UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
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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: 1-16493
SYBASE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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94-2951005 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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One Sybase Drive, Dublin, California
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94568 |
(Address of principal executive offices)
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(Zip Code) |
(925) 236-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Stock, $.001 par value per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Preferred Share Purchase Rights
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.
Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes o No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of December 31, 2009, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $3,483,074,550 based on the closing sale price as reported on
the New York Stock Exchange.
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
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Class
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Outstanding at February 12, 2010 |
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Common Stock, $.001 par value per share
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82,368,556 shares |
DOCUMENTS INCORPORATED BY REFERENCE
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Document |
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Parts Into Which Incorporated |
Annual Report to Stockholders for the Fiscal
Year Ended December 31, 2009 (Annual Report)
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Parts I, II, and IV |
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Proxy Statement for the Annual Meeting of
Shareholders to be held May 13, 2010 (Proxy
Statement)
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Part III |
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, the
Company, we or us) to differ materially from those expressed or implied by such
forward-looking statements. These risks include global economic and credit market conditions;
software industry sales trends; customers willingness to renew their technical support agreements;
pricing pressure in the mobile messaging market; market acceptance of the Companys products and
services; possible disruptive effects of organizational or personnel changes; shifts in our
business strategy; interoperability of our products with other software or messaging products; the
impact fluctuations in the price of our common stock have on the financial statements due to our
convertible debt instruments system failures or other issues that impact our ability to deliver
mobile messages; the success of certain business combinations engaged in by us or by competitors;
political unrest or acts of war; customer and industry analyst perception of the Company and its
technology vision and future prospects; and other risks detailed from time to time in our
Securities and Exchange Commission filings, including those discussed in Managements Discussion
and Analysis of Financial Condition and Results of Operations (MD&A)- Overview, and MD&A Future
Operating Results, Part II, Item 7 of this Annual Report on Form 10-K.
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.
We file registration statements, periodic and current reports, proxy statements, and other
materials with the Securities and Exchange Commission, or SEC. You may read and copy any materials
we file with the SEC at the SECs Office of Public Reference at 450 Fifth Street, NW, Room 1300,
Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at www.sec.gov that
contains reports, proxy and information statements and other information regarding issuers that
file electronically with the SEC, including our filings.
We are headquartered at One Sybase Drive, Dublin, CA 94568, and the telephone number at that
location is (925) 236-5000. Our internet address is www.sybase.com. We make available, free
of charge, through the investor relations section of our website, our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports
filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as
soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
The contents of our website are not incorporated into, or otherwise to be regarded as part of this
Annual Report on Form 10-K.
Sybase, Adaptive Server Enterprise, Afaria, Avaki, AvantGo, Extended Systems, Financial Fusion,
iAnywhere, iAnywhere Solutions, iAnywhere Mobile Office, Mobile 365, PowerBuilder, PowerDesigner,
RAP The Trading Edition, Replication Server, SQL Anywhere, Sybase 365, , XcelleNet, are
trademarks of Sybase, Inc. or its subsidiaries. All other names may be trademarks of the
companies with which they are associated.
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PART I
ITEM 1. BUSINESS
With 2009 annual revenue exceeding $1.1 billion dollars, Sybase is a global enterprise software and
services company exclusively focused on managing and mobilizing information. With our global
solutions, enterprises can extend their information securely and make it useful for people anywhere
using any device. Sybases vision is to enable the Unwired Enterprise, where business-critical
information can be securely moved back and forth from the data center to the end device, and
delivered to the right person anytime, anywhere. Sybase solutions, combined with our global access
and network, allow enterprises unparalleled reach to a broad base of users and subscribers.
Sybase delivers mission-critical enterprise software and services to manage, analyze and mobilize
information. We are globally recognized as a performance leader, proven in data-intensive
industries and across a wide range of systems, networks and devices.
Sybase was founded and incorporated in California on November 15, 1984, and was re-incorporated in
Delaware on July 1, 1991.
During 2009, our business was organized into three principal operating segments, Infrastructure
Platform Group (IPG), iAnywhere Solutions (iAS) and Sybase 365 (Sybase 365). Below is a brief
description of the business of each division.
Infrastructure Platform Group (IPG) solutions address the challenge of how organizations manage
their strategic data assets and extract business value from that data. IPG offers two lines of
enterprise class data servers: Adaptive Server® Enterprise (ASE) a relational database management
system for mission-critical transactions and Sybase IQ, a specialized column-based analytics server
for business intelligence applications such as accelerated reporting, advanced analytics and
analytics services. IPG also produces solutions for data movement including the Sybase Replication
Server® for disaster recovery. IPG products also include PowerDesigner®, a leading modeling tool,
and PowerBuilder®, a leading Rapid Application Development (RAD) tool. IPG also offers vertical
information management solutions for financial services. Sybase RAP The Trading Edition is a
unified market analytics platform that lets capital markets firms make better trading and portfolio
decisions across the trade lifecycle. During 2009, the products of IPG accounted for approximately
73 percent of our license revenue.
iAnywhere Solutions (iAS) enable enterprises to deliver greater productivity to the front lines of
business. iAS holds worldwide market leadership positions in mobile device management, wireless
email, mobile middleware platforms, database and synchronization, and Bluetooth and infrared
protocol technologies. Tens of millions of mobile devices, millions of end users, and 20,000
customers and partners rely on iASs Always Available technologies, including Sybase Unwired
Platform, SQL Anywhere®, Afaria® and iAnywhere Mobile Office. The products of iAS accounted for
approximately 27 percent of our license revenue in 2009.
Sybase 365 is a global leader in enabling mobile information and mCommerce services for mobile
operators, financial institutions and enterprises. We deliver advanced mobile services to our
customers by addressing the inherent complexities of the wireless ecosystem: incompatible networks,
messaging protocols, handsets, and billing systems. Sybase 365 provides our customers with a wide
offering in Short Messaging Service (SMS), Multimedia Messaging Service (MMS), GPRS Roaming
Exchange (GRX), and Internet Protocol Exchange (IPX) interoperability to enable both
person-to-person messaging as well as application-to-person messaging, or application messaging. We
also provide end-to-end mobile commerce solutions (mBanking, mPayments, mRemittance), mobile CRM,
mobile marketing and content delivery services. Sybase 365 processed over 380 billion messages in
2009, with reach to 850 operators and 4 billion subscribers around the world.
A summary of financial results for these divisions is found in Note Twelve Segment and
Geographical Information in the Notes to the Consolidated Financial Statements, Part II, Item 8.
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UNWIRED ENTERPRISE
We define the Unwired Enterprise as an enterprise that uses information technology to create the
seamless flow of information from the data center to any device. An Unwired Enterprise breaks down
information technology barriers and delivers critical information and applications to employees,
partners, and customers, to any platform, device or network, anytime, anywhere. The benefits for
enterprises becoming an Unwired Enterprise are substantial. An Unwired Enterprise is more
efficient, more productive, and better able to capitalize on new opportunities because information
is moved to the point of action, increasing its relevance and enhancing the power of decisions and
transactions.
To enable the Unwired Enterprise, Sybase offers a cohesive platform that leverages our core
strength in data management, analytics, market leading mobile solutions and operator-grade network
infrastructure. This platform provides unique opportunities for Sybase to deliver ongoing value to
the enterprise market, while at the same time addressing emerging high-growth markets, such as
analytics, mobile banking and mobile commerce leveraging Sybases global enterprise reach and
mobile messaging capabilities.
CUSTOMERS
Our customers are primarily Fortune 1000 companies in North America and their equivalents around
the globe. No single customer accounted for more than 10 percent of total revenues during 2009,
2008 or 2007. In 2009 our customers included:
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A Fortune 500 global telecommunications company uses Sybase IQ and PowerDesigner for its
performance management and reporting infrastructure. Supporting worldwide business units,
the efficient system provides trend analysis, and network and services reporting via
desktop or browser-based access. The Sybase solution provides a cost-effective way to get
critical insight into business unit performance at multiple levels. |
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Exemplifying the Unwired Enterprise, a financial services customer uses Sybase data
management and analytics solutions, recently purchasing ASE Cluster Edition, to assure high
availability for its global trading system. Using complementary Sybase enterprise mobility
solutions, the banks management team accesses critical internal applications via iPhones. |
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A world leader in the manufacture of consumer goods leverages the Sybase Unwired
Platform (SUP) software to expand mobile applications throughout the organization. The
Sybase solution provides a unified enterprise mobility platform that reduces the cost of
development, deployment, and management to an affordable level. The company is also able to
satisfy more internal and external customers by providing increased device flexibility and
access to a greater number of enterprise applications. |
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A leading wireless carrier partnered with Sybase to provide a managed mobility service
to simplify the deployment and ongoing support of mobile workforces. Utilizing Sybases
enterprise device management platform, this service is a single solution to support all
mobile carriers and wireless services. It enables enterprises to control telecommunication
operating costs while ensuring compliance with corporate security mandates, management
directives and telecommunications policies. |
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A global leader in money transfer uses Sybase 365 mobile messaging and mCommerce
services to provide money transfer confirmations and send promotional offers and coupons
via SMS. Available across multiple countries, the services allow the company to
inexpensively expand to a large population of under-served customers. |
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PRODUCTS AND SERVICES
Sybase offers products in several license models, including on-premise licenses, licenses for
embedded solutions, and for partner-hosted services suitable for cloud, grid or
software-as-a-service (SaaS) environments. Sybase offers hosted messaging services through Sybase
365. On-premise license products are available on hardware platforms manufactured by Dell,
Hewlett-Packard, IBM, Sun Microsystems, and others and are available for a wide range of operating
systems including various UNIX environments, Windows, and Linux. A description of our principal
products and service offerings follows:
Infrastructure Platform Group (IPG)
Sybase Adaptive Server Enterprise (ASE) is a powerful data management platform for high performance
business applications especially in large database, high-transaction, mission-critical
environments. Sybase ASE combines a low total cost of ownership with excellent reliability,
security, and scalability. ASE key features include patented encryption, partitioning technology,
patent-pending query technology for smarter transactions and continuous availability in clustered
environments. With the addition of in-memory databases technology with ASE 15.5, Sybase enables
data virtualization and scaling critical to meeting the needs of high data volume and high
concurrent user organizations, whether deployed in public cloud or private data center
environments.
Sybase IQ is a highly optimized analytics server, designed specifically to deliver faster results
for mission-critical business intelligence, analytics, data warehousing and reporting solutions.
Sybase IQ delivers fast query performance and storage efficiency for structured and unstructured
data, making it ideal for both datamarts and enterprise data warehouse implementations. Sybase IQ,
with its patented columnar data storage structure, combines speed and agility with low
total-cost-of-ownership, enabling enterprises to perform analysis and reporting.
Sybase RAP The Trading Edition is a unified market analytics platform that lets financial
services firms make safer, better trading and portfolio decisions across the trading lifecycle.
From better model development to real-time trade and risk analytics to multi-year historical
quantitative analysis, Sybase RAP The Trading Edition is optimized to support demanding analytics
requirements. By providing a single platform for shared access to common data needed by multiple
user communities including quantitative analysts, traders, and risk managers Sybase RAP The
Trading Edition enables a common view and accelerates data availability.
Sybase Replication Server moves and synchronizes data in real time allowing companies to gain
better use of data trapped in application silos and to create reports without impacting operational
systems. Replication Server is adopted by many Fortune 1000 companies for simplified data movement
and synchronization across the enterprise. It allows database administrators to quickly setup
redundant disaster recovery sites and to distribute, consolidate and synchronize data across
multiple platforms, including Sybase ASE, Oracle, IBM DB2 and Microsoft SQL Server.
Sybase PowerDesigner is a leading data-modeling and application design tool for enterprises that
need to build or re-engineer applications quickly and cost-effectively. Sybase PowerDesigners
unique Link and Sync technology makes it an effective solution for enterprise architecture and
business transformation.
Sybase PowerBuilder is an industry-leading rapid application development (RAD) tool that increases
developer productivity through tight integration of design, modeling, development, and management
for a variety of platforms.
iAnywhere Solutions (iAS)
Sybase Unwired Platform is a mobile enterprise application platform that reduces a companys cost
of enabling strategic mobile deployments. It simplifies the development, deployment and management
of mobile enterprise applications, while addressing the difficult mobile application challenges of
back office integration, secure access for mobile devices into the enterprise, reliable push and
data synchronization, and support for multiple device types.
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SQL Anywhere is an industry leading mobile and embedded solution providing data management and data
synchronization technologies that operate in frontline environments without onsite IT support. It
offers enterprise-caliber features in databases that are easily embedded and widely deployed in
server, desktop, remote office and mobile application environments. SQL Anywhere data
synchronization technologies extend information in corporate applications and enterprise systems to
databases running in frontline environments.
Afaria is mobile management software that allows companies to centrally manage and secure devices
used by mobile workers. Afaria helps companies provision, configure, and secure devices, as well as
deploy and manage software, content and data throughout the device life cycle. Afaria supports a
broad range of mobile devices, including handhelds, smartphones, laptops and tablets.
iAnywhere Mobile Office lets enterprises securely extend personal information management (PIM),
email and business processes to mobile workers. It combines infrastructure support with enhanced
on-device security, usability and performance. iAnywhere Mobile Office offers key features for a
companys mobile inbox of the future, that enables the ability to take action on time-sensitive
business processes, such as approving purchase orders or submitting reports, all through a single,
secure mobile email client.
Advantage Database is a full-featured, easily embedded, high performance client/server database
ideal for small and medium-sized environments. It is unique among the Sybase database offerings
because its features also provide a growth path from legacy database applications written in
languages like Delphi and FoxPro to todays modern techniques.
Mobile Device Solutions are standards-based software development kits for implementing protocol
stack technologies for infrared, Bluetooth, data synchronization and device management.
Sybase 365
Operator Services are focused on SMS, MMS, GRX and IPX messaging interoperability between mobile
operators worldwide. Messages are delivered through a secure operator-grade messaging platform,
with advanced protocol conversion, routing, queuing, and transcoding capabilities. The
interoperability service reaches 850 mobile operators, with over 300 direct two-way SMS
destinations greatly simplifying the deployment and delivery of inter-operator messaging over
incompatible networks, protocol stacks, and handsets. Services include traffic analysis and
detailed reporting and statistics.
Enterprise Services provide mobile services for enterprises, brands, and content providers,
enabling customers to monetize premium mobile content and deliver interactive services, mobile CRM,
mobile advertising and mobile marketing campaigns globally. A high volume delivery infrastructure
ensures messages, content and applications get delivered by SMS and MMS regardless of their final
destination. Services include MMS 365, content delivery gateway to send and receive MMS from
multiple sources; application and content management, mobile advertising services, global billing,
settlement, reporting and analysis.
mCommerce Services provide an end-to-end platform covering mBanking, mPayments, mRemittance, to
both developed and emerging markets. Coupled with our leading messaging platform and global reach
(SMS, MMS) we are well-positioned to enable mobile operators, financial institutions, and
enterprises to realize the potential of mCommerce.
WORLDWIDE SERVICES
Technical Support. Our Customer Service and Support organization offers technical support for our
family of IPG and iAS products. We currently maintain regional support centers in North America,
South America, Europe, and Asia Pacific that can provide 24 x 7 technical services in all time
zones around the world. Our end users and partners have access to technical information sources
and newsgroups on our support website, including a solved cases database, and software fixes that
can be downloaded.
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Generally, customers can choose technical support programs that best suit their
business needs. Support programs include updates and new version releases that become available during the support period
and are generally priced on a percentage of net license fee basis.
Standard Support is designed for high quality around the clock support for critical
issues, access to new releases and online support services.
Enterprise Support offers personalized high-availability support for companies with
mission-critical projects. Services include priority access to the Enterprise Technical Team,
proactive services, and other specialized options. Enterprise Support provides the highest
priority of response times.
The vast majority of our support revenue comes from these Standard and Enterprise support plans. In
addition to these support offerings, we also offer some support services options geared towards
both Patners and End-users primarily for designated workplace level and tools products and certain
iAS products. These services are priced on a flat-fee annual basis with updates and new version
releases available for purchase separately for an additional fee.
Sybase 365 operates two 24x7x365 Network Operations Centers (NOCs), one in Singapore and the other
in the United States. The NOCs monitor our messaging service infrastructure, direct and monitor
global maintenance and repair activities, and provide direct technical support to our customers.
Additionally, Sybase provides 24x7x365 customer care through two facilities, one in Dublin, Ireland
and one in Mumbai, India that support customer requests and services inquiries in 6 languages
(English, French, Italian, Spanish, German and Mandarin).
Consulting. The Sybase Professional Services (SPS) organization offers customers comprehensive
consulting, education and integration services designed to optimize their business solutions using
Sybase IPG, iAS, Sybase 365 mCommerce and non-Sybase products. Service offerings most often
include assistance with data and system migration, data base or system administration services, and
performance enhancements. In much less common instances the service offerings may include
implementation of our software.
Education. We provide a broad education curriculum allowing customers and partners to increase
their proficiency in our IPG and iAS 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 training providers also provide education
in our products.
SALES AND DISTRIBUTION
Licensing and Services Model. Consistent with software industry practice, we do not sell or
transfer title to our IPG and iAS software products to our customers. Instead, customers generally
purchase non-exclusive, non-transferable 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/or cpus, 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 customers needs and hardware environment. In the case of Sybase
365, we sell hosted, turn-key messaging solutions where revenue is generated primarily on a per
message or transactional basis.
Distribution Method. Sybase products and services are sold through our direct sales organizations
and our indirect IPG and iAS sales channels. Indirect sales channels include value added
resellers (VARs), systems integrators (SIs), original equipment manufacturers (OEMs) and
international distributors and resellers.
International Business. In 2009, 48 percent of our total revenues were from operations outside
North America, with operations in EMEA (Europe, Middle East and Africa) accounting for 34 percent,
and operations in our Intercontinental region (Asia Pacific and Latin America) accounting for 14
percent. Most of our international sales are made by our foreign subsidiaries. However, certain
sales are made in
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international markets from the United States. We also license our IPG and iAS products through
distributors and other resellers throughout the world. A summary of our geographical revenues is
set forth in MD&A Geographical Revenues, Part II, Item 7, and Note Twelve Segment and
Geographical Information in the Notes to the Consolidated Financial Statements, Part II, Item 8.
For a discussion of the risks associated with our foreign operations, see Risk Factors Future
Operating Results We are subject to risks arising from our international operations, Part I,
Item 1 (A).
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 December 31, 2009, we had
193 issued patents (159 U.S. and 34 non-U.S.) that expire approximately 20 years from the date they
were filed. These patents cover various aspects of our technology. We believe that our patents and
other intellectual property rights have value. However, any of our proprietary rights could be
challenged, invalidated or circumvented, or may not provide us with significant competitive
advantage. For a discussion of additional risks associated with our intellectual property, see
Risk Factors Future Operating Results Insufficient protection for our intellectual property
rights may have a material adverse affect on our results of operations or our ability to compete
and If third parties claim that we are in violation of their intellectual property rights, it
could have a negative impact on our results of operations or ability to compete, Part I, Item
1(A).
RESEARCH AND DEVELOPMENT
Since inception, we have made substantial investments in software 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 2009, our investment in research
and product development generated expenses of $138.1 million, or 12 percent of our total revenue.
These amounts compared to $146.9 million and 13 percent in 2008 and $152.6 million and 15 percent
in 2007. In addition, our capitalized software costs were $46.2 million and $50.7 million in
2009 and 2008, respectively. 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 Risk Factors Future Operating Results The ability to rapidly develop and
bring to market advanced products and services that are successful is crucial to maintaining our
competitive position and We may not receive significant revenues from our current research and
development efforts for several years, if at all, Part I, Item 1(A).
COMPETITION
The market for our products and services is extremely competitive due to various factors including
a maturing enterprise infrastructure software market, changes in customer IT spending habits, and
the trend toward consolidation of companies within the telecommunications and software industries.
Principal competitors to our Information Management Products include Oracle, IBM and Microsoft. We
also compete with specialized vendors such as Teradata, Netezza, and Vertica in data warehousing;
and CA, Inc. in modeling.
Principal competitors to iAS vary by product type.
Mobile and Embedded Database Products. Principal competitors to our mobile and embedded database
products include Pervasive Software, Progress Software, Intersystems, IBM and Oracle.
Mobile Middleware and Device Management Products. Principal competitors to our mobile middleware,
including device management and security products, including Microsoft, IBM, and a host of numerous
small vendors.
Principal competitors to Sybase 365 vary by service.
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Operator Services. Principal competitors to our interoperability services include, Syniverse,
Aicent, Iris and Belgacom. While the industry is highly competitive, we and others may peer from
time to time in order to provide more ubiquitous coverage to our customers.
Enterprise Services. Principal regional competitors to our content aggregation and enterprise
messaging services include mBlox, NetSize, Syniverse and OpenMarket.
mCommerce Services. While no other vendor can offer an end-to-end solution for mBanking, mPayments,
mRemittance on a global scale, in both developed and emerging markets, principal in-region
competitors, include Clairmail, mFoundary, mShift, Firethorn, Monetize and Yodlee.
We believe that we compete favorably against our competitors in each of these areas. However, some
of our competitors have longer operating histories, greater name recognition, stronger
relationships with partners, larger technical staffs, established relationships with hardware
vendors and/or greater financial, technical and marketing resources. These factors may provide our
competitors with an advantage in penetrating markets. For a discussion of certain risks associated
with competition, see Risk Factors Future Operating Results Industry consolidation and other
competitive pressures could affect prices or demand for our products and services, and our business
may be adversely affected, Part I, Item 1(A).
EMPLOYEES
As of February 1, 2010, Sybase and its subsidiaries had approximately 3,819 regular employees. For
information regarding our executive officers, see Directors, Executive Officers of Registrant and
Corporate Governance, Part III, Item 10.
ITEM 1 (A): RISK FACTORS
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 below and elsewhere 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 including those regarding forward-looking statements described on
page 3.
Significant variation in the timing and amount of our revenues may cause fluctuations in our
quarterly operating results and an accurate estimation of our revenues is difficult.
Our operating results have varied from quarter to quarter in the past and may vary in the future
depending upon a number of factors described below, including many that are beyond our control. Our
revenues, particularly our new software license revenues, and our quarterly operating results can
fluctuate substantially. As a result, we believe that quarter-to-quarter comparisons of our
financial results should not be relied on to indicate our future performance. We operate with
little or no software license backlog, and quarterly license revenues for our IPG and iAS
businesses depend largely on orders booked and shipped in a quarter. Historically, we have recorded
a majority of our quarterly license revenues in the last month of each quarter, particularly during
the final two weeks. In the past we have experienced fluctuations in the purchasing patterns of our
customers. Although many of our customers are larger enterprises, a trend toward more conservative
IT spending and continued weakness in the economic and capital markets could result in fewer of
these customers making substantial investments in our products and services in any given period.
Therefore, if one or more significant orders do not close in a particular quarter, our results of
operations could be materially and adversely affected.
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
adversely impact operating results, reducing net income or causing an operating loss for that
period. The deferral or non-occurrence of such
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revenues would materially adversely affect our operating results for that quarter and could impair our
business in future periods. Because we do not know when, or if, our potential customers will place
orders and finalize contracts, we cannot accurately predict our revenue and operating results for
future quarters.
In addition to the above 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. Our financial forecasts are based on aggregated internal sales forecasts which may
incorrectly assess our ability to complete sales within the forecast period, due to competitive
pressures, economic conditions or reduced information technology spending. In our past experience
IPG and iAS revenues in the fourth quarter benefit from the annual renewal of maintenance and
support contracts by large enterprise customers or such customers placing orders before the
expiration of budgets tied to the calendar year. In the fourth quarter of 2009 we experienced a
minimal amount of transactions attributable to large enterprise customers placing orders before
budgets expired. We cannot assure you that estimates of our revenues and operating results can be
made with certain accuracy or predictability. Fluctuations in our operating results may contribute
to volatility in our stock price.
Economic and credit market conditions in the U.S. and worldwide could adversely affect our
revenues.
Our revenues and operating results depend on the overall demand for our products and services. If
the U.S. and worldwide economies do not grow or weaken, either alone or in tandem with other
factors beyond our control (including war, political unrest, shifts in market demand for our
products, actions by competitors, etc.) we may be unable to maintain revenue growth. If the
worldwide recession worsens our financial results could be materially weaker than forecast. While
we have not noted significant change in buying patterns by financial services customers, the
financial services industry is one of the largest markets for our products and services and
decreased demand from this industry, including from consolidation in the financial services
industry, would adversely affect our revenues and operating results.
If we fail to maintain or expand our relationships with strategic partners and indirect
distribution channels our license revenues could decline.
We currently derive a significant portion of our license revenues from sales of our IPG and iAS
products and services through non-exclusive distribution channels, including strategic partners,
systems integrators, or SIs, original equipment manufacturers, or OEMs, and value-added resellers,
or VARs. We generally anticipate that sales of our products through these channels will account for
a substantial portion of our software license revenues in the foreseeable future. Because most of
our channel relationships are non-exclusive, there is a risk that some or all of them could promote
or sell our competitors products instead of ours, or that they will be unwilling or unable to
effectively sell new products that we may introduce. Additionally, if we are unable to expand our
indirect channels, or these indirect channels fail to generate significant revenues in the future,
our business could be harmed.
Our development, marketing and distribution strategies also depend in part on our ability to form
strategic relationships with other technology companies. If these companies change their business
focus, enter into strategic alliances with other companies, are acquired by our competitors or
others or materially suffer from the current economic downturn, support for our products could be
reduced or eliminated, which could have a material adverse effect on our business and financial
condition.
System failures, delays, insufficient capacity and other problems could harm our reputation and
business, cause us to lose customers and expose us to customer liability.
The success of Sybase 365 is highly dependent on its ability to provide reliable services to
customers. These operations could be interrupted by any damage to or failure of, or insufficient
capacity of, computer hardware, software or networks utilized or maintained by us, our customers or
suppliers. Additionally, the failure of, or insufficient capacity of our connections and outsourced
service arrangements with third parties could interrupt our services and materially adversely
impact our financial performance and relations with customers, including causing liability to our
customers.
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Sybase 365s systems and operations may also be vulnerable to damage or interruption from power
loss, transmission cable cuts and other telecommunications failures, natural disasters,
interruption of service due to potential facility migrations, computer viruses or software defects,
physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events and
errors by our employees or third-party service providers. As use of Sybase 365s services
increases, we must continue to expand and upgrade our systems and operations. If we do not
accurately project the need for expansions and upgrades to our operations and perform such
expansions and upgrades in a timely manner, our services could fail or be interrupted. Conversely,
if we grow and expand our operations too quickly and overestimate demand, our operating results
would be materially impaired.
Because many of our services play a mission-critical role for our customers, any damage to or
failure of the infrastructure we rely on, including that of our customers and vendors, could
disrupt the operation of our network and the provision of our services, result in the loss of
current and potential customers and expose us to potential contractual performance and other
liabilities.
Industry consolidation and other competitive pressures could affect prices or demand for our
products and services, and our business may be adversely affected.
The IT industry and the market for our core database infrastructure products and services is
becoming increasingly competitive due to a variety of factors including a maturing enterprise
infrastructure software market and changes in customer IT spending habits. There is also a growing
trend toward consolidation in the software industry. Continued consolidation within the software
industry could create opportunities for larger technology companies, such as IBM, Microsoft and
Oracle, to increase their market share through the acquisition of companies that dominate certain
lucrative market niches or that have loyal installed customer bases. For example, Oracle recently
completed its acquisition of Sun Microsystems, a large technology company which operates in the
hardware and software industries. We have not seen an immediate impact from this transaction on our
business but are monitoring its long term impact This transaction and other future hardware or
software acquisitions by larger technology companies could pose a significant competitive
disadvantage to us. In particular, the significant purchasing and market power of larger companies
may subject us to increased pricing pressures. Many of our competitors have greater financial,
technical, sales and marketing resources, and a larger installed customer base than us. In
addition, our competitors advertising and marketing efforts could overshadow our own and/or
adversely influence customer perception of our products and services, and harm our business and
prospects as a result. To remain competitive, we must develop and promote new products and
solutions, enhance existing products and retain competitive pricing policies, all in a timely
manner. Our failure to compete successfully with new or existing competitors in these and other
areas could have a material adverse impact on our ability to generate new revenues or sustain
existing revenue levels.
We may encounter difficulties in completing acquisitions or strategic relationships, and we may
incur acquisition-related charges that could adversely affect our operating results.
We regularly explore possible acquisitions and other strategic ventures to expand and enhance our
business. We have recently acquired a number of companies.
For example, in December 2008 we acquired Paybox Solutions AG, a mobile payments solutions
provider. In July 2008 we acquired Cable & Wireless international inter-operator MMS hubbing
service, or MMX, and obtained the exclusive rights to market and sell mobile data roaming services.
In November 2006 we acquired Mobile 365, Inc. We expect to continue to pursue acquisitions of
complementary or strategic business product lines, assets and technologies.
We may not achieve the desired benefits of our acquisitions and investments. Acquisitions may not
further our business strategy or we may pay more for acquired companies or assets than they may
prove to be worth. Further, such companies may have limited infrastructure and systems of internal
controls. In addition, for portions of the first year after acquisition, acquired companies may not
be subject to our
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established system of internal control or subject to internal control testing by internal and external auditors.
We may be unable to successfully assimilate an acquired companys management team, employees,
business infrastructure or data centers and related systems, capacity requirements, customer
mandated requirements, and third party communication network relationships or implement and
maintain effective internal controls. Our acquisition due diligence may not identify technical,
legal, financial, internal control or other problems associated with an acquired entity and our
ability to seek indemnification may be limited by the acquisition structure or agreement. Also,
dedication of resources to execute acquisitions and handle integration tasks and management changes
accompanying acquisitions could divert attention from other important business. Acquisitions may
also result in costs, liabilities, additional expenses or internal control weaknesses that could
harm our results of operations, financial condition or internal control assessment. We may acquire
entities that have pending lawsuits or are exposed to potential lawsuits or liabilities that were
either unknown at the time of acquisition or prove to be more costly than anticipated. In addition,
we may not be able to maintain customer, supplier, employee or other favorable business
relationships of ours, or of our acquired operations, or be able to terminate or restructure
unfavorable relationships, any of which might reduce our revenue or limit the benefits of an
acquisition.
We do not amortize goodwill but evaluate goodwill recorded in connection with acquisitions at least
annually for impairment. As of December 31, 2009, we had approximately $532.4 million of goodwill
recorded on our balance sheet, none of which was determined to be impaired as of that date.
Goodwill impairments are based on the value of our reporting units, and reporting units that
previously recognized impairment charges are prone to additional impairment charges if future
revenue and expense forecasts or market conditions worsen after an impairment is recognized. We
test the impairment of goodwill annually in our fourth fiscal quarter or more frequently if
indicators of impairment arise. Purchased indefinite lived intangible assets, such as purchased
technology and trade names, are also subject to similar impairment testing. The timing of the
formal annual test may result in charges to our statement of operations in our fourth fiscal
quarter that could not have been reasonably foreseen in prior periods. New acquisitions, and any
impairment of the value of purchased assets, could have a significant negative impact on our future
operating results.
Acquisitions may also result in other charges, including stock-based compensation charges for
assumed stock awards, charges for transaction expenses, and restructuring charges. Additionally,
changes in the value of contingent consideration, such as earn-outs, could impact our net income.
The timing and amount of such charges will be dependent on future acquisition and integration
activities.
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. Future acquisitions may also result in dilutive issuances of equity securities, the
incurrence of debt, restructuring charges relating to the consolidation of operations and the
creation of other intangible assets that could result in amortization expense or impairment
charges, any of which could adversely affect our operating results.
The ability to rapidly develop and bring to market advanced products and services that are
successful is crucial to maintaining our competitive position.
Widespread use of the Internet and growing market demand for mobile and wireless solutions may
significantly alter the manner in which business is conducted in the future. In light of these
developments, our ability to timely meet the demand for new or enhanced products and services to
support wireless and mobile business operations at competitive prices could significantly impact
our ability to generate future revenues. If the market for unwired solutions does not continue to
develop as we anticipate, if our solutions and services do not successfully compete in the relevant
markets, or our new products, either internally developed or resulting from acquisitions, are not
widely adopted and successful, our competitive position and our operating results could be
adversely affected.
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If our existing customers cancel or fail to renew their technical support agreements, our technical
support revenues could be adversely affected.
We currently derive a significant portion of our overall revenues from technical support services,
which are included in service revenues. The terms of our standard software license arrangements
provide for the payment of license fees and prepayment of first-year technical support fees.
Support is renewable annually at the option of the end user. We have experienced increasing pricing
pressure from customers when purchasing or renewing technical support agreements and the current
economic and credit environment may cause further increased pricing pressure from customers. This
pressure may result us reducing support fees or in lost support fees if we refuse to reduce our
pricing, either of which could result in reduced revenue. If our existing customers cancel or fail
to renew their technical support agreements, or if we are unable to generate additional support
fees through the license of new products to existing or new customers, our business and future
operating results could be adversely affected.
Pricing pressure in the mobile messaging market could adversely affect our operating results.
Competition and industry consolidation in the mobile messaging market have resulted in pricing
pressure, which we expect to continue in the future. This pricing pressure could cause large
reductions in the selling price of our services. For example, consolidation in the wireless
services industry could give our customers increased transaction volume leverage in pricing
negotiations. Our competitors or our customers in-house solutions may also provide services at a
lower cost, significantly increasing pricing pressures on us. Pricing pressure may also arise from
wireless carriers increasing the cost of access to their services and networks, if we are unable to
pass these costs on to our customers. While historically pricing pressure has been largely offset
by volume increases and the introduction of new services, in the future we may not be able to
offset the effects of any price reductions.
Our mobile messaging customer contracts may not continue to generate revenues and margins at or
near our historical levels of revenues and margins from these customers and we rely on a limited
number of customers for most of our messaging revenue.
If our customers decide for any reason not to continue to purchase services from us at current
levels or at current prices, to terminate their contracts with us or not to renew their contracts
with us, our messaging revenues and margins would decline. Additionally, a limited number of
customers provide most of our messaging revenue and if they terminate their contracts with us, do
not renew their contracts, or renegotiate their contracts in a way that is unfavorable to us, our
messaging revenue and/or margin could be adversely impacted.
Unanticipated delays or accelerations in our sales cycles could result in significant fluctuations
in our quarterly operating results.
The length of our sales cycles varies significantly from product to product. The sales cycle for
some of our IPG and iAS products can take up to 18 months to complete. Any delay or unanticipated
acceleration in the closing of a large license or a number of smaller licenses could result in
significant fluctuations in our quarterly operating results. The length of the sales cycle may vary
depending on a number of factors over which we may have little or no control, including the size
and complexity of a potential transaction; our customers financial condition, liquidity or ability
to access credit markets; the level of competition that we encounter in our selling activities; and
our potential customers internal budgeting process. Our sales cycle can be further extended for
product sales made through third party distributors. As a result of the lengthy sales cycle, we may
expend significant efforts over a long period of time in an attempt to obtain an order, but
ultimately not complete the sale, or the order ultimately received may be smaller than anticipated.
If we do not adapt to rapid technological change in the telecommunications industry, we could lose
customers or market share.
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The mobile market is characterized by rapid technological change, frequent new service
introductions and changing customer demands. Significant technological changes could make our
technology and services obsolete. Our success depends in part on our ability to adapt to our
rapidly changing market by continually improving the features, functionality, reliability and
responsiveness of our existing services and by successfully developing, introducing and marketing
new features, services and applications to meet changing customer needs. We cannot assure you that we will be able to adapt to these challenges or
respond successfully or in a cost-effective way to adequately meet them. Our failure to do so would
impair our ability to compete, retain customers or maintain our financial performance. Our future
revenues and profits will depend, in part, on our ability to sell to new market participants.
Impairments in our investment portfolio may result in temporary and/or realized losses.
As of December 31, 2009, we had an aggregate par value of $28.9 million invested in six auction
rate securities, or ARS. Certain of the ARS may have direct or indirect investments in mortgages,
mortgage related securities, or credit default swaps. As of December 31, 2009, the fair value of
these ARS totaled $13.3 million.
The credit, capital and mortgage markets have significantly deteriorated in the past few years. If
uncertainties in these markets continue, these markets deteriorate further or we experience any
additional ratings downgrades on any investments in our portfolio (including on ARS), we may incur
additional impairments to our investment portfolio, which could negatively affect our financial
condition, cash flow and reported earnings.
In April 2009, the FASB amended existing guidance to bring greater consistency to the timing of
impairment recognition and to provide greater clarity to investors about the credit and noncredit
components of impaired debt securities that are not expected to be sold.. Upon adoption of the
amendments on April 1, 2009, the Company recorded a cumulative accounting change to reclassify
noncredit impairments previously recognized in earnings. The effect of such change increased
retained earnings $6.7 million and decreased accumulated other comprehensive income $6.7 million.
Restructuring activities and reorganizations in our sales model or business units may not succeed
in increasing revenues and operating results.
Since 2000, we have implemented several restructuring plans in an effort to align our expense
structure to our expected revenue. As a result of these restructuring activities, we have recorded
gross restructuring charges totaling approximately $121.0 million through December 31, 2009. Our
ability to significantly reduce our current cost structure in any material respects through future
restructurings may be difficult without fundamentally changing elements of our current business. If
we are unable to generate increased revenues or control our operating expenses going forward, our
results of operations will be adversely affected.
If we have overestimated demand for our products and services in our target markets, or if we are
unable to coordinate our sales efforts in a focused and efficient way, our business and prospects
could be materially and adversely affected. Our operations have evolved significantly during the
past few years to keep pace with new and developing markets and changing business environments. In
January 2009 we integrated the product marketing groups for IPG, iAS and Sybase 365 into our
Worldwide Marketing Operations under the leadership of Raj Nathan. At that time we commenced the
integration of certain back office functions in order to reduce overlap between business
operations. In January 2010 we integrated the iAS engineering team into our IPG engineering team.
Other organizational changes in our business could have a direct effect on our results of
operations depending on whether and how quickly and effectively our employees and management are
able to adapt to and maximize the advantages these changes are intended to create. We cannot assure
that these or other organizational changes in our sales or divisional model will result in any
increase in revenues or profitability, and they could adversely affect our business.
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Our results of operations may depend on the compatibility of our products with other software
developed by third parties.
Our future results may be affected if our products cannot interoperate and perform well with
software products of other companies. Certain leading applications currently are not, and may never
be, interoperable with our products. 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.
We are subject to risks arising from our international operations.
We derive a substantial portion of our revenues from our international operations, and we plan to
continue expanding our business in international markets in the future. In 2009, revenues outside
North America represented 48 percent of our total revenues. As a result of our international
operations, we are affected by economic, regulatory and political conditions in foreign countries,
including:
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natural disasters, public health risks, labor unrest, earnings expatriation
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acts of terrorism, continued unrest and war in the Middle East and other factors, |
which could have a material impact on our international revenues and operations. Our revenues
outside the United States could also fluctuate due to the relative immaturity of some markets,
growth or contraction in other markets, the strength or weakness of local economies, the general
volatility of worldwide software markets and organizational changes we have made to accommodate
these conditions.
In addition, compliance with international and U.S. laws and regulations that apply to our
international operations increases our cost of doing business in foreign jurisdictions.
International laws and regulations include data privacy and protection requirements, labor laws,
tax laws, anti-competition regulations, import and export requirements, the regulation of
application messaging premium services and local laws which prohibit corrupt payments to
governmental officials. U.S. laws and regulations applicable to international operations include
the Foreign Corrupt Practices Act and export control laws. Our mobile commerce efforts, including
our acquisition of paybox Solutions AG present additional risks, including the potential for
compliance with international banking and/or funds transfer regulations. Violations of these laws
and regulations could result in fines, criminal sanctions against us, our officers or our
employees, and prohibitions on the conduct of our business. Any such violations could include
prohibitions on our ability to offer our products and services in one or more countries, could
delay or prevent potential acquisitions, and could also materially damage our reputation, our
brand, our ability to attract and retain employees, our business and our operating results.
We may not receive significant revenues from our current research and development efforts for
several years, if at all.
Developing and localizing software is expensive and the investment in product development often
involves a long payback cycle. We have and expect to continue making significant investments in
software research and development and related product opportunities. Accelerated product
introductions and short product life cycles require high levels of expenditures for research and
development that could adversely affect our operating results if not offset by revenue increases.
We believe that we must continue to dedicate a significant amount of resources to our research and
development efforts to maintain our competitive position. Revenues may not be realized from particular research and
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development expenditures and revenues which are generated may occur significantly later than when the associated research and development costs were incurred.
We might experience significant errors or security flaws in our products and services.
Despite testing prior to their release, software products may contain errors or security flaws,
particularly when first introduced or when new versions are released. Errors in our software
products could affect the ability of our products to work with other hardware or software products, could delay the
development or release of new products or new versions of products and could adversely affect
market acceptance of our products. If we experience errors or delays in releasing new products or
new versions of products, we could lose customers and revenues and our reputation could be
materially damaged. Our customers rely on our products and services for critical parts of their
businesses and they may have a greater sensitivity to product errors and security vulnerabilities
than customers for software products generally. Software product errors and security flaws in our
products or services could expose us to product liability, performance and/or warranty claims as
well as harm our reputation, which could impact our future sales of products and services. The
detection and correction of any security flaws can be time consuming and costly.
We are subject to risks related to the terms of our 1.75% Convertible Subordinated Notes and our
3.50% Convertible Senior Notes
In February 2005 we issued $460.0 million in convertible subordinated notes, or the 2005 Notes and
in August 2009 we issued $400.0 million in convertible senior notes, or the 2009 Notes. The 2005
Notes bear a stated interest rate of 1.75% and are subordinated to all of our future unsubordinated
indebtedness. The 2009 Notes bear a stated interest rate of 3.50% and are general unsubordinated
unsecured obligations, are senior to the 2005 Notes and will rank equally with all future
unsubordinated indebtedness.
On February 1, 2010, we announced that we will repurchase the remaining outstanding 2005 Notes
totaling $413.7 on March 3, 2010. The holders of these notes may elect to convert their notes
prior to March 3, 2010. See Note Fifteen Subsequent Events in the Notes to the Consolidated
Financial Statements, Part II, Item 8 for a discussion of the redemption of the 2005 Notes.
The 2009 Notes mature in August 2029 unless earlier redeemed by us at our option, or converted or
put to us by their holders. We may redeem all or a portion of the 2009 Notes at par on and after
August 14, 2014. The holders may require that we repurchase the 2009 Notes at par on August 15,
2014, August 15, 2019 and August 14, 2024.
The holders may convert the 2009 Notes, into the right to receive the conversion value (described
below) (i) when our stock price exceeds 130% of the $47.88 per share conversion price (equal to
approximately $62.24 per share) for at least 20 trading days in the period of the 30 consecutive
trading days ending on the last trading day of the previous fiscal quarter or upon the occurrence
of a change in control and certain other corporate events.
For each $1,000 principal amount of 2005 Notes, the conversion value represents the amount equal to
40.02 shares multiplied by the per share price of our common stock at the time of conversion. If
the conversion value exceeds $1,000 per $1,000 in principal of 2005 Notes, we will pay $1,000 in
cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at
our election.
Similarly, for each $1,000 principal amount of 2009 Notes, the conversion value represents the
amount equal to 20.8836 shares multiplied by the per share price of our common stock at the time of
conversion. If the conversion value exceeds $1,000 per $1,000 in principal of 2009 Notes, we will
pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash
and stock, at our election.
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At the time of such conversion or any redemption of the notes we may have insufficient financial
resources or may be unable to arrange financing to pay for the conversion value of all notes
tendered for conversion. Our reduced cash balance following conversion or redemption of either the
2005 or 2009 Notes may adversely impact our financial flexibility and our ability to pursue
strategic investments.
The conversion feature of the convertible notes may also serve to reduce our diluted net income per
share. In periods when our stock price exceeds the 2005 Notes $24.99 per share adjusted conversion
price, we must include the shares that may be issued to the holders of the 2005 Notes in the shares
included in our diluted net income per share. If in future periods, our stock price exceeds the
2009 notes $47.88 per share conversion price we will experience dilution to our net income per
share attributable to the conversion feature of the 2009 notes. The reduction in our diluted
earnings per share attributable to shares associated with the conversion of either the 2005 or 2009
notes may adversely impact the market price of our common stock.
Recent changes in applicable accounting rules for convertible notes require interest expense to be
imputed at fair value as of the debt issuance date. This resulted in increases in previously
reported and future interest expense and reductions in our net income in prior and future years.
See Note One Summary of Significant Accounting Policies in the Notes to the Consolidated
Financial Statements, Part II, Item 8 for discussion of the accounting rule changes and a table
reconciling the previously reported results to the retrospectively adjusted results.
Unanticipated changes in our tax rates could affect our future financial results.
Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes
in the valuation of our deferred tax assets and liabilities, the geographic mix of our earnings, or
by changes in tax laws, tax rate, or their interpretation. In addition, we are subject to the
continuous examination of our income tax returns by tax authorities. We regularly assess the
likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our
provision for income taxes. There can be no assurance that the outcomes from these continuous
examinations will not have an adverse effect on our operating results and financial condition.
We receive significant tax benefits related to undistributed earnings by our international
operations. These benefits are contingent upon existing tax regulations in the United States and in
the countries in which our international operations are located. Future changes in domestic or
international tax regulations could adversely affect our ability to continue to realize these tax
benefits. We have provided for appropriate local foreign taxes on these undistributed earnings, but
have not provided for United States federal and state income taxes or foreign withholding taxes
that may result on future remittances of a portion of undistributed earnings of foreign
subsidiaries. The current administration is considering several proposals to change United States
tax rules, including proposals that may result in a reduction or elimination of the deferral of
United States income tax on our future unrepatriated earnings. These changes have been proposed to
be effective beginning January 1, 2011. If enacted, these proposals could increase our tax expense
and cash required for tax liabilities.
We face exposure to adverse movements in foreign currency exchange rates.
We experience foreign exchange translation exposure on our net assets and transactions denominated
in currencies other than the U.S. dollar. We do not utilize foreign currency hedging contracts to
smooth the impact of converting non-U.S. dollar denominated revenues into U.S. dollars for
financial reporting. Because we do not anticipate entering into currency hedges for non-U.S. dollar
revenues, our future results will fluctuate based on the appreciation or depreciation of the U.S.
dollar against major foreign currencies.
Due to the significance of our business conducted in currencies other than the U.S. dollar, our
results of operations could be materially and adversely affected by fluctuations in foreign
currency exchange rates, even though we take into account changes in exchange rates over time in
our pricing strategy. In late
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2008 in connection with disruptions in the worldwide credit markets, the U.S. dollar rapidly strengthened against certain currencies, including the Euro and British
Pound. Future rapid fluctuations in foreign currency exchange rates may materially and adversely
affect our operating results.
As of December 31, 2009, we had identified net assets totaling $379.5 million associated with our
Europe, Middle East and Africa, or EMEA, operations, and $72.3 million associated with our Asia
Pacific and Latin America operations. Accordingly, we may experience fluctuations in operating
results as a result of translation gains and losses associated with these asset and liability
values. In order to reduce the effect of foreign currency fluctuations on our and certain of our subsidiaries balance sheets, we utilize
foreign currency forward exchange contracts (forward contracts) to hedge certain foreign currency
transaction exposures. Specifically, we enter into forward contracts with a maturity of
approximately 30 days to hedge against the foreign exchange exposure created by certain balances
that are denominated in a currency other than the principal reporting currency of the entity
recording the transaction. The gains and losses on the forward contracts are intended to mitigate
the gains and losses on these outstanding foreign currency transactions and we do not enter into
forward contracts for trading purposes. However, our efforts to manage these risks may not be
successful. Failure to adequately manage our currency exchange rate exposure could adversely impact
our financial condition and results of operations.
Growing market acceptance of open source software could cause a decline in our revenues and
operating margins.
Growing market acceptance of open source software has presented both benefits and challenges to the
commercial software industry in recent years. Open source software is made widely available by
its authors and is licensed as is without charge for the license itself (there may be a charge
for related services or rights). We have developed certain products to operate on the Linux
platform, which has created additional sources of revenues. Additionally, we have incorporated
other types of open source software into our products, allowing us to enhance certain solutions
without incurring substantial additional research and development costs. Thus far, we have
encountered no unanticipated material problems arising from our use of open source software.
However, as the use of open source software becomes more widespread, certain open source technology
could become competitive with our proprietary technology, which could cause sales of our products
to decline or force us to reduce the fees we charge for our products, which could have a material
adverse impact on our revenues and operating margins.
Insufficient protection for our intellectual property rights may have a material adverse effect on
our results of operations or our ability to compete.
We attempt to protect our intellectual property rights in the United States and in selected foreign
countries through a combination of reliance on intellectual property laws (including copyright,
patent, trademark and trade secret laws) and registrations of selected patent, trademark and
copyright rights in selected jurisdictions, as well as licensing and other agreements preventing
the unauthorized disclosure and use of our intellectual property. We cannot assure you that these
protections will be adequate to prevent third parties from copying or reverse engineering our
products, from engaging in other unauthorized use of our technology, or from independently
developing and marketing products or services that are substantially equivalent to or superior to
our own. Moreover, third parties may be able to successfully challenge, oppose, invalidate or
circumvent our patents, trademarks, copyrights and trade secret rights. We may elect or be unable
to obtain or maintain certain protections for certain of our intellectual property in certain
jurisdictions, and our intellectual property rights may not receive the same degree of protection
in foreign countries as they would in the United States because of the differences in foreign laws
concerning intellectual property rights. Lack of protection of certain intellectual property rights
for any reason could have a material adverse effect on our business, results of operations and
financial condition. Moreover, monitoring and protecting our intellectual property rights is
difficult and costly. From time to time, we may be required to initiate litigation or other action
to enforce our intellectual property rights or to establish their validity. As an example, Sybase
filed a complaint against Vertica Systems, Inc., on January 30, 2008
- 19 -
in the Eastern District of Texas, alleging infringement of Sybases patent #5,794,229 (entitled Database System with
Methodology for Storing a Database Table by Vertically Partitioning All Columns of the Table).
Such action could result in substantial cost and diversion of resources and management attention
and we cannot assure you that any such action will be successful.
If third parties claim that we are in violation of their intellectual property rights, it could
have a negative impact on our results of operations or ability to compete.
Patent litigation involving software and telecom companies has increased significantly in recent
years as the number of software and telecom patents has increased and as the number of patent
holding companies has increased. We face the risk of claims that products or services that we provide have
infringed the intellectual property rights of third parties. We are currently litigating with
different parties regarding claims that our products or services violate their patents, we have in
the past received similar claims and it is likely that such claims will be asserted in the future.
See Note Fourteen Litigation in the Notes to the Consolidated Financial Statements, Part II,
Item 8 for a discussion of our patent litigation with Telecommunications Systems, Inc. In May
2005, we received a claim from TeliaSonera alleging that iAnywheres product now known as Answers
Anywhere infringes a TeliaSonera patent issued in Finland. We are currently involved in litigation
in Finland regarding the ownership of the patent on which the claim is based. The court ruled that
TeliaSonera does own the patent. Sybase has appealed that ruling. In February 2006, two Financial
Fusion product customers received claims from a patent licensing company, Ablaise, Ltd., alleging
that the customers websites are infringing (although Ablaise later withdrew that charge as to one
of the two). Financial Fusion filed a declaratory judgment action against Ablaise in the Northern
District of California which is ongoing. The customers websites are or were based in part on our
products and the customers tendered defense of the claims to us under their contractual
indemnification provisions. That matter has been stayed by the court until the first to occur of
resolution of an ex parte reexamination proceeding in the Patent and Trademark Office, filed by an
anonymous party that seeks to invalidate the disputed patent, or until the disputed patent is
declared invalid by a District of Columbia court handling litigation of the same patent between
Ablaise and Dow Jones. In November 2008, Sybase and co-defendant Informatica Corporation were sued
by Data Retrieval LLC for alleged infringement by Sybases ETL component of Data Integration Suite
of U.S. Patents #6,026,392 and 6,631,382, (both entitled Data Retrieval Method and Apparatus with
Multiple Source Capability). In April 2009, Backweb Technologies, Ltd. filed a first amended
complaint adding Sybase and iAnywhere to a lawsuit already filed against Microsoft Corporation in
March 2009. On July 22, 2009, Backweb filed a second amended complaint adding Symatec Corporation
as a defendant. The complaint alleges that SQL Anywhere, the Sybase Unwired Enterprise Platform,
Afaria and Mobile Office infringe Backwebs U.S. patents #5,913,040, 6,317,789 and 6,539,429 (all
entitled Method and Apparatus for Transmitting and Displaying Information Between a Remote Network
and a Local Computer) (collectively the Transparent Update Patents); that Symantecs Altiris
Software Delivery Solution and Altiris Client Management Suite infringe the Transparent Update
Patents; and that Microsofts Background Intelligent Transfer Service, or BITS, also infringe the
Transparent Update Patents as well as a fourth patent. The Backweb matter has been settled for a
confidential amount. In addition, Sybase from time to time receives indemnity demands from
customers involved in patent litigation.
Regardless of whether patent or other intellectual property claims have merit, they can be time
consuming and expensive to defend or settle, and can harm our business and reputation. In
particular, such claims may cause us to redesign our products or services, if feasible, or cause us
to enter into royalty or licensing agreements in order to obtain the right to use the necessary
intellectual property. Patent claimants may seek to obtain injunctions or other permanent or
temporary remedies that prevent us from offering our products or services, and such injunctions
could be granted by a court before the final resolution of the merits of a claim. An adverse
outcome in any such intellectual property-related dispute, including the Telecommunications Systems
dispute referred to above, could materially and adversely affect our financial condition and
results of operations. Our competitors in both the U.S. and foreign countries, many of which have
substantially greater resources than we have and have made
- 20 -
substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents
that will prevent, limit or otherwise interfere with our ability to make and sell our products and
services. We have not conducted an independent review of patents issued to third parties. The large
number of patents, the rapid rate of new patent issuances, the complexities of the technology
involved, the uncertainty of results, and the expense of potential litigation increase the risk of
business assets and managements attention being diverted to patent issues.
Laws and regulations affecting our customers and us and future laws and regulations to which they
or we may become subject may harm our business.
When Sybase 365 delivers mobile messages on behalf of content owners into our network of wireless
carriers, we are subject to legal, regulatory and wireless carrier requirements governing, among
other things, the nature of content delivered, as well as necessary notice and disclosure to, and
consent from, consumers receiving mobile messages. Even though we do not create or control the
content delivered over our network, if we are unable to effectively prevent or detect violations of
legal, regulatory or wireless carrier requirements, or otherwise unable to mitigate the effect of
these violations, we may be subject to fines or the suspension or termination of some or all of our
wireless carrier connections or telecommunications licenses in one or more territories which could
materially and adversely affect our business and results of operation. Such suspension or
termination may also result in loss of current and potential customers and expose us to potential
customer liability. Also, we cannot predict when, or upon what terms and conditions, future
regulation might occur or the effect regulation may have on our business or our markets, including
possible future regulations that could regulate the pricing of mobile messaging or other services
we provide.
Our key personnel are critical to our business, and we cannot assure that they will remain with us.
Our success depends on the continued service of our executive officers and other key personnel. In
recent years, we have made additions and changes to our executive management team. For example, in
connection with our acquisition of Mobile 365, Marty Beard was appointed to be the President of
Sybase 365 in November 2006. In January 2007, Raj Nathan, formerly the head of IPG was named our
Chief Marketing Officer and Billy Ho was promoted to head IPGs technology operations. In November
2007, Jeff Ross, formerly our Corporate Controller became our Chief Financial Officer.
Additionally, Keith Jensen, formerly our senior director became our Corporate Controller at that
time. 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. We cannot be certain that we will retain our officers and key employees. In
particular, if we are unable to hire and retain qualified technical, managerial, sales, finance and
other employees it could adversely affect our product development and sales efforts, other aspects
of our operations, and our financial results. Competition for highly skilled personnel in the
software industry is intense. Our financial and stock price performance relative to the companies
with whom we compete for employees, and the high cost of living in the San Francisco Bay Area,
where our headquarters is located, could also impact the degree of future employee turnover.
Our sales to government clients subject us to risks including early termination, audits,
investigations, sanctions and penalties.
We derive revenues from contracts with the United States government, state, local and foreign
governments and their respective agencies, which may terminate most of these contracts at any time,
without cause. Federal government contracts may be affected by political pressure to reduce
government spending. Our federal government contracts are subject to the approval of appropriations
being made by the United States Congress to fund the expenditures under these contracts. Similarly,
our contracts at the state and local levels, and our contracts with foreign governments, are
subject to government funding authorizations. Additionally, government contracts are generally
subject to audits and investigations which could result in various civil and criminal penalties and
administrative sanctions, including termination of contracts, refund of a portion of fees received,
forfeiture of profits, suspension of payments, fines and suspensions or debarment from future
government business.
- 21 -
Changes in accounting and legal standards could adversely affect our future operating results.
During the past several years, various accounting guidance has been issued with respect to revenue
recognition rules in the software industry. However, much of this guidance addresses software
revenue recognition primarily from a conceptual level, and is silent as to specific implementation
requirements. As a consequence, we have been required to make assumptions and judgments, in certain circumstances,
regarding application of the rules to transactions not addressed by the existing rules. We believe
our current business arrangements and contract terms have been properly reported under the current
rules. However, if final interpretations of, or changes to, these rules necessitate a change in our
current revenue recognition practices, our results of operations, financial condition and business
could be materially and adversely affected.
In May 2008, the Financial Accounting Standards Board, or FASB, amended existing guidance
pertaining to convertible debt. The amendments require issuers of convertible debt instruments that
may be settled in cash upon conversion (including partial cash settlement) to separately account
for the liability and equity (conversion feature) components of the instruments and became
effective January 1, 2009. Retrospective adoption was required. As a result, interest expense is
retrospectively imputed and recognized based upon the issuers nonconvertible debt borrowing rate,
which results in lower net income. Our 2005 Notes with a stated interest rate of 1.75% due 2025
issued in February 2005 and our 2009 Notes with an interest rate of 3.50% due 2029 issued in August
2009 are both subject to the amendments. Prior to the amendments, the guidance provided that no
portion of the proceeds from the issuance of the instruments should be attributable to the
conversion feature. Upon adoption of the amendments on January 1, 2009, we recorded a debt
discount, which is amortized to interest expense through February 22, 2010, representing the first
date on which holders of the 2005 Notes may require us to repurchase all or a portion of their
notes. In addition, we retrospectively recorded a non cash increase in interest expense for 2007
and 2008 of $16.8 million and $17.8 million, respectively relating to the 2005 Notes. This resulted
in a retrospective noncash after tax reduction in diluted earnings per common share of
approximately $0.10 and $0.12 in 2007 and 2008, respectively. In addition, the carrying amount of
the 2005 Notes was retrospectively adjusted to reflect a discount of $85.0 million on the date of
issuance, with an offsetting increase in additional paid-in capital of $51.0 million and deferred
tax liability of $34.0 million. The carrying amount of the 2009 Notes reflects a discount of $75.5
million on the date of issuance, with an offsetting increase in additional paid-in capital of $46.5
million and deferred tax liability of $29.0 million.
In April 2009, the FASB amended existing guidance to bring greater consistency to the timing of
impairment recognition, and to provide greater clarity to investors about the credit and noncredit
components of impaired debt securities that are not expected to be sold. The measure of impairment
in comprehensive income remains fair value. The amendments also require increased and more timely
disclosures regarding expected cash flows, credit losses, and an aging of securities with
unrealized losses. The amendments are effective for interim and annual reporting periods ending
after June 15, 2009. Upon adoption of the amendments on April 1, 2009, we recorded a cumulative
accounting change which increased retained earnings by $6.7 million and decreased accumulated other
comprehensive income by $6.7 million.
In May 2009, the FASB amended existing guidance to establish general standards of accounting for
and disclosures of events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. The amendments also require entities to disclose the date
through which subsequent events were evaluated as well as the rationale for why that date was
selected. This disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements being presented. The
amendments are effective for interim and annual periods ending after June 15, 2009. The adoption of
the amendments did not have a material impact on our financial position, results of operations, or
cash flows. In future periods, the adoption of this amendment could result in material differences
between the financial results when we release our quarterly earnings press release and the
financial results that are subsequently filed with the
- 22 -
SEC in our quarterly or annual report. If any such material difference were to occur, this
could adversely impact the price of our common stock.
In addition to the changes discussed above, we are also subject to additional rules and
regulations, including the Sarbanes-Oxley Act of 2002 and those enacted by the New York Stock
Exchange where our common stock is traded. Compliance with existing or new rules that influence
significant adjustments to our business practices and procedures could result in significant
expense and may adversely affect our results of operations. Failure to comply with these rules
could result in delayed financial statements and might adversely impact the price of our common
stock.
Our operations and financial results could be severely harmed by certain natural disasters.
Our headquarters, some of our offices, and some of our major customers facilities are located near
major earthquake faults. We purchase earthquake insurance to offset our lease obligations at our
headquarters. For our property we rely on self-insurance and preventative safety measures. We
currently ship most of our products that are delivered in physical and not electronic form from our
Dublin, California corporate headquarters. If a major earthquake or other natural disaster occurs,
disruption of operations at that facility could directly harm our ability to record revenues for
such quarter. This could, in turn, have an adverse impact on operating results.
Provisions of our corporate documents have anti-takeover effects that could prevent a change in
control.
Provisions of our certificate of incorporation, bylaws, stockholder rights plan and Delaware law
could make it more difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. These provisions include authorizing the issuance of preferred stock without
stockholder approval, prohibiting cumulative voting in the election of directors, prohibiting the
stockholders from calling stockholders meetings and prohibiting stockholder actions by written
consent.
We are investing resources in updating and improving our internal information technology systems.
Should our investments not succeed, or if delays or other issues with a new internal technology
system disrupt our operations, our business could be harmed.
We rely on our network and data center infrastructure, internal technology systems and our websites
for our development, marketing, operational, support and sales activities. We are continually
investing resources to update and improve these systems and environments in order to meet the
growing requirements of our business and customers. For example, in December 2009 we purchased an
ERP system from SAP and intend to implement this system in 2010. The objectives of this
implementation are to improve the efficiency of operations for Sybase and to reduce the number of
disparate and legacy systems we use. Unsuccessful implementation of hardware or software
technologies or future updates and improvements could result in disruption in our business
operations, loss of revenue or damage to our reputation.
ITEM 1 (B): UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2009, our field operations, professional service organizations and subsidiaries
occupied leased facilities in approximately 92 separate locations throughout North America, Latin
America, Europe and the Asia Pacific region, aggregating approximately 1.5 million square feet.
On January 28, 2000, we entered into a 15-year non-cancelable lease of our corporate headquarters
facility in Dublin, California. The lease commenced with occupancy of the building in January 2002
with a lease expiration date of January 31, 2017. The property consists of approximately 406,000
square feet of
- 23 -
administrative and product development facilities. We have the option to renew our Dublin lease
for up to two five-year periods, generally at then-fair market value, subject to certain
conditions.
For a further discussion of our leases, see Note Six Lease Obligations, Other Liabilities,
Commitments and Guarantees the Notes to the Consolidated Financial Statements, Part II, Item 8.
We continue to lease space at other locations around the world that serve a variety of functions,
including professional services, sales, engineering, technical support, and general administration.
These include significant facilities in the United States, including New York City, New York;
Boulder, Colorado; Alpharetta, Georgia, Concord, Massachusetts, Reston, Virginia and Boise, Idaho;
Waterloo, Canada; Maidenhead, England; Düsseldorf, Germany, Paris, France, Singapore, Hong Kong,
Beijing China and Utrecht, Netherlands. In addition to the facilities noted above, we maintain
engineering centers in Englewood, Colorado; Pune, India, and Shanghai and Xian, China.
ITEM 3. LEGAL PROCEEDINGS
We are involved from time to time in various proceedings, lawsuits and claims involving our
customers, products, intellectual property, stockholders and employees, among other parties. We
routinely review the status of each significant matter and assess our potential financial exposure.
When we reasonably determine that a loss associated with any of these matters is probable, and can
reasonably estimate the loss, we record a reserve to provide for such loss contingencies. If we are
unable to record a reserve because we are not able to estimate the amount of a potential loss in a
matter, or if we determine that a loss is not probable, we are nevertheless required to disclose
certain information regarding such matter if we determine that there is a reasonable possibility
that a loss has been incurred. Because of the inherent uncertainties related to these types of
matters, we base our loss reserves on the best information available at the time. As additional
information becomes available, we may reevaluate our assessment regarding the probability of a
matter or its expected loss. Our financial position, results of operations or cash flows could be
materially and adversely affected by such revisions in our estimates. For further discussion of
contingencies and liabilities, see Future Operating Results, above.
There are currently multiple patent litigations ongoing, and related reexamination proceedings in
the Patent & Trademark Office, between Sybase or Sybase 365 and Telecommunication Systems, Inc.
Two of the cases between these entities recently settled.
A. On July 13, 2006, Telecommunications Systems, Inc. (TCS), a wireless services provider,
filed a complaint for patent infringement in the U.S. District Court for the Eastern District of
Virginia, alleging that Mobile 365 infringes U.S. Patent 6,985,748 (the 748 patent). Sybase 365
filed a petition for inter partes reexamination proceeding on the 748 patent with the Patent &
Trademark Office in February 2008, which the PTO accepted. In August 2009, the PTO issued a first
office action rejecting all of the claims of the 748 Patent on multiple grounds of anticipation
and obviousness. On July 30, 2009, TCS filed a complaint in the U.S. District Court for the
Eastern District of Virginia, alleging that Sybase 365 infringes TCSs related U.S. Patent #
7,430,425 entitled Inter-Carrier Digital Message with User Data Payload Service Providing Phone
Number Only Experience (the 425 Patent). On August 19, 2009, Sybase 365 filed a petition for
inter partes reexamination of the 425 Patent with the Patent & Trademark Office. On October 23,
2009, the PTO accepted the petition for inter partes reexamination and issued a first office action
rejecting all of the claims of the patent on multiple grounds of anticipation and obviousness. On
November 25, 2009, Sybase 365 filed a petition for inter partes reexamination of TCSs related
U.S. Patent # RE 41,006, which re-issued on November 24, 2009. On December 22, 2009, Sybase and
TCS executed a settlement agreement pursuant to which the above two lawsuits would be dismissed,
and Sybase 365 would take no further action in the inter partes reexamination proceedings. The
parties decided that, in order to avoid the costs and substantial burdens of the litigation, it was
in the interest of each of their businesses to resolve these matters at this time, although Sybase
continues to dispute TCSs allegations and did not admit any infringement. Sybase agreed to make a
one-time payment of $23.0 million to TCS in exchange for a license in the TCS inter-carrier
messaging family of patents. Other specific terms of the settlement are confidential. The
substantial majority of the settlement
- 24 -
amount was satisfied by an escrow Mobile 365s former shareholders established when Sybase
acquired Mobile 365. A legal reserve Sybase previously established was sufficient to cover the
balance of the settlement amount.
B. On July 30, 2009, TCS filed a complaint against Sybase 365 in the Eastern District of
Virginia, alleging that Sybase 365 infringes TCSs U.S. Patents #6,891,811 entitled Short Message
Service Center Mobile-Originated to HTTP Internet Communications (the 811) and #7,355,990
entitled Mobile-Originated to HTTP Internet Communications (the 990). On October 2, 2009,
Sybase 365 filed petitions with the Patent & Trademark Office requesting inter partes reexamination
of the 811 and 990 patents. The PTO accepted the petitions and issued first office actions in
both cases (on November 10 as to the 990, and November 13 as to the 811). As to the 811, all of
the claims asserted against Sybase 365 (but not all claims of the patent) were rejected. As to the
990, the PTO rejected all claims of the patent. This case is set for trial on June 8, 2010.
C. On August 19, 2009, TCS filed a complaint against Sybase, Inc. and iAnywhere Solutions,
Inc. in the U.S. District Court for the District of Delaware, alleging infringement of TCSs U.S.
Patent #6,560,604 entitled System, Method and Apparatus for Automatically and Dynamically Updating
Options, Features, and/or Services Available to Client Device. Sybase filed a petition for inter
partes reexamination with the Patent & Trademark Office on November 12, 2009. The PTO has not yet
acted on that petition.
D. On October 2, 2009, Sybase 365 filed a complaint against TCS in the U.S. District Court
for the Eastern District of Virginia, alleging that TCS infringes its U.S. Patents #5,873,040
entitled Wireless 911 Emergency Location and 7,082,312 entitled Short Message Gateway, System
and Method of Providing Information Service for Mobile Telephones. This case has not yet been set
for trial.
For a discussion of risks related to intellectual property rights and certain pending intellectual
property disputes, see Future Operating Results If third parties claim that the Company is in
violation of their intellectual property rights, it could have a negative impact on the Companys
results of operations or ability to compete, Part II, Item 1(A).
We currently believe that the ultimate liability, if any, for any pending claims of any type
(either alone or combined) will not materially affect our financial position, results of operations
or cash flows. However, the ultimate outcome of any litigation is uncertain and, regardless of
outcome, litigation can have an adverse impact on Sybase because of defense costs, negative
publicity, diversion of management resources and other factors. Our inability to obtain necessary
license or other legal rights, or litigation arising out of intellectual property claims could
adversely affect our business.
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, 2009.
PART II
ITEM
5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Sybase, Inc. Common Stock, par value $.001, began trading on the New York Stock Exchange (NYSE) on
May 22, 2001, under the symbol SY. Prior to that, our stock 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 NYSE for the quarters indicated.
- 25 -
|
|
|
|
|
|
|
|
|
Fiscal 2008 |
|
High |
|
|
Low |
|
Quarter ended March 31, 2008 |
|
$ |
28.59 |
|
|
$ |
24.95 |
|
Quarter ended June 30, 2008 |
|
$ |
33.09 |
|
|
$ |
25.74 |
|
Quarter ended September 30, 2008 |
|
$ |
36.53 |
|
|
$ |
28.50 |
|
Quarter ended December 31, 2008 |
|
$ |
30.60 |
|
|
$ |
22.44 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2009 |
|
$ |
31.38 |
|
|
$ |
23.95 |
|
Quarter ended June 30, 2009 |
|
$ |
34.47 |
|
|
$ |
29.75 |
|
Quarter ended September 30, 2009 |
|
$ |
38.90 |
|
|
$ |
29.74 |
|
Quarter ended December 31, 2009 |
|
$ |
44.06 |
|
|
$ |
37.98 |
|
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 Common Stock on the NYSE on February 12,
2010 was $41.11. The number of stockholders of record on that date was 1,043, according to
American Stock Transfer and Trust, our transfer agent.
The information required by this item regarding our securities authorized for issuance under equity
compensation plans is provided in Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters, Part III, Item 12, which incorporates information to be disclosed
in our 2010 Proxy Statement.
Issuer Purchases of Equity Securities
During the fourth quarter of 2009 we conducted the following repurchases of our common stock
pursuant to our publicly announced repurchase program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price |
|
|
Number of Shares |
|
Paid Per |
Period |
|
Purchased |
|
Share |
October 2009
|
|
|
0 |
|
|
|
0 |
|
November 2009
|
|
|
226,318 |
|
|
$ |
40.10 |
|
December 2009
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Total for Fourth Quarter 2009
|
|
|
226,318 |
|
|
$ |
40.10 |
|
Beginning in 1998 our Board of Directors implemented our stock repurchase program and has
authorized an aggregate of $1 billion to repurchase our outstanding common stock and convertible
debt. After completing the repurchases noted above, $83.3 million remained authorized for
repurchase pursuant to our publicly announced repurchase program. For additional information about
our historical stock repurchase activities see Note Nine Stockholders Equity in the Notes to the
Consolidated Financial Statements, Part II, Item 8.
On February 25, 2008 the Company agreed with one of its stockholders, Sandell Asset Management
Corp. (Sandell) to undertake a self-tender offer to purchase $300.0 million worth of its common
stock at a price between $28.00 and $30.00 per share in a modified Dutch auction. On April 15,
2008, the Company completed the self-tender offer and purchased 10.7 million shares of its common
stock for a purchase price of $28.00 per share or a total cost of $300.0 million. The Company also
incurred costs of approximately $0.6 million to undertake the self-tender offer. These costs were
included in Cost of treasury stock in the Companys consolidated balance sheets at December 31,
2009 and 2008. See Note Nine Stockholders Equity in the Notes to the Consolidated Financial
Statements, Part II, Item 8.
PERFORMANCE GRAPHS
The graphs and tables below compare the cumulative total return on a $100 investment in our Common
Stock on December 31, 2004 and December 31, 1999, respectively, with the cumulative total returns
on $100 investments (assuming reinvestment of all dividends) in the indices noted. The eight
companies
- 26 -
comprising the S&P Systems Software index are BMC Software Inc., CA Inc., Microsoft
Corporation,
McAfee, Inc, Novell, Inc., Oracle Corporation, Red Hat Inc. and Symantec Corporation. Red Hat was
added to the S&P Systems Software index in 2009.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Sybase, Inc., The S&P 500 Index
And The S&P Systems Software Index
|
|
|
* |
|
$100 invested on 12/31/04 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31. |
|
|
|
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2004 |
|
|
|
2005 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2008 |
|
|
|
2009 |
|
|
|
Sybase, Inc. |
|
|
$ |
100 |
|
|
|
$ |
109.57 |
|
|
|
$ |
123.81 |
|
|
|
$ |
130.78 |
|
|
|
$ |
124.16 |
|
|
|
$ |
217.54 |
|
|
|
S&P500 |
|
|
$ |
100 |
|
|
|
$ |
104.91 |
|
|
|
$ |
121.48 |
|
|
|
$ |
128.16 |
|
|
|
$ |
80.74 |
|
|
|
$ |
102.11 |
|
|
|
S&P Systems Software |
|
|
$ |
100 |
|
|
|
$ |
95.50 |
|
|
|
$ |
112.81 |
|
|
|
$ |
135.20 |
|
|
|
$ |
84.44 |
|
|
|
$ |
127.57 |
|
|
|
- 27 -
COMPARISON
OF 10 YEAR CUMULATIVE TOTAL RETURN*
Among Sybase, Inc., The S&P 500 Index
And The S&P Systems Software Index
|
|
|
* |
|
$100 invested on 12/31/04 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31. |
|
|
|
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. |
|
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|
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
1999 |
|
|
|
2000 |
|
|
|
2001 |
|
|
|
2002 |
|
|
|
2003 |
|
|
|
2004 |
|
|
|
2005 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2008 |
|
|
|
2009 |
|
|
|
Sybase, Inc. |
|
|
$ |
100.00 |
|
|
|
$ |
116.54 |
|
|
|
$ |
92.71 |
|
|
|
$ |
78.82 |
|
|
|
$ |
121.06 |
|
|
|
$ |
117.35 |
|
|
|
$ |
128.59 |
|
|
|
$ |
145.29 |
|
|
|
$ |
153.47 |
|
|
|
$ |
145.71 |
|
|
|
$ |
255.29 |
|
|
|
S&P500 |
|
|
$ |
100.00 |
|
|
|
$ |
90.89 |
|
|
|
$ |
80.09 |
|
|
|
$ |
62.39 |
|
|
|
$ |
80.29 |
|
|
|
$ |
89.02 |
|
|
|
$ |
93.40 |
|
|
|
$ |
108.15 |
|
|
|
$ |
114.09 |
|
|
|
$ |
71.88 |
|
|
|
$ |
90.90 |
|
|
|
S&P Systems Software |
|
|
$ |
100.00 |
|
|
|
$ |
50.35 |
|
|
|
$ |
52.94 |
|
|
|
$ |
39.74 |
|
|
|
$ |
46.37 |
|
|
|
$ |
50.26 |
|
|
|
$ |
48.00 |
|
|
|
$ |
56.70 |
|
|
|
$ |
67.95 |
|
|
|
$ |
42.44 |
|
|
|
$ |
64.12 |
|
|
|
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information is not necessarily indicative of the results of our
future operations. The comparability of the information is affected by a variety of factors,
including share-based compensation, impairment charges related to investments in auction rate
securities, amortization and impairment of intangible assets and goodwill, acquisitions and
restructurings, effective tax rates, accounting changes, and repurchases of common stock.
We adopted amended FASB guidance on stock-based compensation on January 1, 2006. Operating income
from continuing operations included pre-tax stock-based compensation expense for stock options and
stock appreciation rights of $13.6 million, $13.9 million, $12.3 million and $12.6 million in 2006,
2007, 2008, and 2009 respectively.
- 28 -
On November 8, 2006 we acquired Mobile 365, Inc. (which we renamed Sybase 365) for approximately
$418.5 million. Total revenues Sybase 365 were $200.3 million, $178.1 million, $140.7 million in
2009, 2008 and 2007, respectively. Total operating income of Sybase 365 were $8.2 million, $5.3
million, $0.5 million, in 2009, 2008, and 2007, respectively. Total revenues and operating loss of
Sybase 365 were $19.4 million and $1.2 million, respectively for period from November 8, 2006
through December 31, 2006
On August 4, 2009, the Company issued $400.0 million of convertible senior notes (2009 Notes)
through a private offering to qualified institutional buyers in the U.S. pursuant to exemptions
from registration afforded by the Securities Act of 1933, as amended. The 2009 Notes have imputed
and stated interest rates of 8.1475 percent and 3.5 percent, respectively.
This data should be read in conjunction with the MD&A, Part II, Item 7, as well as the Consolidated
Financial Statements and related Notes included in Part II, Item 8 of this Report on Form 10-K.
- 29 -
Consolidated Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 (1) |
|
|
2007 (1) |
|
|
2006 (1) |
|
|
2005 (1) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
$ |
402,779 |
|
|
$ |
383,661 |
|
|
$ |
344,807 |
|
|
$ |
326,751 |
|
|
$ |
291,695 |
|
Services |
|
|
571,198 |
|
|
|
572,090 |
|
|
|
544,209 |
|
|
|
531,172 |
|
|
|
527,000 |
|
Messaging |
|
|
196,592 |
|
|
|
176,179 |
|
|
|
136,514 |
|
|
|
18,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,170,569 |
|
|
|
1,131,930 |
|
|
|
1,025,530 |
|
|
|
876,163 |
|
|
|
818,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees |
|
|
58,692 |
|
|
|
67,342 |
|
|
|
53,114 |
|
|
|
50,540 |
|
|
|
51,556 |
|
Cost of services |
|
|
153,112 |
|
|
|
160,604 |
|
|
|
157,790 |
|
|
|
152,962 |
|
|
|
156,325 |
|
Cost of messaging |
|
|
128,423 |
|
|
|
107,757 |
|
|
|
82,598 |
|
|
|
11,097 |
|
|
|
|
|
Sales and marketing |
|
|
252,972 |
|
|
|
285,376 |
|
|
|
266,995 |
|
|
|
263,281 |
|
|
|
250,003 |
|
Product development and engineering |
|
|
138,140 |
|
|
|
146,932 |
|
|
|
152,571 |
|
|
|
149,510 |
|
|
|
139,011 |
|
General and administrative |
|
|
133,235 |
|
|
|
138,980 |
|
|
|
129,319 |
|
|
|
106,025 |
|
|
|
92,106 |
|
Amortization of other purchased intangibles |
|
|
15,142 |
|
|
|
14,716 |
|
|
|
13,783 |
|
|
|
7,331 |
|
|
|
6,639 |
|
Cost of restructuring |
|
|
1,144 |
|
|
|
167 |
|
|
|
797 |
|
|
|
1,653 |
|
|
|
1,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
880,860 |
|
|
|
921,874 |
|
|
|
856,967 |
|
|
|
742,399 |
|
|
|
696,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
289,709 |
|
|
|
210,056 |
|
|
|
168,563 |
|
|
|
133,764 |
|
|
|
121,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, interest expense and other,
net, and total other-than-temporary
impairment losses recognized in earnings |
|
|
(37,650 |
) |
|
|
(20,418 |
) |
|
|
4,952 |
|
|
|
12,187 |
|
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
252,059 |
|
|
|
189,638 |
|
|
|
173,515 |
|
|
|
145,951 |
|
|
|
124,236 |
|
Provision for income taxes |
|
|
88,000 |
|
|
|
61,451 |
|
|
|
34,388 |
|
|
|
59,930 |
|
|
|
45,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
164,059 |
|
|
$ |
128,187 |
|
|
$ |
139,127 |
|
|
$ |
86,021 |
|
|
$ |
78,238 |
|
Less: Net income (loss) attributable to the
noncontrolling interest |
|
|
42 |
|
|
|
(51 |
) |
|
|
(12 |
) |
|
|
81 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
164,017 |
|
|
$ |
128,238 |
|
|
$ |
139,139 |
|
|
$ |
85,940 |
|
|
$ |
78,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to
Sybase Inc. common stockholders |
|
$ |
2.01 |
|
|
$ |
1.54 |
|
|
$ |
1.52 |
|
|
$ |
0.94 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net
income per share attributable to Sybase,
Inc. common stockholders |
|
|
80,118 |
|
|
|
82,060 |
|
|
|
90,019 |
|
|
|
89,557 |
|
|
|
90,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to
Sybase, Inc. common stockholders |
|
$ |
1.86 |
|
|
$ |
1.46 |
|
|
$ |
1.49 |
|
|
$ |
0.92 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net
income per share attributable to Sybase,
Inc. common stockholders |
|
|
86,981 |
|
|
|
86,264 |
|
|
|
91,717 |
|
|
|
91,409 |
|
|
|
92,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As adjusted due to the adoption of amendments to existing guidance on
convertible debt, noncontrolling interests, and earnings per share computations. See Note One to
Consolidated Financial Statements Summary of Significant Accounting Policies and Note Eight to
Consolidated Financial Statements Convertible Notes, Part II, Item 8. |
- 30 -
Consolidated
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 (1) |
|
|
2007 (1) |
|
|
2006 (1) |
|
|
2005 (1) |
|
Cash, cash equivalents and cash investments |
|
$ |
1,272,475 |
|
|
$ |
635,566 |
|
|
$ |
734,907 |
|
|
$ |
637,696 |
|
|
$ |
859,936 |
|
Working capital |
|
|
640,632 |
|
|
|
518,044 |
|
|
|
604,728 |
|
|
|
455,143 |
|
|
|
573,247 |
|
Total assets |
|
|
2,467,884 |
|
|
|
1,826,322 |
|
|
|
1,902,670 |
|
|
|
1,763,890 |
|
|
|
1,540,270 |
|
Long-term obligations |
|
|
480,154 |
|
|
|
527,067 |
|
|
|
515,839 |
|
|
|
462,566 |
|
|
|
428,221 |
|
Sybase, Inc. stockholders equity |
|
|
1,054,066 |
|
|
|
829,779 |
|
|
|
953,750 |
|
|
|
875,781 |
|
|
|
740,604 |
|
|
|
|
(1) |
|
As adjusted due to the adoption of amendments to existing guidance on
convertible debt. See Note One to Consolidated Financial Statements Summary of Significant
Accounting Policies, Part II, Item 8. |
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
Our Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
includes the following sections:
|
|
|
Executive Overview that discusses at a high level our
operating results and some of the trends that affect our
business. |
|
|
|
|
Critical Accounting Policies that we believe are important
to understanding the assumptions and judgments underlying
our financial statements. |
|
|
|
|
Results of Operations that begins with an overview
followed by a more detailed discussion of our revenue and
expenses. |
|
|
|
|
Liquidity and Capital Resources which discusses key
aspects of our statements of cash flows, changes in our
balance sheets and our financial commitments. |
You should note that this MD&A discussion contains forward-looking statements that involve risks
and uncertainties. Please see the section entitled Risk Factors, Future Operating Results at the
beginning of Item 1(A) for important information to consider when evaluating such statements.
You should read this MD&A in conjunction with the Consolidated Financial Statements and related
Notes in Part II, Item 8.
Effective January 1, 2009, we adopted Financial Accounting Standards Board (FASB) amendments to
existing guidance on convertible debt. The amendments require certain issuers of convertible debt
instruments to separately account for the liability and equity (conversion feature) components of
the instruments. Retrospective adoption was required. As a result, interest expense related to our
2005 Notes and 2009 Notes is imputed and recognized based on the pure debt borrowing rate (no
conversion feature) which would have applied to the Company in February, 2005 and August, 2009,
respectively. Previously interest expense on the 2005 Notes was recognized based on the 1.75
percent stated rate. In accordance with the transition provisions of the amendments, the carrying
amount of the 2005 Notes was retrospectively adjusted to reflect a discount of $85.0 million on the
date of issuance, with an offsetting increase in additional paid-in capital of $51.0 million and a
deferred tax liability of $34.0 million.
On February 1, 2010 the Company called the remaining balance of its outstanding 2005 Notes for
redemption on March 3, 2010. There was approximately $413.7 million aggregate principal amount of
the Notes outstanding as of December 31, 2009. Under the terms of the note agreement we may be
required to pay a premium over the principal amount based on our then current stock price. For
example, if all 413,654 of the unconverted 2005 Notes outstanding on December 31, 2009 were
converted at the $43.4
- 31 -
December 31, 2009 closing stock price, we would be required to pay the remaining outstanding
principal value of $413.7 million in cash and $304.8 million in cash, stock, or a combination of
cash and stock at our election.
See Note One to Consolidated Financial Statements Summary of Significant Accounting Policies,
Note Eight to Consolidated Financial Statements Convertible Notes, and Note Fifteen to
Consolidated Financial Statements Subsequent Events, Part II, Item 8.
Executive Overview
Our Business
Sybase is an industry leader in delivering enterprise and mobile software to manage, analyze and
mobilize information. We are recognized globally as a performance leader, proven in data-intensive
industries and across a broad range of systems, networks and devices. Our information management,
analytics and enterprise mobility solutions power mission-critical systems in financial services,
telecommunications, manufacturing and government.
Our value proposition involves enabling the Unwired Enterprise by allowing enterprises to extend
their information securely and make it useful for people anywhere using any device. We deliver a
full range of solutions to ensure that customer information is securely managed and mobilized to
the point of action, including enterprise and mobile databases, middleware, synchronization,
encryption and device management software, and mobile messaging services.
In 2009 our business was organized into three business segments: IPG, which principally focuses on
enterprise class database servers, integration and development products; iAnywhere Solutions (iAS),
which provides mobile database and mobile enterprise solutions; and Sybase 365, which provides
global services for mobile messaging interoperability and the management and distribution of mobile
content. For further discussion of our business segments, see Note Twelve Segment and
Geographical Information in the Notes to the Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference.
Our Results
We reported total revenues of $1,171.0 million for 2009 compared to $1,132.0 million for 2008. The
increase in total revenues from 2008 to 2009 was attributable to increases in license and messaging
revenues, with license revenues increasing 5 percent, and messaging revenues increasing 12 percent.
The year-over-year revenue impact resulting from foreign exchange differences was a reduction of
approximately 2 percent, or approximately $25.6 million. Including the foreign exchange headwind,
our IPG segment saw a $31.9 million (4 percent) increase in revenues, Sybase 365 grew revenues
$22.3 million (13 percent) and iAS experienced an $8.7 million (5 percent) decrease in revenues.
IPG revenues benefited from a 9 percent increase in license revenue and a 1 percent increase in
service revenue. The growth in IPG license revenues was primarily attributed to a 22 percent
increase in database revenues, namely our Adaptive Server ® Enterprise (ASE), IQ
Analytic Server, and Risk Analytics Platform (RAP) products. The year over year increase in service
revenues primarily resulted from a 3 percent increase in technical support, partially offset by an
8 percent decline in professional services. The decrease in iAS revenues was driven by a 9 percent
decrease in service revenue and a 2 percent decrease in license revenues. The increase in Sybase
365 messaging revenues was driven by a 13 percent increase in application messaging revenue,
largely attributable to large enterprises adopting mobile messaging as a new channel for customer
interaction. Mobile commerce and global data roaming (GRX) services also contributed to the growth
in messaging revenues. The Sybase 365 segment was disproportionately impacted by currency exchange
(approximately 4 percent) as 63 percent of its revenues came from outside the U.S., primarily from
Europe.
- 32 -
We reported net income of $164.0 million for 2009, compared to $128.2 million in 2008. Our 2009
operating income was $289.7 million (25 percent operating margin) compared to $210.1 million (19
percent operating margin) in 2008. The increase in operating income was primarily attributable to
the IPG segments $70.7 million increase in operating income reflecting both their revenue growth
and operating margin expansion. Driving operating income growth were database revenue growth,
margin expansion from cost synergies between our operations, cost control measures, and a favorable
revenue mix shift away from lower margin business (professional services) toward higher margin
business (license and maintenance).
During 2009, we generated net cash from operating activities of $384.1 million, a 30 percent
increase over the prior year. Our days sales outstanding in accounts receivable was 74 days for
the quarter ended December 31, 2009 compared to 80 days for the quarter ended December 31, 2008.
For a discussion of certain factors that may impact our business and financial results, see Risk
Factors Future Operating Results, above.
Business Trends
Our business activity and pipeline expanded throughout 2009 despite persistent weakness in the
macro economic environment. Our pipeline and the general condition of our business remains stable
as we enter 2010. We are also beginning to see early signs of recovery in the spending environment
and indications that corporate IT budgets could modestly increase in 2010. Nonetheless, we believe
IT spending remains tight and, to the extent there is a meaningful improvement in demand, it is
more likely to occur towards the end of 2010.
Our focus on innovation has helped sustain demand and drive growth with our enterprise
infrastructure products. Technology enhancements and options have contributed to growth for our
Adaptive Server Enterprise (ASE) 15.0 product, for which we added 878 new customers during 2009.
We continue to benefit from the continued proliferation of enterprise data and the need for
high-performance analytic capabilities, such as our IQ Analytic Server (IQ) and our Risk Analytics
Platform (RAP) solution. IQ offers a highly optimized analytic engine specifically designed to
deliver dramatically faster results for business intelligence, analytic and reporting solutions.
Our RAP solution, which is built on IQ, is targeted to the financial services industry for risk,
trading and compliance analytics. During 2009, we released IQ 15.0 and added complex event
processing and time series functionality to our RAP solution. We saw strong demand for our analytic
solutions during 2009 with 212 new customers for IQ and 17 new customers for RAP.
We expect to generate revenue from several new enterprise infrastructure products and features in
2010. Late in 2009, we released version 15.5 of our ASE platform. Version 15.5 includes two new
features expected to contribute to revenue growth in 2010: in-memory processing and advanced
back-up services. We are also planning to release a time-series option for ASE later in 2010.
Additionally, early in 2010 we will be launching a hosted analytics solution based on our IQ
technology. This offering is designed for real-time traffic and billing analytics and is targeted
for the telecommunications industry.
- 33 -
Demand for our mobile middleware products was impacted by persistent weakness in discretionary IT
spending in 2009. We are encouraged, however, by our growing partner ecosystem of large technology
vendors. In 2009, we entered into a number of key partnerships based on our Afaria product for
mobile device management and our Sybase Unwired Platform (SUP) for mobile application enablement.
In our partnership with SAP, the Sybase Unwired Platform will extend SAPs customer relationship
management application to a variety of mobile device platforms including Apples iPhone, Windows
Mobile and others. Verizon is embedding Afaria in a managed service offering allowing enterprise
customers to manage a heterogeneous mobile device environment through a hosted solution. During
2009, we also entered into partnerships with Samsung, Siemens and Accenture. As more large
enterprises mobilize their applications and IT infrastructure, we believe our growing partner
ecosystem will help us achieve greater leverage and broader channel reach.
With respect to the market for messaging services, we continue to see strong demand from
enterprises, who increasingly view mobile messaging as an inexpensive means of interacting with
their customers on a real time basis. Broadly speaking, we believe that our messaging business will
continue to see revenue driven by continuing growth in worldwide Short Messaging Services (SMS) and
Multimedia Messaging Services (MMS) traffic levels and an expanding demand for mobile data roaming
(GRX) services. Offsetting to some extent the growth in message volume has been continued price
compression. Our plans call for offering new value added services such as the real-time traffic
and billing analytics solution mentioned above. We are also encouraged with our progress in nascent
high-growth markets such as mobile commerce. For example, in 2009, we expanded our relationship
with IBM to cover mobile banking and mobile commerce opportunities. In these markets, IBM Global
Services provides key implementation resources and global scale for Sybases mCommerce and mBanking
solutions.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with U.S. generally accepted accounting
principles (GAAP). These accounting principles require us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and
liabilities at the date of our financial statements. We also are required to make certain judgments
that affect the reported amounts of revenues and expenses during each reporting period. We
periodically evaluate our estimates and assumptions including those relating to software and mobile
messaging revenue recognition, impairment of goodwill and intangible assets, valuation of
investments without readily available markets and the classification of related impairments, the
allowance for doubtful accounts, capitalized software, income taxes, stock-based compensation,
purchase accounting, restructuring, and contingencies and liabilities. We base our estimates on
historical experience, observable and unobservable inputs under the 3-level fair value hierarchy
framework, and various other assumptions that we believe to be reasonable based on specific
circumstances. Our management has reviewed the development, selection, and disclosure of these
estimates with the Audit Committee of our Board of Directors. These estimates and assumptions form
the basis for our judgments about the carrying value of certain assets and liabilities that are not
readily apparent from other sources. Actual results could differ from these estimates. Further,
changes in accounting and legal standards could adversely affect our future operating results (see
Risk Factors Future Operating Results, above). Our critical accounting policies include:
software and mobile messaging revenue recognition, impairment of goodwill and other intangible
assets, valuation of investments without readily available markets and classification of related
impairments, allowance for doubtful accounts, capitalized software, bifurcation of convertible debt
instruments, income taxes, stock-based compensation, purchase accounting, restructuring and
contingencies and liabilities, each of which are discussed below.
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Revenue Recognition |
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Revenue recognition rules for software and message services companies are very complex. We
follow specific and detailed guidance in measuring revenue, although certain judgments affect
the application of our revenue recognition policy. These judgments would include, for example,
the determination of a customers creditworthiness, whether two separate transactions with a
customer |
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should be accounted for as a single transaction, reporting certain third party content
delivery revenues
net as an agent versus gross as a principal, or whether included software services are essential
to the functionality of a product. |
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License and Service Revenues |
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We recognize software revenue in accordance with FASB guidance on software revenue recognition,
and, in certain instances, in accordance with FASB guidance on accounting for performance of
construction-type and certain production-type contracts or in accordance with SEC Staff guidance
pertaining to revenue recognition. We license software under non-cancellable license
agreements. License fee revenues are recognized when (a) a non-cancelable license agreement is
in force, (b) the product has been delivered, (c) the license fee is fixed or determinable, and
(d) collection is probable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer and all other revenue recognition criteria have been met. |
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Residual Method Accounting. In software arrangements that include multiple elements
(e.g., license rights and technical support services), we allocate the total fees among each of
the elements using the residual method of accounting. Under this method, revenue allocated to
undelivered elements is based on vendor-specific objective evidence of fair value of such
undelivered elements, and the residual revenue is allocated to the delivered elements. Vendor
specific objective evidence of fair value for such undelivered elements is based upon the price
we charge for such product or service when it is sold separately. We may modify our pricing
practices in the future, which could result in changes to our vendor specific objective evidence
of fair value for such undelivered elements. As a result, the timing of revenue recognition
associated with multiple element arrangements could differ significantly from our historical
results. |
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Sublicense Revenues. We recognize sublicense fees as reported to us by our
licensees. License fees for certain application development and data access tools are recognized
upon direct shipment by us to the end user or upon direct shipment to the reseller for resale to
the end user. If collection is not reasonably assured in advance, revenue is recognized only
when sublicense fees are actually collected and all other revenue recognition criteria have been
met. |
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Service Revenues. Technical support revenues are recognized ratably over the term
of the related support agreement, which in most cases is one year. Revenues from consulting
services under time and materials contracts, and for education, are recognized as services are
performed. Revenues from fixed price consulting agreements are generally recognized based on the
proportional performance of the project, with performance measured based on hours of work
performed. |
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Message Revenues |
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We recognize message revenue in accordance with SEC Staff guidance and FASB guidance pertaining
to multiple-element arrangements and, where applicable, to guidance pertaining to gross
recognition as a principal versus net as an agent. We recognize revenue when (a) there is
persuasive evidence of an arrangement; (b) the service has been provided to the customer; (c)
the amount of the fees to be paid by the customer is fixed and determinable; and (d) the
collection of the fees is reasonable assured. |
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We generate a significant portion of our message revenue from per message transaction fees and
to a lesser extent, from fixed price messaging arrangements providing for the delivery of an
unlimited number of messages for a specified period of time, and revenue share agreements
related to the delivery of third party content. We recognize revenue from transaction fees
based upon the number of messages successfully processed by our platforms and delivered in
accordance with the terms of our arrangements. We recognize revenue from the fixed price
messaging arrangements ratably over the period of time specified in the agreement. |
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In some instances third party content providers and other enterprises enter into revenue sharing
arrangements with us. Under a standard revenue sharing transaction we deliver content from a
third party provider to the cell phone of a mobile operators subscriber. Third party content
includes, among others, ringtones, wallpapers, interactive games, competitions, directory
inquiry services, and information services. The subscriber is invoiced by their mobile
operator, who upon receipt of payment, remits a portion of the charge to us. Upon payment from
the mobile operator, we generally remit payment to the third party content provider. We have
determined that we act as an agent under |
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these revenue sharing arrangements and accordingly, record as revenue the net amount retained by
us. The net amount retained by us reflects the gross amount billed to the operator less amounts
due to the content provider. |
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Impairment of Goodwill, Non-amortizable Intangible Assets and Other Purchased Intangible Assets |
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Goodwill and other non-amortizable intangible assets, such as tradenames, have generally
resulted from our business combinations accounted for as purchases. We are required to test
amounts recorded as goodwill or other non-amortizable intangible assets with indeterminate
lives, at least annually for impairment. The review of goodwill and indeterminate lived
intangibles for potential impairment is highly subjective and requires us to make numerous
estimates, using a discounted cash flow model, to determine the fair values of our reporting
units to which goodwill is assigned. For these purposes, our reporting units equate to our
reported segments. See Note Twelve Segment and Geographical Information in the Notes to the
Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. If the
estimated fair value of a reporting unit is determined to be less than its carrying value, we
are required to perform an analysis similar to a purchase price allocation for an acquired
business in order to determine the amount of goodwill impairment, if any. This analysis requires
a valuation of certain other purchased intangible assets with determinate and indeterminate
useful lives including in-process research and development, and developed technology. We
performed our annual impairment analysis for each of our historical operating units (IPG, iAS,
and SY365) and for each indeterminate lived intangible asset as of December 31, 2009. This
analysis indicated that the estimated fair value of each reporting unit substantially exceeded
its carrying value. In addition, the estimated fair value of each indeterminate-lived
intangible exceeded its carrying value. Therefore, we were not required to recognize an
impairment loss in 2009. As of December 31, 2009, our goodwill balance totaled $532.4 million
and our other non-amortizable purchased intangibles totaled $7.1 million. Changes in our
internal business structure, increases in the applicable discount rate, changes in our future
revenue and expense forecasts, and certain other factors that directly impact the valuation of
our reporting units could result in a future impairment charge. |
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We also continue to separately review our other purchased intangible assets (e.g., purchased
technology, customer lists and covenants not to compete) for indications of impairment whenever
events or changes in circumstances indicate the carrying amount of any such asset may not be
recoverable. For these purposes, recoverability of these assets is measured by comparing their
carrying values to the future undiscounted cash flows the assets are expected to generate. This
methodology requires us to estimate future cash flows associated with certain assets or groups
of assets. Changes in these estimates, technology obsolescence, the discontinuance of certain
products, customer terminations and other factors could result in impairment losses associated
with other intangible assets. In 2009, we wrote off $1.2 million of certain purchased
technologies. |
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Valuation, Classification and Impairments of Investments |
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In accordance with FASB guidance on accounting for certain investments in debt and equity
securities, 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, 2009, we have classified short-term bank deposits, corporate notes and bonds, U.S.
government obligations, and auction rate securities (ARS) as available-for-sale. In addition,
the Company has classified $11.9 million invested in mutual funds as directed by participants of
a Rabbi Trust related to a deferred compensation plan as trading securities. |
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Investments classified as available for sale and trading securities are recorded at fair value.
Actively traded available-for-sale and trading securities are stated at fair value as determined
by the securitys most recently traded price. If securities are not actively traded, fair value
is determined using other valuation techniques. Realized gains and losses are reflected in
income and are determined on the specific identification method. Trading securities unrealized
gains and |
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losses and realized gains and losses are included in our earnings. Changes in fair
values of available for sale securities are accounted for based on the nature of the change in
value: |
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Temporary; |
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Credit related other-than-temporary impairments (OTTI); or |
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Noncredit related OTTI. |
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Temporary Changes in Fair Value |
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Temporary changes in fair values are recorded as unrealized gains and losses. Unrealized gains
and losses are not reflected in earnings but are reported as a separate component of other
comprehensive income (loss) (OCI). |
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Credit and Noncredit OTTI
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On April 1, 2009, we adopted FASB amendments pertaining to how to determine and measure credit
and noncredit OTTI of debt securities as well as how to determine whether an impairment for
investments in debt securities is other-than-temporary. |
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If a debt securitys market value is below amortized cost and we either intend to sell
the security or it is more likely than not that we will be required to sell the security
before its anticipated recovery, we would record an OTTI charge to earnings for the entire
amount of the impairment. |
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For the remaining debt securities, if an OTTI exists, we would separate the OTTI into
two portions: |
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Credit Loss Portion: The credit loss portion is the amount that our best
estimate of the present value of cash flows expected to be collected from the security
falls below the amortized cost of the security. The credit loss portion is recorded as
a charge to earnings. |
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NonCredit Loss Portion: The noncredit loss portion is the residual amount of
the OTTI, and is recorded as a separate component of other comprehensive income (loss). |
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When assessing whether a decline in fair values is temporary or OTTI, we consider various
factors including: the significance of the decline in value compared to the cost basis; how long
the fair value of the security has been less than its cost basis; the quality and estimated
value of the investments held by the trust/issuer; the financial condition and credit rating of
the trust, issuer, sponsors, and insurers; in the case of auction rate securities, the frequency
of the auction function failing; the expected market volatility and the market and economy in
general; analyst reports and forecasts; views of external investment managers; news or financial
information that has been released specific to the investee; and the outlook for the overall
industry in which the investee operates. |
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When calculating the present value of expected cash flows to determine the credit loss portion
of the OTTI, we estimate the amount and timing of projected cash flows, the probability of
default and the timing and amount of recoveries on a security-by-security basis. These
calculations consider an analysis of observable market data, such as credit default swap
spreads, historical default and recovery statistics, rating agency data, credit ratings and
other data relevant to the collectability of the security. The amortized cost basis of a debt
security is adjusted for any credit loss portion of the impairment recorded to earnings. |
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Prior to April 1, 2009, the entire OTTI charge was recognized in earnings for all debt
securities. |
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On December 31, 2009, long-term investments include $13.3 million of ARS with an aggregate par
value of $28.9 million. ARS are floating rate securities with longer-term maturities which were
marketed by financial institutions with auction reset dates at 28 day intervals to provide short
term liquidity. Beginning in August 2007 and into September 2007, each of the ARS auctions
began to fail due to a lack of market for these securities. |
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Through March 31, 2009, we recorded $15.2 million of OTTI to earnings for the ARS. Upon the
April 1, 2009 adoption of the FASB amendments, we recorded a cumulative accounting change to |
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reclassify the noncredit portion of OTTI previously recorded in earnings from retained earnings
to accumulated other comprehensive income in the amount of $6.7 million. |
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The fair values of the ARS are determined using a discounted cash flow model for each ARS as of
December 31, 2009. These models utilized credit related discount rates and term to recovery as
key inputs. Changes in these inputs or other factors could result in additional realized
impairment losses. For example, if the assumed discount rate was increased 100 basis points for
each ARS due to credit-related factors, the total estimated fair value of the Companys ARS
portfolio would decrease $0.5 million and be charged to earnings. Similarly, if the assumed
term to recovery was increased by one year for each ARS due to non-credit factors, then the
total estimated fair value of the Companys ARS portfolio would decrease $0.8 million and be
charged to other comprehensive income. |
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Allowance for Doubtful Accounts |
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We maintain an allowance for doubtful accounts to reflect the expected non-collection of
accounts receivable. In determining the amount of the allowance we consider our historical
level of credit losses; judgments about the creditworthiness of specific customers; an
assessment of current economic and industry trends that might impact the level of credit losses
in the future; and other factors. Our allowances have generally been adequate to cover our
actual credit losses. However, since we cannot reliably predict future changes in the financial
stability of our customers, we cannot guarantee that our allowance will continue to be adequate.
For example, our allowance for doubtful accounts totaled $4.3 million at December 31, 2009. If
our allowance for doubtful accounts, changed by 10% our allowance for doubtful accounts and
operating results would change by $0.4 million. |
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Capitalized Software |
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We capitalize certain software development costs after a product becomes technologically
feasible and before its general release to customers. Our net capitalized software totaled $86.9
million at December 31, 2009. Capitalized development costs are then amortized over the
products estimated life beginning upon general release of the product. Quarterly, we compare a
products unamortized capitalized cost to the products net realizable value. To the extent
unamortized capitalized cost exceeds net realizable value based on the products estimated
future gross revenues (reduced by the estimated future costs of completing and selling the
product) the excess is written off. This analysis requires us to estimate future gross revenues
associated with certain products and the future costs of completing and selling certain
products. Significant judgment is required in determining when a product becomes
technologically feasible and its net realizable value. Changes in these estimates could result
in write-offs of capitalized software costs. Capitalized software amortization and write-off
charges totaled $41.5 million in 2009. Amortization of capitalized software cost included
write-offs of $3.2 million in 2009. See Note One Summary of Significant Accounting Policies
in the Notes to the Consolidated Financial Statements, Part II, Item 8, incorporated here by
reference. |
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Bifurcation of Convertible Debt Instruments |
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FASB guidance pertaining to convertible debt instruments with cash conversion provisions
requires that we bifurcate the liability and equity components of our convertible debt
instruments. As a result, interest expense related to our 2009 Notes is imputed and recognized
based on the borrowing rate of a similar liability that does not have an associated equity
component (the pure debt borrowing rate) in August, 2009. The carrying amount of the 2009 Notes
was established to reflect a discount of $75.5 million on the date of issuance, with an
offsetting increase in additional paid-in capital of $45.7 million and a deferred tax asset
reduction of $29.8 million. If the pure debt borrowing rate were 100 basis points higher, the
debt discount would have been $14.0 million greater, resulting in $14.0 million more interest
expense over the five year period from the notes issuance to the date it may first be put to us
by the holders. |
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Income Taxes Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowance |
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Significant judgment is required in determining our worldwide income tax provision. We are
subject to income taxes in both the United States and foreign jurisdictions and we use estimates
in determining our provision for income taxes. In the ordinary course of a global business,
there are many
transactions and calculations where the ultimate tax outcome is uncertain. Some of these
uncertainties arise as a consequence of the process of identifying items of revenues and
expenses that qualify for preferential tax treatment and the segregation of foreign and domestic
earnings and expenses to avoid double taxation. Compliance with income tax regulations requires
us to make decisions relating to the transfer pricing of revenue and expenses between our legal
entities that are located in a variety of tax jurisdictions. Our determinations include many
decisions based on our knowledge of the underlying assets of the business and the beneficial
ownership of these assets. Although we believe that our estimates are reasonable, the final tax
outcome of these matters could be different from that which is reflected in our historical
income tax provisions and accruals. Such differences could have a material effect on our income
tax provision and net income in the period in which such determination is made. |
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Deferred tax assets, related valuation allowances and deferred tax liabilities are determined
separately by tax jurisdiction. This process involves estimating actual current tax liabilities
together with assessing temporary differences of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities which are recorded on the balance
sheet. Our deferred tax assets consist primarily of net operating loss and tax credit carry
forwards and temporary differences related to intangible assets and accrued expenses. |
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We record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not (a likelihood of more than 50 percent) to be realized. In order for us to
realize our deferred tax assets, we must be able to generate sufficient taxable income in those
jurisdictions where the deferred tax assets are located. Our valuation allowance relates
primarily to US federal tax loss carryfowards and State credit carryforwards. We evaluate our
valuation allowance each quarter based on factors such as the mix of earnings in the
jurisdictions in which we operate, prudent and feasible tax planning strategies, current taxable
income and forecasted taxable income. Forecasts of future taxable income are further refined as
a result of each years corporate budget and goal setting process, which generally occurs in the
fourth quarter. Based on our evaluation of these factors, we reduced our valuation allowances
in 2009, 2008 and 2007. The portion credited to Statements of Operations was approximately $2.6
million, $6.7 million, and $26.4 million, respectively. In the event we were to determine that
we would not be able to realize all or part of our net deferred tax assets in the future, an
adjustment to the deferred tax assets valuation allowance would be charged to earnings in the
period in which we make such a determination. Likewise, if we later determine that it is more
likely than not that the net deferred tax assets would be realized, we would reverse the
applicable portion of the previously provided valuation allowance. |
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For years 2008 and 2007, we credited to goodwill releases of our valuation allowances relating
primarily to our US federal tax loss carryforwards acquired in business acquisitions. Under
applicable accounting rules, beginning in 2009 releases of our valuation allowances relating to
these tax loss carryforwards are now credited to Statement of Operations. |
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Our effective tax rate includes the impact of certain undistributed foreign earnings for which
no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested
outside the United States. Remittances of foreign earnings to the U.S. are planned based on
projected cash flow, working capital and investment needs of our foreign and domestic
operations. Based on these assumptions, we estimate the amount that will be distributed to the
U.S. and provide U.S. federal taxes on these amounts. Material changes in our estimates or tax
legislation that limits or restricts the amount of undistributed foreign earnings that we
consider indefinitely reinvested outside the United States could impact our effective tax rate. |
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The calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations in multiple tax jurisdictions. The amount of income tax we pay is
subject to ongoing audits by federal, state and foreign tax authorities. These audits include
questions regarding the |
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timing and amount of deductions and the allocation of income among
various tax jurisdictions. Our estimate of the potential outcome for any uncertain tax issue is
highly judgmental. We account for our uncertain tax issues using a two-step approach to
recognize and measure uncertain tax positions taken or expected to be taken in a tax return. The
first step is to determine if the weight of available evidence
indicates that it is more likely than not (a likelihood of more than 50 percent) that the tax
position will be sustained on audit, including resolution of any related appeals or litigation
processes. In this step, we assume that the tax position will be examined by the relevant
taxing authority that has full knowledge of all relevant information. The second step is to
measure the tax benefit as the largest amount that is more than 50% likely to be realized upon
ultimate settlement. Although we believe we have adequately reserved for our uncertain tax
positions, no assurance can be given with respect to the final outcome of these matters. We
adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as
the closing of a tax audit, refinement of estimates or realization of earnings or deductions
that differ from our estimates. To the extent that the final outcome of these matters is
different than the amounts recorded, such differences will impact our provision for income taxes
in the period in which such a determination is made. Our provisions for income taxes include the
impact of reserve provisions and changes to reserves that are considered appropriate and also
include the related interest and penalties. |
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Through 2008, income tax contingencies that existed as of the acquisition date for an acquired
company were evaluated quarterly and any changes would have been recorded as adjustments to
goodwill. FASB amendments to existing business combination guidance went into effect January 1,
2009. Under the new guidance, we now make our best estimate of income tax contingencies assumed
from acquisitions. Subsequent to the measurement period, adjustments to these income tax
contingencies will affect our provision for income taxes in our consolidated statement of
operations and could have a material impact on our statement of operations and financial
position. |
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As a part of our accounting for business combinations, some of the purchase price is allocated
to goodwill and intangible assets. Impairment charges associated with goodwill are generally not
tax deductible and will result in an increased effective income tax rate in the period that any
impairment is recorded. Amortization expenses associated with acquired intangible assets are
generally not tax deductible pursuant to our existing tax structure; however, deferred taxes
have been recorded for non-deductible amortization expenses as a part of the purchase price
allocation process. We have taken into account the allocation of these identified intangibles
among different taxing jurisdictions, including those with nominal or zero percent tax rates, in
establishing the related deferred tax liabilities. |
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Accounting for Stock-Based Compensation Plans |
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At December 31, 2009, there was $44.1 million of total unrecognized compensation cost before
income tax benefit related to non-vested stock-based compensation arrangements granted under all
equity compensation plans which we will amortize to expense in the future. Total unrecognized
compensation cost will be adjusted for future changes in estimated forfeitures. We expect to
recognize the cost for stock options and stock appreciation rights over a weighted average
period of 2.3 years and the cost for restricted stock over a weighted average period of 1.2
years. |
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We estimate the fair value of options granted using the Black-Scholes option valuation model and
the assumptions shown in Note Seven to the Consolidated Financial Statements Stockholders
Equity , Part II, Item 8. We estimated the expected term of options granted based on historical
exercise patterns. We estimated the volatility of our options and stock appreciation rights
considering both the historical volatility of our stock over the average expected life of our
options and the prices of publicly traded options, consistent with the amended FASB and SEC
Staff guidance on stock-based compensation. We base the risk-free interest rate that we use in
the Black-Scholes option valuation model on the average of the 5 year treasury rates as
published by the Federal Reserve. We have never paid any cash dividends on our common stock and
we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use
an expected dividend yield of zero in the Black-Scholes option valuation model. The amended FASB
guidance on stock-based compensation |
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requires us to estimate forfeitures at the time of grant
and revise those estimates in subsequent periods if actual forfeitures differ from those
estimates. We use historical data to estimate pre-vesting option forfeitures and record
share-based compensation expense only for those awards that are expected to vest. We amortize
the fair value on a ratable basis over the requisite service periods of the awards, which are
generally the vesting periods. |
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Changes in the subjective input assumptions can materially affect the fair value estimates
determined under the Black-Scholes option valuation model. In the future, changes in the
assumptions under the Black-Scholes valuation model, or our election to use a different
valuation model, could result in a significantly different impact on our net income or loss. |
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Purchase Accounting |
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We have made estimates of the fair values of purchased intangible and other assets acquired in
conjunction with our purchase of companies after considering valuations prepared by independent
third-party appraisers and certain internally generated information. |
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Purchased intangible assets, excluding goodwill, totaled $88.0 million at December 31, 2009. If
the subsequent actual and updated projections of the underlying business activity are less as
compared to the underlying assumptions and projections used to develop these values, then we
could experience impairment losses, as described above. In addition, we have estimated the
economic lives of certain of these assets and these lives were used to calculate depreciation
and amortization expense. If our estimates of the economic lives change, then additional
depreciation or amortization expense could be incurred on an annual basis. Historically, we have
not made any changes in these areas. If the remaining economic lives of the definite-lived
intangible assets acquired as part of our acquisition of Mobile 365 were reduced by one year as
of December 31, 2008, our 2009 amortization expense would have been approximately $2.9 million
higher. |
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Restructuring |
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Our remaining restructuring accruals primarily relate to the estimated net costs to settle
certain lease obligations based on analysis of independent real estate consultants. While we do
not anticipate significant changes to these estimates in the future, the actual costs may differ
from estimates. For example, if we are able to negotiate more affordable termination fees, if
rental rates increase in the markets where the properties are located, or if we are able to
locate suitable sublease tenants more quickly than expected, the actual costs could be lower
than our estimates. In that case, we would reduce our restructuring accrual with a corresponding
credit to cost of restructuring or goodwill. Alternatively, if we are unable to negotiate
affordable termination fees, if rental rates decrease in the markets where the properties are
located, or if it takes us longer than expected to find suitable sublease tenants, the actual
costs could exceed our estimates. See Note Seven Restructuring Costs in the Notes to the
Consolidated Financial Statements, Part II, Item 8. |
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Contingencies and Liabilities |
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We are involved from time to time in various proceedings, lawsuits and claims involving our
customers, products, intellectual property, stockholders and employees. We routinely review the
status of each significant matter and assess our potential financial exposure. When we
reasonably determine that a loss associated with any of these matters is probable, and can
reasonably estimate the loss, we record a reserve to provide for such loss contingencies. If we
are unable to record a reserve because we are not able to estimate the amount of a potential
loss in a matter, or if we determine that a loss is not probable, we are nevertheless required
to disclose certain information regarding such matter if we determine that there is a reasonable
possibility that a loss has been incurred. Because of the inherent uncertainties related to
these types of matters, we base our loss reserves on the best information available at the time.
As additional information becomes available, we may reevaluate our assessment regarding the
probability of a matter or its expected loss. Our financial position, results of operations or
cash flows could be materially and adversely affected by such revisions in our estimates. For
further discussion of contingencies and liabilities, see Risk Factors Future Operating
Results, above. |
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We currently believe that the ultimate liability, if any, for any pending claims of any type
(either alone or combined) will not materially affect our financial position, results of
operations or cash flows. We also believe that we would be able to obtain any necessary
licenses or other rights to disputed intellectual property rights on commercially reasonable
terms. However, the ultimate outcome of any litigation is uncertain and, regardless of outcome,
litigation can have an adverse impact on Sybase because of defense costs, negative publicity,
diversion of management resources and other factors. Our inability to obtain necessary license
or other legal rights, or litigation arising out of intellectual property claims could adversely
affect our business. |
|
|
|
Net Income Per Share |
|
|
|
Shares used in computing basic and diluted net income per share attributable to Sybase, Inc.
common stockholders are based on the weighted average shares outstanding in each period,
excluding treasury stock. Shares used in computing basic net income per share excludes any
dilutive effects of stock options, unvested restricted stock, stock appreciation rights and our
convertible debt. Basic and diluted earnings per share are computed pursuant to the two-class
method. Under this method, we attribute net income to two classes, common stock and unvested
restricted stock awards, according to their respective participation rights in undistributed
earnings. Unvested restricted stock awards granted to employees prior to September 17, 2009 are
considered participating securities as they receive non-forfeitable rights to cash dividends at
the same rate as common stock. |
|
|
|
Diluted net income per share is calculated using the more dilutive of the following two
approaches. Under both approaches exercise of stock options and stock appreciation rights are
assumed using the treasury stock method. The assumption of vesting of restricted stock,
however, differs: |
|
1. |
|
Assume vesting of restricted stock using the treasury stock method. |
|
|
2. |
|
Assume unvested restricted stock awards are not vested, and allocate earnings to common
shares and unvested restricted stock awards using the two-class method. |
|
|
Under both methods, the computation of diluted earnings per share also includes the dilutive
effects, if any, of our convertible debt due to the appreciation of our stock price. Such
computations include computing the excess, if any, of the average price of our common stock over
the conversion price of $24.99 per share for our 2005 Notes and over the conversion price of
$47.88 per share for our 2009 Notes. We calculate the average stock price in accordance with the
terms of the debt agreements. We have consistently applied this policy to all periods in which
either convertible debt had a dilutive effect on earnings per share. |
- 43 -
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Change |
|
|
2008 |
|
|
Change |
|
|
2007 |
|
License fees by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPG |
|
$ |
337.4 |
|
|
|
9 |
% |
|
$ |
308.5 |
|
|
|
12 |
% |
|
$ |
275.5 |
|
iAS |
|
|
101.4 |
|
|
|
(2 |
%) |
|
|
103.0 |
|
|
|
3 |
% |
|
|
100.3 |
|
SY365 |
|
|
1.3 |
|
|
|
550 |
% |
|
|
0.2 |
|
|
|
* |
|
|
|
|
|
Eliminations |
|
|
(37.3 |
) |
|
|
|
|
|
|
(28.1 |
) |
|
|
|
|
|
|
(31.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license fees |
|
$ |
402.8 |
|
|
|
5 |
% |
|
$ |
383.6 |
|
|
|
11 |
% |
|
$ |
344.8 |
|
Percentage of total revenues |
|
|
34 |
% |
|
|
|
|
|
|
34 |
% |
|
|
|
|
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPG |
|
$ |
531.2 |
|
|
|
1 |
% |
|
$ |
528.1 |
|
|
|
6 |
% |
|
$ |
496.6 |
|
iAS |
|
|
68.6 |
|
|
|
(9 |
%) |
|
|
75.7 |
|
|
|
4 |
% |
|
|
72.8 |
|
SY365 |
|
|
2.4 |
|
|
|
41 |
% |
|
|
1.7 |
|
|
|
(60 |
%) |
|
|
4.2 |
|
Eliminations |
|
|
(31.0 |
) |
|
|
|
|
|
|
(33.4 |
) |
|
|
|
|
|
|
(29.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
$ |
571.2 |
|
|
|
* |
|
|
$ |
572.1 |
|
|
|
5 |
% |
|
$ |
544.2 |
|
Percentage of total revenues |
|
|
49 |
% |
|
|
|
|
|
|
50 |
% |
|
|
|
|
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messaging by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SY365 |
|
$ |
196.6 |
|
|
|
12 |
% |
|
$ |
176.2 |
|
|
|
29 |
% |
|
$ |
136.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total messaging |
|
$ |
196.6 |
|
|
|
12 |
% |
|
$ |
176.2 |
|
|
|
29 |
% |
|
$ |
136.5 |
|
Percentage of total revenues |
|
|
17 |
% |
|
|
|
|
|
|
16 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,170.6 |
|
|
|
3 |
% |
|
$ |
1,131.9 |
|
|
|
10 |
% |
|
$ |
1,025.5 |
|
- 44 -
For the year ended December 31, 2009, we experienced unfavorable currency exchange rates which had
a negative 2 percent impact on total revenues and a negative 4 percent impact on messaging revenues
compared with the same period in 2008. For the year ended December 31, 2008, we experienced
favorable currency exchange rates which had a positive 3 percent impact on total revenues and
messaging revenues compared with the same period in 2007.
Total license fees for 2009 increased $19.2 million (5 percent) from total license fees in 2008
which had increased $38.8 million (11 percent) from 2007. The increase in license fees during 2009
was primarily attributable to a $28.9 million (9 percent) increase in IPG license fees and a $1.1
million increase in SY365 license fees, partially offset by a $1.6 million (2 percent) decrease in
iAS license fees. The increase in license fees during 2008 was attributable to increases in both
IPG and iAS license fees.
The increase in IPG license fees during 2009 was largely attributable to a $39.6 million (22
percent) increase in database license revenues, namely our Adaptive Server® Enterprise (ASE), IQ
Analytic Server, and Risk Analytics Platform (RAP) products; and a $11.4 million (35 percent)
increase in mobility products; partially offset by decreases in our liquidity integration products
of $16.1 million (30 percent) and Power Builder development tools of $3.0 million (13 percent). The
increase in IPG license fees during 2008 was largely attributable to an increase in database
license revenues, namely our IQ and ASE Products.
The $1.1 million increase in SY365 license fees was due to an increase in mCommerce license
revenue.
The decrease in iAS license fees during 2009 was largely attributable to a $2.2 million (43
percent) decrease in our mobile device solutions. The increase in iAS license fees during 2008 was
primarily attributable to an increase in revenues from our mobile and embedded database products.
Segment license and service revenues include transactions between iAS and IPG, The most common
instance relates to the sale of iAS products and services to third parties by IPG. In the case of
such a transaction, IPG records the revenue on the sale with a corresponding inter-company expense
on the transaction. iAS then records intercompany revenue and continues to bear the costs of
providing the product or service. The excess of revenues over inter-company expense recognized by
IPG is intended to reflect the costs incurred by IPG to complete the sales transaction. Total
transfers between the segments are captured in Eliminations.
Total service revenues for 2009 (which include revenues from technical support, professional
services, and education) decreased $0.9 million from total service revenues in 2008 primarily due
to a $7.1 million (9 percent) decrease in iAS service revenues partially offset by a $3.1 million
(1 percent) increase in IPG service revenue and a $0.7 million (41 percent) increase in SY365
service revenue. The decrease in iAS service revenues was mostly due to decreases in technical
support of $2.5 million (7 percent), and in professional services of $2.4 million (36 percent). The
increase in IPG service revenues was largely due to increases in technical support of $11.7 million
(3 percent) partially offset by a decrease in professional services (including education) of $8.4
million (8 percent). The increase in SY 365 service revenues was largely due to increases in
professional services of $1.1 million and technical support of $1.0 million partially offset by
decreases in AvantGo advertising revenues of $1.3 million.
Technical support revenues comprised approximately 82 percent of total services revenues for 2009
and 80 percent in 2008. Total technical support revenue for 2009 increased $10.2 million (2
percent) from the 2008 total. Current and long-term deferred revenue balances in the balance
sheet, which relate principally to technical support contracts, increased $24.2 million (11
percent) to $240.6 million at December 31, 2009 from December 31, 2008.
Services revenues other than technical support decreased $11.1 million (10 percent) in 2009 from
2008. The decrease was primarily related to a decrease in professional services of $6.5 million (6
percent), a $3.3 million (29 percent) decrease in education. Professional services and education
revenues are more discretionary and appear to be more sensitive to budget cuts in weak economic
environments.
- 45 -
Messaging revenues for 2009 increased $20.4 million (12 percent) from 2008. The increase was
primarily related to a $10.5 million (13 percent) increase in application messaging revenues, a
$5.1 million (83 percent) increase in GRX and MMX revenues, a $4.0 million (400 percent) increase
in mobile commerce revenues, and a $0.8 million (1 percent) increase in person to person messaging
revenues.
For a description of our technical support, consulting and education services, see Business
Worldwide Services, Part I, Item 1.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical Revenues |
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
Change |
|
2008 |
|
Change |
|
2007 |
North America |
|
$ |
604.4 |
|
|
|
6 |
% |
|
$ |
567.7 |
|
|
|
7 |
% |
|
$ |
532.0 |
|
Percentage of total revenues |
|
|
52 |
% |
|
|
|
|
|
|
50 |
% |
|
|
|
|
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
(Europe, Middle East and Africa) |
|
$ |
397.9 |
|
|
|
* |
|
|
$ |
399.5 |
|
|
|
17 |
% |
|
$ |
342.0 |
|
Percentage of total revenues |
|
|
34 |
% |
|
|
|
|
|
|
35 |
% |
|
|
|
|
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercontinental (Asia Pacific and Latin America) |
|
$ |
168.3 |
|
|
|
2 |
% |
|
$ |
164.7 |
|
|
|
9 |
% |
|
$ |
151.5 |
|
Percentage of total revenues |
|
|
14 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outside North America |
|
$ |
566.2 |
|
|
|
* |
|
|
$ |
564.2 |
|
|
|
14 |
% |
|
$ |
493.5 |
|
Percentage of total revenues |
|
|
48 |
% |
|
|
|
|
|
|
50 |
% |
|
|
|
|
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,170.6 |
|
|
|
3 |
% |
|
$ |
1,131.9 |
|
|
|
10 |
% |
|
$ |
1,025.5 |
|
North American revenues (United States, Canada and Mexico) increased $36.7 million (6 percent) from
2008 to 2009 and $35.7 million (7 percent) from 2007 to 2008. The 2009 increase was primarily due
to a $15.7 million (9 percent) increase in license revenues, $14.4 million (25 percent) increase in
messaging revenues, and a $7.0 million (2 percent) increase in service revenues. The 2008 increase
was due to an $18.9 million (12 percent) increase in license revenues, a $10.3 million (22 percent)
increase in messaging revenues, and a $6.5 million (2 percent) increase in service revenues.
Total revenues outside North America comprised 48 percent and 50 percent of total revenues for the
years ended December 31, 2009 and 2008, respectively.
EMEA (Europe, Middle East and Africa) revenues decreased $1.6 million from 2008 to 2009 and
increased $57.5 million (17 percent) from 2007 to 2008. The 2009 decrease was due primarily to a
$7.5 million (4 percent) decrease in service revenues and a $3.6 million (3 percent) decrease in
license revenues, partially offset by a $9.4 million (9 percent) increase in messaging revenues.
Decreases in services were primarily driven by decreases in the UK ($4.0 million), Switzerland
($1.6 million), France ($1.4 million), and Spain ($1.3 million). The decrease in license revenues
primarily resulted from a decline in the UK ($18.4 million), partially offset by a $7.4 million
increase in Germany, Holland ($3.5 million), and France ($3.1 million). Increases in messaging
revenues were primarily driven by increases in Germany ($9.2 million), Spain ($7.5 million) and
Holland ($4.8 million), partially offset by decreases in France ($9.0 million), and the UK ($3.8
million). Unfavorable exchange rates had a negative impact on EMEA revenues of 5 percent compared
to 2008. On a constant currency basis, EMEA revenues increased $20.1 million (5 percent) compared
to 2008.
The 2008 EMEA revenue increase was due to a $29.6 million (41 percent) increase in messaging
revenues, a $14.9 million (14 percent) increase in license revenues, and a $13.0 million (8
percent) increase in service revenues. Increased messaging and service revenues in France, Holland
and
- 46 -
Germany; and increased license revenue in the United Kingdom contributed most to the overall
increase for 2008.
Intercontinental (Asia Pacific and Latin America) revenues increased $3.6 million (2 percent) from
2008 to 2009 and $13.5 million (9 percent) from 2007 to 2008. License revenue increased $7.1
million (9 percent), partially offset by $3.4 million (20 percent) decrease in messaging revenue
and a $0.4 million (1 percent) decrease in service revenue. Increases in license revenues primarily
resulted from increases in India ($2.8 million), China ($2.4 million), Australia ($2.2 million),
Japan ($2.2 million), and New Zealand ($0.9 million); partially offset by decreases in Korea ($1.7
million), Argentina ($1.3 million) and Brazil ($0.9 million). Decreases in messaging revenues were
primarily driven by decreases in Singapore ($3.0 million) and Australia ($1.4 million) offset by
increases in messaging revenues in other Intercontinental countries of $1.0 million. Decreases in
services were primarily driven by decreases in Korea ($1.1 million), Australia ($0.8 million), and
Philippines ($0.6 million) partially offset by increases in Japan ($2.1 million).
The 2008 Intercontinental revenue increase was primarily due to an $8.3 million (14 percent)
increase in service revenues, and a $5.1 million (7 percent) increase in license revenues. The
results of our operations in Asia Pacific contributed most significantly to the increased revenue.
In EMEA and the Intercontinental regions, most revenues and expenses are denominated in local
currencies. The cumulative impact of changes in foreign currency exchange rates from 2008 to 2009
resulted in a decrease in our revenues of 2 percent and a decrease in our operating expenses of 3
percent. The change versus the comparable period was primarily due to a stronger U.S. dollar
against the Euro and British Pound, and to a lesser extent the strengthening of the U.S. dollar
against the Korean Won, and Brazilian Real.
Our business and results of operations could be materially and adversely affected by fluctuations
in foreign currency exchange rates, even though we take into account changes in exchange rates over
time in our pricing strategy. Additionally, changes in foreign currency exchange rates, the
strength of local economies, and the general volatility of worldwide software and messaging markets
could 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 fluctuations, see
Quantitative and Qualitative Disclosures of Market Risk, Part I, Item 3 and Future Operating
Results, Part II, Item 1(A).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
Change |
|
2008 |
|
Change |
|
2007 |
Cost of license fees |
|
$ |
58.7 |
|
|
|
(13 |
%) |
|
$ |
67.3 |
|
|
|
27 |
% |
|
$ |
53.1 |
|
Percentage of license fee revenues |
|
|
15 |
% |
|
|
|
|
|
|
18 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
$ |
153.1 |
|
|
|
(5 |
%) |
|
$ |
160.6 |
|
|
|
2 |
% |
|
$ |
157.8 |
|
Percentage of services revenues |
|
|
27 |
% |
|
|
|
|
|
|
28 |
% |
|
|
|
|
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of messaging |
|
$ |
128.4 |
|
|
|
19 |
% |
|
$ |
107.8 |
|
|
|
31 |
% |
|
$ |
82.6 |
|
Percentage of messaging revenues |
|
|
65 |
% |
|
|
|
|
|
|
61 |
% |
|
|
|
|
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
$ |
253.0 |
|
|
|
(11 |
%) |
|
$ |
285.4 |
|
|
|
7 |
% |
|
$ |
267.0 |
|
Percentage of total revenues |
|
|
22 |
% |
|
|
|
|
|
|
25 |
% |
|
|
|
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development and engineering |
|
$ |
138.1 |
|
|
|
(6 |
%) |
|
$ |
146.9 |
|
|
|
(4 |
%) |
|
$ |
152.6 |
|
Percentage of total revenues |
|
|
12 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
133.2 |
|
|
|
(4 |
%) |
|
$ |
139.0 |
|
|
|
8 |
% |
|
$ |
129.3 |
|
Percentage of total revenues |
|
|
11 |
% |
|
|
|
|
|
|
12 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles |
|
$ |
15.1 |
|
|
|
3 |
% |
|
$ |
14.7 |
|
|
|
7 |
% |
|
$ |
13.8 |
|
Percentage of total revenues |
|
|
1 |
% |
|
|
|
|
|
|
1 |
% |
|
|
|
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of restructuring |
|
$ |
1.1 |
|
|
|
450 |
% |
|
$ |
0.2 |
|
|
|
(75 |
%) |
|
$ |
0.8 |
|
Percentage of total revenues |
|
|
* |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
* |
|
- 47 -
Cost
of license fees
Cost of license fees consists primarily of product costs (media and documentation), amortization of
capitalized software development costs and purchased technology, and third party royalty costs.
The cost of license fees decreased $8.6 million (13 percent) in 2009 over 2008, and increased $14.2
million (27 percent) in 2008 over 2007. Such costs were 15 percent, 18 percent, and 15 percent of
license revenues in 2009, 2008, and 2007 respectively. The 2009 decrease was primarily due to
decreases in purchase technology amortization of $5.2 million, royalty expense of $1.6 million, and
amortization of capitalized software development costs of $1.4 million. The 2008 increase was
primarily due to a $9.8 million increase in the amortization of capitalized software development
costs and a $4.8 million increase in the amortization of purchased technology.
Amortization of capitalized software costs was $41.5 million, $42.9 million, and $33.1 million in
2009, 2008, and 2007, respectively. In 2009, impairments of capitalized software costs totaled $3.1
million. In 2008, the increase in capitalized software amortization was due increased amortization
of capitalized costs largely associated with our IQ and Mobility products, and impairment charges
totaling $4.1 million. See Note One Summary of Significant Accounting Policies in the Notes to
the Consolidated Financial Statements, Part II, Item 8.
The amortization of purchased technology was $9.3 million, $14.6 million, and $9.8 million in 2009,
2008, and 2007 respectively. The 2009 decrease in amortization of purchased technology from 2008
was primarily due to a $4.5 million write-down of certain purchased technologies in 2008.
Cost of services
Cost of services consists primarily of the fully burdened cost of our personnel who provide
technical support, professional services and education. These costs decreased $7.5 million (5
percent) compared to 2008. These costs were 27 percent of services revenues for 2009 compared with
28 percent of services revenues for 2008 and 29 percent for 2007. The $7.5 million decrease was
primarily due to a $3.0 million decrease in compensation costs related to the foreign currency
impact of a stronger dollar and a decrease in headcount; along with a $4.5 million decline in
non-headcount-related costs, primarily temporary employees and travel. Cost of services increased
approximately 2 percent in 2008 from 2007. These costs were 28 percent and 29 percent of service
revenues in 2008 and 2007, respectively.
Cost of messaging
Costs of messaging consist primarily of (1) call termination fees payable to non-domestic wireless
operators for delivering traffic into their networks; (2) the fully burdened cost of personnel who
manage and monitor network datacenters; (3) depreciation, fees and other costs associated with the
networks and datacenters; and (4) amortization of purchased technology and internally developed
software used by the Sybase 365 segment. These costs increased $20.6 million (19 percent) in 2009
compared to 2008. These costs were 65 percent of messaging revenue compared with 61 percent in
2008. Cost of messaging increased primarily due to $14.7 million in additional call termination
fees associated with higher traffic volumes and a traffic mix shift to higher cost messaging
products, $2.9 due to an increase in compensation costs related to increase in headcount in the
datacenters, $1.2 million due to an increase in depreciation and amortization, and $0.8 million due
to an increase in outside services compared with the same periods in 2008.
In 2008, Cost of messaging increased $25.2 million (31 percent), compared with 2007, primarily as a
result of the increased volume of messages delivered and the associated fees payable to operators
for delivering traffic into their networks.
- 48 -
Sales and marketing
Sales and marketing expenses decreased $32.4 million (11 percent) in 2009 from 2008 and were 22
percent and 25 percent of total revenues in 2009 and 2008, respectively. The decrease in sales and
marketing expenses in absolute dollars for 2009 is primarily due to a $9.9 million decrease in
compensation expense attributable to foreign currency exchange rate changes and reduced sales
management headcount, a $10.6 million decrease in commissions, a $4.4 million decrease in travel
and entertainment, a $2.4 million decrease in marketing programs, and a $5.1 million decrease in
various other sales and marketing expenses. The increased expenses in 2008 were primarily due to
increases in salaries, benefits and increased commissions associated with increases in license
revenues though headcount was relatively flat.
Product development and engineering
Product development and engineering expenses (net of capitalized software development costs)
decreased $8.8 million (6 percent) in 2009 from 2008 and as a percentage of total revenue decreased
to 12 percent in 2009 from 13 percent 2008. The decrease in product development and engineering
costs in absolute dollars is primarily due to $5.4 million of lower compensation costs related to
reduced headcount levels, decreases in outside services of $1.8 million, and decreases in travel of
$0.7 million.
The 4 percent decrease in development and engineering expenses in 2008 over 2007 was primarily due
to an increase in capitalized software costs offset by increases in compensation, benefits and
other employee-related expenses, and various other product development-related costs.
We capitalize product development and engineering costs during the period between a products
achievement of technological feasibility and its general availability. Our capitalized software
costs in 2009 of $45.0 million included costs incurred for efforts associated with ASE, Replication
Server, Power Builder, SUP, and Sybase IQ\RAP.
Our capitalized software costs in 2008 of $48.6 million included costs incurred for efforts
associated with ASE, Replication Server, IQ, mBanking and Mobility products. Our capitalized
software costs in 2007 of $36.2 million included costs incurred
for efforts associated with ASE, IQ,
Data Integration Suite, Workspace and eBanking.
We believe 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, which include IT, legal, business operations, finance, human
resources and administrative functions, decreased $5.8 million (4 percent) in 2009 compared to 2008
and decreased as a percent of total revenue to 11 percent in 2009 from 12 percent in 2008. The 2009
decrease was due to a reduction in the following costs; $3.4 million of professional fees, $2.2
million in compensation costs related to reduced headcount levels, $1.0 million of travel expenses,
and $3.4 million of various other general and administrative expenses; partially offset by a $4.3
million increase in stock compensation and bonus.
The 8 percent increase in 2008 compared to 2007 was primarily due to additional legal and other
professional fees as well as increases in salaries and benefits.
Stock-based compensation expense
Stock-based compensation expense reflects non-cash compensation expense associated with stock
options, stock appreciation rights and restricted stock grants. See Note Nine Stockholders
Equity in the Notes to the Consolidated Financial Statements, Part II, Item 8. Stock-based
compensation expense was included in costs and expenses as follows:
- 49 -
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Costs of services |
|
|
1,540 |
|
|
|
1,364 |
|
|
|
1,544 |
|
Costs of messaging |
|
|
582 |
|
|
|
484 |
|
|
|
544 |
|
Sales and marketing |
|
|
6,240 |
|
|
|
5,538 |
|
|
|
5,304 |
|
Product development and engineering |
|
|
3,220 |
|
|
|
2,887 |
|
|
|
2,982 |
|
General and administrative |
|
|
14,814 |
|
|
|
12,242 |
|
|
|
13,670 |
|
|
|
|
|
|
|
26,396 |
|
|
|
22,515 |
|
|
|
24,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in stock-based compensation expenses in 2009 primarily resulted from the grant of
certain performance-based restricted stock where performance achievement exceeded targets. These
grants are described more fully in Note Nine Stockholders Equity in the Notes to the
Consolidated Financial Statements, Part II, Item 8. The decrease in stock-based compensation
expenses in 2008 was primarily due to the decline in the number of stock options granted.
Amortization of other purchased intangibles
Amortization of other purchased intangibles primarily reflects the amortization of the established
customer lists associated with the acquisition in 2000 of Home Financial Network, Inc, of XcelleNet
in 2004, of Extended Systems in 2005, of Mobile 365 in 2006, and of Cable & Wireless businesses in
July 2008. See Note Four Goodwill and Other Purchased Intangible Assets in the Notes to the
Consolidated Financial Statements, Part II, Item 8.
Restructuring Activities
We undertook restructuring activities in 2004, 2003, 2002 and 2001 as a means of managing our
operating expenses.
For descriptions of each restructuring plan, see Note Seven Restructuring Costs in
the Notes to the Consolidated Financial Statements, Part II, Item 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
|
Change |
|
|
2008 |
|
|
Change |
|
|
2007 |
|
Operating income by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPG |
|
$ |
270.7 |
|
|
|
35 |
% |
|
$ |
200.0 |
|
|
|
19 |
% |
|
$ |
167.9 |
|
IAS |
|
|
39.7 |
|
|
|
46 |
% |
|
|
27.2 |
|
|
|
1 |
% |
|
|
27.0 |
|
SY365 |
|
|
8.2 |
|
|
|
55 |
% |
|
|
5.3 |
|
|
|
* |
|
|
|
(0.5 |
) |
Unallocated costs |
|
|
(28.9 |
) |
|
|
29 |
% |
|
|
(22.4 |
) |
|
|
(13 |
%) |
|
|
(25.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
289.7 |
|
|
|
38 |
% |
|
$ |
210.1 |
|
|
|
25 |
% |
|
$ |
168.6 |
|
Percentage of total revenues |
|
|
25 |
% |
|
|
|
|
|
|
19 |
% |
|
|
|
|
|
|
16 |
% |
Operating income in 2009 was $289.7 million compared to operating income of $210.1 million in 2008
and $168.6 million in 2007. The increase in operating income was primarily due to the various
factors discussed under Revenues, Geographical Revenues and Costs and Expenses above. Segment
operating income includes the revenues and expenses described in Note Twelve to Consolidated
Financial Statements, Part II, Item 8, incorporated here by reference.
Consolidated operating margins improved to 25 percent in 2009 from 19 percent in 2008. The
increases in operating margin are primarily due to improvements in operating margin in the IPG, iAS
and Sybase 365 segments as discussed below.
- 50 -
The operating margin for the IPG segment was 31 percent for 2009 compared to 24 for 2008. The
increase in operating margin in the IPG segment was primarily due to a $28.9 million (9 percent)
increase
in license revenue and a $38.7 million (6 percent) decrease in operating expenses compared with
2008. The largest reductions in operating expenses related to sales and marketing expenses. The
increase in revenue for 2009 is primarily due to the various factors discussed under Revenues and
Geographical Revenues above.
The operating margin for the IPG segment was 24 percent in 2008 compared to 22 percent in 2007. The
increase in operating income and margin in the IPG segment for 2008 compared to 2007 was primarily
due to a 12 percent increase in license fees, a 6 percent increase in service revenues, partially
offset by a 5 percent increase in total expenses primarily due to increases in compensation,
benefits and other employee-related expenses, and intangible asset amortization.
The operating margin for the iAS segment was 23 percent for 2009 compared to 15 percent in 2008.
The increase in the iAS segment operating margin was primarily due to a $21.3 million (14 percent)
decrease in operating expenses, partially offset by an $8.8 million (5 percent) decrease in total
revenue in 2009 compared with 2008. The largest reductions in operating expenses related to sales
and marketing expenses.
The operating margin for the iAS segment was 15 percent for 2008 compared to 16 percent in 2007.
The decrease in the iAS segment operating margin was primarily due to the write-down of certain
purchased technologies during 2008.
The operating margin for the SY 365 segment was 4 percent for 2009 compared to 3 percent in 2008.
Operating margin improved slightly in 2009 due to greater SY 365 license revenue and growth in
messaging revenues covering fixed data center costs.
The operating margin for the Sybase 365 segment was 3 percent for 2008 compared to 0 percent in
2007. The increase in operating margin was primarily due to a 29 percent increase in messaging
revenue partially offset by a 30 percent increase in cost of messaging.
Certain common costs and expenses are allocated to the various segments based on measurable drivers
of expense. Unallocated expenses represent stock compensation expense and changes in value of
assets in deferred compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
Change |
|
2008 (1) |
|
Change |
|
2007 (1) |
Interest income |
|
$ |
7.9 |
|
|
|
(67 |
%) |
|
$ |
23.8 |
|
|
|
(29 |
%) |
|
$ |
33.5 |
|
Percentage of total revenues |
|
|
1 |
% |
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
3 |
% |
Interest expense and other, net |
|
$ |
(39.6 |
) |
|
|
29 |
% |
|
$ |
(30.8 |
) |
|
|
8 |
% |
|
$ |
(28.6 |
) |
Percentage of total revenues |
|
|
(3 |
%) |
|
|
|
|
|
|
(3 |
)% |
|
|
|
|
|
|
(3 |
%) |
Impairment
losses recognized in earnings |
|
$ |
(6.0 |
) |
|
|
(55 |
%) |
|
$ |
(13.4 |
) |
|
|
* |
|
|
|
* |
|
Percentage of total revenues |
|
|
(1 |
%) |
|
|
|
|
|
|
(1 |
)% |
|
|
|
|
|
|
* |
|
|
|
|
(1) |
|
As adjusted due to the adoption of amendments to existing guidance on
convertible debt, noncontrolling interests, and other-than-temporary impairment determinations of
investments. See Note One to Consolidated Financial Statements Summary of Significant
Accounting Policies and Note Eight Convertible Notes in the Notes to the Consolidated
Financial Statements, Part II, Item 8. |
|
* |
|
Not meaningful |
- 51 -
In 2009, interest income decreased $15.9 million from 2008. Interest income consists primarily of
interest earned on our investments. The decrease in interest income is primarily due to a
significant decrease in average interest rates earned on our investment portfolio. Average interest
rates decreased to 0.9 percent
for 2009 from 3.5 percent in 2008 due to a general decline in market interest rates.
In 2008, Interest income decreased $9.7 million from 2007. The decrease is primarily due to a
decrease in size of our investment portfolio along with a 117 basis point decrease in the average
interest rates earned on the portfolio. Our investment portfolio decreased when we used $300.0
million to repurchase 10.7 million shares of our common stock during April 2008.
Interest expense and other, net, primarily includes: interest expense on our 2005 Notes which have
stated and imputed interest rates of 1.75 percent and 6.09 percent, respectively and our 2009 Notes
which have stated and imputed interest rates of 3.5 percent and 8.15 percent, respectively;
amortization of deferred offering expenses associated with these notes; net gains and losses
resulting from foreign currency transactions and the related hedging activities; increases and
decreases in the carrying values of mutual funds that are invested as directed by participants of a
Rabbi Trust established in accordance with a deferred compensation plan; and bank fees.
Interest expense and other, net increased $8.8 million in 2009 compared with 2008. The increase in
interest expense and other, net is primarily due to $10.7 million in interest expense generated by
our recently issued 2009 Notes, partially offset by a $2.6 million gain on trading securities that
are invested as directed by participants of a deferred compensation related Rabbi Trust.
Interest expense and other, net increased $2.2 million in 2008 as compared to 2007. The increase in
interest expense and other, net was primarily due to losses resulting from foreign currency
transactions and the related hedging activities of $2.0 million in 2008.
The applicable accounting rules for convertible notes require interest expense to be imputed at
fair value as of the debt issuance date. See Note One Summary of Significant Accounting
Policies in the Notes to the Consolidated Financial Statements, Part II, Item 8.
Net impairment losses recognized in earnings related to investments in auction-rate securities
(ARS) of $6.0 million for 2009 compared to $13.4 million in 2008. Further impairments to the ARS
investments, if any, may result in additional charges to earnings. See Note Two Financial
Instruments in the Notes to the Consolidated Financial Statements, Part II, Item 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
Change |
|
2008 (1) |
|
Change |
|
2007 (1) |
Provision for income taxes |
|
$ |
88.0 |
|
|
|
43 |
% |
|
$ |
61.5 |
|
|
|
79 |
% |
|
$ |
34.4 |
|
(1) As adjusted due to the adoption of amendments to existing guidance on
convertible debt. See Note One to Consolidated Financial Statements Summary of Significant
Accounting Policies and Note Eight Convertible Notes in the Notes to the Consolidated
Financial Statements, Part II, Item 8.
In 2009 a provision for income taxes was recorded at a rate of approximately 35 percent of income
before taxes. This rate did not differ significantly from the statutory federal rate of 35 percent.
Our tax expense was reduced by approximately $5.0 million due to litigation related payments
receivable from an escrow account established when we acquired Mobile 365 which are treated as a
reduction in purchase price consideration paid for Mobile 365 Inc. In addition, our tax provision
reflects tax expense from state tax and tax benefits from the tax effect of our foreign operations
and from releasing valuation allowances relating to deferred tax assets.
Our tax expense in 2009 was higher than our tax expense in 2008 primarily due to an increase of
earnings before tax. In 2008 a provision for income taxes was recorded at a rate of approximately
- 52 -
32 percent of income before taxes. Our effective rate differed from the statutory federal rate of
35 percent primarily due to adjustments for the release of valuation allowances on deferred tax
assets, and the effect of foreign operations; offset somewhat by the impact of state taxes.
Our tax expense in 2008 was higher than our tax expense in 2007 primarily due to 2007s $26.4
million valuation allowance release. In 2007 a provision for income taxes was recorded at a rate of
approximately 20 percent of income before taxes. Our effective rate differed from the statutory
federal rate of 35 percent primarily due to adjustments for the release of valuation allowances on
deferred tax assets, the effect of foreign operations, offset somewhat by the impact of state
taxes.
We had a gross deferred tax asset of approximately $205.0 million at December 31, 2009. This
deferred tax asset is reduced by a valuation allowance of approximately $51.0 million, for a net
balance of approximately $154.0 million. In order to realize our net deferred tax assets we must
generate sufficient taxable income in future years in appropriate tax jurisdictions to obtain the
recorded benefit from the reversal of temporary differences (i.e., between book and tax basis), and
from tax loss and credit carryforwards. We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not (a likelihood of more than 50 percent) to be
realized. In order for us to realize our deferred tax assets, we must be able to generate
sufficient taxable income in those jurisdictions where the deferred tax assets are located. Our
valuation allowance relates primarily to US federal tax loss carryfowards and State credit
carryforwards.
We evaluate our valuation allowance each quarter based on factors such as the mix of earnings in
the jurisdictions in which we operate, prudent and feasible tax planning strategies, current
taxable income and forecasted taxable income. Forecasts of future taxable income are further
refined as a result of each years corporate budget and goal setting process generally occurring
annually in the fourth quarter. To realize approximately $13.0 million of our foreign tax credit
carryforwards, we included a tax planning strategy that we would implement a future cash
dividend of approximately $40.0 million from our European group. Based on our evaluation of these
factors, we reduced our valuation allowances in 2009, 2008 and 2007 and the portion credited to
Statements of Operations was approximately $2.6 million, $6.7 million, and $26.4 million,
respectively. The amount has decreased primarily because during years 2007 and 2008 we changed our
evaluations of projected taxable income in relevant tax jurisdictions and concluded that these
projections had now become sufficiently reliable. These projections of taxable income remain
sufficiently reliable during 2009 but do not produce further releases of valuation allowances.
However, these projections support the existing deferred tax assets. Based on the plans and
estimates we are using to manage the underlying business, we believe that sufficient income will be
earned in the future to realize these assets. 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 to the deferred tax assets would be charged to income in the period
such adjustment was made. See Note Ten Income Taxes in the Notes to the Consolidated Financial
Statements, Part II, Item 8.
The calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations in multiple tax jurisdictions. We are currently being audited by the US
Internal Revenue Service for the years 2006 and 2007. We are also under tax audit in a number of
states and countries. We believe that the amount of our reserves for our uncertain tax positions
is adequate. However, to the extent that the final outcome of these matters is different than the
amounts recorded, such differences will impact our provision for income taxes in the period in
which such a determination is made.
- 53 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
|
|
|
|
|
|
|
|
|
(Dollars and shares in millions) |
|
2009 |
|
Change |
|
2008 (1) |
|
Change |
|
2007 (1) |
Net income attributable to Sybase, Inc. |
|
$ |
164.0 |
|
|
|
28 |
% |
|
$ |
128.2 |
|
|
|
(8 |
%) |
|
$ |
139.1 |
|
Percentage of total revenues |
|
|
14 |
% |
|
|
|
|
|
|
11 |
% |
|
|
|
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
per share attributable to Sybase, Inc. common stockholders |
|
$ |
2.01 |
|
|
|
31 |
% |
|
$ |
1.54 |
|
|
|
1 |
% |
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net
income per share attributable to
Sybase Inc. common stockholders |
|
|
80.1 |
|
|
|
(2 |
%) |
|
|
82.1 |
|
|
|
(9 |
%) |
|
|
90.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
per share attributable to Sybase, Inc. common stockholders |
|
$ |
1.86 |
|
|
|
27 |
% |
|
$ |
1.46 |
|
|
|
2 |
% |
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used
in computing diluted net income per share attributable to
Sybase Inc. common stockholders |
|
|
87.0 |
|
|
|
1 |
% |
|
|
86.3 |
|
|
|
(6 |
%) |
|
|
91.7 |
|
(1) As adjusted due to the adoption of amendments to existing guidance on
convertible debt, noncontrolling interests, and earnings per share computations. See Note One to
Consolidated Financial Statements Summary of Significant Accounting Policies and Note Eight
Convertible Notes in the Notes to the Consolidated Financial Statements, Part II, Item 8.
We reported net income attributable to Sybase, Inc. of $164.0 million in 2009 compared with $128.2
million in 2008. The increase in net income compared to 2008 was due to the various factors
discussed above.
Shares used in computing basic and diluted net income attributable to Sybase, Inc. common
stockholders per share decreased in 2009 as compared to 2008 by 2 percent and increased 1 percent,
respectively. The decrease in basic shares was due primarily to the computation impact of shares
repurchased in accordance with a self-tender offer to repurchase $300.0 million of common stock
during the second quarter of 2008. The increase in diluted shares was due to an increase in share
count related to shares that are assumed to be issued to holders of our 2005 Notes and an increase
in exercises of employee stock options, partially offset by the impact of the 2008 self tender.
Basic and diluted earnings per share are computed pursuant to the two-class method.
The following shows the computation of basic and diluted net income per share at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 (1) |
|
|
2007 (1) |
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
164,017 |
|
|
$ |
128,238 |
|
|
$ |
139,139 |
|
Less: Net income allocated to participating securities |
|
|
(2,810 |
) |
|
|
(1,990 |
) |
|
|
(2,133 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. common stockholders basic |
|
$ |
161,207 |
|
|
$ |
126,248 |
|
|
$ |
137,006 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to Sybase, Inc. common stockholders |
|
$ |
2.01 |
|
|
$ |
1.54 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share attributable to
Sybase, Inc. common stockholders |
|
|
80,118 |
|
|
|
82,060 |
|
|
|
90,019 |
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
164,017 |
|
|
$ |
128,238 |
|
|
$ |
139,139 |
|
Less: Net income allocated to participating securities |
|
|
(2,592 |
) |
|
|
(1,895 |
) |
|
|
(2,094 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. common stockholders diluted |
|
$ |
161,425 |
|
|
$ |
126,343 |
|
|
$ |
137,045 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to Sybase, Inc. common stockholders |
|
$ |
1.86 |
|
|
$ |
1.46 |
|
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share attributable to Sybase,
Inc. common stockholders |
|
|
80,118 |
|
|
|
82,060 |
|
|
|
90,019 |
|
Dilutive
effect of stock options, restricted stock and stock appreciation rights |
|
|
2,670 |
|
|
|
2,395 |
|
|
|
2,258 |
|
Dilutive effect of 2005 Notes |
|
|
4,898 |
|
|
|
2,436 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share attributable to Sybase,
Inc. common stockholders under treasury stock method |
|
|
87,686 |
|
|
|
86,891 |
|
|
|
92,394 |
|
|
|
|
|
|
|
|
|
|
|
Participating securities excluded under two-class method |
|
|
(705 |
) |
|
|
(627 |
) |
|
|
(677 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share attributable to Sybase,
Inc. common stockholders under two-class method |
|
|
86,981 |
|
|
|
86,264 |
|
|
|
91,717 |
|
|
|
|
|
|
|
|
|
|
|
- 54 -
(1) As adjusted to reflect the adoption of FASB amendments to existing
guidance on convertible debt and noncontrolling interests, and earnings per share computations. See
Note Eight Convertible Notes.
See Note One to Consolidated Financial Statements Summary of Significant Accounting
Policies in the Notes to the Consolidated Financial Statements, Part II, Item 8 for a description
of the two-class method.
Shares that may be issued to holders of our 2005 Notes due to the appreciation of our stock price
are included in the calculation of diluted earnings attributable to Sybase, Inc. common
stockholders per share if their inclusion is dilutive to earnings per share. Generally, such shares
are to be included in periods in which the average price of our common stock exceeds $24.99 per
share. Shares assumed to be converted and included in the calculation of the fully diluted shares
outstanding for the twelve month periods ended December 31, 2009, 2008, and 2007 totaled 4.9
million, 2.4 million, and 0.1 million, respectively. Inclusion of the assumed to be converted
shares decreased earnings per share $0.10, $0.05, and $0.01 for the years ended December 31, 2009,
2008 and 2007, respectively.
Shares that may be issued to holders of our 2009 Notes due to the appreciation of our stock price
are included in the calculation of diluted earnings attributable to Sybase, Inc. common
stockholders per share if their inclusion is dilutive to earnings per share. Generally, such shares
are to be included in periods in which the average price of our common stock exceeds $47.88 per
share. No shares were assumed to be converted and included in the calculation of the fully diluted
shares outstanding for the twelve month periods ended December 31, 2009. See Note One to
Consolidated Financial Statements Summary of Significant Accounting Policies and Note Eight
Convertible Notes in the Notes to the Consolidated Financial Statements, Part II, Item 8.
We recently announced plans to settle our 2005 Notes in early 2010. While this will have a
significant impact on cash balance, it could also impact the number of shares included in the
calculation of diluted earnings per share for the quarter ended March 31, 2010 and certain periods
thereafter. Our election to settle the 2005 Notes excess payment in cash, stock, or a combination
of the two will determine the final impact on the number of shares included in our calculations of
earnings per share.
See Liquidity and capital resources below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and capital resources |
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2009 |
|
Change |
|
2008 |
|
Change |
|
2007 |
Working capital |
|
$ |
640.6 |
|
|
|
24 |
% |
|
$ |
518.0 |
|
|
|
(14 |
%) |
|
$ |
604.7 |
|
Cash and cash equivalents |
|
$ |
947.2 |
|
|
|
55 |
% |
|
$ |
611.4 |
|
|
|
1 |
% |
|
$ |
604.8 |
|
Net cash provided by operating activities |
|
$ |
384.1 |
|
|
|
30 |
% |
|
$ |
295.5 |
|
|
|
16 |
% |
|
$ |
254.0 |
|
Net cash
provided by (used for) investing activities |
|
$ |
(383.8 |
) |
|
|
2,529 |
% |
|
$ |
(14.6 |
) |
|
|
* |
|
|
$ |
86.7 |
|
Net cash
provided by (used for) financing activities |
|
$ |
320.7 |
|
|
|
* |
|
|
$ |
(245.9 |
) |
|
|
118 |
% |
|
$ |
(112.6 |
) |
Our primary source of cash is collections from our customers following the purchase of our
products and services and the issuance of convertible debt. Our business activity and cash
generation was strong in 2009. We have not noted a meaningful negative impact on the cash flows
generated by our business due to the macro economic environment.
- 55 -
We expect the primary use of cash to be the retirement of the 2005 Notes in early 2010 and payment
of our operating costs which consist primarily of compensation, benefits and other employee-related
expenses, as well as other operating expenses for marketing, facilities and overhead costs. In
addition to operating expenses, we also use cash to invest in our growth initiatives, which include
acquisitions of products, technology and businesses, to fund our stock repurchase program, and to
meet our 2009 Note interest payment obligations.
2009 Note Issuance
On August 4, 2009, we issued $400.0 million of convertible senior notes (2009 Notes) through a
private offering to qualified institutional buyers. Issued primarily to repurchase our 2005 Notes
and common stock, the 2009 Notes mature on August 15, 2029 unless we redeem them earlier, or unless
they are converted or put to us by the holders. We may redeem all or a portion of the 2009 Notes at
par on and after August 20, 2014. The holders may require us to repurchase the 2009 Notes at par on
August 15, 2014, 2019, and 2024. Interest is payable semi-annually in arrears on February 15 and
August 15 of each year, commencing on February 15, 2010.
Simultaneous with the offering of the 2009 Notes, we bought back 1,973,500 shares of our common
stock at a price of $35.47 per share for an aggregate price of $70.0 million. With issuance costs
of $10.6 million and the common stock repurchases discussed above and certain related 2005 Note
repurchases (discussed below), net cash proceeds to us totaled $269.0 million. At the time of the
private offering, our Board of Directors approved a $150.0 million increase to the stock repurchase
program.
2005 Note Retirements
During 2009 we repurchased 2005 Notes with a face value of $40.1 million in exchange for payments
totaling $58.4 million. Such repurchases include notes with a face value of $35.0 million
repurchased in conjunction with the 2009 Note offering. In February 2010 we announced plans call
the remaining 2005 Notes outstanding balance on March 1, 2010.
For each $1,000 principal amount of 2005 Notes, the conversion value represents the amount equal to
40.02 shares multiplied by the per share price of our common stock at the time of conversion. If
the conversion value exceeds $1,000 per $1,000 in principal of 2005 Notes, we will pay $1,000 in
cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at
our election. If all 413,654 of the unconverted 2005 Notes outstanding on December 31, 2009 were
converted at the $43.40 December 31, 2009 closing stock price, we would be required to pay the
remaining outstanding principal value of $413.7 million in cash and $304.8 million in cash, stock,
or a combination of cash and stock at our election.
The amount of the settlement consideration in excess of the principal value of the 2005 Notes will
be impacted by our then current common stock price. For example, each one dollar increase or
decrease in our stock price from the December 31, 2009 price, increases or decreases the excess
paid over the principal value by approximately $17.0 million.
See Note One to Consolidated Financial Statements Summary of Significant Accounting Policies
and Note Eight Convertible Notes in the Notes to the Consolidated Financial Statements, Part
II, Item 8.
Liquidity
At December, 2009, our principal sources of liquidity were cash, cash equivalents, and short-term
investments totaling $1,186.4 million, and accounts receivable of $273.5 million.
At December 31, 2009, we had $947.2 million invested in money market funds, commercial paper, bank
time deposits, savings accounts and checking accounts. Our short-term investments totaling $239.2
million consisted principally of short-term bank deposits, corporate notes and bonds, U.S.
government obligations, and marketable securities held in a Rabbi Trust under non-qualified
deferred compensation
- 56 -
plans and debt securities. See Note Two Financial Instruments in the Notes to the Consolidated
Financial Statements, Part II, Item 8.
Approximately 36 percent of our cash is held outside the U.S. Approximately $87.0 million of these
funds are considered permanently reinvested in our foreign operations. See Note Ten Income
Taxes in the Notes to the Consolidated Financial Statements, Part II, Item 8. Management may, from
time to time, revise its estimates of foreign subsidiaries earnings permanently reinvested
depending on US cash
needs. Such changes will correspondingly affect US taxable income and increase or decrease our tax
expense. In addition, management periodically evaluates whether funds not permanently reinvested
can be repatriated based on local country operating needs, foreign governmental and regulatory
controls and/or dividend restrictions and the impact of any additional U.S. or foreign taxes when
repatriated.
At December 31, 2009, long-term investments included auction rate securities with an aggregate
estimated fair value and par value of $13.3 million and $28.9 million, respectively. These
investments have failed to settle at auction since August 2007 due to a lack of market. At this
time, these investments are not liquid. Based on our current cash, investment balances, repayment
expectations for our 2005 Notes and expected operating cash flows, we do not anticipate that the
lack of ARS liquidity to adversely affect our ability to conduct business.
Working Capital
Working Capital increased $122.6 million (24 percent) in 2009 compared with 2008. The increase was
primarily due to a $566.3 million increase in cash, cash equivalents and short-term cash
investments largely related to the $269.0 million net proceeds from our issuance of the 2009 Notes
and $384.0 million in cash flow from operations, offset by $83.0 million of net cash used for
investing activities; a $15.2 million increase in restricted cash, a $13.0 million increase in
deferred income taxes; partially offset by the $417.3 million reclassification of our 2005 notes
from long term to short term liabilities, a $22.9 million increase in deferred revenue, a $15.5
million decrease in prepaid expenses and other current assets, and a $14.9 million increase in
other accrued liabilities.
Cash Flow
Net cash provided by operating activities was $384.1 million for the year ended December 31, 2009
compared to $295.5 for the same period in 2008. The $88.6 million (30 percent) increase was
primarily due to a $35.9 million increase in net income, a $13.9 million increase in non-cash
expenses and a $38.8 million increase in working capital from changes in operating assets and
liabilities. The primary increase in non-cash expense was a $20.5 million increase in deferred
taxes, partially offset by a $7.4 million reduction impairment charges on our ARS. The primary
working capital sources of cash included changes in accounts receivable and deferred revenues.
Our days sales outstanding in accounts receivable was 74 days for the three months ended December
31, 2009 compared to 80 days for the three months ended December 31, 2008.
Net cash used for investing activities was $383.8 million for the year ended December 31, 2009
compared to a $14.6 million in 2008. The increase relates primarily to a net use of cash to
purchase US government and other debt instruments of $396.1 million in 2009 compared with $16.3
million in 2008. For year ended December 31, 2008 the primary uses of cash for investing activities
were for capitalized software development activities, business combinations and purchase of
property, equipment and improvements. The sharp increase in cash used for purchases of cash
investments during the twelve month period ended December 31, 2009 as compared to the twelve month
period ended December 31, 2008 resulted from the purchase in 2009 of certain longer term
investments compared to sales during the first quarter of 2008 made to fund the $300.0 million
self-tender described below.
Net cash provided by financing activities was $320.7 million for the year ended December 31, 2009
compared to a $245.9 million use of cash for the same period in 2008. For the year ended December
31, 2009 cash provided by financing activities was primarily due to proceeds of $389.4 million from
the
- 57 -
issuance of our 2009 Notes and $68.0 million from stock option exercises and ESPP purchases,
partially offset by treasury stock repurchases of $94.1 million and debt extinguishments of $58.4
million. For the year ended December 31, 2008 cash used by financing activities was primarily due
to the $300.0 million self-tender described below, partially offset by treasury stock repurchases
of $50.0 million.
Our Board of Directors has authorized the repurchase of our outstanding common stock from time to
time, subject to price and other conditions (Stock Repurchase Program). For the years ended
December 31, 2009 and 2008 we repurchased 2.8 million shares and 11.0 million shares at a cost of
$94.1 million and $306.1 million, respectively. The majority of the 2008 treasury stock purchases
occurred on April 15, 2008 when we completed a self-tender offer on 10.7 million shares of our
common stock for $28 per share at a total cost of $300.0 million. Through December 31, 2009,
aggregate amounts purchased under the Stock Repurchase Program totaled $866.6 million for our
common stock and $50.1 million to extinguish 35,000 of our 2005 notes. Approximately $83.3 million
remained available in the Stock Repurchase Program at December 31, 2009.
In response to the uncertain economic climate and the constrained short-term credit market, in the
fourth quarter of 2008 we reassessed and tightened our credit extension policy. The impact of the
reassessment has resulted in the deferral of revenue in certain cases.
At December 31, 2009 we did not have any significant off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of Regulation S-K.
We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing
strategic relationships with and investing in other companies. For example, in July 2008, we
acquired certain businesses from Cable and Wireless and in December 2008 we acquired Paybox
Solutions AG. We may decide to use cash and cash equivalents and investments to fund such
activities in the future. In order to fund stock repurchases or investments we may decide to
repatriate certain funds held outside the U.S. The repatriation of such funds could result in the
payment of additional U.S. taxes. We engage in global business operations and are therefore exposed
to foreign currency fluctuations. As of December 31, 2009, we had identifiable net assets totaling
$379.5 million associated with our European operations and $72.3 million associated with our Asia
and Latin American operations. We experience foreign exchange translation exposure on our net
assets and liabilities denominated in currencies other than the U.S. dollar. The related foreign
currency translation gains and losses are reflected in Accumulated other comprehensive income/
(loss) under Stockholders equity on the balance sheet. We also experience foreign exchange
transaction exposure from certain balances that are denominated in a currency other than the
functional currency of the entity on whose books the balance resides. We hedge certain of these
short-term exposures under a plan approved by the Board of Directors. The principal currencies
hedged during 2009 were the Euro, and British Pound. For a further discussion of the effect of
foreign currency fluctuations on our financial condition, see Financial Risk Management Foreign
Exchange Risk, below.
Revaluation of cash denominated in currencies other than US dollars had a positive impact on cash
of $14.9 million for the year ended December 31, 2009.
Contractual Obligations
Our contractual obligations at December 31, 2009 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
(Dollars in Millions) |
|
|
|
|
|
2010 |
|
|
2011-2012 |
|
|
2013-2014 |
|
|
|
|
Contractual Obligations |
|
Total |
|
|
Commitments |
|
|
Commitments |
|
|
Commitments |
|
|
After 2014 |
|
Operating leases |
|
$ |
203.1 |
|
|
$ |
43.2 |
|
|
$ |
64.1 |
|
|
$ |
47.3 |
|
|
$ |
48.5 |
|
Capital lease |
|
|
10.8 |
|
|
|
1.1 |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
5.3 |
|
Debt obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale-and-leaseback |
|
|
1.7 |
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
0.3 |
|
|
|
|
|
Note(s) payable |
|
|
2.0 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
1.0 |
|
Convertible notes |
|
|
894.0 |
|
|
|
438.0 |
|
|
|
28.0 |
|
|
|
428.0 |
|
|
|
|
|
Purchase Obligations |
|
|
20.3 |
|
|
|
10.5 |
|
|
|
6.5 |
|
|
|
3.3 |
|
|
|
|
|
Accrued income taxes |
|
|
24.5 |
|
|
|
24.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments |
|
$ |
1,156.4 |
|
|
$ |
518.0 |
|
|
$ |
102.1 |
|
|
$ |
481.5 |
|
|
$ |
54.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 58 -
Upon completion of our acquisition of Extended Systems Incorporated (ESI) in October 2005, we
assumed the obligations under a sale-and-leaseback transaction completed by ESI in September 2003
related to ESIs headquarters building and land in Boise, Idaho. The sale-and-leaseback is recorded
as a financing transaction. Under the terms of the agreement we have an option to repurchase the
building and land at any time before September 2013 at a price of $5.1 million. The gross proceeds
received of $4.8 million are included in other long-term liabilities on our balance sheet at
December 31, 2009.
As part of the agreement, ESI entered into a 10-year master lease for the building with annual
lease payments, which are recorded as interest expense, equal to 9.2 percent of the sale price, or
approximately $442,000. We are also obligated to pay all expenses associated with the building
during our lease, including the costs of property taxes, insurance, operating expenses and
restoration and other repairs. See Note Six Lease Obligations, Other Liabilities, Commitments
and Guarantees in the Notes to the Consolidated Financial Statements, Part II, Item 8.
As part of the 15-year capital lease agreement entered into for our Waterloo, Canada facility (See
Note Six Lease Obligations, Other Liabilities, Commitments and Guarantees in the Notes to the
Consolidated Financial Statements, Part II, Item 8.), we entered into an agreement with the
landlord to finance approximately $1.5 million of tenant improvements at an annual interest rate of
8.76%. The loan requires monthly payments of $18,274 which includes both principal and interest
commencing October 2004 through October 2019.
On February 22, 2005, we issued through a private offering to qualified institutional buyers in the
U.S. $460.0 million of convertible subordinated notes (2005 Notes) pursuant to exemptions from
registration afforded by the Securities Act of 1933, as amended. The 2005 Notes have imputed and
stated interest rates of 6.09 percent and 1.75 percent, respectively, and are subordinated to all
of our future senior indebtedness. In February 2010 we announced plans call the remaining
outstanding balance of the 2005 Notes on March 1, 2010.
For each $1,000 principal amount of 2005 Notes, the conversion value represents the amount equal to
40.02 shares multiplied by the per share price of our common stock at the time of conversion. If
the conversion value exceeds $1,000 per $1,000 in principal of 2005 Notes, we will pay $1,000 in
cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at
our election. If all 413,654 of the unconverted 2005 Notes outstanding on December 31, 2009 were
converted at the $43.40 December 31, 2009 closing stock price, we would be required to pay the
remaining outstanding principal value of $413.7 million in cash and $304.8 million in cash, stock,
or a combination of cash and stock at our election.
The amount of the settlement consideration in excess of the principal value of the 2005 Notes will
be impacted by our then current common stock price. For example, each one dollar increase or
decrease in our stock price from the December 31, 2009 price, increases or decreases the excess
paid over the principal value by approximately $17.0 million.
On August 4, 2009, we issued $400.0 million of convertible senior notes (2009 Notes) through a
private offering to qualified institutional buyers in the U.S. pursuant to exemptions from
registration afforded by the Securities Act of 1933, as amended. The 2009 Notes have imputed and
stated interest rates of 8.1475 percent and 3.5 percent, respectively. The 2009 Notes rank equally
in right of payment to any future senior indebtedness of Sybase and are structurally subordinated
to any future indebtedness or other liabilities of our subsidiaries (other than inter-company
obligations). The 2009 Notes mature on August 15, 2029 unless earlier redeemed by us at our option,
or converted or put to us at the option of
- 59 -
the holders. We used approximately $70.0 million of the proceeds to repurchase 2.0 million shares of
Sybase stock and $50.1 million of the proceeds to extinguish 35,000 of the Companys convertible
subordinated notes (2005 Notes) in August of 2009. For purposes of determining the total
principal and interest payment commitments above, we have assumed the notes will be held until the
first day we may redeem the notes, August 20, 2014. See Note Eight Convertible Notes in the
Notes to the Consolidated Financial Statements, Part II, Item 8.
We have other long-term liabilities reflected in the Consolidated Balance Sheets, including
Long-term tax liabilities related to tax contingencies of approximately $58 million. We have not
included this amount in the table above because we cannot make a reasonably reliable estimate
regarding the timing of settlements with taxing authorities, if any.
New Accounting Pronouncements
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become
effective for the Company beginning July 1, 2010, with earlier adoption permitted. Under the new
guidance arrangements that include tangible products that have software components that are
essential to the functionality of the tangible product will no longer be within the scope of the
software revenue recognition guidance and software-enabled products will now be subject to other
relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on
revenue arrangements with multiple deliverables that are outside the scope of the software revenue
recognition guidance. Under the new guidance, when vendor specific objective evidence or third
party evidence for deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement consideration using the
relative selling price method. The new guidance includes new disclosure requirements on how the
application of the relative selling price method affects the timing and amount of revenue
recognition. We are currently evaluating the potential impact of the provisions of this new
guidance on our financial statements.
In January 2010, the FASB amended existing guidance to improve disclosures about fair value. The
amendments require entities to disclose the amounts of significant transfers between Level 1 and
Level 2 of the fair value hierarchy and the reasons for the transfers, the reasons for any
transfers in or out of Level 3, information in the reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. The amendments also clarify the
requirement for entities to disclose information about both the valuation techniques and inputs
used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to
disclose information about purchases, sales, issuance, and settlements in the reconciliation of
recurring Level 3 measurements on a gross basis, all the amendments are effective our quarter
ending March 31, 2010. The requirement to disclose information about purchases, sales, issuance,
and settlements of recurring Level 3 measurements becomes effective for our quarter ending March
31, 2011. We plan to include the new disclosures in future SEC filings.
See Note One Summary of Significant Accounting Policies in the Notes to the Consolidated
Financial Statements, Part II, Item 8.
Financial Risk Management
Foreign Exchange Risk
The functional currency of our international operating subsidiaries is generally the local
currency. We experience foreign exchange translation exposure on our net assets and liabilities
denominated in currencies other than the U.S. dollar. The related foreign currency translation
gains and losses from translating these amounts into U.S. dollars for subsidiaries that conduct
their business in a currency other than the U.S. dollar, are reflected in Accumulated other
comprehensive income under Stockholders equity on the balance sheet. 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
- 60 -
operations. As of December 31, 2009, we
had identifiable net assets totaling $1.1 billion worldwide. Of those net assets, $467.8 million
were associated with our foreign operations.
As a global concern, we face exposure to movements in foreign currency exchange rates. These
exposures may change over time as business practices evolve and could have material adverse or
beneficial impacts on our financial position and results of operations. Historically, our primary
exposures have been related to sales and expenses in EMEA, Asia Pacific, and Latin America;
intercompany sublicense fees, intercompany messaging revenues and expenses and other intercompany
transactions which are denominated in a currency other than the functional currency of the
subsidiary recording the transaction. 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. Specifically, we enter into forward contracts with
a maturity of approximately 30 days to hedge against the foreign exchange exposure created by
certain balances that are denominated in a currency other than the principal reporting currency of
the entity recording the transaction. The gains and losses on the forward contracts are meant to
mitigate the gains and losses on these outstanding foreign currency transactions. Although the
impact of currency fluctuations on our financial results has generally been immaterial in the past,
there can be no guarantee the impact of currency fluctuations related to our intercompany messaging
revenues and expenses and other activities will not be material in the future.
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. Net foreign exchange transaction
gains (losses) included in interest expense and other, net were ($1.7) million, ($4.2) million, and
$0.3 million in 2009, 2008 and 2007, respectively. The tables below provide information about our
forward contracts as of December 31, 2009 and 2008.
- 61 -
(Amounts in thousands except exchange rates)
|
|
|
|
|
|
|
|
|
|
|
US $ |
|
|
Average |
|
Forward Contracts - As of December 31, 2009 |
|
Notional amount |
|
|
Contract rate |
|
Contracts for the sale of US Dollars and purchase of: |
|
|
|
|
|
|
|
|
Mexican Pesos |
|
$ |
1,021 |
|
|
|
13.1225 |
|
|
|
|
|
|
|
|
|
|
Contracts for the sale of GBP and purchase of: |
|
|
|
|
|
|
|
|
South African Rand |
|
$ |
349 |
|
|
|
12.0249 |
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of US Dollars and sale of: |
|
|
|
|
|
|
|
|
Singapore Dollar |
|
$ |
10,153 |
|
|
|
0.7100 |
|
Canadian Dollar |
|
$ |
381 |
|
|
|
0.9050 |
|
Brazilian Real |
|
$ |
1,420 |
|
|
|
0.5680 |
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of Euros and sale of: |
|
|
|
|
|
|
|
|
US Dollars |
|
$ |
19,000 |
|
|
|
0.6974 |
|
Swedish Krona |
|
$ |
2,647 |
|
|
|
10.2372 |
|
Swiss Franc |
|
$ |
2,024 |
|
|
|
1.4877 |
|
UK Pound |
|
$ |
13,241 |
|
|
|
0.8880 |
|
Norwegian Krone |
|
$ |
3,821 |
|
|
|
8.3307 |
|
New Zealand Dollar |
|
$ |
580 |
|
|
|
1.9792 |
|
South African Rand |
|
$ |
1,826 |
|
|
|
10.6783 |
|
|
|
|
|
|
|
|
|
|
Contracts for the sale of Euros and purchase of: |
|
|
|
|
|
|
|
|
Chinese Yuan Renminbi |
|
$ |
571 |
|
|
|
9.7878 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
57,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands except exchange rates)
|
|
|
|
|
|
|
|
|
Forward Contracts - As of December 31, 2008 |
|
US $Notional amount |
|
|
AverageContract rate |
|
Contracts for the sale of US Dollars and purchase of: |
|
|
|
|
|
|
|
|
Canadian Dollars |
|
$ |
1,473 |
|
|
|
0.8183 |
|
Euro |
|
$ |
18,294 |
|
|
|
1.3965 |
|
Mexican Pesos |
|
$ |
1,278 |
|
|
|
13.9255 |
|
Indian Rupee |
|
$ |
2,016 |
|
|
|
48.6000 |
|
|
|
|
|
|
|
|
|
|
Contracts for the sale of GBP and purchase of: |
|
|
|
|
|
|
|
|
South African Rand |
|
$ |
8,943 |
|
|
|
13.7971 |
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of US Dollars and sale of: |
|
|
|
|
|
|
|
|
British Pound |
|
$ |
1,161 |
|
|
|
0.6889 |
|
Singapore Dollar |
|
$ |
1,386 |
|
|
|
0.6931 |
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of Euros and sale of: |
|
|
|
|
|
|
|
|
Swedish Krona |
|
$ |
1,332 |
|
|
|
11.0047 |
|
Swiss Franc |
|
$ |
2,804 |
|
|
|
1.4951 |
|
UK Pound |
|
$ |
17,709 |
|
|
|
0.9621 |
|
Norwegian Krone |
|
$ |
1,407 |
|
|
|
9.7286 |
|
Singapore Dollars |
|
$ |
4,369 |
|
|
|
2.0138 |
|
South African Rand |
|
$ |
9,710 |
|
|
|
13.2743 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
71,882 |
|
|
|
|
|
- 62 -
Interest Income Rate and Investment Level Risk
Our investments consist primarily of taxable short-term money market instruments and debt
securities with maturities between 90 days and three years. We do not use derivative financial
instruments in our investment portfolio. Based on our intentions regarding investments, we
classify our investments as either held-to-maturity or available-for-sale. Available-for-sale
securities are reported at market value and held-to-maturity investments are reported at amortized
cost.
As a majority of our investments are classified as available-for-sale such securities are recorded
at fair value and unrealized holding gains and losses, net of the related tax effect, if any, are
not reflected in earnings but are reported as a separate component of other comprehensive income
(loss) until realized. If we experience a decline in the fair value of a debt security below its
amortized cost basis, and if we intend to sell the security or it is more likely than not that we
will be required to sell the security before its anticipated recovery, we record an other than
temporary impairment (OTTI) charge to earnings for the entire amount of the impairment. If we do
not intend to sell the debt security and it is not more likely than not that we will be required to
sell the security before its anticipated recovery, we separate the OTTI into two portions: the
credit portion (charged to earnings) and the noncredit portion (recorded as a separate component
of other comprehensive income). See Note Two Financial Instruments in the Notes to the
Consolidated Financial Statements, Part II, Item 8. Realized gains and losses are determined on the
specific identification method and are reflected in income.
Changes in the overall level of interest rates and investment levels affect our interest income
that is generated from our investments. For 2009 total interest income was $7.6 million with
investments yielding an average of 0.9% on a worldwide basis on an investment portfolio that
totaled $946.0 million on average. This interest rate level was down 3.63% for 2008. Our
investment yields as of December 31, 2009 are 0.4%.
The table below presents our investment portfolios cash, cash equivalents, investments, and
trading securities at December 31, 2009 as well as the weighted average portfolio interest rates
for 2009. The cash, cash equivalents, investments, and trading securities balances approximate
fair value at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
2009 Weighted Average |
|
(Dollars in Thousands) |
|
Principal Amount |
|
|
Interest Rate |
|
Cash and cash equivalents |
|
$ |
947,152 |
|
|
|
|
|
Investments |
|
|
313,379 |
|
|
|
|
|
Trading securities |
|
|
11,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,272,475 |
|
|
|
0.70 |
% |
Default Risk
We place our investments with high quality credit issuers and, by policy, limit the amount of
credit exposure with any one issuer. We mitigate default risk by investing in securities which, at
the time of purchase, are rated as safe and of high investment grade, 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, with the exception of failed auction
rate securities described elsewhere. We have no cash flow exposure due to rate changes for our
investment portfolio, since all investments other than our auction rate securities are made in
securities with fixed interest rates.
Failed Auction Securities
A small proportion of our investment portfolio is held in Auction Rate Securities with credit
ratings ranging from AA to AAA at the time of purchase. The securities, which met Sybases
investment guidelines at the time the investments were made, have failed to settle in auctions
since August 2007. ARS are floating
- 63 -
rate securities with long-term nominal maturities of 25 to 30
years which were marketed by financial institutions with auction reset dates at 28 day intervals to
provide short term liquidity. The underlying collateral of the ARS held by us consist primarily of
commercial paper, debt instruments issued by governmental agencies
and governmental sponsored entities, and similar assets. Certain of the ARS may have limited
direct or indirect investments in mortgage or mortgage related securities. At December 31, 2009 we
held approximately $13.3 million in estimated market value in ARS for which the reset auctions have
failed. The par value of these securities is $28.9 million. Starting in April, 2009, the credit
portion of the impairment charges on these securities have been booked in Other Income and Expense
while the noncredit portion has been recorded as a component of Other Comprehensive Income. Prior
to April, 2009, the entire amount of the impairment charges were booked in Other Income and
Expense. The failed auctions have resulted in higher interest rates being earned on these
investments, but the investments currently lack short-term liquidity. We will not be able to access
these funds until bonds are redeemed by the issuers or we sell the securities in a secondary
market. Therefore, these investments are classified as long term as of December 31, 2009. Credit
rating agencies have withdrawn coverage for all but one of the ARS we hold.
Interest Expense Rate Risk
Interest expense on our 2005 and 2009 Notes for the year ended December 31, 2009 totaled $36.8
million and was comprised of $13.5 million of contractual interest and $23.3 million of imputed
interest. In light of our recent announcement to call the 2005 Notes, interest expense for the
year ending December 31, 2010 will total approximately $30.7 million, with approximately $15.1
million of contractual interest and approximately $15.6 million of imputed interest.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information required by this item is presented under MD&A Financial Risk Management, Part
II, Item 7.
- 64 -
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
TABLE OF CONTENTS
|
|
|
|
|
Page |
|
|
66 |
|
|
|
|
|
67 |
|
|
|
|
|
68 |
|
|
|
|
|
69 |
|
|
|
|
|
70 |
|
|
|
|
|
71 |
|
|
|
|
|
72 |
|
|
|
|
|
73 |
- 65 -
Report of Management on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2009 based on the framework in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO. Based on that evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2009 to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with generally accepted accounting principles. We reviewed the
results of managements assessment with the Audit Committee of our Board of Directors.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Our internal control over financial reporting as of December 31, 2009 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, who expressed an unqualified opinion
on the effectiveness of internal control over financial reporting as stated in their report which
is included elsewhere herein.
- 66 -
Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting
The Board of Directors and Stockholders of Sybase, Inc.
We have audited Sybase, Inc.s internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sybase, Inc.s management
is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting in the accompanying
Report of Management on Internal Controls over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Sybase, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Sybase, Inc. as of December 31, 2009 and
2008, and the related consolidated statements of operations, stockholders equity, and cash flows
for each of the three years in the period ended December 31, 2009, and our report dated February
26, 2010 expressed an unqualified opinion thereon.
San Francisco, California
February 26, 2010
- 67 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Sybase, Inc.
We have audited the accompanying consolidated balance sheets of Sybase, Inc. as of December 31,
2009 and 2008, and the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2009. Our audits also
included the financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Sybase, Inc. at December 31, 2009 and 2008, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company retrospectively
changed its method of accounting for convertible debt instruments that may be settled in cash upon
conversion and its method of calculating net income (loss) per share, as required by the issuance
of authoritative accounting pronouncements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Sybase, Inc.s internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26,
2010 expressed an unqualified opinion thereon.
San Francisco, California
February 26, 2010
- 68 -
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
(Dollars in thousands, except share and per share data) |
|
2009 |
|
|
2008 (1) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
947,152 |
|
|
$ |
611,364 |
|
Short-term investments |
|
|
239,232 |
|
|
|
8,689 |
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments |
|
|
1,186,384 |
|
|
|
620,053 |
|
Restricted cash |
|
|
17,983 |
|
|
|
2,773 |
|
Accounts receivable, less allowance for doubtful accounts of $4,347
(2008 $3,888) |
|
|
273,457 |
|
|
|
270,400 |
|
Deferred income taxes |
|
|
58,494 |
|
|
|
45,524 |
|
Prepaid income taxes |
|
|
5,754 |
|
|
|
4,932 |
|
Prepaid expenses and other current assets |
|
|
18,685 |
|
|
|
34,208 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,560,757 |
|
|
|
977,890 |
|
Long-term investments |
|
|
86,091 |
|
|
|
15,513 |
|
Property, equipment and improvements, net |
|
|
67,863 |
|
|
|
62,263 |
|
Deferred income taxes |
|
|
7,188 |
|
|
|
17,794 |
|
Capitalized software, net |
|
|
86,866 |
|
|
|
82,400 |
|
Goodwill |
|
|
532,375 |
|
|
|
527,151 |
|
Other purchased intangibles, less accumulated amortization of $207,647
(2008 $177,839) |
|
|
88,012 |
|
|
|
113,970 |
|
Other assets |
|
|
38,732 |
|
|
|
29,341 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,467,884 |
|
|
$ |
1,826,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
20,202 |
|
|
$ |
26,300 |
|
Accrued compensation and related expenses |
|
|
84,426 |
|
|
|
80,031 |
|
Accrued income taxes |
|
|
24,484 |
|
|
|
17,562 |
|
Other accrued liabilities |
|
|
138,931 |
|
|
|
124,050 |
|
Deferred revenue |
|
|
234,761 |
|
|
|
211,903 |
|
Convertible subordinated notes |
|
|
417,321 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
920,125 |
|
|
|
459,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
42,628 |
|
|
|
44,788 |
|
Deferred income taxes |
|
|
49,611 |
|
|
|
11,898 |
|
Long-term tax liability |
|
|
58,350 |
|
|
|
32,082 |
|
Long-term deferred revenue |
|
|
5,855 |
|
|
|
4,535 |
|
Convertible subordinated notes |
|
|
|
|
|
|
438,299 |
|
Convertible senior notes |
|
|
329,565 |
|
|
|
|
|
Temporary equity convertible subordinated notes |
|
|
2,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sybase, Inc. 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;
105,337,362 shares issued and 80,426,337 shares outstanding (2008
105,337,362 shares issued and 79,571,991 shares outstanding) |
|
|
105 |
|
|
|
105 |
|
Additional paid-in capital |
|
|
1,175,206 |
|
|
|
1,103,685 |
|
Accumulated earnings |
|
|
497,728 |
|
|
|
330,724 |
|
Accumulated other comprehensive income |
|
|
49,302 |
|
|
|
36,912 |
|
Cost of 24,911,025 shares of treasury stock (2008 25,765,371 shares) |
|
|
(668,275 |
) |
|
|
(641,647 |
) |
|
|
|
|
|
|
|
Total Sybase, Inc. stockholders equity |
|
|
1,054,066 |
|
|
|
829,779 |
|
Noncontrolling interest |
|
|
5,137 |
|
|
|
5,095 |
|
|
|
|
|
|
|
|
Total equity |
|
|
1,059,203 |
|
|
|
834,874 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,467,884 |
|
|
$ |
1,826,322 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As adjusted to reflect the adoption Financial Accounting Standards Board
(FASB) amendments to existing guidance on convertible debt and noncontrolling interests. See Note
One Summary of Significant Accounting Policies and Note Eight Convertible Notes.. |
See accompanying notes.
- 69 -
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31 |
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 (1) |
|
|
2007 (1) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
$ |
402,779 |
|
|
$ |
383,661 |
|
|
$ |
344,807 |
|
Services |
|
|
571,198 |
|
|
|
572,090 |
|
|
|
544,209 |
|
Messaging |
|
|
196,592 |
|
|
|
176,179 |
|
|
|
136,514 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,170,569 |
|
|
|
1,131,930 |
|
|
|
1,025,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees |
|
|
58,692 |
|
|
|
67,342 |
|
|
|
53,114 |
|
Cost of services |
|
|
153,112 |
|
|
|
160,604 |
|
|
|
157,790 |
|
Cost of messaging |
|
|
128,423 |
|
|
|
107,757 |
|
|
|
82,598 |
|
Sales and marketing |
|
|
252,972 |
|
|
|
285,376 |
|
|
|
266,995 |
|
Product development and engineering |
|
|
138,140 |
|
|
|
146,932 |
|
|
|
152,571 |
|
General and administrative |
|
|
133,235 |
|
|
|
138,980 |
|
|
|
129,319 |
|
Amortization of other purchased intangibles |
|
|
15,142 |
|
|
|
14,716 |
|
|
|
13,783 |
|
Cost of restructuring |
|
|
1,144 |
|
|
|
167 |
|
|
|
797 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
880,860 |
|
|
|
921,874 |
|
|
|
856,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
289,709 |
|
|
|
210,056 |
|
|
|
168,563 |
|
Interest income |
|
|
7,902 |
|
|
|
23,813 |
|
|
|
33,521 |
|
Interest expense and other income, net |
|
|
(39,602 |
) |
|
|
(30,844 |
) |
|
|
(28,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses |
|
|
(3,609 |
) |
|
|
(13,387 |
) |
|
|
|
|
Losses recognized in (reclassified from)
other comprehensive income |
|
|
(2,341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment
losses recognized in earnings |
|
|
(5,950 |
) |
|
|
(13,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
252,059 |
|
|
|
189,638 |
|
|
|
173,515 |
|
Provision for income taxes |
|
|
88,000 |
|
|
|
61,451 |
|
|
|
34,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
164,059 |
|
|
$ |
128,187 |
|
|
$ |
139,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income (loss) attributable to the
noncontrolling interest |
|
|
42 |
|
|
|
(51 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
164,017 |
|
|
$ |
128,238 |
|
|
$ |
139,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to
Sybase, Inc. common stockholders |
|
$ |
2.01 |
|
|
$ |
1.54 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income
per share attributable to Sybase, Inc.
common stockholders |
|
|
80,118 |
|
|
|
82,060 |
|
|
|
90,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable
to Sybase, Inc. common stockholders |
|
$ |
1.86 |
|
|
$ |
1.46 |
|
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income
per share attributable to Sybase, Inc.
common stockholders |
|
|
86,981 |
|
|
|
86,264 |
|
|
|
91,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As adjusted due to the adoption of FASB amendments to existing guidance on
convertible debt, noncontrolling interests, and earnings per share computations. See Note One
Summary of Significant Accounting Policies and Note Eight Convertible Notes. |
See accompanying notes.
- 70 -
Consolidated Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three years ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Common stock |
|
Additional |
|
Accumulated |
|
Other |
|
|
|
|
|
|
|
|
Outstanding |
|
Par |
|
paid-in |
|
Earnings/ |
|
Comprehensive |
|
Treasury |
|
Noncontrolling |
|
|
(Dollars and shares in thousands) |
|
Shares |
|
Value |
|
Capital (1) |
|
(Deficit) (1) |
|
Income/(Loss) |
|
Stock |
|
Interest (1) |
|
Total |
Balances at December 31, 2006 |
|
|
91,282 |
|
|
$ |
105 |
|
|
$ |
1,026,840 |
|
|
$ |
76,299 |
|
|
$ |
40,850 |
|
|
$ |
(268,313 |
) |
|
$ |
5,158 |
|
|
$ |
880,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and treasury
stock reissued under stock option,
stock purchase plans and other |
|
|
2,514 |
|
|
|
|
|
|
|
3,985 |
|
|
|
(338 |
) |
|
|
|
|
|
|
37,543 |
|
|
|
|
|
|
|
41,190 |
|
Acquisition of treasury stock |
|
|
(6,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166,738 |
) |
|
|
|
|
|
|
(166,738 |
) |
Stock-based compensation restricted
Stock |
|
|
|
|
|
|
|
|
|
|
10,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,155 |
|
Stock-based compensation all other |
|
|
|
|
|
|
|
|
|
|
13,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,889 |
|
Tax benefit from stock-based
Compensation plans |
|
|
|
|
|
|
|
|
|
|
14,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,229 |
|
|
|
|
Subtotal |
|
|
87,210 |
|
|
|
105 |
|
|
|
1,069,098 |
|
|
|
75,961 |
|
|
|
40,850 |
|
|
|
(397,508 |
) |
|
|
5,158 |
|
|
|
793,664 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,139 |
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
139,127 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,881 |
|
|
|
|
|
|
|
|
|
|
|
26,881 |
|
Unrealized losses on
marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(540 |
) |
|
|
|
|
|
|
|
|
|
|
(540 |
) |
Pension liability adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007 |
|
|
87,210 |
|
|
$ |
105 |
|
|
$ |
1,069,098 |
|
|
$ |
215,100 |
|
|
$ |
66,954 |
|
|
$ |
(397,508 |
) |
|
$ |
5,146 |
|
|
$ |
958,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and treasury
stock reissued under stock option,
stock purchase plans and other |
|
|
3,313 |
|
|
|
|
|
|
|
594 |
|
|
|
(12,614 |
) |
|
|
|
|
|
|
61,972 |
|
|
|
|
|
|
|
49,952 |
|
Acquisition of treasury stock |
|
|
(10,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(306,111 |
) |
|
|
|
|
|
|
(306,111 |
) |
Stock-based compensation restricted
Stock |
|
|
|
|
|
|
|
|
|
|
10,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,236 |
|
Stock-based compensation all other |
|
|
|
|
|
|
|
|
|
|
12,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,279 |
|
Tax benefit from stock-based
Compensation plans |
|
|
|
|
|
|
|
|
|
|
11,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,478 |
|
|
|
|
Subtotal |
|
|
79,572 |
|
|
|
105 |
|
|
|
1,103,685 |
|
|
|
202,486 |
|
|
|
66,954 |
|
|
|
(641,647 |
) |
|
|
5,146 |
|
|
|
736,729 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,238 |
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
|
|
128,187 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,877 |
) |
|
|
|
|
|
|
|
|
|
|
(30,877 |
) |
Unrealized gains on
marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
835 |
|
|
|
|
|
|
|
|
|
|
|
835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
|
79,572 |
|
|
$ |
105 |
|
|
$ |
1,103,685 |
|
|
$ |
330,724 |
|
|
$ |
36,912 |
|
|
$ |
(641,647 |
) |
|
$ |
5,095 |
|
|
$ |
834,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and treasury
stock reissued under stock option,
stock purchase plans and other |
|
|
3,613 |
|
|
|
|
|
|
|
4,209 |
|
|
|
(3,713 |
) |
|
|
|
|
|
|
67,496 |
|
|
|
|
|
|
|
67,992 |
|
Acquisition of treasury stock |
|
|
(2,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94,124 |
) |
|
|
|
|
|
|
(94,124 |
) |
Stock-based compensation restricted
Stock |
|
|
|
|
|
|
|
|
|
|
13,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,788 |
|
Stock-based compensation all other |
|
|
|
|
|
|
|
|
|
|
12,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,608 |
|
Tax benefit from stock-based
Compensation plans |
|
|
|
|
|
|
|
|
|
|
17,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,678 |
|
Cumulative accounting change to
reclassify noncredit impairments
previously recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,700 |
|
|
|
(6,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible senior notes |
|
|
|
|
|
|
|
|
|
|
44,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,487 |
|
Extinguishment and conversion of
convertible subordinated notes |
|
|
|
|
|
|
|
|
|
|
(18,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,702 |
) |
Temporary equity convertible
subordinated notes |
|
|
|
|
|
|
|
|
|
|
(2,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,547 |
) |
|
|
|
Subtotal |
|
|
80,426 |
|
|
|
105 |
|
|
|
1,175,206 |
|
|
|
333,711 |
|
|
|
30,212 |
|
|
|
(668,275 |
) |
|
|
5,095 |
|
|
|
876,054 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,017 |
|
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
164,059 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,694 |
|
|
|
|
|
|
|
|
|
|
|
15,694 |
|
Decrease in noncredit other-than-
temporary impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,410 |
|
|
|
|
|
|
|
|
|
|
|
1,410 |
|
Losses recognized in (reclassified from)
other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341 |
|
|
|
|
|
|
|
|
|
|
|
2,341 |
|
Unrealized gains on all other
marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
62 |
|
Pension liability adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417 |
) |
|
|
|
|
|
|
|
|
|
|
(417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,149 |
|
|
|
|
Balances at December 31, 2009 |
|
|
80,426 |
|
|
$ |
105 |
|
|
$ |
1,175,206 |
|
|
$ |
497,728 |
|
|
$ |
49,302 |
|
|
$ |
(668,275 |
) |
|
$ |
5,137 |
|
|
$ |
1,059,203 |
|
|
|
|
|
|
|
(1) |
|
As adjusted to reflect the adoption FASB amendments to existing guidance on
convertible debt and noncontrolling interests. See Note One Summary of Significant Accounting
Policies and Note Eight Convertible Notes. |
See accompanying notes.
- 71 -
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31 |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 (1) |
|
|
2007 (1) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
164,059 |
|
|
$ |
128,187 |
|
|
$ |
139,127 |
|
Adjustments to reconcile net income to net cash
Provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
98,700 |
|
|
|
105,915 |
|
|
|
87,923 |
|
Loss on disposal of assets |
|
|
87 |
|
|
|
2,498 |
|
|
|
37 |
|
Impairment of investment in auction rate securities |
|
|
5,950 |
|
|
|
13,387 |
|
|
|
|
|
Deferred income taxes |
|
|
7,762 |
|
|
|
(12,733 |
) |
|
|
(20,722 |
) |
Stock-based compensation restricted stock |
|
|
13,788 |
|
|
|
10,236 |
|
|
|
10,155 |
|
Stock-based compensation all other |
|
|
12,608 |
|
|
|
12,279 |
|
|
|
13,889 |
|
Tax benefit from stock-based compensation plans |
|
|
17,678 |
|
|
|
11,478 |
|
|
|
14,229 |
|
Excess tax benefit from stock-based compensation plans |
|
|
(17,015 |
) |
|
|
(11,182 |
) |
|
|
(14,485 |
) |
Imputed interest expense for convertible notes |
|
|
23,316 |
|
|
|
17,823 |
|
|
|
16,786 |
|
Amortization of note issuance costs |
|
|
2,331 |
|
|
|
1,609 |
|
|
|
1,608 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,335 |
) |
|
|
(25,985 |
) |
|
|
(23,232 |
) |
Prepaid income taxes |
|
|
(822 |
) |
|
|
12,672 |
|
|
|
(17,604 |
) |
Other current assets |
|
|
421 |
|
|
|
(8,963 |
) |
|
|
372 |
|
Other assets operating |
|
|
(3,267 |
) |
|
|
4,218 |
|
|
|
2,202 |
|
Accounts payable |
|
|
(6,101 |
) |
|
|
(4,740 |
) |
|
|
6,784 |
|
Accrued compensation and related expenses |
|
|
3,978 |
|
|
|
7,508 |
|
|
|
3,708 |
|
Accrued income taxes |
|
|
30,363 |
|
|
|
27,509 |
|
|
|
12,852 |
|
Other accrued liabilities |
|
|
10,462 |
|
|
|
(5,706 |
) |
|
|
9,617 |
|
Deferred revenues |
|
|
24,178 |
|
|
|
7,767 |
|
|
|
11,288 |
|
Other liabilities |
|
|
(2,041 |
) |
|
|
1,737 |
|
|
|
(520 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
384,100 |
|
|
|
295,514 |
|
|
|
254,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Decrease in restricted cash |
|
|
(169 |
) |
|
|
610 |
|
|
|
2,590 |
|
Purchases of investments |
|
|
(396,126 |
) |
|
|
(16,275 |
) |
|
|
(280,632 |
) |
Maturities of investments |
|
|
91,608 |
|
|
|
38,299 |
|
|
|
241,292 |
|
Sales of investments |
|
|
1,261 |
|
|
|
80,982 |
|
|
|
190,778 |
|
Business combinations, net of cash acquired |
|
|
|
|
|
|
(35,368 |
) |
|
|
(6,848 |
) |
Purchases of property, equipment and improvements |
|
|
(34,201 |
) |
|
|
(32,320 |
) |
|
|
(23,839 |
) |
Capitalized software development costs |
|
|
(46,211 |
) |
|
|
(50,706 |
) |
|
|
(36,431 |
) |
(Increase) Decrease in other assets investing |
|
|
20 |
|
|
|
138 |
|
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
|
(383,818 |
) |
|
|
(14,640 |
) |
|
|
86,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of convertible senior notes, net of
issuance costs |
|
|
389,379 |
|
|
|
|
|
|
|
|
|
Extinguishment and conversion of convertible subordinated notes |
|
|
(58,430 |
) |
|
|
|
|
|
|
|
|
Repayments of long-term obligations |
|
|
(1,177 |
) |
|
|
(910 |
) |
|
|
(1,582 |
) |
Net proceeds from the issuance of common stock and
reissuance of treasury stock |
|
|
67,992 |
|
|
|
49,953 |
|
|
|
41,190 |
|
Purchases of treasury stock |
|
|
(94,124 |
) |
|
|
(306,111 |
) |
|
|
(166,738 |
) |
Excess tax benefit from stock-based compensation plans |
|
|
17,015 |
|
|
|
11,182 |
|
|
|
14,485 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
320,655 |
|
|
|
(245,886 |
) |
|
|
(112,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
14,851 |
|
|
|
(28,432 |
) |
|
|
21,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
335,788 |
|
|
|
6,556 |
|
|
|
249,505 |
|
Cash and cash equivalents, beginning of year |
|
|
611,364 |
|
|
|
604,808 |
|
|
|
355,303 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
947,152 |
|
|
$ |
611,364 |
|
|
$ |
604,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
9,320 |
|
|
$ |
9,543 |
|
|
$ |
9,663 |
|
Income taxes paid, net of refunds |
|
$ |
24,494 |
|
|
$ |
25,643 |
|
|
$ |
43,345 |
|
|
|
|
(1) |
|
As adjusted to reflect the adoption FASB amendments to existing guidance on
convertible debt and noncontrolling interests. See Note One Summary of Significant Accounting
Policies and Note Eight Convertible Notes. |
See accompanying notes.
- 72 -
Notes to Consolidated Financial Statements
Note One: Summary of Significant Accounting Policies
The Company
Sybase, Inc. (Sybase or the Company) enables the Unwired Enterprise for customers and partners by
delivering enterprise and mobile software solutions for information management, development and
integration. Sybase solutions enable information to securely move back and forth from the data
center to the end device, anytime and anywhere.
In 2009, the Companys business was organized into three business segments: Infrastructure Platform
Group (IPG), which principally focuses on enterprise class database servers, integration and
development products; iAnywhere Solutions, Inc. (iAS), which provides mobile device management,
mobile middleware platforms, database, synchronization, and Bluetooth and infrared protocol
technologies; and Sybase 365 (SY365), which provides application services that allows customers to
easily deliver and financially settle mobile data and messages, including short message services or
SMS, multimedia messaging services or MMS, and GPRS roaming exchange services or GRX.
Principles of Consolidation
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.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements. Management is also required to make certain judgments that
affect the reported amounts of revenues and expenses during the reporting period. Sybase
periodically evaluates its estimates including those relating to impairments of investments,
goodwill and intangible assets, the allowance for doubtful accounts, capitalized software, revenue
recognition, restructuring, stock-based compensation, income taxes, litigation and other
contingencies. The Company bases its estimates on historical experience, observable and
unobservable inputs under the 3-level fair value hierarchy framework, and various other assumptions
that are believed to be reasonable based on the specific circumstances. The Companys management
has discussed these estimates with the Audit Committee of Sybases Board of Directors. These
estimates and assumptions form the basis for making judgments about the carrying value of certain
assets and liabilities that are not readily apparent from other sources. Actual results could
differ from these estimates.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist primarily of amounts due to the Company from its normal business
activities. The Company maintains an allowance for doubtful accounts to reflect the expected
non-collection of accounts receivable based on past collection history and specific risks
identified in the portfolio. Additional allowances might be required if deteriorating economic
conditions or other factors affect Sybase customers ability to make timely payments.
- 73 -
Concentration of Credit Risk
Financial instruments that are potentially subject to concentrations of credit risk consist
primarily of cash and cash equivalents, investments and trade receivables. Investment policies
have been designed to limit investments to single-A credit instrument issuers and above at the time
of purchase. As of December 31, 2009, investments classified as long-term cash investments includes
six auction rate securities (ARS) with a par value of $28.9 million at the time of purchase and a
current carrying value of $13.3million. The investments currently lack short-term liquidity. The
Company will not be able to access these funds until a future auction for the ARS investments is
successful or until it sells the securities in a secondary market which currently does not exist.
See Note Two Financial Instruments.
The Company does not require collateral to secure accounts receivable. The risk with respect to
trade receivables is mitigated by credit evaluations the Company performs on its customers, the
short duration of its payment terms and by the diversification of the Companys customer base.
As of December 31, 2009 the Company invested $629.2 million in various money market funds and in
various geographies. FDIC insurance coverage related to these investments is insignificant.
Capitalized Software
The Company capitalizes software development costs in accordance with FASB guidance on 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 detailed
program design as specified by this FASB guidance. 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 $456.0
million and $409.8 million, at December 31, 2009 and 2008, respectively, and related accumulated
amortization was $369.1 million, and $327.4 million, respectively. Capitalized software
amortization and write-off charges included in cost of license fees were $41.5 million, $42.9
million and $33.1 million for 2009, 2008 and 2007, respectively.
FASB guidance on accounting for costs of computer software to be sold, leased or otherwise marketed
also requires that the unamortized capitalized costs of a computer software product be compared to
the net realizable value of such product at each reporting date. To the extent the unamortized
capitalized cost exceeds the net realizable value of a software product based upon its estimated
future gross revenues reduced by estimated future costs of completing and disposing of the product,
the excess is written off. If the estimated future gross revenue associated with certain of the
Companys software products were to be reduced, write-offs of capitalized software costs might be
required. Amortization of capitalized software cost includes write-offs of $3.2 million and $4.1
million in 2009 and 2008, respectively. There were no significant write-offs in 2007.
Property, Equipment and Improvements
Property, equipment and improvements are stated at cost less accumulated depreciation. Major
renewals and improvements are capitalized, and minor replacements, maintenance and repairs are
charged to current operations. 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 of the asset or the associated lease term. The
Company includes amortization of assets that are recorded under capital leases in depreciation
expense.
Costs related to internally developed software and software purchased for internal use, which are
required to be capitalized pursuant to FASB guidance on accounting for costs of computer software
developed or obtained for internal use, are included in property, equipment and improvements. Such
amounts are amortized over a three-year period which is the estimated economic life, from the time
they are placed in service.
- 74 -
Goodwill and Other Purchased Intangible Assets
The Company accounts for goodwill and other purchased intangible assets in accordance with FASB
guidance on goodwill and other intangible assets. The Company conducted the annual impairment
testing required by FASB guidance on goodwill and other intangible assets of the IPG, iAS, and
SY365 operating units as of December 31, 2009, 2008, and 2007. The analysis for these years
indicated the fair values of each reporting unit substantially exceeded the reporting units
corresponding carrying values. Therefore, no impairment loss was recognized for these years.
Other purchased intangible assets have generally resulted from business combinations accounted for
as purchases (see Note Thirteen Business Combinations below). Other purchased intangibles
with determinate lives are amortized using the straight-line method over periods of 3 to 10 years
to align with timing of expected future cash flows. Other purchased intangibles with indeterminate
lives (e.g., trade names) are not amortized, but rather evaluated annually for impairment. No
impairments were recorded for 2009, 2008 or 2007.
Impairment of Long-Lived Assets
The Company complies with the provisions of FASB guidance on accounting for the impairment or
disposal of long-lived assets, which generally requires impairment losses to be recorded on
long-lived assets (excluding goodwill) used in operations, such as property, equipment and
improvements, and other purchased 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. In 2009, the Company wrote off $1.2 million of certain purchased
technologies. In 2008, the Company wrote off $4.5 million of certain purchased technologies and
$2.5 million of internal use software. There were no such significant impairment losses in 2007.
Revenue Recognition
The Company derives revenues from three primary sources: the licensing of software, primarily
under perpetual software licenses, which are recorded as license fee revenue; the provision of
services which primarily include technical support revenues, consulting, and education revenues;
and the delivery of electronic messages.
License and Services Revenues
The Company recognizes revenue in accordance with FASB guidance on software revenue recognition
and, in certain instances, in accordance with FASB guidance on accounting for performance of
construction-type and certain production-type contracts or SEC Staff guidance for revenue
recognition. The Company licenses software under non-cancelable license agreements. License fee
revenues are recognized when (a) a non-cancelable license agreement is in force, (b) the product
has been delivered, (c) the license fee is fixed or determinable, and (d) collectability is
reasonably assured. If the fee is not fixed or determinable, revenue is recognized as payments
become due from the customer and all other revenue recognition criteria are met.
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.
Sublicense fees are recognized as reported to the Company by its licensees. License fee revenues
from sublicense transactions for certain application development and data access tools are
recognized upon direct shipment to the end user or direct shipment to the reseller for the end
user. If collectability is not reasonably assured, revenue is recognized when the fee is collected
and all other revenue recognition criteria are met.
- 75 -
Technical support revenues are recognized ratably over the term of the related agreements, which in
most cases is one year.
Revenues from consulting services most often include assistance with data and system migration,
data base or system administration services, performance enhancements and education. Services
provided under time and materials contracts are recognized as services are performed. Revenues from
fixed price arrangements are recognized based on the proportional performance of the project, with
performance measured based on hours of work performed.
Message Revenues
The Company recognizes messaging revenue in accordance with SEC Staff guidance pertaining to
revenue recognition, FASB guidance pertaining to arrangements with multiple deliverables, and
FASB guidance pertaining to reporting revenue gross as a principal versus net as an agent. The
Company recognizes revenue when (a) there is persuasive evidence of an arrangement; (b) the
service has been provided to the customer; (c) the amount of the fees to be paid by the
customer is fixed and determinable; and (d)) the collection of the fees is reasonable assured.
The Company generates a significant portion of its messaging revenue from per message transaction
fees and, to a lesser extent, from fixed price messaging arrangements providing for the
delivery of an unlimited number of messages for a specified period of time, and revenue share
agreements related to third party content. Assuming all other criteria have been met the
Company recognizes revenue from transaction fees based upon the number of messages
successfully processed by its platforms and delivered in accordance with the terms of its
arrangements. The Company recognizes revenue from the fixed price messaging arrangements
ratably over the period of time specified in the agreement
In some instances mobile operators, content providers, and other enterprises enter into revenue
sharing arrangements with the Company. Under a standard revenue sharing transaction the Company
delivers content from a third party provider to the cell phone of a mobile operators subscriber.
Third party content includes, among other, ringtones, wallpapers, interactive games, competitions,
directory inquiry services, and information services. The subscriber is invoiced by their mobile
operator, who upon receipt of payment, remits a portion of the charge to the Company. Upon payment
from the mobile operator, the Company remits payment to the third party content provider. In
accordance with FASB guidance, the Company has determined that it acts as an agent under these
revenue sharing arrangements and accordingly, record as revenue the net amount retained by the
Company. The net amount retained by the Company reflects the gross amount billed the operator less
amounts due to the third party content provider.
Foreign Currencies
The Company translates the accounts of its foreign subsidiaries using the local foreign currency as
the functional currency. The assets and liabilities of foreign subsidiaries are translated into
U.S. dollars using year-end exchange rates, while revenues and expenses are translated into U.S.
dollars using the average exchange rate for the period. 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 are included in interest
expense and other, net in the consolidated statements of operations.
In order to reduce the effect of foreign currency fluctuations on its results of operations, the
Company hedges its exposure on certain transactional balances that are denominated in foreign
currencies through the use of short-term foreign currency forward exchange contracts. For the most
part, these exposures consist of inter-company balances between Sybase entities resulting from
software license royalties, accounts receivable, intercompany messaging revenues and expenses, and
certain management, research, and administrative services. These exposures are denominated in many
foreign currencies, primarily the Euro, South African rand, UK pound, and Singapore dollar. These
forward exchange contracts are recorded at fair value and the resulting gains and the 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 on hedged balances. All foreign
exchange
- 76 -
contracts have a life of approximately 30 days. The Company does not enter into forward
contracts for trading purposes. All foreign currency transactions and all outstanding forward
contracts are marked to market at the end of the period with unrealized gains and losses included
in interest expense and other, net. Net foreign exchange transaction gains (losses) included in
interest expense and other, net were ($1.7) million, ($4.2) million, and $0.3 million in 2009, 2008
and 2007, respectively.
Income Taxes
When the Company prepares its financial statements, the Company estimates its income taxes based on
the various jurisdictions where it conducts business. Significant judgment is required in
determining its worldwide income tax provision. The Company estimates its current tax liability and
assesses temporary differences that result from differing treatments of certain items for tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which are
show on its consolidated balance sheet. The Company must then assess the likelihood that its
deferred tax assets will be realized. To the extent the Company believes that realization is not
more likely than not (a likelihood of more than 50 percent), the Company establishes a valuation
allowance. When the Company establishes a valuation allowance or increases this allowance in an
accounting period, the Company records a corresponding tax expense in its statement of operations.
The Company reviews the need for a valuation allowance to reflect uncertainties about whether it
will be able to utilize some of its deferred tax assets before they expire. The valuation allowance
analysis is based on the Companys estimates of taxable income for the jurisdictions in which it
operates and the periods over which its deferred tax assets will be realizable.
The Company recognizes and measures benefits for uncertain tax positions using a two-step approach.
The first step is to evaluate the tax position taken or expected to be taken in a tax return by
determining if the weight of available evidence indicates that it is more likely than not (a
likelihood of more than 50 percent) that the tax position will be sustained upon audit, including
resolution of any related appeals or litigation processes. For tax positions that are more likely
than not of being sustained upon audit, the second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon settlement. Significant judgment
is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions
on a quarterly basis. The Companys evaluations are based upon a number of factors, including
changes in facts or circumstances, changes in tax law, correspondence with tax authorities during
the course of audits and effective settlement of audit issues. Changes in the recognition or
measurement of uncertain tax positions could result in material increases or decreases in its
income tax expense in the period in which the Company makes the change, which could have a material
impact on its effective tax rate and operating results.
- 77 -
Stock-Based Compensation
The Companys stock-based employee compensation plans are described in Note Seven Stockholders
Equity.
The Company estimates the fair value of options granted using the Black-Scholes option valuation
model and the assumptions shown in Note Seven Stockholders Equity. The Company uses historical
data to estimate pre-vesting forfeitures and record share-based compensation expense only for those
awards that are expected to vest. The Company amortizes the fair value of options on a ratable
basis over the requisite service periods of the awards, which are generally the vesting periods.
The Company amortizes the fair value of restricted stock on a straight-line basis over the
restriction period.
Net Income Per Share
Shares used in computing basic and diluted net income per share attributable to Sybase, Inc. common
stockholders are based on the weighted average shares outstanding in each period, excluding
treasury stock. Shares used in computing basic net income per share excludes any dilutive effects
of stock options, unvested restricted stock, stock appreciation rights and the Companys
convertible debt. Basic and diluted earnings per share are computed pursuant to the two-class
method. Under this method the Company attributes net income to two classes, common stock and
unvested restricted stock awards, according to their respective participation rights in
undistributed earnings. Unvested restricted stock awards granted to employees prior to September
17, 2009 are considered participating securities as they receive non-forfeitable rights to cash
dividends at the same rate as common stock.
Diluted net income per share is calculated using the more dilutive of two methods. Under both
methods the exercise of stock options and stock appreciation rights are assumed using the treasury
stock method. The assumption of vesting of restricted stock, however, differs:
1. Assume vesting of restricted stock using the treasury stock method.
2. Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method.
Under both methods, the computation of diluted earnings per share also includes the dilutive
effects, if any, of the Companys convertible debt due to the appreciation of the Companys stock
price. Such computations include computing the excess, if any, of the average price of the
Companys common stock over the conversion price of $24.99 per share for its 2005 Notes and over
the conversion price of $47.88 per share for its 2009 Notes. The Company calculates the average
stock price in accordance with the terms of the debt agreements. The Company has consistently
applied this policy to all periods in which either convertible debt had a dilutive effect on
earnings per share. For the years ended December 31, 2009, 2008 and 2007 the two-class method was
used in the computation because it was more dilutive than the treasury stock method. See Note Eight
Convertible Notes.
The following shows the computation of basic and diluted net income per share at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 (1) |
|
|
2007 (1) |
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
164,017 |
|
|
$ |
128,238 |
|
|
$ |
139,139 |
|
Less: Net income allocated to participating securities |
|
|
(2,810 |
) |
|
|
(1,990 |
) |
|
|
(2,133 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. common stockholders basic |
|
$ |
161,207 |
|
|
$ |
126,248 |
|
|
$ |
137,006 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to Sybase, Inc. common stockholders |
|
$ |
2.01 |
|
|
$ |
1.54 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share attributable to
Sybase, Inc. common stockholders |
|
|
80,118 |
|
|
|
82,060 |
|
|
|
90,019 |
|
|
|
|
|
|
|
|
|
|
|
- 78 -
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 (1) |
|
|
2007 (1) |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
164,017 |
|
|
$ |
128,238 |
|
|
$ |
139,139 |
|
Less: Net income allocated to participating securities |
|
|
(2,592 |
) |
|
|
(1,895 |
) |
|
|
(2,094 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. common stockholders diluted |
|
$ |
161,425 |
|
|
$ |
126,343 |
|
|
$ |
137,045 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to Sybase, Inc. common stockholders |
|
$ |
1.86 |
|
|
$ |
1.46 |
|
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share attributable to Sybase,
Inc. common stockholders |
|
|
80,118 |
|
|
|
82,060 |
|
|
|
90,019 |
|
Dilutive effect of stock options, restricted stock and stock appreciation rights |
|
|
2,670 |
|
|
|
2,395 |
|
|
|
2,258 |
|
Dilutive effect of 2005 Notes |
|
|
4,898 |
|
|
|
2,436 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share attributable to Sybase,
Inc. common stockholders under treasury stock method |
|
|
87,686 |
|
|
|
86,891 |
|
|
|
92,394 |
|
|
|
|
|
|
|
|
|
|
|
Participating securities excluded under two-class method |
|
|
(705 |
) |
|
|
(627 |
) |
|
|
(677 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share attributable to Sybase,
Inc. common stockholders under two-class method |
|
|
86,981 |
|
|
|
86,264 |
|
|
|
91,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As adjusted to reflect the adoption of FASB amendments to existing guidance on
convertible debt and noncontrolling interests, and earnings per share computations. See Note Eight
Convertible Notes. |
The anti-dilutive weighted average shares that were excluded from the shares used in computing
diluted net income per share, were 1.3 million, 2.4 million and 3.1 million in 2009, 2008 and 2007,
respectively. The Company excludes shares with combined exercise prices, unamortized fair values,
and tax benefits that are greater than the average market price for the Companys common stock from
the calculation of diluted net income per share because their effect is anti-dilutive.
Comprehensive Income
Comprehensive income includes net earnings and other changes to stockholders equity not reflected
in net income. Accumulated other comprehensive income consisted of the following at December 31
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Foreign currency translation |
|
$ |
52,843 |
|
|
$ |
37,149 |
|
Noncredit other-than-temporary impairment net of income taxes |
|
|
(2,949 |
) |
|
|
|
|
Net unrealized gains on other marketable securities, net of income taxes |
|
|
62 |
|
|
|
|
|
Pension liability adjustments |
|
|
(654 |
) |
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,302 |
|
|
$ |
36,912 |
|
|
|
|
|
|
|
|
Advertising
The Company expenses its advertising costs as they are incurred. The Companys advertising
expenses were approximately $6.6 million, $6.3 million and $6.7 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Adopted Accounting Pronouncements
Effective January 1, 2009, the Company adopted FASB amendments to existing guidance pertaining to:
1. |
|
Convertible debt |
|
2. |
|
Noncontrolling interests |
|
3. |
|
Earnings per share computations |
|
4. |
|
Business Combinations |
|
5. |
|
Assets acquired and liabilities assumed in a business combination that arise from
contingencies |
|
6. |
|
The determination of the useful life of intangible assets |
|
7. |
|
The effective date for application of fair value accounting standards to non-financial assets
and liabilities |
|
8. |
|
Disclosures about derivative instruments and hedging activities |
- 79 -
Convertible debt
The convertible debt accounting guidance amendments require issuers of convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement) to separately
account for the liability and equity (conversion feature) components of the instruments.
Retrospective adoption is required. As a result, interest expense for all periods presented is now
imputed and recognized on the Companys convertible subordinated notes issued in 2005 (2005
Notes) based on the 6.09 percent nonconvertible debt borrowing rate which would have applied to
the Company when it issued the 2005 Notes. Previously, interest expense was recognized based on the
1.75 percent stated rate. See Note Eight Convertible Notes.
In accordance with the transition provisions of the accounting guidance amendments, the carrying
amount of the 2005 Notes was retrospectively adjusted to reflect a discount of $85.0 million on the
date of issuance, with an offsetting increase in additional paid-in capital of $51.0 million and a
reduction to deferred tax asset of $34.0 million. The $85.0 million discount is amortized to
interest expense and is included in Interest expense and other, net in the Companys statement of
operations. Amortization totaled $18.3 million, $17.8 million, and $16.8 million for the years
ended December 31, 2009, 2008, and 2007, respectively. The impact on the Companys financial
position as of December 31, 2008, results of operations for the years ended December 31, 2008 and
2007, and cash flows for the years ended December 31, 2008 and 2007 from the adoption of the
accounting guidance amendments is presented in the tables below.
Noncontrolling interests
The noncontrolling interest accounting guidance amendments establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and deconsolidation of a subsidiary. The
accounting guidance amendments changed the presentation of the Companys noncontrolling interests
in its balance sheet and statement of operations. Specifically, noncontrolling interests now
appear as a separate component of the Companys consolidated equity on the balance sheet rather
than a mezzanine item between liabilities and equity. Further, earnings and other comprehensive
income are now separately attributed to both the controlling and noncontrolling interests. Earnings
per share continues to be calculated based on net income attributable to the Companys controlling
interest. The impact on the Companys financial position as of December 31, 2008, results of
operations for the years ended December 31, 2008 and 2007, and cash flows for the years ended
December 31, 2008 and 2007 from the adoption of guidance amendments is presented in the tables
below.
Earnings per share computations
The earnings per share computation accounting guidance amendments define unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend equivalents as
participating securities. As participating securities, such instruments are included in computing
basic and diluted earnings per share pursuant to the two-class method. The two-class method
determines earnings per share for each class of common stock and participating security according
to their respective participation rights in undistributed earnings. The Companys unvested
restricted stock awards granted to employees are considered participating securities as they
receive non-forfeitable rights to cash dividends at the same rate as common stock. The Company
retrospectively adopted the earnings per share amendments. The impact on the Companys net income
per share for the years ended December 31, 2008 and 2007 from the adoption of the accounting
guidance amendments are presented in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Consolidated Balance |
|
|
|
|
|
|
|
|
|
|
Consolidated Balance |
|
|
|
Sheet |
|
|
Adjustments |
|
|
Sheet |
|
|
|
As Previously |
|
|
Convertible |
|
|
Noncontrolling |
|
|
Retrospectively |
|
(In thousands) |
|
Reported |
|
|
Subordinated Debt |
|
|
Interests |
|
|
Adjusted |
|
Deferred income taxes |
|
$ |
26,474 |
|
|
$ |
(8,680 |
) |
|
|
|
|
|
$ |
17,794 |
|
Other assets |
|
$ |
29,756 |
|
|
$ |
(415 |
) |
|
|
|
|
|
$ |
29,341 |
|
Minority interest |
|
$ |
5,095 |
|
|
|
|
|
|
$ |
(5,095 |
) |
|
|
|
|
Convertible subordinated
notes |
|
$ |
460,000 |
|
|
$ |
(21,701 |
) |
|
|
|
|
|
$ |
438,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
$ |
1,054,517 |
|
|
$ |
49,168 |
|
|
|
|
|
|
$ |
1,103,685 |
|
Accumulated earnings |
|
$ |
367,286 |
|
|
$ |
(36,562 |
) |
|
|
|
|
|
$ |
330,724 |
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
$ |
5,095 |
|
|
$ |
5,095 |
|
- 80 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
As |
|
|
Effect of |
|
|
|
|
|
|
|
|
|
|
Effect of |
|
(In thousands, except per share amounts) |
|
As Adjusted |
|
|
Reported |
|
|
Change |
|
|
As Adjusted |
|
As Reported |
|
Change |
|
Interest expense and other, net and net
impairment losses recognized in earnings |
|
$ |
(44,231 |
) |
|
$ |
(26,768 |
) |
|
$ |
(17,463 |
) |
|
$ |
(28,569 |
) |
|
$ |
(12,144 |
) |
|
$ |
(16,425 |
) |
Minority interest |
|
|
|
|
|
$ |
51 |
|
|
$ |
(51 |
) |
|
|
|
|
|
$ |
12 |
|
|
$ |
(12 |
) |
Income before income taxes |
|
$ |
189,638 |
|
|
$ |
207,152 |
|
|
$ |
(17,514 |
) |
|
$ |
173,515 |
|
|
$ |
189,952 |
|
|
$ |
(16,437 |
) |
Provision for income taxes |
|
$ |
61,451 |
|
|
$ |
68,581 |
|
|
$ |
(7,130 |
) |
|
$ |
34,388 |
|
|
$ |
41,102 |
|
|
$ |
(6,714 |
) |
Net income |
|
$ |
128,187 |
|
|
$ |
138,571 |
|
|
$ |
(10,384 |
) |
|
$ |
139,127 |
|
|
$ |
148,850 |
|
|
$ |
(9,723 |
) |
Net loss attributable to the noncontrolling
interest |
|
$ |
51 |
|
|
|
|
|
|
$ |
51 |
|
|
$ |
12 |
|
|
|
|
|
|
$ |
12 |
|
Net income attributable to Sybase, Inc. |
|
$ |
128,238 |
|
|
|
|
|
|
$ |
128,238 |
|
|
$ |
139,139 |
|
|
|
|
|
|
$ |
139,139 |
|
Basic net income per share |
|
|
|
|
|
$ |
1.69 |
|
|
|
|
|
|
|
|
|
|
$ |
1.65 |
|
|
|
|
|
Diluted net income per share |
|
|
|
|
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
$ |
1.61 |
|
|
|
|
|
Basic net income per share attributable to
Sybase, Inc. common stockholders |
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to
Sybase, Inc. common stockholders |
|
$ |
1.46 |
|
|
|
|
|
|
|
|
|
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Consolidated Statement |
|
|
|
|
|
|
|
|
|
|
Consolidated Statement |
|
|
|
Of Cash Flows |
|
|
Retrospective Adjustments |
|
|
Of Cash Flows |
|
|
|
|
|
|
|
Convertible |
|
|
Noncontrolling |
|
|
|
|
(In thousands) |
|
As Previously Reported |
|
|
Subordinated Debt |
|
|
Interests |
|
|
Retrospectively Adjusted |
|
Net income |
|
$ |
138,571 |
|
|
$ |
(10,333 |
) |
|
$ |
(51 |
) |
|
$ |
128,187 |
|
Minority interest |
|
$ |
(51 |
) |
|
|
|
|
|
$ |
51 |
|
|
|
|
|
Deferred income taxes |
|
$ |
(5,603 |
) |
|
$ |
(7,130 |
) |
|
|
|
|
|
$ |
(12,733 |
) |
Imputed interest
expense for
convertible notes |
|
|
|
|
|
$ |
17,823 |
|
|
|
|
|
|
$ |
17,823 |
|
Amortization of note
issuance costs |
|
$ |
1,969 |
|
|
$ |
(360 |
) |
|
|
|
|
|
$ |
1,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
Consolidated Statement |
|
|
|
|
|
|
|
|
|
|
Consolidated Statement |
|
|
|
Of Cash Flows |
|
|
Retrospective Adjustments |
|
|
Of Cash Flows |
|
|
|
|
|
|
|
Convertible |
|
|
Noncontrolling |
|
|
|
|
(In thousands) |
|
As Previously Reported |
|
|
Subordinated Debt |
|
|
Interests |
|
|
Retrospectively Adjusted |
|
Net income |
|
$ |
148,850 |
|
|
$ |
(9,711 |
) |
|
$ |
(12 |
) |
|
$ |
139,127 |
|
Minority interest |
|
$ |
(12 |
) |
|
|
|
|
|
$ |
12 |
|
|
|
|
|
Deferred income taxes |
|
$ |
(14,008 |
) |
|
$ |
(6,714 |
) |
|
|
|
|
|
$ |
(20,722 |
) |
Imputed interest
expense for
convertible notes |
|
|
|
|
|
$ |
16,786 |
|
|
|
|
|
|
$ |
16,786 |
|
Amortization of note
issuance costs |
|
$ |
1,969 |
|
|
$ |
(361 |
) |
|
|
|
|
|
$ |
1,608 |
|
- 81 -
Business Combinations
The accounting guidance amendments to business combinations establish principles and requirements
for how an acquirer in a business combination recognizes and measures the tangible and intangible
assets acquired. The accounting guidance amendments make a number of significant changes,
including: expanding the definitions of a business and a business combination; recognition of
contingent considerations at fair value on the acquisition date and, for certain arrangements,
recognition of changes in fair value in earnings until settlement; and charges to expense for
acquisition-related transaction and restructuring costs rather than treating them as part of the
cost of the acquisition.
Except for certain income tax accounting, the accounting guidance amendments apply prospectively to
business combinations for which the acquisition date is on or after January 1, 2009. Generally, the
effects of the accounting guidance amendments will depend on future acquisitions. The accounting
guidance amendments apply retrospectively to the Companys deferred tax asset valuation allowance
relating primarily to our acquired federal tax loss carryforwards. Under the accounting guidance
amendments, any tax benefit will now be credited to the Companys operations. As of December 31,
2009, approximately $18.0 million of the Companys valuation allowance related to acquired federal
tax loss carryforwards. During the year ending December 31, 2009, approximately $3.5 million of
this valuation allowance was released. The Company evaluates its valuation allowance each quarter
based on factors such as the mix of earnings in the jurisdictions in which the Company operates,
prudent and feasible tax planning strategies, current taxable income, and forecasted future taxable
income.
Assets acquired and liabilities assumed in a business combination that arise from contingencies
In April 2009, FASB amended the business combination accounting changes the Company adopted January
1, 2009. The new amendment addresses provisions related to the initial recognition and measurement,
subsequent measurement, and disclosure of assets and liabilities arising from contingencies in a
business combination. The amendment reverses the business combination changes for acquired
contingencies the Company adopted January 1, 2009. It requires such contingencies be recognized at
fair value on the acquisition date if fair value can be reasonably estimated during the allocation
period. Otherwise, entities would typically account for the acquired contingencies in accordance
with contingency accounting guidance. This amendment is effective retrospectively for the Companys
business combinations for which the acquisition date is on or after January 1, 2009. Generally, the
effects of the amendment will depend on future acquisitions.
The determination of the useful life of intangible assets
The accounting guidance amendments to the determination of the useful life of intangible assets
change the disclosure of the factors considered in developing the renewal or extension assumptions
used to determine the useful life of a recognized intangible asset. The adoption of these
accounting guidance amendments did not have a material impact on the Companys financial position,
results of operations, or cash flows.
The effective date for application of fair value accounting standards to non-financial assets
and liabilities
The accounting guidance amendments to the effective date for application of fair value accounting
standards to non-financial assets and liabilities deferred the effective date of fair value
accounting to such assets and liabilities to the Companys fiscal year beginning January 1, 2009.
The adoption of the accounting guidance amendments affect the Company upon the occurrence of
certain impairments or when relevant generally accepted accounting principals dictate a fair value
measurement is required. The
- 82 -
adoption of the accounting guidance amendments did not have a material
impact on the Companys financial position, results of operations, or cash flows.
Disclosures about derivative instruments and hedging activities
The accounting guidance amendments to disclosure requirements related to derivative instruments and
hedging activities require qualitative disclosures about objectives and strategies for using
derivatives. They also require quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.
The adoption of the accounting guidance amendments did not have a material impact on the Companys
financial position, results of operations, or cash flows.
Effective April 1, 2009, the Company adopted FASB amendments to existing guidance pertaining to:
1. |
|
Determination of fair value when the volume and level of activity for an asset or liability
have significantly decreased and identifying transactions that are not orderly |
|
2. |
|
Recognition and presentation of other-than-temporary impairments |
|
3. |
|
Disclosures about fair value of financial instruments |
|
4. |
|
Subsequent events |
Determination of fair value when the volume and level of activity for an asset or liability
have significantly decreased and identifying transactions that are not orderly
Amendments to guidance for determining fair values when there is no active market or where the
price inputs being used represent distressed sales reaffirm the objective of fair value
measurementto reflect how much an asset would be sold for in an orderly transaction (as opposed
to a distressed or forced transaction) at the date of the financial statements under current market
conditions. Specifically, this staff position reaffirms the need to use judgment to ascertain if a
formerly active market has become inactive and in determining fair values when markets have become
inactive. The adoption of the accounting guidance amendments did not have a material impact on the
Companys financial position, results of operations, or cash flows.
Recognition and presentation of other-than-temporary impairments
Recognition and presentation amendments related to guidance on other-than-temporary impairment
recognition provide greater clarity to investors about the credit and noncredit components of
impaired debt securities that are not expected to be sold. The measure of impairment in
comprehensive income remains fair value. The accounting guidance amendments also require increased
and more timely disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Upon adoption of the accounting guidance amendments on April 1,
2009, the Company recorded a cumulative accounting change to reclassify noncredit impairments
previously recognized in earnings. The effect of such change increased retained earnings $6.7
million and decreased accumulated other comprehensive income $6.7 million upon adoption. See Note
Two Financial Instruments.
Disclosures about fair value of financial instruments
Disclosure guidance amendments related to fair value of financial instruments require an entity to
provide disclosures about fair value of financial instruments in interim financial information. The
adoption of the disclosure guidance amendments did not have a material impact on the Companys
financial position, results of operations, or cash flows. See Note Two Financial Instruments.
Subsequent events
Subsequent event guidance amendments establish general standards of accounting for and disclosures
of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. The subsequent event guidance amendments also require entities to disclose
the date through which subsequent events were evaluated as well as the rationale for why that date
was selected. This disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements being presented..
The adoption of the
- 83 -
subsequent event guidance amendments did not have a material impact on the
Companys financial position, results of operations, or cash flows. See Note Fifteen Subsequent
Events.
In June 2009, the FASB approved the FASB Accounting Standards Codification (the Codification)
as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009. The
Codification does not change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic
in one place. All existing accounting standard documents will be superseded and all other
accounting literature not included in the Codification will be considered nonauthoritative. The Codification is effective
for interim and annual periods ending after September 15, 2009. The Codification had no impact on
the Companys financial position, results of operations, or cash flows.
Recent Accounting Pronouncements
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become
effective for the Company beginning July 1, 2010, with earlier adoption permitted. Under the new
guidance on arrangements that include software elements, tangible products that have software
components that are essential to the functionality of the tangible product will no longer be within
the scope of the software revenue recognition guidance, and software-enabled products will now be
subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative
guidance on revenue arrangements with multiple deliverables that are outside the scope of the
software revenue recognition guidance. Under the new guidance, when vendor specific objective
evidence or third party evidence of fair value for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to separate deliverables and allocate
arrangement consideration using the relative selling price method. The new guidance includes new
disclosure requirements on how the application of the relative selling price method affects the
timing and amount of revenue recognition. The Company is currently evaluating the potential impact
of the provisions of this new guidance on its financial statements.
In January 2010, the FASB amended existing guidance to improve disclosures about fair value. The
amendments require entities to disclose the amounts of significant transfers between Level 1 and
Level 2 of the fair value hierarchy and the reasons for the transfers, the reasons for any
transfers in or out of Level 3, information in the reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. The amendments also clarify the
requirement for entities to disclose information about both the valuation techniques and inputs
used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to
disclose information about purchases, sales, issuance, and settlements in the reconciliation of
recurring Level 3 measurements on a gross basis, all the amendments are effective starting with the
three month period ending March 31, 2010. The requirement to disclose information about purchases,
sales, issuance, and settlements of recurring Level 3 measurements becomes effective with the three
month period ending March 31, 2011. The Company plans to incorporate the new disclosures in future
as prescribed.
Note Two: Financial Instruments
Cash, Cash Equivalents, and Short and Long-term Investments
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments that are comprised principally of
taxable, short-term money market instruments with maturities of three months or less at the time of
purchase and demand deposits with financial institutions. These instruments carry insignificant
interest rate risk because of the short-term maturities. Cash equivalents are stated at amounts
that approximate fair value based on quoted market prices.
Short and Long-Term Investments
Short and long-term investments consist principally of short-term bank deposits, corporate notes
and bonds, U.S. government obligations, mutual funds held in a Rabbi Trust, and Auction Rate
Securities
- 84 -
(ARS) at December 31, 2009. Short and long-term investments consisted principally of
short-term bank deposits, mutual funds held in a Rabbi Trust, and ARS at December 31, 2008.
Management determines the appropriate classification of short and long-term investments in debt and
equity securities at the time of purchase and re-evaluates such designation as of each balance
sheet date. At December 31, 2009 and 2008, the Company has classified short-term bank deposits,
corporate notes and bonds, U.S. government obligations, and ARS as available-for-sale and
investments in mutual funds held in a Rabbi Trust as trading securities.
Investments classified as available for sale and trading securities are recorded at fair value.
Actively traded available-for-sale and trading securities are stated at fair value as determined by
the securitys most recently traded price. If securities are not actively traded, fair value is
determined using other valuation techniques. Realized gains and losses are reflected in income and
are determined on the specific identification method. Trading securities unrealized gains and
losses and realized gains and losses are included in the earnings of the Company. Changes in fair
values of available for sale securities are accounted for based on the nature of the change in
value:
(1) Temporary;
(2) Credit related other-than-temporary impairments (OTTI); or
(3) Noncredit related OTTI.
Temporary Changes in Fair Value
Temporary changes in fair values are recorded as unrealized gains and losses. Unrealized gains and
losses are not reflected in earnings but are reported as a separate component of other
comprehensive income (loss) (OCI).
Credit and Noncredit OTTI
On April 1, 2009, the Company adopted FASB amendments pertaining to how to determine and measure
credit and noncredit OTTI of debt securities as well as how to determine whether an impairment for
investments in debt securities is other-than-temporary.
|
|
If a debt securitys market value is below amortized cost and the Company either intends to
sell the security or it is more likely than not that the Company will be required to sell the
security before its anticipated recovery, the Company records an OTTI charge to earnings for
the entire amount of the impairment. |
|
|
|
For the remaining debt securities, if an OTTI exists, the Company separates the OTTI into
two portions: |
|
o |
|
Credit Loss Portion: The credit loss portion is the amount that the Companys best
estimate of the present value of cash flows expected to be collected from the security
falls below the amortized cost of the security. The credit loss portion is recorded as a
charge to earnings. |
|
|
o |
|
NonCredit Loss Portion: The noncredit loss portion is the residual amount of the OTTI,
and is recorded as a separate component of other comprehensive income (loss). |
When assessing whether a decline in fair values is temporary or OTTI, the Company considers various
factors including: the significance of the decline in value compared to the cost basis; how long
the fair value of the security has been less than its cost basis; the quality and estimated value
of the investments held by the trust/issuer; the financial condition and credit rating of the
trust, issuer, sponsors, and insurers; in the case of auction rate securities, the frequency of the
auction function failing; the expected market volatility and the market and economy in general;
analyst reports and forecasts; views of external investment managers; news or financial information
that has been released specific to the investee; and the outlook for the overall industry in which
the investee operates.
When calculating the present value of expected cash flows to determine the credit loss portion of
the OTTI, the Company estimates the amount and timing of projected cash flows, the probability of
default and the timing and amount of recoveries on a security-by-security basis. These calculations
consider an
- 85 -
analysis of observable market data, such as credit default swap spreads,
historical default and recovery statistics, rating agency data, credit ratings and other data
relevant to the collectability of the security. The amortized cost basis of a debt security is
reduced for any credit loss portion of the impairment recorded to earnings.
Prior to April 1, 2009, the entire OTTI charge was recognized in earnings for all debt securities.
At December 31, 2009 and 2008, cash equivalents, short term and long term investments and their
amortized costs, unrealized gains and losses, OTTI recognized in accumulated OCI, and approximate
fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
OTTI |
|
|
Fair Market |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
In OCI |
|
|
Value |
|
December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
947,155 |
|
|
$ |
2 |
|
|
$ |
(5 |
) |
|
$ |
|
|
|
$ |
947,152 |
|
Short-term bank deposits (maturities of one year or less) |
|
|
43,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,512 |
|
Short-term corporate notes and bonds (maturities of one year or less) |
|
|
119,616 |
|
|
|
82 |
|
|
|
(29 |
) |
|
|
|
|
|
|
119,669 |
|
Short-term U.S. government obligations (maturities of one year or less) |
|
|
64,071 |
|
|
|
43 |
|
|
|
(7 |
) |
|
|
|
|
|
|
64,107 |
|
Trading securities |
|
|
11,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,944 |
|
Long-term corporate notes and bonds (maturities over one year) |
|
|
18,783 |
|
|
|
|
|
|
|
(5 |
) |
|
|
(2,949 |
) |
|
|
15,829 |
|
Long-term U.S. government obligations (maturities over one year) |
|
|
70,179 |
|
|
|
11 |
|
|
|
(31 |
) |
|
|
|
|
|
|
70,159 |
|
Long-term equity security |
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
$ |
1,275,363 |
|
|
$ |
138 |
|
|
$ |
(77 |
) |
|
$ |
(2,949 |
) |
|
$ |
1,272,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
611,364 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
611,364 |
|
Short-term bank deposits (maturities of one year or less) |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
Trading securities |
|
|
8,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,638 |
|
Long-term corporate notes and bonds (maturities over one year) |
|
|
15,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
635,566 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
635,566 |
|
|
|
|
There were no unrealized gains or losses at December 31, 2008. The following table summarizes the
fair value and gross unrealized losses related to 46 available for sale marketable securities and
five which are subject to the amended recognition guidance, aggregated by type of investment and
length of time that individual securities have been in a continuous unrealized loss position for
less than and greater than 12 months, at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In a Loss Position for |
|
|
In a Loss Position for |
|
|
|
Less Than 12 Months |
|
|
Greater Than 12 Months |
|
|
|
|
|
|
|
Gross Unrealized |
|
|
|
|
|
|
Gross Unrealized |
|
(In thousands) |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Corporate notes and
bonds 1 |
|
$ |
65,951 |
|
|
$ |
(39 |
) |
|
$ |
13,210 |
|
|
$ |
(2,949 |
) |
U.S government
obligations |
|
|
70,538 |
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
136,489 |
|
|
$ |
(77 |
) |
|
$ |
13,210 |
|
|
$ |
(2,949 |
) |
- 86 -
|
|
|
1 |
|
The unrealized losses shown in the Greater-than-12-Months column were recognized in
earnings in prior periods. Upon the April 1, 2009 adoption of the FASB amendments to
other-than-temporary impairment guidance, the Company reclassified the noncredit related
other-than-temporary impairment charges from retained earnings to other comprehensive income. See
Note One Summary of Significant Accounting Policies. |
On December 31, 2009, long-term investments include $13.3 million of ARS with an aggregate par
value of $28.9 million. ARS are floating rate securities with longer-term maturities which were
marketed by financial institutions with auction reset dates at 28 day intervals to provide short
term liquidity. The underlying collateral of the ARS the Company holds consists primarily of
corporate bonds, commercial paper, debt instruments issued by the U.S. Treasury and governmental
agencies, money market funds, asset backed securities, collateralized debt obligations, similar
assets, and in one instance, preferred stock in a bond insurance company. Certain of the ARS may
have direct or indirect investments in mortgages, mortgage related securities, or credit default
swaps. The credit ratings for five of the ARS were AAA and for one of the ARS was AA at the time of
purchase. Beginning in August 2007 and into September 2007, each of the ARS auctions began to fail
due to a lack of market for these securities. As of December 31, 2009, five of the ARS had
withdrawn credit ratings. The credit rating on a sixth ARS was Caa2. In addition, the investments
currently lack short-term liquidity. The Company will not be able to access these funds until a
future auction for the ARS investments is successful or until it sells the securities in a
reasonable secondary market which currently does not exist.
Through March 31, 2009, the Company recorded $15.2 million of OTTI charges to earnings for its ARS,
including the one equity security investment which is not subject to the recently amended guidance.
Upon the April 1, 2009 adoption of the FASB amendments to OTTI guidance, the Company recorded a
cumulative accounting change to reclassify the noncredit portion of OTTI previously recorded in
earnings from retained earnings to accumulated other comprehensive income in the amount of $6.7
million. The aggregate amortized cost basis for the five out of six ARS which fell within the
scope of the amendments totaled $20.3 million as of April 1, 2009. During the quarter ending June
30, 2009, the Company reclassified $0.4 million of the other-than-temporary impairment losses from
accumulated other comprehensive income to earnings. During the quarter ending September 30, 2009
the coupon rate one ARS pays the Company was changed. The new rate became fixed at an annualized
rate of approximately 2.3 percent rather than continuing to fluctuate with LIBOR. In addition,
Moody downgraded this ARS from Baa1 to Caa2 during the quarter and then subsequently withdrew
coverage. Primarily as a result of these events, the Company reclassified $2.3 million of the
other-than-temporary impairment losses from accumulated other comprehensive income to earnings and
recognized further credit-related other-than-temporary impairment losses of $1.4 million during the
quarter ending September 30, 2009. As such, the aggregate amortized cost basis of these ARS
totaled $16.2 million as of December 31, 2009.
A rollforward of amortized cost, cumulative OTTI recognized in earnings and accumulated OCI is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Amortized |
|
|
OTTI in |
|
|
Unrealized |
|
|
OTTI loss |
|
|
accumulate |
|
(In thousands) |
|
Cost |
|
|
earnings |
|
|
(gain) loss |
|
|
in OCI |
|
|
d OCI |
|
|
|
Balance at April 1, 2009 |
|
|
20,311 |
|
|
|
3,589 |
|
|
|
|
|
|
|
6,699 |
|
|
|
6,699 |
|
Unrealized gain |
|
|
|
|
|
|
|
|
|
|
(996 |
) |
|
|
|
|
|
|
(996 |
) |
Reclassification to earnings |
|
|
(388 |
) |
|
|
388 |
|
|
|
|
|
|
|
(388 |
) |
|
|
(388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
19,923 |
|
|
|
3,977 |
|
|
|
(996 |
) |
|
|
6,311 |
|
|
|
5,315 |
|
Unrealized gain |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
OTTI recognized |
|
|
(1,441 |
) |
|
|
1,441 |
|
|
|
|
|
|
|
371 |
|
|
|
371 |
|
Reclassification to earnings |
|
|
(2,289 |
) |
|
|
2,289 |
|
|
|
|
|
|
|
(2,289 |
) |
|
|
(2,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
|
16,193 |
|
|
|
7,707 |
|
|
|
(997 |
) |
|
|
4,393 |
|
|
|
3,396 |
|
Unrealized gain |
|
|
|
|
|
|
|
|
|
|
(413 |
) |
|
|
|
|
|
|
(413 |
) |
OTTI recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to earnings |
|
|
(34 |
) |
|
|
34 |
|
|
|
|
|
|
|
(34 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
16,159 |
|
|
|
7,741 |
|
|
|
(1,410 |
) |
|
|
4,359 |
|
|
|
2,949 |
|
- 87 -
Restricted Cash
At December 31, 2009, the Company had approximately $18.0 million in restricted cash set aside for
litigation in the US, a guarantee against certain payroll and lease obligations in United Kingdom,
France, Norway, Denmark, and a Bank Guarantee in India.
Foreign Currency Forward Exchange Contracts
At December 31, 2009, the Company had outstanding forward exchange contracts, all having maturities
of approximately 30 days, to exchange various foreign currencies for U.S. dollars and Euros in the
amounts of $12.0 million, $43.1 million, and $0.6 million, respectively, and to exchange U.S.
dollars into various foreign currencies in the amount of $1.0 million and to exchange British
Pounds for South African Rand in the amount of $0.3 million. At December 31, 2008, the Company had
outstanding forward contracts, all having maturities of approximately 30 days, to exchange various
foreign currencies for U.S. dollars and Euros in the amounts of $2.5 million and $37.3 million,
respectively, and to exchange U.S. dollars into various foreign currencies in the amount of $23.1
million, and to exchange British Pounds for South African Rand in the amount of $8.9 million. All
foreign currency forward contracts are marked-to-market at the end of each reporting period with
unrealized gains and losses included in other income.
Fair Value Measurements
The FASB defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value must maximize the use of observable inputs and minimize the
use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value. The three levels are as follows:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities. |
|
|
|
|
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. |
The adoption of this statement did not have a material impact on the Companys consolidated results
of operations and financial condition.
FASB guidance allows an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for specified financial assets and liabilities on a contract-by-contract
basis. The Company did not elect to adopt the fair value option under this Statement.
Effective September 30, 2008, the Company adopted FASB clarifications to the guidance used to
determine the fair value of a financial asset when the market for that asset is not active. On
April 1, 2009,
- 88 -
the Company adopted new FASB guidance used to determine fair value when the volume
and level of activity for an asset or liability has significantly decreased and to identify
transactions that are not orderly.
The following table represents the Companys fair value hierarchy for its financial assets measured
at fair value on a recurring basis as of December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009: |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Money market funds |
|
$ |
629,162 |
|
|
|
|
|
|
|
|
|
|
$ |
629,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
|
11,944 |
|
|
|
|
|
|
|
|
|
|
|
11,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
366,194 |
|
|
|
|
|
|
$ |
13,313 |
|
|
|
379,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,007,300 |
|
|
|
|
|
|
$ |
13,313 |
|
|
$ |
1,020,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008: |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Money market funds |
|
$ |
493,113 |
|
|
|
|
|
|
|
|
|
|
$ |
493,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
$ |
8,638 |
|
|
|
|
|
|
|
|
|
|
|
8,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
63,573 |
|
|
|
|
|
|
$ |
15,513 |
|
|
|
79,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
565,324 |
|
|
|
|
|
|
$ |
15,513 |
|
|
$ |
580,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds are included in cash and cash equivalents on the Companys consolidated balance
sheet. Level 1 available-for-sale investments consist of short-term bank deposits and debt
securities. These investments are included in cash and cash equivalents and short-term and
long-term investments on the Companys consolidated balance sheet. Level 1 trading securities are
the defined set of mutual funds that are invested as directed by participants of the Rabbi Trust
established related to the Companys deferred compensation plan. The trading securities are
included in short-term cash investments on the Companys consolidated balance sheet. Level 3 assets
consist of six ARS.
The fair values of the ARS as of December 31, 2009 are based on an estimation employing a
discounted cash flow model for each of the six ARS using credit related discount rates and term to
recovery as key inputs. The ARS are included in long-term investments on the Companys consolidated
balance sheet. The following table provides a summary of changes in fair value of the Companys
Level 3 financial assets as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
Auction Rate |
|
|
|
Securities |
|
Balance at December 31, 2008 |
|
$ |
15,513 |
|
Impairment loss included in net
impairment losses recognized in earnings |
|
|
(5,950 |
) |
Change in total other-than-temporary
impairment recognized in accumulated
other comprehensive income |
|
|
3,750 |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
13,313 |
|
|
|
|
|
As of December 31, 2009 and 2008, the Company did not have any material liabilities that are
measured at fair value on a recurring basis.
- 89 -
Note Three: Property, Equipment and Improvements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated useful |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
lives |
|
Computer equipment and software |
|
$ |
270,936 |
|
|
$ |
241,684 |
|
|
|
3 to 5 years |
|
Furniture and fixtures |
|
|
59,550 |
|
|
|
58,603 |
|
|
|
5 to 10 years |
|
Leasehold improvements and real property |
|
|
83,732 |
|
|
|
77,188 |
|
|
Improvements over shorter of 5 years or lease term; property over 7 to 40 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414,218 |
|
|
|
377,475 |
|
|
|
|
|
Less accumulated depreciation |
|
|
(346,355 |
) |
|
|
(315,212 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, equipment and improvements |
|
$ |
67,863 |
|
|
$ |
62,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense amounted to $28.0 million, $29.7 million and $27.5 million in 2009, 2008
and 2007, respectively. Included in operating expenses is the Companys write-off of $2.5 million
of internal use software in 2008.
Note Four: Goodwill and Other Purchased Intangibles
The following table reflects the changes in the carrying amount of goodwill (including assembled
workforce) by reporting unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
IPG |
|
|
iAS |
|
|
SY365 |
|
|
Consolidated Total |
|
Balance at January 1, 2008 |
|
$ |
92,192 |
|
|
$ |
110,392 |
|
|
$ |
330,755 |
|
|
$ |
533,339 |
|
Goodwill recorded on Cable & Wireless acquisition |
|
|
|
|
|
|
|
|
|
|
12,457 |
|
|
|
12,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill recorded on Paybox acquisition |
|
|
|
|
|
|
|
|
|
|
8,872 |
|
|
|
8,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in goodwill recorded on Mobile 365
acquisition |
|
|
|
|
|
|
|
|
|
|
(155 |
) |
|
|
(155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction for utilization of acquired tax assets |
|
|
(17,149 |
) |
|
|
(7,367 |
) |
|
|
(937 |
) |
|
|
(25,453 |
) |
Foreign currency translation adjustments and other |
|
|
(1,158 |
) |
|
|
(237 |
) |
|
|
(514 |
) |
|
|
(1,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
73,885 |
|
|
$ |
102,788 |
|
|
$ |
350,478 |
|
|
$ |
527,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition to goodwill recorded for Cable &
Wireless acquisition earnout payment |
|
|
|
|
|
|
|
|
|
|
1,053 |
|
|
|
1,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition to goodwill recorded for Paybox
acquisition earnout payment |
|
|
|
|
|
|
|
|
|
|
3,290 |
|
|
|
3,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments and other |
|
|
494 |
|
|
|
103 |
|
|
|
284 |
|
|
|
881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
74,379 |
|
|
$ |
102,891 |
|
|
$ |
355,105 |
|
|
$ |
532,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 90 -
The following table reflects the carrying amounts and accumulated amortization of other
purchased intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
(In thousands) |
|
12/31/09 |
|
|
12/31/09 |
|
|
12/31/09 |
|
|
12/31/08 |
|
|
12/31/08 |
|
|
12/31/08 |
|
Purchased technology |
|
$ |
172,511 |
|
|
$ |
(139,522 |
) |
|
$ |
32,989 |
|
|
$ |
169,758 |
|
|
$ |
(125,265 |
) |
|
$ |
44,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AvantGo tradenames |
|
|
3,100 |
|
|
|
|
|
|
|
3,100 |
|
|
|
3,100 |
|
|
|
|
|
|
|
3,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Afaria tradenames |
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant not to compete |
|
|
319 |
|
|
|
(319 |
) |
|
|
|
|
|
|
319 |
|
|
|
(271 |
) |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
|
115,729 |
|
|
|
(67,806 |
) |
|
|
47,923 |
|
|
|
114,632 |
|
|
|
(52,303 |
) |
|
|
62,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
295,659 |
|
|
$ |
(207,647 |
) |
|
$ |
88,012 |
|
|
$ |
291,809 |
|
|
$ |
(177,839 |
) |
|
$ |
113,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased technology is amortized over a period of 3 to 7 years; covenant not to compete is
amortized over a period of 3 years; customer lists are amortized over a period of 5 to 10 years.
The AvantGo and Afaria tradenames are assigned an indeterminate life and are not amortized but
instead tested for impairment in the same manner as goodwill. At December 31, 2009, the weighted
average amortization period of the gross carrying value of other purchased intangible assets was
7.3 years. At December 31, 2009, the weighted average amortization period of the gross carrying
value of purchased technology and customer lists were 6.5 years and 7.8 years, respectively.
Amortization expense for other purchased intangibles totaled $29.1 million, $33.4 million and $27.4
million in 2009, 2008 and 2007, respectively.
The Company reviews its other purchased intangible assets for indications of impairment whenever
events or changes in circumstances indicate the carrying amount of any such asset may not be
recoverable. For these purposes, recoverability of these assets is measured by comparing their
carrying values to the future undiscounted cash flows the assets are expected to generate. This
methodology requires the Company to estimate future cash flows associated with certain assets or
groups of assets. Changes in these estimates, technology obsolescence, customer terminations
including message customers due to technology interoperability and other factors could result in
impairment losses associated with other purchased intangible assets. Cost of license fees includes
the Companys write-off of $1.2 million and $4.5 million of certain purchased technologies in 2009
and 2008, respectively. There were no such write-offs in 2007.
Estimated amortization expense for other purchased intangibles in each of the next five years
ending December 31, is as follows (in thousands):
|
|
|
|
|
2010 |
|
|
25,746 |
|
2011 |
|
|
20,436 |
|
2012 |
|
|
13,830 |
|
2013 |
|
|
11,844 |
|
2014 |
|
|
1,744 |
|
Note Five: Other Assets
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 (1) |
|
Deposits |
|
$ |
25,004 |
|
|
$ |
23,693 |
|
Other |
|
|
13,728 |
|
|
|
5,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,732 |
|
|
$ |
29,341 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As adjusted to reflect the adoption of the FASB amendment to existing guidance
on convertible debt. See Note One Summary of Significant Accounting Policies. |
- 91 -
Deposits include a $13.9 million security deposit on a 15-year non-cancelable lease for the
Companys Dublin, California facility at December 31, 2009 and 2008. Other includes capitalized
note issuance costs related to the Companys issuance of the 2009 Notes and 2005 Notes of $8.1
million and $1.8 million as of December 31, 2009 and 2008, respectively. Such costs are amortized
to interest expense on a straight-line basis starting on the issuance date over a five year period
which corresponds to each notes earliest put date. See Note Eight Convertible Notes.
Note Six: Lease Obligations, Other Liabilities, Commitments and Guarantees
Capital Lease
The Company leases office space and equipment under non-cancelable capital leases that expire
through October 2019.
In May of 2003, the Company entered into a 15-year capital lease for a new facility in Waterloo,
Canada. The lease requires monthly payments of approximately $92,175, which includes both principal
and interest commencing October 2004 through October 2019. Gross assets of approximately $9.2
million and accumulated depreciation of $3.2 million have been recorded in relation to this capital
lease as of December 31, 2009. This capital lease asset is captured on the Companys balance sheet
within property, equipment and improvements, net. The corresponding liability is captured within
other liabilities.
Future minimum lease payments under capital lease obligations at December 31, 2009 are as follows
(dollars in thousands):
|
|
|
|
|
2010 |
|
$ |
1,106 |
|
2011 |
|
|
1,106 |
|
2012 |
|
|
1,106 |
|
2013 |
|
|
1,106 |
|
2014 |
|
|
1,106 |
|
Thereafter |
|
|
5,299 |
|
|
|
|
|
Sub-total |
|
|
10,829 |
|
Less amount representing interest |
|
|
3,575 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
7,254 |
|
|
|
|
|
Sale-and-Leaseback
Upon completion of the Companys acquisition of Extended Systems Incorporated (ESI) in October
2005, the Company assumed the obligations under a sale-and-leaseback transaction completed by ESI
in September 2003 related to ESIs headquarters in Boise, Idaho. The sale-and-leaseback is recorded
as a financing transaction. Under the terms of the agreement the Company has an option to
repurchase the building and land at any time before September 2013 at a price of $5.1 million. The
gross proceeds received of $4.8 million are included in other long-term liabilities on the balance
sheet at December 31, 2009.
As part of the agreement, ESI entered into a 10-year master lease for the building with annual
lease payments, which are recorded as interest expense, equal to 9.2 percent of the sale price, or
approximately $442,000. The Company is also obligated to pay all expenses associated with the
building during the lease, including the costs of property taxes, insurance, operating expenses and
repairs.
- 92 -
Leasehold Improvements Note
As part of the 15-year capital lease agreement entered into for the Companys Waterloo, Canada
facility (see discussion under Capital Lease Obligation above), the Company entered into an
agreement with the landlord to finance approximately $1.7 million of leasehold improvements at an
annual interest rate of 8.76%. The loan requires monthly principal and interest payments of
$17,413, commencing October 2004 through October 2019. The corresponding short term and long term
liabilities totaled $0.1 million and $1.3 million at December 31, 2009, respectively.
Operating leases and Commitments
The Company leases, or has committed to lease, certain office facilities and equipment under
operating leases expiring through 2020, which generally require Sybase to pay operating costs,
including property taxes, insurance and maintenance. The 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.
Future minimum lease payments under non-cancelable operating leases having initial terms in excess
of one year as of December 31, 2009 (including those provided for in the Companys restructuring
accrual) are as follows (dollars in thousands):
|
|
|
|
|
2010 |
|
$ |
43,150 |
|
2011 |
|
|
33,776 |
|
2012 |
|
|
30,313 |
|
2013 |
|
|
24,294 |
|
2014 |
|
|
23,027 |
|
Thereafter |
|
|
48,495 |
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments* |
|
$ |
203,055 |
|
|
|
|
|
|
|
|
* |
|
Minimum payments have not been reduced by minimum sublease rentals of $2.9 million due in the
future under non-cancelable subleases. |
The following schedule shows the composition of total rent expenses for all operating leases
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Rent expense |
|
$ |
47,990 |
|
|
$ |
46,852 |
|
|
$ |
47,913 |
|
Less: sublease rentals |
|
|
3,496 |
|
|
|
3,401 |
|
|
|
4,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,494 |
|
|
$ |
43,451 |
|
|
$ |
43,902 |
|
|
|
|
|
|
|
|
|
|
|
Guarantees
Under its standard software license agreement (SWLA), the Company agrees to indemnify, defend and
hold harmless its licensees from and against certain losses, damages and costs arising from claims
alleging the licensees use of Company software infringes the intellectual property rights of a
third party. Historically, the Company has not been required to pay material amounts in connection
with claims asserted under these provisions and, accordingly, the Company has not recorded a
liability relating to such provisions. Under the SWLA, the Company also represents and warrants to
licensees that its software products operate substantially in accordance with published
specifications. Under its standard
consulting and development agreement, the Company warrants that the services it performs will be
undertaken by qualified personnel in a professional manner conforming to generally accepted
industry
- 93 -
standards and practices. Historically, only minimal costs have been incurred relating to the
satisfaction of product warranty claims and, as such, no accruals for warranty claims have been
made. Other guarantees include promises to indemnify, defend and hold harmless each of the
Companys executive officers, non-employee directors and certain key employees from and against
losses, damages and costs incurred by each such individual in administrative, legal or
investigative proceedings arising from alleged wrongdoing by the individual while acting in good
faith within the scope of his or her job duties on behalf of the Company. Historically minimal
costs have been incurred relating to such indemnifications and, as such, no accruals for these
guarantees have been made.
Note Seven: Restructuring Costs
In 2004, 2002 and 2001 the Company embarked on restructuring aimed at reducing its annual expenses.
The Company recorded restructuring charges to reflect these activities including future lease
costs, reduced by estimated sublease payments.
The following table summarizes the activity associated with the balance of the accrued
restructuring charges related to the plans through December 31, 2009 (Dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities |
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities |
|
|
|
at |
|
|
Amounts |
|
|
Amounts Accrued |
|
|
at |
|
|
|
12/31/08 |
|
|
Paid |
|
|
(Reversed) |
|
|
12/31/09 |
|
2004 Plan |
|
|
2.3 |
|
|
|
(1.2 |
) |
|
|
1.2 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Plan |
|
|
3.4 |
|
|
|
(2.6 |
) |
|
|
(0.1 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan |
|
|
0.7 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
0.2 |
|
The remaining restructuring accrual for each plan primarily relates to certain lease costs the
Company is contractually required to pay on certain closed facilities, net of estimated associated
sublease amounts. Sybases payments (net of sublease income) toward the accruals relating to lease
cancellations and commitments are dependent upon market conditions and the Companys ability to
negotiate acceptable lease buy-outs or to locate suitable subtenants.
These payments will be made over various remaining lease terms or over a shorter period as the
Company may negotiate with its lessors. Such lease terms under the 2004 Plan, 2002 Plan and 2001
Plan generally expire through October 2012, May 2010 and September 2010, respectively.
During 2009, 2008 and 2007, the Company recognized additional restructuring charges under the plans
related to revisions to expected sublease and amounts reflect the difference between the discounted
amounts accrued and the actual payments.
Due to the length of some of the lease terms and the uncertainty of the real estate market, the
Company expects to make periodic adjustments to the accrual balance to reflect changes in its
estimates, and to reflect actual events as they occur.
- 94 -
Note Eight: Convertible Notes
Convertible Senior Notes Issued in 2009
On August 4, 2009, the Company issued $400.0 million of convertible senior notes (2009 Notes)
through a private offering to qualified institutional buyers in the U.S. pursuant to exemptions
from registration afforded by the Securities Act of 1933, as amended. The 2009 Notes have imputed
and stated interest rates of 8.1475 percent and 3.5 percent, respectively. The 2009 Notes rank
equally in right of payment to
any future senior indebtedness of Sybase and are structurally subordinated to any future
indebtedness or other liabilities of our subsidiaries (other than inter-company obligations).
At the time of the private offering, on July 29, 2009, the Companys Board of Directors approved a
$150.0 million increase to the stock repurchase program to repurchase the Companys common stock
and/or the Companys convertible notes. The Company bought back 1,973,500 shares of the Companys
common stock at a price of $35.47 per share for an aggregate price of $70.0 million and,
extinguished 35,000 of the Companys convertible subordinated notes (2005 Notes) for an aggregate
price of $50.1 million plus $0.3 million in corresponding accrued interest. With issuance costs of
$10.6 million and considering the repurchases discussed above, net cash proceeds to the Company
totaled $269.0 million.
The 2009 Notes mature on August 15, 2029 unless earlier redeemed by the Company at its option, or
converted or put to the Company at the option of the holders. The Company may redeem all or a
portion of the 2009 Notes at par on and after August 20, 2014. The holders may require that the
Company repurchase the 2009 Notes at par on August 15, 2014, August 15, 2019 and August 15, 2024.
Conversion Events and Conversion Value
The holders may convert the 2009 Notes into the right to receive the conversion value (i) in
certain change in control transactions, (ii) if the 2009 Notes are redeemed by the Company, (iii)
in certain specified corporate transactions, and (iv) when the trading price of the 2009 Notes does
not exceed a minimum price level, and (v) at any time during the quarterly period following
instances where the Companys closing stock price exceeds 130% of the then current conversion
price, or approximately $62.24, for at least 20 out of the last 30 trading days ending with the
quarters last trading day. During the calendar quarter ended December 31, 2009 such closing stock
price conversion right was not triggered.
The initial conversion rate on the 2009 Notes is 20.8836 shares of common stock per $1,000
principal amount of 2009 Notes. This is equivalent to an initial conversion price of approximately
$47.88 per share of common stock. Upon conversion, in lieu of shares of our common stock, for each
$1,000 principal amount of notes, a holder will receive an amount in cash equal to the lesser of
(i) $1,000 and (ii) the conversion value (as defined in the indenture governing the 2009 Notes).
If the conversion value exceeds $1,000 on the conversion date of the notes, the Company will also
deliver, at Sybases option, cash or common stock or a combination of cash and common stock with
respect to the excess of the conversion value over the principal amount of the converted 2009
Notes. Based on the Companys closing stock price on December 31, 2009 of $43.40, the total
conversion value did not exceed the total principal value of the notes. The December 2009 ask price
for 2009 Notes is $1,188.28 per $1,000 note, representing an approximate aggregate fair value of
$475.3 million.
As of December 31, 2009, the outstanding principal amount of the 2009 Notes totaled $329.6 million
net of unamortized discount of $70.4 million. Such debt discount is amortized to interest expense
over a five year period ending August 15, 2014, the date on which holders of the 2009 Notes may
first require the Company to repurchase all or a portion of their notes.
Interest is payable semi-annually in arrears on February 15 and August 15 of each year, commencing
on February 15, 2010. In 2009, the Company recognized interest expense of $10.7 million associated
with the 2009 Notes, which includes $5.0 million of amortization of debt discount.
The carrying amount of the equity component of the 2009 Notes and the principal amount, unamortized
discount and net carrying amount of the liability component of the 2009 Notes as of December 31,
2009 were as follows:
- 95 -
|
|
|
|
|
|
|
As of |
|
|
|
December 31, |
|
|
|
2009 |
|
|
|
(In millions) |
|
Gross equity component of 2009 Notes |
|
$ |
75.5 |
|
Deferred tax asset reduction |
|
|
(29.0 |
) |
Equity issuance costs |
|
|
(2.0 |
) |
|
|
|
|
Equity component of 2009 Notes |
|
$ |
44.5 |
|
|
|
|
|
|
|
|
|
|
Principal amount of 2009 Notes |
|
$ |
400.0 |
|
Unamortized discount of 2009 Notes |
|
|
(70.4 |
) |
|
|
|
|
Long term liability component of 2009 Notes |
|
$ |
329.6 |
|
|
|
|
|
Convertible Subordinated Notes Issued in 2005
On February 22, 2005, the Company issued through a private offering to qualified institutional
buyers in the U.S. $460.0 million of convertible subordinated notes (2005 Notes) pursuant to
exemptions from registration afforded by the Securities Act of 1933, as amended. The 2005 Notes
have imputed and stated interest rates of 6.09 percent and 1.75 percent, respectively, and are
subordinated to all of the Companys future senior indebtedness.
Interest is payable semi-annually in arrears on February 22 and August 22 of each year, commencing
on August 22, 2005. The Company recognized interest expense of $26.0 million, $25.9 million, and
$24.8 million for 2009, 2008, and 2007, respectively, which includes $18.3 million, $17.8 million,
and $16.8 million of amortization of debt discount for 2009, 2008, and 2007, respectively.
As a result of the adoption of FASB amendments to prior guidance on convertible debt (see Note One
Summary of Significant Accounting Policies), the carrying amount of the 2005 Notes was
retrospectively adjusted to reflect a discount of $85.0 million on the date of issuance, with an
offsetting increase in additional paid-in capital of $51.0 million and a reduction to deferred tax
asset of $34.0 million. Such debt discount is amortized to interest expense over a five year period
ending February 22, 2010, the date on which the holders of the 2005 Notes may first require the
Company to repurchase all or a portion of their notes.
On February 1, 2010 the Company called the remaining balance of its 2005 Notes for redemption on
March 3, 2010. There is approximately $413.7 million aggregate principal amount of the notes
outstanding. The holders right to convert their Notes will expire on March 2, 2010. See Note
Fifteen Subsequent Events.
Conversion Value
For each $1,000 principal amount of 2005 Notes, the conversion value represents the amount equal to
40.02 shares multiplied by the per share price of the Companys common stock at the time of
conversion. If the conversion value exceeds $1,000 per $1,000 in principal of Notes, the Company
will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a combination of
cash and stock, at the Companys election. Based on the Companys closing stock price on December
31, 2009 of $43.40, the total conversion value in excess of the total principal value of the notes
was $309.4 million. Upon conversion, the total conversion value in excess of the total principal
value would be recorded as a
- 96 -
reduction to Additional Paid In Capital. Prices in active markets for
the 2005 Notes were within 1 percent of the 2005 Notes conversion value as of December 31, 2009.
As of December 31, 2009, the outstanding principal amount of the 2005 notes, net of unamortized
discount of $2.5 million, conversions of $5.1 million, and extinguishments of $35.0 million, totals
$417.3 million and is included in current liabilities. The Company has reclassified the $2.5
million difference between the 2005 Notes principal value and carrying value from equity to
temporary equity as of December 31, 2009.
Partial Extinguishment
On August 4, 2009, the Company extinguished 35,000 of the 2005 Notes at a price of $1,432 for each
$1,000 note. The Company paid an aggregate price of $50.4 million including accrued interest. The
carrying amount of the equity component of the 2005 Notes and the principal amount, unamortized
discount and net carrying amount of the liability component of the 2005 Notes as of December 31,
2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 (1) |
|
|
|
(In millions) |
|
Gross equity component of 2005 Notes |
|
$ |
85.0 |
|
|
$ |
85.0 |
|
Early extinguishment |
|
|
(15.8 |
) |
|
|
|
|
Conversion |
|
|
(3.2 |
) |
|
|
|
|
Temporary equity |
|
|
(2.5 |
) |
|
|
|
|
Deferred tax asset reduction |
|
|
(33.7 |
) |
|
|
(34.0 |
) |
Equity issuance costs |
|
|
(1.8 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
Equity component of Notes |
|
$ |
28.0 |
|
|
$ |
49.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount of 2005 Notes |
|
$ |
419.8 |
|
|
$ |
460.0 |
|
Unamortized discount of 2005 Notes |
|
|
(2.5 |
) |
|
|
(21.7 |
) |
|
|
|
|
|
|
|
Liability component of 2005 Notes |
|
$ |
417.3 |
|
|
$ |
438.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As adjusted to reflect the adoption of FASB amendments to prior guidance on
convertible debt. See Note One Summary of Significant Accounting Policies. |
- 97 -
Note Nine: Stockholders Equity
Preferred Stock Rights
Pursuant to a Preferred Stock Rights Agreement between the Company and American Stock Transfer and
Trust Company, as rights agent, the Companys Board of Directors declared a dividend of one right
(a Right) to purchase one one-thousandth share of the Companys Series A Participating Preferred
Stock for each outstanding share of the Companys Common Stock outstanding on August 15, 2002.
Each Right entitles the registered holder to purchase one one-thousandth of a share of Series A
Participating Preferred Stock at an exercise price of $90, subject to certain adjustments, upon the
acquisition of, or announcement of the intent to acquire, 15 percent of the Companys Common Stock
by a person or group of affiliated or associated persons. The Rights plan is intended to maximize
the value of the Company in the event of an unsolicited attempt to take over the Company in a
manner or on terms not approved by the Companys Board of Directors.
Restricted Stock Grants
The Company issued service-based restricted Common Stock under the 2003 Stock Plan to certain
senior executives and employees totaling 132,022, 61,966, and 129,000 shares during 2009, 2008, and
2007, respectively. The Company issued performance-based restricted Common Stock under the 2003
Stock Plan to certain executives and employees totaling 450,574, 313,294, and 422,437 shares during
2009, 2008, and 2007, respectively. The service-based and performance-based restricted shares are
subject to return to the Company over a period of three years from date of grant. The Companys
return right is triggered in the event a restricted shareholders recipients employment is
terminated any time during the three year period. As of December 31, 2009, 17,625 of these
service-based restricted shares have been returned to the Company. Performance-based restricted
shares returned to the Company due to terminations for shares issued in 2009, 2008, and 2007 were
1,000, 13,250, and 45,395, respectively. In addition, the percentage of performance based shares,
if any, that will vest will be determined based on the Companys percentage achievement of certain
specified one year performance targets. Up to 200% of the shares issued in 2009 and up to 125% of
the shares issued in 2008 and 2007 can vest if the performance achievement exceeds the performance
targets. The Company has estimated that vested shares will be 449,574, 300,044, and 377,042 related
to the 2009, 2008 and 2007 issuance, respectively. The Company has amortized the fair market value
of the underlying shares on the date the service-based and performance based restricted shares were
granted pro rata over the term of the applicable return right period. The fair value amortization
is adjusted periodically for any changes to the amount of service-based and performance-based
restricted shares expected to vest as a result of the Companys return right triggers.
Stock Repurchase Program
On April 15, 2008, the Company completed the self-tender offer and purchased 10.7 million shares of
its common stock for a purchase price of $28.00 per share or a total cost of $300.0 million. The
Company also incurred costs of approximately $0.6 million to undertake the self-tender offer.
These costs are included in Cost of treasury stock in the Companys consolidated balance sheet at
December 31, 2009 and 2008.
Beginning in 1998, the Board of Directors authorized the Company to repurchase the Companys
outstanding common stock and convertible debt from time to time, subject to price and other
conditions. Since inception, such authorizations totaled $1 billion including a July 29, 2009,
approval to repurchase of up to an additional $150.0 million of the Companys outstanding common
stock or the Companys convertible notes. Under the repurchase program, the Company has used a
total of $866.6 million to repurchase 45.6 million shares of the Companys common stock and $50.1
million to extinguish 2005 convertible subordinated notes with a principal value of $35.0 million.
See Note Eight Convertible Notes.
- 98 -
The Company repurchased 2.8 million shares, 0.2 million shares and 6.6 million shares, at costs of
$94.1 million, $5.5 million, and $166.7 million during 2009, 2008, and 2007, respectively.
Employee Stock Purchase Plans
The Companys 1991 Employee Stock Purchase Plan and 1991 Foreign Subsidiary Employee Stock Purchase
Plan, as amended (collectively the ESPP), allow eligible employees to purchase our Common Stock
through payroll deductions. The ESPP consists of 6-month exercise periods. The shares can be
purchased at 95 percent of the fair market value of the Common Stock on the last day of each
6-month exercise period. Purchases are limited to 10 percent of an employees eligible
compensation, subject to an annual maximum, as defined in the ESPP.
As of December 31, 2009, an aggregate of 13,400,000 shares of Common Stock had been reserved under
the ESPP, of which 970,131 shares remained available for issuance. Employees purchased 87,134
shares, 112,823 shares and 129,591 shares in 2009, 2008, 2007, respectively.
Stock Option Plans
As of December 31, 2009 exercisable and vested options outstanding totaled 80,000 under the expired
1992 Director Option Plan, as amended (the 1992 Director Plan). These options expire 10 years from
the date of grant. Common stock issued or reserved for issuance under the 2001 Director Option Plan
totaled 300,000 shares.
As of December 31, 2009 Common Stock reserved for issuance upon the exercise of options
granted to qualified employees, directors and consultants of the Company pursuant to the 2003 Stock
Plan (2003 Stock Plan) totaled 17,145,376 shares. The Board of Directors, directly or through
committees, administers the Plan and establishes the terms of option grants. Options expire on
terms set forth in the grant notice (generally 10 years from the grant date, and for options
granted after May 25, 2005, not more than 7 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 occurs at various rates and over various time
periods, but generally vest over four years.
On May 27, 2004, the Companys stockholders approved the transfer of all shares available for grant
pursuant to the Companys 1996 Stock Plan and the Companys 1999 Stock Plan to the 2003 Stock Plan
along with all remaining shares represented by grants that are cancelled or forfeited without
exercise under these plans and the 1992 Director Plan and the 2001 Director Option Plan. The
Companys 1988 Stock Plan terminated in June 1998 and the 1992 Director Option Plan terminated in
February 2002 in accordance with its terms, at that time no further grants were made under either
plan, but optionees may exercise vested options prior to their expiration. As of December 31, 2009
unexercised vested options remaining outstanding under both plans totaled 91,500
Stock-Based Compensation Expense
The following table summarizes the total stock-based compensation expense for stock options,
restricted stock grants, and stock appreciation rights that was recorded on the Companys results
of operations for the years ended December 31, 2009, 2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
In thousands, except per share data |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cost of services |
|
$ |
1,540 |
|
|
$ |
1,364 |
|
|
$ |
1,544 |
|
Cost of messaging |
|
|
582 |
|
|
|
484 |
|
|
|
544 |
|
Sales and marketing |
|
|
6,240 |
|
|
|
5,538 |
|
|
|
5,304 |
|
Product development and engineering |
|
|
3,220 |
|
|
|
2,887 |
|
|
|
2,982 |
|
General and administrative |
|
|
14,814 |
|
|
|
12,242 |
|
|
|
13,670 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in total costs and expenses |
|
|
26,396 |
|
|
|
22,515 |
|
|
|
24,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to stock-based compensation expense |
|
|
(7,670 |
) |
|
|
(6,194 |
) |
|
|
(6,775 |
) |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in net income |
|
$ |
18,726 |
|
|
$ |
16,321 |
|
|
$ |
17,269 |
|
|
|
|
|
|
|
|
|
|
|
Reduction of net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
0.19 |
|
Diluted |
|
$ |
0.21 |
|
|
$ |
0.19 |
|
|
$ |
0.19 |
|
- 99 -
FASB guidance on stock-based compensation requires the cash flows resulting from the tax benefits
for tax deductions in excess of the compensation expense recorded for stock-based compensation
(excess tax benefits) to be classified as financing cash flows. Accordingly, the Company
classified $17.0 million, $11.2 million, and $14.5 million in excess tax benefits as financing cash
inflows rather than as operating cash inflows on its statement of cash flows for 2009, 2008, and
2007, respectively.
Determining Fair Value
Valuation and Amortization Method. The Company estimates the fair value of stock options and stock
appreciation rights granted using the Black-Scholes option valuation model and a single option
award approach. The fair value on all options is amortized on a ratable basis over the requisite
service periods of the awards, which are generally the vesting periods.
Expected Term. The expected term of options and stock appreciation rights granted represents the
period of time that they are expected to be outstanding. The Company estimated the expected term of
options granted based on historical exercise patterns, which the Company believes are
representative of future behavior.
Expected Volatility. The Company estimates the volatility of its options and stock appreciation
rights considering both the historical volatility of its stock over periods that were equal to the
expected term of our options and the prices of its publicly traded options, which the Company
believes provides a reasonable estimate of expected volatility factors over the life of the
options.
Risk-Free Interest Rate. The Company based its risk free interest rate on the average of the 5 year
treasury rates as published by the Federal Reserve.
Dividends. The Company has never paid any cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future. Consequently, the Company used an
expected dividend yield of zero in the Black-Scholes option valuation model.
Forfeitures. The Company estimates forfeitures at the time of grant and revises those estimates in
subsequent periods if actual forfeitures differ from those estimates. The Company used historical
data to estimate pre-vesting option forfeitures and record stock-based compensation expense only
for those awards that are expected to vest.
The Company used the following assumptions to estimate the fair value of options and stock
appreciation rights granted for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Expected volatility |
|
|
39.33 |
% |
|
|
28.33 |
% |
|
|
25.84 |
% |
Risk-free interest rates |
|
|
2.09 |
% |
|
|
2.84 |
% |
|
|
4.51 |
% |
Expected lives (years) |
|
|
5.00 |
|
|
|
5.00 |
|
|
|
4.52 |
|
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
- 100 -
Equity Compensation Plans
Price data and activity for the Companys equity compensation plans, including options assumed by
the Company in mergers with other companies (adjusted for the merger exchange ratio) are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options |
|
|
|
|
|
|
and Stock Appreciation |
|
|
Weighted Average |
|
|
|
Rights |
|
|
Exercise Price |
|
|
|
(Number of Shares) |
|
|
Per Share |
|
Balance at December 31, 2006 |
|
|
12,447,141 |
|
|
$ |
18.30 |
|
Granted |
|
|
1,705,588 |
|
|
|
24.61 |
|
Exercised |
|
|
(2,390,625 |
) |
|
|
15.96 |
|
Forfeited or expired |
|
|
(592,940 |
) |
|
|
18.39 |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
11,169,164 |
|
|
$ |
19.76 |
|
Granted |
|
|
1,549,327 |
|
|
|
29.18 |
|
Exercised |
|
|
(2,623,985 |
) |
|
|
18.04 |
|
Forfeited or expired |
|
|
(352,369 |
) |
|
|
22.06 |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
9,742,137 |
|
|
$ |
21.63 |
|
Granted |
|
|
1,102,736 |
|
|
|
30.20 |
|
Exercised |
|
|
(3,187,550 |
) |
|
|
21.06 |
|
Forfeited or expired |
|
|
(200,106 |
) |
|
|
24.37 |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
7,457,217 |
|
|
$ |
23.07 |
|
|
|
|
|
|
|
|
|
The weighted average fair value of options granted was $11.30, $8.87, and $7.38 per share in 2009,
2008 and 2007, respectively. The total fair value of options vested was $13.4 million, $13.3
million, and $15.7 million in 2009, 2008, and 2007, respectively.
At December 31, 2009, options and stock appreciation rights to purchase 4,975,513 shares were
exercisable at prices ranging from $1.25 to $42.62. All 7,253,099 shares available for grant at
December 31, 2009 were available under the 2003 Stock Plan.
- 101 -
Equity compensation plans outstanding and exercisable at December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options & Stock Appreciation Rights Outstanding |
|
|
Options & Stock Appreciation Rights Exercisable |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
Aggregate |
|
Ranges of |
|
|
|
|
|
Contractual |
|
|
Exercise |
|
|
Intrinsic |
|
|
|
|
|
|
Contractual |
|
|
Exercise |
|
|
Intrinsic |
|
Exercisable Prices |
|
Shares |
|
|
Life |
|
|
Price |
|
|
Value |
|
|
Shares |
|
|
Life |
|
|
Price |
|
|
Value |
|
|
$1.25 to $15.52 |
|
|
1,299,357 |
|
|
|
2.97 |
|
|
$ |
13.16 |
|
|
$ |
39,292,643 |
|
|
|
1,297,865 |
|
|
|
2.97 |
|
|
$ |
13.17 |
|
|
$ |
39,236,737 |
|
$15.55 to $21.25 |
|
|
1,356,704 |
|
|
|
3.17 |
|
|
$ |
19.96 |
|
|
|
31,795,167 |
|
|
|
1,256,009 |
|
|
|
3.14 |
|
|
$ |
19.86 |
|
|
|
29,561,119 |
|
$21.26 to $24.26 |
|
|
1,700,227 |
|
|
|
3.53 |
|
|
$ |
22.90 |
|
|
|
34,849,367 |
|
|
|
1,200,888 |
|
|
|
3.17 |
|
|
$ |
22.51 |
|
|
|
25,082,178 |
|
$24.44 to $28.22 |
|
|
1,372,138 |
|
|
|
3.90 |
|
|
$ |
25.93 |
|
|
|
23,970,969 |
|
|
|
821,841 |
|
|
|
3.16 |
|
|
$ |
25.69 |
|
|
|
14,553,868 |
|
$28.37 to $30.70 |
|
|
1,287,270 |
|
|
|
5.91 |
|
|
$ |
29.64 |
|
|
|
17,710,215 |
|
|
|
294,550 |
|
|
|
5.64 |
|
|
$ |
29.23 |
|
|
|
4,174,296 |
|
$30.79 to $42.62 |
|
|
441,521 |
|
|
|
5.72 |
|
|
$ |
34.36 |
|
|
|
3,989,243 |
|
|
|
104,360 |
|
|
|
5.56 |
|
|
$ |
34.38 |
|
|
|
941,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.25 to $42.62 |
|
|
7,457,217 |
|
|
|
3.98 |
|
|
$ |
23.07 |
|
|
$ |
151,607,604 |
|
|
|
4,975,513 |
|
|
|
3.31 |
|
|
$ |
20.58 |
|
|
$ |
113,549,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company defines in-the-money options as options that had exercise prices that were lower
than the $43.40 market price of its common stock at December 31, 2009. The aggregate intrinsic
value of options outstanding is calculated as the difference between the exercise price of the
underlying options and the market price of its common stock for the 7.5 million shares that were
in-the-money at December 31, 2009. There were 5.0 million in-the-money options exercisable at
December 31, 2009. The total intrinsic value of options exercised was $43.5 million, $48.7 million,
and $38.1 million in 2009, 2008, and 2007, respectively, determined as of the date of exercise.
Nonvested restricted stock grants as of December 31, 2009 and changes during 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
|
|
|
|
|
|
grant date fair |
|
|
|
Shares |
|
|
value per share |
|
Nonvested at December 31, 2008 |
|
|
1,244,466 |
|
|
$ |
24.74 |
|
Granted |
|
|
615,687 |
|
|
|
28.84 |
|
Vested |
|
|
(396,813 |
) |
|
|
21.51 |
|
Forfeited |
|
|
(31,317 |
) |
|
|
25.56 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008 |
|
|
1,432,023 |
|
|
$ |
27.38 |
|
|
|
|
|
|
|
|
|
The Company recorded $12.6 million in stock-based compensation expense before income tax benefit
for stock options and stock appreciation rights and $13.8 million in stock-based compensation
expense before income tax benefit for restricted stock grants in its results of operations for
2009. The total tax benefit related to this stock-based compensation was $7.7 million. The Company
recorded $12.3 million in stock-based compensation expense before income tax benefit for stock
options and stock appreciation rights and $10.2 million in stock-based compensation expense before
income tax benefit for restricted stock grants in its results of operations for 2008. The total tax
benefit related to this stock-based compensation was $6.2 million. The Company recorded $13.9
million in stock-based compensation expense before income tax benefit for stock options and stock
appreciation rights and $10.2 million in stock-based compensation expense before income tax benefit
for restricted stock grants in its results of operations for 2007. The total tax benefit related
to this stock-based compensation was $6.8 million. As of December 31, 2009, there was $44.1 million
of total unrecognized compensation cost before income tax benefit related to non-vested stock-based
compensation arrangements granted under all equity compensation plans. Total unrecognized
compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects
to recognize the cost for stock options and stock appreciation rights over a weighted average
period of 2.3 years. The Company expects to recognize the cost for restricted stock over a weighted
average period of 1.2 years.
- 102 -
The Company received $68.0 million, $50.0 million, and $41.2 million in cash from option exercises
and its Employee Stock Purchase Plan in 2009, 2008, and 2007, respectively. The actual tax benefits
that the Company realized related to tax deductions for non-qualified option exercises and
disqualifying dispositions under all stock-based payment arrangements totaled $13.1 million during
2009, $10.1 million during 2008, and $7.3 million during 2007.
Due primarily to the Companys ongoing program of repurchasing its common stock on the open
market, at December 31, 2009 the Company had 24.9 million treasury shares. The Company satisfies
option exercises from this pool of treasury shares.
Other Stock Option Plans
FFI Stock Option Plans
In 2000, the Company established the 2000 FFI Stock Option Plan (2000 FFI Plan). In March 2001,
the 2000 FFI Plan was terminated and no further options were granted under the Plan. At December
31, 2009, an aggregate of 7,088,870 shares of Common Stock have been reserved for issuance upon the
exercise of options granted to qualified employees and consultants of the Company. As a
majority-owned subsidiary of the Company, all options issued under the 2000 FFI Plan were granted
at the estimated fair market value of the option at the date of grant. As FFI is not a public
company, the fair market value of the shares issued under the plan has been determined by the
Company. Options expire ten years from the grant date.
In 2001, the Company established the 2001 FFI Stock Option Plan (2001 FFI Plan). At December 31,
2009, an aggregate of 6,175,360 shares of FFIs common stock have been reserved for issuance upon
the exercise of options granted to qualified employees and. As FFI is not a public company, the
fair market value of the shares issued under the plan has been determined based on a valuation
prepared by the Company. FFIs Board of Directors, directly or through committees, administers the
2001 FFI Plan and establishes the terms of option grants. Options expire ten years from the grant
date. Vesting occurs at the rate of at least 20 percent per year over 5 years from the date options
are granted. No options have been granted subsequent to 2004.
iAS Stock Option Plan
In 2001, the Company established the 2001 iAS Stock Option Plan (iAS Plan) and reserved for
issuance an aggregate of 15,250,000 shares of iAS common stock upon the exercise of options granted
to qualified employees and consultants of iAnywhere Solutions, Inc., a majority-owned subsidiary of
the Company, and certain employees of Sybase, Inc. iASs Board of Directors, directly or through
committees, administers the iAS Plan and establishes the terms of option grants. Because iAS is
not a public company, the fair market value of the shares issued under the plan has been determined
by iASs Board of Directors and supported by a valuation prepared by the Company. Options expire
ten years from the grant date, or three months after termination of employment, or two years after
death, or one year after permanent disability. Vesting occurs at the rate of at least 20 percent
per year over 5 years from the date options are granted. No options have been granted subsequent to
2005.
- 103 -
Price data and activity for the FFI stock option plans and the iAS Plan are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFI Stock Plans |
|
|
iAS Plan |
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
Weighted average |
|
|
|
Outstanding options |
|
|
Exercise price |
|
|
Outstanding options |
|
|
Exercise price |
|
|
|
number of shares |
|
|
Per share |
|
|
number of shares |
|
|
Per share |
|
|
|
|
Balance at December 31, 2006 |
|
|
3,178,368 |
|
|
$ |
3.22 |
|
|
|
10,233,340 |
|
|
$ |
2.51 |
|
Forfeited or expired |
|
|
(876,078 |
) |
|
|
1.98 |
|
|
|
(1,079,021 |
) |
|
|
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
2,302,290 |
|
|
$ |
2.83 |
|
|
|
9,154,319 |
|
|
$ |
2.51 |
|
Forfeited or expired |
|
|
(251,624 |
) |
|
|
2.31 |
|
|
|
(539,442 |
) |
|
|
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
2,050,666 |
|
|
$ |
2.90 |
|
|
|
8,614,877 |
|
|
$ |
2.51 |
|
Forfeited or expired |
|
|
(111,728 |
) |
|
|
2.16 |
|
|
|
(415,353 |
) |
|
|
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
1,938,938 |
|
|
$ |
2.94 |
|
|
|
8,199,524 |
|
|
$ |
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about the FFI stock options outstanding at December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Options Exercisable |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
Ranges of |
|
|
|
|
|
Contractual |
|
|
Exercise |
|
Exercisable prices |
|
Shares |
|
|
Life |
|
|
Price |
|
|
|
|
$0.75 |
|
|
486,000 |
|
|
|
3.08 |
|
|
$ |
0.75 |
|
$0.78 |
|
|
458,000 |
|
|
|
3.67 |
|
|
$ |
0.78 |
|
$5.00 |
|
|
994,938 |
|
|
|
0.73 |
|
|
$ |
5.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.75 to $5.00 |
|
|
1,938,938 |
|
|
|
2.01 |
|
|
$ |
2.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, there were 8,199,524 shares exercisable under the iAS Plan all at an exercise
price of $2.51 per share. The weighted average remaining contractual life of the options
outstanding and options exercisable was 1.97 years at December 31, 2009.
There are no intrinsic values for FFI or iAS stock options as of December 31, 2009
Note Ten: Income Taxes
The following is a geographical breakdown of income before the provision for income taxes (In
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
United States |
|
$ |
140,909 |
|
|
$ |
86,642 |
|
|
$ |
102,218 |
|
Foreign |
|
|
111,150 |
|
|
|
102,996 |
|
|
|
71,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
252,059 |
|
|
$ |
189,638 |
|
|
$ |
173,515 |
|
|
|
|
|
|
|
|
|
|
|
- 104 -
The provisions (benefits) for income taxes consisted of the following (In thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
42,753 |
|
|
$ |
12,185 |
|
|
$ |
5,005 |
|
Deferred |
|
|
11,491 |
|
|
|
15,818 |
|
|
|
5,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,244 |
|
|
|
28,003 |
|
|
|
10,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
8,649 |
|
|
$ |
5,886 |
|
|
$ |
2,572 |
|
Deferred |
|
|
2,618 |
|
|
|
(4,979 |
) |
|
|
2,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,267 |
|
|
|
907 |
|
|
|
5,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
30,966 |
|
|
$ |
35,199 |
|
|
$ |
21,417 |
|
Deferred |
|
|
(8,477 |
) |
|
|
(2,657 |
) |
|
|
(2,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
22,489 |
|
|
|
32,542 |
|
|
|
18,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
88,000 |
|
|
$ |
61,452 |
|
|
$ |
34,388 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differed from the amount computed by applying the federal statutory
rate to our income before provision for income taxes as follows (In thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Tax (credit) at U.S. statutory rate |
|
$ |
88,221 |
|
|
$ |
66,250 |
|
|
$ |
60,608 |
|
State tax, net of federal benefit |
|
|
8,230 |
|
|
|
5,852 |
|
|
|
3,871 |
|
Reduction in purchase price paid for Mobile 365 Inc. |
|
|
(5,094 |
) |
|
|
0 |
|
|
|
0 |
|
Valuation allowances added for unused capital losses |
|
|
0 |
|
|
|
4,685 |
|
|
|
0 |
|
Valuation allowances released due to change in
judgment |
|
|
(2,573 |
) |
|
|
(6,675 |
) |
|
|
(26,428 |
) |
Effect of foreign operations |
|
|
(1,168 |
) |
|
|
(9,081 |
) |
|
|
(1,677 |
) |
Other |
|
|
384 |
|
|
|
421 |
|
|
|
(1,986 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
88,000 |
|
|
$ |
61,452 |
|
|
$ |
34,388 |
|
|
|
|
|
|
|
|
|
|
|
The $5,094 thousand tax benefit results from payments received from the former shareholders of
Mobile 365 Inc. which are treated as a reduction in purchase price consideration paid for Mobile
365 Inc.
The components of the deferred tax assets and liabilities consist of the following (In thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Depreciation |
|
$ |
12,632 |
|
|
$ |
10,932 |
|
Deferred revenue |
|
|
6,881 |
|
|
|
2,644 |
|
Accrued expenses |
|
|
43,890 |
|
|
|
35,550 |
|
Tax loss and credit carryforwards |
|
|
88,190 |
|
|
|
116,555 |
|
Intangible assets |
|
|
26,713 |
|
|
|
36,137 |
|
Stock-based compensation |
|
|
13,174 |
|
|
|
11,012 |
|
Other assets |
|
|
13,911 |
|
|
|
10,832 |
|
|
|
|
|
|
|
|
Gross deferred tax asset |
|
|
205,391 |
|
|
|
223,662 |
|
|
|
|
|
|
|
|
Unremitted foreign earnings |
|
|
(50,555 |
) |
|
|
(35,359 |
) |
Acquired Intangibles |
|
|
(25,070 |
) |
|
|
(34,663 |
) |
- 105 -
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Capitalized Software |
|
|
(34,225 |
) |
|
|
(32,960 |
) |
Convertible Debt Discount |
|
|
(28,750 |
) |
|
|
(8,680 |
) |
|
|
|
|
|
|
|
Gross deferred tax liability |
|
|
(138,600 |
) |
|
|
(111,662 |
) |
|
|
|
|
|
|
|
Total before valuation allowance |
|
|
66,791 |
|
|
|
112,000 |
|
Valuation allowance |
|
|
(50,720 |
) |
|
|
(60,580 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
16,071 |
|
|
$ |
51,420 |
|
|
|
|
|
|
|
|
Recorded as: |
|
|
|
|
|
|
|
|
Current deferred tax assets |
|
$ |
58,494 |
|
|
$ |
45,524 |
|
Noncurrent deferred tax assets |
|
|
7,188 |
|
|
|
17,794 |
|
Noncurrent deferred tax liabilities |
|
|
(49,611 |
) |
|
|
(11,898 |
) |
|
|
|
|
|
|
|
|
|
$ |
16,071 |
|
|
$ |
51,420 |
|
|
|
|
|
|
|
|
The valuation allowance decreased by $9.9 million, $31.2 million, and $78.4 million in 2009, 2008
and 2007, respectively. This valuation allowance relates to the deferred tax assets that the
Company believes are not more likely than not (a likelihood of more than 50 percent) to be
realized. The movement was primarily related to the following items (In thousands):
|
|
|
|
|
Valuation allowances associated with deferred tax assets used during the year |
|
$ |
(9,922 |
) |
Valuation allowances associated with tax loss and credit carryforwards
projected to be used in future years |
|
|
(2,573 |
) |
Valuation allowance associated with current year losses incurred and credits
earned |
|
|
2,635 |
|
|
|
|
|
|
|
$ |
(9,860 |
) |
|
|
|
|
The valuation allowance includes approximately $9.0 million associated with stock option activity
for which any recognized tax benefits will be credited directly to shareholders equity if and when
the related deferred tax asset is used to reduce current tax payable. The remaining valuation
allowance relates primarily to federal and state net operating loss carryforwards and State net
operating loss and tax credit carryforwards, which, if realized, will be credited to tax benefit.
Realizing the benefit of these loss and credit carryforwards depends primarily on earning
sufficient future taxable income in the United States, and in the case of state losses and credits,
earning sufficient future taxable income in the relevant states.
As of December 31, 2009, the Company had federal research and development tax credits of
approximately $11.0 million, which expire in years from 2023 through 2029, foreign tax credits of
approximately $17.0 million expiring in years from 2015 through 2018, minimum tax credits of
approximately $6.0 million currently not subject to expiration dates, and approximately $93 million
of net operating losses which expire in years from 2019 through 2025. As of December 31, 2009,
the Company had State net operating losses of $4.0 million (tax-effected) expiring in years 2012
through 2021 and $33.0 million of State research credits, a portion of which expire in 2013 and a
portion of which have no expiration period.
No provision has been made for income taxes and foreign withholding taxes on approximately $87.0
million of undistributed earnings from non-US operations as of December 31, 2009 because the
Company currently plans to permanently reinvest all such earnings. If the Company did not plan on
permanently reinvesting these earnings, the additional deferred tax liability would be
approximately $27.0 million. When excess cash accumulates in the Companys non-US subsidiaries,
the subsidiarys earnings are remitted if it is advantageous for business, tax and foreign exchange
reasons.
- 106 -
The aggregate changes in the balance of our gross unrecognized tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Gross unrecognized tax benefits as of January 1 |
|
$ |
64,680 |
|
|
$ |
50,182 |
|
|
$ |
44,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases for tax positions from prior years |
|
|
5,263 |
|
|
|
4,623 |
|
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreases for tax positions from prior years |
|
|
|
|
|
|
(2,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases for tax positions taken during the current year |
|
|
16,841 |
|
|
|
18,176 |
|
|
|
9,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements with tax authorities |
|
|
(303 |
) |
|
|
(786 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapses of statutes of limitation |
|
|
(5,229 |
) |
|
|
(4,843 |
) |
|
|
(5,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits as of December 31 |
|
$ |
81,253 |
|
|
$ |
64,680 |
|
|
$ |
50,182 |
|
|
|
|
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits that would affect the Companys effective tax rate if
recognized is $78.0 million as of December 31, 2009 and $63.0 million as of December 31, 2008.
The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. The liability for unrecognized tax benefits included accrued interest of $4.4 million and
$3.7 million and no penalties at December 31, 2009 and December 31, 2008, respectively, and this
accrued interest is included in the above table. Tax expense included interest of approximately
$1.8 million, $1.7 million, and $1.0 million and no penalties for the years ending December 31,
2009, December 31, 2008, and December 31, 2007, respectively.
Sybase, Inc. or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction,
and various states and foreign jurisdictions. With a few exceptions, the Company is no longer
subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for
years before 2006. The Company is under U.S. federal tax examination for the years 2006 and 2007.
Income tax returns filed in certain other foreign jurisdictions and states are also under
examination. During the next 12 months, it is reasonably possible that the total amounts of
unrecognized tax benefits will decrease by up to $9.0 million due to tax settlement payments and
the expiration of statutes of limitation. The Company believes that it has adequately provided for
any reasonably foreseeable outcomes related to its tax audits and that any settlement will not have
a material adverse effect on its consolidated financial position or statements of operations.
However, if the Companys estimate of tax liabilities proves to be less than the ultimate
assessment, a further charge to expense would result.
Note Eleven: Benefit Plans
401(k) Defined Contribution Retirement Plan
The Company maintains a defined contribution retirement plan pursuant to Section 401(k) of the
Internal Revenue Code (the 401(k) Plan) that allows eligible employees to contribute up to a
certain percentage of their annual compensation to the Plan, subject to the annual IRS limit. In
2009 and 2008, 401(k) Plan participants who (i) attained the age of 50 during the calendar year and
(ii) had made the maximum plan or IRS pre-tax contribution were able to make an additional
catch-up contribution up to a maximum of $5,500 and $5,000, respectively. In 2009, 2008 and
2007, the Company matched employee contribution at a rate of $0.50 for each dollar up to the first
$4,000 of salary contributed by the employee, with a maximum employer match of $2,000 for the year
fully vested. The Plan also allows the Company to make discretionary contributions. There were no
such discretionary contributions made in 2009, 2008 or 2007.
- 107 -
Deferred Compensation Plan
The Company maintains a rabbi trust related to a deferred compensation plan established to provide
certain employees and non-employee members of the Board of Directors (Plan Participants) with the
opportunity to defer the receipt of compensation. The Plan is intended to satisfy the requirements
of IRS Code Section 409A. Under the terms of the Plan, the Plan Participants may elect to defer
the receipt of a portion of their compensation. Each election to defer compensation also requires
that the Plan Participant specify the timing of the distribution of such amounts in the future.
Each Plan Participant directs the manner in which their investments are deemed invested.
Investment options mirror those of the Companys 401(k) plan and exclude investments in Company
stock. The Company invests its own funds in amounts equal to the hypothetical investment choice of
the Plan Participant. The Company has established a Rabbi Trust for the purpose of providing for
the payment of benefits/distributions under the Plan. The trust is structured to conform to the
model approved by the IRS pursuant to Revenue Procedure 92-64 and the assets of the trust are
subject to the claims of the Companys general creditors. To the extent the deferred amounts under
the Plan are actually paid to the employee, the Company no longer has any further obligation with
respect thereto, but to the extent not paid to the employee, such deferred amounts remain the
obligation of the Company. As of December 31, 2009 and 2008, investments in mutual funds that are
held in the Rabbi Trust and the amount due to plan participants each totaled $11.9 million and $8.6
million, respectively.
Note Twelve: Segment and Geographical Information
In 2009, the Companys business was organized into three business segments: Infrastructure Platform
Group (IPG), which principally focuses on enterprise class database servers, integration and
development products; iAnywhere Solutions, Inc. (iAS), which provides mobile device management,
mobile middleware platforms, database, synchronization, and Bluetooth and infrared protocol
technologies; and Sybase 365 (SY365), which provides application services that allows customers to
deliver and financially settle mobile data and messages, including short message services or SMS,
and multimedia messaging services or MMS, and GPRS roaming exchange services or GRX. Until
December 31, 2007, AvantGo results were reported as part of the iAS segment. Commencing on January
1, 2008, AvantGo is a part of the SY365 segment. The Company has reclassified applicable revenue
and expense amounts for all earlier periods reported to reflect this segment change.
The Companys chief operating decision maker is the President and Chief Executive Officer (CEO).
While the CEO is apprised of a variety of financial metrics and information, the Companys business
is principally managed on a segment basis, with the CEO evaluating performance based upon segment
operating profit or loss that includes an allocation of common expenses, but excludes certain
unallocated expenses, primarily stock based compensation expense. The CEO does not view segment
results below operating profit (loss) before unallocated costs, and therefore unallocated expenses
or savings; 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 CEO, assets or
capital expenditures by segment.
Certain common costs and expenses are allocated based on measurable drivers of expense.
Unallocated expenses or savings represent corporate activities (expenditures or cost savings) that
are not specifically allocated to the segments including stock-based compensation expenses and
reversals of restructuring expenses associated with restructuring activities undertaken prior to 2003. Unallocated costs for
2009, 2008, and 2007 consisted primarily of stock-based compensation expenses.
Segment license and service revenues include transactions between iAS and IPG. The most common
instance relates to the sale of iAS products and services to third parties by IPG. In the case of
such a transaction, IPG records the revenue on the sale with a corresponding inter-company expense
on the transaction, with corresponding inter-company revenue recorded by iAS together with costs of
providing the product or service. The excess of revenues over inter-company expense recognized by
IPG is intended to reflect the costs incurred by IPG to complete the sales transaction. Total
transactions between the segments are captured in Eliminations.
- 108 -
A summary of the segment financial information reported to the CEO for the year ended December 31,
2009 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In thousands) |
|
IPG |
|
|
iAS |
|
|
SY365 |
|
|
Elimination |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure |
|
$ |
292,782 |
|
|
$ |
101 |
|
|
$ |
1,298 |
|
|
$ |
|
|
|
$ |
294,181 |
|
Mobile and Embedded |
|
|
44,485 |
|
|
|
64,103 |
|
|
|
10 |
|
|
|
|
|
|
|
108,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal license fees |
|
|
337,267 |
|
|
|
64,204 |
|
|
|
1,308 |
|
|
|
|
|
|
|
402,779 |
|
Intersegment license revenues |
|
|
122 |
|
|
|
37,193 |
|
|
|
34 |
|
|
|
(37,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license fees |
|
|
337,389 |
|
|
|
101,397 |
|
|
|
1,342 |
|
|
|
(37,349 |
) |
|
|
402,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct service revenue |
|
|
531,246 |
|
|
|
37,546 |
|
|
|
2,406 |
|
|
|
|
|
|
|
571,198 |
|
Intersegment service revenues |
|
|
|
|
|
|
31,076 |
|
|
|
|
|
|
|
(31,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
|
531,246 |
|
|
|
68,622 |
|
|
|
2,406 |
|
|
|
(31,076 |
) |
|
|
571,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct messaging revenue |
|
|
6 |
|
|
|
|
|
|
|
196,586 |
|
|
|
|
|
|
|
196,592 |
|
Intersegment messaging revenues |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total messaging |
|
|
6 |
|
|
|
|
|
|
|
196,591 |
|
|
|
(5 |
) |
|
|
196,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
868,641 |
|
|
|
170,019 |
|
|
|
200,339 |
|
|
|
(68,430 |
) |
|
|
1,170,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allocated costs and expenses before
amortization of other purchased
intangibles, purchased technology, cost of
restructure, and unallocated costs |
|
|
593,187 |
|
|
|
118,336 |
|
|
|
178,472 |
|
|
|
(68,430 |
) |
|
|
821,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before amortization of
other purchased intangibles, purchased
technology, cost of restructure, and
unallocated costs |
|
|
275,454 |
|
|
|
51,683 |
|
|
|
21,867 |
|
|
|
|
|
|
|
349,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles |
|
|
2,048 |
|
|
|
4,094 |
|
|
|
9,000 |
|
|
|
|
|
|
|
15,142 |
|
Amortization of purchased technology |
|
|
1,464 |
|
|
|
7,852 |
|
|
|
4,684 |
|
|
|
|
|
|
|
14,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before cost of
restructure and unallocated costs |
|
|
271,942 |
|
|
|
39,737 |
|
|
|
8,183 |
|
|
|
|
|
|
|
319,862 |
|
Cost of restructure 2009 Activity |
|
|
1,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before unallocated costs |
|
|
270,668 |
|
|
|
39,737 |
|
|
|
8,183 |
|
|
|
|
|
|
|
318,588 |
|
Unallocated costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, interest expense and
other, net, and total other-than-temporary
impairment losses recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
252,059 |
|
A summary of the segment financial information reported to the CEO for the year ended December
31, 2008 is presented below (in thousands)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In thousands) |
|
IPG |
|
|
iAS |
|
|
SY365 |
|
|
Elimination |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure |
|
$ |
274,937 |
|
|
$ |
353 |
|
|
$ |
214 |
|
|
$ |
|
|
|
$ |
275,504 |
|
Mobile and Embedded |
|
|
33,066 |
|
|
|
75,069 |
|
|
|
22 |
|
|
|
|
|
|
|
108,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal license fees |
|
|
308,003 |
|
|
|
75,422 |
|
|
|
236 |
|
|
|
|
|
|
|
383,661 |
|
Intersegment license revenues |
|
|
508 |
|
|
|
27,566 |
|
|
|
|
|
|
|
(28,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 109 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In thousands) |
|
IPG |
|
|
iAS |
|
|
SY365 |
|
|
Elimination |
|
|
Total |
|
Total license fees |
|
|
308,511 |
|
|
|
102,988 |
|
|
|
236 |
|
|
|
(28,074 |
) |
|
|
383,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct service revenue |
|
|
527,956 |
|
|
|
42,485 |
|
|
|
1,649 |
|
|
|
|
|
|
|
572,090 |
|
Intersegment service revenues |
|
|
185 |
|
|
|
33,250 |
|
|
|
|
|
|
|
(33,435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
|
528,141 |
|
|
|
75,735 |
|
|
|
1,649 |
|
|
|
(33,435 |
) |
|
|
572,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct messaging revenue |
|
|
41 |
|
|
|
|
|
|
|
176,138 |
|
|
|
|
|
|
|
176,179 |
|
Intersegment messaging revenues |
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total messaging |
|
|
41 |
|
|
|
|
|
|
|
176,172 |
|
|
|
(34 |
) |
|
|
176,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
836,693 |
|
|
|
178,723 |
|
|
|
178,057 |
|
|
|
(61,543 |
) |
|
|
1,131,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allocated costs and expenses before
amortization of other purchased
intangibles, purchased technology, cost of
restructure, and unallocated costs |
|
|
629,642 |
|
|
|
137,526 |
|
|
|
160,216 |
|
|
|
(61,543 |
) |
|
|
865,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before amortization of
other purchased intangibles, purchased
technology, cost of restructure, and
unallocated costs |
|
|
207,051 |
|
|
|
41,197 |
|
|
|
17,841 |
|
|
|
|
|
|
|
266,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles |
|
|
2,108 |
|
|
|
4,092 |
|
|
|
8,516 |
|
|
|
|
|
|
|
14,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased technology |
|
|
4,645 |
|
|
|
8,948 |
|
|
|
4,042 |
|
|
|
|
|
|
|
18,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before cost of
restructure and unallocated costs |
|
|
200,298 |
|
|
|
27,157 |
|
|
|
5,283 |
|
|
|
|
|
|
|
232,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of restructure 2008 Activity |
|
|
315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before unallocated costs |
|
|
199,983 |
|
|
|
27,157 |
|
|
|
5,283 |
|
|
|
|
|
|
|
232,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, interest expense and
other, net, and total other-than-temporary
impairment losses recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
189,638 |
|
|
|
|
(1) |
|
As adjusted to reflect the adoption FASB amendments to existing guidance on
convertible debt and noncontrolling interests. See Note One Summary of Significant Accounting
Policies and Note Eight Convertible Notes. |
A summary of the segment financial information reported to the CEO for the year ended December
31, 2007 is presented below (in thousands) (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
IPG |
|
|
iAS |
|
|
SY365 |
|
|
Elimination |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure |
|
$ |
238,336 |
|
|
$ |
511 |
|
|
$ |
22 |
|
|
$ |
|
|
|
$ |
238,869 |
|
Mobile and Embedded |
|
|
36,744 |
|
|
|
69,194 |
|
|
|
|
|
|
|
|
|
|
|
105,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal license fees |
|
|
275,080 |
|
|
|
69,705 |
|
|
|
22 |
|
|
|
|
|
|
|
344,807 |
|
Intersegment license revenues |
|
|
384 |
|
|
|
30,627 |
|
|
|
|
|
|
|
(31,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license fees |
|
|
275,464 |
|
|
|
100,332 |
|
|
|
22 |
|
|
|
(31,011 |
) |
|
|
344,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct service revenue |
|
|
496,198 |
|
|
|
43,826 |
|
|
|
4,185 |
|
|
|
|
|
|
|
544,209 |
|
Intersegment service revenues |
|
|
445 |
|
|
|
29,002 |
|
|
|
|
|
|
|
(29,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
|
496,643 |
|
|
|
72,828 |
|
|
|
4,185 |
|
|
|
(29,447 |
) |
|
|
544,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messaging |
|
|
|
|
|
|
|
|
|
|
136,514 |
|
|
|
|
|
|
|
136,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
772,107 |
|
|
|
173,160 |
|
|
|
140,721 |
|
|
|
(60,458 |
) |
|
|
1,025,530 |
|
- 110 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
(In thousands) |
|
IPG |
|
|
iAS |
|
|
SY365 |
|
|
Elimination |
|
|
Total |
|
Total allocated costs and expenses before
amortization of other purchased intangibles,
purchased technology, cost of restructure, and
unallocated costs |
|
|
600,462 |
|
|
|
133,758 |
|
|
|
129,997 |
|
|
|
(60,458 |
) |
|
|
803,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before amortization of other
purchased intangibles, purchased technology,
cost of restructure, and unallocated costs |
|
|
171,645 |
|
|
|
39,402 |
|
|
|
10,724 |
|
|
|
|
|
|
|
221,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles |
|
|
2,108 |
|
|
|
4,168 |
|
|
|
7,507 |
|
|
|
|
|
|
|
13,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased technology |
|
|
1,611 |
|
|
|
8,222 |
|
|
|
3,758 |
|
|
|
|
|
|
|
13,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before cost of
restructure and unallocated costs |
|
|
167,926 |
|
|
|
27,012 |
|
|
|
(541 |
) |
|
|
|
|
|
|
194,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of restructure 2007 Activity |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before unallocated costs |
|
|
167,939 |
|
|
|
27,012 |
|
|
|
(541 |
) |
|
|
|
|
|
|
194,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, interest expense and other,
net, and total other-than-temporary impairment
losses recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
173,515 |
|
|
|
|
(1) |
|
As adjusted to reflect the adoption FASB amendments to existing guidance on
convertible debt and noncontrolling interests. See Note One Summary of Significant Accounting
Policies and Note Eight Convertible Notes. |
Geographic Information
The Company operates in two industries: the development and marketing of computer software and
related services; and the mobile messaging services industry. The company markets its products and
services internationally through both foreign subsidiaries and distributors located in the United
States, Europe, Asia, Australia, Canada, New Zealand and Latin America. Other includes operations
in Asia, Australia, Canada, New Zealand and Latin America. The following table presents a summary
of annual revenues and net long-lived assets excluding deferred tax assets by geographic region (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008
(1) |
|
|
2007
(1) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
575,432 |
|
|
$ |
533,238 |
|
|
$ |
499,815 |
|
Europe |
|
|
397,851 |
|
|
|
399,477 |
|
|
|
342,029 |
|
Other |
|
|
197,286 |
|
|
|
199,215 |
|
|
|
183,686 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,170,569 |
|
|
$ |
1,131,930 |
|
|
$ |
1,025,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
782,662 |
|
|
$ |
708,467 |
|
|
$ |
769,435 |
|
Europe |
|
|
90,140 |
|
|
|
91,528 |
|
|
|
59,380 |
|
Other |
|
|
27,137 |
|
|
|
30,643 |
|
|
|
46,129 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
899,939 |
|
|
$ |
830,638 |
|
|
$ |
874,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As adjusted to reflect the adoption FASB amendments to existing guidance
on convertible debt. See Note One Summary of Significant Accounting Policies and Note Eight
Convertible Notes. |
Note Thirteen: Business Combinations
On December 30, 2008, the Company acquired Germany-based Paybox Solutions AG (Paybox), a privately
held provider of mobile payment solutions for approximately $11.5 million in cash plus a
revenue-based earn-out. In 2009, earn-out milestones were achieved, and the Company adjusted
goodwill by $3.0 million. Paybox was integrated into the SY365 segment from December 30, 2008
onward.
- 111 -
On July 4, 2008, the Company acquired the Cable & Wireless international inter-operator Multimedia
Messaging Service (MMS) hubbing and Mobile Data Roaming services for a total cash consideration of
$29.5 million plus a revenue-based earn-out. In 2009, earn-out milestones were achieved, and the
Company adjusted goodwill by $0.2 million. The mobile data roaming services and MMS hubbing service
was integrated into the SY365 segment from July 4, 2008 onward.
Note Fourteen: Litigation
There are currently multiple patent litigations ongoing, and related reexamination proceedings in
the Patent & Trademark Office, between Sybase or Sybase 365 and Telecommunication Systems, Inc.
Two of the cases between these entities recently settled.
A. On July 13, 2006, Telecommunications Systems, Inc. (TCS), a wireless services provider,
filed a complaint for patent infringement in the U.S. District Court for the Eastern District of
Virginia, alleging that Mobile 365 infringes U.S. Patent 6,985,748 (the 748 patent). Sybase 365
filed a petition for inter partes reexamination proceeding on the 748 patent with the Patent &
Trademark Office in February 2008, which the PTO accepted. In August 2009, the PTO issued a first
office action rejecting all of the claims of the 748 Patent on multiple grounds of anticipation
and obviousness. On July 30, 2009, TCS filed a complaint in the U.S. District Court for the
Eastern District of Virginia, alleging that Sybase 365 infringes TCSs related U.S. Patent #
7,430,425 entitled Inter-Carrier Digital Message with User Data Payload Service Providing Phone
Number Only Experience (the 425 Patent). On August 19, 2009, Sybase 365 filed a petition for
inter partes reexamination of the 425 Patent with the Patent & Trademark Office. On October 23,
2009, the PTO accepted the petition for inter partes reexamination and issued a first office action
rejecting all of the claims of the patent on multiple grounds of anticipation and obviousness. On
November 25, 2009, Sybase 365 filed a petition for inter partes reexamination of TCSs related
U.S. Patent # RE 41,006, which re-issued on November 24, 2009. On December 22, 2009, Sybase and
TCS executed a settlement agreement pursuant to which the above two lawsuits would be dismissed,
and Sybase 365 would take no further action in the inter partes reexamination proceedings. The
parties decided that, in order to avoid the costs and substantial burdens of the litigation, it was
in the interest of each of their businesses to resolve these matters, although Sybase continues to
dispute TCSs allegations and did not admit any infringement. Sybase agreed to make a one-time
payment of $23.0 million to TCS in exchange for a license in the TCS inter-carrier messaging family
of patents. Other specific terms of the settlement are confidential. The substantial majority of
the settlement amount was satisfied by an escrow Mobile 365s former shareholders established when
Sybase acquired Mobile 365, $15.0 million of which resided in restricted cash on the Companys
consolidated balance as of December 31, 2009. A legal reserve Sybase previously established was
sufficient to cover the balance of the settlement amount.
B. On July 30, 2009, TCS filed a complaint against Sybase 365 in the Eastern District of
Virginia, alleging that Sybase 365 infringes TCSs U.S. Patents #6,891,811 entitled Short Message
Service Center Mobile-Originated to HTTP Internet Communications (the 811) and #7,355,990
entitled Mobile-Originated to HTTP Internet Communications (the 990). On October 2, 2009,
Sybase 365 filed petitions with the Patent & Trademark Office requesting inter partes reexamination
of the 811 and 990 patents. The PTO accepted the petitions and issued first office actions in
both cases (on November 10 as to the 990, and November 13 as to the 811). As to the 811, all of
the claims asserted against Sybase 365 (but not all claims of the patent) were rejected. As to the
990, the PTO rejected all claims of the patent. This case is set for trial on June 8, 2010.
C. On August 19, 2009, TCS filed a complaint against Sybase, Inc. and iAnywhere Solutions,
Inc. in the U.S. District Court for the District of Delaware, alleging infringement of TCSs U.S.
Patent #6,560,604 entitled System, Method and Apparatus for Automatically and Dynamically Updating
Options,
- 112 -
Features, and/or Services Available to Client Device. Sybase filed a petition for inter
partes reexamination with the Patent & Trademark Office on November 12, 2009. The PTO has not yet
acted on that petition.
D. On October 2, 2009, Sybase 365 filed a complaint against TCS in the U.S. District Court
for the Eastern District of Virginia, alleging that TCS infringes its U.S. Patents #5,873,040
entitled Wireless 911 Emergency Location and 7,082,312 entitled Short Message Gateway, System
and Method of Providing Information Service for Mobile Telephones. This case has not yet been set
for trial.
For a discussion of risks related to intellectual property rights and certain pending intellectual
property disputes, see Future Operating Results If third parties claim that the Company is in
violation of their intellectual property rights, it could have a negative impact on the Companys
results of operations or ability to compete, Part II, Item 1(A).
Sybase is a party to various other legal disputes and proceedings arising in the ordinary course of
business. In the opinion of management, resolution of these matters, including the above mentioned
legal matters, is not expected to have a material adverse effect on our consolidated financial
position or results of operations as the Company believes it has adequately accrued for these
matters at December 31, 2009. However, depending on the amount and timing of such resolution, an
unfavorable resolution of some or all of these matters could materially affect our future results
of operations or cash flows in a particular period.
Note Fifteen: Subsequent Events
On February 1, 2010 the Company called the remaining balance of its 2005 Notes for redemption on
March 3, 2010. There was approximately $413.7 million aggregate principal amount of the Notes
outstanding as of December 31, 2009. The holders right to convert their Notes will expire on
March 2, 2010.
- 113 -
Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended (in thousands, |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
Total |
|
except per share and stock price data) |
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
$ |
89,276 |
|
|
$ |
94,126 |
|
|
$ |
96,175 |
|
|
$ |
123,202 |
|
|
$ |
402,779 |
|
Services |
|
|
134,974 |
|
|
|
139,587 |
|
|
|
144,400 |
|
|
|
152,237 |
|
|
|
571,198 |
|
Messaging |
|
|
43,263 |
|
|
|
44,243 |
|
|
|
52,844 |
|
|
|
56,242 |
|
|
|
196,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues: |
|
|
267,513 |
|
|
|
277,956 |
|
|
|
293,419 |
|
|
|
331,681 |
|
|
|
1,170,569 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees |
|
|
12,281 |
|
|
|
14,184 |
|
|
|
18,206 |
|
|
|
14,021 |
|
|
|
58,692 |
|
Cost of services |
|
|
36,829 |
|
|
|
38,837 |
|
|
|
38,078 |
|
|
|
39,368 |
|
|
|
153,112 |
|
Cost of messaging |
|
|
26,973 |
|
|
|
27,611 |
|
|
|
35,619 |
|
|
|
38,220 |
|
|
|
128,423 |
|
Sales and marketing |
|
|
64,214 |
|
|
|
62,278 |
|
|
|
60,606 |
|
|
|
65,874 |
|
|
|
252,972 |
|
Product development and engineering |
|
|
34,744 |
|
|
|
35,935 |
|
|
|
33,508 |
|
|
|
33,953 |
|
|
|
138,140 |
|
General and administrative |
|
|
31,862 |
|
|
|
32,092 |
|
|
|
32,667 |
|
|
|
36,614 |
|
|
|
133,235 |
|
Amortization of other purchased
intangibles |
|
|
3,723 |
|
|
|
3,756 |
|
|
|
3,804 |
|
|
|
3,859 |
|
|
|
15,142 |
|
Cost (reversal) of restructure |
|
|
(10 |
) |
|
|
11 |
|
|
|
17 |
|
|
|
1,126 |
|
|
|
1,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
210,616 |
|
|
|
214,704 |
|
|
|
222,505 |
|
|
|
233,035 |
|
|
|
880,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
56,897 |
|
|
|
63,252 |
|
|
|
70,914 |
|
|
|
98,646 |
|
|
|
289,709 |
|
Interest income, interest expense and
other, net, and total
other-than-temporary impairment losses
recognized in earnings |
|
|
(8,901 |
) |
|
|
(4,072 |
) |
|
|
(11,731 |
) |
|
|
(12,946 |
) |
|
|
(37,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
47,996 |
|
|
|
59,180 |
|
|
|
59,183 |
|
|
|
85,700 |
|
|
|
252,059 |
|
Provision for income taxes |
|
|
19,895 |
|
|
|
21,548 |
|
|
|
20,686 |
|
|
|
25,871 |
|
|
|
88,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
28,101 |
|
|
$ |
37,632 |
|
|
$ |
38,497 |
|
|
$ |
59,829 |
|
|
$ |
164,059 |
|
Less: Net income (loss) attributable to
the noncontrolling interest |
|
|
16 |
|
|
|
40 |
|
|
|
(20 |
) |
|
|
6 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
28,085 |
|
|
$ |
37,592 |
|
|
$ |
38,517 |
|
|
$ |
59,823 |
|
|
$ |
164,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable
to Sybase, Inc. common stockholders |
|
$ |
0.35 |
|
|
$ |
0.46 |
|
|
$ |
0.47 |
|
|
$ |
0.73 |
|
|
$ |
2.01 |
|
Diluted net income per share attributable
to Sybase, Inc. common stockholders |
|
$ |
0.33 |
|
|
$ |
0.43 |
|
|
$ |
0.43 |
|
|
$ |
0.66 |
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended (in thousands, |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
Total |
|
except per share and stock price data) |
|
2008
(1) |
|
|
2008
(1) |
|
|
2008
(1) |
|
|
2008
(1) |
|
|
2008
(1) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees |
|
$ |
78,124 |
|
|
$ |
90,515 |
|
|
$ |
92,939 |
|
|
$ |
122,083 |
|
|
$ |
383,661 |
|
Services |
|
|
139,397 |
|
|
|
146,594 |
|
|
|
146,295 |
|
|
|
139,804 |
|
|
|
572,090 |
|
Messaging |
|
|
42,627 |
|
|
|
45,604 |
|
|
|
44,744 |
|
|
|
43,204 |
|
|
|
176,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues: |
|
|
260,148 |
|
|
|
282,713 |
|
|
|
283,978 |
|
|
|
305,091 |
|
|
|
1,131,930 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees |
|
|
14,537 |
|
|
|
15,129 |
|
|
|
18,151 |
|
|
|
19,525 |
|
|
|
67,342 |
|
Cost of services |
|
|
40,880 |
|
|
|
41,080 |
|
|
|
40,225 |
|
|
|
38,419 |
|
|
|
160,604 |
|
Cost of messaging |
|
|
25,108 |
|
|
|
27,403 |
|
|
|
28,107 |
|
|
|
27,139 |
|
|
|
107,757 |
|
Sales and marketing |
|
|
68,293 |
|
|
|
74,272 |
|
|
|
70,347 |
|
|
|
72,464 |
|
|
|
285,376 |
|
Product development and engineering |
|
|
35,562 |
|
|
|
36,046 |
|
|
|
37,451 |
|
|
|
37,873 |
|
|
|
146,932 |
|
General and administrative |
|
|
36,061 |
|
|
|
34,077 |
|
|
|
32,831 |
|
|
|
36,011 |
|
|
|
138,980 |
|
Amortization of other purchased
intangibles |
|
|
3,516 |
|
|
|
3,573 |
|
|
|
3,920 |
|
|
|
3,707 |
|
|
|
14,716 |
|
Cost (reversal) of restructure |
|
|
27 |
|
|
|
(8 |
) |
|
|
39 |
|
|
|
109 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
223,984 |
|
|
|
231,572 |
|
|
|
231,071 |
|
|
|
235,247 |
|
|
|
921,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
36,164 |
|
|
|
51,141 |
|
|
|
52,907 |
|
|
|
69,844 |
|
|
|
210,056 |
|
Interest income, interest expense and
other, net, and total
other-than-temporary impairment losses
recognized in earnings |
|
|
(703 |
) |
|
|
(5,210 |
) |
|
|
(4,722 |
) |
|
|
(9,783 |
) |
|
|
(20,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
35,461 |
|
|
|
45,931 |
|
|
|
48,185 |
|
|
|
60,061 |
|
|
|
189,638 |
|
Provision for income taxes |
|
|
13,756 |
|
|
|
16,177 |
|
|
|
16,054 |
|
|
|
15,464a |
) |
|
|
61,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 114 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended (in thousands, |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
Total |
|
except per share and stock price data) |
|
2008
(1) |
|
|
2008 (1) |
|
|
2008 (1) |
|
|
2008 (1) |
|
|
2008 (1) |
|
Net income |
|
$ |
21,705 |
|
|
$ |
29,754 |
|
|
$ |
32,131 |
|
|
$ |
44,597 |
|
|
$ |
128,187 |
|
Less: Net income (loss) attributable to
the noncontrolling interest |
|
|
9 |
|
|
|
(37 |
) |
|
|
21 |
|
|
|
(44 |
) |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Sybase, Inc. |
|
$ |
21,696 |
|
|
$ |
29,791 |
|
|
$ |
32,110 |
|
|
$ |
44,641 |
|
|
$ |
128,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable
to Sybase, Inc. common stockholders |
|
$ |
0.24 |
|
|
$ |
0.36 |
|
|
$ |
0.40 |
|
|
$ |
0.55 |
|
|
$ |
1.54 |
|
Diluted net income per share
attributable to Sybase, Inc. common
stockholders |
|
$ |
0.24 |
|
|
$ |
0.33 |
|
|
$ |
0.37 |
|
|
$ |
0.54 |
|
|
$ |
1.46 |
|
|
|
|
(1) |
|
As adjusted due to the adoption of FASB amendments to existing guidance
on convertible debt, noncontrolling interests, and earnings per share computations. See Note One
Summary of Significant Accounting Policies and Note Eight Convertible Notes. |
[a] In connection with re-evaluating our valuation allowances for our deferred tax assets, we
recorded a $6.7 million tax benefit in the fourth quarter of 2008. For further information, see
Note Eight: Income Taxes in the Notes to Consolidated Financial Statements.
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Report of Management on Internal Controls over Financial Reporting
See Financial Statements and Supplementary Data Report of Management on Internal Controls over
Financial Reporting. Part II, Item 8.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.
Our management, including our CEO and CFO, also concluded our disclosure controls and
procedures are effective to ensure that information required to be disclosed in the reports we file
or submit under the Exchange Act is accumulated and communicated to management, including our CEO
and CFO, as appropriate to allow timely decisions regarding required disclosure. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed in reports we file or submit under the Exchange Act is
accumulated and communicated to our management, including our CEO and CFO as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our fourth quarter of
2009 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
- 115 -
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS OF REGISTRANT AND CORPORATE GOVERNANCE |
Current Executive Officers
Our executive officers are identified in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 13, 2010 (Proxy Statement), to be filed with the SEC within 120 days
after our fiscal year ended December 31, 2009.
Identification of Directors
Our directors are identified under the section entitled Election of Directors in our Proxy
Statement.
Compliance with Section 16(a) of the Exchange Act
The information required under Item 405 of Regulation S-K is incorporated here by reference to
Section 16(a) Beneficial Ownership Reporting Compliance in the Proxy Statement.
Audit Committee Financial Expert
Our Board of Directors has determined that Audit Committee members Robert P. Wayman, Jack E. Sum
and L. William Krause are all audit committee financial experts as defined in Item 407(d)(5) of
Regulation S-K, and are independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the
Exchange Act.
Standing Audit Committee
The information required under Item 407 of Regulation S-K and Item 7(d)(1) of Schedule 14A of the
Exchange Act pertaining to the standing Audit Committee of the Board of Directors is incorporated
by reference to Election of Directors in the Proxy Statement.
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines that are available on our website at www.sybase.com
under Investor Relations. Stockholders may request a free copy of the guidelines by contacting
Investor Relations at the same address set forth under Code of Ethics, below.
Certifications
Pursuant to NYSE Rule 303A.12 (a), in 2006 the Company submitted a CEO certification to the NYSE
regarding compliance with NYSE Corporate Governance Listing Standards. No qualifications were
included in this report. Exhibits 31.1 and 31.2 to this Form 10-K contain certifications of the
Companys CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32 to this
Form 10-K contains certifications of the Companys CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Code of Ethics
Our code of ethics, entitled Statement of Values and Business Ethics, applies to all of our
employees, directors and officers (including the chief executive officer, chief financial officer
and principal accounting officer), and is available by clicking on the Code of Ethics link at the
bottom of any page at our website at www.sybase.com. Stockholders may request a free copy of the
Statement of Values and Business Ethics from:
Sybase, Inc.
Attention: Investor Relations
One Sybase Drive
- 116 -
Dublin, CA 94568
|
|
|
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 AND RELATED STOCKHOLDER MATTERS |
The information required by this item is incorporated by reference to Stock Ownership of
Management and Beneficial Owners in the Proxy Statement.
Information required under Item 201(d) of Regulation S-K regarding our equity compensation plans
(both stockholder and non-stockholder approved plans) is incorporated by reference to Equity
Compensation Plan Information in the Proxy Statement.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated by reference to Employment and Change of
Control Agreements and Policies and Procedures for Related Party Transactions in the Proxy
Statement.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated by reference to Ratification of Appointment
of Independent Registered Public Accounting Firm in the Proxy Statement.
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this Report on Form 10-K:
1. Financial Statements. See financial statements listed in the table of contents at
the beginning of Part II, Item 8.
2. Financial Statement Schedules. The following financial statement schedules of
Sybase, Inc. for the years ended December 31, 2009, 2008, and 2007 are filed as part of this
Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements
and related notes in Part II, Item 8.
3. Exhibits. See the response under Item 15(c) below. All management contracts and
compensatory plans filed as exhibits are indicated as such in Item 15(c).
(b) Exhibits. The exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index to this Report on Form 10-K
|
|
|
|
|
|
|
(c)
|
|
Schedules.
|
|
Form 10-K
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
II Valuation and Qualifying Accounts
|
|
|
118 |
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.
- 117 -
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
SYBASE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation |
|
|
|
|
|
|
Beginning |
|
|
Charged to |
|
|
|
|
|
|
Adjustments and |
|
|
|
|
(Dollars in thousands) |
|
Balance |
|
|
Operations (A) |
|
|
Write-offs (B) |
|
|
Other |
|
|
Ending Balance |
|
Year ended December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
3,888 |
|
|
$ |
1,050 |
|
|
$ |
(772 |
) |
|
$ |
181 |
|
|
$ |
4,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
3,735 |
|
|
$ |
2,307 |
|
|
$ |
(1,989 |
) |
|
$ |
(165 |
) |
|
$ |
3,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
3,998 |
|
|
$ |
1,343 |
|
|
$ |
(1,951 |
) |
|
$ |
345 |
|
|
$ |
3,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
- 118 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this Report on Form 10-K to be signed on its behalf of the undersigned, thereunto duly authorized.
|
|
|
|
|
|
SYBASE, INC.
|
|
|
By: |
/S/ JOHN S. CHEN
|
|
February 26, 2010 |
|
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, Jeffrey Ross and Daniel Cohen, 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 as of the dates indicated:
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/S/ JOHN S. CHEN
|
|
Chairman of the Board, Chief
|
|
February 26, 2010 |
|
|
|
|
|
(John S. Chen)
|
|
Executive Officer (Principal Executive
Officer), President and Director |
|
|
|
|
|
|
|
/S/ JEFFREY G ROSS
|
|
Senior Vice President and
|
|
February 26, 2010 |
|
|
|
|
|
(Jeffrey G. Ross)
|
|
Chief Financial Officer (Principal
Financial Officer) |
|
|
|
|
|
|
|
/S/ KEITH F. JENSEN
|
|
Vice President and Corporate
|
|
February 26, 2010 |
|
|
|
|
|
(Keith Jensen)
|
|
Controller (Principal Accounting
Officer) |
|
|
|
|
|
|
|
/S/ RICHARD C. ALBERDING
|
|
Director
|
|
February 26, 2010 |
|
|
|
|
|
(Richard C. Alberding) |
|
|
|
|
|
|
|
|
|
/S/ CECILIA CLAUDIO
|
|
Director
|
|
February 26, 2010 |
|
|
|
|
|
(Cecilia Claudio) |
|
|
|
|
|
|
|
|
|
/S/ MICHAEL A. DANIELS
|
|
Director
|
|
February 26, 2010 |
|
|
|
|
|
(Michael A. Daniels) |
|
|
|
|
|
|
|
|
|
/S/ L. WILLIAM KRAUSE
|
|
Director
|
|
February 26, 2010 |
|
|
|
|
|
(L. William Krause) |
|
|
|
|
|
|
|
|
|
/S/ ALAN B. SALISBURY
|
|
Director
|
|
February 26, 2010 |
|
|
|
|
|
(Alan B. Salisbury) |
|
|
|
|
|
|
|
|
|
/S/ JACK E. SUM
|
|
Director
|
|
February 26, 2010 |
|
|
|
|
|
(Jack E. Sum) |
|
|
|
|
|
|
|
|
|
/S/ ROBERT P. WAYMAN
|
|
Director
|
|
February 26, 2010 |
|
|
|
|
|
(Robert P. Wayman) |
|
|
|
|
- 119 -
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
|
|
|
2.1 (1)
|
|
Agreement and Plan of Reorganization dated as of November 29, 1999, among the
Company, On-Line Financial Services, Inc., and Home Financial Network, Inc. |
|
|
|
2.2 (2)
|
|
Agreement and Plan of Merger dated as of February 20, 2001, among the Company, New
Era of Networks, Inc., and Neel Acquisition Corp. |
|
|
|
2.3 (3)
|
|
Agreement and Plan of Merger dated as of December 19, 2002, by and among the
Company, Seurat Acquisition Corporation and AvantGo, Inc. |
|
|
|
2.4 (12)
|
|
Agreement and Plan of Merger dated as of July 28, 2005, by and among the Company,
Ernst Acquisition Corporation and Extended Systems Incorporated. |
|
|
|
2.5 (19)
|
|
Agreement and Plan of Merger dated as of September 5, 2006, by and among Sybase,
Inc., Monaco Acquisition Corporation, Mobile 365, Inc., and with respect to Section
6.16(e), Article VIII and Article X only, John Backus. |
|
|
|
3.1 (4)
|
|
Amended and Restated Certificate of Incorporation of the Company and Amended and
Restated Certificate of Rights, Preferences & Privileges of Series A Participating
Preferred Stock of Sybase, Inc. |
|
|
|
3.2 (11)
|
|
Amended and Restated Bylaws of the Company as of May 6, 2009. |
|
|
|
4.1 (6)
|
|
Preferred Share Rights Agreement dated as of July 31, 2002 between the Company and
American Stock Transfer and Trust Co. |
|
|
|
4.2 (7)
|
|
Amendment No. 1 dated as of February 14, 2005 to the Preferred Share Rights
Agreement dated as of July 31, 2002 between the Company and American Stock Transfer
and Trust Co. |
|
|
|
4.3 (8)
|
|
Indenture dated as of February 22, 2005 between the Company and U.S. Bank National
Association, as Trustee (including form of 1.75% Convertible Subordinated Notes due
2025). |
|
|
|
4.4 (8)
|
|
Registration Rights Agreement dated as of February 22, 2005 between the Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman Brothers Inc. |
|
|
|
4.5 (27)
|
|
Indenture dated as of August 4, 2009 between the Company and U.S. Bank National
Association, as Trustee (including form of 3.50% Convertible Senior Notes due
2029). |
|
|
|
10.1 (9)*
|
|
New Era of Networks, Inc. Amended and Restated 1995 Stock Option Plan. |
|
|
|
10.2 (9)*
|
|
New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan. |
|
|
|
10.3 (10)*
|
|
1988 Stock Option Plan and Forms of Incentive Stock Option Agreements and
Nonstatutory Stock Option Agreements, as amended. |
|
|
|
10.4 (26)*
|
|
Form of Notice of Stock Option Grant and Agreement. |
|
|
|
10.5 (22)*
|
|
Sybase, Inc. 401(k) Plan, as amended. |
|
|
|
10.6 (22)*
|
|
Amendment No. 2 to the Sybase, Inc. 401(k) Plan dated December 22, 2005. |
- 120 -
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.7 (14)*
|
|
Sybase, Inc. 1992 Director Stock Option Plan, as amended. |
|
|
|
|
|
|
10.8 (9)*
|
|
Sybase, Inc. 2001 Director Stock Option Plan. |
|
|
|
10.9 (5)*
|
|
Executive Deferred Compensation Plan, as amended December 5, 2003. |
|
|
|
10.10 (22)*
|
|
Amendment No. 1 to the Executive Deferred Compensation Plan, dated November 3, 2005. |
|
|
|
10.11 (9)*
|
|
Sybase, Inc. 1996 Stock Plan, as amended. |
|
|
|
10.12 (21) *
|
|
Form of Indemnification Agreement |
|
|
|
10.13 (13)*
|
|
Form of Amended and Restated Change of Control Agreement (standard version). |
|
|
|
10.14 (13)*
|
|
Form of Amended and Restated Change of Control Agreement (enhanced version). |
|
|
|
10. 15(20) *
|
|
Amended and Restated 1991 Employee Stock Purchase Plan, as amended February 2, 2005
and Amended and Restated 1991 Foreign Subsidiary Employee Stock Purchase Plan, as
amended February 2, 2005. |
|
|
|
10.15 (13)*
|
|
Second Amended and Restated Employment Agreement between the Company and John S.
Chen dated as of December 18, 2007. |
10.17 (13)*
|
|
Amended and Restated Change of Control Agreement between the Company and John Chen
dated December 18, 2007. |
|
|
|
10.18 (18)*
|
|
Amended and Restated Sybase, Inc. 1999 Nonstatutory Stock Plan. |
|
|
|
10.19 (16)*
|
|
InphoMatch, Inc. 2000 Equity Incentive Plan, Mobile 365, Inc. 2004 Equity Incentive
Plan and MobileWay, Inc. 2000 Stock Option Plan. |
|
|
|
10.20 (17)
|
|
Corporate Headquarters Lease, dated January 28, 2000, between the Company and
WDS-Dublin, LLC, as amended on November 29, 2000, and December 13, 2001. |
|
|
|
10.21 (14)
|
|
Amendment to Corporate Headquarters Lease, dated December 13, 2001, between the
Company and WDS-Dublin, LLC. |
|
|
|
10.22 (17)
|
|
Trust Agreement dated May 1, 2000 between Fidelity Management Trust Company and the
Company for administration of the Sybase Executive Deferred Compensation Plan. |
|
|
|
10.23 (5)
|
|
First Amendment to Trust Agreement between Fidelity Management Trust Company and
the Company for administration of Sybase Executive Deferred Compensation Plan. |
- 121 -
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.24 (22)
|
|
Second Amendment to May 1, 2000 Trust Agreement between Fidelity Management Trust
Company and the Company for administration of Sybase Executive Deferred
Compensation Plan, dated as of February 11, 2005. |
|
|
|
10.25 (5)
|
|
November 17, 2003 Letter Agreement between Fidelity Management Trust Company and
Sybase, Inc. for administration of the Sybase Executive Deferred Compensation Plan. |
|
|
|
10.26 (17)*
|
|
Financial Fusion, Inc. 2000 Stock Option Plan. |
|
|
|
10.27 (14)*
|
|
Financial Fusion, Inc. 2001 Stock Option Plan. |
|
|
|
10.28 (14)*
|
|
iAnywhere Solutions, Inc. Stock Option Plan. |
|
|
|
10.29 (26)*
|
|
Form of Notice of Grant and Restricted Stock Purchase Agreement. |
|
|
|
10.30 (23)*
|
|
Letter dated February 10, 2010 to John S. Chen regarding 2010 compensation. |
|
|
|
10.31 (26)*
|
|
Executive Tax Preparation, Financial Planning and Legal Services Program for
Section 16 Officers, effective as of February 20, 2008. |
|
|
|
10.32 (5)*
|
|
Summary Plan Description for Sabbatical Leave Plan of Sybase, Inc., as Amended and
Restated as of May 1, 2003. |
|
|
|
10.33 (28)*
|
|
Amended and Restated Sybase, Inc. 2003 Stock Plan. |
|
|
|
10.34 (23)*
|
|
Letter dated February 9, 2010 to Jeffrey Ross regarding 2010 compensation. |
|
|
|
10.35 (23)*
|
|
Letter dated February 9, 2010 to Marty Beard regarding 2010 compensation. |
|
|
|
10.36 (23)*
|
|
Letter dated February 9, 2010 to Raj Nathan regarding 2010 compensation. |
|
|
|
10.37 (23)*
|
|
Letter dated February 9, 2010 to Steve Capelli regarding 2010 compensation. |
|
|
|
10.38 (23)*
|
|
Summary of Vesting Terms for 2010 Grants to Chen, Ross, Beard, Nathan and Capelli. |
|
|
|
10.39 (21)
|
|
Purchase Agreement, dated February 15, 2005 between the Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Lehman Brothers Inc. |
|
|
|
10.40 (25)
|
|
Agreement, dated February 25, 2008, between the Company and Sandell Asset
Management Corp. and its affiliated entities. |
|
|
|
12
|
|
Computation of Ratio of Earnings to Fixed Charges |
|
|
|
21
|
|
Subsidiaries of the Company |
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
24 (24)
|
|
Powers of Attorney |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule
13a-14 or 15d-14, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act
of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule
13a-14 or 15d-14, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act
of 2002. |
- 122 -
|
|
|
Exhibit No. |
|
Description |
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
* |
|
Indicates Management Contract or Compensatory Plan. |
|
(1) |
|
Incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-3
filed on January 31, 2000. |
|
(2) |
|
Incorporated by reference to Exhibit 2(a) to the Companys Registration Statement on Form S-4
filed March 15, 2001. |
|
(3) |
|
Incorporated by reference to Exhibit 1 to the Companys Schedule 13D filed with the
Securities and Exchange Commission on December 30, 2002. |
|
(4) |
|
Incorporated by reference to the Exhibits filed with the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2007. |
|
(5) |
|
Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2003. |
|
(6) |
|
Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed on
August 5, 2002. |
|
(7) |
|
Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed on
February 17, 2005. |
|
(8) |
|
Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K
filed on February 22, 2005. |
|
(9) |
|
Incorporated by reference to the Companys Registration Statement on Form S-8 filed June 19,
2001. |
|
(10) |
|
Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 1997. |
|
(11) |
|
Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009. |
|
(12) |
|
Incorporated by reference to the Exhibits filed with the Schedule 13D the Company filed
August 8, 2005. |
|
(13) |
|
Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on December 20, 2007. |
|
(14) |
|
Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2001. |
|
(15) |
|
Incorporated by reference to the Companys Registration Statement on Form S-8 filed August
20, 1999. |
|
(16) |
|
Incorporated by reference to the Companys Registration Statement on Form S-8 filed on August
9, 2007. |
|
(17) |
|
Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2000. |
|
(18) |
|
Incorporated by reference to the Exhibits filed with the Companys Registration Statement on
Form S-8 filed on August 25, 2004. |
|
(19) |
|
Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on September 9, 2006. |
|
(20) |
|
Incorporated by reference to the Exhibits filed with the Companys Registration Statement on
Form S-8 filed on July 29, 2005. |
|
(21) |
|
Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2004. |
|
(22) |
|
Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2005. |
|
(23) |
|
Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on February 12, 2010. |
|
(24) |
|
Incorporated by reference to the signature page of this Report on Form 10-K. |
- 123 -
|
|
|
(25) |
|
Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on February 26, 2008. |
|
(26) |
|
Incorporated by reference to the Exhibits filed with the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2008. |
|
(27) |
|
Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on August 4, 2009. |
|
(28) |
|
Incorporated by reference to the Exhibits filed with the Companys Quarterly Report on Form
10-Q for the quarter ended September 30, 2009 |
- 124 -