INFORMIX CORP, 10-Q, 1998-11-16

INFORMIX CORP
10-Q, 1998-11-16
PREPACKAGED SOFTWARE

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

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

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 0-15325

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

INFORMIX CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE 94-3011736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4100 BOHANNON DRIVE, MENLO PARK, CA 94025

(Address of principal executive office)

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 September 30, 1998, 172,310,746 shares of the Registrant's Common Stock
were outstanding.

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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.

INDEX

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Part I. Financial Information.............................................................................. 3
Item 1. Unaudited Condensed Consolidated Financial Statements............................................ 3
Unaudited Condensed Consolidated Statements of Operations for the three-month and nine-month periods
ended September 30, 1998 and September 28, 1997....................................................... 3
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997......... 4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September
30, 1998 and September 28, 1997....................................................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 45
Part II. Other Information................................................................................. II-1
Item 1. Legal Proceedings................................................................................ II-1
Item 2. Changes in Securities and Use of Proceeds........................................................ II-1
Item 4. Submission of Matters to a Vote of Security Holders.............................................. II-1
Item 6. Exhibits and Reports on Form 8-K................................................................. II-1
Signature page............................................................................................. II-2
</TABLE>

2
<PAGE>
PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INFORMIX CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Costs and expenses:
Cost of software distribution................................ 8,569 11,793 26,661 52,860
Cost of services............................................. 38,467 40,493 113,404 128,197
Sales and marketing.......................................... 64,799 101,946 193,716 347,906
Research and development..................................... 34,863 34,106 107,673 108,420
General and administrative................................... 20,645 18,144 50,549 72,110
Write-off of goodwill and other long-term assets............. -- -- -- 30,473
Write-off of acquired research and development............... -- -- -- 7,000
Restructuring................................................ (2,572) 49,733 (7,255) 109,356
---------- ----------- ---------- -----------
164,771 256,215 484,748 856,322
---------- ----------- ---------- -----------
Operating income (loss)........................................ 20,440 (106,031) 35,663 (373,709)
Interest income.............................................. 2,488 1,290 6,359 3,691
Interest expense............................................. (1,416) (2,103) (4,582) (6,839)
Other income/(expense), net.................................. (2,494) (879) (2,396) 17,596
---------- ----------- ---------- -----------
Income (loss) before income taxes.............................. 19,018 (107,723) 35,044 (359,261)
Income taxes................................................... -- 2,800 1,900 6,800
---------- ----------- ---------- -----------
Net income (loss).............................................. $ 19,018 $ (110,523) $ 33,144 $ (366,061)
Preferred stock dividend..................................... (589) -- (1,816) --
Value assigned to warrants................................... -- -- (1,982) --
---------- ----------- ---------- -----------
Net income (loss) applicable to common stockholders............ $ 18,429 $ (110,523) $ 29,346 $ (366,061)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------

Net income (loss) per common share:
Basic........................................................ $ 0.11 $ (0.73) $ 0.18 $ (2.41)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Diluted...................................................... $ 0.10 $ (0.73) $ 0.17 $ (2.41)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------

Shares used in per share calculation:
Basic........................................................ 169,077 152,352 165,711 151,708
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Diluted...................................................... 182,272 152,352 171,406 151,708
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>

See Notes to Unaudited Condensed Consolidated Financial Statements.

3
<PAGE>
INFORMIX CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 144,852 $ 139,396
Short-term investments............................................................ 11,562 16,069
Accounts receivable, net.......................................................... 151,637 142,048
Deferred taxes.................................................................... 45,717 12,249
Other current assets.............................................................. 24,182 26,243
------------- ------------
Total current assets............................................................ 377,950 336,005
Property and equipment, net......................................................... 75,864 96,012
Software costs, net................................................................. 37,972 40,854
Deferred taxes...................................................................... 18,046 56,345
Intangible assets, net.............................................................. 6,615 8,277
Other assets........................................................................ 21,897 25,751
------------- ------------
Total assets.................................................................... $ 538,344 $ 563,244
------------- ------------
------------- ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.................................................................. $ 24,693 $ 36,155
Accrued expenses.................................................................. 44,681 64,538
Accrued employee compensation..................................................... 47,819 49,154
Income taxes payable.............................................................. 4,947 3,031
Deferred maintenance revenue...................................................... 115,485 100,828
Advances from customers and financial institutions................................ 139,304 180,048
Accrued restructuring costs....................................................... 9,085 26,597
Other liabilities................................................................. 6,334 15,802
------------- ------------
Total current liabilities....................................................... 392,348 476,153
Other liabilities................................................................... 4,467 6,311
Deferred taxes...................................................................... 14,895 21,716
Stockholders' equity:
Convertible Series A-1 Preferred Stock............................................ -- 2
Convertible Series B Preferred Stock.............................................. -- 1
Common stock; par value........................................................... 1,723 1,526
Additional paid-in capital........................................................ 373,136 347,582
Accumulated deficit............................................................... (245,001) (278,144)
Accumulated other comprehensive loss.............................................. (3,224) (11,903)
------------- ------------
Total stockholders' equity...................................................... 126,634 59,064
------------- ------------
Total liabilities and stockholders' equity...................................... $ 538,344 $ 563,244
------------- ------------
------------- ------------
</TABLE>

See Notes to Unaudited Condensed Consolidated Financial Statements.

4
<PAGE>
INFORMIX CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------
SEPT. 30, SEPT. 28,
1998 1997
--------- ----------
<S> <C> <C>
Operating Activities:
Net income (loss).......................................................................... $ 33,144 $ (366,061)
Adjustments to reconcile net income (loss) to net cash and cash equivalents used in
operating activities:
License fees received in advance......................................................... (48,561) (51,025)
Depreciation and amortization............................................................ 35,279 51,491
Amortization of capitalized software..................................................... 15,841 15,923
Write-off of capitalized software........................................................ 771 14,749
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 losses...................................................... 152 855
(Gain) loss on sales or write-downs of strategic investments............................. 880 (4,445)
Loss on disposal of property and equipment............................................... 1,736 8,272
Provisions for losses on accounts receivable............................................. (5,569) 12,962
Restructuring charges, net of adjustments................................................ (7,255) 91,873
Stock-based employee compensation........................................................ 715 --
Changes in operating assets and liabilities:
Accounts receivable.................................................................... (7,462) 53,444
Other current assets................................................................... 3,357 3,193
Accounts payable and other accrued liabilities......................................... (57,405) (11,417)
Deferred maintenance revenue........................................................... 11,406 2,392
--------- ----------
Net cash and cash equivalents used in operating activities................................. (22,971) (143,962)
Investing Activities:
Investments of excess cash:
Purchases of available-for-sale securities............................................... (24,908) (25,553)
Maturities of available-for-sale securities.............................................. 5,119 13,468
Proceeds from sale of available-for-sale securities...................................... 24,300 37,482
Proceeds from sale of strategic investments................................................ 1,500 10,002
Purchases of strategic investments......................................................... (1,000) (2,250)
Purchases of property and equipment........................................................ (13,152) (94,176)
Proceeds from disposal of property and equipment........................................... 693 2,644
Additions to software costs................................................................ (13,728) (17,188)
Business combinations, net of cash acquired................................................ -- (8,817)
Other...................................................................................... (239) 8,846
--------- ----------
Net cash and cash equivalents used in investing activities................................. (21,415) (75,542)
Financing Activities:
Advances from customers and financial institutions......................................... 10,092 21,787
Proceeds from issuance of common stock, net................................................ 12,752 9,010
Proceeds from issuance of preferred stock, net............................................. 14,100 37,600
Principal payments on capital leases....................................................... (3,349) (1,268)
--------- ----------
Net cash and cash equivalents provided by financing activities........................... 33,595 67,129
--------- ----------
Effect of exchange rate changes on cash and cash equivalents............................. 16,247 4,802
--------- ----------
Increase (decrease) in cash and cash equivalents......................................... 5,456 (147,573)
Cash and cash equivalents at beginning of period......................................... 139,396 226,508
--------- ----------
Cash and cash equivalents at end of period............................................... $ 144,852 $ 78,935
--------- ----------
--------- ----------
</TABLE>

See Notes to Unaudited Condensed Consolidated Financial Statements.

5
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1998

NOTE A--PRESENTATION OF INTERIM FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have
been prepared on the same basis as the audited financial statements. All
significant adjustments, in the opinion of management, which are normal,
recurring in nature and necessary for a fair presentation of the financial
position and results of the operations of the Company, have been consistently
recorded. The operating results for the interim periods presented are not
necessarily indicative of expected performance for the entire year. The
unaudited information should be read in conjunction with the audited
consolidated financial statements of Informix Corporation ("Informix" or "the
Company") and the notes thereto for the year ended December 31, 1997 included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.

Effective January 1, 1998, the Company elected to change from the 4-4-5 week
quarterly convention previously followed to a calendar quarter convention. The
change resulted in an additional three days and one day of operations for the
nine-month period and the three-month period ended September 30, 1998,
respectively, as compared to the same periods in the previous year. The impact
on the Company's financial statements for the nine-month period ended September
30, 1998 was to increase license revenue by $17.4 million, or 7% percent. In
addition, accounts receivable increased approximately $17.4 million and accrued
expenses increased approximately $2.7 million. The impact on the Company's
financial statements for the three-month period ended September 30, 1998 was to
increase license revenue by $6.4 million, or 7% percent.

NOTE B--RESTATEMENT OF FINANCIAL STATEMENTS

RESTATEMENT OF FINANCIAL STATEMENTS FOR FISCAL 1996, 1995 AND 1994 AND THE
FIRST QUARTER OF FISCAL 1997

Subsequent to the filing of its Quarterly Report on Form 10-Q for the
quarter ended March 30, 1997 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 and the quarter ended
March 30, 1997. The irregularities took numerous forms and were primarily the
result of lack of compliance with or circumvention of the Company's procedures
and controls.

These errors and irregularities included unauthorized and undisclosed
arrangements or agreements between Company personnel and resellers, recognition
of revenue on certain transactions in reporting periods prior to contract
acceptance, the recording of certain transactions that lacked economic substance
and the recording of maintenance revenue as license revenue. The unauthorized
and undisclosed agreements with resellers introduced acceptance contingencies,
permitted resellers to return unsold licenses for refunds, extended payment
terms or committed the Company to assist resellers in selling the licenses to
end-users. Accordingly, license revenue from these transactions that was
recorded at the time product was delivered to resellers should have instead been
recorded at the time all conditions on the sale lapsed. Because of the
pervasiveness of the unauthorized arrangements with resellers in the 1994, 1995
and 1996 accounting periods, the Company concluded that all revenue from license
agreements with resellers in these accounting periods, except for those licenses
sold and billed on a per copy basis, should be recognized only when the licenses
were resold or utilized by resellers and all related obligations had been
satisfied. Amounts received from resellers as prepayments of software license
fees in advance of revenue recognition have been recorded as advances from
customers and financial institutions. This revised

6
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE B--RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
application of accounting policy has been followed for all transactions with
resellers, other than those licenses sold and billed on a per-copy basis.

In response to the errors and irregularities discussed above, a number of
conditions which collectively represented a material weakness in the Company's
internal accounting controls were identified. These conditions included a
deterioration in the Company's internal accounting controls at corporate and
regional management levels, and a related failure to stress the importance of
these controls, an inappropriate level of influence, principally by the
Company's sales organization, over the revenue recognition process and an
apparent lack of clarity and consistent understanding within the Company
concerning the application of the Company's revenue recognition policies to
large, complex reseller license transactions. The Company is implementing a plan
to strengthen the Company's internal accounting controls. This plan includes
updating the Company's policies regarding accounting and reporting for large,
complex reseller license transactions, developing and conducting educational
programs to implement such policies, changing the Company's corporate and
regional accounting and reporting structure, and re-establishing an internal
audit function reporting to the Company's Board of Directors.

RESTATEMENT OF FINANCIAL STATEMENTS FOR FIRST QUARTER OF FISCAL 1998

On May 20, 1998, the Company announced that it had restated its financial
results for the first quarter ended March 31, 1998. The restatement of the
Company's financial results for the first quarter occurred in connection with
the Company's accounting treatment for license transactions with industrial
manufacturers ("IMs").

In connection with the restatement of its financial statements for fiscal
1994, 1995, 1996 and the first quarter of fiscal 1997, the Company examined
both: (1) agreements where customers committed to purchase up to a designated
dollar amount of software licenses ("Commitment Agreements"); and (2) agreements
where customers purchased licenses on a per copy basis ("Straight Purchase
Agreements"). The Company determined that unauthorized and undisclosed
agreements (which included the introduction of acceptance contingencies,
permission to return unsold licenses for refunds and extended payment terms) had
been made to certain customers in connection with Commitment Agreements, but not
in connection with Straight Purchase Agreements.

The Company had entered into Commitment Agreements with end users, IMs and
other resellers during such prior periods, all of which were initially accounted
for on a sell-in basis (I.E., recognizing revenue upon the initial shipment of
the Company's software to the customer). Upon further examination of its
Commitment Agreements in connection with the restatement process, the Company
determined that the unauthorized and undisclosed agreements had been made with
certain resellers, but not with end users. As a result: (1) the Company did not
restate revenue resulting from Commitment Agreements with end users; and (2) the
Company restated all revenue resulting from Commitment Agreements with all
resellers from a sell-in to a sell-through basis (I.E., recognizing revenue only
when the reseller resold or utilized the licenses and all related obligations
were satisfied).

7
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE B--RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
that IM revenue to a sell-through basis. The total amount of revenue resulting
from all Commitment Agreements with IMs was not material in fiscal 1994, 1995,
1996 or the first quarter of fiscal 1997. Straight Purchase Agreements with IMs
were not restated.

The Company initially decided to recognize revenue from IM transactions
after December 31, 1997 on a sell-in basis. The Company's license transactions
with IMs and end users are substantially similar in that upon the delivery of
the Company's software to the IM: (1) all obligations of the Company under the
software license agreement are fully performed; and (2) the Company believes the
earnings process with regard to these transactions to be complete. Accordingly,
in its original report of the financial results for
the quarter ended March 31, 1998, the Company had recognized approximately $6.2
million in license revenue resulting from software license agreements with IMs
in the same manner as revenue resulting from agreements with end users.

The Company subsequently decided to change its initial decision and to
recognize revenue resulting from all license transactions with IMs on a
sell-through basis upon the advice of the Company's former independent
accountants, Ernst & Young LLP. Accordingly, approximately $6.2 million in
license revenue previously recognized has been deferred and will be recognized
only when the related software licenses are resold to end user customers over a
period which the Company expects to be approximately two years.

The effects of the restatement of the Company's financial reports for the
quarter ended March 31, 1998 are as follows:

<TABLE>
<CAPTION>
AS REPORTED RESTATED
----------- ---------
THREE MONTHS ENDED
MARCH 31, 1998
----------------------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues:
Licenses............................................ $ 89,462 $ 83,431
Services............................................ 77,720 77,568
----------- ---------
$ 167,182 $ 160,999
----------- ---------
Operating income...................................... $ 9,137 $ 3,870
Income tax............................................ $ 1,900 $ 1,900
Net income............................................ $ 7,078 $ 1,811
Net income (loss) applicable to common stockholders... $ 4,881 $ (386)
Net income (loss) per share
Basic............................................... $ 0.03 $ (0.00)
Diluted............................................. $ 0.03 $ (0.00)
Accumulated deficit................................... $(271,066) $(276,333)
Advances from customers and financial institutions.... $ 156,505 $ 156,505
</TABLE>

8
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE B--RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
serve in the Finance Department. In addition, the Company has hired a number of
consultants to assist the Finance Department.

NOTE C--REVENUE RECOGNITION POLICY

In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition"
which superseded SOP 91-1 and provides guidance on generally accepted accounting
principles for recognizing revenue on software transactions. SOP 97-2 requires
that revenue recognized from software arrangements be allocated to each element
of the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post contract customer support,
installation, or training. Under SOP 97-2, the determination of fair value is
based on objective evidence which is specific to the vendor. If such evidence of
fair value for each element of the arrangement does not exist, all revenue from
the arrangement is deferred until such time that evidence of fair value does
exist or until all elements of the arrangement are delivered. SOP 97-2 was
amended in February 1998 by Statement of Position 98-4 (SOP 98-4) "Deferral of
the Effective Date of a Provision of SOP 97-2" which deferred for one year the
specification of what was considered vendor specific objective evidence of fair
value for the various elements in a multiple element arrangement. The Company
has adopted the provisions of these SOP's as of January 1, 1998 and as a result,
changed certain business practices. The adoption has, in certain circumstances,
resulted in the deferral of software license revenues that would have been
recognized upon delivery of the related software under preceding accounting
standards. Neither the changes in certain business practices nor the deferral of
certain revenues have resulted in a material impact on the Company's operating
results, financial position or cash flows for the period ended September 30,
1998.

The Company's revenue recognition policy as of January 1, 1998 is as
follows:

LICENSE REVENUE. The Company recognizes revenue from sales of software
licenses to end users upon persuasive evidence of an arrangement, delivery of
the software to a customer, determination that there are no significant
post-delivery obligations and collection of a fixed or determinable license fee
is considered probable. Revenue for transactions with resellers and industrial
manufacturers ("IMs"), except for those licenses sold and billed on a per-copy
basis, is currently recognized as earned when the licenses are resold or
utilized by the reseller and all related obligations of the Company have been
satisfied. The Company provides for sales allowances on an estimated basis. The
Company accrues royalty revenue through the end of the reporting period based on
reseller royalty reports or other forms of customer-specific historical
information. In the absence of customer-specific historical information, royalty
revenue is recognized when the customer-specific objective information becomes
available. Any subsequent changes to previously reported royalties are reflected
in the period when the updated information is received for the reseller.

SERVICE REVENUE. Maintenance contracts generally call for the Company to
provide technical support and software updates and upgrades to customers.
Maintenance revenue is recognized ratably over the term of the maintenance
contract, generally on a straight-line basis. Other service revenue, primarily
training and consulting, is generally recognized at the time the service is
performed and it is determined that the Company has essentially fulfilled its
obligations resulting from the services contract, or on a contract accounting
basis. When the fee for maintenance and service is bundled with the license fee
and not separately stated, it is unbundled from the license fee using the
Company's objective evidence of the fair

9
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE C--REVENUE RECOGNITION POLICY (CONTINUED)
value of the maintenance and/or services represented by the Company's customary
pricing for such maintenance and/or services, and deferred for revenue
recognition purposes.

ADVANCES FROM CUSTOMERS AND FINANCIAL INSTITUTIONS. Amounts received in
advance of revenue being recognized are recorded as a liability on the
accompanying financial statements. These amounts may be received either from the
customer or from a financing entity to whom the customer payment streams are
sold.

The Company's license arrangements with some of its customers provide
contractually for a non-refundable fee payable by the customer in single or
multiple installment(s) at the initiation or over the term of the license
arrangement. If the Company fails to comply with certain contractual terms of a
specific license agreement, the Company could be required to refund the
amount(s) received to the customer or the financial institution in the event of
an assignment of receivables.

The Company's arrangements for financing of license contracts with customers
frequently took the form of a non-recourse sale of the future payment streams.
When such customer contracts were sold to a third-party financing entity, they
were typically sold at a discount which represented the financing cost. Such
discounts offset revenues in cases where the license was recorded as a sale. For
transactions where the financing was received prior to the recognition of
revenue, the financing discount has been charged ratably to interest expense
over the financing period, which approximates the "interest method."

NOTE D--DERIVATIVE FINANCIAL INSTRUMENTS POLICY

The Company enters into forward foreign currency exchange contracts to
reduce its exposure to foreign currency risk due to fluctuations in exchange
rates underlying the value of accounts receivable and accounts payable
denominated in foreign currencies (primarily European and Asian currencies)
until such receivables are collected and payables are disbursed. A forward
foreign currency exchange contract obligates the Company to exchange
predetermined amounts of specified foreign currencies at specified exchange
rates on specified dates or to make an equivalent U.S. dollar payment equal to
the value of such exchange. These forward foreign exchange contracts, to qualify
as hedges of existing assets or liabilities, are denominated in the same
currency in which the underlying foreign receivables or payables are denominated
and bear a contract value and maturity date which approximate the value and
expected settlement date of the underlying transactions. For contracts that are
designated and effective as hedges, discounts or premiums (the difference
between the spot exchange rate and the forward exchange rate at inception of the
contract) are accreted or amortized to other expenses over the contract lives
using the straight-line method while unrealized gains and losses on open
contracts at the end of each accounting period resulting from changes in the
spot exchange rate are deferred and recognized in earnings in the same period as
gains and losses on the underlying foreign denominated receivables or payables
are recognized and generally offset. Contract amounts in excess of the carrying
value of the Company's foreign denominated accounts receivable or payable
balances are marked to market, with changes in market value recorded in earnings
as foreign exchange gains or losses.

In addition, in the quarter ended March 31, 1998, the Company initiated a
program whereby it enters into forward foreign currency exchange contracts that
do not qualify as hedges. These forward exchange contracts are marked to market
and comprise a significant portion of the Company's net foreign currency losses
of $2.6 million for the nine-month period ended September 30, 1998.

10
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE E--COMPREHENSIVE INCOME

As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 (FAS 130), "Reporting Comprehensive Income." FAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income/(loss) or stockholders' equity. FAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 1998 1997
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss).................................. $ 19,018 $ (110,523) $ 33,144 $ (366,061)
Other comprehensive income (loss), net of income
taxes
Unrealized gains (losses) on available-for-sale
securities..................................... (404) 55 3,850 (12,123)
Foreign currency translation adjustment.......... (119) 753 4,828 (7)
----------- ---------- ----------- ----------
Comprehensive income (loss)........................ $ 18,495 $ (109,715) $ 41,822 $ (378,191)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>

NOTE F--NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted net
income (loss) per common share:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 1998 1997
--------- ---------- --------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator for basic net income (loss) per
share--net income (loss) applicable to common
stockholders................................... $ 18,429 $ (110,523) $ 29,346 $ (366,061)
Effect of dilutive securities:
Preferred stock dividend....................... 589 -- -- --
--------- ---------- --------- ----------
Numerator for diluted net income (loss) per
common share................................... $ 19,018 $ (110,523) $ 29,346 $ (366,061)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Denominator for basic net income (loss) per
common share--weighted average common shares
outstanding.................................... 169,077 152,352 165,711 151,708
Effect of dilutive securities:
Stock options.................................. 1,615 -- 2,696 --
Series A-1 Convertible Preferred Stock and
warrants..................................... 695 -- 2,999 --
Series B Convertible Preferred Stock and
Warrants..................................... 10,885 -- -- --
--------- ---------- --------- ----------
Denominator for diluted net income (loss) per
common share................................... 182,272 152,352 171,406 151,708
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Basic net income (loss) per common share......... $ 0.11 $ (0.73) $ 0.18 $ (2.41)
Diluted net income (loss) per common share....... $ 0.10 $ (0.73) $ 0.17 $ (2.41)
</TABLE>

11
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE F--NET INCOME (LOSS) PER SHARE (CONTINUED)
The Company excluded potentially dilutive securities for each period
presented from its diluted EPS computation because either the exercise price of
the securities exceeded the average fair value of the Company's common stock or
the Company had net losses, and, therefore, these securities were anti-dilutive.
A summary of the excluded potential dilutive securities and the related
exercise/conversion features as of September 30, 1998 follows (in thousands):

<TABLE>
<S> <C>
Potential dilutive securities:
Stock options........................................................ 9,938
Stock warrants
Common Stock....................................................... 1,002
Series A-1 Convertible Preferred Stock............................. --
Convertible Preferred Stock
Series B Convertible Preferred Stock............................... --
</TABLE>

The stock options have per share exercise prices ranging from $5.75 to
$33.25 and are exercisable through June 2007.

The warrants to purchase shares of Common Stock of the Company (the "Series
B Warrants") were issued in connection with the conversion of certain shares of
the Company's Series B Convertible Preferred Stock (the "Series B Preferred")
into shares of Common Stock of the Company in accordance with the provisions
described below. Shares of the Company's Common Stock are purchasable under the
Series B Warrants at a per share exercise price of $7.84 and the Series B
Warrants are exercisable through November 2002.

Warrants to purchase shares of the Company's Series A-1 Preferred Stock (the
"Series A Preferred") are exercisable into shares of Series A-1 Preferred at a
per share price of $250 through August 15, 1999. Each Series A-1 Preferred share
is convertible into shares of the Company's Common Stock at a per share price
equal to 101% of the average price of the Company's Common Stock for the thirty
trading days ending five trading days prior to conversion, but not greater than
the lesser of (i) 105% of the Company's Common Stock's average price of the
first five trading days of such thirty-day period, or (ii) $12. If not converted
earlier, the Series A-1 Preferred Stock will generally convert automatically
into shares of the Company's Common Stock 18 months after their issuance.

Each Series B Preferred share is convertible, at the election of the holder,
into the number of shares of the Company's Common Stock at a per share price
equal to the lowest of (i) the average of the closing bid prices for the
Company's Common Stock for the 22 days immediately prior to the 180th day
following the initial issuance date, (ii) 101% of the average closing bid price
for the 22 trading days ending five days prior to the date of actual
conversions, or (iii) 101% of the lowest closing bid price for the Company's
Common Stock during the five trading days immediately prior to the date of
actual conversions. The conversion price of the Series B Preferred is subject to
modification and adjustment upon occurrence of certain events. If not converted
earlier, the Series B Preferred will automatically convert into shares of Common
Stock three years following the date of issuance. Upon conversion of the Series
B Preferred, the holders will receive Series B Warrants to purchase that number
of shares of the Company's Common Stock equal to 20% of the shares of the
Company's Common Stock into which the Series B Preferred is convertible, but not
less than an aggregate of 748,109 at a per share exercise price of $7.84.

12
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE G--SENIOR SECURED CREDIT AGREEMENT

In December 1997, Informix Software, Inc., a Delaware corporation and the
Company's principal operating subsidiary, entered into a Senior Secured Credit
Agreement with a syndicate of commercial banks, including BankBoston, N.A. as
administrative agent and Canadian Imperial Bank of Commerce as syndication
agent, providing for a revolving credit facility of up to $75 million (the
"Credit Facility"). Amounts outstanding under the Credit Facility bear interest
at a premium over one of two alternative variable rates selected by the Company.
The "Base Rate" equals the greater of (i) the rate of interest announced by
BankBoston, N.A. as its "base rate" and (ii) the Federal Funds Effective Rate
plus 1/2 of 1% per year. The "Adjusted LIBOR Rate" equals (i) the London
Interbank Offered Rate divided by (ii) one minus the applicable reserve
requirement under Regulation D of the Federal Reserve Board. The maximum premium
over the Base Rate is 1.25%, and the maximum premium over the LIBOR Rate is
2.50%, subject to downward adjustment based on the Company's realizing certain
financial thresholds. The actual amount available under the Credit Facility, for
either direct borrowings or issuances of letters of credit, is based on 80% of
the eligible domestic accounts receivable and 50% of the eligible foreign
accounts receivable, which are measured on a revolving basis. As of September
30, 1998, the Company was able to borrow $50.3 million, subject to compliance
with certain covenants. During the quarter ended September 30, 1998, the lenders
under the Credit Facility waived the Company's non-compliance with certain
financial covenants as of June 30, 1998 and amended the Credit Facility so that
it now includes less restrictive financial covenants.

At September 30, 1998, the Company was in compliance with all of the
covenants under the amended Credit Facility. At September 30, 1998, no
borrowings were outstanding under the Credit Facility.

NOTE H--STOCKHOLDERS' EQUITY

In December 1997, the Company's Board of Directors authorized a second stock
option repricing which was effective January 9, 1998 (the "Second Repricing
Effective Date") based upon the closing sales price of the Company's Common
Stock as of the Second Repricing Effective Date. Under the terms of the second
repricing, each employee, excluding officers and directors of the Company, could
exchange any option granted and outstanding as of May 1, 1997 for a new option
with an exercise price equal to the closing sales price on the Second Repricing
Effective Date and with terms consistent with those of the original option,
except that options exchanged in the second repricing could not be exercised for
a period of one year from the Second Repricing Effective Date. Employees elected
to reprice 3,128,524 options at a price of $5.094, the closing sales price of
the Company's Common Stock on the Second Repricing Effective Date.

On February 13, 1998, the holders of the Series A-1 Preferred Stock
exercised warrants to purchase 60,000 additional shares of Series A-1 Preferred
at $250 per share resulting in net proceeds to the Company of $14.1 million. In
addition, pursuant to the Series A-1 Subscription Agreement, the Series A-1
Preferred stockholders converted 220,000 shares of Series A-1 Preferred into
12,769,908 shares of the Company's Common Stock.

On June 10, 1998, a holder of the Series B Preferred Stock converted 500
shares of Series B Preferred into 80,008 shares of the Company's Common Stock.
In connection with such conversion, the Company also issued such Series B
Preferred Stockholder a warrant to purchase up to 66,000 shares of Common Stock
at a purchase price of $7.84 per share. Also, during the quarter ended June 30,
1998, the Company issued a warrant pursuant to the provisions of the Series B
Preferred to purchase up to an additional

13
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE H--STOCKHOLDERS' EQUITY (CONTINUED)
50,000 shares of Common Stock at a purchase price of $7.84 per share to a
financial advisor of the Company because, as of May 15, 1998, the closing sales
price of the Company's common stock was less than $12.50. Such warrant was
issued in connection with services provided by such financial advisor related to
the sale of shares of the Series B Preferred in November 1997.

In July 1998, the Company adopted its 1998 Non Statutory Stock Option Plan
under which it reserved 5,500,000 shares of its Common Stock for issuance to
employees and consultants of the Company other than executive officers and
directors.

During September 1998, holders of the Series B Preferred Stock converted a
total of 13,500 shares of Series B Preferred into 3,679,472 shares of the
Company's Common Stock. In connection with such conversions, the Company also
issued such Series B Preferred Stockholders warrants to purchase up to 885,891
shares of Common Stock at a purchase price of $7.84 per share and paid cash
dividends in the amount of $549,178 to such stockholders.

Reconciliation of outstanding common shares:

<TABLE>
<S> <C>
Shares outstanding at December 31, 1997........................ 152,587,051
Shares issued upon exercises of stock options.................. 2,209,479
Shares sold and issued to employees under ESPP................. 984,828
Shares issued upon conversion of Series A-1 Preferred.......... 12,769,908
Shares issued upon conversion of Series B Preferred............ 3,759,480
----------
Shares outstanding at September 30, 1998....................... 172,310,746
----------
----------
</TABLE>

NOTE I--RESTRUCTURING CHARGES

In June and September 1997, the Company approved plans to restructure its
operations to bring expenses in line with forecasted revenues. In connection
with the restructuring, the Company substantially reduced its worldwide
headcount and operations to improve efficiency. The following analysis sets
forth the significant components of the restructuring charge included in current
liabilities at September 30, 1998:

<TABLE>
<CAPTION>
RESTRUCTURING
EXPENSE
AT DEC. 31, NON-CASH CASH ACCRUAL BALANCE
1997 COSTS PAYMENTS ADJUSTMENTS AT SEPT. 30, 1998
--------------- ----------- ----------- --------------- -------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Severance and benefits.................... $ 21.9 $ -- $ 19.6 $ 2.2 $ 0.1
Write-off of assets....................... 48.2 48.2 -- -- --
Facility charges.......................... 34.7 9.4 11.7 5.1 8.5
Other..................................... 3.4 2.7 0.2 -- 0.5
------ ----- ----- --- ---
$ 108.2 $ 60.3 $ 31.5 $ 7.3 $ 9.1
------ ----- ----- --- ---
------ ----- ----- --- ---
</TABLE>

14
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE I--RESTRUCTURING CHARGES (CONTINUED)
Superstores throughout the world, as well as the write-off of equipment
associated with headcount reductions. The equipment subject to write-offs and
write-downs consisted primarily of computer servers, workstations, and personal
computers that are no longer utilized in the Company's operations. Facility
charges include early termination costs associated with the closing of certain
domestic and international sales offices.

Total restructuring expense decreased by $2.6 million and $7.3 million
during the quarter ended, and the nine-month period ended, September 30, 1998,
respectively. These decreases were primarily due to adjusting the estimated
severance and facility charges to actual costs incurred. The Company has
substantially completed actions associated with its restructuring except for
subleasing or settling its remaining long-term operating leases related to
vacated properties.

NOTE J--LITIGATION

Commencing in April 1997, a series of class action lawsuits purportedly by
or on behalf of stockholders and a separate but related stockholder action were
filed in United States District Court for the Northern District of California.
These actions name as defendants the Company, certain of its present and former
officers and directors and in some cases, its former 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 California state court, Utah state court, federal court in the Southern
District of New York and in Newfoundland, Canada.

Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants and the Company's former
independent auditors, were also filed, commencing in August 1997, in California
state court. While these actions allege various violations of state law, any
monetary judgments in the derivative actions would accrue to the benefit of the
Company.

Pursuant to Delaware law and certain indemnification agreements between the
Company and each of its current and former officers and directors, the Company
is obligated to indemnify its current and former officers and directors for
certain liabilities arising from their employment with or service to the
Company. This includes the costs of defending against the claims asserted in the
above-referenced actions and any amounts paid in settlement or other disposition
of such actions on behalf of these individuals. The Company's obligations do not
permit or require it to provide such indemnification to any such individual who
is adjudicated to be liable for fraudulent or criminal conduct. Although the
Company has purchased directors' and officers' liability insurance to reimburse
it for the costs of indemnification for its directors and officers, the coverage
presumes that 100 percent of the costs incurred in defending claims asserted
jointly against the Company and its current and former directors and officers
are allocable to the individuals' defense. With respect to the claims described
above, the Company does not have insurance to cover the costs of its own defense
or to cover any liability for any claims asserted against it.

The pending federal and state securities actions are in the early stages of
discovery. Consequently, at this time it is not reasonably possible to estimate
the damages, or the range of damages, that the Company might incur in connection
with such actions. Therefore, the Company has not set aside any financial
reserves relating to any of the above-referenced actions.

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

15
<PAGE>
INFORMIX CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1998

NOTE J--LITIGATION (CONTINUED)
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.

On June 9, 1998, the Company filed a Post-Effective Amendment to its
Registration Statement on Form S-1 pertaining to the Company's sale of its
Series B Preferred stock. The Securities and Exchange Commission ("SEC")
reviewed the Post-Effective Amendment and declared it effective on August 13,
1998. The Series B Preferred stockholders have claimed that during August 1998
they were prevented from selling shares of Series B Preferred stock until the
SEC completed its review of the Post-Effective Amendment and, as a result, the
Company had failed to comply with certain terms of a Registration Rights
Agreement between the Series B Preferred stockholders and the Company. The
Company is currently involved in discussions with the Series B Preferred
stockholders and expects to resolve this matter before the end of the current
fiscal year. The Company will account for any cost associated with the
resolution of this matter as an additional dividend to the Series B Preferred
stockholders. The Company is unable to estimate the amount, if any, of such
dividend.

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 these disputes or such other litigation will not have a
material effect on the Company's financial position, results of operations or
cash flows.

NOTE K--NEW ACCOUNTING STANDARD

In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities"
which establishes standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. FAS 133 is effective for fiscal years beginning after June 15,
1999. Earlier application of FAS 133 is encouraged but should not be applied
retroactively to financial statements of prior periods. The Company is currently
evaluating the requirements and impact of FAS 133.

NOTE L--SUBSEQUENT EVENTS

In October 1998, the Company announced the signing of a definitive agreement
(the "Agreement") to acquire Red Brick Systems, Inc. ("Red Brick"), a company
that designs, develops, markets and supports data warehousing software. Under
the terms of the agreement, each share of Red Brick common stock will be
exchanged for 0.6 share of Informix common stock. The transaction will be
accounted for as a purchase. The transaction is subject to the satisfaction of
several conditions, including regulatory approval, the approval of Red Brick
stockholders and completion of an independent audit of Red Brick's financial
results for the first three quarters of 1998.

Subsequent to September 30, 1998, holders of the Series B Preferred
converted an additional 9,350 shares of Series B Preferred into 2,130,069 shares
of common stock. In connection with such conversions, Informix also issued such
Series B Preferred stockholders Warrants to purchase up to 426,010 shares of
common stock at an exercise price of $7.84 per share and paid cash dividends in
the amount of $442,863 to such stockholders.

16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"BUSINESS RISKS" IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS REPORT. THE FOLLOWING DISCUSSION SHOULD BE
READ IN CONJUNCTION WITH THE COMPANY'S CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

As a result of the restatement of the Company's financial statements for the
first quarter of 1997 and the years 1996, 1995 and 1994 as updated in subsequent
filings made by the Company, certain information contained in this item related
to the quarter ended, and the nine-month period ended, September 28, 1997 has
changed from that which appeared in the Company's originally filed Form 10-Q for
that period.

In addition, as a result of the restatement of the Company's financial
statements for the first quarter of 1998, certain information contained in this
item related to such period has changed from that which appeared in the
Company's originally filed Form 10-Q for that period.

Effective January 1, 1998, the Company elected to change from the 4-4-5 week
quarterly convention previously followed to a calendar quarter convention. The
change resulted in an additional three days of operations for the nine-month
period ended September 30, 1998 as compared to the previous year. The impact on
the Company's financial statements for the nine-month period ended September 30,
1998 was to increase license revenue by $17.4 million, or 7% percent. In
addition, accounts receivable increased approximately $17.4 million and accrued
expenses increased approximately $2.7 million. The impact on the Company's
financial statements for the three-month period ended September 30, 1998 was to
increase license revenue by $6.4 million, or 7% percent.

References to or comparisons between the same "period" in this Form 10-Q
refer to the Company's quarterly and/or nine-month periods of the relevant
fiscal year.

OVERVIEW

The Company is a leading multinational supplier of information management
software. It derives license revenues principally from licensing its relational
database management systems ("RDBMS") software and derives service revenues from
providing technical product support and product updates and consulting and
training services to customers. The Company's products are sold directly to
end-users and IMs and indirectly through application resellers, original
equipment manufacturers ("OEMs") and distributors.

In the first quarter of fiscal 1997, the Company experienced a substantial
shortfall in license revenues compared to forecasts, resulting in a substantial
loss for that quarter. The shortfall in revenue was due to slow growth in demand
for RDBMS products as well as the Company's inability to close a number of sales
transactions that management anticipated would close by quarter's end,
particularly in Europe.

As a result of the shortfall in license revenues for the first quarter of
fiscal 1997, the Company, in the second quarter and again in the third quarter
of fiscal 1997, initiated an internal restructuring of its operations intended
to reduce operating expenses and improve the Company's financial condition.
These restructurings included selective reductions in headcount and leased
facilities and the downsizing, elimination or conversion into solution labs of
the Company's planned Information Superstores. Costs associated with the
restructurings totaled approximately $103.5 million and had a material adverse
effect on the Company's results of operations for fiscal 1997. In addition, in
1997, the Company issued two newly designated series of its Preferred Stock
Series A-1 Preferred Stock (the "Series A-1 Preferred") and Series B Preferred
Stock (the "Series B Preferred") in two financing transactions which resulted in

17
<PAGE>
aggregate net proceeds of $87.6 million to the Company (excluding a $1.0 million
fee paid to a financial advisor of the Company in connection with the sale of
the Series B Preferred). In February 1998, the Company issued an additional
60,000 shares of its Series A-1 Preferred pursuant to the partial exercise of a
warrant to purchase shares of Series A-1 Preferred (the "Series A-1 Warrant")
which warrant was issued in connection with the sale of the Series A Preferred
in August 1997. The partial exercise of the Series A-1 Warrant resulted in net
proceeds of $14.1 million to the Company. At September 30, 1998, the Series A-1
Warrant remained exercisable for up to 80,000 shares of Series A-1 Preferred at
a purchase price of $250 per share. At September 30, 1998, 36,000 shares of
Series B Preferred remained outstanding. In December 1997, the Company entered
into a senior secured credit facility agreement for up to $75.0 million, of
which the Company was eligible to borrow $50.3 million at September 30, 1998
based on certain eligibility criteria. See "Business Risks--Need for Additional
Financing."

RESTATEMENT OF FINANCIAL RESULTS FOR FISCAL 1996, 1995 AND 1994 AND FOR THE
FIRST QUARTER OF FISCAL 1997

In August 1997, the Company announced that it had become aware of errors and
irregularities that affected the timing and the dollar amount of reported earned
revenues from license transactions for all annual periods in the three years
ended December 31, 1996. These errors and irregularities included unauthorized
and undisclosed arrangements or agreements between Company personnel and
resellers, recognition of revenue on certain transactions in reporting periods
prior to contract acceptance, the recording of certain transactions that lacked
economic substance and the recording of maintenance revenue as license revenue.
The unauthorized and undisclosed agreements with resellers introduced acceptance
contingencies, permitted resellers to return unsold licenses for refunds,
extended payment terms or committed the Company to assist resellers in selling
the licenses to end-users. Accordingly, license revenues from these transactions
that were recorded at the time product was delivered to resellers should have
instead been recorded at the time all conditions to the sale lapsed. Because of
the pervasiveness of the unauthorized arrangements with resellers in the 1994,
1995 and 1996 accounting periods, the Company concluded that all revenue from
license agreements with resellers, except for those licenses sold and billed on
a per copy basis, should be recognized only when the licenses were resold or
utilized by resellers and all related obligations had been satisfied. In
addition, amounts received from resellers or financial institutions as
prepayments of software license fees in advance of revenue recognition should be
recorded as advances from customers and financial institutions. The financial
review undertaken by the Company resulted in the restatement of the Company's
financial results for fiscal 1996, 1995 and 1994 and for the first quarter of
fiscal 1997. The Company publicly disclosed the results of the restatement in
November 1997.

The nature of the Company's business in 1992 and 1993 was such that there
was not a material amount of revenues recorded under prepaid software license
transactions conducted with resellers during these years. Additionally, as a
result of the Company's extended procedures, there were no material errors or
irregularities identified affecting revenues recognized prior to the third
quarter of 1994. The Company concluded based on those circumstances that it was
not necessary to restate the financial statements for 1992 and 1993.

In connection with the errors and irregularities discussed above, a number
of conditions which collectively represented a material weakness in the
Company's internal accounting controls were identified. These conditions
included a deterioration in the Company's accounting controls at corporate and
regional management levels, and a related failure to stress the importance of
these controls, an inappropriate level of influence, principally by the
Company's sales organization, over the revenue recognition process and an
apparent lack of clarity and consistent understanding within the Company
concerning the application of the Company's revenue recognition policies to
large, complex reseller license transactions. To address the material weakness
represented by these conditions, the Company is implementing a plan to
strengthen the Company's internal accounting controls. This plan includes
updating the Company's revenue recognition policies regarding accounting and
reporting for large, complex reseller license

18
<PAGE>
transactions, developing and conducting educational programs to help implement
such policies, changing the Company's corporate and regional accounting and
reporting structure and re-establishing the internal audit function reporting to
the Company's Board of Directors.

As a result of the restatement, total revenues were reduced from amounts
previously reported by $204.8 million from $939.3 million as originally reported
to $734.5 million, by $77.7 million from $714.2 million as originally reported
to $636.5 million and by $18.1 million from $470.1 million as originally
reported to $452.0 million for fiscal 1996, 1995 and 1994, respectively. The
restatement also resulted in an increase in revenues of $16.2 million from
$133.7 million as originally reported to $149.9 million for the first quarter of
fiscal 1997. In addition, the restatement resulted in a reduction in net income
of $171.4 million from $97.8 million as originally reported to a loss of $73.6
million for fiscal 1996; a reduction in net income of $59.0 million from $97.6
million as originally reported to $38.6 million for fiscal 1995; and a reduction
in net income of $13.6 million from $61.9 million as originally reported to
$48.3 million for fiscal 1994. The restatement had a material adverse effect on
the Company's financial condition, most notably evidenced by the elimination of
retained earnings and working capital. At December 31, 1996, after giving effect
to the restatement, the Company's working capital decreased $255.3 million from
$258.4 million as originally reported to $3.1 million. At December 31, 1997, the
Company had a working capital deficit of $140.2 million and at September 30,
1998, the Company had a working capital deficit of $14.4 million. The
substantial reductions in working capital at December 31, 1997 and 1996 reflect
substantial operating losses and the addition of "advances from customers and
financial institutions" as a current liability on the Company's balance sheet.
Such advances totaled $180.0 million at December 31, 1997 and $239.5 million at
December 31, 1996. At September 30, 1998, such advances totaled $139.3 million.
See "Business Risks-- Working Capital Deficit."

The Company's public announcement of the pending restatement, delays in
reporting operating results for the second and third quarters of fiscal 1997
while the restatement was being compiled, threatened de-listing of the Company's
Common Stock from the Nasdaq National Market as a result of the Company's
failure to satisfy its public reporting obligations, corporate actions to
restructure operations and reduce operating expenses, and customer uncertainty
regarding the Company's financial condition adversely affected the Company's
ability to sell its products in fiscal 1997. In addition, since the beginning of
1997, the Company and its competitors have experienced substantially slower
growth in the market for RDBMS products. The financial restatement has now been
completed, its results have been publicly disclosed and the Company is current
with respect to its public reporting obligations. In addition, the Company
believes that it has effectively controlled its operating expenses and
significantly improved its financial condition. Nevertheless, adverse market
conditions, including significant competitive pressures in the Company's markets
and ongoing customer uncertainty about the Company's financial condition and
business prospects, may continue to have an adverse effect on the Company's
ability to sell its products and results of operations.

RESTATEMENT OF FINANCIAL RESULTS FOR FIRST QUARTER OF FISCAL 1998

In May 1998, the Company announced that it had restated its financial
results for the first quarter ended March 31, 1998. Total revenues for the
quarter restated were $161.0 million which is a reduction of approximately $6.2
million from the previously reported $167.2 million. In addition, the
restatement resulted in a reduction in net income of $5.3 million from $7.1
million as originally reported to $1.8 million for the quarter ended March 31,
1998. The restatement also affected the Company's financial condition as
evidenced by a reduction in working capital and an increase in accumulated
deficit. The working capital deficit at March 31, 1998 increased $5.3 million
from $86.5 million as originally reported to $91.8 million. The Company's
accumulated deficit also increased $5.3 million from $271.0 million as
originally reported to $276.3 million. The restatement of Company's financial
results for the first quarter occurred in connection with the Company's
accounting treatment for license transactions with industrial manufacturers
("IMs").

19
<PAGE>
In connection with the restatement of its financial statements for fiscal
1994, 1995, 1996 and the first quarter of fiscal 1997, the Company examined
both: (1) agreements where customers committed to purchase up to a designated
dollar amount of software licenses ("Commitment Agreements"); and (2) agreements
where customers purchased licenses on a per copy basis ("Straight Purchase
Agreements"). The Company determined that unauthorized and undisclosed
agreements (which included the introduction of acceptance contingencies,
permission to return unsold licenses for refunds and extended payment terms) had
been made to certain customers in connection with Commitment Agreements, but not
in connection with Straight Purchase Agreements.

Some of the Company's software license agreements with IMs were Commitment
Agreements and some were Straight Purchase Agreements. Instead of analyzing
every Commitment Agreement with IMs to determine whether unauthorized and
undisclosed agreements had been made, the Company conservatively treated all
Commitment Agreements with IMs as reseller agreements for accounting purposes
and restated that IM revenue to a sell-through basis. The total amount of
revenue resulting from all Commitment Agreements with IMs was not material in
fiscal 1994, 1995, 1996 or the first quarter of fiscal 1997. Straight Purchase
Agreements with IMs were not restated.

The Company initially decided to recognize revenue from IM transactions
after December 31, 1997 on a sell-in basis. The Company's license transactions
with IMs and end users are substantially similar in that upon the delivery of
the Company's software to the IM: (1) all obligations of the Company under the
software license agreement are fully performed; and (2) the Company believes the
earnings process with regard to these transactions to be complete. Accordingly,
in its original report of the financial results for the quarter ended March 31,
1998, the Company had recognized approximately $6.2 million in license revenue
resulting from software license agreements with IMs in the same manner as
revenue resulting from agreements with end users.

In connection with its audit of the Company's fiscal 1997 consolidated
financial statements, the Company's former independent accountants determined
that a material weakness existed, based on the lack of appropriate resources in
the Finance Department of the Company and other conditions. To address these
conditions, the Company has hired, and plans to continue to hire, additional
finance personnel to serve in the Finance Department. In addition, the Company
has hired a number of consultants to ensure that appropriate accounting control
measures are in place. As noted above, ongoing customer uncertainty about the
Company's financial condition and business prospects may continue to have an
adverse effect on the Company's ability to sell its products and results of
operations. See "Business Risks--Dependence on Key Personnel; Personnel Changes;
Ability to Recruit Personnel."

20
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth operating results as a percentage of net
revenues for the three-month and nine-month periods ended September 30, 1998 and
September 28, 1997, respectively.

<TABLE>
<CAPTION>
PERCENT OF NET REVENUES
--------------------------------------------------
THREE MONTHS ENDED
NINE MONTHS ENDED
------------------------ ------------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue:
Licenses.......................................... 52% 52% 51% 57%
Services.......................................... 48 48 49 43
--- --- --- ---
Total net revenue................................... 100 100 100 100
Costs and expenses:
Cost of software distribution..................... 5 8 5 11
Cost of services.................................. 21 27 22 27
Sales and marketing............................... 35 68 37 72
Research and development.......................... 19 23 21 22
General and administrative........................ 11 12 10 15
Write-off of goodwill and long term assets........ -- -- -- 6
Write-off of acquired research and development.... -- -- -- 1
Restructuring charges............................. (1) 33 (1) 23
--- --- --- ---
Total operating expenses........................ 89 171 93 177
--- --- --- ---
Operating income (loss)............................. 11 (71) 7 (77)
Interest income..................................... 1 1 1 1
Interest expense.................................... (1) (1) (1) (1)
Other income/(expense), net......................... (1) (1) -- 3
--- --- --- ---
Income (loss) before tax............................ 10 (72) 7 (74)
Income taxes........................................ -- (2) -- (2)
--- --- --- ---
Net income (loss)................................... 10% (74)% 6% (76)%
--- --- --- ---
--- --- --- ---
</TABLE>

Informix's operating results for the quarter and the nine-month period ended
September 30, 1998 increased significantly from the same periods of the prior
year. The quarterly change was due to a 36% decrease in operating expenses
coupled with a 23% increase in revenue. The nine-month change was due to a 8%
increase in revenue coupled with a 43% decrease in operating expenses.

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.

LICENSE REVENUES

The Company's products are sold directly to end-user customers and IMs or
through resellers, including OEMs, distributors and value added resellers
(VAR's). In 1996, the Company increased its focus on its reseller channels in
order to focus on partnerships with several hardware vendors to utilize their

21
<PAGE>
sales forces, obtain access to their installed base of customers, and benefit
from their consulting and systems 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. Unsold licenses in the amount
of $139.3 million and $210.3 million have not been recognized as earned revenue
as of September 30, 1998 and September 28, 1997, respectively.

License revenues for the nine-month period ended September 30, 1998
decreased slightly to $265.7 million from $273.1 million for the same period in
1997. License revenues increased to $96.3 million for the quarter ended
September 30, 1998 as compared to $77.4 million for the corresponding quarter in
1997, an increase of approximately 24%. This increase primarily reflects the
lower than normal level of license revenues attained by the Company in the third
quarter of 1997 as a result of customer uncertainty regarding the Company's
financial condition at that time. License revenues were higher for the quarter
ended September 30, 1998 as compared to the corresponding quarter in 1997 for
each of the Company's regions. The Company had one new transaction during the
quarter ended September 30, 1998 which exceeded $2.5 million. In addition, the
Company partially recognized revenue from two customers during the quarter ended
September 30, 1998 related to transactions which were previously treated as
customer advances. The amounts recognized from these two customers amounted to
$3.8 million and $2.8 million, respectively.

The Company recognizes revenue from license agreements with resellers when
the licenses are resold or utilized by the reseller and all related obligations
have been satisfied. Agreements with resellers frequently require cash advances
from the customer or from a financing entity to whom the customer payment
streams are sold. Amounts received in advance of revenue being recognized are
recorded as "advances from customers and financial institutions" in the
Company's financial statements. During the three month period ended September
30, 1998, the Company received $2.4 million in customer advances and recognized
revenue from resellers with previously recorded customer advances of $18.0
million. Included in the $18.0 million recognized was $17.1 million of licenses
which were resold or utilized by the reseller and $0.9 million related to
contractual reductions in the customer advances. During the nine month period
ended September 30, 1998, the Company received $10.1 million in customer
advances and recognized revenue from resellers with previously recorded customer
advances of $48.6 million. Included in the $48.6 million recognized was $46.7
million of licenses which were resold or utilized by the reseller and $1.9
million related to contractual reductions in customer advances. Contractual
reductions result from settlements between the Company and resellers in which
the customer advance contractually expires or a settlement is structured wherein
the rights to resell the Company's product terminate without sell through or
deployment of the software.

During the three months ended September 30, 1998, the Company structured
settlements with two of its resellers. The terms of the settlements permit the
resellers to continue to sell the Company's products for specified periods of
time. At the end of each three month period, the respective customer advance
will be reduced by the greater of (i) the value of the software products resold
or utilized by the reseller or (ii) a minimum specified dollar amount. The
amount of the reduction in customer advances will be recognized as product
revenue.

As of September 30, 1998, the Company had reached structured settlements
with resellers with remaining rights to resell a total of $30.2 million of the
Company's products. In accordance with the settlements, the minimum reduction in
customer advances totals $4.7 million for the quarter ended December 31, 1998,
and $18.2 million and $7.3 million for the years ended December 31, 1999 and
2000, respectively.

The Company's license transactions can be relatively large in size and
difficult to forecast both in timing and dollar value. As a result, license
transactions have caused fluctuations in net revenues and net income (loss)
because of the relatively high gross margin on such revenues. As is common in
the industry, a disproportionate amount of the Company's license revenue is
derived from transactions that close in the

22
<PAGE>
last weeks or days of a quarter. The timing of closing large license agreements
also increases the risk of quarter-to-quarter fluctuations. The Company expects
that these types of transactions and the resulting fluctuations in revenue will
continue.

However, during fiscal 1998, the Company has changed its business practices
with respect to aggressive price discounting to encourage volume purchasing by
customers, a practice which has historically been common in the RDBMS industry.
The Company is now more closely managing price discounting and is transitioning
its sales model to encourage smaller, recurring transactions. Consequently, the
number of one-time large transactions with customers has decreased and may
continue to decrease.

As discussed in Note 2 to the Company's Consolidated Financial Statements
included in Form 10K for the year ended December 31, 1997, revenue from license
agreements with resellers, except for those licenses sold and billed on a
per-copy basis, is recognized as earned when the licenses are resold or utilized
by the reseller and all related obligations have been satisfied. In order to
properly recognize revenue on arrangements where the reseller has duplication
rights, the Company relies on accurate and timely reports from such resellers of
the quantity of licenses that have been resold or utilized. From time to time,
late or inaccurate reports are identified or corrected for a variety of reasons
including the reseller updating their reports or as a result of proactive
activities of the Company such as audits of the resellers' royalty reports. The
Company's revenue recognition policy is to recognize revenue in the quarter in
which evidence of the resale or utilization information is received. As a
result, revenue from these late or updated reports is recognized in the period
during which the reports are received. Such revenue amounts were not significant
for the quarter ended September 30, 1998 and amounted to approximately $8.2
million for the nine-month period ended September 30, 1998. However, the Company
expects that the late or inaccurate reporting of resale or utilization of
licenses by resellers and the resulting fluctuations will continue for the
foreseeable future.

SERVICE REVENUES

Service revenues increased 22% for both the quarter ended September 30, 1998
and the nine-month period ended September 30, 1998 as compared to the
corresponding periods of 1997. These increases are attributable primarily to the
renewal of maintenance contracts and increased consulting revenue in connection
with the Company's installed customer base. As the Company's products grow in
complexity, more support services are expected to be required. The Company
intends to satisfy this requirement through internal support, third-party
services and OEM support. The gross margin on service revenue increased from 44%
and 39% in the third quarter of 1997 and the nine-months ended September 28,
1997, respectively, to 57% and 55% in the comparable periods of 1998.

For the nine-month period ended September 30, 1998, service revenue grew
faster than license revenue and as a result, service revenue represents a larger
percentage of total revenues than in the prior year comparable period. The
Company continues to emphasize support services as a source of revenue and the
growth achieved versus the prior year period reflects the continued growth in
the Company's installed base. However, comparative growth rates in service
revenue and license revenue may fluctuate from quarter to quarter.

GEOGRAPHIC DISTRIBUTION

Informix's net revenues from sales to foreign customers was 50% of total
revenue during the third quarter ended September 30, 1998 as compared to 51% for
the same quarter in 1997. Foreign sales increased from $75.9 million in the
quarter ended September 28, 1997 to $92.9 million in the quarter ended September
30, 1998. For the nine-month period ended September 30, 1998, the Company's net
revenues from sales to foreign customers was 52% of total revenue as compared to
53% during the same period in 1997. Foreign sales increased from $256.9 million
in the nine-month period ended September 28, 1997 to $268.5 in the nine-month
period ended September 30, 1998.

23
<PAGE>
Sales in Europe increased 33% and 6% for the three-month period and
nine-month periods ended September 30, 1998, respectively, as compared to the
corresponding periods in 1997. As a percentage of total revenue, sales in Europe
remained constant at 33% for the nine-month period ended September 30, 1998, as
compared to the corresponding period in 1997. However, sales in Europe as a
percentage of total revenue for the quarter ended September 30, 1998 increased
to 32% from 30% in the same quarter a year ago. The increase in European sales
from the prior year quarter was partially due to the lower than normal level of
license revenues attained in the third quarter of 1997 as a result of customer
uncertainty regarding the Company's financial condition at that time.

Despite a significant increase in constant dollars, sales in Asia/Pacific
translated into U.S. dollars increased 5% and decreased 1% in the quarter ended
and the nine-month period ended September 30, 1998, respectively, as compared to
the corresponding periods in 1997. As a percentage of total revenue, sales
translated into U.S. dollars in Asia/Pacific remained relatively constant at 11%
and 12% for the quarter ended and the nine-month period ended September 30,
1998, respectively, as compared to 13% for both the corresponding periods in
1997.

Sales in Latin America increased 9% and 5% in the quarter ended and the
nine-month period ended September 30, 1998, respectively, as compared to the
corresponding periods in 1997. As a percentage of total revenue, sales in Latin
America remained relatively constant at 7% for both the quarter ended and the
nine-month period ended September 30, 1998 as compared to 8% for both of the
corresponding periods in 1997.

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 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.

COST OF SOFTWARE DISTRIBUTION

<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 % CHANGE 1998 1997 % CHANGE
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Manufactured cost of software distribution........... $ 3.0 $ 5.7 (47)% $ 10.1 $ 22.2 (55)%
Percentage of license revenue...................... 3% 7% 4% 8%
Amortization of capitalized software................. $ 5.6 $ 6.1 (8)% $ 16.6 $ 16.0 4%
Percentage of license revenue...................... 6% 8% 6% 6%
Write-down to net realizable value................... $ -- $ -- N/A $ -- $ 14.7 (100)%
Percentage of license revenue...................... --% --% --% 5%
Total cost of software distribution.................. $ 8.6 $ 11.8 (27)% $ 26.7 $ 52.9 (50)%
Percentage of license revenue...................... 9% 15% 10% 19%
</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 from 7% in the third quarter of 1997 to 3% in the third
quarter of 1998. This decrease was primarily a result of reductions in labor
costs, third party software royalties and shipping costs, as well as various
cost-savings

24
<PAGE>
resulting from the continued conversion of user documentation from printed to
electronic media. The manufactured cost of software distribution as a percentage
of license revenue decreased from 8% in the nine-month period ended September
28, 1997 to 4% in the same period of 1998. This decrease was primarily caused by
a decrease in third party software royalties, the write-off of the Company's
BAAN software in the second quarter of 1997, a reduction in labor costs and
reductions in materials and shipping costs. In the future, the cost of software
distribution as a percentage of revenue may vary depending upon sales levels,
labor costs, the success of continued cost-cutting efforts, shipping costs, the
cost of third party software that is bundled with the Company's products and
whether the product is produced by the Company or reproduced by customers.

Amortization of capitalized software costs begins in the quarter following
the commercial release of the product. The amortization of capitalized software
remained flat at 6% of license revenues in the first three quarters of 1998
compared to 6% in the first three quarters of 1997. The 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 Software, Inc.
in February 1997 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 in the first quarter of 1997.

COST OF SERVICES
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 % CHANGE 1998 1997
----------- ----------- ------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cost of services..................................... $ 38.5 $ 40.5 (5)% $ 113.4 $ 128.2
Percentage of service revenue...................... 43% 56% 45% 61%

<CAPTION>
% CHANGE
-----------
<S> <C>
Cost of services..................................... (12)%
Percentage of service revenue......................
</TABLE>

Cost of services consists primarily of maintenance, consulting and training
expenses. Cost of services for the third quarter of 1998 and the nine-month
period ended September 30, 1998 decreased by 5% and 12%, respectively, as
compared to the same periods in 1997. These decreases were primarily
attributable to decreases of 4% and 9% in average headcount for the quarter
ended and the nine-month period ended September 30, 1998, respectively, over the
same periods in 1997 as well as improved efficiency and better control of
outsourced expenses. In the future, the Company expects that cost of services as
a percentage of net service revenue will continue to approximate the rate
incurred in the first three quarters of 1998.

SALES AND MARKETING EXPENSES

Sales and marketing expenses consist primarily of salaries, commissions,
marketing programs and related overhead costs. The decrease in sales and
marketing expenses in the third quarter of 1998 and the nine-month period ended
September 30, 1998, in absolute dollars and as a percentage of net revenue, as
compared to the comparable periods of 1997 was primarily the result of a
significant reduction of sales and marketing personnel worldwide. For the
quarter ended September 30, 1998, average headcount for sales

25
<PAGE>
and marketing personnel decreased to 1,178 from 1,480 for the comparable period
in 1997, a decrease of 20%. For the nine-month period ended September 30, 1998,
average headcount for sales and marketing personnel decreased to 1,177 from
1,656 for the comparable period in 1997, a decrease of 29%. These decreases in
headcount account for the majority of the decreases both in percentage decline
and absolute dollars spent. In addition, depreciation expense charged to sales
and marketing decreased approximately $2.6 million and $11.6 million for the
quarter ended September 30, 1998, and the nine-month period then ended,
respectively, as compared to such periods in fiscal 1997 in connection with the
Company's reassessment of its Superstores concept which occurred in fiscal 1997.
The Company's decision to downsize, eliminate or convert Information Superstores
into solution labs managed by the Company's consulting practice, coupled with
other cost cutting measures resulted in significant charges for restructuring in
the second and third fiscal quarters of 1997.

RESEARCH AND DEVELOPMENT EXPENSES

The following table summarizes research and development costs for the
three-month and nine-month periods ended September 30, 1998 and September 28,
1997:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 % CHANGE 1998 1997
----------- ----------- ------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Incurred product development expenditures............ $ 39.9 $ 38.3 4% $ 121.4 $ 126.7
Expenditures capitalized............................. (5.0) (4.2) 19% (13.7) (18.3)
----- ----- ----------- -----------
Research and development expense..................... $ 34.9 $ 34.1 2% $ 107.7 $ 108.4
----- ----- ----------- -----------
----- ----- ----------- -----------
Expenses capitalized as a percentage of incurred
expenses........................................... 13% 11% 11% 14%

<CAPTION>
% CHANGE
-----------
<S> <C>
Incurred product development expenditures............ (4)%
Expenditures capitalized............................. (25)%
Research and development expense..................... (1)%
Expenses capitalized as a percentage of incurred
expenses...........................................
</TABLE>

Research and development expenses consist primarily of salaries, project
consulting and related overhead costs for product development. The Company
capitalizes software development costs incurred in developing a product once
technological feasibility of the product has been determined. Software costs
also include amounts paid for purchased software and outside development on
products which have reached technological feasibility. All software costs are
amortized as a cost of software distribution on a straight-line basis over the
remaining estimated economic life of the product. Capitalized software costs are
generally amortized over three years.

Product development expenditures increased in absolute dollars by 4% in the
third quarter of fiscal 1998 compared to the same period in fiscal 1997. The
proportion of capitalized product development expenditures as a percentage of
total incurred expenses increased slightly in the third quarter ended September
30, 1998 as compared to the same quarter a year ago and decreased in the
nine-month period ended September 30, 1998 compared to the same period in fiscal
1997. The decrease for the nine-month period is attributable to the fact that
during the first half of fiscal 1997, a large portion of expenditures incurred
were on products, primarily Universal Data Option, formerly Universal Server,
and related products, that had reached technological feasibility, but had not
yet been commercially released. The Company expects the proportion of work on
capitalized projects for the remainder of fiscal 1998 to remain relatively
stable compared to the first three quarters of fiscal 1998.

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 remain a significant percentage of revenues.

26
<PAGE>
The Company's product development efforts are expected to continue to
require substantial investments by the Company, and there can be no assurance
that the Company will have sufficient resources to make the necessary
investments. In addition, there can be no assurance that the Company's product
development efforts will be successful or that any new products will achieve
significant market acceptance.

GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------ ------------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 % CHANGE 1998 1997
----------- ----------- ------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General and administrative expenses.................. $ 20.6 $ 18.1 14% $ 50.5 $ 72.1
Percentage of net revenue............................ 11% 12% 10% 15%

<CAPTION>
% CHANGE
-----------
<S> <C>
General and administrative expenses.................. (30)%
Percentage of net revenue............................
</TABLE>

General and administrative expenses consist primarily of finance, legal,
information systems, human resources, bad debt expense and related overhead
costs. General and administrative expenses increased in absolute dollars in the
quarter ended September 30, 1998 as compared to the same quarter in 1997 but
remained relatively constant at 11% of net revenue as compared to 12% in the
prior year quarter. General and administrative expenses decreased in absolute
dollars in the nine-month period ended September 30, 1998 compared to the same
period in 1997 due primarily to a reduction in bad debt expense of $18.5
million. This reduction reflects the Company's efforts to better manage both the
amount and credit risk of its accounts receivable balances.

WRITE-OFF OF GOODWILL AND LONG-TERM ASSETS

In accordance with Financial Accounting Standards Board Statement No. 121
(FAS 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 by using estimated future discounted cash flows and/or resale market
quotes as appropriate.

In the quarter ended March 31, 1998, the Company wrote off approximately
$0.8 million of capitalized software. During the quarter, the Company reviewed
its portfolio of software development projects and determined $0.8 million of
previously capitalized software costs related primarily to the Company's "Data
Director for Java" and "Object Knowledge" application tools products should be
written off to cost of software distribution. The Company had developed both of
these tools products internally, although the "Data Director for Java"
application tools products were initially developed through the use of core
technology acquired from CenterView and the "Object Knowledge" application tools
products were initially developed through use of core technology acquired from
Illustra. In the first quarter of fiscal 1998, the Company (i) determined that
the Java interface required by "Data Director for Java" did not perform within
acceptable parameters in order to meet market demand; and (ii) decided to
abandon the "Object Knowledge" development process in order to focus on
developing a similar, internally-developed product called "Visionary."
Consequently, the Company canceled the development of both products and wrote
off the associated capitalized costs during the first quarter of fiscal 1998,
after it was determined that the projected sales of these tools products were
not sufficient to realize the capitalized product development costs. The review
of software development projects is performed periodically to ensure all
capitalized

27
<PAGE>
software costs recorded in accordance with FAS 86 are carried at an amount not
exceeding their net realizable value. The Company did not write off any
capitalized software costs in the second or third quarters of 1998.

WRITE-OFF OF ACQUIRED RESEARCH AND DEVELOPMENT

In February 1997, the Company acquired all of the outstanding capital stock
of CenterView Software, Inc., 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. The Company did not have any related activity in the nine-month
period ended September 30, 1998.

RESTRUCTURING

<TABLE>
<CAPTION>
RESTRUCTURING
EXPENSE
AT DEC. 31, NON-CASH CASH ACCRUAL BALANCE
1997 COSTS PAYMENTS ADJUSTMENTS AT SEPT. 30, 1998
--------------- ----------- ----------- --------------- -------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Severance and benefits.................... $ 21.9 $ -- $ 19.6 $ 2.2 $ 0.1
Write-off of assets....................... 48.2 48.2 -- -- --
Facility charges.......................... 34.7 9.4 11.7 5.1 8.5
Other..................................... 3.4 2.7 0.2 0 0.5
------ ----- ----- --- ---
$ 108.2 $ 60.3 $ 31.5 $ 7.3 $ 9.1
------ ----- ----- --- ---
------ ----- ----- --- ---
</TABLE>

Severance and benefits represent the reduction of approximately 670
employees, primarily sales and marketing personnel, on a worldwide basis. As of
September 30, 1998, the Company had substantially completed this component of
its restructure plan. Write-off of assets included write-off or write-down in
carrying value of equipment as a result of the Company's decision to reduce the
number of Information Superstores throughout the world, as well as the write-off
of equipment associated with headcount reductions. The equipment subject to
write-offs and write-downs consisted primarily of computer servers,
workstations, and personal computers that are no longer utilized in the
Company's operations. Facility charges include early termination costs
associated with the closing of certain domestic and international sales offices.

OTHER INCOME/(EXPENSE), NET

Other income/(expense) for the nine-month period ended September 30, 1998
resulted primarily from a net foreign currency loss of $(2.6) million. Other
income/(expense) for the nine-month period ended

28
<PAGE>
September 28, 1997 resulted primarily from a net foreign currency gain of $14.6
million. See "--Foreign Exchange Gains and Losses."

PROVISION FOR INCOME TAXES

Income tax expense for the quarter ended September 28, 1997 and the nine
months ended September 28, 1997 and September 30, 1998 resulted from taxable
earnings and withholding taxes in certain foreign jurisdictions where the
Company is unable to utilize its net operating loss carryforwards. No income tax
expense resulted in the three-month period ended September 30, 1998 due to a
change in the Company's effective tax rate for the year ended December 31, 1998.
The change resulted from implementation of measures to utilize net operating
loss carryforwards in certain foreign jurisdictions and other measures to
minimize foreign tax expense.

FOREIGN EXCHANGE GAINS AND LOSSES

The Company enters into forward foreign exchange contracts 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.

In addition, during the first quarter of 1998, the Company initiated a
program whereby it enters into forward foreign currency exchange contracts to
hedge no more than 80% of anticipated net income of foreign subsidiaries for up
to a maximum of one year in the future. The Company's outstanding forward
exchange contracts used to hedge anticipated net income are marked to market.
The Company recorded net foreign currency losses of $2.0 million and $0.5
million for the three-month periods ended September 30, 1998 and September 28,
1997, respectively. The increase of foreign currency losses in the third quarter
of 1998 as compared to the prior year is primarily a result of fluctuations in
certain European currency exchange rates.

For the nine-month periods ended September 30, 1998 and September 28, 1997,
the Company recorded net foreign currency gains/(losses) of $(2.6) million and
$14.6 million, 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 forward
contracts were no longer effective as hedges. Transaction gains and losses
realized due to fluctuations in foreign currency exchange rates that were only
partially offset by gains and losses on forward foreign currency exchange
contracts and the gains and losses on the forward exchange contracts resulted in
a net foreign currency gain of $12.2 million in the quarter ended March 30,
1997.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED
----------------------
SEPT. 30, SEPT. 28,
1998 1997
----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash, cash equivalents, and short-term investments..................... $ 156.4 $ 95.5
Working capital deficit................................................ (14.4) (254.9)
Cash and cash equivalents used by operations........................... (23.0) (144.0)
Cash and cash equivalents used in investment activities, excluding
investments of excess cash........................................... (25.9) (100.9)
Cash and cash equivalents provided by financing activities............. 33.6 67.1
</TABLE>

29
<PAGE>
OPERATING CASH FLOWS

Cash used by operations decreased significantly to $23.0 million for the
nine-month period ended September 30, 1998 from $144.0 million in the same
period in 1997 due primarily to the Company's efforts to reduce operating
expenses.

Net accounts receivable increased by $9.6 million as of September 30, 1998
as compared to December 31, 1997. Days sales outstanding increased from
approximately 71 days in December 1997 to 74 days in September 1998. 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.

INVESTING CASH FLOWS

Excluding investments of excess cash, net cash and cash equivalents used in
investing activities decreased in the nine-month period ended September 30, 1998
compared to the same period in 1997 due in large part to the Company's emphasis
on increasing its working capital position. In the nine-month period ended
September 30, 1998, the Company acquired $13.2 million of capital equipment as
compared to $94.2 million during the same period in 1997. The decrease of
capital equipment purchases in the nine-month period ended September 30, 1998
resulted from the Company's reduction in employee headcount, the related cost
containment program and the Company's decision to downsize, eliminate or convert
its Superstores into solution labs managed by the Company's consulting practice.
In the future, the Company anticipates the actual level of capital spending will
be dependent on a variety of factors, including the Company's business
requirements and general economic conditions.

In January 1997, the Company entered into a two-year land lease which
required a pledge of $61.5 million in cash be placed 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 property and equipment" line of
the cash flow statement. The land sales closed in the fourth quarter of fiscal
1997.

The Company's investments in software costs were previously discussed under
"Results of Operations."

FINANCING

Net cash and cash equivalents provided by financing activities in the
nine-month period ended September 30, 1998 consist primarily of proceeds from
the sale of the Company's common stock to employees, and the issuance of 60,000
additional shares of Series A-1 Preferred, in connection with the partial
exercise of a warrant to purchase 140,000 shares of Series A-1 Preferred Stock,
at a purchase price of $250 per share for net proceeds to the Company of $14.1
million.

The Company's programs with third-party financing institutions in the first
half of fiscal 1997 provided financing for extended credit terms instead of such
financing being provided by the Company. This was the primary source of net cash
and cash equivalents provided by financing activities in the first half of
fiscal 1997. 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 from Customers and Financial Institutions" as a financing
activity. The Company no longer enters into third-party financing arrangements
involving the sale of its receivables. See "Business Risks--Need for Additional
Financing and Working Capital Deficit."

30
<PAGE>
YEAR 2000 COMPLIANCE

GENERAL

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with Year 2000
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance.

The Company has begun to:

- Review the Year 2000 compliance status of the software and systems used in
its internal business processes; and

- Obtain appropriate assurances of compliance from the manufacturers of
these products and agreement to modify or replace all non-compliant
products.

The Company expects this work to be substantially complete by the Fall of
1999.

In addition, the Company is considering converting certain of its software
and systems to commercial products from third parties that are known to be Year
2000 compliant. This conversion will require:

- The dedication of substantial time from both Informix administrative and
management information personnel;

- The assistance of consulting personnel from third party software vendors;
and

- The training of the Company's personnel using such systems.

Based on the information available to date, the Company believes it will be
able to complete its Year 2000 compliance review and make necessary
modifications prior to the end of 1999. Software or systems which are important
to the Company's business are scheduled to be Year 2000 compliant by the end of
1998. To the extent the Company is relying on the products of other vendors to
resolve Year 2000 issues, there can be no guarantee that the Company will not
experience delays in implementing such products. The Company could incur
substantial costs and disruption of its business if key systems, or a
significant number of systems, were to fail as a result of Year 2000 problems or
if the Company were to experience delays in implementing Year 2000 compliant
software products.

STATE OF READINESS

The Company's Year 2000 project is divided into four major sections as
follows:

- The Company's Product Readiness;

- Information Systems Operations & Applications Software (IS Systems);

- Third-party Suppliers; and

- Global Business Processes (includes Facilities, Legal, Manufacturing,
Technical Support, Sales, Product Management and Development, Marketing
and Finance).

The Company has engaged Arthur Andersen LLP to help the Company with its
Year 2000 project.

The general phases common to all sections are:

- Increasing employees' awareness through various forms of communication;

31
<PAGE>
- Taking an inventory of items relevant to Year 2000 (including computer
hardware, software, telecommunications equipment, embedded controllers
within our facilities, and other non-computer related equipment),
assigning priorities to identified items for assessment and possible
renovation, and assessing the status of Year 2000 compliance of items
which have been determined to be material to the Company;

- Repairing or replacing material items that are not Year 2000 compliant;

- Testing or updates given by third party suppliers; and

- Designing and implementing contingency and business continuity plans for
each internal organization and location during the Year 2000 rollover
period. Material items are those items which are believed by the Company
to have a negative impact on customer service, involve a risk to the
safety of individuals, that may cause damage to property or the
environment, or that may affect revenue.

By November, 1998 the Company expects that the first phase of each section
of the project will be completed. The second phase is expected to be completed
by the end of 1998. The third phase will continue into the first half of 1999 as
various departments perform tests, or receive compliance information from
third-party suppliers. The testing phases of the project are being performed
primarily by the Company, with the exception of certain key applications which
will be analyzed, and possibly renovated and tested, by third-parties.

The Company has a business continuity program in development to ensure that
core business units remain viable and responsive during any interruption of the
renovation of its systems. Year 2000-related anomalies that may impact core
business units will also be addressed in this program. A working plan of the
program should be available within the third quarter of 1999.

PRODUCT READINESS. All of the Company's currently supported database server
products, beginning with the version 5 family, are believed to be Year 2000
compliance. The Company defines "Year 2000 compliant" to mean that "the use or
occurrence of the dates on or after January 1, 2000 will not adversely affect
the performance or functionality of the database server products with respect to
four-digit year dates or the ability of such products to correctly create,
store, process, and output information related to such date data, including Leap
Year calculations." However, the Company's Year 2000 compliance may be affected
by other parts of the system in which the Company's database server products are
used, as discussed below.

In addition, all of the Company's currently supported application
development tool products and client API products are believed to be Year 2000
compliant, as well as all connectivity products, Gateway products, DataBlades,
C-ISAM, Metacube, and OnLine/Optical.

The Company's products often depend on data from other parts of the system
in which they are being used. Year 2000 compliance is not effective unless all
of the hardware, operating system, other software, and firmware being used along
with the Company's products correctly interpret and/or translate date data into
a four digit year date and properly exchange date data with the Company's
products.

Data integrity is critical and therefore the Company is taking steps to
thoroughly test our products under different scenarios.

IS SYSTEMS. The IS operations of the Company consist of all computer
hardware, systems software and telecommunications. The Company's current
hardware inventory includes PC Desktops, PC Laptops, UNIX servers, UNIX
workstations, and NT workgroup servers. The Company's current software inventory
includes Windows 95 operating system and MS Office products, Product Development
environment tools for UNIX, and various management systems. The Company's
telecommunications equipment includes both voice and data services, including
PBX systems, voicemail, ACD, video conferencing, local area networks ("LANs"),
wide area networks ("WANs"), and remote access equipment. Conversion and
implementation of these components is estimated to be completed by June, 1999.
Testing is ongoing as

32
<PAGE>
hardware or system software is renovated or replaced. Contingency planning is
scheduled to commence in the first quarter of 1999. All IS operations activities
are expected to be completed by the third quarter of 1999.

The applications software section includes both the conversion of
applications software that is not Year 2000 compliant and the replacement of
such software (where available from the supplier). Significant portions of the
Company's key applications have already been renovated. In 1998, the Company
began a worldwide business systems replacement project with systems that use
programs primarily from SAP America, Inc. The purpose of this replacement
project was to improve access to business information through common, integrated
computing systems across the Company. The SAP systems are scheduled for
completion by late-1999. The remaining key business software programs are
expected to be Year 2000 compliant by the end of 1998. Applications supplied by
other vendors are expected to be renovated, replaced, or retired by early 1999.
None of the Company's other information technology projects have been delayed
due to the implementation of the Year 2000 project. Contingency planning for
this section is scheduled to begin in third quarter 1998 and be completed by
mid-1999.

THIRD-PARTY SUPPLIERS. This section includes the process of identifying and
prioritizing critical suppliers and communicating with them about our plans and
progress in addressing the Year 2000 problem and how their individual compliance
can impact our success. The Company has begun detailed evaluations of the most
critical suppliers. These evaluations will be followed by the development of
contingency plans, which are scheduled to begin in certain departments in the
fourth quarter of 1998, with completion by mid-1999. Follow-up reviews are
scheduled through the remainder of 1999.

GLOBAL BUSINESS PROCESSES. The Company has begun developing plans detailing
the tasks and resources required for the global business processes section. This
section includes the hardware, software and associated embedded computer chips
that are used in the operation of all facilities operated by the Company. It
also includes readiness in key Informix business areas, including Finance,
Technical Support, and Legal. All repair and testing of embedded systems is
scheduled to be completed by year-end 1999. Contingency planning for this
section is scheduled to begin in first quarter 1999 and be completed by year-end
1999.

COSTS

The total cost associated with required modifications to become Year 2000
compliant is expected to be material to the Company's financial position. The
estimated total cost of the Year 2000 project is approximately $4.5 million. The
total amount expended on the project through September 30, 1998 was less than
$100,000. The estimated future cost of completing the Year 2000 project is
estimated to be approximately $4.4 million. The Company estimates that this
amount will be spent as follows:

- $2 million for capital expenditures to repair or replace software and
related hardware;

- Approximately $500,000 for capital expenditures to repair or replace
non-IS equipment; and

- $1.9 million for non-capital expenses for Technical Support, Operations,
IS Operations and Applications, and the Year 2000 Program Office. Funds
for all non-capitalized items related to the project are provided from a
separate Year 2000 G&A budget. Capital costs are included in Informix
organizational capital budgets. The costs of implementing the SAP systems
is not included in these cost estimates as it is seen as a general
business enhancement which is not Year 2000 specific.

RISKS

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could negatively affect the Company's business. Due to
the general uncertainty inherent in the Year 2000 problem, the Company is unable
to determine at this time whether the consequences of Year 2000 failures will
have a material adverse impact

33
<PAGE>
on the Company's business. In addition, the Company is exposed to the risk of
general infrastructure disruptions that may affect the availability of personnel
throughout the Year 2000 rollover period. In addition, Year 2000 issues may
affect the purchasing patterns of customers and potential customers. Many
companies are expending significant resources to correct their current software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase software products such as those offered by Informix, which
could have a negative effect on the Company's business.

The Year 2000 Project is expected to significantly reduce Informix's level
of uncertainty about the Year 2000 problem and, in particular, about the Year
2000 compliance and readiness of its material third parties suppliers. The
Company believes that the possibility of significant interruptions of normal
operations will be reduced with the implementation of new business systems and
completion of the project as scheduled.

EUROPEAN MONETARY CONVERSION

On January 1, 1999, a new currency, the Euro, will become the legal currency
for eleven of the fifteen member countries of the European Economic Community.
Between January 1, 1999 and January 1, 2002, governments, companies and
individuals may conduct business in these countries in both the Euro and the
existing national currencies. On January 1, 2002, the Euro will become the sole
currency in these countries.

The Company is evaluating the impact of conversion to the Euro on its
business. In particular, the Company is reviewing:

- Whether it may have to change the prices of its products in the different
countries because they will be denominated in the same currency in each
country;

- Whether its internal software systems can process transactions denominated
either in current national currencies or the Euro, including converting
currencies using computation methods specified by the European Economic
Community;

- The cost to the Company if it must modify or replace any of its internal
software systems; and

- Whether it will have to change the terms of any financial instruments in
connection with its hedging activities.

Based on current information and the Company's initial evaluation, the
Company does not expect the cost of any necessary corrective action to have a
material adverse effect on its business. However, the Company will continue to
evaluate the impact of these and other possible effects of the conversion to the
Euro on its business. The Company cannot guarantee that the costs associated
with conversion to the Euro will not in the future have a material adverse
effect on its business.

BUSINESS RISKS

THIS REPORT, INCLUDING THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING
STATEMENTS AND OTHER PROSPECTIVE INFORMATION RELATING TO FUTURE EVENTS. THESE
FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION ARE SUBJECT TO CERTAIN RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THE FOLLOWING:

UNCERTAIN IMPACT OF RESTATEMENT OF FINANCIAL STATEMENTS

NOVEMBER 1997 RESTATEMENT. In November 1997, the Company restated its
financial statements for fiscal years 1996, 1995 and 1994. This restatement was
necessary due to errors and irregularities that took place during these fiscal
periods. The restatement significantly changed the Company's previously reported
financial condition, particularly because it eliminated the Company's retained
earnings and working capital.

34
<PAGE>
As a result of the restatement, total revenues and net income for fiscal
years 1994-1996 were reduced from amounts previously reported:
<TABLE>
<CAPTION>
1996 1995 1994
FISCAL YEAR --------------------------------------- --------------------------------------- --------------------------
(IN MILLIONS) AS REPORTED RESTATED DIFFERENCE AS REPORTED RESTATED DIFFERENCE AS REPORTED RESTATED
------------- ----------- ----------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE............... $ 939.3 $ 734.5 $ (204.8) $ 714.2 $ 636.5 $ (77.7) $ 470.1 $ 452.0
NET INCOME (LOSS)..... $ 97.8 $ (73.6) $ (171.4) $ 97.6 $ 38.6 $ (59.0) $ 61.9 $ 48.3

FISCAL YEAR
(IN MILLIONS) DIFFERENCE
-----------
<S> <C>
REVENUE............... $ (18.1)
NET INCOME (LOSS)..... $ (13.6)
</TABLE>

The restatement also resulted in a $16.2 million increase in revenues for
the first quarter of 1997.

The Company investigated the errors and irregularities that caused it to
restate its financial statements and discovered a number of weaknesses in its
internal controls. These conditions together represent a "material weakness."
The American Institute of Certified Public Accountants defines a material
weakness as a condition in which existing internal controls do not adequately
reduce the risk that material errors or irregularities occur and are not
detected in a timely manner. The Company is implementing a plan to strengthen
its internal accounting controls.

MAY 1998 RESTATEMENT. In May 1998, on the advice of its former independent
accountants, the Company decided to recognize revenue for license agreements
with customers who include the Company's products for resale in their own
products when those products are eventually sold to their customers. As a
result, the Company restated its financial results for the quarter ended March
31, 1998. This restatement decreased revenue by $6.2 million, and resulted in a
net loss for the quarter.

FINANCE PERSONNEL. In connection with its audit of the Company's fiscal
1997 financial statements, the Company's former independent accountants
determined that a material weakness existed because of a lack of sufficient
staffing in Informix's finance department and other conditions. The Company has
hired and is continuing to hire a number of employees and consultants for its
finance department to ensure that necessary accounting controls are in place.

GENERAL. Customer and investor uncertainty about the Company's future
financial results and business prospects could harm the Company's ability to
sell its products. This could seriously harm the Company's business.

More detailed discussions of the restatements that were completed by the
Company in November 1997 and in May 1998 are located in "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview" and in
Note B of Notes to Unaudited Condensed Consolidated Financial Statements. You
should read these discussions carefully.

NEED FOR ADDITIONAL FINANCING

In the future, the Company may need additional working capital. The
Company's inability to obtain additional financing, if and when needed, on
commercially favorable terms, could seriously harm the Company's business.

In December 1997, Informix Software, Inc., a Delaware corporation and the
Company's principal operating subsidiary, entered into a loan agreement with a
syndicate of commercial banks. The purpose of the loan agreement is to provide
the Company with working capital. The loan agreement provides the Company with a
line of credit of up to $75 million, with the actual amount borrowable based on
a percentage of accounts receivable. As a result, the total amount available
under the loan agreement will change from time to time based on the Company's
receivables. As of September 30, 1998, the Company had not borrowed any money
under the loan agreement. The loan agreement is secured by all of the assets of
Informix Software and the capital stock of Informix Software and the Company's
other subsidiaries domiciled in the United States.

35
<PAGE>
In order to borrow money under the loan agreement, the Company must:

- Maintain specified financial ratios and minimum quarterly revenues, income
and cash flow;

- Limit capital expenditures; and

- Refrain from engaging in any merger, consolidation, reorganization or
other transaction resulting in a fundamental change.

At June 30, 1998, the Company was not in compliance with the requirements of
the loan agreement because it did not have the quarterly cash flows required by
the loan agreement for the fiscal quarter ended June 30, 1998. However, the
banks waived the Company's non-compliance and amended the loan agreement so that
it is now more favorable to the Company. The Company was in compliance with the
amended requirements of the loan agreement as of September 30, 1998. There is no
assurance that the Company will be able to meet its obligations under the loan
agreement.

WORKING CAPITAL DEFICIT

The Company has a working capital deficit of $14.4 million as of September
30, 1998. This deficit includes liabilities categorized as advances from
customers and financial institutions totaling $139.3 million as of September 30,
1998. These advances are payments that were made by customers, or received from
financial institutions, before the Company recognized revenue related to these
payments. The Company could be required to refund such advances if the Company
fails to comply with certain contractual terms of a specific license agreement.

If the Company continues to maintain a substantial working capital deficit,
it could seriously harm the Company's ability to sell its products because
customers and potential customers may be concerned about the Company's financial
condition and choose not to buy the Company's products.

SLOWING GROWTH IN RDBMS MARKET

Growth rates have been declining in the RDBMS industry. Industry analysts
and competitors have predicted continued decline. The decline may become even
larger because of recent instability in the Asia-Pacific region. A further
decline in industry growth rates could harm the Company's business.

FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY

The Company is generally unable to predict accurately its future quarterly
revenues and operating results. There have been large fluctuations in the
Company's quarterly revenues and operating results in the past and these
fluctuations may continue because of:

- Changes in demand for the Company's software;

- Changes in the domestic or international economies;

- Aggressive price discounting by the Company or its competitors which could
result in the decline of revenue and net income;

- The size, timing and contractual terms of significant orders, especially
because Informix generally recognizes a large portion of its revenue at
the end of a quarter;

- The timing of the introduction of new products or product enhancements by
Informix or its competitors;

- Customer uncertainty about the Company's financial condition and business
prospects;

- Changes in the mix of revenues attributable to domestic and international
sales; and

- Seasonal buying patterns which tend to peak in the fourth quarter.

36
<PAGE>
LEGAL PROCEEDINGS

LITIGATION. Since April 16, 1997, various of the Company's investors have
filed over 20 separate lawsuits against the Company , Ernst & Young LLP (the
Company's former independent accountants) and certain current and former
officers and directors of the Company. Most of the lawsuits have been filed as
purported class actions by persons who claim that they purchased the Company's
common stock during a purported class period. The complaints in the lawsuits, in
general, do not specify the amount of damages that plaintiffs seek.

The plaintiffs claim that:

- The defendants made or were responsible for false or misleading statements
in the Company's filings with the SEC, press releases, statements to
securities analysts and other public statements regarding Informix's
financial results and business prospects;

- The defendants overstated the Company's revenue and earnings by improperly
recognizing revenue from sales of software licenses; and

- Some current or former officers and directors engaged in insider trading
by selling stock when they knew the Company's revenue and earnings were
misstated.

The complaints allege violations of federal and state securities laws,
fraud, and violations of California's unfair business practices statutes.

The Company also was named as a nominal defendant in eight derivative
actions. These actions have been consolidated into a single proceeding, and the
consolidated complaint names as defendants Ernst & Young, and certain current or
former officers and directors of the Company. The plaintiffs claim that
defendants:

- Breached their fiduciary duties to the Company;

- Engaged in abuses of their control of the Company;

- Were unjustly enriched by their sales of the Company's common stock;

- Engaged in insider trading in violation of California law; and

- Published false financial information in violation of California law.

Because of the nature of a derivative action, the Company will be entitled
to any recovery from this litigation.

The pending federal and state securities actions are in the early stages of
discovery. As a result, the Company is unable to estimate the possible range of
damages that might be incurred as a result of the lawsuits. The Company has not
set aside any financial reserves relating to any of these lawsuits. The
uncertainty associated with substantial unresolved lawsuits could seriously harm
the Company's business. In particular, the lawsuits could harm the Company's
relationships with existing customers and its ability to obtain new customers.
The continued defense of the lawsuits could also result in the diversion of
management's time and attention away from business operations, which could harm
the Company's business. The lawsuits could also have the effect of discouraging
potential acquirors from bidding for the Company or reducing the consideration
they would otherwise be willing to pay in connection with an acquisition.

SECURITIES AND EXCHANGE COMMISSION INVESTIGATION. 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. The
investigation relates to non-specified accounting matters, financial reports,
other public disclosures and trading activity in the Company's stock. The
Company is cooperating with the investigation and is providing all information
subpoenaed by the Commission. The Company is in

37
<PAGE>
the process of producing documents and a number of current and former officers
have been contacted to provide testimony in the investigation.

INDEMNIFICATION AGREEMENTS AND LIABILITY INSURANCE

Under Delaware law, the Company's certificate of incorporation, its bylaws
and certain indemnification agreements, the Company must indemnify its current
and former officers and directors to the fullest extent permitted by law. The
indemnification covers any expenses and/or liabilities reasonably incurred in
connection with the investigation, defense, settlement or appeal of legal
proceedings. The obligation to provide indemnification does not apply if the
officer or director is found to be liable for fraudulent or criminal conduct.

The Company has purchased directors' and officers' liability insurance to
reimburse it for the costs incurred in connection with these indemnification
obligations. For the period from August 1996 to August 1997, the period in which
most of the claims against the Company and certain of its directors and officers
were asserted, the Company had in place three directors' and officers' liability
insurance policies, each providing $5 million in coverage for a total of $15
million.

The 1996-1997 director and officer policies provide that 100% of the costs
incurred in defending claims asserted jointly against the Company and its
current and former officers and directors are allocable to the individuals'
defense and, thus, are covered by the policy. However, the 1996-1997 directors'
and officers' policies do not provide any separate coverage for the Company.
Moreover, the Company does not have separate insurance to cover the costs of its
own defense or to cover any liability for any claims asserted against it.

DEPENDENCE ON KEY PERSONNEL; PERSONNEL CHANGES; ABILITY TO RECRUIT PERSONNEL

The Company could be seriously harmed if it is unable to attract and retain
highly skilled technical, sales, consulting, marketing and management personnel
or if it loses the services of one or more of its executive officers or key
employees. The Company depends upon a number of key management and technical
personnel, including Robert J. Finocchio, Jr., Informix's Chairman, President
and Chief Executive Officer and Jean-Yves F. Dexmier, Informix's Executive Vice
President and Chief Financial Officer. In October 1998, Myron ("Mike") Saranga,
a key Company employee, resigned from his position as the Company's Senior Vice
President for Product Management and Development. F. Steven Weick, Vice
President, Research and Development, has succeeded Mr. Saranga.

The Company's business could be harmed if the Company is not successful in
retaining existing employees and attracting, training and retaining additional
qualified personnel, particularly in key departments such as product development
and sales.

RISKS ASSOCIATED WITH PREFERRED STOCK FINANCINGS

In 1997 and 1998 the Company raised $101.7 million through the issuance of
convertible preferred stock.

The Company has designated series A-1 preferred stock and series B preferred
stock. Both the series A-1 preferred stock and the series B preferred stock are
convertible into shares of the Company's common stock based on the trading
prices of the common stock during future periods. The percentage of the
Company's common stock owned by current stockholders could decline substantially
if:

- The conversion price of the preferred stock is determined during a period
when the market price of the Company's common stock is low;

- The series A-1 preferred stockholders exercise their right to purchase an
additional 80,000 shares of series A-1 preferred stock; and

38
<PAGE>
- The series B preferred stockholders exercise their rights to purchase, as
of September 30, 1998, 1,001,891 shares of the Company's common stock at
$7.84 per share.

The Company does not comply with the terms of the preferred stock
agreements, the Company may be unable to engage in various corporate
transactions, including:

- Financing transactions; and

- Certain transactions involving a change-in-control or acquisition of the
Company.

In addition, as of September 30, 1998, series B preferred stockholders had
converted 14,000 shares of series B preferred stock into 3,759,480 shares of the
Company's common stock. At each conversion of shares of series B preferred stock
the Company must issue additional rights to acquire shares of common stock equal
to 20% of the total number of shares of common stock into which the series B
preferred stock converts.

The terms of the financing agreements also include penalty provisions that
are triggered if the Company fails to satisfy its obligations. In particular,
the holders of the series A-1 preferred stock will become entitled to an annual
dividend of approximately $3.0 million, payable quarterly in cash, if the
Company fails to satisfy certain covenants, including the following:

- Have a registration statement covering the common stock issuable upon
conversion of the series A-1 preferred stock declared effective by the
Commission within 180 days of a registration request from the holders of
series A-1 preferred stock (as of the date of this Prospectus, no shares
of series A-1 preferred stock were outstanding and, accordingly, the
Company had not received a registration request);

- Obtain stockholder approval of the issuance of the common stock issuable
upon conversion of the series A-1 preferred stock in the event that such
approval becomes required by the rules of The Nasdaq National Market; and

- Redeem the shares of series A-1 preferred stock if the holder objects to a
change-in-control transaction because the potential acquiror of the
Company does not meet specified market capitalization and trading volume
requirements.

If the Company must pay these dividends, the holders of the series A-1
preferred stock will become immediately entitled to designate a number of
members of the Company's board of directors corresponding, as a percentage of
the total number of members, to the percentage of the Company's outstanding
common stock held by these holders.

The holders of the series B preferred stock are entitled to receive a
cumulative dividend at an annual rate of 5% of the face value of each share of
series B preferred stock, resulting in a total annual dividend of $1.8 million
based upon the 36,000 shares of series B preferred stock (face value $1,000 per
share) outstanding at September 30, 1998. The dividend is generally payable upon
the conversion or redemption of the series B preferred stock and may be paid in
cash or shares of the Company's common stock. The Company may be unable to fund
the payment or redemption and, even if funding is available, large dividend
payments may seriously harm the Company's business.

COMPETITION; PRICING RISKS

The Company faces intense competition in the market for RDBMS software
products. The Company's competitors in the market include several large vendors
that develop and market databases, applications, development tools or decision
support products. The Company's principal competitors include Computer
Associates, IBM, Microsoft, NCR/Teradata, Oracle and Sybase. Most of these
competitors have significantly greater resources than the Company. As a result,
they may be able to respond more

39
<PAGE>
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company.

The following factors could drive down the prices of database software and
related products:

- Increased customer use of new operating systems like Windows NT;

- Access to these products through low-end desktop computers;

- Access to data through the Internet;

- The bundling of these software products for promotional purposes or as a
long-term pricing strategy; and

- Aggressive price discounting by the Company or its competitors.

If the Company significantly reduces the prices of its products or services,
and these reductions are not offset by increases in sales volume, the Company's
business could be seriously harmed.

TECHNOLOGICAL CHANGE AND NEW PRODUCTS

The market for the Company's products and services is characterized by:

- Rapidly changing technology;

- Changing customer needs;

- Frequent new product introductions; and

- Evolving industry standards that may render existing products and services
obsolete.

The life cycles of the Company's products are difficult to estimate. In
order to grow and prosper, the Company must:

- Continue to enhance its existing products;

- Introduce new products on a timely and cost-effective basis;

- Match or exceed the product deliveries of its competitors; and

- Continue to make substantial investments in its product development
efforts.

The Company may not have sufficient resources to make necessary investments.

The Company has experienced product development delays in the past and may
experience delays in the future because of:

- High attrition in its product development group; and

- Difficulty in attracting qualified replacement development personnel.

These problems could harm the Company's ability to develop new products or
product enhancements. Delays in the scheduled availability, a lack of market
acceptance of its products or the Company's failure to accurately anticipate
customer demand and meet customer performance requirements could seriously harm
the Company's business.

In addition, despite testing, products as complex as the Company's may
contain undetected errors or bugs when first introduced or as new versions are
released. Undetected errors or bugs could delay the introduction or commercial
acceptance of the products.

40
<PAGE>
Commercial acceptance of the Company's products and services could also be
harmed by:

- Critical or negative statements made or reports issued by brokerage firms,
industry analysts or financial analysts;

- Advertising or marketing efforts of competitors;

- Other factors that could affect consumer perception, including the
restatement of the Company's financial statements, a continuing working
capital deficit, and its restructuring; and

- Delays in market acceptance of object-relational database management
products offered by Informix

INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS

The Company's business could be harmed by factors associated with
international operations such as:

- Changes in foreign currency exchange rates;

- Uncertainties relative to regional, political and economic circumstances;
and

- Recent instability in the Asia-Pacific region.

International sales represented approximately 54% of total revenues for the
years ended December 31, 1997 and December 31, 1996, and 52% of total revenues
for the nine-month period ended September 30, 1998. The Company's sales to the
Asia-Pacific region accounted for approximately 12% of the Company's total
revenues in the year ended December 31, 1997, 13% of the Company's total
revenues in the year ended December 31, 1996, and 12% of the Company's total
revenues in the nine-month period ended September 30, 1998.

The Company cannot predict the effect of exchange rate fluctuations on
future operating results. Most of Informix's international revenue and expenses
are denominated in local currencies. The Company takes into account changes in
exchange rates in its pricing strategy, but only on an annual basis. As a
result, the Company has substantial foreign exchange risk during the period
between annual pricing reviews.

The Company attempts to reduce this pricing exposure by entering into
forward currency exchange contracts to hedge up to 80% of the forecasted net
income of its foreign subsidiaries for up to one year in the future. If the
Company does not accurately forecast net income or properly hedge these amounts,
Informix's operating results could be harmed.

Also, the sales cycles for the Company's products is relatively long.
Foreign currency fluctuations could, therefore, result in large changes in the
financial impact of a specific transaction between the time of initial customer
contact and revenue recognition. As a result of the foregoing factors, the
Company's business could be seriously harmed by fluctuations in foreign currency
exchange rates.

YEAR 2000 RISKS

The Company could incur large costs and the disruption of its business if
key systems fail as a result of Year 2000 problems or if the Company experiences
delays in implementing Year 2000 compliant software products. To the extent the
Company is relying on the products of other vendors to resolve Year 2000 issues,
the Company may experience delays in implementing the products.

41
<PAGE>
In addition, the failure to correct a significant Year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations which could harm the Company's business. The Company
may not have enough available personnel to implement its Year 2000 project.

Also, Year 2000 issues may affect the purchasing patterns of customers and
potential customers. Many companies are spending large amounts of money to
become Year 2000 compliant. Their spending may reduce funds available to
purchase the Company's products.

The Company is:

- Reviewing the Year 2000 compliance status of the software and systems used
in its internal business processes; and

- Obtaining appropriate assurances of compliance from the manufacturers of
these products and agreement to modify or replace all non-compliant
products.

The Company expects this work to be substantially complete by the Fall of
1999.

In addition, the Company is considering converting certain of its internal
software and systems to commercial products from third parties that are known to
be Year 2000 compliant. This conversion will require:

- The dedication of substantial time from the Company's administrative and
management information personnel;

- The assistance of consulting personnel from third party software vendors;
and

- The training of the Company's personnel using such systems.

Based on available information, the Company believes it will be able to
complete its Year 2000 compliance review and make necessary modifications prior
to the end of 1999. Software or systems which are important to the Company's
business are scheduled to be Year 2000 compliant by the end of 1998.

The Company's Year 2000 Project is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem and, in particular,
about the Year 2000 compliance and readiness of its material third parties
suppliers. The Company believes that the probability of significant
interruptions of normal operations will be reduced with the implementation of
new business systems and completion of the project as scheduled.

DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT

The Company's success depends on proprietary technology. The Company cannot
guarantee that it can effectively protect its technology. The loss of any
substantial portion of the Company's rights in its technology or extended
litigation to protect its rights could seriously damage the Company's business.
The Company relies primarily on a combination of:

- Patent, copyright and trademark laws;

- Trade secrets;

- Confidentiality procedures;

- Contractual provisions contained in its license agreements; and

- Technical measures.

The Company may be unable to protect its technology because:

- Unauthorized third parties may be able to copy aspects of the Company's
products or to obtain and use the Company's proprietary information;

42
<PAGE>
- The Company's competitors may independently develop similar or superior
technology;

- Policing unauthorized use of the Company's software is difficult;

- The laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States;

- "Shrink-wrap" licenses may be wholly or partially unenforceable under the
laws of certain jurisdictions;

- Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others; and

- Third parties may claim that the Company's products infringe upon their
proprietary rights.

PRODUCT LIABILITY

A product liability claim brought against the Company could harm the
Company's business. However, the Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to product
liability claims.

ANTITAKEOVER PROTECTIONS

The Company is authorized to issue, without any further vote or action by
its stockholders, preferred stock with dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices and
liquidation preferences determined by the Company's board of directors. This
ability could have the effect of delaying, deferring or preventing a change in
control or acquisition of the Company.

The issuance of preferred stock could drive down the market price of the
Company's common stock and the voting and other rights of the holders of the
Company's common stock. The issuance of preferred stock could weaken the voting
power of the holders of the Company's common stock through the loss of voting
control. In particular, certain rights, preferences and privileges of the series
A-1 preferred stock and series B preferred stock could prevent or discourage
potential bids to acquire the Company, unless the terms of the acquisition are
approved by the holders of preferred stock.

The Company has taken steps designed to reduce its vulnerability to an
unsolicited acquisition proposal. These include:

- Elimination of the right of stockholders to act without holding a meeting;

- Certain procedures for nominating directors and submitting proposals for
consideration at stockholder meetings; and

- A board of directors divided into three classes, with each class standing
for election once every three years.

These provisions are intended to enhance the likelihood of continuity and
stability in the management of the Company. They may discourage certain types of
transactions which involve an actual or threatened change in control or
acquisition of the Company. These steps are also intended to discourage certain
tactics that may be used in proxy fights, but they could have the effect of
discouraging tender offers for shares of the Company's common stock. They may
prevent an increase in the market price of Informix's common stock resulting
from actual or rumored takeover attempts.

The Company has adopted a rights agreement that grants holders of Informix
common stock preferential rights in the event of an unsolicited takeover
attempt. These rights are denied to any stockholder involved in the takeover
attempt and this has the effect of requiring cooperation with the

43
<PAGE>
Company's board of directors. This may also prevent an increase in the market
price of the Company's common stock resulting from actual or rumored takeover
attempts.

The Company is subject to Delaware's antitakeover law which prevents certain
Delaware corporations, such as the Company, from engaging in a business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder. A
business combination includes, among other things, a merger or consolidation
involving the Company and the interested stockholder and the sale of more than
10% of the Company's assets. An interested stockholder is any entity or person
beneficially owning 15% or more of the Company's outstanding voting stock. This
may also delay, defer or prevent a change in control or acquisition of the
Company.

VOLATILITY OF STOCK PRICE

The market price of the Company's common stock has fluctuated significantly
in the past and may continue to fluctuate significantly because of:

- Market uncertainty about the Company's financial condition or business
prospects or the prospects for the RDBMS market in general;

- Revenues or results of operations that do not match analysts'
expectations;

- The introduction of new products or product enhancements by the Company or
its competitors;

- General business conditions in the software industry;

- Changes in the mix of revenues attributable to domestic and international
sales; and

- Seasonal trends in technology purchases and other general economic
conditions.

In addition, the stock market is subject to extreme price and volume
fluctuations, which particularly affect the market for the securities of many
technology companies. These fluctuations have often been unrelated to the
operating performance of the specific companies.

EUROPEAN MONETARY CONVERSION

The Company is evaluating the impact of conversion to the Euro on its
business. In particular, the Company is reviewing:

- Whether it may have to change the prices of its products in the different
countries because they will be denominated in the same currency in each
country;

- The cost to the Company if it must modify or replace any of its internal
software systems; and

- Whether it will have to change the terms of any financial instruments in
connection with its hedging activities.

Based on current information and the Company's initial evaluation, the
Company does not expect the cost of any necessary corrective action to seriously
harm its business. However, the Company will continue to evaluate the impact of
these and other possible effects of the conversion to the Euro on its business.
The

44
<PAGE>
Company cannot guarantee that the costs associated with conversion to the Euro
will not in the future seriously harm its business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DISCLOSURES ABOUT MARKET RATE RISK

INTEREST RATE RISK. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high quality issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company is
averse to principal loss and ensures the safety and preservation of its invested
funds by limiting default, market and reinvestment risk. The Company classifies
its cash equivalents and short-term investments as "variable rate" if the rate
of return on such investments varies based on the change in a predetermined
index or set of indices during their term. These "variable-rate" investments
primarily include money market accounts held at various securities brokers and
banks. The table below presents the amounts and related weighted interest rates
of the Company's investment portfolio at September 30, 1998:

<TABLE>
<CAPTION>
AVERAGE
INTEREST RATE COST FAIR VALUE
------------- --------- -----------
<S> <C> <C> <C>
Cash equivalents
Fixed rate.............................................. 5.47% 75,733 75,733
Variable rate........................................... 5.60% 5,454 5,454
Short-term investments
Fixed rate.............................................. 5.50% 11,507 11,506
Variable rate........................................... -- -- --
</TABLE>

FOREIGN CURRENCY RISK. The Company enters into forward foreign exchange
contracts primarily to hedge the value of accounts receivable or accounts
payable denominated in foreign currencies (mainly European and Asian foreign
currencies) against fluctuations in exchange rates until such receivables are
collected or such payables are disbursed. The Company's accounting policies for
these contracts are based on the Company's designation of the contracts as
hedging transactions. The criteria the Company uses for designating a contract
as a hedge include the contract's effectiveness in risk reduction and one-to-one
matching of derivative instruments to underlying transactions. Gains and losses
on forward foreign exchange contracts are deferred and recognized in income in
the same period as losses and gains on the underlying transactions are
recognized and generally offset. If an underlying hedged transaction is
terminated earlier than initially anticipated, the offsetting gain or loss on
the related forward foreign exchange contract would be recognized in income in
the same period. Subsequent gains or losses on the related contract would be
recognized in income in each period until the contract matures, is terminated or
sold. The Company operates in certain countries in Latin America, Eastern Europe
and Asia Pacific where there are limited forward currency exchange markets and
thus the Company has unhedged transaction exposures in these currencies.
However, such exposures are not material to the Company's financial statements
for any period presented. In addition, since the Company enters into forward
contracts only as a hedge, any change in currency rates would not result in any
material net gain or loss as any gain or loss on the underlying foreign currency
denominated balance would be offset by the gain or loss on the forward contract.
The table below provides information about the Company's foreign currency
forward exchange contracts. The information is provided in U.S. dollar
equivalents and presents the notional amount (contract amount) and the weighted
average contractual foreign currency exchange rates. All contracts mature within
twelve months.

Subsequent to fiscal year end 1997, the Company began entering into forward
foreign currency exchange contracts to hedge no more than 80% of anticipated net
income of foreign subsidiaries of up to a maximum of one year in the future.
From an accounting perspective, these hedges are considered to be

45
<PAGE>
speculative. The Company's outstanding forward exchange contracts used to hedge
anticipated net income are marked to market.

FORWARD CONTRACTS

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
CONTRACT FAIR
AT SEPTEMBER 30, 1998 RATE VALUE
- ---------------------------------------------------------- CONTRACT --------- ---------
VALUE
-------------
(IN
THOUSANDS)
<S> <C> <C> <C>
Forward Currency contracts sold:
Deutsche Mark............................................. $ 18,806 $ 1.71 $ (233)
Japanese Yen.............................................. 9,560 129.50 455
British Pound............................................. 8,925 1.65 (250)
Korean Won................................................ 4,900 1,435.54 (188)
Singapore Dollar.......................................... 4,496 1.69 3
Australian Dollar......................................... 3,259 1.65 84
Swiss Franc............................................... 2,536 1.39 8
French Franc.............................................. 1,668 6.00 (103)
Taiwanese NT.............................................. 1,267 34.01 20
Italian Lira.............................................. 1,119 1,787.40 (83)
Other (individually less than $1 million)................. 6,609 NM (144)
------------- ---------
Total..................................................... $ 63,145 $ (431)
------------- ---------
------------- ---------
Forward currency contracts purchased:
British Pound............................................. $ 50,462 $ 1.69 $ 231
French Franc.............................................. 12,089 5.62 (60)
Swedish Krona............................................. 3,163 7.88 (6)
Denmark Krone............................................. 1,510 6.39 (4)
Deutsche Mark............................................. 1,201 1.67 (13)
Other (individually less than $1 million)................. 1,916 NM (8)
------------- ---------
Total..................................................... $ 70,341 $ 140
------------- ---------
------------- ---------
Grand Total............................................... $ 133,486 $ (291)
------------- ---------
------------- ---------
</TABLE>

46
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On or about July 20, 1998, an individual plaintiff filed an action in
federal court in the Southern District of New York. The complaint captioned
BERMAN V. INFORMIX CORPORATION, alleges factual claims similar to the federal
securities laws complaints filed in Northern California described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Business Risks--Litigation." The complaint seeks an unspecified
amount of actual damages and $5 million in punitive damages. The Company has
moved to transfer this action to the Northern District of California.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During September 1998, holders of the Series B Preferred Stock converted a
total of 13,500 shares of Series B Preferred into 3,679,472 shares of the
Company's common stock. In connection with such conversions, the Company also
issued such Series B Preferred Stockholders warrants to purchase up to 885,891
shares of common stock at a purchase price of $7.84 per share and paid cash
dividends in the amount of $549,178 to such stockholders.

Subsequent to September 30, 1998, holders of the Series B Preferred
converted an additional 9,350 shares of Series B Preferred into 2,130,069 shares
of common stock. In connection with such conversions, the Company also issued
such Series B Preferred Stockholders warrants to purchase up to 426,010 shares
of common stock at an exercise price of $7.84 per share and paid cash dividends
in the amount of $442,863 to such stockholders.

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

The 1998 Annual Meeting of Stockholders of the Company was held on July 16,
1998. The following matters were voted on at the Annual Meeting:

1. Election of Class II directors to serve three-year terms expiring in 2001:

<TABLE>
<CAPTION>
VOTES
-------------------
FOR WITHHELD ABSTENTIONS BROKER NON-VOTES
------------- ------------ ------------------- -------------------------
<S> <C> <C> <C> <C>
James L. Koch............................... 148,002,667 2,060,890 0 0
Thomas A. Mcdonnell......................... 147,976,913 2,086,644 0 0
</TABLE>

Each of the following director's term of office as a director continued
after the Annual Meeting:

Leslie G. Denend
Cyril J. Yansouni
Albert F. Knorp, Jr.
Robert F. Finocchio

2. Ratification of the appointment of KPMG Peat Marwick LLP as independent
accountants for the Company for the current fiscal year ending December 31,
1998.

<TABLE>
<CAPTION>
VOTES
- -----------------------------------------------------------------------
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
- ------------- ------------ --------------- -------------------------
<S> <C> <C> <C>
149,033,303 614,715 415,539 0
</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K.

None.

II-1
<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> <C>
INFORMIX CORPORATION

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

Dated: November 16, 1998

II-2
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT PAGE
- ------------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
27.1 Financial Data Schedule.
</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 144,852
<SECURITIES> 11,562
<RECEIVABLES> 168,222
<ALLOWANCES> 16,585
<INVENTORY> 0
<CURRENT-ASSETS> 377,950
<PP&E> 256,349
<DEPRECIATION> 180,485
<TOTAL-ASSETS> 538,344
<CURRENT-LIABILITIES> 392,348
<BONDS> 0
0
0
<COMMON> 1,723
<OTHER-SE> 124,911
<TOTAL-LIABILITY-AND-EQUITY> 538,344
<SALES> 265,731
<TOTAL-REVENUES> 520,411
<CGS> 26,661
<TOTAL-COSTS> 140,065
<OTHER-EXPENSES> 344,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,582
<INCOME-PRETAX> 35,044
<INCOME-TAX> 1,900
<INCOME-CONTINUING> 33,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,144
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17

</TABLE>