<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-15325
------------------------
INFORMIX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-3011736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
4100 BOHANNON DRIVE, MENLO PARK, CA 94025
(Address of principal executive office)
650-926-6300
(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 November 14, 1997, 152,428,406 shares of the Registrant's Common Stock
were outstanding.
Total number of pages: 23.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION
On August 7, 1997 and again on September 22, 1997, the Company announced
that as a result of errors and irregularities discovered in the recording of
income in 1996 and 1995, the Company anticipated restating its financial
statements. The procedures undertaken by the Company to determine the extent of
the restatement (described in those announcements) have resulted in the
restatement of its financial statements for the quarter ended March 30, 1997 and
all interim periods in the year ended December 31, 1996 (see Note A to the
Consolidated Financial Statements).
Financial statement and related disclosures contained in this amended filing
reflect, where appropriate, changes to conform to the restatement.
------------------------
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited and Restated--see Note A):........... 3
Condensed Consolidated Statements of Operations for the three-month and six month periods
ended June 29, 1997 and June 30, 1996....................................................... 3
Condensed Consolidated Balance Sheets as of June 29, 1997 and December 31, 1996............. 4
Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 29,
1997 and June 30, 1996...................................................................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 11
Part II. Other Information
Item 1. Legal Proceedings........................................................................... 24
Item 2. Changes in Securities and Use of Proceeds................................................... 24
Item 3. Defaults Upon Senior Securities............................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders......................................... 24
Item 5. Other Information........................................................................... 24
Item 6. Exhibits and Reports on Form 8-K............................................................ 24
Signature page............................................................................................. 25
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTATED--SEE NOTE A
------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Licenses..................................................... $ 108,736 $ 103,331 $ 194,450 $ 217,519
Services..................................................... 73,276 55,992 136,785 106,409
----------- ---------- ----------- ----------
182,012 159,323 331,235 323,928
Costs and expenses:
Cost of software distribution................................ 11,933 11,753 41,067 21,571
Cost of services............................................. 46,552 35,496 87,704 68,905
Sales and marketing.......................................... 114,937 99,052 245,960 189,130
Research and development..................................... 39,025 29,873 74,314 55,417
General and administrative................................... 25,935 16,104 53,966 30,784
Write-off of goodwill and other long-term assets............. -- -- 30,473 --
Write-off of acquired research & development................. -- -- 7,000 --
Restructuring charges........................................ 59,623 -- 59,623 --
Expenses related to Illustra merger.......................... -- -- -- 5,914
----------- ---------- ----------- ----------
298,009 192,278 600,107 371,721
----------- ---------- ----------- ----------
Operating loss............................................... (115,997) (32,955) (268,872) (47,793)
Interest income................................................ 1,134 1,985 2,402 4,235
Interest expense............................................... (1,753) (1,281) (3,542) (2,132)
Other income, net.............................................. 6,439 1,403 18,476 2,598
----------- ---------- ----------- ----------
Loss before income taxes..................................... (110,177) (30,848) (251,538) (43,092)
Income taxes................................................... 1,200 3,235 4,000 6,368
----------- ---------- ----------- ----------
Net loss....................................................... $ (111,377) $ (34,083) $ (255,538) $ (49,460)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Net loss per share............................................. $ (0.73) $ (0.23) $ (1.69) $ (0.33)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Weighted average number of common and common equivalent shares
outstanding.................................................. 151,722 149,646 151,386 148,968
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
INFORMIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29,
1997
---------- RESTATED-
SEE NOTE A
------------
DECEMBER 31,
1996
------------
(NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 72,802 $ 226,508
Short-term investments............................................................... 31,569 34,512
Accounts receivable, net............................................................. 151,292 194,499
Deferred taxes....................................................................... 50,667 42,133
Other current assets................................................................. 33,321 35,662
---------- ------------
Total current assets............................................................... 339,651 533,314
Property and equipment, net............................................................ 210,442 186,727
Software costs, net.................................................................... 44,739 54,486
Deferred taxes......................................................................... 10,542 10,542
Long-term investments.................................................................. 11,726 6,639
Intangible assets...................................................................... 11,196 34,693
Other assets........................................................................... 23,460 55,597
---------- ------------
Total assets....................................................................... $ 651,756 $ 881,998
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 53,919 $ 65,446
Accrued expenses..................................................................... 73,685 59,723
Accrued employee compensation........................................................ 72,179 57,626
Income taxes payable................................................................. 6,165 5,757
Deferred maintenance revenue......................................................... 109,947 94,981
Advances on unearned license revenue................................................. 227,103 239,507
Other liabilities.................................................................... 20,118 7,137
---------- ------------
Total current liabilities.......................................................... 563,116 530,177
Other liabilities...................................................................... 1,953 2,359
Deferred taxes......................................................................... 24,085 24,158
Commitments and contingencies..........................................................
Stockholders' equity:
Common stock......................................................................... 1,519 1,508
Additional paid-in capital........................................................... 249,327 243,564
Retained earnings (deficit).......................................................... (176,815) 78,723
Unrealized gain (loss) on available-for-sale securities, net of tax.................. (488) 11,690
Foreign currency translation adjustment.............................................. (10,941) (10,181)
---------- ------------
Total stockholders' equity......................................................... 62,602 325,304
---------- ------------
Total liabilities and stockholders' equity....................................... $ 651,756 $ 881,998
---------- ------------
---------- ------------
</TABLE>
- --------------------------
(Note) Columnar amounts are derived from audited consolidated financial
statements.
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
INFORMIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
RESTATED -
SEE NOTE A
-----------
SIX MONTHS ENDED
-----------------------
JUNE 29, JUNE 30,
1997 1996
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................................. $ (255,538) $ (49,460)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in)
operating activities:
License revenue paid in advance (see contra)......................................... (38,094) (26,351)
Depreciation and amortization........................................................ 40,896 19,874
Amortization and write-off of capitalized software................................... 24,865 7,065
Deferred tax expense................................................................. (18,874) (9,384)
Provisions for losses on accounts receivable......................................... 16,727 7,824
Write-off of goodwill and other long-term assets..................................... 30,473 --
Write-off of acquired research & development......................................... 7,000 --
Foreign currency transaction loss.................................................... 5,770 (2,418)
Gain on sales of strategic investments............................................... (5,047) (900)
(Gain) loss on disposal of property and equipment.................................... (1,650) 869
Restructuring charges................................................................ 62,123 --
Changes in operating assets and liabilities:
Accounts receivable................................................................ 22,015 (21,417)
Other current assets............................................................... (7,323) (3,942)
Accounts payable and accrued expenses.............................................. 15,922 11,428
Deferred maintenance revenue....................................................... 16,701 10,934
---------- -----------
Net cash and cash equivalents provided by (used in) operating activities................. (84,034) (55,878)
---------- -----------
INVESTING ACTIVITIES
Investments of excess cash:
Purchases of available-for-sale securities............................................. (18,105) (76,526)
Maturities of available-for-sale securities............................................ 13,450 52,654
Proceeds from sale of available-for-sale securities.................................... 14,199 4,499
Purchases of strategic investments..................................................... (2,250) (1,750)
Proceeds from sales of strategic investments............................................. 10,002 1,043
Purchases of property and equipment...................................................... (37,447) (49,354)
Amount held as restricted cash........................................................... (61,500) --
Proceeds from disposal of property and equipment......................................... 2,644 1,711
Additions to software costs.............................................................. (12,918) (14,299)
Business combinations, net of cash acquired.............................................. (9,935) (1,040)
Other.................................................................................... (737) (4,016)
---------- -----------
Net cash and cash equivalents used in investing activities............................... (102,597) (87,078)
FINANCING ACTIVITIES
Advances on unearned license revenue (see contra)........................................ 23,489 101,617
Proceeds from issuance of stock, net..................................................... 5,818 8,161
Principal payments on capital leases..................................................... (1,111) (496)
---------- -----------
Net cash and cash equivalents provided by financing activities........................... 28,196 109,282
---------- -----------
Effect of exchange rate changes on cash and cash equivalents............................. 4,729 7,628
---------- -----------
Decrease in cash and cash equivalents.................................................... (153,706) (26,046)
Cash and cash equivalents at beginning of period......................................... 226,508 164,305
---------- -----------
Cash and cash equivalents at end of period............................................... $ 72,802 $ 138,259
---------- -----------
---------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
INFORMIX CORPORATION--
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1997
(UNAUDITED)
NOTE A--RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the filing of its Annual Report on Form 10-K for the year
ended December 31, 1996 with the Securities and Exchange Commission, the Company
became aware of errors and irregularities that ultimately affected the timing
and dollar amount of reported earned revenues from license transactions for all
periods in the three years ended December 31, 1996. The irregularities took
numerous forms and were primarily the result of lack of compliance with or
circumvention of the Company's procedures and controls.
The Company undertook and completed extended procedures related to license
transactions recorded in each year of the three-year period ended December 31,
1996. As a result of these findings and other relevant information now known or
disclosed, the Company has determined that a significant number and dollar
amount of license transactions were improperly reported as earned revenue for
all interim periods in the three years ended December 31, 1996.
Because of the pervasiveness of the aforementioned irregularities, the
Company has concluded that the earnings process for a significant number of
original license agreements with resellers (original equipment manufacturers,
distributors and value added resellers) was not complete at the time of delivery
of the master copy of the software to the reseller. Further, the Company has
learned that informal or otherwise undisclosed arrangements with a number of
resellers have or could result in significant concessions or allowances that
were not accounted for when the revenue was originally reported as earned.
Accordingly, the Company has determined that this revenue is earned when the
licenses are resold or utilized by the reseller and after any related
obligations have been satisfied (i.e., when there are no longer any significant
remaining uncertainties related to the earnings process). This revised
application of accounting policy has been followed for all transactions with
resellers, other than those licenses sold and billed on a per-copy basis, for
1997, 1996, 1995 and 1994.
As a result of the restatement, the financial statements shown under Item 1
in the Index of this Form 10-Q have been restated.
<TABLE>
<CAPTION>
Q2 1996 Q2 YTD 1996
------------------------ ------------------------
AS REPORTED RESTATED AS REPORTED RESTATED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Licenses................................. $ 170,413 $ 103,331 $ 321,606 $ 217,519
Services................................. 55,869 55,992 108,697 106,409
----------- ----------- ----------- -----------
Net revenues........................... 226,282 159,323 430,303 323,928
Operating income (loss).................. 32,680 (32,955) 55,982 (47,793)
Income tax expense....................... 12,700 3,235 22,033 6,368
Net income (loss)........................ 21,628 (34,083) 37,519 49,460
Net income (loss) per share.............. $ 0.14 $ (0.23) $ 0.24 $ (0.31)
Retained earnings (deficit).............. $ 262,506 $ (176,815) $ 262,506 $ (176,815)
Advances on unearned license revenue..... -- 227,103 -- 227,103
</TABLE>
6
<PAGE>
INFORMIX CORPORATION--
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 1997
(UNAUDITED)
NOTE B--MANAGEMENT PLANS TO ADDRESS OPERATIONAL ISSUES AND LIQUIDITY
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred losses in 1996
and anticipates that it will continue to incur losses and report reduced
revenues through at least December 31, 1997. In addition, the Company
anticipates that its cash and working capital requirements in the short term
cannot be met entirely from funds generated internally from operations.
Management's operational and financing plans to address the above issues
include (1) continued cost containment measures to bring spending levels in line
with planned revenue; (2) sale of non-essential assets including an undeveloped
land site; (3) obtaining additional equity and debt financing; (4) modifying
long-term lease arrangements for new offices; and (5) resolving stockholder
class action litigation (See Note J to the Unaudited Consolidated Financial
Statements). There can be no assurance that management will be successful in
accomplishing these objectives. The June 29, 1997 consolidated financial
statements do not include any adjustments that might result from the outcome of
these liquidity uncertainties.
NOTE C--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.
NOTE D--NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share ("basic earnings per share")
and to restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The adoption of Statement 128 would not change the computation of net
loss per common share for the quarters ended June 29, 1997 and June 30, 1996.
NOTE E--STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Reconciliation of outstanding shares:
Shares outstanding at December 31, 1996........................ 150,781,634
Shares issued upon exercise of stock options................... 1,159,808
----------
Shares outstanding at June 29, 1997............................ 151,941,442
----------
----------
</TABLE>
NOTE F--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
7
<PAGE>
INFORMIX CORPORATION--
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 1997
(UNAUDITED)
NOTE F--BUSINESS COMBINATIONS (CONTINUED)
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 the 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
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. Related merger and transaction
fees of approximately $5.9 million have been recorded in the first quarter of
1996.
In February 1997, the Company acquired all of the outstanding capital stock
of Centerview Software, Inc. ("Centerview"), a privately owned corporation that
provides software tools for application development. The aggregate purchase
price was approximately $8.7 million, which included cash plus direct costs of
acquisition. For financial statement purposes, the acquisition has been
accounted for as a purchase and, based on an independent appraisal of all the
assets acquired and liabilities assumed, the purchase price was allocated to the
specifically identifiable tangible and intangible assets acquired, including
approximately $7 million of purchased research and development which has been
charged to operations in the period the acquisition was consummated, the first
quarter of 1997.
NOTE G--PURCHASE AND SALE OF SANTA CLARA REAL ESTATE
In April 1997, the Company exercised its option to purchase the 27 acres of
real estate in Santa Clara, California, being leased under a two-year operating
lease entered into in December 1996, so that alternative financing or a third
party sale could be pursued. The Company had originally intended to lease the
land for purposes of arranging the construction of its new corporate
headquarters. The purchase price paid, $60 million, had previously been pledged
by the Company as collateral under the lease and recorded as a long-term asset
as of December 31, 1996. In the second quarter of 1997, the Company wrote down
the carrying value of this real estate asset to its estimated fair market value
(based on a current independent appraisal) less estimated selling costs, of
approximately $58 million. The Company has entered into agreements to sell the
land in two separate transactions. Both sales are expected to be consummated in
the fourth quarter of 1997.
NOTE H--WRITE-OFF OF GOODWILL AND OTHER LONG-TERM ASSETS
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets to
be Disposed of," the Company records impairment losses on long-lived assets used
in operations when events and circumstances indicate that the assets might be
impaired and the estimated future undiscounted cash flows to be generated by
those assets are less than the assets' carrying amounts. During the first
quarter of 1997, the Company's Japanese subsidiary experienced a significant
sales shortfall and operating losses. Accordingly, the Company evaluated the
ongoing value of the subsidiary's long-lived assets (primarily computer and
other equipment) and related goodwill. Based on this evaluation, the Company
determined that the subsidiary's assets had been impaired and wrote them down by
$30.5 million to their estimated fair values. Fair value was determined using
estimated future discounted cash flows and/or resale market quotes as
appropriate.
8
<PAGE>
INFORMIX CORPORATION--
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 1997
(UNAUDITED)
NOTE I--RESTRUCTURING
In June 1997, the Company approved a plan to restructure its operations to
bring expenses in line with forecasted revenues. In connection with the
restructuring, the Company reduced its worldwide headcount by approximately 10%
and consolidated facilities and operations to improve efficiency. The following
analysis sets forth the significant components of the restructuring charge
included in other accrued liabilities at June 26, 1997:
<TABLE>
<CAPTION>
SEVERANCE AND WRITE-OFF FACILITY
BENEFITS OF ASSETS CHARGES OTHER
------------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Restructuring....................................... $ 12.8 $ 19.8 $ 28.4 $ 1.2
----- ----- ----- ---
----- ----- ----- ---
</TABLE>
Severance and related costs represented the reduction of 440 employees on a
worldwide basis impacting sales and marketing and general and administrative.
Asset charges included a write off or write down of equipment as a result of the
decision to reduce the number of super stores. Facility charges included
writedown of Santa Clara property, costs of assigning or subletting the lease
for 200,000 square feet of office space located adjacent to the Santa Clara
property and early termination costs associated with closing or consolidating
certain domestic and international sales offices.
NOTE J--LITIGATION
Commencing in April 1997, a series of class action lawsuits and a separate
but related stockholder action were filed in federal court purportedly by or on
behalf of stockholders. These actions name as defendants the Company, certain of
its present and former officers and directors and its independent auditors. The
complaints allege various violations of the federal securities laws and seek
unspecified but potentially significant damages. Similar actions were also filed
in state court. While management intends to contest these actions vigorously,
the disposition of this litigation could have a material adverse effect on the
Company's financial condition, results of operations and cash flows.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants, were also filed in state court.
Any monetary judgments in the derivative actions would accrue to the benefit of
the Company.
In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.
In the ordinary course of business, various other lawsuits and claims are
filed from time to time against the Company. It is the Company's opinion that
the resolution of such other litigation will not have a material effect on the
Company's financial position, results of operations or cash flows.
9
<PAGE>
INFORMIX CORPORATION--
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 1997
(UNAUDITED)
NOTE K--SUBSEQUENT EVENTS (UNAUDITED)
ISSUANCE OF CONVERTIBLE PREFERRED STOCK. In August 1997, the Company sold
160,000 shares of newly issued Series A Convertible Preferred Stock, face value
$250 per share, to a private investor for $40 million ($37.2 million after
issuance costs) and issued a warrant to the same investor to purchase up to an
additional 140,000 shares of Series A Convertible Preferred Stock at an
aggregate purchase price of up to $35 million. In November 1997, the Company
canceled the Series A Convertible Preferred Stock in exchange for the same
number of shares of a substantially identical Series A-1 Convertible Stock
issued to the same investor, with a corresponding change to the warrant shares.
The warrant may be exercised from August 13, 1997 through April 15, 1999.
The Series A-1 Convertible Preferred shares are convertible into common
shares at any time, at the holder's option, at a per share price equal to 101%
of the average price of the Company's common stock for the 30 days ending five
trading days prior to conversion, but not greater than the lesser of (i) 105% of
the common stock's average price of the first five trading days of such thirty
day period, or (ii) $12 per share. If not converted prior, the Series A-1
Convertible Preferred Stock will automatically convert into common shares 18
months after their issuance, subject to extension of the automatic conversion
date in certain defined circumstances. However, if at the time of conversion,
the aggregate number of shares of common stock already issued and to be issued
as a result of the conversion of the shares of the Series A-1 Convertible
Preferred Stock were to exceed 19.9% of the total number of shares of common
stock, then such excess does not convert unless or until Informix stockholder
approval is obtained.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operation 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 carefully review the
risk factors described in the documents the Company files from time to time with
the Securities and Exchange Commission, specifically the Quarterly Reports on
Form 10-Q to be filed by the Company in 1997 and any Current Reports on Form 8-K
filed by the Company.
As a result of the restatement of the Company's financial statements for the
quarter ended March 30, 1997, and the annual and interim periods for the years
ended December 31, 1996, 1995 and 1994, certain information contained in this
item is different from that which appeared in the Company's press release dated
September 22, 1997. Such release, as stated, contained preliminary financial
information for the second quarter of 1997. Readers should carefully review the
"Liquidity and Capital Resources" and "Business Risks" sections included herein
to reflect current events.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operating results as a percentage of net
revenues for the three- and six-month periods ended June 29, 1997 and June 30,
1996, respectively.
<TABLE>
<CAPTION>
PERCENT OF NET REVENUES
--------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Licenses........................................................... 60% 65% 59% 67%
Services........................................................... 40 35 41 33
--- --- --- ---
Total net revenues............................................... 100 100 100 100
Costs and expenses:
Cost of software distribution...................................... 7 7 12 7
Cost of services................................................... 26 22 27 21
Sales and marketing................................................ 63 63 75 58
Research and development........................................... 21 19 22 17
General and administrative......................................... 14 10 16 10
Write-off of goodwill and other long-term assets................... -- -- 9 --
Write-off of acquired research and development..................... -- -- 2 --
Restructuring costs................................................ 33 -- 18 --
Expenses related to Illustra merger................................ -- -- -- 2
--- --- --- ---
Total operating expenses......................................... 164 121 181 115
--- --- --- ---
Operating loss..................................................... (64) (21) (81) (15)
Interest income.................................................... 1 1 1 1
Interest expense................................................... (1) -- (1) --
Other income (expense), net........................................ 4 1 5 1
--- --- --- ---
Loss before income taxes........................................... (60) (19) (76) (13)
Income taxes....................................................... 1 2 1 2
--- --- --- ---
Net loss........................................................... (61)% (21)% (77)% (15)%
--- --- --- ---
--- --- --- ---
</TABLE>
12
<PAGE>
The following table sets forth the percentage change in the restated
operating results for the three-and six-month periods ended June 29, 1997
compared to the respective three- and six-month periods ended June 30, 1996.
<TABLE>
<CAPTION>
PERIOD-TO-PERIOD PERCENT INCREASE
(DECREASE)
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 29, 1997 VS. JUNE 29, 1997 VS.
JUNE 30, 1996 JUNE 30, 1996
--------------------- -------------------
<S> <C> <C>
Net revenues:
Licenses................................................................. 5% (11)%
Services................................................................. 31 29
----- -----
Total net revenues..................................................... 14 2
Costs and expenses:
Cost of software distribution............................................ 2 90
Cost of services......................................................... 31 27
Sales and marketing...................................................... 16 30
Research and development................................................. 31 34
General and administrative............................................... 61 75
Total operating expenses............................................... 55 61
----- -----
Operating loss........................................................... N/A N/A
Interest income.......................................................... (43 ) (43 )
Interest expense......................................................... 37 66
Other income (expense), net.............................................. 359 611
Loss before income taxes................................................. N/A N/A
Income taxes............................................................. (63 ) (37 )
Net loss................................................................. N/A N/A
</TABLE>
Informix's operating results for the second quarter ended June 29, 1997 were
significantly below the same period of the prior year due to increases in costs
and expenses which outpaced revenue growth. Sales increased 14% compared to the
prior period based on growth in all regions except Japan, which declined by 41%.
Operating expenses increased 55% as compared to the second quarter of 1996,
which resulted in an operating loss of $116.0 million.
REVENUES
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
value added resellers (VAR's). In 1996, the Company increased its focus on its
reseller channels to establish partnerships with hardware and application
vendors in order to utilize their sales force, obtain access to their installed
base of customers and benefit from their consulting and sytems integration
organizations. This increased focus on reseller channels resulted in a
significant build-up of licenses that had not been resold or utilized by such
resellers through June 29, 1997. These unsold licenses have not been recognized
as earned revenue as of June 29, 1997. In addition, license sales to end users
in the second quarter of 1997 declined significantly versus the
13
<PAGE>
comparable period of the prior year. Although sales contracts can be relatively
large in size and are difficult to forecast both in timing and dollar value, the
Company did not expect this magnitude of decline.
The increase in service revenue was primarily attributable to the continued
growth of the Company's 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 increase in service revenue, as a percentage of total revenue, was
primarily the result of continued increases in service revenue, combined with a
decrease in license revenue. The Company continues to emphasize support services
as a source of revenue and the growth achieved in absolute dollars versus the
prior year quarter reflects the growth in the Company's installed base.
During the second quarter ended June 29, 1997, Informix's net revenues from
sales to foreign customers was 53% of total revenue as compared to 57% in the
similar period in 1996. In absolute dollars, foreign sales increased from $91.2
million in the quarter ended March 31, 1996 to $96.9 million in the quarter
ended March 30, 1997. Sales in Europe, Asia/Pacific and Latin America increased
8%, 4% and 21%, respectively, versus the previous period.
Substantially all of the Company's Latin American revenue is U.S. dollar
denominated. In Europe, Asia/Pacific, and Japan, most revenues and expenses are
denominated in local currencies. The U.S. dollar strengthened in the first half
of 1997 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 period.
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. 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 value of accounts receivable or accounts payable denominated in
foreign currencies against fluctuations in exchange rates 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.
The restatement resulted in a change in the Company's foreign currency
denominated intercompany accounts receivable and accounts payable balances. As a
result, certain foreign currency transaction gains and losses realized due to
fluctuation in foreign currency exchange rates that were not offset by gains and
losses on forward foreign currency exchange contracts used to hedge these
foreign currency exposures-- resulting in a net foreign currency transaction
gain of $12.2 million in the quarter.
14
<PAGE>
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JUNE 29, 1997 JUNE 30, 1996 CHANGE JUNE 29, 1997 JUNE 30, 1996
--------------- --------------- ----------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Manufactured cost of software
distribution........................... $ 6.8 $ 8.4 (18)% $ 15.7 $ 14.5
Percentage of license revenue.......... 6% 8% 8% 7%
Amortization of capitalized software..... $ 5.1 $ 3.44 8% $ 10.6 $ 7.0
Percentage of license revenue.......... 5% 3% 5% 3%
Write-down to net realizable value....... $ -- $ -- $ 14.7 $ -- N/A
Percentage of license revenue.......... 8%
Cost of software distribution............ $ 11.9 $ 11.8 2% $ 41.1 $ 21.6
Percentage of license revenue.......... 11% 11% 21% 10%
<CAPTION>
CHANGE
-----------
<S> <C>
Manufactured cost of software
distribution........................... 9%
Percentage of license revenue..........
Amortization of capitalized software..... 51%
Percentage of license revenue..........
Write-down to net realizable value.......
Percentage of license revenue..........
Cost of software distribution............ 90%
Percentage of license revenue..........
</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.
The manufactured cost of software distribution as a percentage of license
revenue decreased two percentage points to 6 percent in the second quarter of
1997 compared to the same period in 1996. In the future, the manufactured cost
of software distribution as a percentage of revenue may vary depending upon the
sales levels, third party software costs where their software is bundled with
Informix's and whether the product is reproduced by the Company or by customers.
Amortization of capitalized software costs begin in the quarter following
product introduction. The increase of amortization of capitalized software in
the second quarter of 1997 compared to the second quarter of 1996 is due to the
release of various products subsequent to the second quarter of 1996. The
absolute value of amortization of capitalized software will vary slightly
quarter to quarter as new products are released and other products become fully
amortized.
In addition, due to the Company's acquisition of Centerview and the
announcement of its revised tool strategy, and in accordance with Financial
Accounting Standards Board Statement No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed," a net realizable
value test performed on certain of the Company's tool products resulted in a
write-down of $14.7 million of previously capitalized software costs during the
first quarter of 1997.
COST OF SERVICES
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JUNE 29, 1997 JUNE 30, 1996 CHANGE JUNE 29, 1997 JUNE 30, 1996
--------------- --------------- ----------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cost of services......................... $ 46.6 $ 35.5 31% $ 87.7 $ 68.9
Percentage of service revenue.......... 64% 63% 64% 65%
<CAPTION>
CHANGE
-----------
<S> <C>
Cost of services......................... 27%
Percentage of service revenue..........
</TABLE>
Cost of services consists primarily of maintenance, consulting and training
expenses. Costs of services for the second quarter of 1997 are comparable to
expense in the prior year quarter on a percentage of service revenue basis. In
the future, the Company expects that cost of services as a percentage of net
service revenue will approximate the rate in the second quarter of 1997.
15
<PAGE>
SALES AND MARKETING EXPENSES
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------------------ ----------------------------
JUNE 29, 1997 JUNE 30, 1996 CHANGE JUNE 29, 1997 JUNE 30, 1996 CHANGE
------------- --------------- ------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing expenses....... $ 114.9 $ 99.1 16% $ 246.0 $ 189.1 30%
Percentage of net revenue........ 63% 63% 75% 58%
</TABLE>
Sales and Marketing expenses remained flat at 63% of net revenue in the
second quarter of 1997 compared to the second quarter of 1996. The increase in
sales and marketing expenses in the second quarter, in absolute dollars, as
compared to the prior period was primarily a result of higher staffing levels
and higher depreciation expense in connection with the Company's Superstores
which are more fully described in "Liquidity and Capital Resources."
RESEARCH AND DEVELOPMENT EXPENSES
The Company accounts for its product development costs in accordance with
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 June 29, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ -------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Incurred product development expenditures........................ $45.3 $37.1 22% $86.6 $68.7 26%
Expenditures capitalized......................................... 6.3 7.2 (13%) 12.6 13.3 (5%)
-------- -------- -------- --------
Research and development expenses................................ $39.0 $29.9 30% $74.0 $55.4 34%
Expenditures capitalized as a % of incurred...................... 14% 19% 15% 19%
</TABLE>
The increase in incurred research and development expenditures in absolute
dollars in the second quarter of 1997 was primarily attributed to an increase in
staff of 14% versus the prior year quarter. The proportion of capitalized
expenditures as a percentage of total incurred expenses decreased in the second
quarter of 1997. The decrease is attributable to the fact that during the second
quarter of 1996, a large portion of expenses incurred were on products which had
reached technological feasibility. The Company expects the proportion of work on
capitalized projects for the remainder of 1997 to decline compared to the second
quarter of 1997.
Significant programs currently under development include improvements and
enhancements of current products, with particular emphasis on parallel computer
architecture, user-defined database extensions, web technology integration,
database application tools and systems administration. The Company believes that
research and 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.
16
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JUNE 29, 1997 JUNE 30, 1996 CHANGE JUNE 29, 1997 JUNE 30, 1996
--------------- --------------- ------------- --------------- ---------------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General and administrative
expenses......................... $ 25.9 $ 16.1 63% $ 54.0 $ 30.8
Percentage of net revenue........ 14% 10% 16% 10%
<CAPTION>
CHANGE
-------------
<S> <C>
General and administrative
expenses......................... 75%
Percentage of net revenue........
</TABLE>
General and administrative expenses increased in absolute dollars in the
second quarter of 1997 compared to the same prior year period primarily as a
result of higher bad debt expense, legal fees and other miscellaneous charges.
WRITE-OFF OF GOODWILL AND LONG-TERM ASSETS
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets to
be Disposed of," the Company records impairment losses on long-lived assets used
in operations when events and circumstances indicate that the assets might be
impaired and the estimated future undiscounted cash flows to be generated by
those assets are less than the assets' carrying amounts. During the first
quarter of 1997, the Company's Japanese subsidiary experienced a significant
sales shortfall and operating losses. Accordingly, the Company evaluated the
ongoing value of the subsidiary's long-lived assets (primarily computer and
other equipment) and related goodwill. Based on this evaluation, the Company
determined that the subsidiary's assets had been impaired and wrote them down by
$30.5 million to their estimated fair values. Fair value was determined using
estimated future discounted cash flows and/or resale market quotes as
appropriate.
WRITE-OFF OF ACQUIRED RESEARCH AND DEVELOPMENT
In February 1997, the Company acquired all of the outstanding capital stock
of Centerview, a privately owned corporation that provides software tools for
application development. The aggregate purchase price was approximately $8.7
million, which included cash plus direct costs of acquisition. For financial
statement purposes, the acquisition has been accounted for as a purchase and,
based on an independent appraisal of all the assets acquired and liabilities
assumed, the purchase price was allocated to the specifically identifiable
tangible and intangible assets acquired, including approximately $7 million of
purchased research and development which has been charged to operations in the
first quarter of 1997, the period the acquisition was consummated.
MERGER EXPENSES
In the first quarter of 1996, the Company had 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 income tax expense resulted from taxable earnings and withholding taxes
in certain foreign jurisdictions. The Company has also recorded an increase in
the valuation allowance for deferred tax assets attributed to current year net
operating losses, the recognition of which is dependent on the Company's ability
to generate future taxable income, the timing and amount of which are uncertain.
FOREIGN EXCHANGE LOSSES
The Company enters into forward foreign exchange contracts primarily to
hedge the value of accounts receivable or accounts payable denominated in
foreign currencies against fluctuations in exchange rates
17
<PAGE>
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.
The restatement of the consolidated financial statements for the quarter
ended March 30, 1997 resulted in a change in the Company's foreign currency
denominated intercompany accounts receivable and accounts payable balances. As a
result, certain foreign currency transaction gains and losses realized due to a
fluctuation in foreign currency exchange rates that were not offset by gains and
losses on forward foreign currency exchange contracts used to hedge these
foreign currency exposures resulting in a net foreign currency transaction gain
of approximately $3 million in the quarter.
IMPACT OF INFLATION
The effect of inflation on the Company's financial position has not been
significant.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 29, JUNE 30,
1997 1996
--------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Cash, cash equivalents, and investments.................................. $ 104.4 $ 256.3
Working capital (deficit)................................................ (223.4) (260.1)
Cash and cash equivalents provided by (used by) operations............... (84.0) 48.5
Cash and cash equivalents used for investment activities, excluding
investments of excess cash............................................. 102.6 67.0
Cash and cash equivalents provided by financing activities............... 28.2 7.7
</TABLE>
Cash from operations did not provide sufficient resources to fund the
Company's headcount growth and capital asset needs in 1996 due to a significant
increase of the Company's operating expenses, in comparison to a moderate
increase of its revenue. Cash generated by operations provided sufficient
resources in the prior years.
Net accounts receivable increased by $68.6 million in 1996 as compared to
December 1995. Days sales outstanding increased from approximately 79 days in
December 1995 to 83 days in December 1996. 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's programs with third-party financing institutions provide
financing for extended credit terms instead of such financing being provided by
the Company. Cash received from customers and third-party financial institutions
in advance of revenue being recognized is reflected in the Statement of Cash
Flows under "Advances on Unearned License Revenue" as a financing activity.
Excluding investments of excess cash, net cash and cash equivalents used in
investing activities increased in the first quarter of 1997 compared with the
same period in 1996 due to restricted cash for a security deposit on the Santa
Clara property, purchase of Centerview, and the purchase of capital equipment,
partially offset by a decrease in investment activity. In the first quarters of
1997 and 1996, the Company acquired $20.4 million and $15.8 million,
respectively, of capital equipment consisting primarily of computer equipment,
computer software and office equipment. The increase of capital equipment
18
<PAGE>
purchases in the first quarter of 1997 resulted from the Company's growing
employee headcount and the investment in new equipment as well as new
technology. 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.
The Company's investments in software costs were previously discussed under
"Results of Operations."
In February 1997, the Company acquired all of the outstanding capital stock
of Centerview, a privately owned corporation that provides software tools for
application development. The aggregate purchase price was approximately $8.7
million, which included cash plus direct costs of acquisition. For financial
statement purposes, the acquisition has been accounted for as a purchase and,
based on an independent appraisal of all the assets acquired and liabilities
assumed, the purchase price was allocated to the specifically identifiable
intangible assets acquired, including approximately $7 million of purchased
research and development which has been charged to operations in the period the
acquisition was consummated - the first quarter of 1997.
Net cash and cash equivalents provided by financing activities in the first
quarter of 1997 and 1996 consist primarily of proceeds from the sale of the
Company's common stock to employees, partially offset by payments on capital
leases.
In addition, in November 1996, the Company leased approximately 200,000
square feet of office space in Santa Clara adjacent to the 27 acres described
above. The lease term is for fifteen years and minimum lease payments amount to
$96.0 million over the term. The minimum lease payments are scheduled to
increase within a contractual range based on changes in the Consumer Price
Index. As a result of the sale of the adjacent land, the Company does not intend
to occupy this office space. The Company is actively pursuing solutions to sell
its leasehold interest along with related obligations under the lease to an
unrelated third party.
RECENT DEVELOPMENTS IN LIQUIDITY AND CAPITAL RESOURCES. During 1996 and the
first half of 1997, Informix launched a series of Information SuperStores
worldwide which demonstrate and offer the most recent Informix technology
advances. Along with the core Informix product line, these locations have tools
from leading third-party tools and application vendors installed on a wide
variety of hardware platforms, such as Data General, Hewlett Packard, IBM, NCR,
Pyramid, Sequent, Silicon Graphics, and Sun. The Company has scaled back its
original plans for the SuperStores and repositioned the remaining sites as
solution labs managed by the Company's consulting practice. The Company's
decision to further scale back SuperStore activity is expected to result in a
charge of $12 million in the third quarter of 1997. The Company does not expect
at this time to make further capital` equipment expenditures related to the
Information SuperStore program in 1997.
In 1996, the Company planned on relocating its corporate headquarters to
Santa Clara, California, approximately 15 miles to the south of the Company's
current headquarters. To facilitate the move, in January 1997, the Company
entered into a two-year lease for 27 acres of undeveloped commercial real
estate. In order to secure performance of its obligation under the lease, the
Company was required to pledge certain cash collateral to the lessor throughout
the full term of the lease. Accordingly, in January 1997, the Company deposited
$61.5 million in cash into a non-interest bearing collateral account controlled
by an affiliate of the lessor. Interest on those deposits computed at market
rates, otherwise due to the Company, have been assigned by the Company to the
lessor in order to reduce the gross monthly lease payments due under the lease.
In April 1997, the Company exercised its option to purchase the land for $61.5
million, with the intent to arrange for the sale of the parcels to an unrelated
third party. In October 1997, the Company entered into agreements to sell the
Santa Clara land in two separate transactions. Both sales are expected to be
consummated in the fourth quarter of 1997.
19
<PAGE>
As a result of the operating losses incurred and restructurings taken by the
Company in 1997 and the prior capital equipment and real estate commitments made
by the Company in 1996, the Company's cash, cash equivalents and short-term
investments declined from 261.0 million at December 31, 1996 to $104.3 million
at June 29, 1997. In August 1997, the Company sold 160,000 shares of newly
issued Series A Convertible Stock, face value $250 per share, to a private
investor for net proceeds of $37.2 million. Cash, cash equivalents and
short-term investments declined to $87.1 million in the third quarter of 1997.
In order to continue as a going concern, the Company will need to raise
additional capital to offset expected and future operating losses, to fund
restructuring programs, such as headcount reduction and elimination or
consolidation of administrative and sales offices worldwide, and to finance
necessary capital equipment additions and software development. The Company
intends to achieve this goal through a combination of (a) continued cost
containment measures to bring spending levels in line with planned revenue, (b)
sale of non-essential assets, including the undeveloped Santa Clara land site
described above, and (c) raising additional equity and debt financing (see Notes
B and J of Notes to Consolidated Financial Statements). There can be no
assurance that management will be successful in accomplishing these plans and
objectives.
BUSINESS RISKS
RESTATEMENT OF FINANCIAL STATEMENTS. As previously announced, the Company's
restatement of its consolidated financial statements for 1996 and 1995 reflects
significant reductions in reported earned revenue for all three years and
resulted in reporting a net loss for 1996 and a significant reduction in net
income for 1994 and 1995. The cumulative effect of the restatement negatively
impacts the Company's financial condition, most notably evidenced by the
reduction in retained earnings and working capital in the consolidated balance
sheet (see Note A to the Consolidated Financial Statements). The Company
anticipates reduced revenues, lower operating results and a significant
restructuring charge for the third quarter of 1997 when compared to the third
quarter of 1996.
In October 1997, the Company's independent auditors reported to the
Company's Board of Directors that as a result of the findings and other relevant
information related to the restatement of the Company's financial statements for
the three years ended December 31, 1996, (see Note A to the Consolidated
Financial Statements), they concluded that a material weakness in internal
accounting controls exists. In conjunction with such findings, the independent
auditors have also made a number of recommendations to strengthen the Company's
internal accounting controls. The Company has reviewed the independent auditor's
report and is in fundamental agreement with the recommendations. The Company is
taking action to implement such recommendations. The Audit Committee of the
Board of Directors has initiated a plan to monitor the Company's implementation
of these recommendations and will consider other actions that might be
undertaken by the Company to further improve the accuracy and integrity of its
financial reporting process.
The Company's public announcement of the pending restatement of its
financial statements, the delay in reporting its second quarter results for 1997
while the restatement was being compiled and the related uncertainty regarding
the Company's financial condition have adversely affected the Company's ability
to sell its products.
The Company is unable to estimate the amount of any additional financial
exposure from possible claims that might be asserted as a result of the
restatement of its financial statements for the quarter ended March 30, 1997 and
the three years ended December 31, 1996.
These factors and other matters described under "Business Risks" have had,
and will continue to have, a material adverse effect on the Company's business,
including its financial condition and results of operations.
20
<PAGE>
LITIGATION. Commencing in April 1997, a series of class action lawsuits and
a separate but related stockholder action were filed in federal court
purportedly by or on behalf of stockholders. These actions name as defendants
the Company, certain of its present and former officers and directors and its
independent auditors. The complaints allege various violations of the federal
securities laws and seek unspecified but potentially significant damages from
the Company. Similar actions were also filed in state court. While management
intends to contest these actions vigorously, the disposition of this litigation
could have a material adverse effect on the Company's financial condition,
results of operations and cash flows.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants, were also filed in state court.
Any monetary judgments in the derivative actions would accrue to the benefit of
the Company.
In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.
ADVANCES ON UNEARNED LICENSE REVENUE. At December 31, 1996 and for the
first three quarters in 1997 quarters, "advances on unearned license revenue" in
the Company's restated consolidated balance sheet reflects amounts received from
customers and third-party financial institutions in advance of revenue being
recognized. The Company's license agreements with customers provide
contractually for a non-refundable fee payable by the customer in a single or
multiple installment(s) at the initiation or over the term of the license
arrangement. If the Company fails to comply with the contractual terms of a
specific license agreement, the Company could be required to refund to the
customer or the financial institution the amount(s) received.
CUSTOMER FINANCING. In the normal course of business, the Company often
arranges for non-recourse financing through the sale of customer payment
streams. Such financing arrangements are offered by a number of financial
institutions. The Company has traditionally relied on a limited number of these
financing institutions for most of the customer financing it arranges. Future
revenue and cash flows of the Company would be negatively impacted if the
Company's financing resources were to discontinue their services for any reason.
NEED FOR ADDITIONAL FINANCING. In connection with its current restructuring
and in order to provide additional working capital to fund its operating
activities, the Company expects that it will be required to raise additional
capital, which may be in the form of equity or debt. There can be no assurance
that additional debt or equity financing will be available as needed or that, if
available, such financing could be completed on commercially favorable terms.
Failure to obtain additional capital as needed would have a material adverse
effect on the Company's business and financial condition. To the extent the
terms of any available financing are materially unfavorable to the Company, such
a financing could impair the Company's ability to obtain additional financing in
the future or to implement its business plan.
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
21
<PAGE>
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.
PERSONNEL CHANGES. The Company's future performance will depend to a
significant extent on its ability to attract and retain highly skilled sales,
consulting, technical, marketing and management personnel. Beginning in the
first part of 1997 and continuing until the present a number of senior
management personnel and other key employees have departed the Company. The
Company has been successful to date in replacing only some of the positions that
have been vacated. The competition for employees in the database software
industry is intense, and the Company expects that such competition will continue
for the foreseeable future. From time to time the Company has experienced
difficulty in locating candidates with appropriate qualifications. The Company
also believes stock options are a critical component for motivating and
retaining its key employees. The recent decline in the price of the Company's
Common Stock has made stock options previously granted with higher exercise
prices less valuable to the Company's current employees and has consequently
made it more difficult for the Company to retain its key employees. The failure
of the Company to attract and retain key personnel could have an adverse effect
on the Company's business, results of operations, financial position and cash
flows.
During 1997, the Company has experienced a significant number of voluntary
resignations and in addition has taken actions to selectively reduce the number
of employees in certain functional areas. At December 31, 1996, the Company had
4,491 regular employees worldwide. On or about September 28, 1997, regular
employees numbered approximately 3,745.
COMPETITION. The market for the Company's software products and services is
extremely competitive. Some of the Company's current competitors have greater
financial, technical and marketing resources than the Company. The industry
movement to new 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. In recent years, the relational
database management system (RDBMS) industry has expanded at significant growth
rates, due in part to the continuing development of new technologies and
products responsive to customer requirements. In the event the growth rates in
the RDBMS industry should decline for any reason, it is likely the markets for
the Company's products would be adversely affected, which would have a negative
impact on the Company's business, results of operations, financial position and
cash flows. In addition, 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
22
<PAGE>
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. In the second quarter of 1996 and 1997,
approximately 57% and 53%, respectively, of the Company's net revenues were
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 political and 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.
INTEGRATION OF ACQUIRED COMPANIES. The Company has completed several
acquisitions during the last two years, including the database division of ASCII
Corporation in Japan; distributors in Germany, Korea and Malaysia; Stanford
Technology Group; 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 have and will 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.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Commencing in April 1997, a series of class action lawsuits and a separate
but related stockholder action were filed in federal court purportedly by or on
behalf of stockholders. These actions name as defendants the Company, certain of
its present and former officers and directors and its independent auditors. The
complaints allege various violations of the federal securities laws and seek
unspecified but potentially significant damages. Similar actions were also filed
in state court.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants, were also filed in state court.
Any monetary judgments in the derivative actions would accrue to the benefit of
the Company.
In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified
individuals associated with the Company with respect to non-specified accounting
matters, public disclosures and trading activity in the Company's securities.
The Company is cooperating with the investigation and is providing all
information subpoenaed by the Commission.
The Company is not involved in any other legal proceedings, other than
ordinary routine litigation incidental to the business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of Stockholders of the Company was held on May 22,
1997, at which time the following matters were acted upon:
<TABLE>
<CAPTION>
VOTES
VOTES WITHHELD/ BROKER
VOTES FOR AGAINST ABSTENTIONS NON-VOTES
---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1. ELECTION OF CLASS I DIRECTOR
Cyril J. Yansouni........................................... 124,672,866 -- 6,320,202 --
2. Adoption of the 1997 Employee Stock Purchase Plan and
reserve 4,000,000 shares for issuance thereunder............ 71,028,063 11,502,878 655,523 --
3. Amendment to increase shares reserved for issuance under the
1994 Stock Option and Award Plan by 8,000,000 shares........ 61,352,203 19,621,353 709,853 49,309,659
4. Ratification of Ernst & Young LLP as independent accountants
for the Company for the year ending March 31, 1998.......... 127,168,055 3,307,017 517,928 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- -----------------------------------------------------------------------------------------
<S> <C>
11.1 Statement of Computation of Earnings Per Share
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K on April 2, 1997 related to the
release of the preliminary results for the quarter ending March 30, 1997.
24
<PAGE>
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.
<TABLE>
<S> <C>
INFORMIX CORPORATION
Dated: November 18, 1997 /s/ JEAN-YVES DEXMIER
------------------------------------------
Jean-Yves Dexmier
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL
OFFICER)
/s/ KAREN BLASING
------------------------------------------
Karen Blasing
VICE PRESIDENT AND CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TITLE
- ----------------- -------------------------------------------------------------------------------------------------
<S> <C>
11.1 Statement of Computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11.1
INFORMIX CORPORATION
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ------------------------
JUNE 29, JUNE 29,
1997 JUNE 30, 1997
----------- 1996 -----------
----------
(NOTE) JUNE 30,
1996
-----------
(NOTE)
<S> <C> <C> <C> <C>
Net income.................................................... $ (111,377) $ 34,083 $ (255,538) $ (49,460)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Weighted average outstanding shares........................... 152,352 148,835 151,708 148,470
Net effect of outstanding options............................. -- -- -- --
----------- ---------- ----------- -----------
Weighted average common and common equivalent shares
outstanding................................................. 152,352 148,835 151,708 155,417
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net income per share.......................................... $ (0.73) $ (0.23) $ (1.68) $ (0.32)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
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>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-29-1997
<PERIOD-END> JUN-29-1997
<CASH> 72,802,000
<SECURITIES> 31,569,000
<RECEIVABLES> 151,292,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 339,651,000
<PP&E> 210,442,000
<DEPRECIATION> 40,896,000
<TOTAL-ASSETS> 651,756,000
<CURRENT-LIABILITIES> 563,116,000
<BONDS> 0
0
0
<COMMON> 1,519,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 651,756,000
<SALES> 108,736,000
<TOTAL-REVENUES> 182,012,000
<CGS> 11,933,000
<TOTAL-COSTS> 298,009,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,753,000
<INCOME-PRETAX> 110,177,000
<INCOME-TAX> 1,200,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (111,377,000)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> 0
</TABLE>
