Filed On 3/26/97 · SEC File 0-15627 · Accession Number 811716-97-2
As Of Filer Filing On/For/As Docs:Pgs
3/26/97 Sequent Computer Systems Inc/OR 10-K 12/28/96 7:100
Document/Exhibit Description Pages Size
1: 10-K Annual Report 51± 241K
2: EX-10 Material Contract 4± 23K
3: EX-10.1 Material Contract 9± 48K
4: EX-10.2 Material Contract 6± 35K
5: EX-10.3 Material Contract 5± 25K
6: EX-10.4 Material Contract 24± 118K
7: EX-27 Financial Data Schedule 1 6K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______________ to
______________.
Commission file number: 0-15627
SEQUENT COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0826369
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
15450 S.W. Koll Parkway, Beaverton, Oregon 97006-6063
(Address of principal executive offices, including zip code)
Registrant's telephone number, including are code: (503) 626-5700
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
______________________ ______________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at February 28, 1997, based on the closing price on such date on
the NASDAQ National Market System: $592,694,320.
Number of shares of Common Stock outstanding as of February 28, 1997:
34,765,481.
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
1996 Annual Report to Shareholders Parts II and IV
Proxy Statement for 1997 Annual
Meeting of Shareholders Part III
TABLE OF CONTENTS
Item of Form 10-K Page
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 4(a). Executive Officers of the Registrant 11
PART II
Item 5. Market for the Registrant's Common Equity and 13
Related Stockholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants 13
on Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 14
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners and 14
Management
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports 15
on Form 8-K
SIGNATURES 23
PART I
Item 1. Business.
Sequent Computer Systems, Inc. ("Sequent" or "the Company") is a provider
of scalable data center ready open systems solutions for large organizations
spanning diverse industries. Sequent designs, manufactures and markets high-
performance symmetric multiprocessing (SMP) and CC-NUMA (Cache Coherent Non-
Uniform Memory Access) computer systems and operating environment software.
The Company's systems are widely used for large-scale on-line transaction
processing (OLTP), applications in decision support systems (DSS) and data
warehouses, for custom applications built upon relational database management
systems (RDBMS), and as the central server in client-server architectures.
Sequent's project-oriented offerings include a comprehensive portfolio of
customer, professional and education services to solve complex Information
Technology (IT) problems. The Company has an established set of partnerships
with other software, hardware and services providers to deliver complete
solutions to its customers.
The Company was incorporated in Delaware in January 1983 and was
reincorporated in Oregon in December 1988. Unless the context otherwise
requires, references in this Report on Form 10-K to the "Company" or "Sequent"
refer to the prior Delaware corporation, the current Oregon corporation and
its subsidiaries. The Company's principal executive offices are located at
15450 S.W. Koll Parkway, Beaverton, Oregon 97006, and its telephone number at
that location is (503) 626-5700.
Market Overview
In the past decade, Sequent has developed the experience to guide large
organizations through complex changes faced in moving to open systems. These
changes include the renovation of business processes aligned with new
information systems, maximizing benefits of SMP architectures and open
systems, widespread use of relational database management system (RDBMS)
applications and the substitution of OLTP for traditional batch processing.
Since the launch of its SMP family of systems in 1984, Sequent has installed
more than 8,000 SMP open systems worldwide.
Information Systems Renovation. Global economies and intense competitive
pressures today prompt many companies to provide employees with access to data
in order to increase responsiveness to customer needs. This need for access
to data requires companies to re-engineer or redesign their business processes
to take advantage of innovative open client/server architectures, systems and
products. Sequent offers a focused collection of IT infrastructure
consulting, education and implementation services. These services are geared
to assess an organization's current systems, work with the customer's IT staff
or their chosen systems integrator to design new systems that support business
objectives, and to deliver and implement systems with a complete IT solution.
SMP Architectures. With dramatic improvement in the power and
price/performance characteristics of processors and the proven ability of SMP
architectures to incorporate multiple processors into a single large-scale
system or group of systems, customers are increasingly employing SMP systems
to meet their commercial computing needs. Sequent has thirteen years of
success with SMP systems. The adoption of SMP architectures by other major
computer systems providers ensures continued acceptance of SMP in the
commercial marketplace.
NUMA-Q Architectures. For nearly a decade, SMP systems have been able to
meet the demands for large-scale OLTP, DSS and business communications
implementations. However, the architecture of these systems can limit
performance beyond a certain number of processors. All of the processors in
an SMP system are connected to each other and to memory and I/O by a single
bus. The bandwidth of the bus imposes limits on processing scalability, a
significant penalty with the dramatically rising level of processor
performance. This limitation has prevented SMP nodes from increasing much
beyond 32 processors. As a result, Sequent realized that a new SMP
architecture was required: NUMA-Q. NUMA-Q is the first CC-NUMA architecture
for large-scale systems available to the commercial marketplace. Sequent
began shipment of NUMA-Q during the fourth quarter of 1996.
Open Systems. Historically, large organizations have relied upon
computing equipment based upon a single vendor's proprietary technology that
was generally incompatible with that of other vendors. In recent years,
proprietary systems have become increasingly unacceptable to companies that
want the flexibility to purchase computing equipment and software best suited
for a specific need without being constrained by the technology employed by a
specific vendor. Proprietary systems also make it difficult for the PC user
to access information and applications from the central computer. An open
system, by contrast, incorporates industry standard technology and permits
users to integrate computer equipment and software offered by different
vendors. An open systems environment also facilitates offloading applications
from the central computer to a less expensive department, desktop or special-
purpose computer. Many companies are replacing some or all of their
proprietary central computing systems, moving to a more open, distributed
system when they upgrade or expand their systems.
RDBMS and OLTP. RDBMS is the primary vehicle for managing information in
large organizations. RDBMS systems are also used to support OLTP, which is
increasingly replacing traditional batch processing of historical data in
businesses with centralized information needs and distributed operations. The
OLTP market includes any systems that support the day-to-day operational
processes of a corporation. The market demand for OLTP computing systems,
particularly those using RDBMS technology, spans a wide variety of industries
and applications and has increased dramatically as more businesses require
instantaneous processing of information.
Rapid Growth in Desktop and Network Computing. In recent years,
companies have increasingly sought to improve the efficiency of their
computing systems by integrating PCs with centralized computing resources to
enable enterprise-wide communication, distributed processing and instantaneous
access to enterprise information (database) and computing services
(applications software). Recently market introductions include "Thin Clients"
or "Network Clients" which are lightweight desktop devices with little innate
computing capability and no magnetic storage. The use of such devices as an
alternative for PCs or ASCII terminals is expected to increase demand for
larger back-end servers similar to those offered by Sequent.
Sequent's Strategy
Sequent's strategy is to integrate the best technologies from across the
industry in order to deliver scalable data center ready open systems
solutions, including a comprehensive portfolio of migration services and
offerings. With the Company's new NUMA-Q architecture and an established set
of partnerships with industry-leading technology vendors, Sequent's systems
enable implementation of complex business applications that support customers'
critical needs.
Migration to Open Systems. Sequent concentrates on understanding the
business objectives and IT needs of the customer at all organizational levels.
The Company then works closely with the customer and suppliers of key
technology components to design an open, integrated solution to meet the
customer's computing needs. The Company seeks to add value for the customer
by teaming with them, or their designated systems integrator, to design an
integrated system that directly supports the customer's business objectives
and conforms to a sound architectural infrastructure including processing and
data storage hardware, system software, applications and data center
management services. The Company focuses on large-scale organizations that
have data center based information systems and are committed to migrating from
a proprietary system environment to open systems.
Leading-Edge Technologies. Sequent's NUMA-Q systems, recognized as the
industry's leading large-scale CC-NUMA platforms for the commercial
marketplace, provide exceptional price/performance and scalability for RDBMS,
core business and client/server applications. The performance benefits of
NUMA-based architectures, compared to standard SMP and single processor
systems, are especially pronounced in transaction-intensive and decision
support applications. Sequent's NUMA-Q systems currently use Intel
Pentium Pro processors and have been designed to incorporate up to 252
processors in a single node. Sequent intends to maintain its leadership
position in NUMA-Q systems, including upgrading to new Intel processor
generations as they become available.
Commitment to Open Systems. Sequent's open system architecture leverages
industry standards whenever possible, including the use of Intel processors,
the UNIX and Windows NT operating systems, and standard network and
communications interfaces. Sequent systems are designed to operate in a multi-
vendor heterogeneous environment and support a wide variety of third-party
software, including open RDBMSs, packaged applications, and decision support
tools and applications.
"Partnering" with Leading Vendors. Sequent devotes substantial resources
to strategic marketing and product development relationships with those
companies it believes offer the best open systems technologies. Sequent has
relationships with industry-leading systems management and tools vendors, such
as Tivoli, Computer Associates, BMC and Hewlett Packard, in order to deliver a
computing environment ready to run in customers' data centers. The Company
also has relationships with major providers of RDBMS software, including
Oracle Corporation, Informix Software Inc., and Computer Associates. Sequent
also has strategic relationships with Intel for joint research and development
of future computer hardware "building blocks"; with suppliers of other major
operating systems, such as Microsoft for Windows NT; with major suppliers of
communications and network software, including Novell; with emerging suppliers
of client/server application development products such as Forte Software,
Inc.; and with suppliers of third-party applications software such as Oracle,
PeopleSoft, Baan and SAP.
Platform Overview
Business automation and systems integration applications require
extensive amounts of computing power, memory and disk storage throughput.
Sequent systems are designed for customers with extensive computing
requirements. Sequent products are based on industry standards and are
designed to easily combine with other computing hardware in an open systems
environment. Sequent systems enable customers to implement cost-effective
computing, to automate business functions and to integrate enterprise-wide
computing operations.
The Company's Symmetry systems, which start at two processors, are
currently based on Intel Pentium processors and offer high levels of
transaction processing and decision support performance. The Company's NUMA-Q
systems, which start at four processors and are based on Intel Pentium Pro
processors, have shown performance and scalability capabilities expanded
beyond the limitations of current single-bus SMP architecture.
Sequent's processor-independent architecture allows the Company to
incorporate technological advances in its product offerings more quickly and
inexpensively than manufacturers of computer systems with proprietary central
processing units. The Company's ongoing product development efforts leverage
advances in open systems technology, including processor enhancements, storage
technology, communications and user-interface enhancements. These
enhancements directly benefit customers who can upgrade their installed
Sequent systems without altering source programs, retraining users or
replacing hardware and software not directly affected by the upgrade. The new
NUMA-Q systems (NUMA-Q 2000) are binary compatible with Sequent's previous
generation of systems, the Symmetry 5000. Future processors will be offered
for the NUMA-Q systems and will be binary compatible and function in the same
systems as the current generation of processors.
Sequent's Symmetry and NUMA-Q systems are based on an open system
architecture that incorporates industry standards such as those in the UNIX
operating system. DYNIX/ptx, Sequent's version of UNIX, enhanced for SMP in
the commercial marketplace, allows Sequent systems to provide nearly linear
improvements in incremental performance as processors are added. DYNIX/ptx
provides Sequent customers access to a growing array of UNIX software
applications. Sequent Symmetry and NUMA-Q systems used in network and
client/server applications link PCs and department level and central computers
to deliver applications and information to desktop PCs through network and PC
interfaces, allowing users access to extensive processing power and
information.
The Company's low-end and mid-range NT systems, which run Microsoft
Windows NT operating system, are based on Intel Pentium processors. The
Windows NT-based systems provide database and application services for
workgroup, departmental and enterprise-level computing requirements.
Operating Systems. The Company is committed to support both the UNIX
operating system and the emerging Windows NT system, which the Company
believes will be the two major operating systems for open, enterprise-wide
computing. The Company's continuing leadership in the development of UNIX-
based SMP systems has been acknowledged by the industry's leading developers
of commercial UNIX systems software.
The Company continues to enhance the DYNIX/ptx operating system,
currently as DYNIX/ptx 4.3 adding features to operate in mission critical
environments. The Company is currently developing DYNIX/ptx Version 4.4,
which will be available in the second quarter of 1997. These features include
increased scalability and improved systems management and will support highly
available systems and clusters.
The Company has had ongoing technical discussions with Microsoft and
other partners to extend the scalability, reliability and manageability of the
Windows NT operating system and applications.
Partnering with Leading Vendors
Relational Database Management Software. Sequent has strategic marketing
and development relationships with major independent providers of RDBMS
software, including Oracle Corporation, Informix Software, Inc. and Computer
Associates. Sequent's SMP architecture is designed to maximize the performance
and scalability requirements for managing extensive amounts of computing power
required by OLTP applications in conjunction with RDBMS software. In addition,
this same technology, coupled with the emerging capabilities provided by
Sequent's RDBMS partners, strengthens the decision support performance
required by large-scale enterprises today. Sequent has chosen to run its
partners' software in support of its own enterprise needs. Sequent and these
strategic partners join forces in joint development programs, joint marketing
programs, and sales teaming efforts. The result is an exchange of technical
personnel, dedicated marketing expertise and a highly trained sales
organization to help sell the Company's and its partners' combined solutions.
Client/Server Application Software. Sequent maintains strategic
relationships with key software providers to assure the availability and
maximum performance of pivotal software products on the Sequent platform.
Sequent offers packaged and custom applications.
Packaged Applications: Packaged software applications provide a standard
pre-engineered solution for a common set of functional business problems.
Packaged applications offer the potential to trim the total cost of a
solution, reduce the time required for implementation, and lower overall
project risk. Sequent maintains a number of strategic relationships with
software partners who provide products in this area including Oracle,
PeopleSoft, Baan and SAP.
Custom Software Applications: Custom software applications are developed
using a variety of tools provided by software partners. The applications are
used in building custom solutions in situations where packaged applications do
not meet business requirements or where customers desire to build systems for
a competitive edge. Sequent maintains a number of strategic relationships
with software partners who provide products in this area including Oracle,
Informix and Forte.
Communications Products. The Company's systems support communications
products which allow Symmetry and NUMA-Q systems to interconnect in a
multivendor systems environment. These products include hardware which
connect to wide and local area networks of different media and software which
supports protocols for open and proprietary systems.
Sequent's communications products are differentiated by Parallel
STREAMS Architecture which utilizes SMP architecture to produce high
performance and scalable communications. Parallel STREAMS are used for both
low level communications media software to drive Ethernet, Token Ring, fiber
distributed data interface ("FDDI") and synchronous lines as well as high
level protocols.
In addition to open systems communications using protocols such as
TCP/IP, Open Systems Interconnections ("OSI") and X.25, Sequent communicates
directly with IBM and DEC systems via Systems Network Architecture ("SNA") or
DECnet/LAT protocols, respectively. The Company interfaces with many other
vendors utilizing these same protocols.
Sequent offers several high speed communications connections on the NUMA-
Q systems. These include 100 Megabit-per-second Ethernet, CDDI (a copper wire
version of FDDI), ATM, and high speed Synchronous E1/T1 which offer an order
of magnitude increase to the bandwidth of previous offerings.
Third-Party Applications Programs. The rapidly expanding universe of
applications software can be easily ported to Sequent's UNIX-based Symmetry
and NUMA-Q multiprocessing systems. The Company recognizes that applications
software is a critical element in providing solutions to the enterprise and
maintains marketing programs to promote the development and support of third-
party applications software packages for the Company's systems. Currently,
over 650 software application modules from approximately 300 vendors are
available to Sequent users. The software products offered drive core business
applications in transaction-intensive, decision support, database technologies
and development environments. The software packages available address the
needs of many different vertical markets, including manufacturing,
telecommunications, health care, financial services and state and local
governments. To supplement the marketing efforts of the third-party
suppliers, the Company actively promotes these software partners to end users
through joint sales campaigns, demonstrations at its sales offices and trade
shows, marketing collateral, and joint marketing programs.
In addition, Sequent's NT systems support the thousands of software
applications developed by third-party companies for the Microsoft Windows NT
operating system.
Sales and Distribution
The Company sells its products and services through worldwide direct and
indirect distribution channels. The primary sales channel in North America
and Europe is through the direct sales force, increasingly in partnership with
major systems integrators, while sales channels in Asia and the rest of the
world are primarily through distributors. The Company has 59 sales offices
worldwide, including 33 in North America and 14 in Europe. Indirect sales
channels utilized by the Company include value-added resellers, original
equipment manufacturers ("OEMs"), and foreign distributors.
As is common in the computer industry, a significant portion of orders is
generally received and shipped in the last month of a fiscal quarter. As a
result, the Company's product backlog is relatively small, is not necessarily
indicative of sales levels for future periods and is not material to
understanding the Company's business.
The Company had no single customer that represented greater than 10% of
total revenues in 1996, 1995 or 1994. International sales were approximately
55% of the Company's total revenues in 1996 and 1995 and 48% in 1994.
Competition
The computer industry is intensely competitive and characterized by rapid
technological advances resulting in frequent new product introductions and
improvements in performance. Competitive factors include product quality and
reliability, professional services capability, architectural fit, relative
price/performance, ease of understanding and operation of the system,
capability of the operating system software, availability of applications
software, marketing capability, service and support, name recognition, and
corporate reputation and longevity.
Within the commercial segment of the general purpose computing market,
Sequent competes against, among others, the major computer manufacturers
including Hewlett-Packard, DEC, IBM and SUN. The size, reputation, installed
base and distribution strength of these companies make them significant
competitors. Sequent's Professional Services organization is closely aligned
to its systems business. Accordingly, it competes against the professional
services organizations of its rival computer manufacturers, including, among
others, SUN, Hewlett-Packard, DEC and IBM. Sequent's Professional Services
organization also competes to a lesser degree with small, localized consulting
firms who offer tactical help in the areas of systems administration, database
design and administration and other design services. Although some of these
competitors have financial, marketing, distribution and technical resources
which significantly exceed those of the Company, the Company believes that it
can compete favorably in the open systems marketplace based on its
technological advancements, professional services expertise, price/performance
and value to the customer.
Product Development
The Company's research and development programs are continually focused
on advancing hardware and software technologies. Sequent not only leverages
the availability of processor technology from Intel, but also leverages
systems management and backup/restore software products supplied by open
systems vendors. Sequent adds high-end capabilities to these products to
better satisfy customer needs.
In December of 1996, Sequent successfully introduced systems based on its
new Cache Coherent Non-Uniform Memory Access (CC-NUMA) architecture.
Sequent's CC-NUMA architecture (NUMA-Q) condenses four Intel Pentium Pro
processors, memory and input/output ports into a single building block for
increased performance and reliability. These four-processor "quads"
interconnect with the Company's IQ-Link technology which allows a large
number of quads to become a distributed shared memory SMP system. As with
previous designs, the performance will scale nearly linearly as quads are
added to a system. Sequent's NUMA-Q systems are expected to be both software
compatible and clustered systems compatible with Sequent's existing Symmetry
product line in the second quarter of 1997. Sequent will continue to enhance
the NUMA-Q product line to best meet market needs.
The Company's software development program is focused on improving the
performance of its parallel-enabled operating system, providing highly
available clustering software, and enhancing its suite of communications,
network and client/server and third-party applications software. The Company
intends to continue making substantial investments in research and development
activities to maintain and enhance its competitive position in a market
characterized by rapid technological advances.
Professional Services and Product Support
Sequent offers a wide range of professional services to ensure that
every phase of a customer's project, from advance planning and architecture to
technology deployment and ongoing systems support, is successful.
Professional services include: IT architecture and transition planning; DSS
design and implementation; packaged OLTP installation and implementation (such
as Oracle Financials & Manufacturing, SAP, Baan, and PeopleSoft applications);
and enterprise management design and systems administration. The Company's
Professional Services group uses leading edge knowledge to deliver enterprise-
wide system solutions designed to meet customers' business requirements. In
addition, Sequent offers customers a comprehensive set of education and
training programs.
Sequent's Professional Services business is positioned to support
traditional management consultants that perform business process analysis and
re-engineering, such as Nola, Norton & Co., and McKinsey & Co., with Sequent's
technical system integration skills. The Company also teams with major
systems integration companies and "Big 6" consulting firms such as Electronic
Data Systems Corp., Ernst & Young, and KPMG when developing IT solutions for
large and complex system projects. Both management consultants and technical
system integration consultants are strategic components of the Company's
success in delivery of services to its customers.
The Company also offers an array of customer service and support
programs, including hardware maintenance and service, software service and
upgrades and documentation support. In addition, hardware maintenance is
offered for many third-party peripheral products connected to the Sequent
system. The Company maintains a 24-hour toll-free telephone line for
technical consultation as well as remote log-in capability for diagnosing
customer hardware and software problems. In some cases, in-field hardware
service is contracted to third-party suppliers, which rely on Sequent for
customer interface and diagnostic support. The Company's standard warranty on
its products generally extends 90 days from the date of customer installation.
The Company believes that the quality and reliability of its computer
systems are important to customer satisfaction. Sequent's systems have proven
their high quality and reliability. High system uptime is a built-in
advantage of Sequent's architecture. Sequent personnel perform all
installations and hardware fault isolation and provide complete software
support for direct customers. Sequent systems are equipped with diagnostic
tools that allow the Company's service engineers to identify, diagnose and
repair a failed component from remote locations. Replacement modules can be
provided quickly to restore the system to full capacity. The Company also
offers service and support programs in system performance evaluation and
disaster protection.
Revenue generated from services and support was 30%, 27% and 24% of total
revenue during 1996, 1995 and 1994, respectively.
Manufacturing
The Company's manufacturing operations consist of procurement, assembly,
test and quality control. Subcontractors are often used to assemble and test
subassemblies, such as printed circuit boards. The modular nature of the
Company's products, together with the standards-based open architecture,
permit ease of manufacture and system configuration. Once integrated, all
systems go through a fully operational, continuous burn-in cycle while
executing rigorous system stress and diagnostic tests. Final assembly and
testing occur only when a specific customer order is due for shipment (because
of the broad range of system configurations possible from a relatively few
basic modules and the many choices of peripherals). If a failure occurs or a
problem of unknown origin arises during work-in-progress testing, it is the
policy of the Company to halt shipment of products which may be affected while
the Company isolates and corrects the problem and determines whether the
problem may extend to other systems in manufacturing or at customer sites.
Such interruptions could cause fluctuations in quarterly results.
The Company generally obtains most parts and components from one vendor,
even where multiple sources are available, to maintain quality control and
enhance the working relationship with suppliers. These relationships include
joint engineering programs for new product development. The Company attempts
to reduce the risk of supply interruption through close supplier relationships
and greater inventory positions in certain sole-sourced components. The
failure of a supplier to deliver on schedule could delay or interrupt the
Company's delivery of products and thereby adversely affect the Company's
revenue and profits.
Patents and Licenses
Four U.S. and three United Kingdom patents have been issued to the
Company. The Company has filed ten additional U.S. patent applications and
two foreign applications covering technology incorporated into its products,
which are still pending. The Company believes that the rapid pace of
technological change in the computer industry makes patent protection less
significant than factors such as its continued focus and efforts in research
and product development, its technical expertise and the management ability of
its personnel. The Company has been made aware of others in the industry who
assert exclusive rights to certain technologies, copyrights or trademarks,
usually in the form of an offer to license certain rights for a fee or
royalties. The Company's policy is to evaluate such claims on a case-by-case
basis. The Company may seek to enter into licensing agreements with companies
having or asserting rights to technologies if the Company concludes that such
licensing arrangements are necessary or desirable. There can be no assurance
that the Company will be able to obtain such licenses or, if obtained, that
such licenses will be on favorable terms.
Employees
At December 28, 1996 the Company employed approximately 2,656 employees
of whom approximately 268 were employed as sales executives, 1,459 in sales
support, marketing and service, 466 in product development, 159 in
manufacturing and 304 in administrative and support services. The Company's
continued success will depend in part on its ability to attract and retain
highly skilled and motivated personnel who are in great demand throughout the
industry. None of the Company's employees is represented by a labor union.
All full-time Sequent employees are granted options to acquire Common Stock of
the Company. Sequent believes that its employee relations are excellent and
believes that its stock incentive plans, its challenging work environment and
the opportunities for advancement within the Company are key factors to its
ability to attract and retain qualified personnel.
Trademarks
Sequent, Symmetry, WinServer and DYNIX/ptx are registered trademarks
and Parallel STREAMS, NUMA-Q and IQ-Link are trademarks of Sequent
Computer Systems, Inc. This Report on Form 10-K also refers to trademarks
held by other corporations.
Forward-Looking Statements
Information in this Report on Form 10-K that is not historical
information, including information regarding product development schedules,
constitutes forward-looking statements that involve a number of risks and
uncertainties. Additional forward-looking statements may be made by the
Company from time to time. The following factors are among the factors that
could cause actual results to differ materially from the forward-looking
statements: timely completion of product development and customer acceptance
of the Company's NUMA-Q product line; business conditions and growth in the
electronics industry and general economies, both domestic and international;
lower than expected customer orders, delays in receipt of orders or
cancellation of orders; competitive factors, including increased competition,
new product offerings by competitors and price pressures; the availability of
third party parts and supplies at reasonable prices; changes in product mix
and the mix between product and service revenue; significant quarterly
performance fluctuations due to the receipt of a significant portion of
customer orders and product shipments in the last month of each quarter; and
product shipment interruptions due to manufacturing problems. Any forward-
looking statements should be considered in light of these factors.
Item 2. Properties.
The Company's headquarters and its product development and manufacturing
operations are located in facilities totaling approximately 560,000 square
feet in Beaverton, Oregon, 10 miles west of Portland. The Company occupies
these facilities under leases which expire from 1999 to 2006. On the
expiration dates of these leases, the Company generally has the option of
purchasing the leased facilities at fair market value or renewing the leases
for an additional five years. In addition, the Company owns 38.12 acres of
undeveloped land in Beaverton held in anticipation of future facility growth
requirements. The Company also leases for sales, marketing and customer
support offices in locations throughout the United States, Europe, Canada and
Asia Pacific. The Company anticipates that it will continue to expand its
corporate and field facilities as business growth warrants.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
There are no material pending legal proceedings involving the Company.
Item 4(a). Executive Officers of the Registrant.
Name Age Position
Karl C. Powell, Jr. 53 Chairman and Chief Executive Officer, Director
John McAdam 46 President and Chief Operating Officer, Director
Robert S. Gregg 43 Sr. Vice President of Finance and Legal
and Chief Financial Officer
Steve Chen 53 Executive Vice President of Product Group and
Chief Technology Officer, Director
Andre Dahan 48 Sr. Vice President of World Wide Field Operations
and Marketing
Mr. Powell, a co-founder of the Company, is Chairman and Chief Executive
Officer, and has been a director since 1983. Mr. Powell has served as the
Company's sole Chief Executive Officer or shared the Office of the Chief
Executive with the co-founder of the Company since the Company's inception.
From 1974 to 1983, Mr. Powell was employed by Intel Corporation, where his
most recent position was General Manager for Microprocessor Operations. Mr.
Powell served on the National Board of Directors of the American Electronics
Association from 1985 to 1986. He holds a B.S. degree in mechanical
engineering from the US Merchant Marine Academy.
Mr. McAdam joined the Company in August 1989 as U.K. Sales Director. He
became U.K. General Manager in January 1991, Vice President and General
Manager of European Operations in October 1992, and Senior Vice President of
European and Asian Operations in January 1994. He was promoted to President
and Chief Operating Officer in February 1995, and was elected to the Board of
Directors in November 1995. Prior to joining the Company Mr. McAdam was
employed for 10 years by Data General U.K. Ltd., serving most recently as
Regional Manager, Public Sector, Finance and Government Market. Mr. McAdam
holds a B.Sc. first class honors degree in Computer Sciences from Glasgow
University.
Mr. Gregg joined the Company in 1983 as its Controller. He became
Director of Finance in 1984 and Vice President of Finance and Chief Financial
Officer in March 1986. He was promoted to Senior Vice President of Finance &
Legal and Chief Financial Officer in February 1995. Prior to joining the
Company, Mr. Gregg spent eight years at the public accounting firm of Price
Waterhouse LLP. Mr. Gregg holds a B.S. degree in business and accounting from
the University of Oregon.
Dr. Chen joined the Company in 1996 as its Executive Vice President of
Product Group and Chief Technology Officer and as a member of the Board of
Directors. Prior to joining the Company, Dr. Chen was a co-founder of
SuperComputer International (SCI), later renamed Chen Systems, which was
recently acquired by Sequent. Prior to founding SCI, Dr. Chen was President
and CEO of Supercomputer Systems, Inc. (SSI). Previous to this, Dr. Chen was
employed for eight years at Cray Research, Inc., serving most recently as
Senior Vice President. Dr. Chen holds a Ph.D. in computing science from the
University of Illinois, a M.S. degree in electrical engineering from Villanova
University and a B.S. degree in electrical engineering from the National
Taiwan University.
Mr. Dahan joined the Company in 1996 as its Vice President of World Wide
Marketing and was then promoted to Senior Vice President of World Wide Field
Operations. Prior to joining the Company, Mr. Dahan was employed as the Vice
President of Marketing of AT&T's Global Information Solutions division. Mr.
Dahan holds a B.S. degree in computer science from Jerusalem Institute of
Technology.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The information required by this item is included under "Market
Information (unaudited)" in the Company's 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data.
Information with respect to selected financial data is included
under "Selected Financial Data" in the Company's 1996 Annual Report
to Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Information with respect to management's discussion and analysis of
financial condition and results of operations is included under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Information with respect to selected quarterly financial data is
included under "Quarterly Financial Data (unaudited)" in the
Company's 1996 Annual Report to Shareholders and is incorporated
herein by reference. The other information required by this item
is included under "Consolidated Financial Statements" and "Notes
to Consolidated Financial Statements" as listed in item 14 of this
report and in the Company's 1996 Annual Report to Shareholders
which is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to directors of the Company will be included
under "Election of Directors" in the Company's Proxy Statement for
its 1997 Annual Meeting of Shareholders and is incorporated herein by
reference. Information with respect to executive officers of the
Company is included under Item 4(a) of Part I of this Report.
Item 11. Executive Compensation.
Information with respect to executive compensation will be included
under "Summary Compensation Table", "Stock Option Grants in Last
Fiscal Year", "Stock Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values", "Repricing of Stock Options" under
"Executive Compensation," and "Certain Transactions" in the
Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information with respect to security ownership of certain beneficial
owners and management will be included under "Voting Securities and
Principal Shareholders" and "Election of Directors" in the Company's
Proxy Statement for its 1997 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information with respect to transactions with management will be
included under "Certain Transactions" in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements.
The following financial statements are included in the Company's 1996
Annual Report to Shareholders:
Sequent Computer Systems, Inc. and Subsidiaries:
Consolidated Statements of Operations - Fiscal Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994
Consolidated Balance Sheets - December 28, 1996 and December 30, 1995
Consolidated Statements of Shareholders' Equity - Fiscal Years Ended December
28, 1996, December 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows - Fiscal Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedules.
The following schedules and report of independent accountants are
filed herewith:
Page in this report
on Form 10-K
Schedule V Property and Equipment F-1
Schedule VI Accumulated Depreciation and Amortization
of Property and Equipment F-2
Schedule VIII Valuation and Qualifying Accounts F-3
Schedule IX Short-term Borrowings F-4
Schedule X Supplementary Income Statement Information F-5
Report of Independent Accountants on Financial Statement Schedules F-6
All other schedules are omitted as the required information is inapplicable or
is presented in the financial statements or related notes thereto.
(a)(3) Exhibits.
Exhibit
Number Description
3.1 Articles of Incorporation, as amended, and Articles of
Merger of Sequent Computer Systems, Inc. (the "Company").
(Incorporated by reference to Exhibit 4A to the Company's
Registration Statement on Form S-8 (file no. 33-63972).)
3.2 Bylaws, as amended, of the Company. (Incorporated by
reference to Exhibit 4B to the Company's Registration
Statement on Form S-8 (file no. 33-39315).)
4.1 Note Purchase Agreement dated April 10, 1992 regarding
7.5% Convertible Subordinated Notes due March 31, 2000,
between the Company and a group of institutional
investors. (Incorporated by reference to Exhibit 19 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 28, 1992).
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the
Company agrees to furnish any other long term debt
agreements to the Commission upon request.
10.1A Amended and Restated Lease Agreement between KC
Woodside and the Company, as amended, dated May 8, 1987
("First Building Lease"), and related agreements.
(Incorporated by reference to Exhibit 19.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 4, 1987 (file no. 0-15627).)
10.1B Second Amendment to First Building Lease, dated July
28, 1988. (Incorporated by reference to Exhibit 10.3B to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1989 (file no. 0-15627).)
10.1C Third Amendment to First Building Lease dated July 28,
1989. (Incorporated by reference to Exhibit 10.3C to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1D Fourth Amendment to First Building Lease dated
September 20, 1991. (Incorporated by reference to Exhibit
10.1D to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991 (file no. 0-15627).)
10.1E Fifth Amendment to First Building Lease dated December
2, 1992. (Incorporated by reference to Exhibit 10.1E to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1F Sixth Amendment to First Building Lease dated April 5,
1993. (Incorporated by reference to Exhibit 10.1F to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 (file no. 0-15627).)
10.1G Lease Agreement between KC Woodside and the Company,
dated May 8, 1987 ("Second Building Lease").
(Incorporated by reference to Exhibit 19.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 4, 1987 (file no. 0-15627).)
10.1H First Amendment to Second Building Lease, dated July
28, 1988. (Incorporated by reference to Exhibit 10.3E to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1989 (file no. 0-15627).)
10.1I Second Amendment to Second Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1G to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1J Third Amendment to Second Building Lease, dated
December 2, 1992. (Incorporated by reference to Exhibit
10.1L to the Company's Annual Report on Form 10-K for
fiscal year ended January 2, 1993 (file no. 0-15627).)
10.1K Fourth Amendment to Second Building Lease, dated April
5, 1993. (Incorporated by reference to Exhibit 10.1K to
the Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 (file no. 0-15627).)
10.1L Lease Agreement, dated July 28, 1988 between KC
Woodside and the Company ("Third Building Lease").
(Incorporated by reference to Exhibit 10.3F to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1M First Amendment to Third Building Lease, dated July 28,
1989. (Incorporated by reference to Exhibit 10.3G to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1N Second Amendment to Third Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1J to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1O Third Amendment to Third Building Lease, dated December
2, 1992. (Incorporated by reference to Exhibit 10.1M to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1P Fourth Amendment to Third Building Lease, dated April
5, 1993. (Incorporated by reference to Exhibit 10.1P to
the Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 (file no. 0-15627).)
10.1Q Lease Agreement, dated July 28, 1989 between KC
Woodside and the Company ("Fourth Building Lease").
(Incorporated by reference to Exhibit 10.3H to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1R First Amendment to Fourth Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1P to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1S Second Amendment to Fourth Building Lease dated August
13, 1992. (Incorporated by reference to Exhibit 10.1P to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1T Third Amendment to Fourth Building Lease dated December
2, 1992. (Incorporated by reference to Exhibit 10.1Q to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1U Fourth Amendment to Fourth Building Lease dated April
5, 1993. (Incorporated by reference to Exhibit 10.1U to
the Company's Annual Report on Form 10-K for fiscal year
ended January 1, 1994 (file no. 0-15627).)
10.1V Triple Net Lease dated July 9, 1990 between KC Woodside
and the Company ("Fifth Building Lease"). (Incorporated
by reference to Exhibit 19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 29,
1990 (file no. 0-15627).)
10.1W First Amendment to Fifth Building Lease dated April 29,
1991. (Incorporated by reference to Exhibit 10.1N to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991 (file no. 0-15627).)
10.1X Second Amendment to Fifth Building Lease dated April
29, 1991. (Incorporated by reference to Exhibit 10.1O to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991 (file no. 0-15627).)
10.1Y Third Amendment to Fifth Building Lease dated June 10,
1991. (Incorporated by reference to Exhibit 10.1P to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991 (file no. 0-15627).)
10.1Z Fourth Amendment to the Fifth Building Lease dated July
3, 1991. (Incorporated by reference to Exhibit 10.1Q to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991 (file no. 0-15627).)
10.1aa Fifth Amendment to Fifth Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1R to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1bb Sixth Amendment to Fifth Building Lease dated December
2, 1992. (Incorporated by reference to Exhibit 10.1X to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1cc Seventh Amendment to Fifth Building Lease dated April
5, 1993. (Incorporated by reference to Exhibit 10.1cc to
the Company's Annual Report on Form 10-K for fiscal year
ended January 1, 1994 (file no. 0-15627).)
10.1dd Lease Agreement between KC Woodside and the Company,
dated June 10, 1991 (Umpqua). (Incorporated by reference
to Exhibit 10.1Y to the Company's Annual Report on Form
10-K for fiscal year ended January 2, 1993 (file no. 0-
15627).)
10.1ee Lease Agreement between KC Woodside and the Company,
dated June 10, 1991 (Charles). (Incorporated by
reference to Exhibit 10.1Z to the Company's Annual Report
on Form 10-K for fiscal year ended January 2, 1993 (file
no. 0-15627).)
10.1ff First Amendment to Lease, dated October 31, 1991
(Charles). (Incorporated by reference to Exhibit 10.1aa
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1gg Second Amendment to Lease, dated May 6, 1992
(Charles). (Incorporated by reference to Exhibit 10.1bb
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1hh Third Amendment to Lease, dated January 8, 1993
(Charles). (Incorporated by reference to Exhibit 10.1cc
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1jj Lease Agreement between KC Woodside and the Company,
dated June 10, 1991 (S. Platte). (Incorporated by
reference to Exhibit 10.1dd to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993
(file no. 0-15627).)
10.1kk First Amendment to Lease, dated May 12, 1992
(Guadalupe). (Incorporated by reference to Exhibit 10.1ff
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1ll Business park Lease between KC Woodside and the
Company, dated June 10, 1991 (Hillsborough).
(Incorporated by reference to Exhibit 10.1gg to the
Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1mm Fourth Amendment to Lease, dated July 21, 1995
(Charles). (Incorporated by reference to Exhibit 10.1dd
to the Company's Annual Report on 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1nn First Amendment to Lease, dated July 21, 1995 (South
Platte). (Incorporated by reference to Exhibit 10.1ee to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1oo Second Amendment to Lease, dated July 21, 1995
(Guadalupe). (Incorporated by reference to Exhibit 10.gg
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1pp Lease Agreement between KC Woodside and the Company,
dated January 15, 1996 (Guadalupe), as amended March 1,
1996 and October 1, 1996.
10.2 Master Software License Agreement between Unix System
Laboratories, Inc. (formerly owned by American Telephone
& Telegraph Company) and the Company, dated effective as
of April 18, 1985. (Incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for
fiscal year ended January 2, 1993 (file no. 0-15627).)
10.2A Sublicensing Agreement dated January 28, 1986, as
amended June 22, 1987 and August 10, 1987. (Incorporated
by reference to Exhibit 10.2A to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993
(file no. 0-15627).)
10.2B Substitution Agreement between Unix System
Laboratories, Inc. and the Company, dated January 28,
1986. (Incorporated by reference to Exhibit 10.2B to the
Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.2C Amendment dated November 13, 1992 to Master Software
License Agreement and Sublicensing Agreement with Unix
System Laboratories, Inc.
10.2D License Agreement dated July 15, 1983 between The
Regents of University of California and the Company, as
amended July 2, 1986. (Incorporated by reference to
Exhibit 10.2C to the Company's Annual Report on Form 10-K
for fiscal year ended January 2, 1993 (file no. 0-
15627).)
+ 10.3 Distributorship Agreement between the Company and
Oracle Corporation, dated March 31, 1987, as amended on
December 29, 1988, August 30, 1989, May 28, 1990, May 31,
1991 and June 30, 1991. (Incorporated by reference to
Exhibit 10.3 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993
(file no. 0-15627).)
* 10.4 Aircraft Lease Agreement between the Company and
B&K Transportation, Inc., dated October 1, 1993, as
amended November 1, 1993 and December 12, 1994.
(Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1994 (File no. 0-15627).)
* 10.4A Aircraft Lease Agreement between the Company and
CP Transportation, Inc., dated October 1, 1996.
* 10.5 Sequent Computer Systems, Inc. Incentive Stock
Option Plan and Nonstatutory Stock Option Plan adopted
March 20, 1984, as amended. (Incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement
on Form S-1 (File no. 33-33444).)
* 10.6 Sequent Computer Systems, Inc. 1987 Employee Stock
Option Plan, as amended. (Incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on
Form S-1 (File no. 33-33444).)
* 10.7 Sequent Computer Systems, Inc. 1987 Nonstatutory
Stock Option Plan, as amended. (Incorporated by reference
to Exhibit 10.12 to the Company's Registration Statement
on Form S-1 (File no. 33-33444).)
* 10.8 Sequent Computer Systems Inc. Restated Employee
Stock Purchase Plan. (Incorporated by reference to
Appendix A to the Company's Proxy Statement dated March
18, 1993).
* 10.9 Sequent Computer Systems, Inc. 1989 Stock
Incentive Plan, as amended. (Incorporated by reference
to Appendix A to the Company's Proxy Statement for its
1994 Annual Meeting of Shareholders).
10.10 Agreement between American International
Motorsports (AI Motorsports) and Sequent Computer
Systems, Inc., dated January 30, 1996.
* 10.11 DP Applications, Inc. 100% Convertible Note dated
August 20, 1996 in favor of Robert W. Wilmot and Mary J.
Wilmot, trustees of the RW & MJ Wilmot Living Trust,
U/D/T dated April 18, 1995 (the "Wilmot Trust") and DP
Applications, Inc. Warrant for the Purchase of Shares of
Capital Stock dated August 20, 1996 in favor of Robert W.
Wilmot and Mary J. Wilmot, trustees of the RW & MJ Wilmot
Living Trust U/D/T dated April 18, 1995.
* 10.12 DP Applications, Inc. Restricted Stock Purchase
Agreement dated December 2, 1996.
11 Statement regarding computation of earnings per share.
13 1996 Annual Report to Shareholders (portions not incorporated
by reference are not deemed filed).
21 Subsidiaries.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
________________________
+ Confidential treatment for portions of this contract has been
previously requested of the Commission.
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(a) (3)
of this Report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
last quarter of fiscal 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Sequent Computer Systems, Inc.
Date: March 25, 1997 By: /s/ Robert S. Gregg
Robert S. Gregg
Sr. Vice President of Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1996.
Signature Title
/s/ Karl C. Powell, Jr. Chairman and Chief Executive Officer
(Karl C. Powell, Jr.) and Director (Principal Executive Officer)
/s/ Robert S. Gregg Sr. Vice President of Finance and Legal
(Robert S. Gregg) and Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ Steve Chen Director
(Steve Chen)
/s/ John McAdam Director
(John McAdam)
DAVID R. HATHAWAY *
(David R. Hathaway) Director
ROBERT C. MATHIS *
(Robert C. Mathis) Director
MICHAEL S. SCOTT MORTON *
(Michael S. Scott Morton) Director
RICHARD C. PALERMO *
(Richard C. Palermo) Director
ROBERT W. WILMOT *
(Robert W. Wilmot) Director
By: /s/ Robert S. Gregg *
Robert S. Gregg, Attorney-in-fact
· Enlarge/Download Table
SCHEDULE V
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
PROPERTY AND EQUIPMENT (1)
(In thousands)
Balance at Balance at
Beginning of Additions Other Charges End of
Period at Cost Retirements Add (Deducts) Period
Year ended Dec. 31, 1994
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 95,895 38,053 14,413 0 119,535
Furniture and equipment 46,643 14,875 7,646 0 53,872
Leasehold improvements 11,193 1,707 559 0 12,341
$ 158,768 $ 54,635 $ 22,618 $ 0 $ 190,785
Year ended Dec. 30, 1995
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 119,535 25,162 9,800 0 134,897
Furniture and equipment 53,872 14,499 1,361 0 67,010
Leasehold improvements 12,341 3,711 78 0 15,974
$ 190,785 $ 43,372 $ 11,239 $ 0 $ 222,918
Year ended Dec. 28, 1996
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 134,897 59,356 19,591 0 174,662
Furniture and equipment 67,010 29,375 6,434 0 89,951
Leasehold improvements 15,974 6,728 118 0 22,584
$ 222,918 $ 95,459 $ 26,143 $ 0 $ 292,234
(1) Depreciation and amortization is provided on a straight-line basis
over the estimated life as follows:
Operational equipment 3 to 5 years
Furniture and equipment 3 to 5 years
Leasehold improvements 5 to 10 years
SCHEDULE VI
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
(In thousands)
Additions
Balance at Charged to Retirements Other Balance at
Beginning of Costs and Charged to Charges End of
Period Expenses Other Accts. Add (Deducts) Period
Year ended Dec. 31, 1994
Operational equipment $ 41,321 $ 19,370 $ 5,060 $ 0 $ 55,631
Furniture and equipment 27,456 13,810 5,524 0 35,742
Leasehold improvements 3,682 1,613 97 0 5,198
$ 72,459 $ 34,793 $ 10,681 $ 0 $ 96,571
Year ended Dec. 30, 1995
Operational equipment $ 55,631 $ 18,183 $ 2,339 $ 0 $ 71,475
Furniture and equipment 35,742 12,490 2,389 0 45,843
Leasehold improvements 5,198 2,291 54 0 7,435
$ 96,571 $ 32,964 $ 4,782 $ 0 $ 124,753
Year ended Dec. 28, 1996
Operational equipment $ 71,475 $ 21,246 $ 8,839 $ 0 $ 83,882
Furniture and equipment 45,843 20,738 2,343 0 64,238
Leasehold improvements 7,435 2,959 118 0 10,276
$ 124,753 $ 44,943 $ 11,300 $ 0 $ 158,396
SCHEDULE VIII
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions Additions
Balance at Charged to Charged to Write-offs Balance at
Beginning of Costs and Other Accts. Net of End of
Period Expenses Describe (1) Recoveries Period
Year ended Dec. 31, 1994
Allowance for doubtful
accounts $ 1,781 $ 898 $ 9 $ 355 $ 2,333
Accumulated amortization
capitalized software $ 28,912 $ 12,778 $ 0 $ 0 $ 41,690
Year ended Dec. 30, 1995
Allowance for doubtful
accounts $ 2,333 $ 1,089 $ (18) $ 588 $ 2,816
Accumulated amortization
capitalized software $ 41,690 $ 16,618 $ 0 $ 0 $ 58,308
Year ended Dec. 28, 1996
Allowance for doubtful
accounts $ 2,816 $ 317 $ (315) $ 12 $ 2,806
Accumulated amortization
capitalized software $ 58,308 $ 19,984 $ 0 $ 39,846 $ 38,446
(1) Foreign currency translation adjustment
SCHEDULE IX
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(In thousands)
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
End of Interest During the During the During the
Period Rate Period Period Period (1)
Year ended Dec. 31, 1994
Notes payable to bank $ 59,437 5.5% $ 59,437 $ 44,772 5.6%
Year ended Dec. 30, 1995
Notes payable to bank $ 41,146 5.5% $ 61,529 $ 47,155 6.3%
Year ended Dec. 28, 1996
Notes payable to bank $ 59,925 5.6% $ 78,725 $ 36,781 5.2%
(1) The weighted average interest rate during the period is calculated
using monthly weighted averages.
SCHEDULE X
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
Depreciation and amortization:
Depreciation $ 44,943 $ 34,972 $ 31,822
Capitalized software amortization 19,984 16,618 12,778
Goodwill amortization 607 504 536
Total $ 65,534 $ 52,094 $ 45,136
Royalties $ 12,139 $ 10,141 6,374
Advertising $ 16,674 $ 11,358 $ 11,674
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Sequent Computer Systems, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 23, 1997 appearing in the 1996 Annual Report to Shareholders of
Sequent Computer Systems, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Portland, Oregon
January 23, 1997
EXHIBIT 11
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT SHOWING CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING AND EARNINGS
PER AVERAGE COMMON SHARE
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 28, 1996 December 28, 1996
Weighted average number
of common shares outstanding 34,026 33,641
Application of the "treasury stock"
method to the stock option and
employee stock purchase plans (A) 2,309 834
Weighted average of common stock
equivalent shares attributable to
convertible debentures 575 575
Total common and common
equivalent shares, assuming
full dilution 36,910 35,050
Net income $ 2,512 $ 7,771
Add:
Interest on convertible debentures,
net of applicable income taxes 125 500
Net income, assuming full dilution $ 2,637 $ 8,271
Net income per common share,
assuming full dilution (B) $ .07 $ .23
(A) Effective with the third quarter of 1996, the Company applied the
"Modified Treasury Stock" method to calculate outstanding shares for
stock options in accordance with APB 15.
(B) In accordance with generally accepted accounting principles, fully-
diluted earnings per share may not exceed primary earnings per share.
The computation of primary net income per common share is not included as the
computation can be clearly determined from the material contained in this
report.
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EXHIBIT 13
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Fiscal Year Ended
Dec 28, Dec. 30, Dec. 31, Jan. 1, Jan. 2,
1996 1995 1994 1994 1993
OPERATIONS DATA
Total revenue $ 595,362 $ 540,345 $ 450,823 $ 353,806 $ 307,274
Income (loss) before income taxes $ 10,676 $ 47,327 $ 38,800 $ (6,331) $ 15,884
Net income (loss) $ 7,771 $ 35,073 $ 33,134 $ (7,524) $ 14,433
Net income (loss) per share $ .23 $ 1.04 $ 1.03 $ (.26) $ .55
Average shares outstanding 34,254 33,665 32,028 29,335 26,120
BALANCE SHEET DATA
Working capital $ 183,428 $ 214,749 $ 168,468 $ 134,156 $ 86,914
Total assets $ 612,009 $ 503,923 $ 435,977 $ 375,424 $ 278,759
Long-term obligations $ 16,503 $ 9,106 $ 10,341 $ 10,906 $ 24,034
Shareholders' equity $ 374,809 $ 353,188 $ 291,195 $ 243,488 $ 172,502
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $595.4 million in 1996 compared to $540.3 million in
1995 and $450.8 million in 1994. The Company recorded net income in 1996 of
$7.8 million, compared to $35.1 million in 1995 and $33.1 million in 1994.
The Company's total revenue for 1996 represents a 10% increase over 1995 and
is attributed to significant increases in customer and professional service
revenues in 1996 over 1995. The Company's service revenue increased 25% in
1996 over 1995 as a result of a growing number of customer installation bases
and related service contracts, as well as an increase in the number of
project-based sales. The decrease in net income in 1996 compared to 1995 is
the result of the heavy investment made in 1996 to bring the next-generation
NUMA-Q product to market in December 1996 and expand the sales and
professional services organizations to leverage the capability of the new
technology.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenue:
Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Revenue:
End-user products 68.5% 69.4% 70.6%
OEM products 1.1 3.9 5.1
Service 30.4 26.7 24.3
Total revenue 100.0 100.0 100.0
Cost of products and service 56.7 54.8 53.7
Gross profit 43.3 45.2 46.3
Operating expenses:
Research and development 9.0 7.5 7.8
Selling, general and administrative 32.1 28.7 29.7
Total operating expenses 41.1 36.2 37.5
Operating income 2.2 9.0 8.8
Interest income (expense), net 0.0 0.2 (0.3)
Other income (expense), net (0.4) (0.4) 0.1
Income before provision
for income taxes 1.8 8.8 8.6
Provision for income taxes 0.5 2.3 1.3
Net income 1.3% 6.5% 7.3
REVENUE
End-user product revenue increased $32.8 million, or 9%, from 1995 to
1996 and $56.7 million, or 18%, from 1994 to 1995. These increases have been
primarily in the Company's North American and Asia Pacific geographies. The
revenue growth rate from 1995 to 1996 was impacted by the Company's product
transition from its Symmetry line to its next-generation NUMA-Q systems,
especially in the second half of 1996. Despite the ongoing demand for
Symmetry systems which are binary compatible with the NUMA-Q technology, the
awareness of the pending release of the new product adversely affected
Symmetry sales during 1996. Volume shipments of NUMA-Q began late in the
fourth quarter of 1996.
As anticipated, total OEM revenue continued to decline in 1996 compared
to 1995 and 1994 due to decreases in revenue from Unisys Corporation. Total
OEM revenue in 1996 and 1995 was $6.5 million and $20.9 million, respectively,
compared to $23.1 million in 1994.
During 1996 and 1995, the Company's customer and professional service
revenue continued to increase in dollar amount and as a percentage of total
revenue primarily due to the growth in customer installation bases and
associated customer service/maintenance contracts, as well as a focus on
selling more solutions.
The Company has continued to benefit from its significant investment in
developing worldwide sales and distribution channels. International revenue
as a percentage of total revenue was 55% in 1996 and 1995, increasing from 48%
in 1994. The majority of the international revenue is from Europe
(particularly the United Kingdom), with the balance coming from Asia-Pacific
and Canada.
COST OF SALES
Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Cost of products sold as a percentage
of product revenue 48% 48% 48%
Cost of service as a percentage
of service revenue 77 75 71
Total cost of sales as a percentage
of total revenue 57 55 54
The factors influencing gross margins in a given period include unit
volumes (which affect economies of scale), product configuration mix, changes
in component and manufacturing costs, product pricing and the mix between
product and service revenue.
Total cost of sales as a percentage of total revenue increased both in
1996 and 1995 primarily due to lower margin service increasing as a percentage
of total revenue. As planned, the Company invested in expanding its
professional service organization which has contributed to the overall
increase of cost of service as a percentage of service revenue. The Company
increased headcount in its professional service organization by approximately
38% in 1996.
RESEARCH AND DEVELOPMENT
(dollars in millions) Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Research and development expense $53.7 $40.9 $35.0
As a percentage of total revenue 9% 8% 8%
Software costs capitalized $34.2 $23.4 $19.1
Research and development expense increased 31% in 1996 compared to 1995
and 17% in 1995 compared to 1994. The Company continued to invest
significantly in its new NUMA-Q architecture and software development, in
addition to ongoing enhancements to existing products. Consistent with
management's plans, the NUMA-Q products began shipping in the Company's fourth
quarter. Research and development costs as a percentage of total revenue were
approximately 9% in 1996, compared to 8% for 1995 and 1994. Management
intends to make significant investments during 1997 as it continues to enhance
its NUMA-Q product line.
Capitalized software amortization was approximately $20.0 million, $16.6
million, and $12.8 million in 1996, 1995 and 1994, respectively. The Company
has continued to increase its focus on software design for computing solutions
and its next-generation products, resulting in greater investments in software
development and products.
SELLING, GENERAL AND ADMINISTRATIVE
(dollars in millions) Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Selling, general and administrative $191.1 $155.0 $134.1
As a percentage of total revenue 32% 29% 30%
The Company's selling, general and administrative costs increased both in
dollars and as a percentage of revenue in 1996, as the Company made
significant investments in its worldwide sales force for successful delivery
of NUMA-Q at the end of 1996. During the year, the Company increased the
number of sales teams by 54% worldwide.
INTEREST AND OTHER, NET
(dollars in millions) Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Interest income $3.0 $5.3 $3.5
Interest expense $3.2 $4.2 $4.7
Other income (expense), net $(2.0) $(2.3) $0.5
Interest income is primarily generated from restricted deposits held at
foreign and domestic banks, short-term investments and cash and cash
equivalents. Interest expense includes costs related to convertible
debentures, foreign currency hedging loans, interim short-term borrowings and
capital lease obligations.
Other expense consists primarily of net gains and losses on sales of
assets and discount on sale of receivables.
INCOME TAXES
The Company provided $2.9 million for income taxes in 1996 on a net
profit before tax of $10.7 million. The difference between the statutory rate
and the effective tax rate is principally due to the benefit from the
Company's Foreign Sales Corporation. The 1996 effective tax rate of 27.2%
compares to effective rates of 25.9% in 1995 and 14.6% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $183.4 million at December 28, 1996 compared to
$214.7 million at December 30, 1995. The Company's current ratio at December
28, 1996 and December 30, 1995 was 1.9:1 and 2.5:1, respectively.
Although net cash provided by operations for the year ended December 28,
1996 totaled $64.1 million, cash and cash equivalents decreased by $24
million. The Company continued to make significant investments in property
and equipment ($80.6 million), inventory ($13.6 million) and capitalized
software ($34.2 million), primarily related to product and software
development associated with its new NUMA-Q product line. Other investments
included approximately $27 million in software licenses resulting from a long-
term strategic partner alliance, of which approximately $15 million is
included in prepaid royalties and other current assets. Other sources of
funds included net proceeds of stock issuances ($11 million), notes payable
($18.8 million) and capital lease transactions ($14.7 million).
The Company has a $20 million receivable sales facility with a group of
banks. At December 28, 1996, accounts receivable in the accompanying
consolidated balance sheet is net of $20 million received by the Company under
this agreement to sell its domestic accounts receivable.
The Company maintains a $70 million revolving line of credit agreement.
The line is unsecured and extends through May 30,1997. The line contains
certain financial covenants and prohibits the Company from paying dividends
without the lenders' consent. As of December 28, 1996, $12.2 million was
outstanding under the line of credit.
The Company maintains a short-term borrowing agreement with a foreign
bank to cover foreign currency exposures. Maximum borrowings allowed under
the foreign bank agreement were $57.2 million, of which $44.7 million was
outstanding at December 28, 1996 (based on currency exchange rates on such
date).
The Company also maintains miscellaneous borrowing arrangements with a
foreign bank. At December 28, 1996, amounts outstanding under this agreement
totaled $870,000.
In addition to the above, a subsidiary of the Company issued short-term
convertible notes during 1996 totaling $2.2 million, which were outstanding at
December 28, 1996.
Management expects that current funds, funds from operations and the bank
lines of credit will provide adequate resources to meet the Company's
anticipated operational cash requirements during 1997.
FORWARD-LOOKING STATEMENTS
The Chairman's Letter, Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this Annual Report
contain information regarding growth expectations, market size, planned
expenditure levels and comments relating to technology development and
resulting release of future products. These statements are forward-looking
statements that involve a number of risks and uncertainties. Additional
forward-looking statements may be made by the Company from time to time. The
following factors are among the factors that could cause actual results to
differ materially from the forward-looking statements: timely completion of
product development and customer acceptance of the Company's NUMA-Q product
line; business conditions and growth in the electronics industry and general
economies, both domestic and international; lower than expected customer
orders, delays in receipt of orders or cancellation of orders; competitive
factors, including increased competition, new product offerings by competitors
and price pressures; the availability of third party parts and supplies at
reasonable prices; changes in product mix and the mix between product and
service revenue; significant quarterly performance fluctuations due to the
receipt of a significant portion of customer orders and product shipments in
the last month of each quarter; and product shipment interruptions due to
manufacturing problems.
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SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
Revenue:
Product $ 414,418 $ 395,941 $ 341,504
Service 180,944 144,404 109,319
Total revenue 595,362 540,345 450,823
Costs and expenses:
Cost of products sold 197,702 188,232 164,991
Cost of service revenue 139,983 107,721 77,238
Research and development 53,733 40,923 35,047
Selling, general and administrative 191,069 154,950 134,070
Total costs and expenses 582,487 491,826 411,346
Operating income 12,875 48,519 39,477
Interest income 3,007 5,340 3,515
Interest expense (3,187) (4,207) (4,687)
Other income (expense), net (2,019) (2,325) 495
Income before provision
for income taxes 10,676 47,327 38,800
Provision for income taxes 2,905 12,254 5,666
Net income $ 7,771 $ 35,073 $ 33,134
Net income per share $ 0.23 $ 1.04 $ 1.03
Weighted average number of common
and common equivalent shares outstanding 34,254 33,665 32,028
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Dec. 28, 1996 Dec. 30, 1995
ASSETS
Current assets:
Cash and cash equivalents $ 37,979 $ 61,939
Restricted deposits 44,655 39,642
Receivables, net 209,752 178,322
Inventories 74,491 60,853
Prepaid royalties and other 30,577 13,464
Total current assets 397,454 354,220
Property and equipment, net 133,838 98,165
Capitalized software costs, net 59,567 45,381
Other assets, net 21,150 6,157
Total assets $ 612,009 $ 503,923
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 59,925 $ 41,146
Accounts payable and other 88,119 60,095
Accrued payroll 24,853 11,723
Unearned revenue 30,787 21,466
Income taxes payable 3,017 4,981
Current obligations under capital leases and debt 7,325 60
Total current liabilities 214,026 139,471
Other accrued expenses 6,671 2,158
Long-term obligations under capital leases and debt 16,503 9,106
Total liabilities 237,200 150,735
Commitments and contingencies (Notes 6 and 12)
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized, 34,188 and 33,221 shares outstanding 342 332
Paid-in capital 313,159 302,186
Retained earnings 60,715 52,945
Foreign currency translation adjustment 593 (2,275)
Total shareholders' equity 374,809 353,188
Total liabilities and shareholders' equity $ 612,009 $ 503,923
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Retained Foreign
earnings currency
Common Stock Paid-in (accumulated translation
Shares Amount capital deficit) adjustment Total
Balance, January 1, 1994 30,245 $302 $265,910 $(15,262) $(7,462) $243,488
Common shares issued 1,115 12 12,235 - - 12,247
Net income - - - 33,134 - 33,134
Foreign currency translation
adjustment - - - - 2,326 2,326
Balance, December 31, 1994 31,360 314 278,145 17,872 (5,136) 291,195
Common shares issued 1,798 18 18,298 - - 18,316
Tax benefit of option exercises - - 4,743 - - 4,743
Conversion of debentures 63 - 1,000 - - 1,000
Net income - - - 35,073 - 35,073
Foreign currency translation
adjustment - - - - 2,861 2,861
Balance, December 30, 1995 33,221 332 302,186 52,945 (2,275) 353,188
Common shares issued 967 10 9,622 - - 9,632
Tax benefit of option exercises - - 175 - - 175
Warrants issued - - 1,176 - - 1,176
Net income - - - 7,771 - 7,771
Foreign currency translation
adjustment - - - - 2,868 2,868
Rounding - - - (1) - (1)
Balance, December 28, 1996 34,188 $342 $313,159 $ 60,715 $ 593 $374,809
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
Cash flow from operating activities:
Net income $ 7,771 $ 35,073 $ 33,134
Reconciliation of net income
to net cash and cash equivalents provided
by operating activities-
Depreciation and amortization 65,534 52,094 44,600
Changes in assets and liabilities-
Receivables, net (31,430) (44,751) (18,010)
Inventories (13,638) (12,155) (2,833)
Prepaid royalties and other (17,113) (652) (403)
Accounts payable and other 28,024 13,351 (17,072)
Accrued payroll 13,130 (71) 891
Unearned revenue 9,321 11,750 2,593
Income taxes payable (1,964) 1,131 2,835
Other accrued expenses 4,513 58 314
Net cash provided by
operating activities 64,148 55,828 46,049
Cash flow from investing activities:
Restricted deposits (5,013) 19,795 (27,158)
Investments -- -- 5,000
Purchases of property and equipment, net (80,617) (38,923) (40,256)
Capitalized software costs (34,170) (23,444) (19,116)
Foreign currency translation adjustment 2,868 2,861 2,326
Other assets, net (15,600) (4,262) 399
Net cash used for investing activities (132,532) (43,973) (78,805)
Cash flow from financing activities:
Notes payable, net 18,779 (18,291) 27,158
Proceeds (payments) under capital lease obligations 14,662 (719) (3,293)
Long-term debt payments, net -- (256) (51)
Stock issuance proceeds, net 10,983 23,059 12,247
Net cash provided by financing activities 44,424 3,793 36,061
Net increase (decrease) in cash and cash equivalents (23,960) 15,648 3,305
Cash and cash equivalents at beginning
of period 61,939 46,291 42,986
Cash and cash equivalents at end of period $ 37,979 $ 61,939 $ 46,291
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sequent Computer Systems, Inc. and subsidiaries ("Sequent" or the
"Company") was incorporated in January 1983. Sequent is a provider of
scalable data center ready open systems solutions for large organizations
spanning diverse industries. Sequent designs, manufactures and markets high-
performance symmetric multiprocessing (SMP) and Cache Coherent Non-Uniform
Memory Access (CC-NUMA) computer systems and operating environment software.
The Company's systems are widely used for large-scale on-line transaction
processing (OLTP), applications in decision support systems (DSS) and data
warehouses, for custom applications built upon relational database management
systems (RDBMS), and as the central server in client-server architectures.
Sequent's project-oriented offerings include a complete portfolio of customer,
professional and education services to solve complex Information Technology
(IT) problems. The Company has an established set of partnerships with other
software, hardware and services providers to deliver complete solutions to its
customers.
Principles of Consolidation. The Company's fiscal year is based on a
52-53 week year ending the Saturday closest to December 31. The consolidated
financial statements of the Company include accounts of Sequent Computer
Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and profits have been eliminated.
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currencies and translated into
U.S. dollars for purposes of consolidation. Translation adjustments are
accumulated as a separate component of shareholders' equity. Gains and losses
resulting from transactions denominated in a currency other than an entity's
functional currency are included in other income (expense) in the consolidated
statements of operations. Net losses aggregating $0.3 million and $0.8
million, for 1995 and 1996 respectively, were realized from such transactions.
During 1994 the Company realized a net pretax gain of $1.1 million as a result
of positive impact of changes in exchange rates, primarily in the United
Kingdom.
Revenue Recognition and Receivables. Revenue from product sales is
generally recognized upon shipment; however, depending upon contract terms,
revenue recognition may be deferred until customer acceptance or clarification
of funding. Revenue is recognized as earned on the straight-line basis over
the term of customer service/maintenance contracts, and on either the
percentage-of-completion or milestone achievement basis for professional
service contracts.
Receivables are shown net of allowance for doubtful accounts of $2.8
million at both December 28, 1996 and December 30, 1995.
The Company has an agreement with a group of banks to sell, without
recourse, undivided ownership interests in a revolving pool consisting of
substantially all of the Company's domestic accounts receivable for a maximum
of $20 million. The agreement expires May 30, 1997. At December 28, 1996 and
December 30, 1995, accounts receivable in the accompanying consolidated
balance sheets is net of $20 million and $14 million, respectively, received
by the Company under this agreement.
The Company had no single customer that represented greater than 10% of
total revenue in 1996, 1995 and 1994.
Inventories. Inventories are stated at the lower of cost or market.
Costs are determined using the first-in, first-out (FIFO) method and include
material, labor and manufacturing overhead.
Prepaid Licenses and Royalties. The Company has entered into agreements
with various vendors which provide for prepayment of future licenses and
royalties based on sales of certain software. Prepaid licenses and royalties
were $28.4 million at December 28, 1996 and $3.6 million at December 30, 1995,
and are stated at the lower of cost or net realizable value. Approximately
$16.1 million and $1.2 million were included in prepaid royalties and other
current assets at December 28, 1996 and December 30, 1995, respectively. Such
prepaid amounts are realized by receipt of reverse royalties from the vendors
based upon software sales by the vendor, and/or by charging cost of products
sold for certain software sales by the Company.
Property and Equipment. Property and equipment are stated at cost and
depreciated over their estimated useful lives, ranging from three to five
years, on the straight-line method. Leasehold improvements and equipment held
under capital leases are amortized on the straight-line basis over the shorter
of the asset life or lease term. Maintenance and repairs are expensed as
incurred.
Research and Development. Software development costs for certain
projects are capitalized from the time technological feasibility is
established to the time the resulting software product is first shipped.
Capitalized software costs are stated at the lower of cost or net realizable
value and are shown net of accumulated amortization of $38.4 million at
December 28, 1996 and $58.3 million at December 30, 1995. Amortization,
generally based on a three-year straight-line basis, was $20 million in 1996,
$16.6 million in 1995 and $12.8 million in 1994. All other research and
development costs are expensed as incurred.
Income Taxes. The Company's general practice is to reinvest the earnings
of its foreign subsidiaries in those operations, unless it would be
advantageous to the Company to repatriate the foreign subsidiaries' retained
earnings.
Per Share Information. Primary earnings per share is computed based on
the weighted average number of common and dilutive common equivalent shares
outstanding. Outstanding stock options, net of assumed buy-back, are common
stock equivalents. The computation of fully dilutive earnings per share also
assumes conversion of the remaining 7.5% Convertible Subordinated Debentures
issued April 1992 when it would be dilutive. A fully diluted earnings per
share amount is not shown as the effect of the debentures would be
antidilutive.
Consolidated Statement of Cash Flows. The Company considers short-term
investments which are highly liquid, readily convertible into cash and having
original maturities of less than three months to be cash equivalents for
purposes of the statement of cash flows.
Total cash expenditures for income taxes were $5.9 million, $5.3 million
and $2.3 million during 1996, 1995 and 1994, respectively. Interest paid does
not differ materially from interest expense.
Non-cash investing and financing activities include the following: 1996 -
300,000 stock warrants, valued at $1.2 million using the Black-Scholes pricing
model, were issued in exchange for other non-current assets; 1995 - $1 million
of Convertible Debentures were converted into 63,000 shares of common stock.
Management Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Reclassifications. Certain prior year amounts have been reclassified to
conform to fiscal 1996 presentation. These changes had no impact on
previously reported results of operations or shareholders' equity.
New Accounting Pronouncements. In October 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). SFAS 123 allows companies to choose whether
to account for stock-based compensation on a fair value method or to continue
to account for stock-based compensation under the current intrinsic value
method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted SFAS 123 during 1996, and has elected to
continue to follow the provisions of APB Opinion No. 25. (Note 8)
2. INVENTORIES
(in thousands)
December 28, December 30,
1996 1995
Raw materials $ 14,205 $ 9,385
Work-in-progress 2,166 1,736
Finished goods 58,120 49,732
$ 74,491 $ 60,853
Finished goods inventory includes evaluation systems aggregating $30.8
million and $15.7 million as of December 28, 1996 and December 30, 1995,
respectively. Such systems are located at potential customer sites for
demonstration.
3. PROPERTY AND EQUIPMENT
(in thousands)
December 28, December 30,
1996 1995
Land $ 5,037 $ 5,037
Operational equipment 174,662 134,897
Furniture and office equipment 89,951 67,010
Leasehold improvements 22,584 15,974
292,234 222,918
Less accumulated depreciation
and amortization (158,396) (124,753)
$ 133,838 $ 98,165
Depreciation and amortization charged to expense totaled $44.9 million in
1996, $35.0 million in 1995 and $31.8 million in 1994.
4. NOTES PAYABLE
The Company has an unsecured line of credit agreement with a group of
banks which provides short-term borrowings up to $70 million (increased in the
third quarter of 1996 from $50 million). The line of credit agreement
contains financial covenants, including covenants relating to net worth, ratio
of liabilities to net worth and limitations on net operating losses, and
prohibits the Company from paying dividends without the group of banks'
consent. The line of credit agreement extends through May 30, 1997. At
December 28, 1996, $12.2 million was outstanding under this line of credit
agreement. At December 30, 1995, there were no borrowings outstanding under
the line of credit. The interest rate on this borrowing at December 28, 1996
was 8.25%
The Company has a short-term borrowing agreement with a foreign bank as a
hedge to cover certain foreign currency exposures. Borrowings under the
agreement are denominated in various foreign currencies. Proceeds from the
borrowings are converted into U.S. dollars and placed in a term deposit
account with the foreign bank. The deposits, which are classified as
restricted deposits in the accompanying consolidated balance sheets, are
pledged to the foreign bank so long as borrowings under the agreement are
outstanding. During July 1996, the Company re-negotiated the agreement and
extended it through July 1997. The foreign bank, without cause, can terminate
the agreement at any time. At December 28, 1996, maximum borrowings allowed
under the agreement were $57.2 million. Amounts outstanding were $44.7
million and $39.6 million at December 28, 1996 and December 30, 1995,
respectively. The maximum borrowing limit is denominated in specified foreign
currencies and fluctuates with the change in foreign exchange rates. The
average interest rate on these borrowings at December 28, 1996 was 4.8%.
In addition to the above borrowing agreements, the Company has entered
into certain other miscellaneous borrowing arrangements with a foreign bank.
Amounts outstanding were $0.9 million and $1.5 million at December 28, 1996
and December 30, 1995, respectively. The interest rate on these borrowings
was 1.5% at December 28, 1996.
During 1996 a U.S. subsidiary of the Company entered into a financing
arrangement with third parties for $2.2 million, of which $1 million is with a
related party. The financing consists of short-term convertible notes with an
interest rate of 10% due February 23, 1997. At the option of the holders, the
notes may be converted into capital stock of the subsidiary.
5. OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT
In April 1992, the Company issued $20 million of 7.5% Convertible
Subordinated Debentures ("Convertible Debentures" or "Debentures") due March
31, 2000. In conjunction with the Company's equity offering in 1993, $9.9
million of the Debentures were converted into 626,000 shares of common stock
and are no longer classified as long-term debt. The Convertible Debentures
are convertible into the Company's common stock at the option of the holders
at an initial conversion price of $15.81 per share. Under this provision, in
August 1995, an additional $1.0 million of the debentures were converted into
63,000 shares of common stock, further reducing long-term debt. Beginning on
June 30, 1997, the Company is required to make quarterly principal payments of
$1.7 million through 1998 to retire the outstanding Debentures. The balance
outstanding on the Debentures was $9.1 million at both December 28, 1996 and
December 30, 1995. At December 28, 1996, $5.0 million is classified as
current obligations. The Convertible Debentures are callable at the option of
the Company after five years. The Debentures contain certain financial
covenants, including restrictions on additional debt, minimum net worth levels
and a prohibition on the payment of dividends.
Sequent leases certain equipment under five-year capital leases. These
lease terms require maintenance of certain financial ratios and generally
include a fair market value purchase option at the end of the lease. The cost
of equipment under capital leases was $0.3 million and $0.4 million at the end
of 1996 and 1995, respectively. Accumulated amortization was $0.1 million and
$0.3 million, respectively. These leased assets are pledged as security for
capital lease obligations.
In addition to the above capital leases, the Company entered into a
sales-leaseback transaction in September 1996 under which certain operating
equipment with a net book value of $12.2 million was sold for $15.3 million
and then leased back under a capital lease. The related lease terms stipulate
monthly payments ranging from $274,000 to $341,000 over the five-year lease
term beginning September 1996 at an annual interest rate of 7.4%. The
resulting gain of $3.1 million has been recorded under "Other Accrued
Expenses" and is being amortized in proportion to the related equipment
depreciation over three years. The terms of the lease include an asset buy-
back provision at the end of the lease for the then fair market value of the
assets at the Company's option. Future minimum lease payments are as follows:
1997 $ 3,285
1998 3,285
1999 3,960
2000 4,095
2001 2,730
Total minimum lease payments 17,355
Less amount representing interest (2,849)
Present value of minimum lease payments $ 14,506
6. OPERATING LEASE COMMITMENTS
Sequent is committed under operating leases for office space and
manufacturing facilities. Future minimum lease payments are as follows:
(in thousands)
1997 $19,052
1998 16,468
1999 13,051
2000 10,558
2001 and thereafter 22,390
$81,519
Rent expense for operating leases was $17.4 million, $14.9 million and
$15.1 million in 1996, 1995 and 1994, respectively.
7. INCOME TAXES
Pre-tax income from continuing operations for the last three fiscal years
was taxed under the following jurisdictions:
(in thousands)
Fiscal Fiscal Fiscal
1996 1995 1994
Domestic $ 5,593 $ 29,556 $ 27,332
Foreign 5,083 17,771 11,468
Total $ 10,676 $ 47,327 $ 38,800
The provision (benefit) for income taxes was as follows:
Fiscal Fiscal Fiscal
1996 1995 1994
Current:
Federal $ 789 $ 5,890 $ 1,420
Foreign 3,109 5,435 3,769
State 164 355 96
4,062 11,680 5,285
Deferred:
Federal (900) -- --
Foreign (257) 574 381
(1,157) 574 381
Total provision $ 2,905 $ 12,254 $ 5,666
Deferred tax liabilities (assets) are comprised of the following
components:
(in thousands)
Dec. 28, Dec. 30,
1996 1995
Research and development $ 22,998 $ 17,534
Other 1,567 2,929
Gross deferred tax liabilities 24,565 20,463
Net operating loss carryforwards:
Domestic (24,985) (21,677)
Foreign (7,965) (8,733)
Credit carryforwards (12,741) (10,720)
Expenses not currently deductible (7,971) (7,586)
Depreciation (1,596) (798)
Revenue currently taxable (1,399) (945)
Inventory basis differences (556) (1,337)
Restructuring costs (71) (188)
Gross deferred tax assets (57,284) (51,984)
Deferred tax asset valuation allowance 31,583 31,542
Net deferred tax liability (asset) $ (1,136) $ 21
The provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory federal tax rate to pre-tax income
due to the following:
Fiscal Fiscal Fiscal
1996 1995 1994
Statutory federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 4.2 4.2 4.2
Tax benefit from Foreign
Sales Corporation (6.8) (1.6) (3.9)
Tax provision on foreign earnings (0.9) (2.1) (0.1)
Realized benefit from net
operating losses (1.3) (9.6) (20.9)
Other, net (3.0) -- 0.3
27.2% 25.9% 14.6%
The deferred tax asset valuation allowance in fiscal years 1994-1996 is
attributed to U.S. federal, state, and foreign deferred tax assets.
Management believes sufficient uncertainty exists with regard to the
realizability of such assets that a valuation allowance of $31.6 million has
been provided at December 28, 1996. When and if these reserved deferred tax
assets are ultimately realized, $15.5 million will reduce the Company's
federal and state tax provision and $16.1 million will be credited to paid-in
capital (related to stock option deductions).
In accordance with FAS 109, the valuation allowance is allocated pro-rata
to federal, state, and foreign current and non-current deferred tax assets.
The net deferred tax asset at December 28, 1996 and the net deferred tax
liability at December 30, 1995 reflect foreign liabilities offset by U.S.
assets.
The Company has accumulated unused research and development credits of
$5.0 million for income tax purposes. These credits expire from 1998-2011.
The Company also has Alternative Minimum Tax Credits (AMT) which may be
carried forward indefinitely and certain state tax credits which expire from
1997-2001.
The Company may realize tax benefits as a result of the exercise of
certain employee stock options. For financial reporting purposes, any
reduction in income tax obligations as a result of these tax benefits is
credited to paid-in capital. During 1996 and 1995, $175,000 and $4.7 million
of benefits were credited to paid-in capital, respectively, with a related
reduction in current taxes payable. No benefits were recognized in 1994.
An income tax provision has not been recorded for U.S. or additional
foreign taxes on undistributed earnings of foreign subsidiaries as the
undistributed earnings have been and will continue to be reinvested in
operations outside the United States.
8. SHAREHOLDERS' EQUITY
Common Stock. In 1995, $1.0 million of convertible debentures were
converted into 63,000 shares of common stock. (Note 5)
Stock Compensation Plans. At December 28, 1996, the Company had the
following stock-based compensation plans:
Stock Option Plans
At December 28, 1996 the Company had options outstanding to employees and non-
employees under the following Stock Option Plans: 1984 Employee Stock Option
Plan and 1984 Nonstatutory Stock Option Plan (the "1984 Plans"), the 1987
Employee Stock Option Plan and 1987 Nonstatutory Stock Option Plan (the "1987
Plans"), the 1989 Stock Incentive Plan (the "1989 Plan"), the 1995 Stock
Incentive Plan and the 1996 Stock Option Plan. Options granted after May 18,
1995 were made under the 1995 Stock Incentive Plan and the 1996 Stock Option
Plan. As of December 28, 1996, the Company has reserved a total of 12,365,000
shares of common stock for issuance under these Plans, of which 6,909,440
shares were outstanding at December 28, 1996. Employee and non-employee
options vest over varying time periods, generally ranging from one to four
years, as long as, in the case of employees, the optionee remains employed by
Sequent. Option prices generally have been at 85% or greater of the fair
market value of the common stock on the date of grant. Options generally
expire ten years from the date of the grant.
Employee Stock Purchase Plan
In September 1987, Sequent established an Employee Stock Purchase Plan. Under
the plan, Sequent is authorized to grant rights to purchase up to 5,550,000
shares of common stock in a series of eighteen-month offerings. At December
28, 1996, there were 1,674,002 shares available for future purchase.
Substantially all employees are eligible to receive rights under the plan.
The purchase price is the lesser of 85% of the fair market value of the common
stock on the date of commencement of the offering or on the date of purchase.
During 1996, 1995 and 1994, Sequent issued 682,864, 576,423 and 467,479 shares
under the plan, respectively.
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost related to stock options issued to
employees under these plans using the method of accounting prescribed by the
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting in APB
25 must make pro forma disclosures of net income and earnings per share, as if
the fair value based method of accounting defined in this Statement has been
applied.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method prescribed in APB 25 and related
Interpretations. Accordingly, no compensation cost has been recognized in the
consolidated statements of operations for its stock-based compensation plans
other than for performance-based awards.
Had compensation cost for the other stock-based compensation plans been
determined based on the fair value at the grant dates for awards under these
plans consistent with the method of FASB Statement 123, "Accounting for Stock-
Based Compensation", the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
(in thousands) Fiscal Fiscal
1996 1995
Net income (loss) As reported $7,771 $35,073
Pro forma (709) 30,959
Primary earnings (loss)
per share As reported $0.23 $1.04
Pro forma (0.02) 0.91
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995 and 1996:
Fiscal Fiscal
1996 1995
Risk-free interest rate 6.05% 6.33%
Expected dividend yield -- --
Expected lives 3 years 4 years
Expected volatility 50% 55%
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for 1995 and 1996:
Fiscal Fiscal
1996 1995
Risk-free interest rate 5.58% 5.23%
Expected dividend yield -- --
Expected lives 1 year 1 year
Expected volatility 50% 55%
The weighted-average per share fair value of those purchase rights granted in
1995 and 1996 was $15.51 and $13.15, respectively.
A summary of the status of the Company's stock option plans as of December 28,
1996 and December 30, 1995, and changes during the years ending on those dates
is presented below:
· Enlarge/Download Table
(in thousands, except per share)
Fiscal Fiscal
1996 1995
Weighted-Average Weighted-Average
Shares per share Shares per share
under option Exercise Price under option Exercise Price
Outstanding at beginning
of year 5,068 $ 14.26 4,432 $ 11.63
Granted:
Price = Fair Value 3,353 12.60 1,716 18.21
Price < Fair Value 1,196 11.12 612 14.90
Exercised (196) 8.53 (1,056) 9.68
Forfeited (2,512) 16.55 (636) 14.78
Outstanding at
end of year 6,909 12.27 5,068 14.26
Options exercisable
at year-end 1,446 1,276
Weighted-average per share fair value of
options granted during the year $ 3.69 $ 8.46
The following table summarizes information about stock options outstanding at
December 28, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted-
Number Weighted-Average Weighted-Average Number Average
Range of Outstanding Remaining per share Exercisable per share
Exercise Prices at 12/28/96 Contractual Life Exercise Price at 12/28/96 Exercise Price
$0 - $10.50 1,573,560 7.0 years $ 9.55 553,826 $ 8.61
$10.63 - $11.88 1,700,109 8.1 11.38 264,476 11.59
$11.90 - $13.88 1,435,227 7.7 12.86 272,295 13.28
$13.92 - $14.00 1,502,886 8.0 14.00 -- --
$14.03 - $22.31 697,658 7.3 15.62 355,511 15.77
$0.00 - $22.31 6,909,440 7.7 12.27 1,446,108 11.79
9. GEOGRAPHIC SEGMENT INFORMATION
Information about the Company's foreign operations and export sales is
provided in the table below. Foreign revenue is that which is produced by
identifiable assets located in foreign countries while export revenue is that
which is generated by identifiable assets located in the United States.
(in thousands)
Fiscal Fiscal Fiscal
1996 1995 1994
Revenue:
United States $ 270,571 $ 244,029 $ 233,246
Foreign:
Europe 262,396 242,133 177,320
Other 41,443 32,784 24,624
Export:
Other 20,952 21,399 15,633
$ 595,362 $ 540,345 $ 450,823
Operating income (loss):
United States $ 5,825 $ 27,184 $ 27,773
Foreign:
Europe 7,424 18,290 9,444
Other (374) 3,045 2,260
$ 12,875 $ 48,519 $ 39,477
Identifiable assets:
United States $ 448,527 $ 367,196 $ 321,857
Foreign:
Europe 148,727 123,614 105,232
Other 14,755 13,113 8,888
$ 612,009 $ 503,923 $ 435,977
Intercompany sales between geographic areas, primarily from the United
States to Europe, were $155.7 million during 1996, $131.0 million during 1995
and $111.1 million during 1994.
10. FOREIGN CURRENCY EXPOSURE
A substantial portion of the Company's business is conducted overseas
through its foreign subsidiaries, primarily in Europe. This exposes the
Company to risks associated with foreign currency rate fluctuations which can
impact the Company's revenue and net income. To mitigate this risk the
Company enters into foreign currency transactions with foreign and domestic
banks on a continuing basis in amounts and timing consistent with the
underlying currency exposure so that gains and losses on these transactions
offset gains and losses on the underlying exposure. The Company does not
engage in any speculative trading activity. See related discussion in Note 4.
In addition to the arrangements described in Note 4, at December 28,
1996, the Company also has a forward exchange contract denominated in Japanese
yen with a contract amount of approximately $2.8 million. This forward
contract is used to hedge certain intercompany payables. The Company has also
purchased off-setting currency options and calls used to hedge certain
anticipated but not yet firmly committed transactions expected to be
recognized within one year. Gains and losses on such contracts have not been
significant to date.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments.
Cash and cash equivalents, restricted deposits, receivables, notes
payable, accounts payable and other and current obligations under capital
leases and debt are reflected in the consolidated financial statements at fair
value because of the short-term maturity of these instruments.
The fair value of long-term obligations under capital leases was
estimated by discounting the future cash flows using market interest rates and
does not differ significantly from the amount reflected in the consolidated
financial statements.
Due to the private nature of the Company's convertible debentures and the
subjectivity of assessing the impact of the Company's future common stock
price, the fair value of long-term debt is judged to be materially the same as
that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
12. COMMITMENTS AND CONTINGENCIES
Lawsuits arise during the normal course of business. In the opinion of
management, none of the pending lawsuits will result in a significant impact
on the consolidated results of operations or financial position.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sequent Computer Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Sequent Computer Systems, Inc. and its subsidiaries at December 28, 1996 and
December 30, 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 28, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
January 23, 1997
QUARTERLY FINANCIAL DATA (unaudited)
(In thousands, except per share amounts)
Total Gross Net Earnings
Revenue Profit Income Per Share
Fiscal 1996
First quarter $ 120,745 $ 51,481 $ 598 $ 0.02
Second quarter 142,587 61,203 3,306 0.10
Third quarter 148,785 66,132 1,355 0.04
Fourth quarter 183,245 78,861 2,512 0.07
Year $ 595,362 $ 257,677 $ 7,771 $ 0.23
Fiscal 1995
First quarter $ 116,099 $ 52,689 $ 5,953 $ 0.18
Second quarter 139,207 65,082 11,010 0.33
Third quarter 133,215 59,565 7,441 0.22
Fourth quarter 151,824 67,056 10,668 0.31
Year $ 540,345 $ 244,392 $ 35,073* $ 1.04
*The sum of quarterly net income does not equal annual net income due to
rounding.
MARKET INFORMATION (unaudited)
Sequent's Common Stock has been traded on the NASDAQ National Market
System since April 1987 under the symbol SQNT. The following table sets
forth, for the fiscal quarters indicated, the high and low sales prices for
the common stock as reported on the NASDAQ National Market System.
High Low
1996:
First quarter $ 14.88 $ 10.31
Second quarter $ 14.88 $ 11.88
Third quarter $ 13.88 $ 10.88
Fourth quarter $ 18.25 $ 12.50
1995:
First quarter $ 20.63 $ 15.56
Second quarter $ 18.63 $ 14.44
Third quarter $ 25.25 $ 17.88
Fourth quarter $ 19.50 $ 14.38
At December 28,1996, there were approximately 1,134 shareholders of
record of the Company's common stock and 34.2 million shares outstanding. The
Company has never paid cash dividends on its common stock. The Company
intends to retain earnings for use in its business and, therefore, does not
anticipate paying cash dividends in the foreseeable future. In addition, the
Company's bank line of credit agreement and the agreements relating to the
Company's Convertible Debentures prohibit payment of dividends without the
lenders' consent.
EXHIBIT 21
SEQUENT COMPUTER SYSTEMS, INC. - SUBSIDIARIES
ENTERPRISE FINANCE COMPANY (Oregon)
SEQUENT EXPORT, INC. (Barbados)
DP APPLICATIONS, INC. (Oregon)
CANADA:
SEQUENT COMPUTER SYSTEMS (CANADA) LIMITED
EUROPE:
SEQUENT COMPUTER SYSTEMS LIMITED (United Kingdom)
SEQUENT COMPUTER SYSTEMS A.B. (Sweden)
SEQUENT COMPUTER SYSTEMS GmbH (Germany)
SEQUENT COMPUTER SYSTEMS, S.A. (France)
SEQUENT COMPUTER SYSTEMS, B.V. (Netherlands)
SEQUENT COMPUTER SYSTEMS, spol. s r.o. (Czechoslovakia)
OPEN TOOL INTERNATIONAL, B.V. (Netherlands)
SEQUENT COMPUTER SYSTEMS S. r. I. (Italy)
SEQUENT COMPUTER SYSTEMS CJSC (Russia)
JAPAN:
SEQUENT COMPUTERS JAPAN CO., LTD
ASIA:
SEQUENT COMPUTER SYSTEMS (N.Z.) LIMITED (New Zealand)
SEQUENT COMPUTER SYSTEMS AUSTRALIA PTY. LIMITED
SEQUENT COMPUTER SYSTEMS ASIA LIMITED (Hong Kong)
SEQUENT COMPUTER SYSTEMS (SINGAPORE) PTE. LIMITED
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-16428, 33-16463, 33-33338, 33-36836, 33-39315,
33-39657, 33-40941, 33-40942, 33-63972, 33-63974, 33-59147 and 33-59611) of
Sequent Computer Systems, Inc. of our report dated January 23, 1997 appearing
in the Annual Report to Shareholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules.
PRICE WATERHOUSE LLP
Portland, Oregon
March 21, 1997
Dates Referenced Herein and Documents Incorporated By Reference
| This 10-K Filing | | Date | | Other Filings |
|---|
| |  |
| | 3/28/92 |
| | 4/10/92 |
| | 5/6/92 |
| | 5/12/92 |
| | 8/13/92 |
| | 11/13/92 |
| | 12/2/92 |
| | 1/2/93 |
| | 1/8/93 |
| | 3/18/93 |
| | 4/5/93 |
| | 10/1/93 |
| | 11/1/93 |
| | 1/1/94 |
| | 12/12/94 |
| | 12/31/94 | | 10-K, DEF 14A |
| | 4/18/95 |
| | 5/18/95 |
| | 7/21/95 |
| | 12/30/95 | | 10-K |
| | 1/15/96 |
| | 1/30/96 |
| | 3/1/96 |
| | 3/27/96 |
| | 8/20/96 |
| | 10/1/96 |
| | 12/2/96 |
| For The Period Ended | | 12/28/96 |
| | 1/23/97 |
| | 2/23/97 |
| | 2/28/97 |
| | 3/21/97 |
| | 3/25/97 |
| Filed On / Filed As Of | | 3/26/97 |
| | 5/30/97 |
| | 6/30/97 |
| | 3/31/0 |
| |
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