INFORMIX CORP, 10-Q/A, 1998-05-15

INFORMIX CORP
10-Q/A, 1998-05-15
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q/A

(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 SEPTEMBER 28, 1997

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .
</TABLE>

COMMISSION FILE NUMBER 0-15325

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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 Identification No.)
incorporation or organization)
</TABLE>

4100 BOHANNON DRIVE, MENLO PARK, CA 94025
(Address of principal executive office)

650-926-6300
(Registrant's telephone number, including area code)

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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.

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<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 for the year ended December 31, 1996 (see Note A to the
Consolidated Financial Statements).

Financial statements and related disclosures contained in this amended
filing reflect, where appropriate, changes to conform to the restatement.

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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 nine-month periods
ended September 28, 1997 and September 29, 1996........................................... 3

Condensed Consolidated Balance Sheets as of September 28, 1997 and December 31, 1996........ 4

Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September
28, 1997 and September 29, 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........................................................................... 23

Item 2. Changes in Securities and Use of Proceeds................................................... 23

Item 3. Defaults Upon Senior Securities............................................................. 23

Item 4. Submission of Matters to a Vote of Security Holders......................................... 23

Item 5. Other Information........................................................................... 24

Item 6. Exhibits and Reports on Form 8-K............................................................ 24

Signature page............................................................................................. 25
</TABLE>

2
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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 1
------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Licenses..................................................... $ 77,437 $ 132,223 $ 273,081 $ 351,089
Services..................................................... 72,747 58,377 209,532 164,786
----------- ---------- ----------- ----------
150,184 190,600 482,613 515,875
Costs and expenses:
Cost of software distribution................................ 11,793 13,058 52,860 34,629
Cost of services............................................. 40,493 35,923 128,197 104,828
Sales and marketing.......................................... 101,946 103,409 347,906 292,539
Research and development..................................... 34,106 32,122 108,420 87,539
General and administrative................................... 18,144 16,572 72,110 47,356
Write-off of goodwill and other long-term assets............. -- -- 30,473 --
Write-off of acquired research & development................. -- -- 7,000 --
Restructuring charges........................................ 49,733 -- 109,356 --
Expenses related to Illustra merger.......................... -- -- -- 5,914
----------- ---------- ----------- ----------
256,215 201,084 856,322 572,805
----------- ---------- ----------- ----------
Operating loss............................................... (106,031) (10,484) (373,709) (56,930)
Interest income................................................ 1,290 2,436 3,691 6,671
Interest expense............................................... (2,103) (5,468) (6,839) (8,947)
Other income/(expense), net.................................... (879) (777) 17,596 1,821
----------- ---------- ----------- ----------
Loss before income taxes..................................... (107,723) (14,293) (359,261) (57,385)
Income taxes................................................... 2,800 2,802 6,800 9,170
----------- ---------- ----------- ----------
Net loss....................................................... $ (110,523) $ (17,095) $ (366,061) $ (66,555)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Net loss per share............................................. $ (0.73) $ (0.11) $ (2.41) $ (0.45)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Weighted average number of common and common equivalent shares
outstanding.................................................. 152,352 149,646 151,708 149,194
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

3
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INFORMIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
RESTATED--
SEE NOTE A PRO-FORMA
------------ (NOTE K)
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1996 1997 1997
------------ ------------- -------------
(NOTE)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $226,508 $ 78,935
Short-term investments........................................................ 34,512 16,535
Accounts receivable, net...................................................... 194,499 137,223
Deferred taxes................................................................ 42,133 50,655
Other current assets.......................................................... 35,662 25,022
------------ -------------
Total current assets........................................................ 533,314 308,370
Property and equipment, net..................................................... 186,727 188,207
Software costs, net............................................................. 54,486 42,246
Deferred taxes.................................................................. 10,542 10,542
Long-term investments........................................................... 6,639 --
Intangible assets............................................................... 34,693 8,297
Other assets.................................................................... 55,597 29,936
------------ -------------
Total assets................................................................ $881,998 $ 587,598
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 65,446 $ 46,610
Accrued expenses.............................................................. 59,723 69,290
Accrued employee compensation................................................. 57,626 70,931
Income taxes payable.......................................................... 7,369 6,896
Deferred maintenance revenue.................................................. 94,981 99,782
Advances on unearned license revenue.......................................... 239,506 210,269
Other liabilities............................................................. 5,526 59,485
------------ -------------
Total current liabilities................................................... 530,177 563,263
Other liabilities............................................................... 2,359 6,927
Deferred taxes.................................................................. 24,158 24,085
Commitments and contingencies:
Convertible Series A Preferred Stock............................................ -- 37,200 $ --
Stockholders' equity (deficit):
Convertible Series A-1 Preferred Stock........................................ -- -- 2
Common stock.................................................................. 1,508 1,524 1,524
Additional paid-in capital.................................................... 243,564 252,558 289,756
Retained earnings (deficit)................................................... 78,723 (287,338) (287,338)
Unrealized gain (loss) on available-for-sale securities, net of tax........... 11,690 (433) (433)
Foreign currency translation adjustment....................................... (10,181) (10,188) (10,188)
------------ ------------- -------------
Total stockholders' equity (deficit)........................................ 325,304 (43,877) $ (6,677)
------------ ------------- -------------
-------------
Total liabilities and stockholders' equity.................................. $881,998 $ 587,598
------------ -------------
------------ -------------
</TABLE>

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(Note) Columnar amounts are derived from audited consolidated financial
statements

See Notes to Condensed Consolidated Financial Statements.

4
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INFORMIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
RESTATED-
SEE NOTE A
-----------
NINE MONTHS ENDED
-----------------------
SEPT. 28, SEPT. 29,
1997 1996
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................................................. $ (366,061) $ (66,555)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in)
operating activities:
License revenue paid in advance (see contra)............................................ (51,025) (40,867)
Depreciation and amortization........................................................... 51,491 31,953
Amortization of capitalized software.................................................... 15,923 10,802
Write-off of capitalized software....................................................... 14,749 --
Deferred tax expense.................................................................... (73) (3,519)
Provisions for losses on accounts receivable............................................ 12,962 479
Write-off of long-term assets........................................................... 6,799 --
Write-off of intangibles................................................................ 20,033 --
Write-off of acquired research & development............................................ 7,000 --
Foreign currency transaction gain....................................................... 855 (2,805)
Gain on sales of strategic investments.................................................. (8,231) (1,867)
Provision for losses on strategic investments........................................... 3,786 --
Loss on disposal of property and equipment.............................................. 8,272 1,139
Restructuring charges................................................................... 91,873 --
Changes in operating assets and liabilities:
Accounts receivable................................................................... 53,444 (38,187)
Other current assets.................................................................. 3,193 (3,706)
Accounts payable and accrued expenses................................................. (11,344) 35,827
Deferred revenue...................................................................... 2,392 15,555
---------- -----------
Net cash and cash equivalents used in operating activities.............................. (143,962) (61,751)
INVESTING ACTIVITIES
Investments of excess cash:
Purchases of available-for-sale securities................................................ (25,553) (123,160)
Maturities of available-for-sale securities............................................... 13,468 86,217
Purchases of strategic investments........................................................ (2,250) (3,750)
Proceeds from sales of strategic investments.............................................. 10,002 5,085
Proceeds from sales of available-for-sale securities...................................... 37,482 25,703
Purchases of land and property and equipment.............................................. (94,176) (96,116)
Proceeds from disposal of property and equipment.......................................... 2,644 1,821
Additions to software costs............................................................... (17,188) (21,138)
Business combinations, net of cash acquired............................................... (8,817) (1,840)
Other..................................................................................... 8,846 (9,729)
---------- -----------
Net cash and cash equivalents used in investing activities................................ (75,542) (136,907)
FINANCING ACTIVITIES
Advances on unearned license revenue (see contra)......................................... 21,787 156,963
Proceeds from issuance of stock, net...................................................... 9,010 14,761
Proceeds from issuance of Preferred Stock................................................. 37,600 --
Principal payments on capital leases...................................................... (1,268) (749)
---------- -----------
Net cash and cash equivalents provided by financing activities............................ 67,129 170,975
---------- -----------
Effect of exchange rate changes on cash and cash equivalents.............................. 4,802 7,170
---------- -----------
Decrease in cash and cash equivalents..................................................... (147,573) (20,513)
Cash and cash equivalents at beginning of period.......................................... 226,508 164,305
---------- -----------
Cash and cash equivalents at end of period................................................ $ 78,935 $ 143,792
---------- -----------
---------- -----------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

5
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INFORMIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 28, 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 and for the quarter ended March 30, 1997. 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>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 29, 1996 SEPT. 29, 1996
---------------------- ----------------------
AS AS
REPORTED RESTATED REPORTED RESTATED
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net Revenues
Licenses................................... $ 183,144 $ 132,223 $ 506,097 $ 351,089
Services................................... 58,563 58,377 167,260 164,786
---------- ---------- ---------- ----------
241,707 190,600 673,357 515,875
Operating income (Loss)...................... 39,410 (10,484) 96,739 (56,930)
Income tax expense........................... 12,267 2,802 34,300 9,170
Net Income (Loss)............................ 26,181 (17,095) 63,700 (66,555)
Net Income (loss) per share.................. $ 0.17 $ (0.11) $ 0.41 $ (0.45)
Retained earnings (deficit).................. $ 288,687 $ 27,532 $ 288,687 $ 27,532
Advances on unearned license revenue......... -- 249,599 -- 249,599
</TABLE>

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

6
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INFORMIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 28, 1997

(UNAUDITED)

NOTE B--MANAGEMENT PLANS TO ADDRESS OPERATIONAL ISSUES AND LIQUIDITY (CONTINUED)
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) resolution of stockholder
class action litigation (see Note J of Notes to the Consolidated Financial
Statements). There can be no assurance that management will be successful in
accomplishing these objectives. The September 28, 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 shares
outstanding. Common equivalent shares from stock options (using the treasury
stock method) have been included in the computation only when dilutive.

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 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 September 28, 1997 and September 29, 1996.

NOTE E--STOCKHOLDERS' EQUITY

<TABLE>
<S> <C>
Reconciliation of outstanding shares:
Shares outstanding at December 31, 1996..................... 150,781,634
Shares issued upon exercises of stock options............... 1,073,756
Shares sold and issued to Employees under ESPP.............. 573,343
-----------
Shares outstanding at September 28, 1997.................... 152,428,733
-----------
-----------
</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 data in the Internet,
multimedia/entertainment, financial services, earth sciences and other markets.

7
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INFORMIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 28, 1997

(UNAUDITED)

NOTE F--BUSINESS COMBINATIONS (CONTINUED)
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 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 which was
the first quarter of 1997.

NOTE G--COMMITMENTS

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, $61.5 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.

NOTE I--RESTRUCTURING CHARGES

In September 1997, the Company approved a plan to continue to restructure
its operations to bring expenses in line with forecasted revenues. In connection
with the restructuring, the Company reduced its

8
<PAGE>
INFORMIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 28, 1997

(UNAUDITED)

NOTE I--RESTRUCTURING CHARGES (CONTINUED)
worldwide headcount by approximately 7% 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 September 28, 1997:

<TABLE>
<CAPTION>
RESTRUCTURING NON- CASH CASH ACCRUAL BALANCE AT
EXPENSE COSTS PAYMENTS SEPTEMBER 28, 1997
------------- --------- ----------- -------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Severence and benefits..................................... $ 21.9 $ -- $ 14.7 $ 7.2
Write-off of assets........................................ 48.2 30.3 -- 17.9
Facility charges........................................... 35.9 3.0 32.9
Other...................................................... 3.4 2.2 -- 1.2
------ --------- ----- -----
$ 109.4 $ 32.5 $ 17.7 $ 59.2
------ --------- ----- -----
------ --------- ----- -----
</TABLE>

Severance and related costs represented the reduction of 300 employees on a
worldwide basis primarily impacting sales and marketing. Temporary employees and
contractors were also reduced. Asset charges included a write-off or write-down
of equipment as a result of the decision to reduce the number of Superstores.
Facility charges included early termination costs associated with the closing of
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.

NOTE K--PRO-FORMA PRESENTATION 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 an aggregate of $40 million ($37.6 million, net)

9
<PAGE>
INFORMIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 28, 1997

(UNAUDITED)

NOTE K--PRO-FORMA PRESENTATION OF CONVERTIBLE PREFERRED STOCK (CONTINUED)
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 Preferred 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
eighteen 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 then outstanding common stock, then such excess does not convert unless or
until stockholder approval is obtained.

The mandatory redemption provisions of the new Series A-1 Convertible
Preferred Stock (A-1 Preferred) differ from the Series A Convertible Preferred
Stock. The redemption provisions in the Convertible Preferred Stock A-1 Series
effectively preclude the Company from having to redeem the preferred stock
except by actions solely within its control. Accordingly, the Pro Forma
September 28, 1997 Consolidated Balance Sheet reflects the Series A-1
Convertible Preferred Stock under stockholder's equity (deficit).

NOTE L--RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income (FAS No. 130) and Statement No. 131,
Disclosures About Segments of An Enterprise and Related Information (FAS No.
131). FAS No. 130 establishes rules for reporting and displaying comprehensive
income. FAS No. 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during 1998. The Company does not believe that the adoption of either FAS No.
130 or FAS No. 131 will have a material impact on the Company's results of
operations, financial position or cash flows.

NOTE M--SUBSEQUENT EVENTS

BUSINESS COMBINATION. In February 1997, the Company acquired all of the
outstanding capital stock of Centerview Software, Inc. ("Centerview"), a
privately-owned company which develops and sells software application
development tools. The aggregate purchase price paid was approximately $8.7
million, which included cash plus direct costs of acquisition. The transaction
has been accounted for as a purchase and, based on an independent appraisal of
the assets acquired and liabilities assumed, the purchase price has been
allocated to the net tangible and intangible assets acquired including
approximately $7 million of research and development, which has been charged to
operations in the period the acquisition was consummated (the first quarter of
1997).

10
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INFORMIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 28, 1997

(UNAUDITED)

NOTE M--SUBSEQUENT EVENTS (CONTINUED)
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, $61.5 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.

11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Management's Discussion and Analysis of Financial Condition and Results
of Operations 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 has been changed from that which appeared in the Company's originally filed
form 10-Q for the quarterly period ended September 28, 1997. Readers should
carefully review the "Liquidity and Capital Resources" and "Business Risks"
sections included here to reflect current events.

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 28, 1997 and
September 29, 1996, respectively.

<TABLE>
<CAPTION>
PERCENT OF NET REVENUES
---------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Licenses............................................................................ 52% 69% 57% 68%
Services............................................................................ 48 31 43 32
--- --- --- ---
Total net revenues.............................................................. 100 100 100 100
Costs and expenses:
Cost of software distribution....................................................... 8 7 11 7
Cost of services.................................................................... 27 19 27 20
Sales and marketing................................................................. 68 54 72 57
Research and development............................................................ 23 17 22 17
General and administrative.......................................................... 12 9 15 9
Write-off of goodwill and long-term assets.......................................... 0 0 6 0
Write-off of acquired research and development...................................... 0 0 1 0
Restructuring costs................................................................. 33 0 23 0
Expenses related to Illustra merger................................................. 0 0 0 1
--- --- --- ---
Total operating expenses........................................................ 171 106 177 111
--- --- --- ---
Operating loss...................................................................... (71) (6) (77) (11)
Interest income..................................................................... 1 1 1 1
Interest expense.................................................................... (1) (3) (1) (2)
Other income (expense), net......................................................... (1) -- 3 1
--- --- --- ---
Loss before income taxes............................................................ (72) (8) (74) (11)
Income taxes........................................................................ (2) (1) (2) (2)
--- --- --- ---
Net loss............................................................................ (74)% (9)% (76)% (13)%
--- --- --- ---
--- --- --- ---
</TABLE>

12
<PAGE>
The following table sets forth the percentage change in the restated
operating results for the three-and nine-month periods ended September 28, 1997
compared to the respective three- and nine-month periods ended September 29,
1996.

<TABLE>
<CAPTION>
PERIOD-TO-PERIOD
PERCENT INCREASE (DECREASE)
--------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 28, 1997 VS. SEPT. 28, 1997 VS.
SEPT. 29, 1996 SEPT. 29, 1996
---------------------- --------------------
<S> <C> <C>
Net revenues:
Licenses............................................. (41)% (22)%
Services............................................. 25 27
--- ---
Total net revenues............................... (21) (6)
Costs and expenses:
Cost of software distribution........................ (10) 53
Cost of services..................................... 13 22
Sales and marketing.................................. (1) 19
Research and development............................. 6 24
General and administrative........................... 9 52
Write-off of goodwill and other big term assets...... N/A N/A
Write-off of acquired R&D............................ N/A N/A
Restructuring charges................................ N/A N/A
Expenses related to Illustra merger.................. N/A N/A
--- ---
Total operating expenses......................... 27 49
--- ---
Operating loss....................................... 911 556
Interest income...................................... (47) (45)
Interest expense..................................... (62) (24)
Other income (expense), net.......................... 13 866
Income (loss) before income taxes.................... 654 526
Income taxes (benefits).............................. -- (26)
--- ---
Net loss............................................. 547 % 450 %
--- ---
--- ---
</TABLE>

Informix's operating results for the third quarter ended September 28, 1997
were significantly below the same period of the prior year due to decreases in
revenue and increases in costs and expenses. Sales declined 21% in the third
quarter of 1997 versus the previous year, due primarily to decreased sales in
North America, Europe and Japan. These lower revenues combined with a 27 percent
increase in operating costs resulted in an operating loss of $106.0 million.

REVENUES

The Company derives revenues from licensing its software and providing
post-license technical product support and updates to customers and from
consulting and training services. License revenues may involve the shipment of
product by the Company or the granting of a license to a customer to manufacture
products. Service revenues consist of customer telephone or direct support,
product update rights, 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 the 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

13
<PAGE>
channels resulted in a significant build-up of licenses that had not been resold
or utilized by such resellers. These unsold licenses have not been recognized as
earned revenue as of September 28, 1997. Overall, license sales in the first
nine months of 1997 declined significantly versus the comparable period of the
prior year.

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 contribution margin on service revenue increased from 38% in
the third quarter of 1996 to 44% in the third quarter of 1997.

The increase in service revenue, as a percentage of total revenue, was
primarily the result of the 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 third quarter ended September 28, 1997, Informix's net revenues
from sales to foreign customers was 50% of total revenue as compared to 47% in
the similar period in 1996. In absolute dollars, foreign sales decreased from
$89.8 million in the quarter ended September 29, 1996 to $74.8 million in the
quarter ended September 28, 1997. Sales in Europe and Japan decreased 25% and
30%, respectively. Sales in Asia/Pacific and Latin America increased 1% and 44%,
respectively, versus the previous period.

Substantially all of the Company's Latin American revenue is U.S. dollars
denominated. In Europe, Asia/Pacific, and Japan, most revenues and expenses are
denominated in local currencies. The U.S. dollar strengthened in the first nine
months 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.

The restatement significantly changed the recorded value of the Company's
foreign currency denominated accounts receivable and accounts payable, primarily
intercompany balances. The restatement of the intercompany accounts effectively
modifies the hedging positions taken and resulted in a loss of $1.8 million and
$1.1 million and a gain of $.5 million and $10.5 million for the three months
ended September 28, 1997, and September 29, 1996, and the nine months ended
September 28, 1997 and September 29, 1996, respectively.

14
<PAGE>
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPT. 28, 1997 SEPT. 29, 1996 CHANGE SEPT. 28, 1997 SEPT. 29, 1996
--------------- --------------- ------------ --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Manufactured cost of software
distribution.......................... $ 5.7 $ 9.4 (39)% $ 22.2 $ 23.8
Percentage of license revenue......... 7% 7% 8% 7%
Amortization of capitalized software.... $ 6.1 $ 3.7 65 % $ 16.0 $ 10.8
Percentage of license revenue......... 8% 3% 6% 3%
Write-down to net realizable value...... $ -- $ -- $ 14.7 $ --
Percentage of license revenue......... 5%
Cost of software distribution........... $ 11.8 $ 13.1 (15)% $ 52.9 $ 34.6
Percentage of license revenue......... 15% 10% 19% 10%

<CAPTION>
CHANGE
------------
<S> <C>
Manufactured cost of software
distribution.......................... (7)%
Percentage of license revenue.........
Amortization of capitalized software.... 48 %
Percentage of license revenue.........
Write-down to net realizable value...... N/A
Percentage of license revenue.........
Cost of software distribution........... 53 %
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 remained flat at 7% in the third quarter of 1997 compared to the same
period in 1996. In the future, the 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 third quarter of 1997 compared to the third quarter of 1996 is due to the
release of various products subsequent to the third 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 NINE MONTHS ENDED
------------------------------- -------------------------------
SEPT. 28, 1997 SEPT. 29, 1996 CHANGE SEPT. 28, 1997 SEPT. 29, 1996 CHANGE
-------------- -------------- ------ -------------- -------------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Cost of services.............................. $40.5 $35.9 13% $128.2 $104.8 22%
Percentage of service revenue............... 56% 62% 61% 64%
</TABLE>

Cost of services consists primarily of maintenance, consulting and training
expenses. Costs of services for the third 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 third quarter of 1997.

15
<PAGE>
SALES AND MARKETING EXPENSES

<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 CHANGE 1997 1996 CHANGE
------------- ------------- ------------ ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing expenses...... $ 101.9 $ 103.4 (1)% $ 347.9 $ 292.5 19%
Percentage of net revenue....... 68% 54% 72% 57%
</TABLE>

The decline in sales and marketing expenses in the third quarter of 1997, in
absolute dollars, as compared to the third quarter of 1996 was primarily a
result of the reduction of sales and marketing personnel worldwide. Over the
twelve-month period ending September 28, 1997, the headcount for sales and
marketing personnel decreased from 1,722 to 1,276 or a decline of 26%. Lower
staffing levels and expenses were partly offset by depreciation in connection
with the Company's Superstores which are more fully described in "Liquidity and
Capital Resources." The increase of costs as a percentage of revenue reflects
that despite sales commissions being a large variable cost, there are
significant sales and marketing costs that are fixed in nature.

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 September 28, 1997 and September 29,
1996:

<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 CHANGE 1997 1996 CHANGE
----------- ----------- ------------ ----------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Incurred product development expenditures........ $ 38.3 $ 39.8 (4)% $ 126.7 $ 108.5 17 %
Expenditures capitalized......................... 4.2 7.7 (45)% 18.3 21.0 (13)%
-- --
----- ----- ----------- -----------
Research and development expenses................ $ 34.1 $ 32.1 6 % $ 108.4 $ 87.5 24 %
Expenditures capitalized as a % of incurred...... 11% 19% 14% 19%
</TABLE>

The incurred research and development expenditures declined by 4% in the
third quarter of 1997 compared to the third quarter of 1996. The proportion of
capitalized expenditures as a percentage of total incurred expenses decreased in
the third quarter of 1997. The decrease is attributable to the fact that during
the third 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 remain relatively
stable compared to the third 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 NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPT. 28, 1997 SEPT. 29, 1996 CHANGE SEPT. 28, 1997 SEPT. 29, 1996
--------------- --------------- ----------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General and administrative expenses........... $ 18.1 $ 16.6 9% $ 72.1 $ 47.4
Percentage of net revenue................... 12% 9% 15% 9%

<CAPTION>
CHANGE
-------------
<S> <C>
General and administrative expenses........... 52%
Percentage of net revenue...................
</TABLE>

General and administrative expenses increased in absolute dollars in the
third quarter of 1997 compared to the same prior year period primarily as a
result of the 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 $7.0 million of
purchased research and development which has been charged to operations in the
period the acquisition was consummated, which was the first quarter of 1997.

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 an increase in the valuation allowance
for deferred tax assets attributable to the increase in net operating loss
carryforwards and taxable earnings and withholding taxes in certain foreign
jurisdictions.

FOREIGN EXCHANGE LOSSES

17
<PAGE>
until such receivables are collected or payables disbursed. The purpose of the
Company's foreign exchange exposure management policy and practices is to
attempt to minimize the impact of exchange rate fluctuation on the value of
foreign currency denominated assets and liabilities being hedged. The
receivables and payables being hedged are primarily intercompany transactions
related to internal distribution of the Company's product under formal
agreements drafted between the Company's various subsidiaries. Due to the
restatement of revenues and the related cost of these sales, the Company also
restated its intercompany receivable and payable accounts. The restatement of
the intercompany accounts effectively modifies the hedging positions taken and
resulted in a loss of $1.8 million and $1.1 million and a gain of $.5 million
and $10.5 million for the three months ended September 28, 1997, and September
29, 1996, and the nine months ended September 28, 1997 and September 29, 1996,
respectively.

IMPACT OF INFLATION

The effect of inflation on the Company's financial position has not been
significant.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
SEPT. 28, SEPT. 29,
1997 1996
----------- -----------
(DOLLARS IN MILLION)
<S> <C> <C>
Cash, cash equivalents, and investments.................................. $ 95.5 $ 249.7
Working capital (deficit)................................................ (254.9) (13.8)
Cash and cash equivalents provided by (used by) operations............... (144.0) (61.8)
Cash and cash equivalents used for investment activities, excluding
investments of excess cash............................................. (75.5) (136.9)
Cash and cash equivalents provided by financing activities............... 67.1 171.0
</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 decreased by $57.3 million from December 31, 1996 to
September 28, 1997. Days sales outstanding decreased slightly to approximately
82 days in September 1997 from 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.

Net cash and cash equivalents used in investing activities decreased for the
nine months ended September 28, 1997 compared with the same period in 1996. The
decrease was due in large part to lower investments of excess cash due to the
significant decline in cash balances over the period. Significant investing
activities, excluding the investment of excess cash, during the year included
additions to software costs of $17.2 million, the sale of available-for-sale
securities for $37.5 million, purchase of the Santa Clara property and capital
equipment of $94.2 million, the purchase of CenterView for $8.7 million and net
proceeds from selling the Santa Clara property of $59.3 million.

The Company sold its interest in a strategic investment during the nine
month period which resulted in net proceeds of $10.0 million.

The Company planned on relocating its corporate headquarters to Santa Clara,
California, approximately 15 miles to the south of the Company's headquarters.
In January 1997, the Company entered into a two year lease for 27 acres of
undeveloped commercial real estate which required a pledge of $61.5 million

18
<PAGE>
in cash into a non-interest bearing collateral account controlled by an
affiliate of the lessor. 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 unrelated third parties. The $61.5 million is reflected in the
"purchases of land and property and equipment" line of the cash flow statement.

In addition, during fiscal 1997, the Company acquired $32.7 million of
capital equipment consisting primarily of computer equipment, computer software
and office equipment. Capital equipment purchases were primarily the result of
the Company's expected expansion during the first half of fiscal 1997.

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 during the
nine months ended September 28, 1997 decreased in comparison to the same period
in 1996. A significant portion of the decrease was the decline in advances on
unearned license revenue, partially offset by the proceeds from issuances of
preferred and common stock.

Proceeds from common stock represent stock options exercised and purchases
under the employee stock purchase plan. In September 1997, the Company's Board
of Directors authorized the repricing of outstanding stock options to purchase
Common Stock under the Company's stock option plans so that the exercise price
of repriced options would equal the closing sales price of the Company's Common
Stock as reported on The Nasdaq Stock Market on November 17, 1997, which was
$7.1563.

In August 1997, the Company raised net proceeds of $37.6 million through the
issuance of the Series A Preferred. In November 1997, the holders of the Series
A Preferred exchanged all their outstanding shares of Series A Preferred for the
newly designated Series A-1 Preferred, having substantially similar rights,
preferences and privileges as the Series A Preferred with the exception of
certain amendments, including revisions to the terms under which such shares
become mandatorily redemable.

The Company assigned its leasehold interest and its related obligations
under an office space lease in Santa Clara, California to an unrelated third
party. The lease term was for fifteen years and minimum lease payments amount to
$96.0 million over the term. The Company remains contingently liable for minimum
lease payments under the terms of the assignment.

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 scale back SuperStore activity resulted in charges to operations of
$16.0 million in the second quarter of 1997 and a charge of $19.6 million in the
third quarter of 1997 (see Note I of Notes to the Consolidated Financial
Statements). The Company did not make further capital equipment expenditures
related to the Information SuperStore program in the fourth quarter of 1997.

19
<PAGE>
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.

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 104.4 million on June 29, 1997 to $95.5 million at
September 30, 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 aggregate gross proceeds of $40 million.

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 K 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).

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

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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
exposures from possible claims that might be asserted as a result of the
restatement of its 1994, 1995 and 1996 financial statements.

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.

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.

ADVANCES ON UNEARNED LICENSE REVENUE. At December 31, 1996 and for the 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

21
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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.

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

22
<PAGE>
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. In the third quarter of 1996 and 1997,
approximately 47% and 50%, 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, Illustra and Centerview Software 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.

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<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In addition, in July 1997, the Securities and Exchange Commission issued a
formal order of investigation of the Company and certain unidentified indivduals
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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On August 12, 1997, the Company and BankBoston, N.A., as successor rights
agent, entered into the First Amended and Restated Rights Agreement (the
"Amended Rights Agreement"), which amended and superseded the Preferred Shares
Rights Agreement, as amended, between the Company and The First National Bank of
Boston, as rights agent. Pursuant to the Prior Rights Agreement, The Company's
Board of Directors had declared a dividend of one right (the "Right") to
purchase one one-thousandth share of the Company's Series A Participating
Preferred Stock for each share of Common Stock, $0.01 par value, of the Company
issued and outstanding on November 20, 1991, and one Right for each share of
Common Stock issued after such date. Each Right entitled the registered holder
to purchase from the Company one one-thousandth share of Series A Preferred
Stock at an exercise price as set forth in the Prior Rights Agreement. The terms
of the Amended Rights Agreement are substantially similar to those of the Prior
Rights Agreement, except that each Right is now exercisable, following the
distribution date and until the occurrence of certain specified events, for one
share of Common Stock at an exercise price of $60.00. The foregoing summary of
the principal terms of the Amended Rights Agreement is a general description
only and is qualified by the detailed terms and conditions of the Amended Rights
Agreement. A more comprehensive description of the Amended Rights Agreement is
contained in the Company's Registration Statement on Form 8-A/A (the "Form 8-A")
filed with the Commission on September 3, 1997. A copy of the Amended Rights
Agreement is also filed as an exhibit to the Form 8-A.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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<PAGE>
ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT TITLE
- --------- ---------------------------------------------------------------------------------------------
<S> <C>
10.8* Employment Agreement between the Company and Robert J. Finocchio, Jr., dated July 22, 1997

10.9* Offer Letter of Employment to Wes Raffel, dated September 18, 1997, as Vice President, North
American Field Operations

10.10* Offer Letter of Employment to Jean-Yves Dexmier, dated September 24, 1997, as Executive Vice
President and Chief Financial Officer

27.1* Financial Data Schedule
</TABLE>

- ------------------------

* Previously filed with the Commission.

(b) Reports on Form 8-K

On August 14, 1997, the Company filed a Current Report on Form 8-K
concerning (i) results for the quarter ended June 29, 1997, (ii) the discovery
of errors in the recording of revenue in 1996, (iii) the anticipated restatement
of the Company's 1996 financial statements to reflect adjustments to revenue
that will decrease revenue and net income from previously reported amounts, and
(iv) a planned restructuring and reorganization. In addition, the Company
indicated that disclosure of the Company's second quarter financial results
would be delayed as a result of the need to restate prior period operating
results.

On August 25, 1997, the Company filed a Current Report on Form 8-K
disclosing the sale and issuance of 160,000 shares of Series A Convertible
Preferred Stock for an aggregate sales price of $40,000,000.

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<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

By: /s/ JEAN-YVES
DEXMIER
---------------------------------------
Jean-Yves
Dexmier
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Dated: May 15, 1998
</TABLE>