highly aggressive 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, we must be able to develop new
products, enhance existing products and retain competitive pricing policies in a
timely manner. Our failure to compete successfully with new or existing
competitors could have a material adverse impact on our business, and on the
market price of our stock.
Product Development
Increasing widespread use of the Internet may significantly alter how we do
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.
In March 2001, we began shipping the latest version of Sybase Enterprise
Portal, the industry's first enterprise-class portal product designed to enable
organizations to provide personalized business interfaces to employees,
customers, partners and suppliers. In May 2000, the latest versions of
Replication Server, EnterpriseConnect and MainframeConnect, our data movement
and data access products designed to operate with the Enterprise Portal
technology, also became generally available. Sybase Enterprise Portal solutions
are intended to enable successful e-Business strategies for organizations
transacting business via the Internet. As a general matter, deployment of
enterprise portals has increased dramatically in recent years, and we believe
that increasing demand for enterprise portal solutions will enhance our revenues
and profitability. However, if the market does not continue to develop as
anticipated, or if our Enterprise Portal solutions and services do not
successfully compete in the marketplace, increased revenues and profitability
may not be realized.
Our future results may also be affected if our products cannot interoperate
and perform well with software products of other companies. Certain leading
applications currently are not interoperable with our products, and others may
never be. In addition, many of our 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 us with access to their products, technical
information, and marketing and sales support, which could harm our business and
prospects.
Divisional Sales Model
In January 1999, we realigned our direct sales force, product teams and
professional services capabilities into four divisions. This reorganization was
intended to enhance overall revenues and profitability by providing increased
focus on each of four key markets: Enterprise Solutions, Mobile and Embedded
Computing, Internet Applications and Business Intelligence. In January 2000, the
acquisition of HFN (now Financial Fusion, Inc., a wholly-owned subsidiary)
increased our focus on the financial services market. In May 2000, we announced
the launch of iAnywhere Solutions, Inc., a wholly-owned subsidiary formed to
continue the business of the MEC division in mobile and wireless e-Business
products and services. On February 20, 2001, we entered into an agreement to
acquire New Era of Networks, Inc. (NEON), a developer of enterprise application
integration software. The merger is expected to close in the second quarter of
2001. At that time, we plan to create a new e-Business division that will focus
on incorporating NEON's technology with Sybase's
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Enterprise Portal platform, and certain other products and services. Further
changes in our divisional sales model could have a direct affect on our results
of operations. If we have misjudged demand for our products and services in our
target markets, or if our divisions and subsidiaries generally are unable to
coordinate their respective sales efforts in a focused and efficient way, this
could materially and adversely affect our business and prospects.
International Operations
We derive a substantial portion of our revenues from our international
operations. In 2000, these revenues represented 39% of our total revenues. As a
global concern, we face exposure to adverse movements in foreign currency
exchange rates. For a discussion of risks associated with currency fluctuation,
see "MD&A -- Financial Risk Management -- Foreign Exchange Risk" above,
incorporated here by reference.
Our revenues from international operations could also fluctuate due to the
relative immaturity of some markets, rapid growth in other markets, and
organizational changes we have made to accommodate these conditions. For
example, in February 2001, we acquired our distributor in Denmark and in
September 2000, we acquired certain assets and assumed certain liabilities of
our distributor in Mexico. During 1998 and 1999, we 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
Our 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 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
Our inability to hire and retain qualified technical, managerial, sales and
other employees could affect our product development and sales efforts, other
aspects of our operations, and our financial results. Competition for highly
skilled personnel is intense. Our financial and stock price performance relative
to the companies with whom we compete for employees, and the relatively high
cost of living in the San Francisco Bay Area, where our headquarters is located,
could also impact the degree of future employee turnover.
In recent years, we have experienced a number of changes in our Board of
Directors and in our executive management team. For example, in April 2000,
Linda K. Yates became a member of our Board. In November 1999, Cecilia Claudio
also joined the Board. During 1999, Leo T. Hindery, Jeffrey T. Webber and Robert
S. Epstein resigned from the Board. John Chen became the Company's Chairman of
the Board, Chief Executive Officer and President 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
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President and General Counsel. In August 2000 Marty Beard was named Vice
President, Corporate Development, and in November 2000, Richard N. LaBarbera
resigned as Senior Vice President and General Manager of ESD. In connection with
the formation of FFI and iAS, certain of Sybase officers and employees became
officers and employees of these subsidiaries. Additionally, each of FFI and iAS
has its own board of directors and senior management team. Further changes
involving executives and managers resulting from acquisitions, mergers and other
events could increase the current rate of employee turnover, particularly in
consulting, engineering and sales. Additionally, further changes in Board
members could affect the Company's current strategic business plans.
Acquisitions and Strategic Relationships
We regularly explore possible acquisitions and other strategic ventures to
expand and enhance our business. We have recently acquired or invested in a
number of companies and will likely continue to do so in the future. On February
20, 2001, we entered into an agreement to acquire NEON, a developer of
enterprise application integration software. In February 2001, we acquired our
distributor in Denmark for approximately $3.5 million in cash. In September
2000, we acquired certain of the assets of our distributor in Mexico, and in
July 2000, we invested $2.0 million for a majority interest in an entity
established with a subsidiary of Hong Kong Telecom. In January 2000, we acquired
Home Financial Network, an Internet financial services company specializing in
the development of customized e-finance Web sites, which became FFI. In 1999, we
acquired Data Warehouse Network, a provider of industry-specific business
intelligence applications. For a further discussion of our recent acquisitions,
see Notes Eleven and Fourteen to the Condensed Consolidated Financial
Statements, incorporated here by reference.
We may not achieve the desired benefits of our acquisitions and
investments. For example, we may be unable to successfully assimilate an
acquired company's management team, business infrastructure, company culture, or
other important factors. Also, dedication of additional resources to handle
these integration tasks could temporarily divert attention from other important
business. Such acquisitions could also result in costs, liabilities, or
additional expenses that could harm our results of operations and financial
condition. With respect to our investments in other companies, we may not
realize a return on our investments, or the value of our investments may decline
if the businesses in which we invest are not successful. These companies include
start-ups seeking to develop technology that has not been tested in the
marketplace. Such companies typically have no history of earnings and may lack a
seasoned management team.
Recent Accounting Pronouncements
For a discussion of risks associated with recent accounting pronouncements,
see "New Accounting Pronouncements", above.
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. A transition period for conversion to this new currency
ended on January 1, 2001. To date, there has been no significant impact on our
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, our foreign exchange activities, our use of derivatives and other
financial instruments, or result in any material cost to us. We will continue to
assess the impact of the introduction of the Euro currency.
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.
27
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
PAGE
----
Report of Independent Auditors.............................. 29
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 30
Consolidated Statements of Operations for the Three Years
Ended December 31, 2000, 1999 and 1998.................... 31
Consolidated Statements of Stockholders' Equity for the
Three Years Ended December 31, 2000, 1999 and 1998........ 32
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 2000, 1999 and 1998.................... 33
Notes to Consolidated Financial Statements.................. 34
28
31
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, 2000 and 1999 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
January 18, 2001 except for Note Fourteen
as to which the date is
February 20, 2001
29
32
SYBASE, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
--------------------
2000 1999
-------- --------
Current assets:
Cash and cash equivalents................................. $235,588 $250,103
Short-term cash investments............................... 78,386 59,094
-------- --------
Total cash, cash equivalents and short-term cash
investments..................................... 313,974 309,197
Accounts receivable, less allowance for doubtful accounts
of $22,313 (1999 -- $31,452)........................... 213,224 182,708
Deferred income taxes..................................... 28,594 15,826
Prepaid expenses and other current assets................. 18,321 14,924
-------- --------
Total current assets.............................. 574,113 522,655
Long-term cash investments.................................. 40,638 43,702
Property, equipment and improvements, net................... 59,296 67,587
Deferred income taxes....................................... 19,020 25,238
Capitalized software, net................................... 33,794 35,934
Goodwill and other purchased intangibles, less accumulated
amortization of $96,459 (1999 -- $69,739)................. 147,513 24,528
Other assets................................................ 40,666 17,691
-------- --------
Total assets...................................... $915,040 $737,335
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 16,094 $ 8,349
Accrued compensation and related expenses................. 55,237 57,625
Accrued income taxes...................................... 38,679 40,253
Other accrued liabilities................................. 99,641 101,876
Deferred revenue.......................................... 206,976 187,323
-------- --------
Total current liabilities......................... 416,627 395,426
-------- --------
Other liabilities........................................... 5,795 5,799
Minority interest........................................... 1,866 --
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; 90,546,392 shares issued and 87,656,460
shares outstanding (1999 -- 82,952,192 shares issued
and 80,920,691 shares outstanding)..................... 91 83
Additional paid-in capital................................ 582,972 432,352
Accumulated deficit....................................... (6,940) (48,037)
Accumulated other comprehensive loss...................... (22,305) (16,426)
Cost of 2,889,932 shares of treasury stock
(1999 -- 2,031,501 shares)............................. (63,066) (31,862)
-------- --------
Total stockholders' equity........................ 490,752 336,110
-------- --------
Total liabilities and stockholders' equity........ $915,040 $737,335
======== ========
See accompanying notes.
30
33
SYBASE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
License fees............................................. $468,501 $421,645 $421,454
Services................................................. 491,957 449,988 446,015
-------- -------- --------
Total revenues................................... 960,458 871,633 867,469
Costs and expenses:
Cost of license fees..................................... 45,120 46,241 37,573
Cost of services......................................... 245,837 217,053 235,574
Sales and marketing...................................... 345,149 310,774 377,774
Product development and engineering...................... 126,689 136,272 148,583
General and administrative............................... 67,267 68,876 65,406
Amortization of goodwill and other purchased
intangibles........................................... 32,730 13,920 15,205
In-process research and development...................... 8,000 -- --
Cost (reversal) of restructuring......................... (791) (8,528) 74,167
-------- -------- --------
Total costs and expenses......................... 870,001 784,608 954,282
-------- -------- --------
Operating income (loss).................................... 90,457 87,025 (86,813)
Interest income............................................ 17,857 13,626 10,077
Interest expense and other, net............................ (822) 147 (2,329)
Minority interest.......................................... 94 -- --
-------- -------- --------
Income (loss) before income taxes.......................... 107,586 100,798 (79,065)
Provision for income taxes................................. 35,461 38,303 14,063
-------- -------- --------
Net income (loss)................................ $ 72,125 $ 62,495 $(93,128)
======== ======== ========
Basic net income (loss) per share.......................... $ 0.82 $ 0.76 $ (1.15)
======== ======== ========
Shares used in computing basic net income (loss) per
share.................................................... 87,711 81,817 80,893
======== ======== ========
Diluted net income (loss) per share........................ $ 0.78 $ 0.74 $ (1.15)
======== ======== ========
Shares used in computing diluted net income (loss) per
share.................................................... 92,150 84,156 80,893
======== ======== ========
See accompanying notes.
31
34
SYBASE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
THREE YEARS ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------------
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER
--------------- PAID-IN (ACCUMULATED COMPREHENSIVE TREASURY
SHARES AMOUNT CAPITAL DEFICIT) LOSS STOCK TOTAL
------ ------ ---------- ------------ ------------- -------- --------
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
Common stock issued in connection with
business combinations................ 7,594 8 144,057 -- -- -- 144,065
Common stock issued and treasury stock
reissued under stock option and stock
purchase plans....................... 3,073 -- 44 (31,028) -- 57,937 26,953
Acquisition of treasury stock.......... (3,932) -- -- -- -- (89,141) (89,141)
Tax benefit of exercise of stock
options.............................. -- -- 6,519 -- -- -- 6,519
------ --- -------- --------- -------- -------- --------
Subtotal............................... 87,656 91 582,972 (79,065) (16,426) (63,066) 424,506
Net income............................. -- -- -- 72,125 -- -- 72,125
--------
Foreign currency translation
adjustments.......................... -- -- -- -- (5,879) -- (5,879)
--------
Comprehensive income................... 66,246
------ --- -------- --------- -------- -------- --------
Balances at December 31, 2000.......... 87,656 $91 $582,972 $ (6,940) $(22,305) $(63,066) $490,752
====== === ======== ========= ======== ======== ========
See accompanying notes.
32
35
SYBASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
--------- --------- --------
Cash and cash equivalents, beginning of year............. $ 250,103 $ 224,665 $188,876
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... 72,125 62,495 (93,128)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 107,879 90,009 107,798
Write-off of in-process research and development.... 8,000 -- --
Write-off of assets in restructuring................ -- (883) 23,560
Minority interest in loss of subsidiaries........... (94) -- --
(Gain) loss on disposal of assets................... 754 3,176 3,036
Deferred income taxes............................... (6,551) (9) (5)
Tax benefit from exercise of stock options.......... 6,519 7,900 5,375
Changes in assets and liabilities:
Accounts receivable............................... (31,633) 16,051 6,610
Other current assets.............................. (3,397) (7,110) 9,274
Accounts payable.................................. 4,411 (4,398) (6,774)
Accrued compensation and related expenses......... (3,783) 8,564 5,087
Accrued income taxes.............................. 19 13,517 (5,064)
Other accrued liabilities......................... (2,234) (8,347) 17,262
Deferred revenues................................. 19,117 (3,308) 20,158
Other liabilities................................. (34) 1,066 668
--------- --------- --------
Net cash provided by operating activities...... 171,098 178,723 93,857
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale cash investments....... (128,668) (124,541) (42,588)
Maturities of available-for-sale cash investments...... 81,149 39,164 44,755
Sales of available-for-sale cash investments........... 29,291 7,529 30,146
Business combinations, net of cash acquired............ (33,573) (8,155) (6,550)
Purchases of property, equipment and improvements...... (30,398) (27,952) (38,910)
Proceeds from sale of fixed assets..................... 154 11,109 7,274
Capitalized software development costs................. (20,210) (18,744) (10,819)
(Increase) decrease in other assets.................... (20,778) 3,561 (4,150)
--------- --------- --------
Net cash used for investing activities......... (123,033) (118,029) (20,842)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in other current liabilities.................. -- (1,431) (45,474)
Minority Interest...................................... 1,960 -- --
Net proceeds from the issuance of common stock and
reissuance of treasury stock........................ 30,049 32,024 13,203
Purchases of treasury stock............................ (89,141) (60,657) (3,338)
--------- --------- --------
Net cash used for financing activities......... (57,132) (30,064) (35,609)
Effect of exchange rate changes on cash.................. (5,448) (5,192) (1,617)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents..... (14,515) 25,438 35,789
Cash and cash equivalents, end of year................... 235,588 250,103 224,665
--------- --------- --------
Cash investments, end of year............................ 119,024 102,796 24,948
--------- --------- --------
Total cash, cash equivalents and cash investments, end of
year................................................... $ 354,612 $ 352,899 $249,613
========= ========= ========
SUPPLEMENTAL DISCLOSURES:
Facility acquired and sold under sale and leaseback
arrangement......................................... $ -- $ -- $ 13,016
Interest paid.......................................... $ 339 $ 282 $ 489
Income taxes paid...................................... $ 33,725 $ 16,585 $ 19,584
See accompanying notes.
33
36
SYBASE, INC.
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 five separate business segments, 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 that allow
companies to support e-portals and integrate external data, events and
applications into the portals. iAnywhere Solutions, Inc. (iAS), formerly the
Mobile and Embedded Computing Division (MEC), provides solutions that deliver
enterprise information and applications to any location where business
transactions occur, including remote, mobile and hand-held platforms. 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 translate data from multiple sources. Our wholly owned subsidiary,
Financial Fusion, Inc. (FFI), formerly HFN, delivers turnkey Internet banking
solutions to financial institutions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sybase and
its majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Certain previously reported
amounts have been reclassified to conform to the current presentation format.
USE OF ESTIMATES
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 to
disclose contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCIES
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.
34
37
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 balances between Sybase entities resulting from software license
royalties and certain management, research, and administrative services. 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 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.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets, while leasehold improvements are amortized over the
shorter of the estimated useful life 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 a working model. 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 $117.5
million, $97.3 million, and $77.1 million at December 31, 2000, 1999 and 1998,
respectively, and related accumulated amortization was $83.7 million, $61.3
million and $41.4 million, respectively. Software amortization charges included
in cost of license fees were $22.4 million, $20.0 million and $19.5 million for
2000, 1999 and 1998, respectively.
GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Intangible assets, which have generally resulted from business combinations
accounted for as purchases (Note Eleven), are recorded at amortized cost.
Amortization is computed using the straight-line method over periods of three to
ten 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
In October of 1997 the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2 "Software Revenue Recognition", which has been
amended by SOP 98-4 and SOP 98-9. These statements set forth generally accepted
accounting principles for recognizing revenue on software transactions.
35
38
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOP 97-2, as amended by SOP 98-4, was effective for revenue recognized under
software license and service arrangements beginning January 1, 1998. SOP 98-9
amends SOP 97-2 and requires recognition of revenue using the "residual method"
when certain criteria are met. The implementation of these provisions of SOP 98-
9 were effective for the Company's fiscal year ending December 31, 2000. The
adoption of these provisions did not have a material impact on the Company's
financial results.
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.
In software arrangements that include rights to multiple software products
and/or services, the Company allocates the total arrangement fee among each of
the deliverables using the residual method, under which revenue is allocated to
undelivered elements based on vendor-specific objective evidence of fair value
of such undelivered elements and the residual amounts of revenue are allocated
to delivered elements.
Fees from licenses sold together with consulting services are generally
recognized upon shipment provided that the above criteria are met, payment of
the license fees are not dependent upon the performance of the services, and the
consulting services are not essential to the functionality of the licensed
software. If the services are essential to the functionality of the software, or
payment of the license fees are dependent upon the performance of the services,
both the software license and consulting fees are recognized under the
percentage of completion method of contract accounting.
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.
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.
In April 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving
Stock Compensation: An Interpretation of APB No. 25." The Company has adopted
the provisions of FIN No. 44. The adoption of these provisions did not
materially impact the Company's results of operations. Note Seven provides a
summary of the pro-forma effects on reported net income and earnings per share
for 2000, 1999 and 1998 based on the fair value of options and shares granted as
prescribed by Statement 123.
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39
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and warrants 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, 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 shares of common stock that were granted under outstanding stock
options at December 31, 1998.
The following shows the computation of basic and diluted net income (loss)
per share at December 31: (Dollars in thousands, except per share data)
2000 1999 1998
------- ------- --------
Net income (loss).................................... $72,125 $62,495 $(93,128)
Shares used in computing basic net income (loss) per
share.............................................. 87,711 81,817 80,893
Effect of dilutive securities -- stock options....... 4,439 2,339 (a)
Shares used in computing diluted net income (loss)
per share.......................................... 92,150 84,156 80,893
Basic net income (loss) per share.................... $ 0.82 $ 0.76 $ (1.15)
Diluted net income (loss) per share.................. $ 0.78 $ 0.74 $ (1.15)
- ---------------
(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," which establishes standards for reporting
and display of comprehensive income and its components in financial statements.
The Company's components of comprehensive income (loss) consist of net income
(loss) and foreign currency translation adjustments.
RECENT ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 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. In June 2000, the FASB
issued Statement No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities -- an Amendment to FASB Statement No. 133" which
amended Statement 133 with respect to four specific issues. The Company is
required to adopt Statement 133 as amended, for the year ending December 31,
2001. The adoption of Statement 133 did not have a material effect on the
Company's 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 Statements" (SAB
101). SAB 101 provides guidance on the recognition,
37
40
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
presentation, and disclosure of revenue in financial statements. All registrants
are expected to apply the accounting and disclosure requirements described in
SAB 101, and any changes resulting from SAB 101 must be reported as a change in
accounting principles in the Company's fourth quarter ending December 31, 2000.
The adoption of SAB 101 did not have a material impact on the Company's
financial statements.
CLASSIFICATION IN THE STATEMENT OF CASH FLOWS OF THE INCOME TAX BENEFIT RECEIVED
BY A COMPANY UPON EXERCISE OF A NONQUALIFIED EMPLOYEE STOCK OPTION
In July 2000, the Emerging Issues Task Force issued EITF 00-15,
"Classification in the Statement of Cash Flows of the Income Tax Benefit
Realized by a Company upon Employee Exercise of a Nonqualified Stock Option."
EITF 00-15 states that the income tax benefit realized by the company upon
employee exercise should be classified in the operating section of the statement
of cash flows. The EITF is effective for all quarters ending after July 31,
2000. All comparative financial statements have been restated to reflect the
change in classification within the Statements of Cash Flows from financing
activities to operating activities.
NOTE TWO: FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments that consist
principally of taxable, short-term money market instruments with insignificant
interest rate risk and original maturities of three months or less at the time
of purchase and demand deposits with financial institutions. Cash equivalents
are stated at amounts that approximate fair value, based on quoted market
prices. Cash investments consist principally of commercial paper, corporate
bonds, U.S. Government bonds and taxable municipal bonds with maturities between
90 days and up to two years and are stated at amounts that approximate fair
value, based on quoted market prices. No individual investment security equaled
or exceeded two percent of total assets. 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,
2000 and 1999, 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 (in thousands):
2000 1999
-------- --------
Cash equivalents....................................... $140,016 $102,091
Short-term cash investments (maturities of one year or
less)................................................ $ 78,386 $ 59,094
Long-term cash investments (maturities over one
year)................................................ $ 40,638 $ 43,702
Unrealized gains and losses at December 31, 2000 and 1999 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, 2000, 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 $5.7 million and to exchange U.S.
dollars and Euros into various foreign currencies in the amounts of $9.7 million
and $21.4 million, respectively. At December 31, 1999, the Company had
outstanding forward exchange 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. Neither the cost nor
38
41
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the fair value of these foreign currency forward contracts was material at
December 31, 2000 or 1999. One of two major U.S. multinational banks is
counterparty to all of these contracts during both 2000 and 1999.
NOTE THREE: PROPERTY, EQUIPMENT AND IMPROVEMENTS
ESTIMATED
2000 1999 USEFUL LIVES
--------- --------- ------------
Computer equipment and software......... $ 245,403 $ 229,635 3 years
Furniture and fixtures.................. 76,775 76,620 5 years
Leasehold improvements.................. 46,659 44,173 lease term
--------- ---------
368,837 350,428
Less accumulated depreciation........... (309,541) (282,841)
--------- ---------
Net property, equipment and
improvements.......................... $ 59,296 $ 67,587
========= =========
Deprecation expense amounted to $43.5 million, $54.2 million and $71.0
million in 2000, 1999 and 1998, respectively.
NOTE FOUR: GOODWILL AND OTHER PURCHASE INTANGIBLES
2000 1999
-------- --------
Goodwill............................................... $190,473 $ 78,767
Purchase technology.................................... 29,000 11,000
Covenant not to compete................................ 4,500 4,500
Customer lists......................................... 20,000
-------- --------
243,973 94,267
Accumulated amortization............................... (96,459) (69,739)
-------- --------
Net Goodwill and other purchase intangibles............ $147,513 $ 24,528
======== ========
NOTE FIVE: OTHER ASSETS
Other assets consist of the following (in thousands):
2000 1999
------- -------
Deposits................................................. $21,517 $ 3,929
Other.................................................... 19,149 13,762
------- -------
$40,666 $17,691
======= =======
In December 2000, the Company made a $18.0 million security deposit on a
15-year non-cancelable lease for a new facility to be built in Dublin,
California (Note Six).
NOTE SIX: LEASE OBLIGATIONS AND OTHER LIABILITIES AND COMMITMENTS
The Company leases, or has committed to lease, certain office facilities
and certain furniture and equipment under operating leases expiring through
2017, 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.
39
42
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
secured funding to acquire the land and is committed to build two buildings with
a total of approximately 420,000 rentable square feet. Payments under this lease
will commence on the earlier of (i) March 1, 2002, (ii) the date the Company
first occupies any portion of Building B, or (iii) substantial completion of
Building B. 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 that allows for purchase of the
facilities at the end of the initial lease or at the end of either five-year
lease extension.
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 is being
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, 2000 are as follows
(dollars in thousands):
2001...................................................... $ 37,230
2002...................................................... 35,454
2003...................................................... 28,156
2004...................................................... 23,543
2005...................................................... 20,628
Thereafter................................................ 189,513
--------
Total minimum lease payments*............................. $334,524
========
- ---------------
* Minimum payments have not been reduced by minimum sublease rentals of $8.0
million due in the future under noncancellable subleases.
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,
-----------------------------
2000 1999 1998
------- ------- -------
Minimum rentals............................... $36,361 $31,507 $52,608
Less: sublease rentals........................ 4,173 3,779 2,180
------- ------- -------
$32,188 $27,728 $50,428
======= ======= =======
At December 31, 2000, the Company had outstanding letters of credit in the
amount of $0.4 million.
40
43
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE SEVEN: 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 at
December 31, 2000 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 1988
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. The
1988 Stock Option Plan expired in June 1998, in accordance with its terms. As of
that time, no further options were granted under the plan. Optionees holding
unexpired options are able to exercise such options before the tenth anniversary
of the option grant date. At that time, any unexercised options expire and are
cancelled. As of December 31, 2000, there were 5,425,008 unexercised options
outstanding under the 1988 Stock Option Plan.
Pursuant to the 1996 Stock Option Plan, at December 31, 2000, an aggregate
of 12,727,000 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 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, at December 31, 2000,
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
41
44
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Option Plan as of December 31, 2000. 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, 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
Granted..................................... 7,452,447 19.56
Exercised................................... (2,837,408) 7.06
Cancelled................................... (2,322,220) 12.97
-----------
Balance at December 31, 2000................ 15,387,165 $14.16
===========
The total number of shares granted in 2000 includes 1,135,307 options
assumed by the Company due to its acquisition of HFN. At December 31, 2000,
options to purchase 4,266,614 shares were exercisable at prices ranging from
$4.38 to $49.38. Shares available for grant totaled 6,468,257 at December 31,
2000.
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 exchanges 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.
42
45
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FFI STOCK OPTION PLAN
In February of 2000 the Company established the FFI Stock Option Plan ("FFI
Plan") and reserved for issuance an aggregate of 13,325,000 shares of common
stock reserved for issuance upon the exercise of options granted to qualified
employees and consultants of Financial Fusion Inc., a wholly owned subsidiary of
the Company, and certain employees of Sybase, Inc. FFI's 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 FFI Plan must be at least 85% of the fair market value
of the common stock on the date granted. As FFI is not a public company, the
fair market value of the shares issued under the plan has been determined by
FFI's Board of Directors and supported by a valuation prepared by an independent
valuation expert. All options issued during 2000 were granted at the estimated
fair market value of the option at the date of grant. Options expire over terms
not exceeding ten years from the grant date, three months after termination of
employment, two years after death or one year after permanent disability.
Options 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.
Price data and activity for the FFI Plan are summarized as follows:
WEIGHTED AVERAGE
OUTSTANDING OPTIONS EXERCISE PRICE
NUMBER OF SHARES PER SHARE
------------------- ----------------
Granted....................................... 14,285,220 $5.00
Exercised..................................... (8,754) 5.00
Cancelled..................................... (2,566,692) 5.00
----------
Balance at December 31, 2000.................. 11,709,774 $5.00
==========
At December 31, 2000 there were 2,660,267 shares exercisable under the FFI
Plan at a weighted average exercise price of $5.00 per share. The weighted
average remaining contractual life of the options outstanding at December 31,
2000 was 9.22 years.
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, 2000, an aggregate of 11,800,000 shares of common stock
had been reserved under the Plans, of which 3,161,164 shares remained available
for issuance. Employees purchased 675,118 shares in 2000, 1,284,250 shares in
1999, and 1,642,993 shares in 1998.
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 (including the FFI Plan) 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
43
46
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
by Statement of Financial Accounting Standards No. 123, the Company's net
income/(loss) and net income/ (loss) per share would have been adjusted to the
pro forma amounts indicated below: (dollars in thousands, except per share data)
2000 1999 1998
------- ------- ---------
Net income/(loss)
As reported............................................... $72,125 $62,495 $ (93,128)
Pro forma................................................. $20,573 $35,479 $(139,541)
Basic net income/(loss) per share
As reported............................................... $ 0.82 $ 0.76 $ (1.15)
Pro forma................................................. $ 0.23 $ 0.43 $ (1.73)
Diluted net income/(loss) per share
As reported............................................... $ 0.78 $ 0.74 $ (1.15)
Pro forma................................................. $ 0.22 $ 0.42 $ (1.73)
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
----------------------- -----------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ----- ----- -----
Expected volatility........................ 70.93% 68.24% 68.36% 70.93% 68.24% 68.36%
Risk-free interest rates................... 6.18% 5.51% 5.15% 6.18% 4.86% 5.00%
Expected lives (years)..................... 4.25 4.25 3.50 .50 .50 .50
Expected dividend yield.................... -- -- -- -- -- --
The weighted-average grant-date fair value of options (excluding FFI
options) granted in 2000, 1999 and 1998 was $12.81, $5.98 and $3.84 per share,
respectively. The weighted-average grant-date fair value of the FFI options was
$5.00 per share.
The following table summarizes information about Sybase fixed stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- --------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGES OF CONTRACTUAL EXERCISE EXERCISE
EXERCISABLE PRICES SHARES LIFE PRICE SHARES PRICE
- ------------------ ---------- ----------- --------- --------- ---------
$ 4.38 to $ 8.13 4,045,988 6.86 $ 6.83 2,574,383 $ 6.82
$ 8.60 to $10.81 4,729,009 8.20 $10.34 646,147 $ 9.62
$11.19 to $21.86 3,955,149 9.09 $19.36 676,860 $18.09
$22.56 to $49.38 2,657,019 9.05 $24.38 369,224 $29.26
---------- ---- ------ --------- ------
$ 4.38 to $49.38 15,387,165 8.22 $14.16 4,266,614 $10.98
========== =========
NOTE EIGHT: 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.
44
47
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
2000 1999 1998
-------- -------- --------
United States.............................. $ 25,674 $ 23,576 $(46,786)
Foreign.................................... 81,912 77,222 (32,279)
-------- -------- --------
Total............................ $107,586 $100,798 $(79,065)
======== ======== ========
The provisions (credits) for income taxes consist of the following (dollars
in thousands):
2000 1999 1998
------- ------- -------
Federal
Current..................................... $11,542 $ 6,699 $ (900)
Deferred.................................... (6,935) -- --
------- ------- -------
4,607 6,699 (900)
State
Current..................................... 2,888 4,373 375
Deferred.................................... 640 -- --
------- ------- -------
3,528 4,373 375
Foreign
Current..................................... 27,071 27,221 14,593
Deferred.................................... 255 10 (5)
------- ------- -------
27,326 27,231 14,588
------- ------- -------
Total............................... $35,461 $38,303 $14,063
======= ======= =======
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):
2000 1999 1998
------- -------- --------
Tax (credit) at U.S. statutory rate......... $37,655 $ 35,279 $(27,673)
State tax, net of federal benefit, before
valuation allowance....................... 3,528 4,373 (1,408)
Effect of foreign operations................ (7,277) 4,070 27,618
Amortization of intangible assets........... 13,875 4,352 2,398
Research and development tax credits........ (750) (745) --
Utilization of net operating loss and credit
carryforwards............................. (2,261) (11,941) --
Effect of valuation allowance............... (9,725) -- 13,699
Other....................................... 416 2,915 (571)
------- -------- --------
Total............................. $35,461 $ 38,303 $ 14,063
======= ======== ========
45
48
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
2000 1999
-------- --------
Depreciation........................................... $ 23,163 $ 21,122
Deferred revenue....................................... 8,950 8,315
Accrued expenses....................................... 18,534 20,432
Allowance for doubtful accounts........................ 5,105 9,599
Purchased software..................................... 340 156
Net operating loss carryovers and tax credits
carryforwards........................................ 23,627 24,184
Other assets........................................... 10,643 9,373
-------- --------
Gross deferred tax asset............................... 90,362 93,181
Unremitted foreign earnings............................ (18,110) (18,110)
Capitalized R&D expenses............................... (14,201) (13,362)
Other liabilities...................................... (36) (65)
-------- --------
Gross deferred tax liability........................... (32,347) (31,537)
Total before valuation allowance....................... 58,015 61,644
Valuation allowance.................................... (10,401) (20,580)
-------- --------
Net deferred tax assets................................ $ 47,614 $ 41,064
Recorded as:
Current deferred tax assets.......................... $ 28,594 $ 15,826
Noncurrent deferred tax assets....................... 19,020 25,238
-------- --------
$ 47,614 $ 41,064
======== ========
The valuation allowance decreased by $10.2 million in 2000. This movement
in the valuation allowance during the year included the reversal of the
valuation allowance provided on certain research and development tax credits
($9.7 million) based on the Company's determination after its review of all
available information that the realization of these tax credits is more likely
than not, reductions of deferred tax assets and the related valuation allowance
previously recorded on certain tax credits utilized during 2000 ($2.1 million)
and an increase to the valuation allowance ($1.6 million) for foreign tax
credits recorded during 2000.
Deferred tax assets relating to carryforwards as of December 31, 2000
include approximately $14.1 million associated with stock option activity for
which any subsequently recognized tax benefits will be credited directly to
shareholders' equity. As of December 31, 2000, the Company had research and
development tax credits of $9.7 million, which expire in years from 2005 through
2010, and foreign tax credits of $9.7 million expiring in years from 2001
through 2020.
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 income taxes on a portion of the unremitted
earnings held by certain of the Company's foreign subsidiaries (approximately
$50.4 million at December 31, 2000) since the Company plans to permanently
reinvest all such earnings.
46
49
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE NINE: RETIREMENT PLAN
The Company maintains a defined contribution pursuant to Section 401(k) of
the Internal Revenue Code (the "Plan") that allows eligible employees to
contribute up to 18% of their annual compensation to the Plan, subject to
certain limitations. In 2000, the Company matched employee contribution at a
rate of 50 cents to the dollar up to the first $3,000 of salary contributed by
the employee, with a maximum employer match of $1,500 for the year fully vested.
The maximum employer match was $1,000 in 1999 and $500 in 1998. The Plan also
allows the Company to make discretionary contributions. There were no such
discretionary contributions made in 2000, 1999 or 1998.
NOTE TEN: SEGMENT AND GEOGRAPHICAL INFORMATION
The Company is organized into five separate business segments, 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 that allow
companies to support e-portals and integrate external data, events and
applications into the portals. iAnywhere Solutions, Inc. (iAS), formerly the
Mobile and Embedded Computing Division (MEC), provides solutions that deliver
enterprise information and applications to any location where business
transactions occur, including remote, mobile and hand-held platforms. 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 translate data from multiple sources. Our wholly owned subsidiary,
Financial Fusion, Inc. (FFI), formerly HFN, delivers turnkey Internet banking
solutions to financial institutions.
The Company reports its ESD, MEC, IAD and BID divisions and FFI as
reportable segments in accordance with Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company had four reportable segments in 1999: ESD, MEC, IAD
and BID. The FFI segment was added to report the results of HFN which was
acquired by the Company during the year. 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 discloses the available data for the two reportable
segments identified above for the years ended December 31, 2000, 1999 and 1998.
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 that 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 based 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.
47
50
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the segment financial information reported to the CODM for the
year ended December 31, 2000 is presented below (in thousands):
CONSOLIDATED
ESD IAD MEC BID FFI ELIMINATION TOTAL
-------- ------- ------- -------- -------- ----------- ------------
Revenues:
License fees...................... $354,425 $55,065 $49,062 $ 500 $ 9,449 -- $468,501
Services.......................... 474,229 613 1,538 1,828 13,749 -- 491,957
-------- ------- ------- -------- -------- -------- --------
Direct revenues from external
customers......................... 828,654 55,678 50,600 2,328 23,198 -- 960,458
Intersegment revenues............... 2,096 34,766 41,445 19,223 5,737 (103,267) --
-------- ------- ------- -------- -------- -------- --------
Total revenues...................... 830,750 90,444 92,045 21,551 28,935 (103,267) 960,458
Total allocated costs and expenses
before amortization of purchased
intangibles and write-off of
in-process research and
development....................... 713,246 66,317 66,515 33,625 49,187 (103,267) 825,623
-------- ------- ------- -------- -------- -------- --------
Operating income (loss) before
amortization of purchased
intangibles and write off of
in-process research and
development....................... 117,504 24,127 25,530 (12,074) (20,252) -- 134,835
Amortization of purchased
intangibles....................... 8,311 3,773 81 3,983 20,987 -- 37,135
Write off of in-process research and
development....................... -- -- -- -- 8,000 -- 8,000
Operating income (loss) before
unallocated expenses.............. 109,193 20,354 25,449 (16,057) (49,239) -- 89,700
Unallocated expenses................ (757)
--------
Operating income.................... 90,457
Interest income, interest expense
and other, net.................... 17,035
Minority Interest................... 94
--------
Income before income taxes.......... $107,586
========
48
51
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the segment financial information reported to the CODM for the
year ended December 31, 1999 is presented below (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 before
amortization of purchased
intangibles(1)........................... 667,442 78,079 55,088 34,082 (83,988) 750,703
-------- ------- ------- -------- ------- --------
Operating income (loss) before amortization
of purchased intangibles................. 94,357 16,809 21,203 (11,439) -- 120,930
Amortization of purchased intangibles...... 11,027 3,745 48 654 -- 15,474
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
========
- ---------------
(1) Certain previously reported amounts have been reclassified to conform to
current period presentation format.
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 United States, Canada, Europe, Asia, Australia, New Zealand, and Latin
America. 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 (in thousands):
2000 1999 1998
-------- -------- --------
Revenues:
Unaffiliated customers:
United States......................... $552,452 $504,217 $475,949
Europe................................ 247,809 231,862 253,162
Other................................. 160,197 135,554 138,358
-------- -------- --------
Total............................ $960,458 $871,633 $867,469
======== ======== ========
Long-lived assets, net:
United States............................ $221,049 $100,329 $150,120
Europe................................... 11,472 16,150 10,908
Other.................................... 8,082 11,570 15,492
-------- -------- --------
Total............................ $240,603 $128,049 $176,520
======== ======== ========
NOTE ELEVEN: BUSINESS COMBINATIONS AND INVESTMENTS
During 2000, the Company invested $15.7 million for equity interests of
between 2 percent and 16 percent in five early-stage e-Business companies, of
which $5.7 million was invested under the terms of its
49
52
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Innovation Fund. These nonmarketable investment securities are accounted for
under the cost method of accounting. The Innovation Fund, which has a total of
$50 million available for such investments, was approved by the Board of
Directors in 1999. In order for an investment to qualify as an Innovation Fund
investment, the following criteria must be met: (i) total investment by Sybase
in the transaction must be no greater than $5 million, and (ii) Sybase's total
equity interest in the entity must not exceed 19 percent of the total
outstanding equity at any time.
In September 2000, the Company acquired certain assets of its distributor
in Mexico for approximately $4.0 million, and assumed certain of its
liabilities. In addition, pursuant to the relevant agreements, the Company is
obligated to make certain contingent payments in subsequent years based on
certain agreed-upon performance criteria. The aggregate maximum additional
contingent amount payable in 2001 and 2002 is $5.2 million. This transaction has
been accounted for as a purchase. The results of operations of the Mexico entity
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 July 2000, the Company invested $2.0 million for a majority interest in
an entity established with a subsidiary of Hong Kong Telecom. The entity is
engaged in the business of operating as an application services provider and its
business plan calls for it to deliver a total financial portal solution for
different finance verticals. The accounts of the entity are included in the
Consolidated Financial Statements.
On January 20, 2000, the Company acquired Home Financial Network, Inc.
(HFN), an Internet financial services company specializing in the development of
customized e-finance Web sites. This transaction was accounted for as a
purchase. The total purchase cost was approximately $167.6 million, consisting
of the following: (In millions, except share amounts)
Issuance of 7,817,471 Sybase shares......................... $129.8
Cash........................................................ 25.9
HFN stock options assumed................................... 11.2
Merger costs, legal and accounting.......................... 0.7
------
Total purchase consideration................................ $167.6
======
The estimated fair value of the common stock to be issued was based on the
average closing price of Sybase common stock on the two days before and after
the acquisition was announced on December 1, 1999. The estimated fair value of
the HFN options assumed, which will be exchanged for cash and Sybase options,
was based on the Black-Scholes valuation model using the following assumptions:
- Expected lives of 0.4 to 4.0 years
- Expected volatility factor of 68.24%
- Risk-free interest rate of 5.51%
- Expected dividend rate of 0%
The estimated excess of the purchase price over the fair value of the net
assets acquired (including a $1.6 million tax benefit from net operating loss
carryovers) has been valued at $165.1 million. Of this excess, $20.0 million was
allocated to the established customer list, $18.0 million was allocated to
developed technology, $119.1 million was allocated to goodwill, and $8.0 million
was allocated to in-process research and development based upon a valuation
prepared by an independent third-party appraiser. The amount allocated to
in-process research and development was charged to expense as a non-recurring
charge in the first fiscal quarter of 2000 since the in-process research and
development had not yet reached technological feasibility and had no alternative
future uses. The amounts allocated to the established customer list, the
developed technology and the goodwill are being amortized on a straight-line
basis over periods of 10 years, 6 years and 7 years, respectively.
50
53
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma financial information presents the
combined fiscal results of operations of Sybase and HFN as if the acquisition
had occurred as of the beginning of 1999 and 2000, and after giving effect to
certain adjustments, including amortization of goodwill and other intangible
assets, but excluding the non-recurring charge for the write-off of $8.0 million
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)
2000 1999
-------- --------
Revenue................................................ $960,458 $876,969
Net income............................................. 75,877 34,148
Basic net income per share............................. 0.87 0.38
Diluted net income per share........................... 0.82 0.37
In March 1999, the Company paid $5.4 million for Convertible Secured
Promissory Notes due December 31, 2002 (Notes) 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 at the time of issuance, were
convertible into 29.9 percent of the share capital of Demica. On August 11,
2000, the Company converted the Notes into Demica shares and in August 2000, an
investor paid Sybase approximately $1.7 million for 348,240 of such shares.
Additionally, Demica has paid Sybase $331,000 for accrued interest under the
Notes. The investment is being accounted for under the cost method of
accounting.
In February 1999, the Company acquired Data Warehouse Network (DWN), an
Ireland-based, privately held provider of packaged, industry-specific business
intelligence applications. Under the acquisition 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 of which $1.8 million has been paid to date. The transaction was
accounted for as a purchase. Substantially the entire 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 are included in the consolidated results of operations for periods
subsequent to the acquisition date.
NOTE TWELVE: 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 were similar and alleged violations of federal and state securities
laws and requested unspecified monetary damages. A consolidated, amended class
action complaint was served in June 1998 and named Sybase K.K., the
51
54
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's Japanese subsidiary, and Yoshi Ogawa, the Company's former Japan
country manager, as additional defendants.
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 alleged breach of fiduciary duties by certain
present and former officers and/or directors in connection with the underlying
circumstances alleged in the securities class action complaints described above.
Two similar derivative actions were also filed in Alameda County Superior Court,
and the three derivative actions were consolidated. 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 agreed to stay the Delaware
case in light of the California action.
On April 18, 2000, the Company announced that it had agreed to settle the
consolidated federal securities class action and the consolidated California
shareholder derivative actions. The terms of the federal securities class
actions settlement were approved by the court on September 29, 2000. The terms
of the settlement of the shareholder derivative actions were approved by the
court on July 7, 2000. The Company believes the settlements will have no future
financial impact on Sybase.
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 alleged
violations of federal and state securities laws and requested 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 that dismissed the case, remanding the matter to
the trial court for a hearing on the settlement agreement. The trial court
approved the settlement on June 13, 2000. The settlement amount of $1.5 million,
and the related legal expenses were accrued by the Company during 1998. These
escrowed amounts have been paid.
The Company is also a party to various legal disputes and proceedings
arising in 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, 2000.
NOTE THIRTEEN: RESTRUCTURING COSTS
In February 1998, the Company announced and began to implement a
restructuring plan (the 1998 Plan) aimed at improving productivity per employee,
including reductions in sales and marketing, and product development and
engineering expenses. The Company's goal was to significantly reduce annual
operating expenses by realigning resources around its core product initiatives.
The 1998 Plan included estimated restructuring charges of $70.0 million to be
incurred in 1998. The 1998 Plan included the termination of at least 1,000
employees, the termination of certain product lines, and the consolidation or
closure of certain facilities and subsidiaries. As a result of the 1998 Plan,
the Company terminated approximately 1,100
52
55
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. The Company also reduced
personnel and related facilities costs to achieve an immediate reduction in its
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
thousands):
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 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.
53
56
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 that 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 the Company had eliminated as part of the
1998 Plan. The products eliminated included Sybase MPP(TM) on certain platforms,
certain APT products, dbQueue, Web.SQL, 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 the
Company 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 its 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 its business and
from the termination of employees. The amounts accrued were based on our
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, $0.5
million of legal and other fees. During 2000, the Company reversed by credit to
operating expenses $0.8 million of restructuring costs related to the 1998 Plan.
The reversals consisted primarily of lease cancellations and commitments and
other costs.
54
57
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the activity related to the restructuring
liability at December 31, 2000 (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
======= ====== ======= ====== ======
ACCRUED ACCRUED
LIABILITIES LIABILITIES
AT AMOUNTS AMOUNTS AT
12/31/99 PAID REVERSED 12/31/00
----------- ------- -------- -----------
Termination payments to employees and other
related costs............................... $ 442 $ 254 $188 $ --
Lease cancellations and commitments........... 1,296 755 410 131
Other......................................... 372 179 193 --
------ ------ ---- ----
$2,110 $1,188 $791 $131
====== ====== ==== ====
The remaining restructuring reserve relates to certain lease payments
contractually required of the Company on certain closed facilities, net of
associated sublease amounts. The remaining lease amounts will be paid during
2001.
NOTE FOURTEEN: SUBSEQUENT EVENTS
On February 20, 2000, the Company agreed to acquire New Era of Networks,
Inc. (NEON) in a stock-for-stock transaction valued at approximately $373
million. NEON is a leading e-Business application integration company. Under the
terms of the deal, which is expected to close in the second quarter of 2001 upon
attainment of NEON stockholder and regulatory approvals, each share of NEON
common stock would be converted into 0.3878 share of Sybase common stock. If
completed, the acquisition will be accounted for under the purchase method of
accounting and the Company expects a significant portion of the purchase price
to be allocated to intangible assets.
The following unaudited pro forma financial information presents the
combined results of operations of Sybase Inc, HFN and NEON as if the
acquisitions of HFN and NEON had occurred as of the beginning of 1999 and 2000,
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. See Note eleven for details regarding the HFN
acquisition. The pro forma financial information does not necessarily
55
58
SYBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.)
2000 1999
---------- ----------
Revenue............................................. $1,148,806 $1,003,193
Net income (loss)................................... 22,695 (11,330)
Basic net income (loss) per share................... 0.22 (0.11)
Diluted net income (loss) per share................. 0.21 (0.11)(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.
On February 1, 2001, the Company acquired Sybase A/S, a locally owned
distributor of Sybase products in Denmark, for approximately $3.5 million in
cash. The acquisition will be accounted for using the purchase method of
accounting and the Company expects a significant portion of the purchase price
to be allocated to intangible assets.
56
59
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Three months ended (in thousands, except per share and stock price data)
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2000 2000 2000 2000 2000
--------- -------- ------------- ------------ --------
Revenues:
License fees.................. $110,668 $110,872 $114,370 $132,590 $468,501
Services...................... 116,099 123,179 124,733 127,945 491,957
-------- -------- -------- -------- --------
Total revenues........ 226,767 234,051 239,103 260,535 960,458
Costs and expenses:
Cost of license fees.......... 10,827 10,697 11,411 12,186 45,120
Cost of services.............. 60,785 61,329 60,940 62,783 245,837
Sales and marketing........... 83,268 83,915 84,591 93,375 345,149
Product development and
engineering................ 31,692 31,467 35,770 27,759 126,689
General and administrative.... 17,519 17,763 14,828 17,157 67,267
Amortization of goodwill and
other purchased
intangibles................ 7,308 9,163 8,107 8,152 32,730
In-process research and
development................ 8,000 -- -- -- 8,000
Cost (reversal) of
restructure................ -- -- -- (791) (791)
-------- -------- -------- -------- --------
Total costs and
expenses............ 219,399 214,334 215,647 220,621 870,001
-------- -------- -------- -------- --------
Operating income................ 7,368 19,717 23,456 39,914 90,457
Interest income and expense,
net........................... 4,580 4,228 6,007 2,220 17,035
Minority interest............... -- -- 24 70 94
-------- -------- -------- -------- --------
Income before income taxes...... 11,948 23,945 29,487 42,204 107,586
Provision for income taxes...... 5,257 10,536 12,974 6,693 35,461
-------- -------- -------- -------- --------
Net income...................... $ 6,691 $ 13,409 $ 16,513 $ 35,511 $ 72,125
======== ======== ======== ======== ========
Basic net income per share...... $ 0.08 $ 0.15 $ 0.19 $ 0.40 $ 0.82
Diluted net income per share.... $ 0.07 $ 0.14 $ 0.18 $ 0.39 $ 0.78
Stock prices:
High.......................... $ 29.75 $ 24.94 $ 28.50 $ 24.31 $ 29.75
Low........................... $ 16.50 $ 18.25 $ 21.13 $ 17.56 $ 16.50
57
60
Three months ended (in thousands, except per share and stock price data)
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
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........... 77,872 77,177 75,736 79,989 310,774
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
Amortization of goodwill and
other purchased
intangibles................ 3,413 3,707 3,399 3,401 13,920
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
58
61
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 our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held May
24, 2001 ("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, 2000. 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.
59
62
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. Financial Statements. See list of financial statements at the
beginning of Part II, Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules. The following financial statement
schedules of Sybase, Inc. for the years ended December 31, 2000, 1999, and
1998 are filed as part of this Annual 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...................... 63
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.
3. 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,
and (xvi) Financial Fusion, Inc. Stock Option Plan, Exhibit 10.34.
The following Exhibits are filed as part of, or incorporated by reference
into, this Report on Form 10-K:
EXHIBIT NO. DESCRIPTION
----------- -----------
2 Agreement and Plan of Reorganization dated as of November
29, 1999, among Sybase, On-Line Financial Services, Inc.,
and Home Financial Network, Inc. (incorporated herein by
reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form S-3 filed on January 31, 2000)
3.1(4) Restated Certificate of Incorporation of Registrant, as
amended
3.2(9) Bylaws of Registrant, as amended
60
63
EXHIBIT NO. DESCRIPTION
----------- -----------
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
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
61
64
EXHIBIT NO. DESCRIPTION
----------- -----------
10.28(11) 1999 Nonstatutory Stock Plan, and form of Stock Option
Agreement
10.29(11) Severance Agreement and General Release between Sybase, Inc.
and Michael S. Gardner dated March 26, 1999.
10.30(10) Home Financial Network, Inc. 1995 Stock Plan, and form of
Stock Option Agreement
10.31 Corporate Headquarters Lease, dated January 28, 2000,
between Sybase, Inc. and WDS-Dublin, LLC, as amended on
November 29, 2000
10.32 Trust Agreement dated May 1, 2000, between Sybase, Inc.
401(k) Plan and Fidelity Management Trust Company
10.33 Trust Agreement dated May 1, 2000 between Sybase, Inc. and
Fidelity Management Trust Company for administration of
Executive Deferred Compensation Plan
10.34 Financial Fusion, Inc. 2000 Stock Option Plan
13.1(2) Proxy for 2001 Annual Meeting of Stockholders
21 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
- ---------------
(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.
(11) Incorporated by reference to exhibits filed in response to the exhibits to
the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
December 31, 2000.
62
65
SYBASE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
------------------------
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, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts........ $31,452,000 $ 14,000 $ 3,003,000 $12,156,000 $22,313,000
Year ended December 31, 1999:
Deducted 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
- ---------------
(A) Sales returns and credit memos allowances
(B) Uncollectible accounts written off and recoveries
The required information regarding the valuation allowance for deferred tax
assets is included in Note Eight to the Consolidated Financial Statements.
63
66
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.
March 26, 2001 SYBASE, INC.
By: /s/ JOHN S. CHEN
------------------------------------
John S. Chen
Chairman of the Board, Chief
Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John S. Chen, Pieter Van der Vorst and
Teresa D. Chuh, jointly and severally, his or her attorneys-in-fact, each with
the power of substitution, for him or her in any and all capacities, to sign any
amendment to this Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of
1934, this Report on Form 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, March 26, 2001
- ----------------------------------------------------- Chief Executive Officer
(John S. Chen) (Principal Executive Officer),
President and Director
/s/ PIETER A. VAN DER VORST Vice President and March 26, 2001
- ----------------------------------------------------- Chief Financial Officer
(Pieter A. Van der Vorst) (Principal Financial Officer)
/s/ MARTIN J. HEALY Vice President and March 26, 2001
- ----------------------------------------------------- Corporate Controller
(Martin J. Healy) (Principal Accounting Officer)
/s/ RICHARD C. ALBERDING Director March 26, 2001
- -----------------------------------------------------
(Richard C. Alberding)
/s/ CECILIA CLAUDIO Director March 26, 2001
- -----------------------------------------------------
(Cecilia Claudio)
/s/ L. WILLIAM KRAUSE Director March 26, 2001
- -----------------------------------------------------
(L. William Krause)
/s/ ALAN B. SALISBURY Director March 26, 2001
- -----------------------------------------------------
(Alan B. Salisbury)
/s/ ROBERT P. WAYMAN Director March 26, 2001
- -----------------------------------------------------
(Robert P. Wayman)
/s/ LINDA K. YATES Director March 26, 2001
- -----------------------------------------------------
(Linda K. Yates)
64
67
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2 Agreement and Plan of Reorganization dated as of November
29, 1999, among Sybase, On-Line Financial Services, Inc.,
and Home Financial Network, Inc. (incorporated herein by
reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form S-3 filed on January 31, 2000)
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
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
65
68
EXHIBIT NO. DESCRIPTION
----------- -----------
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(11) 1999 Nonstatutory Stock Plan, and form of Stock Option
Agreement
10.29(11) Severance Agreement and General Release between Sybase, Inc.
and Michael S. Gardner dated March 26, 1999.
10.30(10) Home Financial Network, Inc. 1995 Stock Plan, and form of
Stock Option Agreement
10.31 Corporate Headquarters Lease, dated January 28, 2000,
between Sybase, Inc. and WDS-Dublin, LLC, as amended on
November 29, 2000
10.32 Trust Agreement dated May 1, 2000, between Sybase, Inc.
401(k) Plan and Fidelity Management Trust Company
10.33 Trust Agreement dated May 1, 2000 between Sybase, Inc. and
Fidelity Management Trust Company for administration of
Executive Deferred Compensation Plan
10.34 Financial Fusion, Inc. 2000 Stock Option Plan
13.1(2) Proxy for 2001 Annual Meeting of Stockholders
21 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
- ---------------
(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.
(11) Incorporated by reference to exhibits filed in response to the exhibits to
the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
66