<PAGE>
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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
MARCH 31, 1999.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO .
COMMISSION FILE NUMBER 0-15325
INFORMIX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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) (zip code)
</TABLE>
Registrant's telephone number, including area code: (650) 926-6300
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 NO
At April 30, 1999, 189,689,739 shares of the Registrant's Common Stock were
outstanding.
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<PAGE>
INFORMIX CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Operations for the three month periods ended March
31, 1999 and 1998.............................................................................. 3
Unaudited Condensed Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998....... 4
Unaudited Condensed Consolidated Statements of Cash Flows for the three month periods ended March
31, 1999 and 1998.............................................................................. 5
Notes to Unaudited Condensed Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 35
Item 2. Changes in Securities and Use of Proceeds........................................................ 35
Item 3. Defaults Upon Senior Securities.................................................................. 35
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 35
Item 5. Other Information................................................................................ 35
Item 6. Exhibits and Reports on Form 8-K................................................................. 35
Signatures.................................................................................................. 36
</TABLE>
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.
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
NET REVENUES
Licenses................................................................................ $ 97,907 $ 83,431
Services................................................................................ 98,691 77,568
---------- ----------
196,598 160,999
COSTS AND EXPENSES
Cost of software distribution........................................................... 10,107 9,833
Cost of services........................................................................ 44,783 37,425
Sales and marketing..................................................................... 76,418 63,353
Research and development................................................................ 39,148 36,619
General and administrative.............................................................. 17,942 13,151
Restructuring charges................................................................... (578) (3,252)
---------- ----------
187,820 157,129
---------- ----------
Operating income.......................................................................... 8,778 3,870
OTHER INCOME (EXPENSE)
Interest income......................................................................... 2,795 2,038
Interest expense........................................................................ (1,164) (1,882)
Other, net.............................................................................. (1,531) (315)
---------- ----------
INCOME BEFORE INCOME TAXES................................................................ 8,878 3,711
Income taxes............................................................................ 1,332 1,900
---------- ----------
NET INCOME................................................................................ $ 7,546 $ 1,811
---------- ----------
Preferred stock dividend................................................................ (303) (603)
Value assigned to warrants.............................................................. -- (1,594)
---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS....................................... $ 7,243 $ (386)
---------- ----------
---------- ----------
NET INCOME (LOSS) PER COMMON SHARE
Basic................................................................................... $ 0.04 $ (0.00)
---------- ----------
---------- ----------
Diluted................................................................................. $ 0.04 $ (0.00)
---------- ----------
---------- ----------
SHARES USED IN PER SHARE CALCULATIONS
Basic................................................................................... 188,819 160,172
---------- ----------
---------- ----------
Diluted................................................................................. 195,208 160,172
---------- ----------
---------- ----------
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
INFORMIX CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................ $ 142,160 $ 183,975
Short-term investments............................................................... 70,931 37,116
Accounts receivable, net............................................................. 180,383 187,240
Recoverable income taxes............................................................. 3,430 3,255
Other current assets................................................................. 28,792 20,308
---------- ------------
Total current assets................................................................... 425,696 431,894
PROPERTY AND EQUIPMENT, net............................................................ 67,552 74,937
SOFTWARE COSTS, net.................................................................... 38,663 38,006
LONG-TERM INVESTMENTS.................................................................. 18,161 22,191
INTANGIBLE ASSETS, net................................................................. 36,955 41,482
OTHER ASSETS........................................................................... 4,766 6,795
---------- ------------
Total Assets........................................................................... $ 591,793 $ 615,305
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................................................... $ 21,907 $ 29,742
Accrued expenses..................................................................... 50,894 59,234
Accrued employee compensation........................................................ 49,536 50,424
Deferred revenue..................................................................... 139,904 131,423
Advances from customers and financial institutions................................... 97,255 121,077
Accrued restructuring costs.......................................................... 3,060 5,813
Other current liabilities............................................................ 3,518 6,552
---------- ------------
Total current liabilities.............................................................. 366,074 404,265
OTHER NON-CURRENT LIABILITIES.......................................................... 1,929 3,313
STOCKHOLDERS' EQUITY
Convertible preferred stock.......................................................... -- --
Common stock; par value.............................................................. 1,896 1,882
Additional paid-in capital........................................................... 436,116 429,621
Accumulated deficit.................................................................. (212,880) (220,426)
Accumulated other comprehensive loss................................................. (1,342) (3,350)
---------- ------------
Total stockholders' equity............................................................. 223,790 207,727
---------- ------------
Total Liabilities and Stockholders' Equity............................................. $ 591,793 $ 615,305
---------- ------------
---------- ------------
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
INFORMIX CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................................. $ 7,546 $ 1,811
Adjustments to reconcile net income to net cash and cash equivalents provided by (used
in) operating activities:
License fees received in advance...................................................... (21,258) (15,148)
Depreciation and amortization......................................................... 12,477 12,078
Amortization of capitalized software.................................................. 4,758 4,974
Write-off of capitalized software..................................................... -- 771
Foreign currency transaction losses................................................... 601 3,794
Provisions for losses on accounts receivable.......................................... (283) --
Restructuring charges................................................................. (578) (3,252)
Other................................................................................. 313 944
Changes in operating assets and liabilities:
Accounts receivable................................................................. 11,665 7,578
Other current assets................................................................ (6,560) 7,956
Accounts payable, accrued expenses and other liabilities............................ (20,126) (37,818)
Deferred maintenance revenue........................................................ 5,350 7,800
---------- ----------
Net cash and cash equivalents used in operating activities................................ (6,095) (8,512)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments of excess cash:
Purchases of available-for-sale securities............................................ (44,834) (9,500)
Maturities of available-for-sale securities........................................... 6,498 4,997
Sales of available-for-sale securities................................................ 10,303 4,300
Purchases of property and equipment..................................................... (4,580) (1,676)
Additions to software costs............................................................. (5,415) (3,717)
Other................................................................................... 410 1,054
---------- ----------
Net cash and cash equivalents used in investing activities................................ (37,618) (4,542)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from customers................................................................. 1,013 --
Proceeds from issuance of common stock, net............................................. 6,686 6,500
Proceeds from issuance of preferred stock, net.......................................... -- 14,100
Payments for structured settlements with resellers...................................... (1,357) --
Principal payments on capital leases.................................................... (2,684) (1,341)
---------- ----------
Net cash and cash equivalents provided by financing activities............................ 3,658 19,259
Effect of exchange rate changes on cash and cash equivalents.............................. (1,760) 3,607
---------- ----------
Increase (decrease) in cash and cash equivalents.......................................... (41,815) 9,812
Cash and cash equivalents at beginning of period.......................................... 183,975 139,396
---------- ----------
Cash and cash equivalents at end of period................................................ $ 142,160 $ 149,208
---------- ----------
---------- ----------
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. In the
opinion of management, all significant adjustments 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. Certain previously
reported amounts have been reclassified to conform to the current presentation
format. The unaudited information should be read in conjunction with the audited
financial statements of the Company and the notes thereto for the year ended
December 31, 1998 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
NOTE B--NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
Numerator:
Net income.............................................................................. $ 7,546 $ 1,811
Preferred stock dividends............................................................... (303) (603)
Value assigned to warrants.............................................................. -- (1,594)
---------- ----------
$ 7,243 $ (386)
---------- ----------
---------- ----------
Denominator:
Denominator for basic net income (loss) per common share--
weighted-average shares............................................................... 188,819 160,172
Effect of dilutive securities:
Employee stock options................................................................ 5,940 --
Common stock warrants................................................................. 449 --
---------- ----------
Denominator for basic net income (loss) per common share--
adjusted weighted-average shares and assumed conversions.............................. 195,208 160,172
---------- ----------
---------- ----------
Basic net income (loss) per common share.................................................. $ 0.04 $ (0.00)
---------- ----------
---------- ----------
Diluted net income (loss) per common share................................................ $ 0.04 $ (0.00)
---------- ----------
---------- ----------
</TABLE>
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
6
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--NET INCOME (LOSS) PER SHARE (CONTINUED)
Company's Common Stock or the Company had net losses, and, therefore, these
securities were antidilutive. A summary of the excluded potential dilutive
securities and the related exercise/conversion features as of March 31, 1999
follows (in thousands):
<TABLE>
<S> <C>
Potential dilutive securities:
Stock options...................................................................... 3,934
Common Stock Warrants (Series B Warrants).......................................... 1,750
Series B Convertible Preferred Stock............................................... 23
</TABLE>
The stock options have per share exercise prices ranging from $9.91 to
$42.09 and are exercisable through January 2009.
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 Preferred Stock into shares of Common Stock of the
Company. Upon conversion of the Series B Preferred Stock, the holders are
eligible to 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 Stock is convertible, but not less than an
aggregate of 1,750,000, of which approximately 1,508,000 have been issued as of
March 31, 1999, at a per share exercise price of $7.84. The Series B Warrants
are exercisable
through November 2002.
NOTE C--COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments to be
included in other comprehensive income. The following table sets forth the
calculation of comprehensive income (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Net income................................................................. $ 7,546 $ 1,811
Other comprehensive income:
Unrealized gains on available-for-sale securities........................ 280 3,974
Foreign currency translation adjustment.................................. 1,728 3,794
--------- ---------
$ 9,554 $ 9,579
--------- ---------
--------- ---------
</TABLE>
The tax effect on components of comprehensive income is not significant.
NOTE D--STOCKHOLDERS' EQUITY
On January 4, 1999, a holder of the Company's Series B Preferred Stock
converted 500 shares of Series B Preferred Stock into 68,849 shares of the
Company's Common Stock. In connection with this
7
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--STOCKHOLDERS' EQUITY (CONTINUED)
conversion, the Company also issued such Series B Preferred Stockholder a
warrant to purchase up to 13,769 shares of Common Stock at a purchase price of
$7.84 per share.
<TABLE>
<S> <C>
Reconciliation of outstanding shares (in thousands):
Shares outstanding at December 31, 1998.......................... 188,158
Shares issued upon exercises of stock options.................... 1,016
Shares sold and issued to employees under ESPP................... 350
Shares issued upon conversion of Series B Preferred Stock........ 69
---------
Shares outstanding at March 31, 1999............................. 189,593
---------
---------
</TABLE>
NOTE E--RESTRUCTURING CHARGES
In June and again in September 1997, the Company approved plans to
restructure its operations in order to bring expenses in line with forecasted
revenues. In connection with these restructurings, the Company substantially
reduced its worldwide headcount and consolidated facilities and operations to
improve efficiency. The following analysis sets forth the significant components
of the restructuring charge and adjustments to restructuring expense included in
the Company's unaudited condensed consolidated statements of operations for the
quarter ended March 31, 1999 as well as the significant components of the
restructuring reserve at March 31, 1999 (in millions):
<TABLE>
<CAPTION>
SEVERANCE & FACILITY
BENEFITS CHARGES OTHER TOTAL
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Accrual balances, December 31, 1998........................................ $ 0.1 $ 5.2 $ 0.5 $ 5.8
Cash payments.............................................................. -- 0.5 -- 0.5
Non-cash costs............................................................. -- 1.0 0.6 1.6
Adjustments................................................................ 0.1 0.6 (0.1) 0.6
--- --- --- ---
Accrual balances, March 31, 1999........................................... $ -- $ 3.1 $ -- $ 3.1
--- --- --- ---
--- --- --- ---
</TABLE>
In the first quarter of 1999, the Company recorded restructuring-related
adjustments to decrease restructuring expense by $578,000 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. The terms of such operating
leases expire at various dates through 2003.
NOTE F--BUSINESS SEGMENTS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," requires companies to report
financial and descriptive information about its reportable operating segments.
The Company has four reportable operating segments, North America, Europe,
Asia/Pacific and Latin America, which are organized, managed and analyzed
geographically and operate in one industry segment: the development and
marketing of information management software and related services. The Company
evaluates operating segment performance based primarily on net revenues and
certain operating expenses. The Company's products are marketed internationally
through
8
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--BUSINESS SEGMENTS (CONTINUED)
the Company's subsidiaries and through application resellers, OEMs and
distributors. Financial information for the Company's North America, Europe,
Asia/Pacific and Latin America operating segments is summarized below for the
three month period ended March 31, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NORTH ASIA LATIN
MARCH 31, AMERICA EUROPE PACIFIC AMERICA ELIMINATIONS TOTAL
- --------------------------------------------------- ---------- --------- --------- --------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999:
Net revenues from unaffiliated customers........... $ 103,256 $ 58,716 $ 21,566 $ 13,060 $ -- $ 196,598
Transfers between segments......................... (5,326) 1,839 2,341 1,146 -- --
Total net revenues................................. 97,930 60,555 23,907 14,206 -- 196,598
Operating income (loss)............................ (6,336) 10,957 4,435 (982) 704 8,778
Net income (loss).................................. $ (92) $ 9,016 $ 4,248 $ (4,318) $ (1,308) $ 7,546
1998:
Net revenues from unaffiliated customers........... $ 81,470 $ 51,872 $ 18,468 $ 9,189 $ -- $ 160,999
Transfers between segments......................... (2,387) 195 203 1,989 -- --
Total net revenues................................. 79,083 52,067 18,671 11,178 -- 160,999
Operating income (loss)............................ (6,916) 17,232 1,285 (2,464) (5,267) 3,870
Net income (loss).................................. $ (6,995) $ 16,180 $ 1,248 $ (3,355) $ (5,267) $ 1,811
</TABLE>
NOTE G--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 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
under its policies is limited. Moreover, although directors' and officers'
insurance 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, the Company does not have
insurance to cover the costs of its own defense or to cover any liability for
any
9
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INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--LITIGATION (CONTINUED)
claims asserted against it. The Company has not set aside any financial reserves
relating to any of the above-referenced actions.
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. In addition, in July 1997, the Securities and Exchange
Commission issued a formal order of investigation of the Company and certain
unidentified individuals associated with the Company with respect to
non-specified accounting matters, public disclosures and trading activity in the
Company's securities. The Company is cooperating with the investigation and is
providing all information subpoenaed by the Commission.
From time to time, in the ordinary course of business, the Company is
involved in various legal proceedings and claims. The Company does not believe
that any of these proceedings and claims will have a material adverse effect on
the Company's business or financial position.
NOTE H--BUSINESS COMBINATION
On December 31, 1998, the Company acquired Red Brick Systems, Inc. ("Red
Brick"), a provider of scalable decision support solutions for data warehousing,
data marts, OLAP and data mining. The acquisition was accounted for using the
purchase method of accounting. Accrued merger and integration costs recorded in
connection with the acquisition of Red Brick included approximately $1.6 million
for severance and related costs, $4.7 million for costs associated with the
shutdown and consolidation of the Red Brick facilities and $1.6 million for
costs associated with settling acquired royalty commitments for abandoned
technology. As of March 31, 1999, $0.6 million and $0.9 million had been paid
for severance and related costs and for costs associated with the shutdown and
consolidation of Red Brick facilities, respectively. No costs had been paid
related to settling acquired royalty commitments for abandoned technology as of
March 31, 1999. In addition, during the three month period ended March 31, 1999,
the accrual for estimated costs associated with the shutdown and consolidation
of the Red Brick facilities was reduced by $2.0 million, which resulted in a
corresponding $2.0 million decrease in goodwill. This adjustment was the result
of a decrease in the estimated costs associated with the former Red Brick
headquarters facility due to a change in the amount of sublease income to be
received for such facility. The Company expects to complete its termination of
employees and consolidation of facilities by the end of fiscal 1999.
The following unaudited pro forma financial information presents the
combined results of operations of Informix and Red Brick for the three month
period ended March 31, 1998 as if the acquisition had occurred as of the
beginning of 1998. This financial information gives effect to certain
adjustments, including amortization of goodwill. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the two companies constituted a single entity during such
period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998
----------------
<S> <C>
Net revenues................................................................ $ 170,425
Net income (loss)........................................................... (4,134)
Net income (loss) per share................................................. (0.04)
</TABLE>
10
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which establishes guidelines
for the accounting for the costs of all computer software developed or obtained
for internal use. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. SOP 98-1 did not have a significant impact on the Company's
results of operations for the three month period ended March 31, 1999. The
Company will continue to evaluate the future impact of SOP 98-1 on its financial
statements and related disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (SFAS 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. SFAS 133 is effective for fiscal years beginning after June 15,
1999. Earlier application of SFAS 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 SFAS 133.
In December 1998, the AICPA issued Statement of Position 98-9 (SOP 98-9),
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions." This amendment clarified the specification of what was considered
vendor specific objective evidence of fair value for the various elements in a
multiple element arrangement. SOP 98-9 is effective for all transactions entered
into by the Company in fiscal year 2000. The adoption of this statement is not
expected to have a material impact on the Company's operating results, financial
position or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF INFORMIX, WHICH INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS," AND ELSEWHERE IN
THIS QUARTERLY REPORT ON FORM 10-Q.
References to or comparisons between the same "period" in this Form 10-Q
refer to the Company's first fiscal quarter of the relevant fiscal year.
OVERVIEW
Informix Corporation is a leading supplier of information management
software and solutions to governments and enterprises worldwide. We design,
develop, manufacture, market and support
- Relational database management systems
- Connectivity interfaces and gateways
- Graphical and character-based application development tools for building
database applications that allow customers to access, retrieve and
manipulate business data
We also offer complete solutions, which include our database management
software, our own and third-party software, and our consulting services, to help
customers design and deploy data warehouses, Web-based enterprise repositories
and electronic commerce applications.
11
<PAGE>
INFORMIX CORPORATION
On December 31, 1998, we acquired Red Brick Systems, Inc. ("Red Brick"), a
provider of scaleable decision support solutions for data warehousing, data
marts, OLAP and data mining, in a transaction which has been accounted for as a
purchase. Of the total purchase price, $2.6 million was allocated to in-process
research and development expense and charged to operations in the fourth quarter
of 1998. We are not aware of any events which would significantly alter the
estimates used by us in the valuation of such component of the total purchase
price.
12
<PAGE>
RESULTS OF OPERATIONS
The following table and discussion compares the results of operations for
the three-month periods ended March 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
<S> <C> <C>
1999 1998
----- -----
NET REVENUES
Licenses................................................................................. 50% 52%
Services................................................................................. 50 48
--- ---
100 100
COSTS AND EXPENSES
Cost of software distribution............................................................ 5 6
Cost of services......................................................................... 23 23
Sales and marketing...................................................................... 39 39
Research and development................................................................. 20 23
General and administrative............................................................... 9 8
Restructuring charges.................................................................... -- (2)
--- ---
96 97
--- ---
Operating income........................................................................... 4 3
OTHER INCOME (EXPENSE)
Interest income.......................................................................... 2 1
Interest expense......................................................................... -- (1)
Other, net............................................................................... (1) --
--- ---
INCOME BEFORE INCOME TAXES................................................................. 5 3
Income taxes............................................................................. (1) (1)
--- ---
NET INCOME................................................................................. 4% 2%
--- ---
--- ---
</TABLE>
Our operating results for the quarter ended March 31, 1999 improved over the
same period of the prior year. Net revenue growth was 22%, while operating
expenses increased by only 20%. As a percentage of net revenues, all operating
expense categories remained fairly consistent with the prior year period as we
continued to focus our efforts on controlling costs and keeping operating
expenses in line with revenues. The growth in consolidated revenues was healthy
in all regions as total sales in Asia/Pacific, Latin America, North America and
Europe increased by 28%, 27%, 24% and 16%, respectively. During the first
quarter of 1999, we increased our marketing efforts in connection with the
introduction of several new products and continued our advertising campaign to
market our new corporate identity to better reflect our focus on transactions,
data warehousing, and Web/e-commerce solutions.
REVENUES
We derive revenues from licensing software and providing post-license
technical product support and updates to customers and from consulting and
training services.
LICENSE REVENUES. License revenues may involve the shipment of product by
us or the granting of a license to a customer to manufacture products. Our
products are sold directly to end-user customers or through resellers, including
OEMs, distributors and value added resellers (VAR's). License revenues for the
first quarter of 1999 increased 17% to $97.9 million from $83.4 million for the
same period in 1998. Each of our regions reported increased license revenues for
the first quarter of 1999 as compared to the same period in 1998, as follows:
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<PAGE>
- North America license revenues increased to $44.5 million as compared to
$36.3 million, an increase of 23%
- Europe license revenues increased to $30.0 million as compared to $28.3
million, an increase of 6%
- Asia Pacific license revenues increased to $16.0 million as compared to
$12.6 million, an increase of 27%
- Latin America license revenues increased to $7.4 million as compared to
$6.3 million, an increase of 18%
Revenues from the sale of Red Brick products contributed to the increase in
license revenues. In addition, the Asia/Pacific and Latin America economies have
shown signs of recovery from the economic turmoil of the past year.
Our increased focus on reseller channels in 1996 resulted in a significant
build-up of licenses that had not been resold or utilized by the resellers.
Revenue from license agreements with resellers is recognized as earned by us
when the licenses are resold or utilized by the reseller and all of our related
obligations have been satisfied. Accordingly, amounts received from customers
and financial institutions in advance of revenue being recognized are recorded
as a liability in "advances from customers and financial institutions" in our
financial statements. Advances in the amount of $97.3 million and $121.1 million
had not been recognized as earned revenue as of March 31, 1999 and December 31,
1998, respectively. During the quarter ended March 31, 1999, we received $1.0
million in customer advances and recognized revenue from resellers with
previously recorded customer advances of $21.3 million. Included in the $21.3
million recognized were $18.7 million of licenses which were resold or utilized
by the reseller and $2.6 million related to contractual reductions in customer
advances. Contractual reductions result from settlements between us and
resellers in which the customer advance contractually expires or a settlement is
structured wherein the rights to resell our products terminate without sell
through or deployment of the software.
As of March 31, 1999, we had reached structured settlements with four
resellers with remaining rights to resell a total of $27.6 million of our
products. In accordance with the settlements, the minimum future reduction in
customer advances totals $15.5 million, $11.6 million and $0.5 million for the
three quarters ended December 31, 1999, the year ended December 31, 2000 and the
quarter ended March 31, 2001, respectively.
In order to properly recognize revenue on arrangements where the reseller
has duplication rights, we rely on accurate and timely reports from resellers of
the quantity of licenses that have been resold or utilized. In instances where a
reseller does not submit a timely report, we accrue royalty revenue through the
end of the reporting period provided we have vendor specific historical
information. From time to time, late or inaccurate reports are identified or
corrected for a variety of reasons, including resellers updating their reports
or as a result of our proactive activities such as audits of the resellers'
royalty reports. As a result, revenue from these late or updated reports, which
was not previously accrued, is recognized in the period during which the reports
are received. Such revenue was not considered material for the first quarter of
1999. We expect that the late or inaccurate reporting of resale or utilization
of licenses by resellers and the resulting fluctuations will continue for the
foreseeable future.
Our 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 our license revenue is derived from transactions that
close in the last weeks or days of a quarter. The timing of closing large
license agreements also increases the risk of quarter-to-quarter fluctuations.
We expect that these types of transactions and the resulting fluctuations in
revenue will continue.
13
<PAGE>
SERVICE REVENUES. Service revenues are comprised of maintenance, consulting
and training revenues. Service revenues for the first quarter of 1999 increased
to $98.7 million from $77.6 million during the same period in 1998, an increase
of 27%. Service revenues accounted for 50% and 48% of net revenues for the first
quarters of 1999 and 1998, respectively.
Maintenance revenues increased 35% to $73.1 million, or 37% of net revenues,
for the first quarter of 1999 from $54.1 million, or 34% of net revenues, for
the same period in 1998. This increase, both in absolute dollars and as a
percentage of net revenues, is attributable primarily to higher initial-year
maintenance fees and the renewal of maintenance contracts in connection with our
growing installed customer base. As our products continue to grow in complexity,
more support services are expected to be required. We intend to satisfy this
requirement through internal support, third-party services and OEM support.
Consulting and training revenues increased to $25.6 million for the first
quarter of 1999 from $23.5 million for the same period in 1998. The minimal
growth in the consulting and training practice was primarily a result of modest
increases in North America and Europe.
COSTS AND EXPENSES
COST OF SOFTWARE DISTRIBUTION. Cost of software distribution consists
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. Cost of software
distribution increased slightly to $10.1 million for the first quarter of 1999
from $9.8 million for the same period in 1998. However, as a percentage of
license revenues, cost of software distribution decreased slightly to 10% for
the quarter ended March 31, 1999 from 12% for the same period in 1998. This
decrease as a percentage of license revenues was primarily due to the write-off
in the first quarter of 1998 of approximately $0.8 million of previously
capitalized software costs after it was determined that the projected sales of
certain tools products were not sufficient to realize the capitalized product
development costs. Amortization of capitalized software remained relatively flat
at $4.8 million, or 5% of license revenues, for the quarter ended March 31, 1999
compared to $5.0 million, or 6% of license revenues, for the same period in
1998.
COST OF SERVICES. Cost of services consists primarily of maintenance,
consulting and training expenses. Cost of services increased approximately 20%
to $44.8 million for the first quarter of 1999 from $37.4 million for the same
period in 1998, but decreased as a percentage of net service revenues to 45%
from 48%. The increase in absolute dollars is primarily due to an increase of
approximately 18% in headcount, a portion of which resulted from the addition of
the Red Brick consulting team subsequent to the completion of our acquisition of
Red Brick Systems, Inc. in December 1998.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries, commissions, marketing programs and related overhead
costs. Sales and marketing expenses increased 21% to $76.4 million in the first
quarter of 1999 compared to $63.4 million for the same period in 1998. This
increase was in line with the 22% growth in net revenues and, as a result, sales
and marketing expenses remained consistent at 39% of net revenues for both
periods. The increase in absolute dollars was due primarily to increased
commissions and selling expenses, which resulted from the growth in net
revenues. Also, during the first quarter of 1999, we increased our marketing
efforts in connection with the introduction of several new products and our new
corporate logo and identity.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salaries, project consulting and related overhead costs for
product development. Research and development expenses increased 7% to $39.1
million for the first quarter of 1999 from $36.6 million for the same period in
1998. The increase in research and development expenses in absolute dollars for
the first quarter of 1999 is attributable primarily to amortization of
intangible assets resulting from the Red Brick acquisition and
14
<PAGE>
an increase of approximately 9% in headcount, offset by a $1.7 million, or 46%,
increase in the amount of product development expenditures capitalized in the
first quarter of 1999 compared to the first quarter of 1998. This increase in
capitalized expenditures is attributable primarily to expenditures related to
the latest versions of our Informix Dynamic Server products, which have not yet
been commercially released. As a percentage of net revenues, research and
development expenses decreased from a 23% level for the first quarter of fiscal
1998 to 20% in the first quarter of 1999, a level which we believe is consistent
with our long-term objectives for research and development spending.
GENERAL AND ADMINISTRATIVE EXPENSES. 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 36% in the first quarter of 1999 compared to the same period in 1998,
primarily due to increased headcount and reductions in reserves for bad debts in
the first quarter of 1998 due to improvement in our financial condition and
credit and collections process. As a percentage of net revenues, general and
administrative expenses were approximately 9% compared to the first quarter of
1998 when general and administrative expenses represented approximately 8% of
net revenues.
RESTRUCTURING CHARGES
In June and September 1997, we approved plans to restructure our operations
to bring expenses in line with forecasted revenues and substantially reduced our
worldwide headcount and modified operations to improve efficiency. Accordingly,
we recorded restructuring charges totaling $108.2 million for 1997. The
significant components of these restructuring charges were severance and
benefits, write-off of assets, and facility charges. Severance and benefits
represented the reduction of approximately 670 employees, primarily sales and
marketing personnel, on a worldwide basis. Temporary employees and contractors
were also reduced. Write-off of assets included the write-off or write-down in
carrying value of equipment as a result of our 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 the
write-offs and write-downs consisted primarily of computer servers,
workstations, and personal computers that were no longer utilized in our
operations. Facility charges included early termination costs associated with
the closing of certain domestic and international sales offices.
During the first quarter of 1999 and 1998, adjustments of $0.6 million and
$3.3 million, respectively, were recorded to the results of operations. These
adjustments, which appear as a credit to restructuring charges in our financial
statements, were due primarily to adjusting the estimated severance and facility
components of the 1997 restructuring charge to actual costs incurred. We have
substantially completed actions associated with our restructuring except for
subleasing or settling our remaining long-term operating leases related to
vacated properties. The terms of these operating leases expire at various dates
through 2003. Accrued restructuring costs totaling $3.1 million remained as a
liability in our financial statements as of March 31, 1999, all of which related
to facility charges.
OTHER INCOME (EXPENSE)
INTEREST INCOME. Interest income for the first quarter of fiscal 1999
increased to $2.8 million from $2.0 million for the same period in 1998 due to
an increase in the average interest-bearing cash and short-term investment
balances in 1999 provided by tax refunds received in the quarter ended December
31, 1998 and increased sales and operating income.
INTEREST EXPENSE. Interest expense decreased to $1.2 million for the
quarter ended March 31, 1999 from $1.9 million for the same period in 1998 due
primarily to a significant decrease in the interest paid on capital leases.
OTHER INCOME (EXPENSE), NET. Other expense, net, increased $1.2 million in
the first quarter of 1999 compared to the same period in 1998 due to an increase
in foreign currency transaction losses of
15
<PAGE>
$1.3 million over the period. The majority of these foreign currency transaction
losses were realized in the Latin America region due to the devaluation of the
Brazilian Real during the first quarter of 1999.
INCOME TAXES
During the first quarter of 1999 and 1998, income tax expense resulted from
taxable earnings and withholding taxes in certain foreign jurisdictions where we
are unable to utilize our net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash, cash equivalents, and short-term investments.......................................... $ 213.1 $ 165.5
Working capital (deficit)................................................................... $ 59.6 $ (91.8)
Cash and cash equivalents used for operations............................................... $ (6.1) $ (8.5)
Cash and cash equivalents used for investment activities.................................... $ (37.6) $ (4.5)
Cash and cash equivalents provided by financing activities.................................. $ 3.7 $ 19.3
</TABLE>
OPERATING CASH FLOWS. Cash used for operations totaled $6.1 million for the
quarter ended March 31, 1999 as compared to $8.5 million for the same period in
1998. This increase in operating cash flows was due primarily to improved
profitability in the first quarter of 1999, offset by the effect on cash flows
of license fees received in advance, foreign currency transaction losses,
restructuring charges and changes in operating assets and liabilities. Net
income for the first quarter of fiscal 1999 was $7.5 million as compared to $1.8
million for the same period in 1998.
INVESTING CASH FLOWS. Net cash and cash equivalents used for investment
activities increased by approximately $33.1 million for the quarter ended March
31, 1999 when compared to the same period in 1998. This increase was due
primarily to a net increase, in the first quarter of 1999, of our investment in
available-for-sale securities of excess cash generated from profitable
operations. Our net investment in available-for-sale securities was
approximately $27.8 million greater in the first quarter of 1999 than in the
same period in 1998. Other significant changes in investing activities during
the first quarter of 1999 compared to the corresponding period in 1998 include
an increase in capital expenditures of $2.9 million and an increase in the
capitalization of software development costs of $1.7 million.
FINANCING CASH FLOWS. The decrease in cash and cash equivalents provided by
financing activities in the first quarter of 1999 when compared to the same
period in 1998 is due to proceeds received by us in the first quarter of 1998
from the issuance of 60,000 additional shares of our Series A-1 Preferred Stock
at $250 per share, for net proceeds of $14.1 million. Net cash and cash
equivalents provided by financing activities in the first quarter of 1999
consist primarily of proceeds from the sale of our Common Stock through the
exercise of stock options and purchases under our Employee Stock Purchase Plan.
SUMMARY. We believe that our current cash, cash equivalents and short-term
investments balances and cash flows from operations will be sufficient to meet
our working capital requirements for at least the next 12 months.
RECENT DEVELOPMENTS
On May 5, 1999 we announced the appointment of Jean-Yves Dexmier to the post
of Chief Executive Officer and President. Bob Finocchio, who has served as our
President and Chief Executive Officer since July 1997, will continue as Chairman
of the Board. The transition, including the appointment of Mr. Dexmier to the
Board of Directors, will be effective July 16, 1999.
16
<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 one year, 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.
We are:
- Reviewing and updating the Year 2000 compliance status of the software and
systems used in our internal business processes
- Obtaining appropriate assurances of compliance from the manufacturers of
these products and agreements, as necessary, to modify or replace all
non-compliant products
We expect this work to be substantially complete by the Fall of 1999.
In addition, we are considering converting certain of our 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 our administrative and management
information personnel
- The assistance of consulting personnel from third party software vendors
- The training of our personnel using such systems
Based on the information available to date, we believe that we will be able
to complete our Year 2000 compliance review and make necessary modifications
prior to the end of 1999. A significant portion of the software or systems
critical to our business are Year 2000 compliant. The remainder of the mission
critical applications are scheduled to be Year 2000 compliant by the end of June
1999. To the extent that we are relying on the products of other vendors to
resolve Year 2000 issues, there can be no guarantee that we will not experience
delays in implementing such products. We could incur substantial costs and
disruption of our business if key systems, or a significant number of systems,
were to fail as a result of Year 2000 problems or if we were to experience
delays in implementing Year 2000 compliant software products.
STATE OF READINESS
Our Year 2000 project is divided into four major sections:
- Product Readiness
- Information Systems Operations & Applications Software (IS Systems)
- Third-party Suppliers
- Global Business Processes (includes Facilities, Legal, Manufacturing,
Technical Support, Sales, Product Management and Development, Marketing
and Finance)
There are five general phases of our Year 2000 Project applicable to each of
the four sections:
- Awareness Phase. Increasing employee awareness through various forms of
communication
- Mission Critical Inventory Phase. Taking an inventory of mission critical
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
17
<PAGE>
items for assessment and possible renovation, and assessing the status of
Year 2000 compliance of items which we have determined to be material to
our business
- Repair or Replace Phase. Repairing or replacing material items that are
not Year 2000 compliant
- Update Testing Phase. Testing of updates given by third party suppliers
- Business Continuity Phase. 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 that
we believe have a significant negative impact on customer service, involve
a risk to the safety of individuals, may cause damage to property or the
environment, or may significantly affect revenue
We have completed the Awareness Phase and the Mission Critical Inventory
Phase for each of the four sections of the project. The Repair or Replace phase
for each of the four sections will continue through the first half of 1999 as
various departments perform tests or receive compliance information from
third-party suppliers. We are performing most of the testing ourselves under the
Update Testing Phase, although we have retained third-parties to test certain of
our key applications. The level of testing is significantly limited by our
technical ability to emulate our complex systems and networks and cost/benefit
considerations.
We are working on the Business Continuity phase for each of the four
sections. A working plan of the program should be available during the third
quarter of 1999.
PRODUCT READINESS. All of our currently supported products are Year 2000
compliant, meaning that the use or occurrence of dates on or after January 1,
2000 will not adversely affect the performance or functionality of our products
with respect to four-digit year dates or the ability of our products to
correctly create, store, process, and output information related to such date
data, including Leap Year calculations. However, Year 2000 compliance of our
products may be affected by other parts of the system in which they are being
used, as discussed below.
Our 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
our products correctly interpret and/or translate date data into a four-digit
year date and properly exchange date data with our products.
We are testing our products under different scenarios. Throughout the
remainder of 1999 and beyond, we will continue to improve our testing efforts
with each new release of our software products. From time to time, our Year 2000
Program Office updates the recommended version of each product family when a
Year 2000 or DBCENTURY-related product deficiency is found and fixed in a
certain interim or maintenance release. We have made Year 2000 testing scenarios
part of our standard test suite.
Our Year 2000 Program Office finished incorporating the Red Brick product
compliance information and plans into our Year 2000 Program Plan during the
first quarter of 1999.
IS SYSTEMS. Our IS systems consist of all computer hardware, systems
software and telecommunications. Our current hardware inventory includes PC
Desktops, PC Laptops, UNIX servers, UNIX workstations, and NT workgroup servers.
Our current software inventory includes Windows 95 operating system and MS
Office products, Product Development environment tools for UNIX, and various
management systems. Our telecommunications equipment includes both voice and
data services, including PBX systems, voicemail, ACD, video conferencing, local
area networks, wide area networks, and remote access equipment. Testing is
ongoing as hardware or system software is renovated or replaced, although, the
level of testing is significantly limited by our technical ability to emulate
our complex systems and networks and cost/benefit considerations. We began
contingency planning in December 1998 and expect to be completed with such
planning by the third quarter of 1999. We expect that all IS systems will be
compliant by the third quarter of 1999.
18
<PAGE>
We have already made significant portions of our mission critical
applications Year 2000 compliant. Applications supplied by other vendors are
expected to be made compliant, replaced with compliant applications, or retired
by mid-1999. None of our other information technology projects have been delayed
due to the implementation of the Year 2000 project. Contingency planning for
this section began in the third quarter of 1998 and is expected to be completed
by mid-1999.
THIRD-PARTY SUPPLIERS. We are 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. We have begun detailed evaluations of the most critical suppliers.
These evaluations will be followed by the development and implementation of
contingency plans where appropriate, which began, in certain departments, in the
fourth quarter of 1998, with a scheduled completion date of mid 1999. Follow-up
reviews are scheduled through the remainder of 1999.
GLOBAL BUSINESS PROCESSES. We have 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 of our critical facilities. It also
includes readiness in our key business areas, including Finance, Technical
Support, and Legal. All testing and repair of embedded systems is scheduled to
be completed by year-end 1999. We began contingency planning for this section,
where appropriate, in the first quarter of 1999 and expect to be completed with
such planning by year-end 1999.
COSTS
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to our financial position. The
estimated total cost of the Year 2000 project is approximately $4.5 million. The
total amount expended on the project through March 31, 1999 was approximately
$0.6 million. We estimate that the remaining amount will be spent as follows:
- $1.5 million for capital expenditures to repair or replace software and
related hardware
- approximately $0.2 for capital expenditures to repair or replace non-IS
equipment
- $2.2 million for non-capital expenses for Technical Support, Operations,
IS Operations and Applications, and the Year 2000 Program Office
The Year 2000 Project is expected to significantly reduce our level of
uncertainty about the Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of our material third-party suppliers. We believe 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, eleven of the fifteen member countries of the European
Economic Community entered into a three-year transition phase during which a
common currency, the "Euro," was introduced. Between January 1, 1999 and January
1, 2002, governments, companies and individuals may conduct business in these
countries in both the Euro and existing national currencies. On January 1, 2002,
the Euro will become the sole currency in these countries.
During the transition phase, we will continue to evaluate the impact of
conversion to the Euro on our business. In particular, we are reviewing:
- Whether our internal software systems can process transactions denominated
either in current national currencies or in the Euro, including converting
currencies using computation methods specified by the European Economic
Community
- The cost to us if we must modify or replace any of our internal software
systems
19
<PAGE>
- Whether we will have to change the terms of any financial instruments in
connection with our hedging activities
Based on current information and our initial evaluation, we do not expect
the cost of any necessary corrective action to have a material adverse effect on
our business. We have reviewed the effect of the conversion to the Euro on the
prices of our products in the affected countries. As a result, we have made some
adjustments to our prices to attempt to eliminate differentials that were
identified. However, we will continue to evaluate the impact of these and other
possible effects of the conversion to the Euro on our business. We cannot
guarantee that the costs associated with conversion to the Euro or price
adjustments will not in the future have a material adverse effect on our
business.
FACTORS THAT MAY AFFECT FUTURE RESULTS
WE ARE SUBJECT TO INTENSE COMPETITION AND THIS COMPETITION MAY ADVERSELY AFFECT
OUR BUSINESS
We may not be able to compete successfully against current and/or future
competitors and such inability would materially adversely affect our business,
quarterly and annual operating results and financial condition. The market for
our products is highly competitive and diverse. Moreover, we expect that the
technology for RDBMS products will continue to change rapidly. New products are
introduced frequently, and existing products are enhanced continually.
Competition may also result in changes in pricing policies by us or our
competitors which could materially adversely affect our business and future
quarterly and annual operating results. We currently face competition from a
number of sources, including several large vendors that develop and market
databases, applications, development tools or decision support products. Our
principal competitors include Computer Associates, IBM, Microsoft, NCR/Teradata,
Oracle and Sybase. Additionally, as we expand our business in the markets of
data warehousing and web/e-commerce, we expect to compete with a different group
of companies, including small, highly focused companies offering single products
or services that we include as part of an overall solution. Several of our
competitors have significantly greater financial, technical, marketing and other
resources than we do. As a result, they may be able to respond more 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
we can.
COMPETITION MAY AFFECT PRICING OF OUR PRODUCTS WHICH COULD ADVERSELY AFFECT OUR
BUSINESS
Existing and future competition or changes in our product or service pricing
structure or product or service offerings could result in an immediate reduction
in the prices of our products or services. If significant price reductions in
our products or services were to occur and not be offset by increases in sales
volume, our business, results of operations and financial condition would be
adversely affected. If such downward pressure on prices were to occur, our
operating margins would be adversely affected. Several of our competitors have
announced the development of enhanced versions of their principal database
products that are intended to improve the performance or expand the capabilities
of their existing products. New or enhanced products by existing competitors or
new competitors could result in greater price pressure on our products. In
addition, the following factors could affect the pricing of RDBMS products and
related products:
- The industry movement to new operating systems, like Windows NT
- Access to RDBMS products through low-end desktop computers
- Access to data through the Internet
- The bundling of software products for promotional purposes or as a
long-term pricing strategy by certain of our competitors
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<PAGE>
- Our own practice of bundling our software products for enterprise licenses
or for promotional purposes with our partners
In particular, the pricing strategies of competitors in the industry have
historically been characterized by aggressive price discounting to encourage
volume purchasing by customers. We may not be able to compete effectively
against competitors who continue to aggressively discount the price of their
products.
OUR INDUSTRY CHANGES RAPIDLY DUE TO EVOLVING TECHNOLOGY STANDARDS AND FUTURE
SUCCESS WILL DEPEND ON OUR ABILITY TO CONTINUE TO MEET THE SOPHISTICATED NEEDS
OF OUR CUSTOMERS
Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers by supporting existing and emerging
hardware, software, database and networking platforms. We will have to develop
and introduce enhancements to our existing products and new products on a timely
basis to keep pace with technological developments, evolving industry standards
and changing customer requirements. We expect that we will have to respond
quickly to:
- Rapid technological change
- Changing customer needs
- Frequent new product introductions
- Evolving industry standards that may render existing products and services
obsolete
As a result, our position in existing markets or potential markets could be
eroded rapidly by product advances. The life cycles of our products are
difficult to estimate. Our growth and future financial performance will depend
in part upon our ability to:
- Continue to enhance our existing products
- Develop and introduce new applications that keep pace with technological
advances on a timely and cost-effective basis
- Meet changing customer requirements
- Match or exceed the product deliveries of our competitors
We expect that our product development efforts will continue to require
substantial investments. We may not have sufficient resources to make the
necessary investments or be able to attract and retain qualified software
development engineers. Any of these events could materially adversely affect our
business, quarterly and annual operating results and financial condition.
SLOWER GROWTH IN THE RDBMS MARKET WOULD ADVERSELY AFFECT SALES OF OUR PRODUCTS
If RDBMS industry growth rates decline for any reason, the markets for our
products will be adversely affected, which would have a negative impact on our
business, results of operations, financial condition and cash flows. Prior to
fiscal 1997, the RDBMS industry grew significantly, due in part to the
continuing development of new technologies and products responsive to customer
requirements. In fiscal 1997 and 1998, however, growth rates throughout the
industry slowed. Recent instability in the Asian-Pacific and Latin American
economies and financial markets, which had previously been cited as potentially
strong sources of revenue growth for relational database software companies, has
introduced additional uncertainty concerning industry growth rates in the
future.
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IF THE OBJECT-RELATIONAL DATABASE MANAGEMENT SYSTEMS ("ORDBMS") MARKET DOES NOT
EVOLVE AS WE ANTICIPATE, OUR BUSINESS WILL BE ADVERSELY AFFECTED
Delays in market acceptance of ORDBMS products offered by us could adversely
effect our results of operations and financial condition. In recent years, the
types and quantities of data required to be stored and managed has grown
increasingly complex and includes, in addition to conventional character data,
audio, video, text and three-dimensional graphics in a high-performance scalable
environment. During 1996, we invested substantial resources in developing our
ORDBMS product line. The market for ORDBMS products is new and evolving, and its
growth depends upon a growing need to store and manage complex data and on
broader market acceptance of our products as a solution for this need. As a
result, organizations may not choose to make the transition from conventional
RDBMS to ORDBMS.
THERE ARE MANY FACTORS, INCLUDING SOME BEYOND OUR CONTROL, THAT MAY CAUSE
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly operating results have varied greatly in the past and may vary
greatly in the future depending upon a number of factors described below and
elsewhere in this "Factors that May Affect Future Results" section, including
many that are beyond our control. As a result, we believe that
quarter-to-quarter comparisons of our financial results are not necessarily
meaningful, and you should not rely on them as an indication of our future
performance. These factors include:
- Changes in demand for our software, including changes in industry growth
rates for our products
- The size, timing and contractual terms of large orders for our software
products
- The budgeting cycles of our customers and potential customers
- Any downturn in our customers' businesses, in the domestic economy or in
international economies where our customers do substantial business
- Changes in our pricing policies resulting from competitive pressures, such
as aggressive price discounting by our competitors or other factors
- Our ability to develop and introduce on a timely basis new products or
enhanced versions of our software
- Changes in the mix of revenues attributable to domestic and international
sales
- Seasonal buying patterns which tend to peak in the fourth quarter
POTENTIAL CHANGES IN MIX OF LICENSE AND SERVICE REVENUE. Historically, a
majority of our revenue has been attributable to the licensing of our software
products. A significant change in the mix of software products and services sold
by us, including the mix between higher margin software products and lower
margin maintenance, consulting and training, could materially adversely affect
our operating results for future quarters.
ANY CANCELLATIONS OR DELAYS IN PLANNED CUSTOMER PURCHASES OF OUR PRODUCTS COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS AND QUARTERLY OPERATING RESULTS
CANCELLATIONS OR DELAYS OF PLANNED PURCHASES. Because we do not know when,
or if, our potential customers will place orders and finalize contracts, we
cannot accurately predict our revenue and operating results for future quarters.
If there is a downturn in potential customers' businesses, the domestic economy
in general, or in international economies where we derive substantial revenue,
potential customers may defer or cancel planned purchases of our products, which
could materially adversely affect our business, operating results and financial
condition. Because our operating expenses are based on anticipated revenue
levels and because a high percentage of our expenses are relatively fixed,
delays in the recognition of revenues from even a limited number of license
transactions could cause significant variations in
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operating results from quarter to quarter, which could cause net income to fall
significantly short of anticipated levels.
EFFECTS OF HISTORICAL TREND FOR SALES TO OCCUR AT END OF QUARTER. Our
software license revenue in any quarter depends on orders booked and shipped in
the last month, weeks or days of that quarter. At the end of each quarter, we
typically have either minimal or no backlog of orders for the subsequent
quarter. If a large number of orders or several large orders do not occur or are
deferred, our revenue in that quarter could be substantially reduced. This could
materially adversely affect our operating results and could impair our business
in future periods.
SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS COULD ADVERSELY AFFECT OUR
QUARTERLY OPERATING RESULTS
Our sales of software products have been affected by seasonal purchasing
trends. We expect these seasonal trends to continue in the future. These
seasonal trends materially affect our quarter-to-quarter operating results.
Revenue and operating results in our quarter ending December 31 are typically
higher relative to our other quarters, because many customers make purchase
decisions based on their calendar year-end budgeting requirements and because of
the effects of our sales incentive plans for sales personnel which are measured
on a calendar year basis. As a result, we have historically experienced a
substantial decline in revenue in the first quarter of each fiscal year relative
to the preceding quarter. Generally, we expect our quarter ending September 30
to reflect the effects of summer slowing of international business activity and
spending activity generally associated with that time of year, particularly in
Europe.
ANY DELAYS IN OUR NORMALLY LENGTHY SALES CYCLES COULD RESULT IN SIGNIFICANT
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our sales cycle typically takes many months to complete and varies depending
on the product, service or solution that we are selling. Any delay in the sales
cycle of a large transaction or a number of smaller transactions could result in
significant fluctuations in our quarterly operating results. The length of the
sales cycle may vary depending on a number of factors over which we may have
little or no control, including the size of a potential transaction and the
level of competition that we encounter in our selling activities. Our sales
cycle can be further extended for sales made through third party distributors.
OUR FUTURE REVENUE IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMERS
RENEWING MAINTENANCE AGREEMENTS FOR OUR PRODUCTS AND LICENSING ADDITIONAL
PRODUCTS; OUR FUTURE SERVICES AND MAINTENANCE REVENUE IS DEPENDENT ON FUTURE
SALES OF OUR SOFTWARE PRODUCTS
We depend on our installed customer base for future revenues from services
and licenses of additional products. If our customers fail to renew their
maintenance agreements, this could materially adversely affect our business and
future quarterly and annual operating results. The maintenance agreements are
renewable annually at the option of the customers and there are no minimum
payment obligations or obligations to license additional software. Therefore,
our current customers may not necessarily generate significant maintenance
revenue in future periods. In addition, our customers may not necessarily
purchase additional products or services. Our services revenue and maintenance
revenue are also dependent upon the continued use of these services by our
installed customer base. Any downturn in our software license revenue could
adversely affect the growth of our services revenue in future quarters. License
revenue in fiscal 1997 was $378.2 million and in fiscal 1998 was $383.5 million,
both of which are significantly less than fiscal 1996 when license revenue was
$502.7 million.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND SUCH OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH INFORMIX IN THE FUTURE
The loss of the services of one or more of our senior executive officers or
key employees could materially adversely affect our business, results of
operations and financial condition. Our success will
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depend to a significant extent on the continued service of our senior executives
and certain other key employees, including certain sales, consulting, technical
and marketing personnel. If we lost the services of one or more of our senior
executives or key employees, this could materially adversely affect our
business, particularly if one or more of our executives or key employees decided
to join a competitor or otherwise compete directly or indirectly with Informix.
Of our senior officers and key employees, only Mr. Finocchio, our current
Chairman, President and Chief Executive Officer, is bound by an employment
agreement, the terms of which are nonetheless at-will. In addition, we do not
maintain key man life insurance on our employees and have no plans to do so.
We recently announced changes to our senior management with the appointment
of Jean Yves Dexmier to the position of President and Chief Executive Officer,
effective July 16, 1999. Mr. Dexmier is currently Informix's Executive Vice
President, Worldwide Field Operations. Also effective July 16, 1999, Mr.
Finocchio will resign his position as President and Chief Executive Officer but
will continue as the Chairman of the Board. Although we anticipate a smooth
transition, the change could disrupt our business, management team and results
of operations.
OUR NEW EXECUTIVE TEAM MAY NOT BE ABLE TO SUCCESSFULLY WORK TOGETHER TO MEET OUR
BUSINESS OBJECTIVES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS
Almost all of our executive officers, including our President and Chief
Executive Officer, our Executive Vice President, Worldwide Field Operations, and
our Executive Vice President, Finance and Chief Financial Officer, have joined
us since the beginning of fiscal 1997. Since joining us, the new management team
has devoted substantial efforts to restructuring our sales, marketing and
finance organizations after the announcement of the restatement of our financial
results for fiscal 1994, 1995 and 1996 and the first quarter of fiscal 1997 as a
result of errors and irregularities identified with our revenue recognition
practices during these periods. In addition, in fiscal 1998, we announced that
we were restructuring our business to expand our e-commerce and data warehousing
capabilities. Our management team has not worked together previously and may not
be able to successfully implement this strategy. If our management team is
unable to accomplish our business objectives, it could materially adversely
affect our business and our future quarterly and annual operating results.
PENDING LITIGATION COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS
Since April 16, 1997, various holders of our Common Stock have filed over 20
separate lawsuits against us, Ernst & Young LLP (who served as our former
independent auditors), and certain of our current and former officers and
directors. The uncertainty associated with substantial unresolved lawsuits could
materially adversely affect our business and financial condition. In particular,
the lawsuits could harm our relationships with existing customers and our
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 adversely affect our business. The lawsuits
could also have the effect of discouraging potential acquirors from bidding for
us or reducing the consideration they would otherwise be willing to pay in
connection with an acquisition. In addition, although we are unable to determine
the amount, if any, we may be required to pay in connection with the resolution
of these lawsuits, by settlement or otherwise, the size of any such payment
could materially adversely affect our financial condition. Most of the lawsuits
have been filed as purported class actions by persons who claim that they
purchased our Common Stock during a purported class period. The complaints
allege violations of federal and state securities laws, fraud, and violations of
California's unfair business practices statutes. The complaints, in general, do
not specify the amount of damages that plaintiffs seek.
There are pending federal and state securities actions which are in the
early stages of discovery. As a result, we are unable to estimate the possible
range of damages that might be incurred as a result of the lawsuits. We have not
set aside any financial reserves relating to any of these lawsuits.
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LIMITATIONS OF INFORMIX DIRECTOR AND OFFICER LIABILITY INSURANCE MAY ADVERSELY
AFFECT OUR BUSINESS
Our liability insurance for actions taken by officers and directors during
the period from August 1996 to August 1997, the period during which events
related to securities class action lawsuits against us and certain of our
current and former executive officers occurred, provide only limited liability
protection. If these policies do not adequately cover our expenses related to
those class action lawsuits, it could materially adversely affect our business
and financial condition.
Under Delaware law, our charter documents, and certain indemnification
agreements we entered into with our executive officers and directors, we must
indemnify our 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.
For the period in which most of the claims were asserted, we had in place
three director's and officer's liability insurance policies, each providing $5
million in coverage for a total of $15 million. However, our insurance carriers
assert that not all of the actions implicate coverage under our insurance
policies. In addition, these policies do not provide any separate coverage for
us as an entity as opposed to its officers and directors. Moreover, we do not
have separate insurance to cover the costs of Informix's own defense or to cover
any liability for any claims asserted against us during that period.
THE PENDING SEC INVESTIGATION COULD ADVERSELY AFFECT OUR BUSINESS
In July 1997, the SEC issued a formal order of investigation of us and
certain unidentified individuals associated with us. The investigation relates
to non-specified accounting matters, financial reports, other public disclosures
and trading activity in our stock. While we do not know the current status of
the investigation or any possible actions that may be taken against us as a
result of the investigation, any action could adversely affect our business.
THERE ARE A NUMBER OF FACTORS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT
COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS
Our international operations are, and any expanded international operations
will be, subject to a variety of risks associated with conducting business
internationally that could materially adversely affect our business and future
quarterly and annual operating results, including the following:
- Difficulties in staffing and managing international operations
- Problems in collecting accounts receivable
- Longer payment cycles
- Fluctuations in currency exchange rates
- Seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world
- Uncertainties relative to regional, political and economic circumstances
- Recessionary environments in foreign economies
- Increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries
International sales represented approximately 50% of our total revenue in
the first quarter of 1999. In particular, instability in the Asian-Pacific and
Latin American economies and financial markets, which
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combined accounted for approximately 19% of our total net revenues in the first
quarter of 1999, could materially adversely affect our operating results in
future quarters.
FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY
TRANSACTION LOSSES
Despite our efforts to manage foreign exchange risk, there can be no
assurances that our hedging activities will adequately protect us against the
risks associated with foreign currency fluctuations. As a consequence, our
business, results of operations and financial condition could be materially
adversely affected by fluctuations in foreign currency exchange rates. Most of
our international revenue and expenses are denominated in local currencies. Due
to the substantial volatility of currency exchange rates, among other factors,
we cannot predict the effect of exchange rate fluctuations on our future
operating results. Although we take into account changes in exchange rates over
time in our pricing strategy, we do so only on an annual basis, resulting in
substantial pricing exposure as a result of foreign exchange volatility during
the period between annual pricing reviews. In addition, as noted previously, the
sales cycles for our products is relatively long. Foreign currency fluctuations
could, therefore, result in substantial changes in the financial impact of a
specific transaction between the time of initial customer contact and revenue
recognition.
In addition to the hedging program described above, we have implemented a
foreign exchange hedging program consisting principally of the purchase of
forward foreign exchange contracts, which is intended to hedge the value of
intercompany accounts receivable or intercompany 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 contracts in the primary European and Asian currencies. Uncertainties
related to the Euro conversion could adversely affect our hedging activities.
WE MAY NOT SUCCESSFULLY DEVELOP NEW BUSINESS AREAS WHICH COULD ADVERSELY AFFECT
OUR BUSINESS
We have in recent years expanded our technology into a number of new
business areas to foster long-term growth, including application servers,
Internet/electronic commerce, and data warehousing. These areas are relatively
new to our product development and sales and marketing personnel. We may not be
able to compete effectively or generate significant revenues in these new areas.
DATA WAREHOUSING. In 1998 we announced that we were entering the data
warehousing market. The acquisition of Red Brick in December 1998 expanded our
presence in this market. Although demand for data warehouse software has grown
in recent years, the market is still emerging. Our future financial performance
in this area will depend to a large extent on:
- Continued growth in the number of organizations adopting data warehouses
- Our success in developing partnering arrangements with developers of
software tools and applications for the data warehouse market
- Existing customers expanding their use of data warehouses
The data warehouse market, however, may not continue to grow and its
customers may not expand their use of data warehouses. A failure of the data
warehouse market to grow, or slower growth than we currently anticipate, could
materially adversely affect our business, operating results and financial
condition.
INTERNET COMPUTING. The success of Internet computing and, in particular,
our current Internet computing software products is difficult to predict because
Internet computing is new to the entire computer industry. The successful
introduction of Internet computing to the market will depend in large measure
on:
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- The commitment by hardware and software vendors to manufacture, promote
and distribute Internet access appliances
- The lower cost of ownership of Internet computing relative to
client/server architecture
- The ease of use and administration relative to client/server architecture
In addition, sufficient numbers of vendors may not undertake a commitment to
the market, the market may not accept Internet computing or Internet computing
may not generate significant revenues for our business.
The widespread acceptance and adoption of the Internet by traditional
businesses for conducting business and exchanging information is likely only if
the Internet provides these businesses with greater efficiencies and
improvements. The failure of the Internet to continue to develop as a commercial
or business medium could materially adversely affect our business.
In addition, standards for network protocols, as well as other industry
adopted and de facto standards for the Internet, are evolving rapidly. There can
be no assurance that standards chosen by us will position our products to
compete effectively for business opportunities as they arise on the Internet and
other emerging areas.
ERRORS IN OUR PRODUCTS OR THE FAILURE OF OUR PRODUCTS TO CONFORM TO CUSTOMER
SPECIFICATIONS OR EXPECTATIONS COULD RESULT IN OUR CUSTOMERS DEMANDING REFUNDS
FROM US OR ASSERTING CLAIMS FOR DAMAGES AGAINST US OR IN DECREASED SALES OF
OUR PRODUCTS
Because our software products are complex, they often contain errors or
"bugs" that can be detected at any point in a product's life cycle. While we
continually test our products for errors and work with customers through our
customer support services to identify and correct bugs in our software, we
expect that errors in our products will continue to be found in the future.
Although many of these errors may prove to be immaterial, certain of these
errors could be significant. Detection of any significant errors may result in,
among other things, loss of, or delay in, market acceptance and sales of our
products, diversion of development resources, injury to our reputation, or
increased service and warranty costs. These problems could materially adversely
affect our business and future quarterly and annual operating results.
A key determinative factor in our future success will continue to be the
ability of our products to operate and perform well with existing and future
leading, industry-standard application software products intended to be used in
connection with RDBMS products. Failure to meet in a timely manner existing or
future interoperability and performance requirements of certain independent
vendors could adversely affect the market for our products.
Commercial acceptance of our products and services could also be adversely
affected by critical or negative statements or reports by brokerage firms,
industry and financial analysts and industry periodicals concerning us, our
products, business or competitors or by the advertising or marketing efforts of
competitors, or other factors that could adversely affect consumer perception.
PRODUCT LIABILITY CLAIMS ASSERTED AGAINST US IN THE FUTURE COULD ADVERSELY
AFFECT OUR BUSINESS
We may be subject to claims for damages related to product errors in the
future. While we carry insurance policies covering this type of liability, these
policies may not provide sufficient protection should a claim be asserted. A
material product liability claim could materially adversely affect our business.
Our license agreements with our customers typically contain provisions designed
to limit exposure to potential product liability claims. Such limitation of
liability provisions may, however, not be effective under the laws of certain
jurisdictions to the extent local laws treat certain warranty exclusions as
unenforceable. Although we have not experienced any product liability claims to
date, the sale and support of our products entail the
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risk of such claims. In particular, issues relating to Year 2000 compliance have
increased awareness of the potential adverse effects of software defects and
malfunctions.
WE MAY BE UNABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED
We may be unable to attract, train and retain qualified personnel, and the
failure to do so, particularly in key functional areas such as product
development and sales, could materially adversely affect our business, results
of operations and financial condition. Our future success will likely depend in
large part on our ability to attract and retain additional experienced sales,
technical, marketing and management personnel. Competition for such personnel in
the computer software industry is intense, and in the past we have experienced
difficulty in recruiting qualified personnel, especially developers and sales
personnel. We expect competition for qualified personnel to remain intense, and
we may not succeed in attracting or retaining such personnel. In addition, new
employees generally require substantial training in the use of our products.
This training will require substantial resources and management attention.
RIGHTS OF SERIES B PREFERRED STOCKHOLDERS MAY ADVERSELY AFFECT OUR COMMON
STOCKHOLDERS
At March 31, 1999, 22,800 shares of Series B Preferred Stock remained
outstanding. Holders of the Series B Preferred shares have certain rights that
may adversely affect holders of our Common Stock.
RIGHTS TO CONSENT TO CORPORATE TRANSACTIONS. Our agreements with the
purchasers of the Series B Preferred Stock contain covenants that could impair
our ability to engage in various corporate transactions in the future, including
financing transactions and certain transactions involving a change-in-control or
acquisition of our assets or equity, or that could otherwise be disadvantageous
to us and the holders of our Common Stock. In particular, an acquisition may not
be affected without the consent of the holders of the outstanding Series B
Preferred Stock or without requiring the acquiring entity to assume the Series B
Preferred Stock or cause the Series B Preferred Stock to be redeemed. These
provisions are likely to make an acquisition more difficult and expensive and
could discourage potential acquirors. We made certain covenants in connection
with the issuance of the Series B Preferred Stock which could limit our ability
to obtain additional financing by, for example, providing the holders of the
Series B Preferred Stock certain rights of first offer and prohibiting us from
issuing additional Preferred Stock without the consent of the Series B Preferred
Stockholders.
CONVERSION RIGHTS. The shares of Series B Preferred Stock are convertible
into shares of our Common Stock based on the trading prices of the Common Stock
during future periods that are described in the Series B Preferred Stock
financing agreement. As a result, we are unable to determine the number of
shares of our Common Stock that may ultimately be issued upon conversion. If the
conversion price of the Series B Preferred Stock is determined during a period
when the trading price of our Common Stock is low, the resulting number of
shares of our Common Stock issuable upon conversion of the Series B Preferred
Stock could result in greater dilution to the holders of our Common Stock. We
are also obligated to issue upon conversion of the Series B Preferred Stock
additional warrants to acquire shares of our Common Stock equal to 20% of the
total number of shares of Common Stock into which the Series B Preferred Stock
converts. The exercise of these warrants will have further dilutive effect to
the holders of our Common Stock. As of March 31, 1999, Series B Preferred
stockholders had converted an aggregate of 27,200 shares of Series B Preferred
Stock into 6,540,496 shares of our Common Stock and warrants to purchase an
aggregate of 1,508,000 shares of our Common Stock. At March 31, 1999, 22,800
shares of Series B Preferred Stock remained outstanding and assuming a $4.00 per
share conversion price, were convertible into 5,700,000 shares of our Common
Stock and, assuming such conversion, warrants to purchase an aggregate of
1,140,000 additional shares of our Common Stock would become issuable upon such
conversion.
PENALTY PROVISION. The terms of the Series B Preferred financing agreement
also includes certain penalty provisions that are triggered if we fail to
satisfy certain obligations. For instance, we must keep a
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registration statement effective for the resale of shares of our Common Stock
issued or issuable upon conversion of the Series B Preferred shares and upon
exercise of the warrants.
WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY RIGHTS WHICH OFFER ONLY LIMITED
PROTECTION AGAINST POTENTIAL INFRINGERS; IF WE CANNOT PROTECT OUR INTELLECTUAL
PROPERTY RIGHTS, THIS COULD ADVERSELY AFFECT OUR BUSINESS
Our success will continue to be heavily dependent upon proprietary
technology. We rely primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. These means of protecting our
proprietary rights may not be adequate and our inability to protect our
intellectual property rights may adversely affect our business and financial
condition. We currently hold eight United States patents and several pending
applications. There can be no assurance that any other patents covering our
inventions will issue or that any patent, if issued, will provide sufficiently
broad protection or will prove enforceable in actions against alleged
infringers.
Our products are generally licensed to end-users on a "right-to-use" basis
under a license that restricts the use of the products for the customer's
internal business purposes. We also rely on "shrink-wrap" and "click-wrap"
licenses, which include a notice informing the end-user that, by opening the
product packaging or in the case of a click-wrap license by clicking on an
acceptance icon and downloading the product, the end-user agrees to be bound by
our license agreement. Despite such precautions, it may be possible for
unauthorized third parties to copy aspects of our current or future products or
to obtain and use information that we regard as proprietary. In addition, we
have licensed the source code of our products to certain customers under certain
circumstances and for restricted uses. We have also entered into source code
escrow agreements with a number of our customers that generally require release
of source code to the customer in the event we enter bankruptcy or liquidation
proceedings or otherwise ceasing to conduct business.
We may also be unable to protect our technology because:
- Our competitors may independently develop similar or superior technology
- Policing unauthorized use of our software is difficult
- The laws of some foreign countries do not protect our proprietary rights
to the same extent as do the laws of the United States
- "Shrink-wrap" and/or "click-wrap" licenses may be wholly or partially
unenforceable under the laws of certain jurisdictions
- Litigation to enforce our intellectual property rights, to protect our
trade secrets or to determine the validity and scope of the proprietary
rights of others could result in substantial costs and diversion of
resources and could materially adversely affect our business, future
operating results and financial condition
THIRD PARTIES IN THE FUTURE COULD ASSERT THAT OUR PRODUCTS INFRINGE THEIR
INTELLECTUAL PROPERTY RIGHTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS
Third parties may claim that our current or future products infringe their
proprietary rights. Any claim of this type could affect our relationships with
existing customers and prevent future customers from licensing our products. Any
such claim, with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements. Royalty or license agreements may not be available on
acceptable terms or at all. We expect that software product developers will
increasingly be subject to infringement claims as the number of products and
competitors in the software industry segment grows and the functionality of
products in different industry
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segments overlaps. As a result of these factors, infringement claims could
materially adversely affect our business.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR SOFTWARE OR OUR INTERNAL OPERATING SYSTEMS
COULD ADVERSELY AFFECT OUR BUSINESS
THIRD PARTY EQUIPMENT AND SOFTWARE. We may incur large costs and the
disruption of our business if any key systems fail as a result of Year 2000
problems. We use third party equipment and software that may not be Year 2000
compliant. If this third party equipment or software does not operate properly
with regard to the Year 2000, we may incur unexpected expenses to remedy any
problems. These costs may materially adversely affect our business. In addition,
if our key systems, or a significant number of our systems, failed as a result
of Year 2000 problems we could incur substantial costs and disruption of our
business. To the extent we are relying on the products of other vendors to
resolve Year 2000 issues, we may experience delays in implementing the products.
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 our business. In addition, we may not have enough
available personnel to implement and complete in a timely manner our Year 2000
project.
CUSTOMER BUYING PATTERNS. Purchasing patterns of our customers and
potential customers may be affected by Year 2000 issues. Many companies are
spending significant resources to correct their current software systems for
Year 2000 compliance. Customers with limited IT budgets who face material Year
2000 issues may increasingly spend their limited resources remediating these
Year 2000 problems instead of investing in more general IT management products
such as our products. We expect this customer focus on remediating Year 2000
issues to increase as January 1, 2000 approaches.
OUR PRODUCTS. If any of our licensees experience Year 2000 problems as a
result of their use of our software products, those licensees could assert
claims for damages which, if successful, could materially adversely affect our
business, future operating results and financial condition. In the ordinary
course of our business, we test and evaluate our software products. We believe
that our software products are generally Year 2000 compliant, meaning that the
use or occurrence of dates on or after January 1, 2000 will not adversely affect
the performance of our products with respect to four-digit year dates or the
ability of our products to correctly create, store, process and output
information related to such date data, including Leap Year calculations.
However, we may learn that certain of our software products do not contain all
necessary software routines and codes necessary for the accurate calculation,
display, storage and manipulation of such date data. In addition, in certain
cases, we have warranted that the use or occurrence of dates on or after January
1, 2000 will not adversely affect the performance of our products with respect
to four digit date dependent data or the ability to create, store, process and
output information related to such data.
For a more detailed description of our Year 2000 preparedness assessment,
see "Item 2.--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
ANY ACQUISITION OR INVESTMENT THAT WE MAY MAKE WILL BE SUBJECT TO A NUMBER OF
FACTORS WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS; ANY INVESTMENT
OR ACQUISITION MAY DILUTE EXISTING STOCKHOLDERS
In the future we may acquire, or invest in, businesses that offer products,
services and technologies that we believe would help us expand or enhance our
products and services or help us expand our distribution channels. If we were to
make such an acquisition or investment, the risks described below could
materially adversely affect our business and future operating results. Any
future acquisition or
30
<PAGE>
investment would present risks commonly encountered in acquisitions of or
investments in businesses. The following are examples of such risks:
- Difficulty in combining the technology, operations or work force of the
acquired business
- Disruption of our on-going businesses
- Difficulty in realizing the potential financial or strategic benefits of
the transaction
- Difficulty in maintaining uniform standards, controls, procedures and
policies
- Possible impairment of relationships with employees and customers as a
result of any integration of new businesses and management personnel
The consideration for any future acquisition could be paid in cash, shares
of our Common Stock, or a combination of cash and our Common Stock. If the
consideration is paid in Common Stock, this would further dilute existing
stockholders. Any amortization of goodwill or other assets resulting from such
acquisition transaction could materially adversely affect our operating results
and financial condition.
COSTS ASSOCIATED WITH EURO CONVERSION ISSUES MAY ADVERSELY AFFECT OUR BUSINESS
Costs associated with conversion to the Euro could materially adversely
affect our operating results and financial condition. We have reviewed the
effect of the conversion to the Euro on the prices of our products in the
affected countries. As a result, we have made some adjustments to our prices to
attempt to eliminate differentials that were identified. We have not completed
our review of the impact of conversion to the Euro on our business, but it is
possible that costs associated with ensuring that our products and internal
operating systems are able to effectively work with the Euro conversion, or
price adjustments resulting from the Euro conversion, could be material to our
business.
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS
MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND THE VOTING
RIGHTS OF THE HOLDERS OF COMMON STOCK
Our Board of Directors is authorized to issue up to 5,000,000 shares of
undesignated Preferred Stock in one or more series. Of the 5,000,000 shares of
Preferred Stock, 440,000 shares have been designated Series A Preferred, none of
which is outstanding; 440,000 shares have been designated Series A-1 Preferred,
none of which is outstanding; 50,000 shares have been designated Series B
Preferred, of which 22,800 shares remained outstanding as of March 31, 1999.
Subject to the prior consent of the holders of the Series B Preferred Stock, the
Board of Directors can fix the price, rights, preferences, privileges and
restrictions of such Preferred Stock without any further vote or action by our
stockholders. However, the issuance of shares of Preferred Stock may delay or
prevent a change in control transaction without further action by our
stockholders. As a result, the market price of our Common Stock and the voting
and other rights of the holders of our Common Stock may be adversely affected.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of our Common Stock, including the loss
of voting control to others.
CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS MAY INHIBIT POTENTIAL ACQUISITION
BIDS; THIS MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND
PREVENT CHANGES IN OUR MANAGEMENT
Certain provisions of our charter documents are designed to reduce our
vulnerability to an unsolicited acquisition proposal. These include:
- Elimination of the right of stockholders to act without holding a meeting
31
<PAGE>
- Certain procedures for nominating directors and submitting proposals for
consideration at stockholder meetings
- 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 composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions involving an actual or threatened change of control. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal and, accordingly, could discourage potential acquisition
proposals and could delay or prevent a change in control. Such provisions are
also intended to discourage certain tactics that may be used in proxy fights but
could, however, have the effect of discouraging others from making tender offers
for shares of our Common Stock and, consequently, may also inhibit fluctuations
in the market price of our Common Stock that could result from actual or rumored
takeover attempts. These provisions may also have the effect of preventing
changes in our management. In addition, we have adopted a rights agreement,
commonly referred to as a "poison pill," that grants holders of our 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 our Board of Directors. This may
also prevent an increase in the market price of our Common Stock resulting from
actual or rumored takeover attempts. The rights agreement could also discourage
potential acquirors from making unsolicited acquisition bids.
DELAWARE LAW MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS MAY ADVERSELY AFFECT
THE MARKET PRICE FOR INFORMIX COMMON STOCK AND PREVENT CHANGES IN OUR
MANAGEMENT
We are incorporated in Delaware and are subject to the antitakeover
provisions of the Delaware General Corporation Law, which regulates corporate
acquisitions. Delaware law prevents certain Delaware corporations, including
those corporations, such as us, whose securities are listed for trading on the
Nasdaq National Market, from engaging, under certain circumstances, in a
"business combination" with any "interested stockholder" for three years
following the date that the stockholder became an interested stockholder. For
purposes of Delaware law, a "business combination" would include, among other
things, a merger or consolidation involving us and an interested stockholder and
the sale of more than 10% of our assets. In general, Delaware law defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
of the outstanding voting stock of a corporation and any entity or person
affiliated with or controlling or controlled by such entity or person. Under
Delaware law, a Delaware corporation may "opt out" of the antitakeover
provisions. We do not intend to "opt out" of these antitakeover provisions of
Delaware Law.
OUR COMMON STOCK LIKELY WILL BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME
FLUCTUATIONS DUE TO A NUMBER OF FACTORS, CERTAIN OF WHICH ARE BEYOND OUR
CONTROL
Stock prices and trading volumes for many software companies fluctuate
widely for a number of reasons, including some reasons which may be unrelated to
their businesses or results of operations. This market volatility, as well as
general domestic or international economic, market and political conditions,
could materially adversely affect the market price of our Common Stock without
regard to our operating performance. In addition, our operating results may be
below the expectations of public market analysts and investors. If this were to
occur, the market price of our Common Stock would likely decrease significantly.
The market price of our Common Stock has fluctuated significantly in the past
and may continue to fluctuate significantly because of:
- Market uncertainty about our business prospects or the prospects for the
RDBMS market in general
- Revenues or results of operations that do not match analysts' expectations
32
<PAGE>
- The introduction of new products or product enhancements by us or our
competitors
- General business conditions in the software industry
- Changes in the mix of revenues attributable to domestic and international
sales
- Seasonal trends in technology purchases and other general economic
conditions
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED
DISCLOSURES ABOUT MARKET RATE RISK
INTEREST RATE RISK. Our exposure to market rate risk for changes in
interest rates relates primarily to our investment portfolio. We do not use
derivative financial instruments in our investment portfolio. We place our
investments with high quality issuers and, by policy, limit the amount of credit
exposure to any one issuer. We are averse to principal loss and ensure the
safety and preservation of our invested funds by limiting default, market and
reinvestment risk. We classify our cash equivalents and short-term investments
as "fixed-rate" if the rate of return on such instruments remains fixed over
their term. These "fixed-rate" investments include fixed-rate U.S. government
securities, municipal bonds, time deposits and certificates of deposits. We
classify our 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 our investment portfolio at March 31, 1999:
<TABLE>
<CAPTION>
AVERAGE FAIR
INTEREST RATE COST VALUE
--------------- --------- ---------
<S> <C> <C> <C>
Cash equivalents:
Fixed rate.................................................................. 5.04% $ 62,714 $ 62,861
Variable rate............................................................... 4.75% 3,243 3,243
Short-term investments
Fixed rate.................................................................. 5.24% 70,951 70,931
</TABLE>
FOREIGN CURRENCY EXCHANGE RATE RISK. We enter into foreign currency forward
exchange contracts to reduce our exposure to foreign currency risk due to
fluctuations in exchange rates underlying the value of intercompany accounts
receivable and payable denominated in foreign currencies (primarily European and
Asian currencies) until such receivables are collected and payables are
disbursed. A foreign currency forward exchange contract obligates us 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 foreign exchange forward contracts 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 recognized in
earnings in the same period as gains and losses on the underlying foreign
currency denominated receivables or payables are recognized, and generally
offset. Contract amounts in excess of the carrying value of our foreign currency
denominated accounts receivable or payable balances are marked to market, with
changes in market value recorded in earnings as foreign exchange gains or
losses. We operate in certain countries in Latin America, Eastern Europe, and
Asia/Pacific where there are limited forward foreign currency exchange markets
and thus we have unhedged transaction exposures in these currencies.
33
<PAGE>
Most of our international revenue and expenses are denominated in local
currencies. Due to the substantial volatility of currency exchange rates, among
other factors, we cannot predict the effect of exchange rate fluctuations on our
future operating results. Although we take into account changes in exchange
rates over time in our pricing strategy, we do so only on an annual basis,
resulting in substantial pricing exposure as a result of foreign exchange
volatility during the period between annual pricing reviews. In addition, the
sales cycle for our products is relatively long, depending on a number of
factors including the level of competition and the size of the transaction. We
attempt to reduce this exposure by entering into foreign currency forward
exchange contracts to hedge up to 80% of the forecasted net income of our
foreign subsidiaries of up to one year in the future. These forward foreign
currency exchange contracts do not qualify as hedges and, therefore, are marked
to market with unrealized gains and losses included in other income (expense),
net. As these forward foreign currency exchange contracts mature, the realized
gains and losses are included in net income as a component of other income
(expense), net. The Company's ultimate realized gain or loss with respect to
foreign currency fluctuations will depend on the foreign currency exchange rates
and other factors in effect at the time the forward foreign currency exchange
contracts mature. The unrealized gain (loss) on forward foreign currency
exchange contracts outstanding at March 31, 1999 was not significant to the
Company's operating results for the first quarter of 1999. Notwithstanding our
efforts to manage foreign exchange risk, there can be no assurances that our
hedging activities will adequately protect us against the risks associated with
foreign currency fluctuations.
The table below provides information about our foreign currency forward
exchange contracts. The information is provided in U.S. dollar equivalents and
presents the notional amount (contract amount), the weighted average contractual
foreign currency exchange rates and fair value. Fair value represents the
difference in value of the contracts at the spot rate at March 31, 1999 and the
forward rate, plus the unamortized premium or discount. All contracts mature
within twelve months.
FORWARD CONTRACTS
<TABLE>
<CAPTION>
CONTRACT WEIGHTED-
AMOUNT AVERAGE FAIR VALUE
AT MARCH 31, 1999 (IN THOUSANDS) CONTRACT RATE (IN THOUSANDS)
- ------------------------------------------------------------------- -------------- ------------- -----------------
<S> <C> <C> <C>
Foreign currency to be sold under contract:
British Pound.................................................... $ 16,491 1.62 $ 51
Euro............................................................. 12,631 1.08 (48)
Japanese Yen..................................................... 8,433 118.59 130
Korean Won....................................................... 4,812 1,247.00 (92)
Australian Dollar................................................ 2,843 1.58 (11)
Swiss Franc...................................................... 2,593 1.47 24
Singapore Dollar................................................. 2,035 1.72 19
Czech Republic Koruna............................................ 1,966 36.08 (12)
Other (individually less than $1 million)........................ 3,404 * 79
-------------- -----
Total.............................................................. $ 55,208 $ 140
-------------- -----
-------------- -----
Foreign currency to be purchased under contract:
British Pound.................................................... $ 40,470 1.62 $ 23
Swedish Krona.................................................... 1,976 8.30 (6)
Danish Krone..................................................... 1,114 6.89 (3)
South Africa Rand................................................ 1,066 6.38 24
Other (individually less than $1 million)........................ 170 * (2)
-------------- -----
Total.............................................................. $ 44,796 $ 36
-------------- -----
-------------- -----
Total.............................................................. $ 100,004 $ 176
-------------- -----
-------------- -----
</TABLE>
- ------------------------
* Not meaningful
34
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 4, 1999, a holder of the Company's Series B Preferred Stock
converted 500 shares of Series B Preferred into 68,849 shares of the Company's
Common Stock. In connection with this conversion, the Company also issued such
Series B Preferred Stockholder a warrant to purchase up to 13,769 shares of
Common Stock at a purchase price of $7.84 per share and paid cash dividends in
the amount of $28,151 to such stockholder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- --------------------------------------------------------------------------------------------------
<C> <S>
3.2(e)* Amendment to Bylaws, dated April 20, 1999
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on January 9, 1998 related to
the completion of its merger with Red Brick Systems, Inc. on December 31, 1998.
- ------------------------
* Filed herewith
35
<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> <C>
INFORMIX CORPORATION
Dated: May 17, 1999 By:
Dated: May 17, 1999
<CAPTION>
Dated: May 17, 1999 /s/ HOWARD A. BAIN III
----------------------------------------
Howard A. Bain III
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
Dated: May 17, 1999 /s/ STEPHANIE P. SCHWARTZ
----------------------------------------
Stephanie P. Schwartz
VICE PRESIDENT AND CONTROLLER (PRINCIPAL ACCOUNTING
OFFICER)
</TABLE>
36
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.2(e) Amendment to Bylaws, dated April 20, 1999
27.1 Financial Data Schedule.
</TABLE>
37
<PAGE>
AMENDMENT TO THE BYLAWS
OF
INFORMIX CORPORATION
a Delaware corporation
I, Gary Lloyd, as Secretary of INFORMIX CORPORATION, certify that:
1. I am the Secretary of INFORMIX CORPORATION, a Delaware corporation
(the "Corporation").
2. On April 20, 1999, the Board of Directors of INFORMIX CORPORATION
approved the following amendment to Article III, Section 1 of the Bylaws of
INFORMIX CORPORATION:
Section 1. Management. The property, business and affairs
of the Corporation shall be managed by or under the direction of a Board
of Directors. The number of Directors of the Corporation (including
Directors to be elected by the holders of any one or more series of
Preferred Stock voting separately as a class or classes) shall be six
(6). As used in these Bylaws, the terms "whole Board" or "whole Board of
Directors" mean the total number of Directors which the Corporation
would have if there were no vacancies. In addition to the powers and
authorities by these Bylaws and the Certificate of Incorporation
expressly conferred upon it, the Board of Directors may exercise all
such powers of the Corporation, and do all such lawful acts and things
as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Effective April 20, 1999 INFORMIX CORPORATION
/s/ Gary Lloyd
--------------------------------------
Gary Lloyd, Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 142,160
<SECURITIES> 70,931
<RECEIVABLES> 194,963
<ALLOWANCES> 14,580
<INVENTORY> 0
<CURRENT-ASSETS> 425,696
<PP&E> 248,542
<DEPRECIATION> 180,990
<TOTAL-ASSETS> 591,793
<CURRENT-LIABILITIES> 366,074
<BONDS> 0
0
0
<COMMON> 1,896
<OTHER-SE> 221,894
<TOTAL-LIABILITY-AND-EQUITY> 591,793
<SALES> 97,907
<TOTAL-REVENUES> 196,598
<CGS> 10,107
<TOTAL-COSTS> 54,890
<OTHER-EXPENSES> 132,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,164
<INCOME-PRETAX> 8,878
<INCOME-TAX> 1,332
<INCOME-CONTINUING> 7,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,546
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
