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EX-32 - EX-32 - SYBASE INC | f55752exv32.htm |
EX-31.2 - EX-31.2 - SYBASE INC | f55752exv31w2.htm |
EX-31.1 - EX-31.1 - SYBASE INC | f55752exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
o | 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)
Delaware | 94-2951005 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
One Sybase Drive, Dublin, California 94568
(Address of principal executive offices)(Zip Code)
(925) 236-5000
(Registrants telephone number, including area code)
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 the filing requirements for at least 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 whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
On April 30, 2010, 86,860,852 shares of the Registrants Common Stock, $.001 par value, were
outstanding.
SYBASE, INC.
FORM 10-Q
FORM 10-Q
QUARTER ENDED MARCH 31, 2010
INDEX
1
Table of Contents
FORWARD-LOOKING STATEMENTS
This 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 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 in the risk
factors included in Part II, Item 1(A) of this Quarterly Report on Form 10-Q.
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
Quarterly Report on Form 10-Q.
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 and XcelleNet, are
trademarks of Sybase, Inc. or its subsidiaries. All other names may be trademarks of the companies
with which they are associated.
2
Table of Contents
PART I: FINANCIAL INFORMATION
ITEM 1: | FINANCIAL STATEMENTS |
SYBASE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | ||||||||
2010 | December 31, | |||||||
(In thousands, except share and per share data) | (Unaudited) | 2009 | ||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,022,719 | $ | 947,152 | ||||
Short-term investments |
244,058 | 239,232 | ||||||
Total cash, cash equivalents and short-term investments |
1,266,777 | 1,186,384 | ||||||
Restricted cash |
3,813 | 17,983 | ||||||
Accounts receivable, net |
235,185 | 273,457 | ||||||
Deferred income taxes |
48,815 | 58,494 | ||||||
Prepaid income taxes |
6,113 | 5,754 | ||||||
Prepaid expenses and other current assets |
21,420 | 18,685 | ||||||
Total current assets |
1,582,123 | 1,560,757 | ||||||
Long-term investments |
49,335 | 86,091 | ||||||
Property, equipment and improvements, net |
65,799 | 67,863 | ||||||
Deferred income taxes |
6,751 | 7,188 | ||||||
Capitalized software, net |
89,292 | 86,866 | ||||||
Goodwill |
530,071 | 532,375 | ||||||
Other purchased intangibles, net |
81,216 | 88,012 | ||||||
Other assets |
36,486 | 38,732 | ||||||
Total assets |
$ | 2,441,073 | $ | 2,467,884 | ||||
Current liabilities: |
||||||||
Accounts payable |
$ | 26,082 | $ | 20,202 | ||||
Accrued compensation and related expenses |
63,513 | 84,426 | ||||||
Accrued income taxes |
5,118 | 24,484 | ||||||
Other accrued liabilities |
95,271 | 138,931 | ||||||
Deferred revenue |
267,709 | 234,761 | ||||||
Convertible subordinated notes |
389,721 | 417,321 | ||||||
Total current liabilities |
847,414 | 920,125 | ||||||
Other liabilities |
41,612 | 42,628 | ||||||
Deferred income taxes |
54,624 | 49,611 | ||||||
Long-term tax liability |
63,058 | 58,350 | ||||||
Long-term deferred revenue |
5,728 | 5,855 | ||||||
Convertible senior notes |
332,743 | 329,565 | ||||||
Temporary equity convertible subordinated notes |
| 2,547 | ||||||
Commitments and contingent liabilities |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.001 par value, 8,000,000 shares authorized; none issued or outstanding |
| | ||||||
Common stock, $0.001 par value, 200,000,000 shares authorized; 105,337,362 shares issued
and 81,653,801 outstanding (2009-105,337,362 shares issued and 80,426,337 outstanding) |
105 | 105 | ||||||
Additional paid-in capital |
1,171,449 | 1,175,206 | ||||||
Accumulated earnings |
532,187 | 497,728 | ||||||
Accumulated other comprehensive income |
29,249 | 49,302 | ||||||
Cost of 23,683,561 shares of treasury stock (2009-24,911,025 shares) |
(642,250 | ) | (668,275 | ) | ||||
Total Sybase, Inc. stockholders equity |
1,090,740 | 1,054,066 | ||||||
Noncontrolling interest |
5,154 | 5,137 | ||||||
Total equity |
1,095,894 | 1,059,203 | ||||||
Total liabilities and stockholders equity |
$ | 2,441,073 | $ | 2,467,884 | ||||
See accompanying notes.
3
Table of Contents
SYBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
(Dollars in thousands, except per share data) | 2010 | 2009 | ||||||
Revenues: |
||||||||
License fees |
$ | 98,551 | $ | 89,276 | ||||
Services |
142,387 | 134,974 | ||||||
Messaging |
53,014 | 43,263 | ||||||
Total revenues |
293,952 | 267,513 | ||||||
Costs and expenses: |
||||||||
Cost of license fees |
13,155 | 12,281 | ||||||
Cost of services |
36,458 | 36,829 | ||||||
Cost of messaging |
36,573 | 26,973 | ||||||
Sales and marketing |
61,353 | 64,214 | ||||||
Product development and engineering |
36,457 | 34,744 | ||||||
General and administrative |
32,182 | 31,862 | ||||||
Amortization of other purchased intangibles |
3,698 | 3,723 | ||||||
Cost (Reversal) of restructure |
4 | (10 | ) | |||||
Total costs and expenses |
219,880 | 210,616 | ||||||
Operating income |
74,072 | 56,897 | ||||||
Interest income |
1,515 | 2,176 | ||||||
Interest expense and other, net |
(11,081 | ) | (9,279 | ) | ||||
Total other-than-temporary impairment losses |
(366 | ) | (1,798 | ) | ||||
Losses recognized in other comprehensive income |
347 | | ||||||
Total other-than-temporary impairment losses recognized in earnings |
(19 | ) | (1,798 | ) | ||||
Income before income taxes |
64,487 | 47,996 | ||||||
Provision for income taxes |
24,614 | 19,895 | ||||||
Net income |
$ | 39,873 | $ | 28,101 | ||||
Less: Net income attributable to the noncontrolling interest |
17 | 16 | ||||||
Net income attributable to Sybase, Inc. |
$ | 39,856 | $ | 28,085 | ||||
Basic net income per share attributable to Sybase, Inc. common stockholders |
$ | 0.49 | $ | 0.35 | ||||
Shares used in computing basic net income per share attributable to Sybase, Inc. common stockholders |
80,726 | 79,809 | ||||||
Diluted net income per share attributable to Sybase, Inc. common stockholders |
$ | 0.45 | $ | 0.33 | ||||
Shares used in computing diluted net income per share attributable to Sybase, Inc. common stockholders |
86,522 | 84,451 | ||||||
See accompanying notes.
4
Table of Contents
SYBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
(Dollars in thousands) | 2010 | 2009 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 39,873 | $ | 28,101 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
23,393 | 22,491 | ||||||
Loss on disposal of assets |
18 | 19 | ||||||
Impairment of investment in auction rate securities |
19 | 1,799 | ||||||
Deferred income taxes |
15,145 | 2,587 | ||||||
Stock-based compensation restricted stock |
3,730 | 2,718 | ||||||
Stock-based compensation all other |
3,040 | 3,032 | ||||||
Tax benefit from stock-based compensation plans |
6,871 | 2,368 | ||||||
Excess tax benefit from stock-based compensation plans |
(6,523 | ) | (2,453 | ) | ||||
Imputed interest expense for convertible notes |
5,673 | 4,519 | ||||||
Amortization of note issuance costs |
637 | 396 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
35,877 | 41,832 | ||||||
Prepaid income taxes |
(359 | ) | (1,824 | ) | ||||
Other current assets |
(2,735 | ) | (1,730 | ) | ||||
Other assets operating |
1,615 | 1,054 | ||||||
Accounts payable |
5,880 | (4,941 | ) | |||||
Accrued compensation and related expenses |
(21,156 | ) | (20,610 | ) | ||||
Accrued income taxes |
(14,658 | ) | 7,412 | |||||
Other accrued liabilities |
(28,243 | ) | (18,285 | ) | ||||
Deferred revenues |
32,324 | 29,589 | ||||||
Other liabilities |
(1,129 | ) | (693 | ) | ||||
Net cash provided by operating activities |
99,292 | 97,381 | ||||||
Cash flows from investing activities: |
||||||||
(Increase) Decrease in restricted cash |
(830 | ) | 118 | |||||
Purchases of investments |
(37,877 | ) | (8,273 | ) | ||||
Maturities of investments |
64,428 | | ||||||
Sales of investments |
5,272 | 807 | ||||||
Business combinations, net of cash acquired |
(1,980 | ) | | |||||
Purchases of property, equipment and improvements |
(5,111 | ) | (4,428 | ) | ||||
Capitalized software development costs |
(11,864 | ) | (12,816 | ) | ||||
Increase in other assets investing |
(6 | ) | (19 | ) | ||||
Net cash provided by (used for) investing activities |
12,032 | (24,611 | ) | |||||
Cash flows from financing activities: |
||||||||
Extinguishment and conversion of convertible subordinated notes |
(50,077 | ) | | |||||
Repayments of long-term obligations |
(139 | ) | (696 | ) | ||||
Net proceeds from the issuance of common stock and reissuance of treasury stock |
20,628 | 16,761 | ||||||
Purchases of treasury stock |
| (15,049 | ) | |||||
Excess tax benefit from stock-based compensation plans |
6,523 | 2,453 | ||||||
Net cash provided by (used for) financing activities |
(23,065 | ) | 3,469 | |||||
Effect of exchange rate changes on cash |
(12,692 | ) | (11,664 | ) | ||||
Net increase in cash and cash equivalents |
75,567 | 64,575 | ||||||
Cash and cash equivalents, beginning of year |
947,152 | 611,364 | ||||||
Cash and cash equivalents, end of period |
$ | 1,022,719 | $ | 675,939 | ||||
See accompanying notes.
5
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Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation.
The accompanying unaudited condensed consolidated financial
statements include the accounts of Sybase, Inc. and its subsidiaries, and, in the opinion of
management, reflect all adjustments (consisting only of normal recurring adjustments, except as
described below) necessary to fairly state the Companys consolidated financial position, results
of operations, and cash flows as of and for the dates and periods presented. The condensed
consolidated balance sheet as of December 31, 2009 has been prepared from the Companys audited
consolidated financial statements.
Certain information and footnote disclosures normally included in the annual financial statements
have been condensed or omitted. These unaudited condensed consolidated financial statements should
be read in conjunction with the Companys audited consolidated financial statements included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2009. The results of
operations for the three months ended March 31, 2010 are not necessarily indicative of results for
the entire fiscal year ending December 31, 2010. Certain prior year amounts have been reclassified
to conform to current year presentation.
Effective January 1, 2010, the Company adopted FASB amended 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. See
Note 6 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.
2. Net Income Per Share Attributable to Sybase, Inc Common Stockholders.
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. Unvested restricted stock
awards granted after our 2003 Stock Plan was amended on September 17, 2009 have forfeitable rights to dividends and are therefore not considered
participating securities.
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 convertible
subordinated debt issued in 2005 (2005 Notes) and over the conversion price of $47.88 per share
for its convertible senior debt issued in 2009. 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. The
dilutive effect of the 2005 Notes for the thee months ended March 31, 2010, was calculated based on
the Companys notification to the noteholders and the trustee for the 2005 Notes that it will pay
50 percent of the 2005 Notes conversion premium in cash and the remaining 50 percent in the
Companys common stock (see Note 8 Convertible Notes). For the three months ended March 31,
2010, the second method above which assumes unvested awards are not vested was used in the
computation because it was more dilutive than the first method above which assumes vesting of
awards using the treasury stock method. Both methods resulted in the same diluted net income per
share for the three months ended March 31, 2009. See Note 8 Convertible Notes. The following
table shows the computation of basic and diluted net income per share:
6
Table of Contents
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands, except per share data) | 2010 | 2009 | ||||||
Basic: |
||||||||
Net income attributable to Sybase, Inc. |
$ | 39,856 | $ | 28,085 | ||||
Less: Net income allocated to participating securities |
(645 | ) | (455 | ) | ||||
Net income attributable to Sybase, Inc. common stockholders basic |
$ | 39,211 | $ | 27.630 | ||||
Basic net income per share attributable to Sybase, Inc. common stockholders |
$ | 0.49 | $ | 0.35 | ||||
Shares used
in computing basic net income per share attributable to Sybase, Inc. common stockholders |
80,726 | 79,809 | ||||||
Diluted: |
||||||||
Net income attributable to Sybase, Inc. |
$ | 39,856 | $ | 28,085 | ||||
Less: Net income allocated to participating securities |
(602 | ) | | |||||
Net income attributable to Sybase, Inc. common stockholders diluted |
$ | 39,254 | $ | 28,085 | ||||
Diluted net income per share attributable to Sybase, Inc. common stockholders |
$ | 0.45 | $ | 0.33 | ||||
Shares used
in computing basic net income per share attributable to Sybase, Inc. common stockholders |
80,726 | 79,809 | ||||||
Dilutive effect of stock options, restricted stock and stock appreciation rights |
3,070 | 2,008 | ||||||
Dilutive effect of 2005 Notes |
3,606 | 2,634 | ||||||
Shares used
in computing diluted net income per share attributable to Sybase, Inc. common stockholders under treasury stock method |
87,402 | 84,451 | ||||||
Participating securities excluded under two-class method |
(880 | ) | N/A | |||||
Shares used in computing diluted net income per share attributable to Sybase,
Inc. common stockholders under two-class method |
86,522 | N/A | ||||||
The anti-dilutive weighted average shares that were excluded from the shares used in computing
diluted net income per share were 0.2 million and 2.6 million for the three month periods ended
March 31, 2010 and 2009, 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.
3. Comprehensive Income.
The following table sets forth the calculation of comprehensive
income for all periods presented:
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands) | 2010 | 2009 | ||||||
Net income |
$ | 39,873 | $ | 28,101 | ||||
Foreign currency translation losses |
(19,961 | ) | (14,756 | ) | ||||
Losses recognized in (reclassified from) other comprehensive income |
(347 | ) | | |||||
Change in unrealized gains (losses) on all other marketable securities |
255 | (5 | ) | |||||
Comprehensive income |
19,820 | 13,340 | ||||||
Less: Comprehensive income attributable to noncontrolling interest |
17 | 16 | ||||||
Comprehensive income attributable to Sybase, Inc. |
$ | 19,803 | $ | 13,324 | ||||
The Companys foreign currency translation losses primarily arise from its substantial net assets
denominated in certain European currencies. Translation losses generally occur when the dollar
strengthens against these currencies while translation gains arise when the dollar weakens against
these currencies. Debt securities classified as available-for-sale are recorded at fair value.
Losses recognized in other comprehensive income represent other-than-temporary noncredit impairment
losses related to investments in auction rate securities. If the nature of such losses shifts from
noncredit to credit, a corresponding amount is reclassified from other comprehensive income and
recognized in earnings. . Unrealized holding gains and losses are reported as a separate
component of other comprehensive income until realized. See Note 6 Fair Value Measurements.
Accumulated other comprehensive income consisted of the following (in thousands):
March 31, | December 31, | |||||||
(In thousands) | 2010 | 2009 | ||||||
Foreign currency translation |
$ | 32,882 | $ | 52,843 | ||||
Noncredit other-than-temporary impairment, net of income taxes |
(3,296 | ) | (2,949 | ) | ||||
Net unrealized gains on other marketable securities, net of income taxes |
317 | 62 | ||||||
Pension liability adjustments |
(654 | ) | (654 | ) | ||||
$ | 29,249 | $ | 49,302 | |||||
4. 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
7
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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.
5. 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 (ARS).
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 March 31, 2010, 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. |
When assessing whether a decline in fair values is a 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; 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.
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). |
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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 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
collectibility 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.
At March 31, 2010 and December 31, 2009, 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 | |||||||||||||||
March 31, 2010: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 1,022,719 | $ | | $ | | $ | | $ | 1,022,719 | ||||||||||
Short-term bank deposits (maturities of one year or less) |
41,035 | | | | 41,035 | |||||||||||||||
Short-term corporate notes and bonds (maturities of one year or less) |
55,727 | 32 | (16 | ) | | 55,743 | ||||||||||||||
Short-term U.S. government obligations (maturities of one year or less) |
134,075 | 199 | | | 134,274 | |||||||||||||||
Trading securities |
13,006 | | | | 13,006 | |||||||||||||||
Long-term corporate notes and bonds (maturities over one year) |
52,427 | 113 | (12 | ) | (3,296 | ) | 49,232 | |||||||||||||
Long-term equity security |
103 | | | | 103 | |||||||||||||||
$ | 1,319,092 | $ | 344 | $ | (28 | ) | $ | (3,296 | ) | $ | 1,316,112 | |||||||||
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 | |||||||||
The following table summarizes the fair value and gross unrealized losses related to
available-for-sale marketable securities 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 March 31, 2010:
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 |
$ | 25,103 | $ | (28 | ) | $ | 12,844 | $ | (3,296 | ) |
The following table summarizes the fair value and gross unrealized losses related to
available-for-sale marketable securities 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:
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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 |
$ | 65,951 | $ | (39 | ) | $ | 13,210 | $ | (2,949 | ) | ||||||
U.S government
obligations |
70,538 | (38 | ) | | | |||||||||||
Totals |
$ | 136,489 | $ | (77 | ) | $ | 13,210 | $ | (2,949 | ) |
On March 31, 2010, long-term investments include $12.9 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 planned at 28 day intervals to provide planned
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 March 31, 2010, the credit ratings for five of
the ARS had been withdrawn. 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 of these ARS totaled $16.1 million as of March 31, 2010. A
rollforward of amortized cost, cumulative OTTI recognized in earnings and accumulated OCI is
Cumulative | Total | ||||||||||||||||||||
Amortized | OTTI in | Unrealized | OTTI Loss | Accumulated | |||||||||||||||||
(In thousands) | Cost | Earnings | (Gain) Loss | in OCI | OCI | ||||||||||||||||
Balance at December 31, 2009 |
$ | 16,159 | $ | 7,741 | ($1,410 | ) | $ | 4,359 | $ | 2,949 | |||||||||||
OTTI recognized |
| | | 366 | 366 | ||||||||||||||||
Reclassification to earnings |
(19 | ) | 19 | | (19 | ) | (19 | ) | |||||||||||||
Balance at March 31, 2010 |
$ | 16,140 | $ | 7,760 | ($1,410 | ) | $ | 4,706 | $ | 3,296 |
6. 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. |
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The following table represents the Companys fair value hierarchy for its financial assets measured
at fair value on a recurring basis as of March 31, 2010:
(In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money market funds |
$ | 726,991 | | | $ | 726,991 | ||||||||||
Trading securities |
13,006 | | | 13,006 | ||||||||||||
Available-for-sale investments |
294,076 | | $ | 12,947 | 307,023 | |||||||||||
Total |
$ | 1,034,073 | | $ | 12,947 | $ | 1,047,020 | |||||||||
Money market funds are included in cash and cash equivalents on the Companys condensed
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 condensed 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 March 31, 2010 are based on an estimation employing an income
approach for each ARS. The significant inputs for the valuation model include the following
weighted averages:
Term to recovery: 6.4 years
Discount rate: 15.5%
Discount rate: 15.5%
The ARS are included in long-term investments on the Companys condensed consolidated balance
sheet. The following table provides a summary of changes in fair value of the Companys Level 3
financial assets as of March 31, 2010:
Level 3 | ||||
Financial | ||||
(In thousands) | Assets | |||
Balance at December 31, 2009 |
$ | 13,313 | ||
Impairment loss included in net impairment losses recognized in earnings |
(19 | ) | ||
Change in total other-than-temporary impairment recognized in
accumulated other comprehensive income |
(347 | ) | ||
Balance at March 31, 2010 |
$ | 12,947 | ||
As of March 31 2010, the Company did not have any material liabilities that are measured at fair
value on a recurring basis.
The Company utilizes foreign currency forward exchange contracts
(forward contracts) to hedge certain foreign currency transaction exposures outstanding during the period (approximately
30 days.) The Company enters such forward contracts once a month on the last day of the month. As such, there were no
unrealized gains or losses on the outstanding forward contracts as of March 31, 2010. The Company does not enter into
forward contracts for trading purposes. At March 31, 2010, 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
amount of $47.0 million; to exchange U.S. dollars into various foreign currencies in the amount of $2.5 million; and
to exchange British Pounds for South African Rand in the amount of
$1.2 million.
7. Goodwill and Intangible Assets.
The following table reflects the changes in the carrying amount of goodwill by segment. Goodwill
balances reflect the Companys new segments as discussed further in Note 12 Segments Information.
Software License | Messaging and | Consolidated | ||||||||||
(In thousands) | and Services | Hosted Software | Total | |||||||||
Balance at January 1, 2010 |
$ | 177,270 | $ | 355,105 | $ | 532,375 | ||||||
Foreign currency translation adjustments & other |
(478 | ) | (1,826 | ) | (2,304 | ) | ||||||
Balance at March 31, 2010 |
$ | 176,792 | $ | 353,279 | $ | 530,071 | ||||||
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The following table reflects the gross and net carrying amounts and accumulated amortization of
purchased intangible assets:
March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
(In thousands) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||
Purchased technology |
$ | 172,326 | $ | (142,273 | ) | $ | 30,053 | $ | 172,511 | $ | (139,522 | ) | $ | 32,989 | ||||||||||
Customer lists and other |
122,082 | (70,919 | ) | 51,163 | 123,148 | (68,125 | ) | 55,023 | ||||||||||||||||
Totals |
$ | 294,408 | $ | (213,192 | ) | $ | 81,216 | $ | 295,659 | $ | (207,647 | ) | $ | 88,012 | ||||||||||
Gross and net carrying amounts vary from quarter to quarter due to amortization and currency
translation of non-dollar denominated balances. The amortization expense on these intangible assets
for the three months ended March 31, 2010 was $7.0 million, of which $2.1 million and $1.2 million
were included in cost of license fees and cost of messaging, respectively. At March 31, 2010 the
weighted average amortization period at acquisition of the gross carrying value of other purchased
intangible assets was 6.9 years. Estimated amortization expense for each of the next five years
below ending December 31, is as follows:
(In thousands) | ||||
2010 |
$ | 27,351 | ||
2011 |
21,962 | |||
2012 |
15,355 | |||
2013 |
12,336 | |||
2014 |
2,236 |
8. 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 8.15 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 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 March 31, 2010, 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
12
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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 March 31, 2010 of $46.62, the total conversion
value did not exceed the total principal value of the notes. The March 31, 2010 ask price for 2009
Notes is $1,197.63 per $1,000 note, representing an approximate aggregate fair value of $479.1
million.
As of March 31, 2010, the outstanding principal amount of the 2009 Notes totaled $332.7 million net
of unamortized discount of $67.3 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. The Company recognized interest expense of $6.7 million for the three months
ended March 31, 2010 from the 2009 Notes, which includes $3.2 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 March 31, 2010
were as follows:
March 31, | ||||
2010 | ||||
(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 |
(67.3 | ) | ||
Long term liability component of 2009 Notes |
$ | 332.7 | ||
Convertible Subordinated Notes Issued in 2005
On February 22, 2005, the Company issued $460 million of convertible subordinated notes (2005
Notes) 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. The Company recognized
interest expense of $3.5 million and $6.5 million from the 2005 Notes for the three months ended
March 31, 2010 and 2009, respectively, which includes $2.5 million and $4.5 million of amortization
of debt discount for each of the three month periods, respectively.
The 2005 Notes include a conversion feature which provides for each $1,000 principal amount of
notes, a conversion value representing 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. As
discussed earlier, the Company elected to pay 50 percent of this amount in cash and 50 percent in
the Companys common stock. Upon conversion, the total conversion value in excess of the total
principal value will be recorded as a reduction to Additional Paid In Capital.
On February 1, 2010 the Company called the remaining balance of its 2005 Notes for redemption on
March 3, 2010. The holders right to convert their Notes expired on March 2, 2010. $389.7 million
of the 2005 Notes were converted by noteholders following the Companys notice of redemption. The
Company has notified the noteholders and the trustee for the 2005 Notes that it has determined to
pay 50 percent of the 2005 Notes conversion premium in cash and the remaining 50 percent in the
Companys common stock. The total conversion premium is $338.3 million. Amounts due to the
noteholders will be settled during the second quarter of 2010.
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As of March 31, 2010, the outstanding principal amount of the 2005 notes, net of conversions of
$11.7 million and extinguishments of $58.6 million, totals $389.7 million and is included in
current liabilities.
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.
During the three months ended March 31, 2010, the Company extinguished and converted 30,134 of the
2005 Notes at an average price of $1,661 for each $1,000 note. The Company paid an aggregate of
$39.4 million. 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 March 31, 2010 and December 31, 2009 were as follows:
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(In millions) | ||||||||
Gross equity component of 2005 Notes |
$ | 85.0 | $ | 85.0 | ||||
Early extinguishment |
(31.6 | ) | (15.8 | ) | ||||
Conversion |
(7.5 | ) | (3.2 | ) | ||||
Temporary equity |
0.0 | (2.5 | ) | |||||
Deferred tax asset reduction |
(33.6 | ) | (33.7 | ) | ||||
Equity issuance costs |
(1.8 | ) | (1.8 | ) | ||||
Equity component of Notes |
$ | 10.5 | $ | 28.0 | ||||
Principal amount of 2005 Notes |
$ | 389.7 | $ | 419.8 | ||||
Unamortized discount of 2005 Notes |
0.0 | (2.5 | ) | |||||
Liability component of 2005 Notes |
$ | 389.7 | $ | 417.3 | ||||
9. Stock and Convertible Debt Repurchases.
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 $1.15 billion including a March 5, 2010 approval to repurchase up to an additional $150
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 million. See Note 8 Convertible Notes.
10. Stock-Based Compensation.
The Company may grant stock options and restricted stock
through the 2003 Stock Plan. At March 31, 2010, an aggregate of 17,145,376 shares of Common Stock
have been reserved upon the exercise of options granted to qualified employees, directors and
consultants of the Company. The Board of Directors, directly or through committees, administers the
2003 Stock Plan and establishes the terms of option grants. Options are exercisable to the extent
vested. Vesting occurs at various rates and over various time periods. 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.)
The following table summarizes the total stock-based compensation expense for stock options and
restricted stock grants that was recorded in the Companys results of operations for the three
months ended March 31, 2010 and 2009.
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands, except per share data) | 2010 | 2009 | ||||||
Cost of services |
$ | 366 | $ | 342 | ||||
Cost of messaging |
142 | 138 | ||||||
Sales and marketing |
1,412 | 1,400 | ||||||
Product development and engineering |
829 | 718 | ||||||
General and administrative |
4,021 | 3,152 | ||||||
Total stock-based compensation expense included in costs and expenses |
6,770 | 5,750 | ||||||
Tax benefit related to stock-based compensation expense |
(2,019 | ) | (1,605 | ) | ||||
Stock-based compensation expense included in net income |
$ | 4,751 | $ | 4,145 | ||||
Reduction of net income per share attributable to Sybase, Inc.
common stockholders: |
||||||||
Basic |
$ | 0.06 | $ | 0.05 | ||||
Diluted |
$ | 0.05 | $ | 0.05 |
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As of March 31, 2010, there was $51.0 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 over a weighted
average period of 2.4 years. The Company expects to recognize the cost for restricted stock over a
weighted average period of 1.6 years.
During the three months ended March 31, 2010, the Company issued 0.9 million shares of its common
stock for stock option exercises and issued 0.3 million shares of its common stock for vested
restricted stock. The common stock was issued from the Companys treasury stock.
11. Income Taxes.
The effective tax rate for the periods presented is the result of the mix
of income projected to be earned in various tax jurisdictions that apply a broad range of income
tax rates. Future effective tax rates could be adversely affected if earnings are lower than
anticipated in countries where we have lower statutory rates or by unfavorable changes in tax laws
and regulations.
Our effective tax rate was approximately 38.2 percent and 41.5 percent for the three months ending
March 31, 2010 and March 31, 2009, respectively. Our effective tax rate for both years differ from
the statutory rate of 35 percent primarily due to the impact of state taxes, and for the three
months ending March 31, 2009, the addition of a valuation allowance for the expected
non-deductibility of securities impairment losses due to capital loss limitations and a
non-recurring tax charge recorded for a reduction in our state net deferred tax assets as a result
of a California tax law enacted during the three months ending March 31, 2009. These increases
were partially offset by earnings in lower tax jurisdictions. The amount of tax recorded increased
primarily because of an increase in our earnings for the same comparative period.
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 through
2009. Income tax returns filed in certain other foreign jurisdictions and states are also under
examination.
As of December 31, 2009, the total amount of our unrecognized tax benefits was approximately
$81.3 million of which $78.0 million would impact our effective tax rate if recognized. There was
no material change to these amounts during the three months ending March 31, 2010. During the next
12 months, it is reasonably possible that the total amounts of unrecognized tax benefits will
decrease by between $10.0 million to $13.0 million due to the expiration of statute of limitations
and tax settlement payments. 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 results 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.
The Company recognizes interest and penalties related to unrecognized tax benefits within the
provision for income taxes. At December 31, 2009, we had accrued $4.4 million for the payment of
interest and had no accruals for the payment of penalties. The amount of interest recognized during
the three months ended March 31, 2010 was not significant. No penalties have been accrued.
12. Segment Information.
In 2009, the Company was organized into three business segments:
Infrastructure Platform Group (IPG), which principally focused on enterprise class database
servers, integration and development products; iAnywhere Solutions, Inc. (iAS), which provided
mobile device management, mobile middleware platforms, database, synchronization, and Bluetooth and
infrared protocol technologies; and Sybase 365 (SY365), which provided 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. Beginning January 1, 2010, the Company was organized into two business segments:
Software License & Services, which principally focuses on enterprise class database servers,
integration, development products, mobile database and mobile enterprise solutions; and Messaging
and Hosted Software, which provides global services for mobile messaging interoperability, the
management and distribution of mobile content and the hosting and enablement of mobile applications
and services. The Software License and Services segment is comprised of the iPG and iAS software
and services segments and is more closely aligned with various operational and functional group
consolidations undertaken in 2009 and consolidated reporting processes.
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
income before unallocated expenses. The CEO does not view segment results below income before
unallocated expenses, and therefore unallocated expenses; interest income, interest expense and
other, net; and the
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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 represent corporate activities (expenditures) that are not specifically allocated to the
segments including marketing expenses, product development and engineering expenses, general and
administrative expenses, amoritization of intangibles, stock-based compensation expenses, reversals
of restructuring expenses associated with restructuring activities undertaken prior to 2003,
interest and investment income and expenses and taxes.
A summary of the segment financial information reported to the CEO for the three months ended March
31, 2010 as well as comparable information for the three months ended March 31 2009 is presented
below:
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands) | 2010 | 2009 | ||||||
Software License and Services: |
||||||||
Software license and services revenue |
||||||||
License fees |
$ | 97,836 | $ | 88,882 | ||||
Software license updates and product support |
116,156 | 109,607 | ||||||
Other services |
25,280 | 25,000 | ||||||
Total software license and services revenue |
239,272 | 223,489 | ||||||
Cost of software license and services |
||||||||
Cost of license fees |
11,090 | 10,159 | ||||||
Cost of services |
35,948 | 36,484 | ||||||
Sales expense |
42,044 | 46,574 | ||||||
Total cost of software license and services |
89,082 | 93,217 | ||||||
Segment income before unallocated expenses |
$ | 150,190 | $ | 130,272 | ||||
Messaging and Hosted Software: |
||||||||
Messaging and hosted software revenue |
||||||||
Messaging |
$ | 53,014 | $ | 43,263 | ||||
Hosted license and services |
1,666 | 761 | ||||||
Total messaging and hosted software revenue |
54,680 | 44,024 | ||||||
Cost of messaging and hosted software |
||||||||
Cost of messaging and hosted software |
35,357 | 25,759 | ||||||
Sales expense |
6,455 | 7,300 | ||||||
Total cost of messaging and hosted software |
41,812 | 33,059 | ||||||
Segment income before unallocated expenses |
$ | 12,868 | $ | 10,965 | ||||
Total segment revenues |
$ | 293,952 | $ | 267,513 | ||||
Total segment expenses |
130,894 | 126,276 | ||||||
Total segment income before unallocated expenses |
163,058 | 141,237 | ||||||
Unallocated expenses: |
||||||||
Marketing |
(11,205 | ) | (9,234 | ) | ||||
Product development and engineering |
(35,368 | ) | (34,348 | ) | ||||
General and administrative |
(28,093 | ) | (28,794 | ) | ||||
Amortization of intangible assets |
(6,981 | ) | (6,924 | ) | ||||
Restructuring |
(4 | ) | 10 | |||||
Stock-based compensation |
(6,770 | ) | (5,750 | ) | ||||
Change in value of assets in deferred compensation plan |
(565 | ) | 700 | |||||
Interest income and expense and other, net |
(9,585 | ) | (8,901 | ) | ||||
Income before provision for income taxes |
$ | 64,487 | $ | 47,996 | ||||
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13. Litigation.
On March 24, 2010, Sybase entered into a confidential settlement agreement with Telecommunication
Systems, Inc. (TCS) that resolved the following outstanding lawsuits: (i) TCSs lawsuit filed on
July 30, 2009 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), (ii) TCSs lawsuit filed on August 19, 2009 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 (the 604), and (iii) Sybase 365s lawsuit filed on October 2, 2009 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. As a result of
the settlement, the claims on the 811/990 patents have been dismissed with prejudice. The claims
by TCS against Sybase on the 604 patent and the claims by Sybase 365 against TCS on the 040 and
312 patents have been dismissed without prejudice. The settlement had no material impact on
Sybase.
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 March 31, 2010. 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.
14. Subsequent Events.
On April 1, 2010, the Company signed an agreement to acquire its
long-time South Africa distributor partner, Sybase SA, in order to have a direct presence in the
growing southern African market. The total cash outlay to Sybase SA is an estimated $14 million
over two years.
On April 30, 2010 the Company retired the remaining 2005 Notes for $558.9 million in cash and
issuance of 3.6 million shares of common stock valued in
accordance with the terms of the 2005 Notes at $169.2 million in the Companys common
stock.
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ITEM 2: 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. | ||
| Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Estimates as we believe it is 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 Item 1A in Part II of this Quarterly Report on Form 10-Q 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 Item 1 and our Annual Report on Form 10-K for the year ended December 31, 2009.
On February 1, 2010 we called the remaining balance of our 2005 Notes for redemption on March 3,
2010. $389.7 million of the 2005 Notes were converted by noteholders following our notice of
redemption. The Company has notified the noteholders and the trustee for the 2005 Notes that we
have determined to pay 50 percent of the 2005 Notes conversion premium in cash and the remaining
50 percent in our common stock. The conversion premium is estimated to be $338 million. Amounts
due to the noteholders will be settled during the second quarter of 2010. See Note 8 to Condensed
Consolidated Financial Statements Convertible Notes, Part I, Item I.
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.
Starting in 2010 our business was organized into two business segments: Software License and
Services, which principally focuses on enterprise class database servers, integration, development
products, mobile database and mobile enterprise solutions; and Messaging and Hosted Software, which
provides global services for mobile messaging interoperability, the management and distribution of
mobile content and the hosting and enablement of mobile applications and services. For further
discussion of our business segments, see Note 12 to Condensed Consolidated Financial Statements
Segment Information, Part I, Item I.
Our Results
We reported total revenues of $294.0 million for the three months ended March 31, 2010, which
represented a $26.4 million (10 percent) increase from total revenues of $267.5 million for the
same period last year. The year-over-year increase in total revenues was attributable to a 23
percent increase in messaging revenue, a 10 percent increase in license revenue, and a 5 percent
increase in service revenues.
The growth in license revenues was primarily attributed to a 25 percent increase in database
revenues, namely our Adaptive Server® Enterprise (ASE), IQ Analytic Server, Complex Event
Processing (CEP), and Risk Analytics Platform (RAP) products. The increase
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in Messaging and Hosted Software revenue was driven by a 23 percent increase in messaging revenues.
The increase in service revenue resulted from a 6 percent increase in software license updates and
product support revenues.
We reported net income of $39.9 million for the quarter ended March 31, 2010, compared to $28.1
million for the same period last year. For the quarter ended March 31, 2010 our operating income
was $74.1 million and our operating margin was 25 percent compared to $56.9 million in operating
income and a 21 percent operating margin for the same period in 2009. The increase in operating
income was primarily attributable to the Software License and Services segments $19.9 million
increase in segment income and Messaging and Hosted Software segments $1.9 million increase in
segment income. The increased operating income resulted from larger deal sizes involving our
enterprise database products, reduced operating expenses realized through operational synergies,
and a favorable revenue mix shift away from lower margin business (professional services) and
toward higher margin business (license and maintenance).
During the three months ended March 31, 2010, we generated net cash from operating activities of
$99.3 million. Our days sales outstanding in accounts receivable were 72 days for the quarter ended
March 31, 2010 compared to 78 for the quarter ended March 31, 2009.
For a discussion of certain factors that may impact our business and financial results, see Risk
Factors Future Operating Results.
Business Trends
In the early part of 2010, we continue to see early signs of recovery in the spending environment
and indications that corporate IT budgets could modestly increase this year. 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 pipeline and the general condition of our
business remain stable, though we remain cautious on the spending environment in Europe, the
sustainability of the overall macroeconomic recovery, and the recent weakening of the euro, which
could reduce reported revenue in U.S. dollars.
Our focus on innovation has helped sustain demand and drive growth with our enterprise
infrastructure products. We continue to benefit from the continued proliferation of enterprise data
that, along with enhancements to our core database platform, have contributed to growth for our
Adaptive Server Enterprise (ASE) 15.0 product. We are encouraged by the initial customer response
to the recently released version 15.5 of our ASE platform. Version 15.5 includes two new options
expected to contribute to our revenue growth in 2010: in-memory processing and advanced back-up
services. Our Analytic products also continue to do well as the need for high-performance,
low-latency analytic capabilities drives demand for our IQ Analytic Server (IQ), our Risk Analytics
Platform (RAP), and our Complex Event Processing (CEP) solutions. 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 the first
quarter, we strengthened our CEP offerings through an asset purchase agreement with Aleri Inc., a
leading provider of enterprise-class CEP technology.
While the overall demand for mobile software remains somewhat constrained, we are encouraged by
growing interest in our mobile enterprise platform, including our Afaria product and our Sybase
Unwired Platform (SUP). Afaria is a mobile device management and security solution for the
enterprise, providing a single administrative console to centrally manage, secure and deploy mobile
data, applications and devices. Sybase Unwired Platform is a mobile enterprise application platform
that enables enterprise developers to build applications that connect business data to mobile
workers on a variety of mobile device platforms. During the first quarter, we continued to focus on
developing our partner ecosystem to enable mobile enterprise applications and managed mobility
services. For example, in Q1 we released the initial SAP applications for general availability:
Sybase Mobile Sales for SAP CRM and Sybase Mobile Workflow for SAP Business Suite. We also expanded
our managed mobility ecosystem when Orange chose Afaria as part of a managed service offering
allowing enterprise customers to manage a heterogeneous mobile device environment through a hosted
solution. To date, we have entered into relationships with 15 managed services partners. 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 Operator Analytics 365, a
real-time traffic and billing analytics solution, which we expect to become available in the second
quarter of 2010. We also launched our next-generation IPX platform. Utilizing Internet Protocol
(IP) technology is becoming the preferred means for delivering voice and data services over mobile
networks, making possible new services such as voice over IP, video calling and location-based
services.
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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 believe
that the estimates, assumptions and judgments involved in the accounting policies described in
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for the year ended December 31, 2009 have the greatest potential impact on our
financial statements, so we consider them to be our critical accounting policies and estimates. We
believe that during the first three months of 2010 there were no significant changes in those
critical accounting policies and estimates. Senior management has reviewed the development and
selection of our critical accounting policies and estimates and their disclosure in this Quarterly
Report on Form 10-Q with the Audit Committee of our Board of Directors.
A discussion of each of our other critical accounting policies is included in our annual report on
Form 10-K for the year ended December 31, 2009.
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 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.
Results of Operations
Revenues
Three Months ended March 31, | ||||||||||||
Percent | ||||||||||||
(Dollars in millions) | 2010 | 2009 | Change | |||||||||
License fees by segment: |
||||||||||||
Software license and services |
$ | 97.8 | $ | 88.9 | 10 | % | ||||||
Messaging and hosted software |
0.8 | 0.4 | 100 | % | ||||||||
Total license fees |
$ | 98.6 | $ | 89.3 | 10 | % | ||||||
Percentage of total revenues |
34 | % | 33 | % | ||||||||
Services by segment: |
||||||||||||
Software license and services |
$ | 141.4 | $ | 134.6 | 5 | % | ||||||
Messaging and hosted software |
1.0 | 0.4 | 150 | % | ||||||||
Total services |
$ | 142.4 | $ | 135.0 | 5 | % | ||||||
Percentage of total revenues |
48 | % | 51 | % | ||||||||
Messaging and Hosted Software messaging revenue |
$ | 53.0 | $ | 43.2 | 23 | % | ||||||
Messaging and Hosted Software messaging
revenue as percentage of total revenues |
18 | % | 16 | % | ||||||||
Total revenues |
$ | 294.0 | $ | 267.5 | 10 | % |
* | Not meaningful |
License revenues increased $9.3 million (10 percent) for the three months ended March 31, 2010
compared to the same period last year. This increase in license revenues was primarily attributable
to an $8.9 million (10 percent) increase in the Software License and Services segment driven by an
$11.8 million increase in database license revenues, namely our Adaptive Server® Enterprise (ASE)
and Analytics offerings (IQ Analytic Server, CEP, and Risk Analytics Platform); partially offset by
decreases in our mobility and Financial Servicesproducts and Power Builder development tools of
$3.5 million (12 percent).
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Services revenues (which include software license updates and product support, professional
services and education) increased $7.4 million (5 percent) for the three months ended March 31,
2010 compared to the same period in 2009 primarily due to a $6.8 million (5 percent) increase in
the Software License and Services segment. The 5 percent increase in the Software License & Service
segment service revenues was largely due to a $6.5 million (6 percent) increase in software license
updates and product support revenue and a $0.4 million (2 percent) increase in professional
services.
Total software license updates and product support revenues increased $6.7 million (6 percent) for
the three months ended March 31, 2010 compared to the same periods in 2009. Software license
updates and product support revenues comprised approximately 82 percent of total services revenues
for the three months ended March 31, 2010 and 81 percent for the same periods in 2009. Current and
long-term deferred revenue balances in the balance sheet relate principally to software license
updates and product support contracts and increased $27.4 million (11 percent) compared with the
balance on March 31, 2009.
Services revenues other than software license updates and product support increased $0.7 million (3
percent) for the three months ended March 31, 2010 compared to the same period in 2009. The
increase for the three months ended March 31, 2010 was primarily related to a $0.9 million (4
percent) increase in professional services.
Messaging revenues increased $9.8 million (23 percent) for the three month ended March 31, 2010
compared to the same period in 2009. The increase for the three months ended March 31, 2010 was
due to a $7.8 million (41 percent) increase in application messaging revenues, a $1.2 million (5
percent) increase in personal messaging revenues, and a $0.8 million (100 percent) increase in
mobile commerce revenues.
Geographical Revenues
Three Months ended March 31, | ||||||||||||
Percent | ||||||||||||
(Dollars in millions) | 2010 | 2009 | Change | |||||||||
North American |
$ | 146.8 | $ | 139.8 | 5 | % | ||||||
Percentage of total revenues |
50 | % | 52 | % | ||||||||
Total Outside North America |
$ | 147.2 | $ | 127.7 | 15 | % | ||||||
Percentage of total revenues |
50 | % | 48 | % | ||||||||
International: EMEA (Europe, Middle East and Africa) |
$ | 111.9 | $ | 89.1 | 26 | % | ||||||
Percentage of total revenues |
38 | % | 33 | % | ||||||||
Intercontinental: (Asia Pacific and Latin America) |
$ | 35.3 | $ | 38.6 | (9 | %) | ||||||
Percentage of total revenues |
12 | % | 15 | % | ||||||||
Total revenues |
$ | 294.0 | $ | 267.5 | 10 | % |
* | Not meaningful |
North American revenues (United States, Canada and Mexico) increased $7.0 million (5 percent) for
the three months ended March 31, 2010 compared to the same period last year. The increase was
primarily due to a $3.7 million (23 percent) increase in messaging revenues, a $2.3 million (3
percent) increase in service revenues, and a $1.1 million (3 percent) increase in license revenue
compared to the same period in 2009.
Total revenues outside North America comprised 50 percent and 48 percent of total revenues for the
three months ended March 31, 2010 and 2009, respectively.
EMEA (Europe, Middle East and Africa) revenues for the three months ended March 31, 2010 increased
$22.8 million (26 percent) compared to the same period last year. The increase was due primarily to
a $12.9 million (46 percent) increase in license revenue, a $6.3 million (26 percent) increase in
messaging revenue, and a $3.6 million (10 percent) increase in service revenues. The increase in
license revenues primarily resulted from increases in UK ($9.4 million), Spain ($2.0 million) and
Norway ($1.3 million). The increase in messaging revenue revenues were primarily driven by
increases in Germany ($4.2 million), France ($0.9 million), Italy ($0.6 million), and Spain ($0.6
million). Increases in services revenues were primarily driven by increases in Germany ($1.5
million), France ($0.9 million), Italy ($0.6 million), and Holland ($0.6).
Intercontinental (Asia Pacific and Latin America) revenues for the three months ended March 31,
2010 decreased $3.3 million (9 percent) compared to the same period last year. License revenue
decreased $4.7 million (25 percent) and messaging revenue decreased $0.2 million (7 percent);
partially offset by a $1.6 million (9 percent) increase in service revenue. The decrease in license
revenue primarily resulted from decreases in Japan ($5.2 million) and India ($0.8 million);
partially offset by increases in Brazil ($0.7 million) and Korea ($0.5 million). The decrease in
messaging revenue primarily resulted from decreases in Australia ($0.5 million) and Singapore ($0.2
million); partially offset by increases in Malaysia ($0.2 million) and China ($0.2 million).
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In EMEA and the Intercontinental regions, most revenues and expenses are denominated in local
currencies. During the three months ended March 31, 2010, foreign currency exchange rate changes
from the same period last year resulted in a increase of 4 percent in our revenues and an increase
of 3 percent in our operating expenses. The change versus the comparable period was primarily due
to a weaker U.S. dollar against the Euro and British Pound, and to a lesser extent the weakening of
the U.S. dollar against the Australian Dollar, Brazilian Real, Korean Won, and Japanese Yen.
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).
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Costs and Expenses
Three Months ended March 31, | ||||||||||||
(Dollars in millions) | Percent | |||||||||||
2010 | 2009 | Change | ||||||||||
Cost of license fees |
$ | 13.2 | $ | 12.3 | 7 | % | ||||||
Percentage of license fees revenues |
13 | % | 14 | % | ||||||||
Cost of services |
$ | 36.5 | $ | 36.8 | (1 | %) | ||||||
Percentage of services revenues |
26 | % | 27 | % | ||||||||
Cost of messaging |
$ | 36.6 | $ | 27.0 | 36 | % | ||||||
Percentage of messaging revenues |
69 | % | 62 | % | ||||||||
Sales and marketing |
$ | 61.4 | $ | 64.2 | (4 | %) | ||||||
Percentage of total revenues |
21 | % | 24 | % | ||||||||
Product development and engineering |
$ | 36.5 | $ | 34.7 | 5 | % | ||||||
Percentage of total revenues |
12 | % | 13 | % | ||||||||
General and administrative |
$ | 32.2 | $ | 31.9 | 1 | % | ||||||
Percentage of total revenues |
11 | % | 12 | % | ||||||||
Amortization of other purchased intangibles |
$ | 3.7 | $ | 3.7 | * | |||||||
Percentage of total revenues |
1 | % | 1 | % |
* | Not meaningful |
Cost of License Fees. Cost of license fees consists primarily of product costs (media and
documentation), amortization of capitalized software development costs and purchased technology,
and third party royalty costs. Cost of license fees were 13 percent of license revenue for the
three months ended March 31, 2010 as compared with 14 percent of license revenue for the same
period last year. Cost of license fees were $13.2 million for the three months ended March 31,
2010, an increase of $0.9 million (7 percent) compared with the same period in 2009. The dollar
increase in cost of license was primarily due to a $0.7 million increase in amortization of
capitalized software.
Cost of Services. Cost of services consists primarily of the fully burdened cost of our personnel
who provide product support, professional services and education. Cost of services were $36.5
million for the three months ended March 31, 2010, a decrease of $0.3 million (1 percent) compared
to the same period in 2009. These costs were 26 percent of services revenues for the three months
ended March 31, 2010 compared with 27 percent for the same period last year. The decrease in cost
of services was primarily due to a decreases in telecom, temporary employees and travel of $0.6
million; partially offset by $0.3 million increase in salaries and benefits.
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 Messaging and Hosted Software segment. Costs of
messaging for the three months ended March 31, 2010 were $36.6 million, up $9.6 million (36
percent) compared to the same period in 2009. These costs were 69 percent of messaging revenue for
the three months ended March 31, 2010 compared with 62 percent in 2009. Cost of messaging increased
primarily due to $7.5 million in additional call termination fees associated with higher traffic
volumes and a message mix shift to higher messaging cost services, $0.8 million due to an increase
in depreciation and amortization, and $0.4 million due to an increase in temporary employees,
compared with the same period in 2009.
Sales and Marketing. Sales and marketing expenses were $61.4 million for the three months ended
March 31, 2010, down $2.8 million (4 percent) as compared to the same period last year. These costs
decreased to 21 percent of total revenues for the three months ended March 31, 2010 as compared to
24 percent for the same period last year. The decrease in sales and marketing expenses is primarily
due to a $2.3 million decrease in commissions and decreases in telecom and outside services of $1.1
million; partially offset by an $0.8 million increase in marketing programs and travel.
Product Development and Engineering. Product development and engineering expenses (net of
capitalized software development costs) were $36.5 million for the three months ended March 31,
2010, up $1.8 million (5 percent) as compared to the same period last year. These costs decreased
to 12 percent of total revenues for the three months ending March 31, 2010 compared with 13 percent
for the same period in 2009. The increase in absolute dollars for the three months ended March 31,
2010 is primarily due to $1.3 million increase in salaries and benefits.
We capitalized approximately $11.8 million of software development costs for the three ended March
31, 2010 compared to $11.9 million for the same period in 2009. For the three months ended March
31, 2010, capitalized software costs included costs incurred for efforts associated with ASE,
Replication Server, Power Builder, SUP, SQL Anywhere, and Sybase IQ\RAP.
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General and Administrative. General and administrative expenses, which include IT, legal, business
operations, finance, human resources and administrative functions, were $32.2 million for the three
ended March 31, 2010 as compared to $31.9 million for the same period in 2009. These costs
decreased to 11 percent of total revenues for the three months ended March 31, 2010 compared with
12 percent for the three months ended March 31, 2009. The decrease in general and administrative
expenses for the three months ended March 31, 2010 was not significant.
Amortization of Other Purchased Intangibles. Amortization of other purchased intangibles primarily
reflects the amortization of the established customer lists associated with the acquisition of Home
Financial Network, Inc in 2000, of XcelleNet in 2004, of Extended Systems in 2005, of Mobile 365 in
2006, and of Cable & Wireless businesses 2008. The changes in amortization of other purchased
intangibles for the three month periods ended March 31, 2010 compared to the same period in the
prior year are insignificant.
Segment Income Before Unallocated Expenses
Three Months ended March 31, | ||||||||||||
Percent | ||||||||||||
(Dollars in millions) | 2010 | 2009 | Change | |||||||||
Software License and Services |
$ | 150.2 | $ | 130.3 | 15 | % | ||||||
Messaging and Hosted Software |
12.9 | 11.0 | 17 | % | ||||||||
Total Segment Income Before Unallocated Expenses |
$ | 163.1 | $ | 141.3 | 15 | % |
Total segment income before unallocated expenses increased to $163.1 million for the three months
ended March 31, 2010 compared to $141.3 million for the three months ended March 31, 2009. The
increase for the three months ended March 31, 2010 is primarily due to the various factors
discussed under Revenues, Geographical Revenues and Sales and Marketings above. Segment
operating income includes the revenues and expenses described in Note 12 to the Condensed
Consolidated Financial Statements Segment Information, Part I, Item I.
The segment income for the Software License & Services segment was $150.2 million for the three
months ended March 31, 2010 compared to $130.3 million for the three months ended March 31, 2009.
The $19.9 million increase in segment income was due to a $15.8 million (7 percent) increase in
revenues and a $4.1 million (4 percent) decrease in cost of software license and services. Revenues
increased primarily due to an $8.9 million (10 percent) increase in License revenue and a $6.5
million (6 percent) increase in Software license updates and product support. Cost of software
license and services decreased primarily due to a $4.5 million decrease in sales expense. Sales
expense decreased $4.5 million primarily due to a $4.0 million decrease in commissions and other
headcount related costs and a $0.5 million decrease in marketing expenses.
The segment income for the Messaging and Hosted Software segment was $12.9 million for the three
months ended March 31, 2010 compared to $11.0 million for the three months ended March 31, 2009.
The $1.9 million increase in segment income was due to a $10.7 million (24 percent) increase in
revenues partially offset by an $8.8 million (26 percent) increase in cost of messaging & hosted
software. The increase in cost of messaging and hosted software was primarily due to a $9.6
million (37 percent) increase in messaging cost of goods sold.
Other Income (Expense), Net
Three Months ended March 31, | ||||||||||||
Percent | ||||||||||||
(Dollars in millions) | 2010 | 2009 | Change | |||||||||
Interest income |
$ | 1.5 | $ | 2.2 | (32 | %) | ||||||
Percentage of total revenues |
1 | % | 1 | % | ||||||||
Interest expense and other, net |
$ | (11.1 | ) | $ | (9.3 | ) | 19 | % | ||||
Percentage of total revenues |
(4 | %) | (3 | %) | ||||||||
Impairment losses recognized in earnings |
* | $ | (1.8 | ) | * | |||||||
Percentage of total revenues |
* | (1 | %) |
* | Not meaningful |
Interest income decreased to $1.5 million for the three months ended March 31, 2010 compared to
$2.2 million for the same period last year. Interest income consists primarily of interest earned
on our investments. The decrease in interest income in the three month period ended March 31, 2010
is primarily due to a significant decrease in the average interest rates earned on cash balances.
The average interest rates earned on cash balances decreased to 0.6 percent for the three ended
March 31, 2010 from 1.3 percent for the three months ended March 31, 2009.
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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 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 to $11.1 million for the three months ended March 31,
2010 compared to $9.3 million for the same period in 2009. The increase was primarily due to a $6.7
million increase in interest expense from our recently issued 2009 Notes; partially offset by a
$3.0 million decrease in interest expense from the conversion and extinguishment of our 2005 Notes,
a $0.6 gain on trading securities that are invested as directed by participants of a deferred
compensation-related Rabbi Trust for the three months ended March 31, 2010 compared with a $0.7
million loss on trading securities for the three months ended March 31, 2009, and a $0.2 million
net gain from foreign currency transactions and related hedging activities for the three months
ended March 31, 2010 compared with a $1.3 million loss resulting for the three months ended March
31, 2009.
There were no net impairment losses for the three months ended March 31, 2010 compared to $1.8
million for the three month period ended March 31, 2009. Net impairment losses recognized in
earnings relate to investments in auction-rate securities (ARS). The ARS investments continue to
lack short-term liquidity and we will not be able to access these funds until a future auction for
the ARS investments is successful or until we sell the securities in a reasonable secondary market
which currently does not exist. In addition, further impairments to the ARS investments, if any,
may result in additional charges to earnings (See Note 5 to Condensed Consolidated Financial
Statements Cash, Cash Equivalents and Short and Long-term Investments, respectively, Part I, Item
I).
Provision for Income Taxes
Three Months ended March 31, | ||||||||||||
Percent | ||||||||||||
(Dollars in millions) | 2010 | 2009 | Change | |||||||||
Provision for income taxes |
$ | 24.6 | $ | 19.9 | 24 | % |
The effective tax rate in all periods is the result of the mix of income earned in various tax
jurisdictions that apply a broad range of income tax rates. Future effective tax rates could be
adversely affected if earnings are lower than anticipated in countries where we have lower
statutory rates or by unfavorable changes in tax laws and regulations.
Our effective tax rate was approximately 38.2 percent and 41.5 percent for the three months ending
March 31, 2010 and March 31, 2009, respectively. Our effective tax rate for both years differ from
the statutory rate of 35 percent primarily due to the impact of state taxes, and for the three
months ending March 31, 2009, the addition of a valuation allowance for the expected
non-deductibility of securities impairment losses due to capital loss limitations and a
non-recurring tax charge recorded for a reduction in our state net deferred tax assets as a result
of a California tax law enacted during the three months ending March 31, 2009. These increases
were partially offset by earnings in lower tax jurisdictions. The amount of tax recorded increased
primarily because of an increase in our earnings for the same comparative period. See Condensed
Consolidated Financial Statements, Note 11 Income Taxes.
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 future taxable income. Forecasts of future taxable income are
expected to be further refined during the three months ending December 31, 2010 as a result of the
Companys annual budget and goal setting process.
Net Income Per Share Attributable to Sybase, Inc. Common Stockholders
Three Months ended March 31, | ||||||||||||
Percent | ||||||||||||
(Dollars and shares in millions, except per share data) | 2010 | 2009 | Change | |||||||||
Net income attributable to Sybase, Inc. |
$ | 39.9 | $ | 28.1 | 42 | % | ||||||
Percentage of total revenues |
14 | % | 10 | % | ||||||||
Basic net income per share attributable to Sybase, Inc.
common stockholders |
$ | 0.49 | $ | 0.35 | 40 | % | ||||||
Diluted net income per share attributable to Sybase, Inc.
common stockholders |
$ | 0.45 | $ | 0.33 | 36 | % | ||||||
Shares used in computing basic net income per share
attributable to Sybase, Inc. common stockholders |
80.7 | 79.8 | 1 | % | ||||||||
Shares used in computing diluted net income per share
attributable to Sybase, Inc. common stockholders |
86.5 | 84.5 | 2 | % |
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We reported net income attributable to Sybase, Inc. of $39.9 million for the three months ended
March 31, 2010 compared to net income attributable to Sybase, Inc. of $28.1 million for the same
period last year. The increase in net income attributable to Sybase, Inc. for the three months
ended March 31, 2010 is due to the various factors discussed above.
Basic net income attributable to Sybase, Inc. common stockholders per share was $0.49 for the three
months ended March 31, 2010 as compared to $0.35 for the same period in 2009. Diluted net income
attributable to Sybase, Inc. common stockholders per share was $0.45 for the three months ended
March 31, 2010 as compared to $0.33 for the same period in 2009.
Shares used in computing basic net income attributable to Sybase, Inc. common stockholders per
share increased 1 percent for the three months ended March 31, 2010 as compared to the same period
in 2009. Shares used in computing diluted net income attributable to Sybase, Inc. common
stockholders per share increased 2 percent for the three months ended March 31, 2010 as compared to
the same period in 2009. The increase in the number of shares used in computing basic share count
was primarily due to an increase in exercises of employee stock options, partially offset by
repurchases of our common stock in the first quarter of 2009. The increase in the number of shares
used in computing diluted share count was due to an increase in share count related to shares that
are assumed to be issued to holders of our 2005 Notes, an increase in exercises of employee stock
options, and an increase in employee stock options outstanding, partially offset by repurchases of
our common stock in the first quarter of 2009. Basic and diluted earnings per share is computed
pursuant to the two-class method. See Note 2 and 8 to Condensed Consolidated Financial Statements
Net income per Share Attributable to Sybase, Inc. Common Stockholders and Convertible Notes,
respectively; Part I, Item I.
Shares that may be issued to holders of our convertible subordinated notes issued in 2005 due to
the appreciation of our stock price are included in the calculation of diluted earnings
attributable to Sybase, Inc. common stockholders per share. Approximately 3.6 million shares and
2.6 million shares were included in the calculation of the fully diluted shares outstanding for
the three month periods ended March 31, 2010 and 2009 respectively. Inclusion of the assumed to be
converted shares decreased earnings per share $0.02 and $0.01 for the three month periods ended
March 31, 2010 and 2009, respectively. If at March 31, 2010 our closing share price was $47.62 or
$1.00 greater than the $46.62 actual closing price the number of if-converted shares would have
increased 87,773. However, our diluted earnings attributable to Sybase, Inc. common stockholders
per share would have remained at $0.45. See Note 2 and 8 to Condensed Consolidated Financial
Statements Net Income Per Share Attributable to Sybase, Inc. Common Stockholders and Convertible
Notes, respectively; Part I, Item I.
Liquidity and Capital Resources
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
Percent | ||||||||||||
(Dollars in millions) | 2010 | 2009 | Change | |||||||||
Working capital |
$ | 734.7 | $ | 116.8 | 529 | % | ||||||
Cash and cash equivalents |
$ | 1,022.7 | $ | 675.9 | 51 | % | ||||||
Net cash provided by operating activities |
$ | 99.3 | $ | 97.4 | 2 | % | ||||||
Net cash provided by (used for) investing activities |
$ | 12.0 | $ | (24.6 | ) | * | ||||||
Net cash provided by (used for) financing activities |
$ | (23.1 | ) | $ | 3.5 | * |
* | Not meaningful |
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 the three months ended March 31, 2010. We have not noted a meaningful negative impact on
the cash flows generated by our business due to the macro economic environment.
On April 30, 2010 the Company retired the remaining 2005 Notes for $558.9 million in cash and
issuance of 3.6 million shares of common stock valued at $169.2 million in the Companys common
stock.
Beyond the retirement of the 2005 Notes, we expect the primary use of cash to be the 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
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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.
Liquidity
At March 31, 2010, our principal sources of liquidity were cash, cash equivalents, and short-term
investments totaling $1,266.8 million, and accounts receivable of $235.2 million. On April 30, 2010
the Company retired the remaining 2005 Notes for $558.9 million in cash and issuance of 3.6
millionshares of common stock valued at $169.2 million in the Companys common stock.
At March 31, 2010, we had $1,022.7 million invested in money market funds, commercial paper, bank
time deposits, savings accounts and checking accounts. Our short-term investments totaling $244.1
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 plans and debt securities. See Note 5 to Condensed Consolidated Financial
Statements Cash, Cash Equivalents, and Short and Long-term Investments, Part I, Item I.
Approximately 31 percent of our cash is held outside the U.S. Approximately $93.0 million of these
funds are considered permanently reinvested in our foreign operations. See Note 11 to Condensed
Consolidated Financial Statements Income Taxes, Part I, Item I. 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 March 31, 2010, long-term investments included auction rate securities with an aggregate
estimated fair value and par value of $12.9 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 and investment balances and
expected operating cash flows, and considering our repayment of our 2005 Notes, we do not
anticipate that the lack of ARS liquidity to adversely affect our ability to conduct business.
Working Capital
Working Capital increased $617.9 million (529 percent) in March 31, 2010 compared with March 31,
2009. The increase was primarily due to a $574.7 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 $386.0 million in cash flow from operations, offset by $80.4 million of net cash
used for investing activities; and a $53.1 million decrease in the carrying value of our 2005
Notes.
Cash Flow
Net cash provided by operating activities was $99.3 million for the three months ended March 31,
2010 compared to $97.4 for the same period in 2009. The $1.9 million (2 percent) increase was
primarily due to a $11.8 million increase in net income, a $14.5 million increase in non-cash
expenses, offset by a $24.4 million decrease in working capital from changes in operating assets
and liabilities. The primary increase in non-cash expense was a $12.6 million increase in deferred
taxes. The primary working capital uses of cash included changes in accrued income taxes, accounts
receivable and other accrued liabilities; partially offset by sources of cash from changes in
accounts payable and deferred revenues.
Our days sales outstanding in accounts receivable decreased to 72 days for the three months ended
March 31, 2010 compared to 78 days for the three months ended March 31, 2009.
Net cash provided by investing activities was $12.0 million for the three months ended March 31,
2010 compared to a net use of $24.6 million in for the three months ended March 31, 2009. The
change from net use to a net source of cash relates primarily to net proceeds of $31.8 million from
maturities, sales and purchases of investments in US government and other debt instruments for the
three months ended March 31, 2010 compared with a $7.5 million net purchase of investments for the
same period in 2009.
Net cash used by financing activities was $23.1 million for the three months ended March 31, 2010
compared to a $3.5 million source of cash for the same period in 2009. For the three months ended
March 31, 2010 cash used by financing activities was primarily due to debt extinguishments of $50.1
million, partially offset by $20.6 million in issuance of common stock and reissuance of treasury
stock. For the three months ended March 31, 2009 cash provided by financing activities was
primarily due to $16.8 million in issuance of common stock and reissuance of treasury stock,
partially offset by treasury stock repurchases of $15.0 million.
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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 three months ended
March 31, 2010 we did not repurchase any outstanding common stock. Through March 31, 2010,
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 $233.3 million
remained available in the Stock Repurchase Program at March 31, 2010.
In response to uncertain economic climate conditions and constrained short-term credit market, we
reassessed and tightened our credit extension policy in the fourth quarter of 2008. The impact of
the reassessment resulted in the deferral of revenue in certain cases. The Company reevaluated
market conditions and determined it is appropriate to return to its historical policy regarding
credit extension for the three months ended March 31, 2010 and thereafter. This change had no
material impact on the Companys results in the first quarter of 2010.
At March 31, 2010 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 March 31, 2010, we had identifiable net assets totaling
$383.6 million associated with our European operations and $56.8 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 negative impact on cash
of $12.7 million for the three months ended March 31, 2010.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The following discussion about our risk management activities includes forward-looking statements
that involve risks and uncertainties, as more fully described on Page 2 of this Report.
Foreign Exchange Risk
The functional currency of our international operating subsidiaries is the local currency. Assets
and liabilities of our foreign subsidiaries are translated at the exchange rate in effect on the
balance sheet date. Revenue, costs and expenses are translated at average rates of exchange in
effect during the period. We report translation gains and losses as a separate component of
stockholders equity. We include net gains and losses resulting from foreign exchange transactions
in our statement of operations.
As a global concern, we face exposure to adverse movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have a material adverse
impact on our financial position and results of operations. Historically, our primary exposures
have related to non dollar-denominated sales and expenses in Europe, Asia Pacific, and Latin
America. In order to reduce the effect of foreign currency fluctuations, we utilize foreign
currency forward exchange contracts (forward contracts) to hedge certain foreign currency
transaction exposures outstanding during the period (approximately 30 days). The gains and losses
on the forward contracts mitigate the gains and losses on our outstanding foreign currency
transactions. We do not enter into forward contracts for trading purposes. All foreign currency
transactions are re-measured at month-end and all forward contracts terminate at month-end with
realized gains and losses included in interest expense and other, net. Forward contracts exist for
a wide variety of currency pairs. The Company enters such contracts only once a month on the last
day of the month. As such, there were no unrealized gains or losses on the outstanding forward
contracts as of March 31, 2010. Despite our efforts to mitigate foreign currency transaction
fluctuations, there can be no guarantee the impact of currency fluctuations will not be material in
the future.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to our investment portfolio,
which, excluding our auction rate securities, consists 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. We place our investments with
high-credit quality issuers at the time of initial investment and, by policy, we limit the amount
of credit exposure to any one issuer.
We mitigate default risk by investing in only the safe and high-credit quality securities at the
time of initial investment 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 auction rate securities. These securities are generally classified
as available-for-sale, and consequently, are recorded on the balance sheet at fair value with
unrealized gains or losses. Unrealized gains and losses were not material during the three months
ended March 31, 2010.
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and participation of our management, including
our 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. Based on this evaluation, our CEO
and CFO concluded that our disclosure controls and procedures at March 31, 2010 were effective to
ensure that information required to be disclosed by us in reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the timeframe specified in
Securities and Exchange Commission rules and forms. 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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during our first quarter of
2010 that have materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
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PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The material set forth in Note 13 of Notes to Condensed Consolidated Financial Statements -
Litigation in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by
reference.
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-Q. 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 software 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 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
software revenues in the fourth quarter benefit from the annual renewal of maintenance and support
contracts and new license orders from 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
software license 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 worldwide
economic conditions worsen 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 or from
regulatory changes impacting this industry, would adversely affect our revenues and operating
results.
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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 data management
and mobile software 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 our messaging and software hosting business 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.
Our messaging and hosting 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 our messaging and hosting
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. Additionally, our competitors that offer applications and middleware
products may influence customer purchasing decision for the underlying database in an effort to
persuade potential customers not to acquire our products. We could lose customers if our
competitors introduce new competitive products, add new functionality, acquire competitive
products, reduce prices or form strategic alliances with other companies. 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.
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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 January 2010 we acquired certain assets from Aleri, Inc., a complex event
processing software company. 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 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 March 31, 2010, we had approximately $530.1 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 software license updates and product
support agreements, our software license updates and product support revenues could be adversely
affected.
We currently derive a significant portion of our overall revenues from software license updates and
product 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
software license updates and product 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 software license updates and product 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
software license updates and product 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.
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 data management and mobile software 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.
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.
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Impairments in our investment portfolio may result in temporary and/or realized losses.
As of March 31, 2010, 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 March 31, 2010, the fair value of these
ARS totaled $12.9 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 March 31, 2010. 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.
At this time we also restructured our operating segments to form our Software License and Services
segment and our Messaging and Hosted Software segment. 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.
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 the three months ended
March 31, 2010, revenues outside North America represented 50 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:
| changes in IT spending; | ||
| the imposition of government controls; | ||
| changes or limitations in trade protection laws; |
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| unfavorable changes in tax treaties or laws; | ||
| natural disasters, public health risks, labor unrest, earnings expatriation restrictions, misappropriation of intellectual property and/or weak intellectual property protection; | ||
| 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 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.
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
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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 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.
At the time of such conversion or any redemption of the 2009 Notes we may have insufficient
financial resources or may be unable to arrange financing to pay for the conversion value of all
2009 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. 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 of the Companys Form 10-K for the year ended December 31,
2009 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 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 March 31, 2010, we had identified net assets totaling $383.6 million associated with our
Europe, Middle East and Africa, or EMEA, operations, and $56.8 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
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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 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), and
filed a second complaint against Vertica Systems, Inc. on December 1, 2009 in the U.S. District
Court for the Northern District of California, alleging infringement of Sybases U.S. Patent
#5,794,228 (entitled Database System with Buffer Manager Providing Per Page Native Data
Compression and Decompression) (the 228 Patent). On March 18, 2010, Vertica filed a complaint
for declaratory judgment against Sybase in the U.S. District Court for the Eastern District of
Texas, seeking a declaration that Vertica does not infringe any valid claim of the 228 Patent.
Such actions 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 13 to Condensed Consolidated Financial Statements Litigation,
Part I, Item I, 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
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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 was 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. The court in the Dow Jones dispute entered a
motion for summary judgment invalidating all of the patent claims that were asserted against
Sybase; Ablaise has appealed that ruling. The court has continued its stay of the Sybase dispute
pending resolution of the appeal in the Dow Jones appeal or the reexamination proceedings. 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). On February 5, 2010, TecSec, Incorporated filed a patent infringement lawsuit
against Sybase, Inc. and 12 other defendants in the Eastern District of Virginia. Eleven TecSec
patents are asserted in the lawsuit, but only four of them were originally asserted against Sybase:
US Patents # 5,369,702; 5,680,452; 5,717,755; and 5,898,781 (all entitled Distributed
Cryptographic Object Method). The products identified in TecSecs complaint as allegedly
infringing these patents are ASE versions 12.5.3A+ and 15.x; Advantage Database Server versions
6.x, 7.x, 8.x and 9.x; SQL Anywhere versions 9.x, 10.x and 11.x; Sybase IQ versions 12.7, 15.0 and
15.1; and any other Sybase products that include the ability to perform sub-file, object based
encryption. On April 19, 2010, TecSec filed a first amended complaint adding allegations that the
above products infringe TecSecs U.S. Patent #6,694,433 (entitled XML Encryption Scheme), and
adding at least the current version of EAServer as a product alleged to infringe all five of the
above-identified patents. 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 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.
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 start implementation of the 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.
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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.
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 was 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
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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 October 2009, the FASB issued authoritative guidance on revenue recognition that will become
effective for US 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 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.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(e) | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
During the quarter ended March 31, 2010, the Company did not make repurchases of its Common Stock.
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ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS
(a) | Exhibits furnished pursuant to Section 601 of Regulation S-K |
The information required by this item is incorporated here by reference to the Exhibit Index
attached to this Report on Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
May 7, 2010 | SYBASE, INC. |
|||
By | /s/ JEFFREY G. ROSS | |||
Jeffrey G. Ross | ||||
Senior Vice President and Chief Financial Officer (Principal Financial Officer) | ||||
By | /s/ KEITH JENSEN | |||
Keith Jensen | ||||
Vice President and Corporate Controller (Principal Accounting Officer) | ||||
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EXHIBIT INDEX
Exhibit No. | Description | |
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 | |
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 |
43