28
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period ended September 29, 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 0-15325
INFORMIX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3011736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 Bohannon Drive, Menlo Park, CA 94025
(Address of principal executive office)
415-926-6300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No .
At September 29, 1996, 150,061,020 shares of the
Registrant's Common Stock were outstanding.
Total number of pages 20.
FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking
statements as a result of certain factors described herein
and in other documents. Readers should pay particular
attention to the section of this Report entitled "Business
Risks" and should also carefully review the risk factors
described in the other documents the Company files from time
to time with the Securities and Exchange Commission.
PART I. FINANCIAL INFORMATION
INDEX
Part I. Financial Information
Page
Item 1. Condensed Consolidated Financial
Statements (Unaudited):
Condensed Consolidated Statements of Income
for the three-month and nine-month periods
ended September 29, 1996 and October 1, 1995 3
Condensed Consolidated Balance Sheets as of
September 29, 1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash
Flows for the nine-month periods ended
September 29, 1996 and October 1, 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature page 18
INFORMIX CORPORATION
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
--------- --------- --------- ---------
(Note) (Note)
<S> <C> <C> <C> <C>
Net revenues:
Licenses $179,617 $137,443 $501,223 $371,399
Services 58,563 45,258 167,260 123,407
--------- --------- --------- ---------
238,180 182,701 668,483 494,806
Costs and expenses:
Cost of software
distribution 13,254 9,040 35,594 25,147
Cost of services 35,923 23,478 104,828 63,541
Sales and
marketing 104,222 78,748 295,085 215,274
Research and
development 32,122 22,820 87,538 62,032
General and
administrative 16,776 12,325 47,659 36,028
Expenses related
to Illustra
merger - - 5,914 -
--------- --------- --------- ---------
202,297 146,411 576,618 402,022
--------- --------- --------- ---------
Operating income 35,883 36,290 91,865 92,784
Interest income 2,436 2,302 6,671 5,748
Interest expense (856) (348) (1,882) (604)
Other income/
(expense),net 985 (352) 1,346 (56)
--------- --------- --------- ---------
Income before
income taxes 38,448 37,892 98,000 97,872
Income taxes 12,267 13,996 34,300 36,146
--------- --------- --------- ---------
Net income $ 26,181 $ 23,896 $ 63,700 $ 61,726
========= ========= ========= =========
Net income
per share $ 0.17 $ 0.16 $ 0.41 $ 0.41
========= ========= ========= =========
Weighted average
number of common
and common
equivalent shares
outstanding : 155,596 151,677 155,477 150,041
</TABLE>
(Note) The unaudited quarterly data presented above
applicable to the prior period has been restated to reflect
the Company's business combination with Illustra Information
Technologies, Inc. as a pooling-of-interests.
See Notes to Condensed Consolidated Financial Statements.
INFORMIX CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 29, December 31,
1996 1995
---------- ----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 143,792 $ 164,305
Short-term investments 105,919 88,904
Accounts receivable, net 241,448 185,452
Deferred taxes 21,504 21,504
Other current assets 26,329 25,924
---------- ----------
Total current assets 538,992 486,089
Property and equipment, net 149,133 81,632
Software costs, net 49,747 36,866
Deferred taxes 16,264 16,248
Long-term investments 4,197 9,781
Intangible assets 35,063 40,730
Other assets 36,150 19,800
---------- ----------
Total assets $ 829,546 $ 691,146
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,498 $ 29,655
Accrued expenses 50,258 34,919
Accrued employee compensation 66,418 49,911
Income taxes payable 58,938 42,833
Deferred revenue 73,812 66,681
Other liabilities 1,586 9,248
---------- ----------
Total current liabilities 289,510 233,247
Deferred taxes 24,363 24,488
Other liabilities 1,878 2,846
Stockholders' equity:
Common stock 1,501 1,480
Additional paid-in capital 220,998 204,448
Retained earnings 288,687 226,797
Unrealized gain on available-for-
sale securities, net of tax 9,797 4,064
Foreign currency translation
adjustment (7,188) (6,224)
---------- ----------
Total stockholders' equity 513,795 430,565
---------- ----------
Total liabilities and
stockholders' equity $ 829,546 $ 691,146
========== ==========
</TABLE>
(Note) Consolidated balance sheet data at December 31, 1995
presented above has been restated to reflect the Company's
business combination with Illustra Information Technologies,
Inc. as a pooling-of-interests.
See Notes to Condensed Consolidated Financial Statements.
INFORMIX CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
------------------------
September 29, October 1,
1996 1995
------------- ----------
(Note)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 63,700 $ 61,726
Adjustments to reconcile net
income to net cash and cash
equivalents provided by
operating activities:
Depreciation and
amortization 31,954 20,824
Amortization of capitalized
software 10,802 8,465
Provisions for losses on
accounts receivable 11,001 4,768
Foreign currency transaction
gain (2,805) (3,688)
Gain on sales of strategic
investments (1,867) -
Loss on disposal of property
and equipment 1,139 -
Changes in operating assets
and liabilities:
Accounts receivable (68,165) (47,984)
Other current assets (706) (7,984)
Accounts payable and
accrued expenses 44,828 45,047
Deferred revenue 7,510 17,421
---------- ----------
Net cash and cash equivalents
provided by operating
activities 97,391 98,595
INVESTING ACTIVITIES
Purchases of held-to-maturity
securities - (124,204)
Purchases of available-for-sale
securities (123,160) (4,067)
Maturities of held-to-maturity
securities - 64,273
Maturities of available-for-sale
securities 86,217 6,104
Proceeds from sales of available-
for-sale securities 25,703 26,690
Purchases of strategic investments (3,750) -
Proceeds from sales of strategic
investments 5,085 -
Purchases of property and
equipment (96,116) (37,568)
Proceeds from disposal of
property and equipment 1,821 -
Additions to software costs (21,138) (18,599)
Business combinations, net of
cash acquired (1,840) (41,709)
Other (9,729) (3,097)
---------- ----------
Net cash and cash equivalents
used in investing activities (136,907) (132,177)
FINANCING ACTIVITIES
Proceeds from issuance of
stock, net 14,761 24,382
Principal payments on debt and
capital leases (749) (816)
---------- ----------
Net cash and cash equivalents
provided by financing
activities 14,012 23,566
---------- ----------
Effect of exchange rate changes
on cash and cash equivalents 4,991 4,364
---------- ----------
Decrease in cash and
cash equivalents (20,513) (5,652)
Cash and cash equivalents
at beginning of period 164,305 132,283
---------- ----------
Cash and cash equivalents at
end of period $ 143,792 $ 126,631
========== ==========
</TABLE>
(Note) The unaudited quarterly data presented above
applicable to the prior period has been restated to reflect
the Company's business combination with Illustra Information
Technologies, Inc. as a pooling-of-interests.
See Notes to Condensed Consolidated Financial Statements.
INFORMIX CORPORATION
Notes to Condensed Consolidated Financial Statements
September 29, 1996
(Unaudited)
Note A - Presentation of Interim Financial Statements
All significant adjustments, in the opinion of
management, which are normal, recurring in nature and
necessary for a fair presentation of the financial position
and results of the operations of the Company, have been
consistently recorded. The operating results for the
interim periods presented are not necessarily indicative of
expected performance for the entire year.
The unaudited quarterly data presented applicable to
prior periods has been restated to reflect the Company's
business combination with Illustra Information Technologies,
Inc. as a pooling-of-interests, which was consummated on
February 16, 1996.
Note B - Net Income Per Share
Net income per share is based on the weighted average
number of common and dilutive common equivalent shares
outstanding during each period. All stock options are
considered common stock equivalents and are included in the
weighted average computations when the effect is dilutive.
Note C - Business Combinations
In February 1996, the Company acquired Illustra
Information Technologies, Inc. (Illustra), a company that
provides dynamic content management database software and
tools for managing complex data in the Internet,
multimedia/entertainment, financial services, earth sciences
and other markets. Approximately 12.7 million shares of
Informix common stock were issued to acquire all outstanding
shares of Illustra common stock. An additional 2.3 million
shares of Informix common stock were reserved for issuance
in connection with the assumption of Illustra's outstanding
stock options. The transaction has been accounted for as a
pooling of interests, and accordingly, the consolidated
financial statements for all periods presented include the
accounts and operations of Illustra. Separate operating
results of Informix and Illustra for the three and nine
months ended October 1, 1995 were as follows:
Three Months Ended Nine Months Ended
October 1, 1995 October 1, 1995
------------------ ------------------
Net revenues:
Informix $ 180,523 $ 491,915
Illustra 2,178 2,891
---------- ----------
Combined $ 182,701 $ 494,806
========== ==========
Net income (loss):
Informix $ 25,281 $ 66,499
Illustra (1,385) (4,773)
---------- ----------
Combined $ 23,896 $ 61,726
========== ==========
Related merger and transaction fees of approximately $5.9
million were recorded in the first quarter of 1996.
In January 1995, the Company acquired a 90 percent
interest in the database division of ASCII Corporation, a
distributor of its products in Japan. The Company acquired
the remaining 10 percent in January 1996. This acquisition
has been recorded as a purchase. The purchase price of this
business was approximately $46.0 million, of which $35.4
million has been allocated to intangible assets acquired
which are being amortized over a weighted average life of
seven years. The operating results of this business have not
been material in relation to those of the Company and are
included in the Company's consolidated results of operations
from the date of acquisition.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth operating results as a
percentage of net revenues for the three- and nine-month
periods ended September 29, 1996 and October 1, 1995,
respectively.
<TABLE>
<CAPTION>
Percent of Net Revenues
-----------------------
Three months ended Nine months ended
Sept 29, Oct 1, Sept 29, Oct 1,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET REVENUES:
Licenses 75% 75% 75% 75%
Services 25% 25% 25% 25%
--------- --------- --------- ---------
Total net revenues 100% 100% 100% 100%
COSTS AND EXPENSES:
Cost of software
distribution 6% 5% 5% 5%
Cost of services 15% 13% 16% 13%
Sales and
marketing 44% 43% 44% 44%
Research and
development 13% 12% 13% 13%
General and
administrative 7% 7% 7% 6%
Expenses related
to Illustra
merger 0% 0% 1% 0%
--------- --------- --------- ---------
Total operating
expenses 85% 80% 86% 81%
--------- --------- --------- ---------
OPERATING INCOME 15% 20% 14% 19%
INTEREST INCOME 1% 1% 1% 1%
INTEREST EXPENSE 0% 0% 0% 0%
OTHER INCOME/
(EXPENSE),NET 0% 0% 0% 0%
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAXES 16% 21% 15% 20%
INCOME TAXES 5% 8% 5% 8%
--------- --------- --------- ---------
NET INCOME 11% 13% 10% 12%
========= ========= ========= =========
</TABLE>
The following table sets forth the percentage change in the
operating results for the three- and nine-month periods
ended September 29, 1996 compared to the respective three-
and nine-month periods ended October 1, 1995.
Period-to-Period Percent
Increase (Decrease)
---------------------------------------
Three months ended Nine months ended
Sept 29, 1996 vs. Sept 29, 1996 vs.
Oct 1, 1995 Oct 1 1995
------------------ ------------------
NET REVENUES:
Licenses 31% 35%
Services 29% 36%
Total net revenues 30% 35%
COSTS AND EXPENSES:
Cost of software
distribution 47% 42%
Cost of services 53% 65%
Sales and
marketing 32% 37%
Research and
development 41% 41%
General and
administrative 36% 32%
Expenses related
to Illustra
merger N/A N/A
Total operating
expenses 38% 43%
OPERATING INCOME (1)% (1)%
INTEREST INCOME 6% 16%
INTEREST EXPENSE 146% 211%
OTHER INCOME/
(EXPENSE),NET N/A N/A
INCOME BEFORE
INCOME TAXES 1% 0%
INCOME TAXES (12)% (5)%
NET INCOME 10% 3%
Informix's operating income was affected negatively in
the third quarter and the first nine months of 1996 as a
result of operating expenses growing more rapidly than
revenues, primarily in the North America region as Informix
continues to invest heavily in personnel in the areas of
sales, marketing and customer service, and research and
development; and due to integration expenses and fees
associated with the acquisitions of Illustra Information
Technologies, Inc. (Illustra) and Stanford Technology Group
(STG) as a pooling-of-interests in February 1996 and in
October 1995, respectively. Informix is investing in
extensive training for sales, marketing, and customer
service to educate employees of both the acquired companies
and Informix regarding the products of the combined
companies and revisions to Informix operations required to
integrate the operations of the companies. The Company is
investing in the development of a database management
system, the Informix Universal Server, that will merge
technology from both Illustra and Informix. Informix
incurred significant marketing expenses in connection with
the initial announcement of the Universal Server in the
first quarter of 1996 and will continue to heavily market
this product in 1996. This product is now scheduled to be
commercially available in either late 1996 or early 1997. In
September, 1996, the Company announced it has begun
shipments of the INFORMIX-Universal Server developers'
release to customers and partners for developing and testing
purposes. These integration and marketing expenses and the
relatively low operating margins of the acquired companies
have adversely affected Informix's ability to achieve
quarterly operating margins consistent with 1994 and 1995.
Also, Informix is continuously developing specific market
channels and specific products for such channels. In the
near term, these development efforts will negatively affect
the Company's operating margins.
Revenues
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------- -----------------
Sept 29, Oct 1, Change Sept 29, Oct 1, Change
1996 1995 1996 1995
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
License fees $179.6 $137.4 31% $501.2 $371.4 35%
Percentage
of net
revenues 75% 75% 75% 75%
Services $ 58.6 $ 45.3 29% $167.3 $123.4 36%
Percentage
of net
revenues 25% 25% 25% 25%
Net revenues $238.2 $182.7 30% $668.5 $494.8 35%
</TABLE>
The Company derives revenues principally from licensing
its software and providing technical product support and
updates to customers. License revenues may involve the
shipment of product by the Company or the granting of a
license to a customer to manufacture products. Service
revenue consists of customer telephone or direct support,
update rights for new product versions, consulting, and
training fees. The Company's products are sold directly to
end-user customers or through resellers, including original
equipment manufacturers (OEM's), distributors, and
application vendors. In the past couple of years, the
Company's customer mix was decreasing in the distributor and
hardware OEM channels in favor of the end user and
application vendor channels. However, this year, the
Company expects this trend to shift towards a higher
proportion of OEM sales as its strategy is now more focused
on partnerships with several hardware vendors in order to
utilize their sales forces, obtain access to their installed
bases in certain industries and benefit from their
consulting and systems integration organizations. The
Company has recognized substantial net revenue from large
software license agreements. These transactions, which are
difficult to predict, have caused fluctuations in net
revenues and net income because of the relatively high gross
margin on such revenues. The Company expects that these
sorts of transactions and the resulting fluctuations will
continue. Also, the American Institute of Certified Public
Accountants has issued an exposure draft on Software Revenue
Recognition that is proposed to supersede the Statement of
Position 91-1. It may be adopted and effective for fiscal
1997. The Company is evaluating the exposure draft in
relation to its current revenue recognition policy. Certain
provisions of the exposure draft differ from the Company's
current policy. Adoption of the exposure draft in its final
form may significantly affect the revenue recognition
practices of Informix and could significantly alter, either
favorably or unfavorably, the timing of revenue recorded
under the Company's current policies.
The overall revenue growth in the third quarter and the
first nine months of 1996 compared to the corresponding
periods in 1995 primarily reflects continued acceptance of
the Company's server products. While server products
revenue has grown rapidly over the last three quarters, tool
products revenue has decreased. The Company expects this
trend to continue for the last quarter of 1996 and through
1997. Also, there can be no assurance that quarterly revenue
growth rates or geographical growth rates in the fourth
quarter will be comparable with those achieved in the first
nine months of 1996.
The license revenue growth in the third quarter and the
first nine months of 1996 compared to the same periods in
1995 reflects strong demand for the Company's server
products, particularly for the Company's flagship database
server, INFORMIX-OnLine Dynamic Server(TM). In addition,
many Informix partners, including OEM resellers, purchased
high volumes of product to resell in anticipation of various
upcoming marketing programs. In February 1996, the Company
announced the development of an enterprise-capable, fully
extensible database management system that can manage all
information assets - including numbers, images, maps, sound,
video, Web pages, and text, as well as other user-defined
rich data types. This product, the Informix-Universal
Server, will incorporate Illustra's object-relational
technology into Informix's core database technology. It is
now scheduled to be commercially available in late 1996 or
early 1997. In late September 1996, the Company began
shipment of the Universal Server developers' release to
customers and partners to develop and test a range of
applications and modules against the Universal Server. If
such marketing programs do not meet expectations, Informix's
future revenue could be adversely affected. Late in the
third quarter of 1996, the Company announced, in conjunction
with NetScape Communications Corporation, the INFORMIX
Workgroup Solution, a workgroup database solution for
intranet and client/server applications. This product is now
currently available. During the third quarter of 1996, the
Company also announced broader availability of its OnLine
Extended Parallel Server to other platforms such as Hewlett
Packard, Pyramid Technology and Sun Microsystems.
The increase in service revenue was primarily
attributable to the continued growth of the installed
customer base, and resulting renewal of maintenance
contracts and increased consulting revenue. The Company
continues to emphasize support services as a source of
revenue. As the Company's products become more complex, more
support services will be required. The Company intends to
satisfy this requirement through internal support, third-
party services and OEM support.
The Company's revenues, along with those of the
relational database management system (RDBMS) industry as a
whole, have shown substantial growth over the last several
years. The industry has benefited from trends to downsize
from large proprietary computer systems and market
acceptance of UNIX, Windows(TM), Windows NT(TM) and other
open operating environments.
The Company has also developed and released connectivity
products to allow access to other relational databases, both
proprietary and open, and access to data through various
protocols such as IBM's DRDA(TM). The industry movement to
new, open operating systems like Windows NT, access through
low-end desktop machines, and access to data through the
Internet may cause downward pressure on prices of database
and related products. If such downward pressure on prices
were to occur, margins would be adversely affected.
Over half of the Company's net revenues are derived from
its international operations. In Europe, Asia/Pacific, and
Japan, most revenues and expenses are now denominated in
local currencies. The U.S. dollar strengthened in the third
quarter and the first nine months of 1996 against the major
European and Asia/Pacific currencies, which resulted in
lower revenue and expenses recorded when translated into
U.S. dollars, compared with the prior year periods. The
Company has also increased its direct presence in Latin
America, although a significant percentage of this region's
revenue is still denominated in U.S. dollars. Although the
effect was not significant in the first nine months in 1996,
the Company has experienced significant currency
fluctuations in Mexico, and to a lesser extent, other Latin
American countries, and expects such fluctuations may occur
in the future. The Company's operating and pricing
strategies take into account changes in exchange rates over
time; however, the Company's results of operations may be
significantly affected in the short term by fluctuations in
foreign currency exchange rates.
As a percentage of Informix's net revenues, international
sales were approximately 55 percent in the third quarters of
both 1996 and 1995, and 58 percent in the first nine months
of both 1996 and 1995. The increase in foreign revenues in
absolute dollars is primarily attributable to the continued
international acceptance of Informix's new and existing
server products, and the establishment of new subsidiaries
and sales offices in Europe, Asia/Pacific, Japan, and Latin
America. Over the past few quarters, revenues continued to
be stronger in Europe, but weakened in Japan and Mexico.
Informix expects that foreign revenues will continue to
provide a significant portion of total revenues. However,
changes in foreign currency exchange rates, the strength of
local economies, and the general volatility of software
markets may result in a higher or lower proportion of
foreign revenues as a percentage of total revenues in the
future.
The Company enters into forward foreign exchange
contracts primarily to hedge the impact of fluctuations in
exchange rates on accounts receivable or accounts payable
denominated in foreign currencies until such receivables are
collected or payables are disbursed. This program involves
the use of forward foreign exchange contracts in the primary
European and Asian currencies. The Company has limited
unhedged transaction exposures in certain secondary
currencies in Latin America, Eastern Europe, and Asia
Pacific because there are limited forward currency exchange
markets in these currencies. The Company does not attempt to
hedge the translation to U.S. dollars of foreign denominated
revenues and expenses not yet earned or incurred,
respectively.
Cost of Software Distribution
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------- -----------------
Sept 29, Oct 1, Change Sept 29, Oct 1, Change
1996 1995 1996 1995
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Manufactured
cost of
software
distribution $ 9.6 $ 6.0 60% $24.8 $16.6 49%
Percentage
of license
revenue 5% 4% 5% 4%
Amortization
of capitali-
zed software $ 3.7 $ 3.0 23% $10.8 $ 8.5 27%
Percentage
of license
revenue 2% 2% 2% 2%
Cost of
software
distribution $13.3 $ 9.0 48% $35.6 $25.1 42%
Percentage
of license
revenue 7% 7% 7% 7%
</TABLE>
Software distribution costs consist primarily of: 1)
manufacturing and related costs such as media,
documentation, product assembly and purchasing costs,
freight, customs, and third party royalties; and 2)
amortization of previously capitalized software development
costs and any write-offs of previously capitalized software
that are no longer realizable.
Excluding amortization of previously capitalized software
development costs, cost of software distribution as a
percentage of license revenue was 5 percent in the third
quarter and the first nine months of 1996 compared 4% in the
same periods of 1995. In the future, the cost of software
distribution as a percentage of revenue may vary depending
upon whether the product is reproduced by the Company or by
its customers.
The increase in amortization of capitalized software in
the third quarter and the first nine months of 1996 compared
to the same periods in 1995 is due to the release of several
products in the latter half of 1995. The absolute value of
amortization of capitalized software will vary from quarter
to quarter as new products are released and other product
development costs become fully amortized.
Cost of Services
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------- -----------------
Sept 29, Oct 1, Change Sept 29, Oct 1, Change
1996 1995 1996 1995
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Cost of
Services $35.9 $23.5 53% $104.8 $63.5 65%
Percentage
of service
revenue 61% 52% 63% 51%
</TABLE>
Cost of services consists primarily of maintenance,
consulting and training expenses. The increase in cost of
services in the third quarter and the first nine months of
1996 in absolute dollars and as a percentage of net revenues
compared to the prior year periods is primarily due to the
Company's expansion of consulting and support service
capabilities as products have become more complex. Due to
the increase in support personnel, the Company expects that
cost of services as a percentage of net service revenue for
the remainder of 1996 will approximate the rate in the first
nine months of 1996, and that this rate will fluctuate
between the rates experienced in 1995 and 1996. However,
there is no assurance that this rate will not increase in
the future.
Sales and Marketing Expenses
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------- -----------------
Sept 29, Oct 1, Change Sept 29, Oct 1, Change
1996 1995 1996 1995
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Sales and
marketing
expenses $104.2 $ 78.7 32% $295.1 $215.3 37%
Percentage
of net
revenue 44% 43% 44% 44%
</TABLE>
The increase in sales and marketing expenses in the third
quarter and the first nine months of 1996 in absolute
dollars compared to the corresponding periods in 1995 was a
result of the addition of sales personnel worldwide as the
Company expanded its worldwide direct sales organizations,
the opening of new subsidiaries, higher commission expense
associated with the increase in revenues, and increased
marketing programs associated with new product launches. As
a percentage of net revenues, sales and marketing expenses
remained at approximately 44% in both 1995 and 1996.
With the expected continuing expansion throughout 1996 of
worldwide operations, as well as increased sales and
marketing expenditures aimed at positioning the Company and
its new and existing products in the marketplace, the
Company expects that sales and marketing expenses for the
remainder of 1996, as a percentage of net revenues, will be
similar to those of the first nine months of 1996. However,
sales and marketing expenses as a percentage of net revenues
would be higher should there be a shortfall in expected
revenues.
On November 12, 1996, the Company announced that it had
promoted K. Coulter to the newly created position of
Executive Vice President, Worldwide Sales. In this position,
Mr. Coulter will be responsible for sales and field
marketing activities worldwide. Mr. Coulter has had a
variety of sales positions at Informix for the past eight
years, most recently as Senior Vice President, International
Sales. The Company believes that having one executive in
charge of sales activities worldwide will enable the Company
to serve more effectively its global customers and partners.
Research and Development Expenses
The Company accounts for its product development costs in
accordance with the Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." This
statement requires that once technological feasibility of a
developing product has been established, all subsequent
costs incurred in developing that product to a commercially
acceptable level be capitalized and amortized ratably over
the revenue life of the product. The following table
summarizes research and development costs for the periods
ended September 29, 1996 and October 1, 1995:
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------- -----------------
Sept 29, Oct 1, Change Sept 29, Oct 1, Change
1996 1995 1996 1995
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Incurred
product
development
costs $39.8 $27.6 44% $108.6 $74.7 45%
Expenditures
capitalized 7.7 4.8 60% 21.1 12.7 66%
-------- ------- -------- -------
Research and
development
expenses $32.1 $22.8 41% $87.5 $62.0 41%
Expenditures
capitalized
as a % of
incurred 19% 17% 19% 17%
</TABLE>
The increase in product development expenditures in
absolute dollars in the third quarter and the first nine
months of 1996 compared to the corresponding periods in 1995
was attributed to an increase in staff working on new
products and product extensions.
The proportion of capitalized expenditures as a
percentage of total incurred expenditures increased in the
third quarter of 1996 compared to the third quarter of 1995
as several major projects in development had reached
technological feasibility just prior to or during the first
nine months of 1996. The Company expects the proportion of
work on capitalized projects for the remainder of 1996 to
remain relatively stable compared to the first nine months
of 1996 as other major new products reach technological
feasibility, and capitalization of the related software
development costs begins.
Major new programs currently under development in 1996
include the INFORMIX-Universal Server, an enterprise-
capable, fully extensible database management system that
can manage all information assets - including numbers,
images, maps, sound, video, Web pages, and text, as well as
other user-defined rich datatypes, the expansion of the DSA
family of servers and connectivity products; and subsequent
versions of the Company's graphical, object-oriented tool,
INFORMIX-NewEra(TM). The Company believes that product
development expenditures are essential to maintaining its
competitive position in its primary markets and expects the
expenditure levels to continue to constitute a significant
percentage of revenues.
General and Administrative Expenses
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------------- -----------------
Sept 29, Oct 1, Change Sept 29, Oct 1, Change
1996 1995 1996 1995
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
General and
adminis-
trative
expenses $ 16.8 $ 12.3 36% $ 47.7 $ 36.0 32%
Percentage
of net
revenue 7% 7% 7% 6%
</TABLE>
General and administrative expenses increased in absolute
dollars in the third quarter and the first nine months of
1996 compared to the same prior year periods as a result of
the continued expansion in international operations. The
Company expects that general and administrative expenses as
a percentage of net revenues for the remainder of 1996 will
continue at this level.
Merger Expenses
In the first quarter of 1996, the Company recorded
expenses of approximately $5.9 million as a result of the
acquisition of Illustra, which was accounted for as a
pooling of interests. These costs consisted primarily of
investment banking, legal and accounting fees.
Provision for Income Taxes
The Company's effective tax rate in the third quarter of
1996 has been revised to bring the year-to-date tax rate for
1996 down to 35% compared to the rate of 37% recorded in the
first nine months of 1995, due to the Company's higher than
anticipated proportion of European revenue which benefits
from the Company's lower-taxed Irish distributor operations,
and the reinstatement of the U.S. federal research and
development tax credit. However, this rate could change
based on a change in the geographic mix of the Company's
earnings and the change in tax laws.
Liquidity and Capital Resources
(DOLLARS IN MILLION) Nine months ended
-------------------------
Sept 29, Oct 1,
1996 1995
--------- ---------
Cash, cash equivalents,
and investments $253.9 $224.2
Working capital 249.5 197.4
Cash and cash equivalents
provided by operations 97.4 98.6
Cash and cash equivalents used
for investment activities,
excluding investments of
excess cash (127.0) (101.0)
Cash and cash equivalents
provided by financing
activities 14.0 23.6
Cash and cash equivalents provided by operations in the
first nine months of 1996 were slightly lower compared to
the same period last year; the increase in accounts
receivable and lower deferred revenue were almost fully
offset by higher depreciation and amortization and higher
provisions for losses on accounts receivable.
Net accounts receivable increased by $56.0 million in the
first nine months of 1996 as compared to the fourth quarter
of 1995. Days sales outstanding increased from approximately
76 days in December 1995 to 91 days in September 1996,
compared to 86 days in September 1995. The days sales
outstanding ratio is dependent on many factors, including
the mix of contract-based revenue with significant OEMs and
large corporate and government end-users versus revenue
recognized on shipments to application vendors and
distributors and the success of the Company's third-party
accounts receivable financing programs. The Company has
programs whereby third-party financing institutions provide
financing for extended credit terms instead of such
financing being provided by the Company. Costs related to
those financing activities may be borne by the customer or
subsidized in whole or in part by the Company. In the
future, the Company expects this ratio to vary within the
range which prevailed in the last several quarters.
Excluding investments of excess cash, net cash and cash
equivalents used for investing activities increased in the
first nine months of 1996 compared with the same period in
1995; the decrease in corporate acquisition activity (the
Company acquired 90% of the database division of ASCII in
the first quarter of 1995) were offset by investments in
property and equipment and in software development costs.
In the first nine months of 1996 and 1995, the Company
acquired $96.1 million and $37.6 million, respectively, of
capital equipment consisting primarily of computer
equipment, computer software and office equipment. The
increase of capital equipment purchases in the first nine
months of 1996 resulted from the Company's investments in
capital equipment used in sales and product demonstration
activities and to improve the level of consulting and
support services to customers, and to provide technology
infrastructure for the Company's growing employee headcount.
In the future, the Company anticipates the actual level of
capital spending will be dependent on a variety of factors,
including the Company's business requirements and general
economic conditions.
In the fourth quarter of 1996, Informix began and plans
to continue to launch a series of Information SuperStores
worldwide which demonstrate and offer the most recent
Informix product releases. Along with the core Informix
product line, these locations have tools from leading third-
party data warehouse and application vendors installed on a
wide variety of hardware platforms. Initial participants
include Sequent, NCR, Pyramid, Data General, Business
Objects, Prisms, Cognos, MicroStrategy, and Information
Advantage among others. Engineers from both the Informix
Professional Services Data Warehouse Practice and the
Informix Advanced Technology Group are working with
prospects and customers at the SuperStores to create a data
warehouse prototype that is based on a comprehensive, proven
methodology. To date, the Company has spent, or committed to
spend, approximately $70 million in the acquisition of
additional capital equipment to support the launch of the
Information SuperStores. The Company expects to make further
capital equipment expenditures in 1997. These additional
fixed asset acquisitions will increase the Company's
depreciation and amortization by approximately $4 million
per quarter.
The Company's investments in software costs were
previously discussed under "Results of Operations."
In February 1996, the Company acquired Illustra
Information Technologies, Inc. (Illustra), a company that
provides dynamic content management database software and
tools for managing complex data in the Internet, multimedia/
entertainment, financial services, earth sciences and other
markets. Approximately 12.7 million shares of Informix
common stock were issued to acquire all outstanding shares
of Illustra stock. An additional 2.3 million shares of
Informix common stock were reserved for issuance in
connection with the assumption of Illustra's outstanding
options. The transaction has been accounted for as a pooling
of interests. Merger expenses of approximately $5.9 million
were recorded in the first quarter of 1996.
Net cash and cash equivalents provided by financing
activities in the first nine months of 1996 and 1995
included proceeds from the sale of the Company's common
stock to employees, partially offset by payments on capital
leases.
The Company expects current balances of cash, cash
equivalents, and short-term investments will be sufficient
to fund anticipated levels of operations at least through
the third quarter of 1997 and may be used for investments
and acquisitions to supplement internal revenue growth and
for other corporate purposes.
Business Risks
Fluctuations in Quarterly Results. The Company's
operating results can vary substantially from period to
period. The timing and amount of the Company's license
revenues are subject to a number of factors that make
estimation of operating results prior to the end of a
quarter extremely uncertain. The Company has operated
historically with little or no backlog and, as a result,
license revenues in any quarter are dependent on contracts
entered into or orders booked and shipped in that quarter.
The Company's operating margins have generally followed a
historic pattern, with second half revenues and operating
margins being higher than those of the preceding first half.
The Company believes that this pattern has been primarily
related to customers' capital spending cycles at the end of
a calendar year as well as to the Company's selling efforts,
influenced by annual sales incentive plans which culminate
at the end of the calendar year, which is the end of the
Company's fiscal year. Additionally, as is common in the
industry, a disproportionate amount of the Company's license
revenues are derived from transactions that close in the
last few weeks of a quarter. The timing of closing large
license agreements also increases the risks of quarter-to-
quarter fluctuations and the uncertainty of estimating
quarterly operating results. The Company's operating
expenditures are guided by projected annual and quarterly
revenue levels, and have been increasing at rates
approaching the rate of total revenue growth and are
incurred approximately ratably throughout each quarter. As a
result, if projected revenues are not realized in the
expected period, the Company's operating results for that
period would be adversely affected as the operating expenses
are relatively fixed in the short term. The Company's
revenue generation is also highly dependent on the economic
conditions. If the economy were to slow down, existing and
potential customers might delay the purchase of the
Company's products, which would negatively affect the
Company's revenue. Failure to achieve revenue, earnings and
other operating and financial results as forecasted or
anticipated by brokerage firm analysts or industry analysts
could result in an immediate and adverse effect on the
market price of the Company's common stock. Further, the
Company may not learn of, or be able to confirm, revenue or
earnings shortfall until the end of each quarter, which
could result in an even more immediate and adverse effect on
the trading price of the Company's common stock.
Volatility of Informix Stock Prices. The market for the
Company's common stock is highly volatile. The trading price
of the Company's common stock could be subject to wide
fluctuations in response to quarterly variations in
operating and financial results, announcements of
technological innovations or new products by the Company or
its competitors, changes in prices of the Company's or its
competitors' products and services, changes in product mix,
change in the Company's revenue and revenue growth rates for
the Company as a whole or for individual geographic areas,
business units, products or product categories, as well as
other events or factors. Statements or changes in opinions,
ratings, or earnings estimates made by brokerage firms or
industry analysts relating to the market in which the
Company does business or relating to the Company
specifically have resulted, and could in the future result,
in an immediate and adverse effect on the market price of
the Company's common stock. In addition, the stock market
has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market
price for the securities of many high technology companies
and which often have been unrelated to the operating
performance of these companies. These broad market
fluctuations may adversely affect the market price of the
Company's common stock.
Management changes. During 1996, several long service
employees left the Company or announced their intention to
leave the Company in the near future. These employees have
a broad base of Informix knowledge and there can be no
assurance that such employees can be replaced with persons
of comparable or greater talent on a timely basis.
Competition. The market for the Company's software
products and services is extremely competitive. Some of the
Company's current competitors and many potential competitors
have greater financial, technical and marketing resources
than the Company. The industry movement to new, open
operating systems like Windows NT, access through low-end
desktop machines, and access to data through the Internet
may cause downward pressure on prices of database and
related products. If such downward pressure on prices were
to occur, margins would be adversely affected. Also, new or
enhanced products introduced by existing or future
competitors could have an adverse effect on the Company's
business, results of operations and financial condition.
Existing and future competition or changes in the Company's
product or service pricing structure or product or service
offerings could result in an immediate reduction in the
prices of the Company's products or services. If significant
price reductions in the Company's products or services were
to occur and not be offset by increases in sales volume, the
Company's business, results of operations and financial
condition would be adversely affected. There can be no
assurance that the Company will continue to compete
successfully with its existing competitors or will be able
to compete successfully with new competitors.
Technological Change and New Products. The market for the
Company's products and services is characterized by rapidly
changing technology and frequent new product introductions.
The Company's success will depend upon its ability to
enhance its existing products and to introduce new products
on a timely and cost-effective basis and that meet dynamic
customer requirements. There can be no assurance that the
Company will be successful in developing new products or
enhancing its existing products or that such new or enhanced
products will receive market acceptance or be delivered
timely to the market. The Company has experienced product
delays in the past and may experience delays in the future.
Delays in the scheduled availability or a lack of market
acceptance of its products or failure to accurately
anticipate customer demand and meet customer performance
requirements could have a material adverse effect on the
Company's business, results of operations and financial
condition. In addition, products as complex as those offered
by the Company may contain undetected errors or bugs when
first introduced or as new versions are released. There can
be no assurance that, despite testing, new products or new
versions of existing products will not contain undetected
errors or bugs that will delay the introduction or
commercial acceptance of such products. A key factor in
determining the success of the Company will continue to be
the ability of the Company's products to interoperate and
perform well with existing and future leading, industry-
standard application software products intended to be used
in connection with relational database management systems.
Failure to meet existing or future interoperability and
performance requirements of certain independent vendors
marketing such applications in a timely manner could
adversely affect the market for the Company's products.
Commercial acceptance of the Company's products and services
could also be adversely affected by critical or negative
statements or reports by brokerage firms, industry and
financial analysts and industry periodicals concerning the
Company, its products, business or competitors or by the
advertising or marketing efforts of competitors, or other
factors that could affect consumer perception.
International Operations. Over half of the Company's net
revenues are derived from its international operations. The
Company's operations and financial results could be
significantly affected by factors associated with
international operations such as changes in foreign currency
exchange rates and uncertainties relative to regional
economic circumstances, as well as by other factors
associated with international activities. Most of the
Company's international revenue and expenses are denominated
in local currencies. Although the Company takes into account
changes in exchange rates over time in its pricing strategy,
the Company's business, results of operations and financial
condition could be materially and adversely affected by
fluctuations in foreign currency exchange rates. There can
be no assurance that the Company will not experience
fluctuations in international revenues.
Integration of Acquired Companies. The Company has
completed several acquisitions during the last eighteen
months, including the database division of ASCII Corporation
in Japan; distributors in Germany, Korea and Malaysia; STG
and, most recently, Illustra in the United States. The
Company may acquire other distributors, companies, products
or technologies in the future. There can be no assurance
that these acquisitions can be effectively integrated, that
such acquisitions will not result in costs and liabilities
that could adversely affect the Company's results of
operations and financial condition, or that the Company will
obtain the anticipated or desired benefits of such
acquisitions.
Infringement Claims. As the number of software products
and software patents in the industry increases, the Company
believes that software developers like the Company may
become increasingly subject to infringement claims with
respect to patents, trademarks and other proprietary rights.
Such claims, with or without merit, can be time consuming
and expensive to defend and could have an adverse effect on
the Company's business, results of operations, financial
position, and cash flows.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
Exhibit 11.1 - Statement Regarding Computation of Net
Earnings Per Share.
Exhibit 27 - Financial Data Schedule.
B) Reports on Form 8-K. No reports on Form 8-K were filed
during the three months ended September 29, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
INFORMIX CORPORATION
Dated: November 13, 1996 /s/ Howard H. Graham
-------------------------------
Howard H. Graham
Senior Vice President, Finance
and Chief Financial Officer
Dated: November 13, 1996 /s/ Karen Blasing
-------------------------------
Karen Blasing
Corporate Controller
and Chief Accounting Officer
INFORMIX CORPORATION
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF NET EARNINGS PER SHARE
(in thousands, except per-share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 29, OCT 1, SEPT 29, OCT 1,
1996 1995 1996 1995
-------- -------- -------- --------
(Note) (Note)
Net income $ 26,181 $ 23,896 $ 63,700 $ 61,726
======== ======== ======== ========
Weighted average
outstanding shares 149,646 145,889 148,825 144,465
Net effect of
outstanding options 5,950 5,788 6,652 5,576
------- ------- ------- -------
Weighted average
common and common
equivalent shares
outstanding 155,596 151,677 155,477 150,041
======= ======= ======= =======
Net income per share $ 0.17 $ 0.16 $ 0.41 $ 0.41
======= ======= ======= =======
Fully diluted computation not presented since such amounts
differ by less than 3 percent of the net income per share
amounts shown above.
(Note) The unaudited quarterly data presented above
applicable to the prior period has been restated to reflect
the Company's business combination with Illustra Information
Technologies, Inc. as a pooling-of-interests.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the
financial statements contained in the Company's Form 10-Q
for the period
ending September 29, 1996 and is qualified in its entirety
by reference to
such financial statements.
</LEGEND>
<CIK> 0000799089
<NAME> INFORMIX CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-29-1996
<CASH> 143,792
<SECURITIES> 105,919
<RECEIVABLES> 260,425
<ALLOWANCES> 18,977
<INVENTORY> 2,812
<CURRENT-ASSETS> 538,992
<PP&E> 244,170
<DEPRECIATION> 95,037
<TOTAL-ASSETS> 829,546
<CURRENT-LIABILITIES> 289,510
<BONDS> 0
0
0
<COMMON> 1,501
<OTHER-SE> 512,294
<TOTAL-LIABILITY-AND-EQUITY> 829,546
<SALES> 501,223
<TOTAL-REVENUES> 668,483
<CGS> 35,594
<TOTAL-COSTS> 576,618
<OTHER-EXPENSES> 1,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,882
<INCOME-PRETAX> 98,000
<INCOME-TAX> 34,300
<INCOME-CONTINUING> 63,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,700
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
