<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--------- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2000.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--------- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_______ TO _______.
COMMISSION FILE NUMBER 0-15325
-------------------------------------------------------------------------------
INFORMIX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3011736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 BOHANNON DRIVE, MENLO PARK, CA 94025
(Address of principal executive office) (zip code)
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 |X| NO
----- -----
At October 31, 2000, 279,710,492 shares of the Registrant's Common Stock were
outstanding.
===============================================================================
<PAGE>
INFORMIX CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
------
<S> <C>
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Operations
for the three months and nine months ended September 30, 2000 and 1999............. 3
Unaudited Condensed Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999..................................... 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months and nine months ended September 30, 2000 and 1999............. 5
Notes to Unaudited Condensed Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................ 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 32
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................... 34
Item 6. Exhibits and Reports on Form 8-K........................................................ 34
Signatures....................................................................................... 35
</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 "FACTORS THAT MAY
AFFECT FUTURE RESULTS" 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.
<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 Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Licenses ......................................... $ 82,441 $ 131,055 $ 303,256 $ 372,836
Services ......................................... 128,664 130,069 399,227 366,442
----------- ----------- ----------- -----------
211,105 261,124 702,483 739,278
COSTS AND EXPENSES
Cost of software distribution..................... 11,275 13,916 37,338 35,888
Cost of services.................................. 48,214 52,291 144,998 156,204
Sales and marketing............................... 99,896 92,055 306,703 273,550
Research and development.......................... 39,878 46,109 126,940 138,308
General and administrative........................ 29,637 22,595 75,451 65,852
Write-off of acquired research and development.... -- -- -- 5,052
Merger, realignment and other charges............. 62,136 -- 112,170 9,317
----------- ----------- ----------- -----------
291,036 226,966 803,600 684,171
----------- ----------- ----------- -----------
Operating income (loss).............................. (79,931) 34,158 (101,117) 55,107
OTHER INCOME (EXPENSE)
Interest income................................... 3,587 2,983 10,697 8,876
Interest expense.................................. (70) (1,138) (378) (3,428)
Litigation settlement expense..................... -- -- -- (97,016)
Other, net........................................ (213) 907 4,224 308
------------ ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.................... (76,627) 36,910 (86,574) (36,153)
Income taxes...................................... 4,000 10,886 12,018 19,539
----------- ----------- ----------- -----------
NET INCOME (LOSS).................................... (80,627) 26,024 (98,592) (55,692)
Preferred stock dividend.......................... (15) (247) (191) (829)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS................................ $ (80,642) $ 25,777 $ (98,783) $ (56,521)
============ =========== ============ ============
NET INCOME (LOSS) PER COMMON SHARE
Basic................................................ $ (0.28) $ 0.10 $ (0.35) $ (0.22)
=========== =========== ============ ===========
Diluted.............................................. $ (0.28) $ 0.09 $ (0.35) $ (0.22)
=========== =========== ============ ===========
SHARES USED IN PER SHARE CALCULATIONS
Basic................................................ 288,189 268,636 286,265 257,444
=========== =========== =========== ===========
Diluted.............................................. 288,189 289,566 286,265 257,444
=========== =========== =========== ===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
INFORMIX CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................................... $ 125,607 $ 170,118
Short-term investments......................................................... 116,896 102,469
Accounts receivable, net....................................................... 205,476 247,196
Recoverable income taxes....................................................... 5,544 5,544
Other current assets........................................................... 23,306 38,056
----------- -----------
Total current assets.............................................................. 476,829 563,383
PROPERTY AND EQUIPMENT, net....................................................... 70,852 68,581
SOFTWARE COSTS, net............................................................... 42,685 45,722
LONG-TERM INVESTMENTS............................................................. 16,196 17,272
INTANGIBLE ASSETS, net............................................................ 47,270 77,537
OTHER ASSETS...................................................................... 18,358 16,536
----------- -----------
Total Assets...................................................................... $ 672,190 $ 789,031
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................................... $ 20,743 $ 30,694
Accrued expenses............................................................... 49,328 48,353
Accrued employee compensation.................................................. 64,084 70,875
Income taxes payable........................................................... 28,009 21,803
Deferred revenue............................................................... 141,741 147,118
Advances from customers........................................................ 14,766 34,302
Accrued merger, realignment and other charges.................................. 35,074 8,675
Other current liabilities...................................................... 591 3,878
----------- -----------
Total current liabilities......................................................... 354,336 365,698
OTHER NON-CURRENT LIABILITIES..................................................... 1,051 1,420
STOCKHOLDERS' EQUITY
Common stock................................................................... 2,860 2,756
Shares to be issued for litigation settlement.................................. 61,228 61,228
Additional paid-in capital..................................................... 668,420 632,743
Accumulated deficit............................................................ (363,715) (265,123)
Treasury stock................................................................. (36,803) (3,163)
Accumulated other comprehensive loss........................................... (15,187) (6,528)
------------ ------------
Total stockholders' equity........................................................ 316,803 421,913
----------- -----------
Total Liabilities and Stockholders' Equity........................................ $ 672,190 $ 789,031
=========== ===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
INFORMIX CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...........................................................................$ (98,592) $ (55,692)
Adjustments to reconcile net loss to net cash provided by operating activities:
License fees received in advance.................................................. (27,601) (64,439)
Depreciation and amortization..................................................... 44,191 51,075
Amortization of capitalized software.............................................. 16,678 16,308
Litigation settlement............................................................. -- 91,000
Provisions for losses on accounts receivable...................................... 4,545 561
Gain on sales of marketable securities............................................ (2,895) (2,659)
Loss on disposal of property and equipment........................................ 1,712 5,648
Deferred tax expense.............................................................. -- 3,033
Merger, realignment and other charges............................................. 115,611 9,317
Other............................................................................. 216 (626)
Changes in operating assets and liabilities:
Accounts receivable............................................................. 45,335 (8,545)
Other current assets............................................................ 8,380 (229)
Accounts payable, accrued expenses and other liabilities........................ (63,722) (37,636)
Deferred maintenance revenue.................................................... (12,474) 7,647
------------ -----------
Net cash and cash equivalents provided by operating activities........................ 31,384 14,763
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments of excess cash:
Purchases of available-for-sale securities...................................... (104,927) (96,347)
Maturities of available-for-sale securities..................................... 59,094 22,302
Sales of available-for-sale securities.......................................... 32,033 30,531
Purchases of non-marketable equity securities...................................... (5,500) --
Proceeds from sales of marketable equity securities................................ 5,130 4,340
Purchases of property and equipment................................................ (37,896) (21,580)
Additions to software costs........................................................ (28,843) (22,308)
Business combinations, net of cash acquired........................................ -- 1,285
Other.............................................................................. 1,555 435
----------- -----------
Net cash and cash equivalents used in investing activities............................ (79,354) (81,342)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from customers............................................................ 9,212 5,183
Proceeds from issuance of common stock, net........................................ 35,416 23,553
Acquisition of common stock........................................................ (33,725) --
Payments for structured settlements with resellers................................. (129) (3,225)
Principal payments on capital leases............................................... (1,675) (4,300)
Net borrowings under line of credit................................................ -- 935
----------- -----------
Net cash and cash equivalents provided by financing activities........................ 9,099 22,146
----------- -----------
ADJUSTMENT TO CONFORM FISCAL YEAR OF POOLED COMPANY................................... -- (731)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.......................... (5,640) (2,766)
----------- -----------
Increase (decrease) in cash and cash equivalents...................................... (44,511) (47,930)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................................... 170,118 209,626
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................$ 125,607 $ 161,696
=========== ===========
</TABLE>
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, 1999 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
On March 1, 2000, the Company acquired Ardent Software, Inc. ("Ardent")
in a transaction that has been accounted for as a pooling of interests and
therefore all historical financial information has been restated to include the
historical information of Ardent.
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 Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)................................. $ (80,627) $ 26,024 $ (98,592) $ (55,692)
Preferred stock dividend.......................... (15) (247) (191) (829)
------------ ------------ ------------ ------------
$ (80,642) $ 25,777 $ (98,783) $ (56,521)
============ =========== ============ ============
Denominator:
Denominator for basic net income (loss)
per common share -
Weighted-average shares outstanding............ 282,133 259,636 280,209 253,224
Weighted-average shares to be issued
for litigation settlement................... 6,056 9,000 6,056 4,220
----------- ----------- ----------- -----------
288,189 268,636 286,265 257,444
=========== =========== =========== ===========
Effect of dilutive securities:
Employee stock options and restricted stock.... -- 18,547 -- --
Contingently issuable shares................... -- 2,383 -- --
----------- ----------- ----------- -----------
Denominator for diluted net income (loss)
per common share -
Adjusted weighted-average shares
and assumed conversions..................... 288,189 289,566 286,265 257,444
=========== =========== =========== ===========
Basic net income (loss) per common share............... $ (0.28) $ 0.10 $ (0.35) $ (0.22)
=========== =========== =========== ===========
Diluted net income (loss) per common share............. $ (0.28) $ 0.09 $ (0.35) $ (0.22)
=========== =========== ============= ===========
</TABLE>
The Company excluded potentially dilutive securities for each period
presented from its diluted net income (loss) per share computation because
either the exercise price of the securities exceeded the average fair value of
the Company's Common Stock or the Company had net losses and, therefore, these
securities were anti-dilutive. A summary
6
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of the excluded potential dilutive securities and the related
exercise/conversion features for the three-month period ended September 30, 2000
follows (in thousands):
<TABLE>
<S> <C>
Potential dilutive securities:
Stock options............................................................. 46,937
Contingently issuable shares for litigation settlement.................... 5,826
Common Stock Warrants..................................................... 2,303
Cloudscape Restricted Common Stock........................................ 58
</TABLE>
The stock options have per share exercise prices ranging from $0.05 to $33.25
and are exercisable through September 2010.
As part of the Company's settlement of various private securities
and related litigation arising out of the restatement of its financial
statements, the Company agreed to issue a minimum of nine million shares
("settlement shares") of the Company's Common Stock at a guaranteed value of
$91 million ("stock price guarantee"). The stock price guarantee is satisfied
with respect to any distribution of settlement shares if the closing price of
the Company's Common Stock averages at least $10.11 per share for ten
consecutive trading days during the six-month period subsequent to the
distribution. The first distribution of settlement shares occurred in
November and December 1999 when the Company issued approximately 2.9 million
settlement shares to the plaintiff's counsel. The stock price guarantee was
satisfied with respect to the first distribution of settlement shares. The
Company will issue the remainder of the settlement shares after the claims
administrator notifies the Company that it has processed all of the claims
submitted by class members. Based on the average closing price of the
Company's Common Stock for the twenty consecutive trading days prior to
September 30, 2000, it is estimated that the Company would have been
obligated to issue an additional 5.8 million shares to satisfy the stock
price guarantee ("contingently issuable shares").
Certain of the outstanding shares of Cloudscape Common Stock held by
employees are subject to repurchase upon termination of employment. The
number of shares subject to this repurchase right decreases as the shares
vest over time, generally for four years. As of September 30, 2000,
approximately 58,000 shares were subject to repurchase at a weighted-average
exercise price of $0.23.
The warrants to purchase shares of Common Stock of the Company (the
"Series B Warrants") were issued in connection with the conversion of the
Company's Series B Preferred into shares of Common Stock of the Company. Upon
conversion of the Series B Preferred, 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. As of September 30, 2000, approximately
2,303,000 Series B Warrants were outstanding and exercisable through November
2002 at a per share exercise price of $7.84. As of September 30, 2000, there was
no Series B Convertible Preferred Stock outstanding as all remaining shares were
converted into shares of Common Stock in July 2000.
7
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - COMPREHENSIVE INCOME
The following table sets forth the calculation of other comprehensive
income (loss), net of taxes, for the three-month and nine-month periods ended
September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss)................................. $ (80,627) $ 26,024 $ (98,592) $ (55,692)
Other comprehensive income (loss):
Reclassification adjustment for realized
gains included in net income (loss)......... - (1,548) (2,895) (2,659)
Unrealized gains (losses) on available-for-sale
securities, net of taxes.................... (306) (545) (202) (2,180)
Change in accumulated foreign currency
translation adjustment...................... (1,419) (574) (5,562) (1,029)
------------ ------------ ------------ ------------
$ (82,352) $ 23,357 $ (107,251) $ (57,200)
============ =========== ============ ============
</TABLE>
NOTE D - STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Reconciliation of outstanding shares (in thousands):
Shares outstanding at December 31, 1999................................... 275,594
Shares issued upon exercises of stock options............................. 7,111
Shares issued upon conversion of Series B Preferred stock................. 1,631
Shares sold and issued to employees under ESPP............................ 1,430
Shares issued upon exercises of warrants.................................. 412
Shares repurchased under Cloudscape repurchase agreements................. (139)
Shares repurchased........................................................ (6,400)
---------
Shares outstanding at September 30, 2000.................................. 279,639
=========
</TABLE>
NOTE E - BUSINESS COMBINATIONS
On March 1, 2000, the Company completed its acquisition of Ardent, a
provider of data integration infrastructure software for data warehouse,
business intelligence, and e-business applications. In the acquisition, the
former shareholders of Ardent received 3.5 shares of the Company's common stock
in exchange for each outstanding Ardent share (the "Merger"). An aggregate of
70,437,000 shares of Informix common stock were issued pursuant to the Merger,
and an aggregate of 17,174,000 options to purchase Ardent common stock were
assumed by Informix. The Merger was accounted for as a pooling-of-interests
combination and, accordingly, the consolidated financial statements for periods
prior to the combination have been restated to include the accounts and results
of operations of Ardent and all intercompany transactions have been eliminated.
On October 8, 1999, the Company completed its acquisition of
Cloudscape, a privately-held provider of synchronized database solutions for the
remote and occasionally connected workforce. The acquisition of Cloudscape was
accounted for as a pooling-of-interests combination and, accordingly, the
consolidated financial statements for the periods prior to the combination have
been restated to include the accounts and results of operations of Cloudscape.
The results of operations previously reported by the separate pooled enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below (in thousands):
8
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------- ------------------
<S> <C> <C>
Net revenues:
Informix........................................... $ 215,851 $ 619,207
Ardent............................................. 44,852 118,854
Cloudscape......................................... 421 1,217
---------------- ---------------
Combined........................................... $ 261,124 $ 739,278
================ ===============
Net income (loss):
Informix........................................... $ 24,114 $ (47,605)
Ardent............................................. 4,031 (1,758)
Cloudscape......................................... (2,121) (6,329)
---------------- ---------------
Combined........................................... $ 26,024 $ (55,692)
================ ===============
</TABLE>
NOTE F - ACCRUED MERGER, REALIGNMENT AND OTHER CHARGES
During the three-month period ended September 30, 2000, the Company
recorded merger, realignment and other charges of $62.1 million, net of
reversals of prior charges of $8.5 million.
During the three months ended September 30, 2000, the Company
approved plans to realign its operations by establishing two independent
operating companies. The strategic realignment includes a refinement of the
Company's product strategy, consolidation of facilities and operations to
improve efficiency and a reduction in worldwide headcount of approximately
290 sales and marketing employees, 160 general and administrative employees,
120 research and development employees and 100 cost of services and software
distribution employees. The Company recorded realignment and other charges of
$70.6 million during the three months ended September 30, 2000. The following
analysis sets forth the significant components of this charge:
<TABLE>
<CAPTION>
Accrual
Realignment Balance at
and Other Payments/ September 30,
Charges Charges 2000
------------- ----- -------------
<S> <C> <C> <C>
Write-off of goodwill and other intangible assets $ 32.0 $(32.0) $ --
Severance and employment related costs........... 28.7 (8.8) 19.9
Facility and equipment costs..................... 3.9 (3.5) 0.4
Costs to exit various commitments and programs... 3.5 (0.7) 2.8
Other charges.................................... 2.5 (2.5) --
--------- ------ -------------
$ 70.6 $(47.5) $ 23.1
========= ======= =============
</TABLE>
The $32.0 million write-off of goodwill and other intangible assets
consisted primarily of $12.0 million of goodwill, $4.8 million of purchased
technology and $15.2 million of capitalized software. The $12.0 million
write-off of goodwill resulted from the carrying amount of certain long-lived
assets exceeding the estimated future undiscounted cash flows due to the
decision to curtail development of certain database products over the next
few years. The $4.8 million reduction of purchased technology is due to the
carrying amount of certain purchased technology exceeding the estimated
future undiscounted cash flows as a result of an abandonment of certain
technology in the Company's solutions business. $15.2 million of capitalized
software was written off because the carrying amount of certain capitalized
costs exceeded net realizable value. Of the $15.2 million write-off, $9.0
million was for the abandonment of certain database development costs in
conjunction with the decision to move to a single database-management system,
$4.0 million related to the decision to discontinue use of licensed software,
and $2.2 million was for abandonment of other developed tools and products.
9
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Included in the $28.7 million charge for severance and employment
related costs was $5.5 million of incentive bonuses that were paid during the
period to certain employees who management believe are critical to the
successful outcome of the realignment. As of September 30, 2000, $3.3 million
of termination benefits had been paid to terminate approximately 90 employees
and it is anticipated that the remaining $19.9 million of severance and
employment related costs will be paid upon termination of the remaining
employees on various dates that extend through June 2001.
Included in facility and equipment costs is $3.5 million for the
write-off of obsolete and abandoned computer and office equipment, as these
assets are no longer being used. The remaining charges of $0.4 are
for facility costs that extend through March 2004.
Remaining costs of $2.8 million for payments to exit various
contracted service commitments and marketing programs should be made by the
end of 2000. Also, included in the $2.5 million of other charges is $1.3
million in receivables that have been deemed uncollectable as a direct result
of merger, realignment and restructuring decisions.
In connection with the merger with Ardent, the Company recorded a
charge of $50.0 million for merger, integration and restructuring costs, of
which $39.9 million was for accrued merger and restructuring costs and the
remaining $10.1 million was for integration and transition costs incurred during
the period ended March 31, 2000. This amount included $14.5 million for
financial advisor, legal and accounting fees related to the merger, $13.0
million for severance and employment related costs associated with the
termination of approximately 206 employees from various organizations throughout
the Company who held overlapping positions, $8.9 million for the closure of
facilities and equipment costs associated with combining the operations of the
two companies and $3.5 million for the write-off of redundant technology and
other duplicate costs. The Company has made adjustments to the categories and
timing of expected restructure spending based on revised estimates. The
following analysis sets forth the significant components of the restructuring
charge:
<TABLE>
<CAPTION>
Accrual
Merger and Balance at
Restructuring Payments/ September 30,
Charge Adjustments Charges 2000
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial advisor and other fees..... $ 14.5 $ -- $ (9.6) $ 4.9
Severance and employment costs....... 13.0 (3.2) (7.9) 1.9
Facility and equipment costs......... 8.9 (3.9) (2.3) 2.7
Write-off of redundant technology.... 3.5 (0.8) (2.7) --
-------------- -------------- ------------- -------------
$ 39.9 $ (7.9) $ (22.5) $ 9.5
============= ============== ============= =============
</TABLE>
It is anticipated that the remaining payment of $4.9 million will be
made to the Company's financial advisor by the end of 2000 and the remaining
facility costs of $2.7 million extend through 2003. As of September 30, 2000,
essentially all 206 of the positions originally identified for termination had
been eliminated and the remaining payments of $1.9 million for severance and
employment costs are expected to be made through December 2001 as certain
employees have elected to receive their severance payments over an extended
period of time.
As part of the Company's acquisition of Cloudscape, the Company
recorded a charge of $2.8 million during the quarter ended December 31, 1999,
for accrued merger and restructuring costs. This amount included $1.2 million
for financial advisor, legal and accounting fees related to the merger and
$1.6 million for costs associated with combining the operations of the two
companies including expenditures of $0.7 million for severance and related
costs, $0.4 million for closure of facilities and $0.5 million for the
write-off of redundant assets and other costs. As of September 30, 2000,
approximately $0.3 million remained as a liability in the financial
statements and related primarily to the closure of facilities, which is
expected to be utilized by the end of 2000.
10
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 26, 1999, Ardent acquired Prism Solutions, Inc. ("Prism"),
a provider of data warehouse management software that assists customers in
developing, managing and maintaining data warehouses. In connection with the
merger with Prism, Ardent recorded a charge of $9.7 million for accrued
merger and restructuring costs. The accrual included approximately $2.9
million for professional fees and other acquisition-related costs, $3.5
million for severance and related benefits and $3.3 million for costs
associated with the shutdown and consolidation of Prism facilities. During
the 3 months ended September 30, 2000, the Company made a $0.6 million
adjustment to reduce the accrual related to the Prism facilities. This
reversal was due to a revised estimate of future rental obligations. As of
September 30, 2000, approximately $0.5 million remained unpaid and comprised
principally of future rental obligations on idle facilities which run through
2004.
In May of 1999, Ardent adopted a formal plan to exit the operations of
O2 Technologies, Inc., which had been acquired by Ardent in December of 1997,
and recorded a charge of $9.9 million for accrued restructuring charges. The
charge was comprised of $5.9 million for asset impairment, $3.6 million for
severance and related costs and $0.4 million for facility closings and other
obligations. As of September 30, 2000, approximately $0.3 million remained
unpaid and was comprised principally of severance and related benefits and
rental obligations on idle facilities, all of which is expected to be paid in
2000.
On December 31, 1998, the Company acquired Red Brick Systems, Inc.
("Red Brick"). Accrued merger and restructuring costs recorded in connection
with the acquisition of Red Brick included approximately $1.6 million for
severance and other acquisition-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 September 30, 2000, approximately $0.9 million remained
unpaid, of which $0.8 million related to future rental obligations on idle
facilities that extend through 2002 and $0.1 million related to royalty
commitments to be paid during the fourth quarter of 2000.
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. As of September 30, 2000, approximately $0.5 million
remained unpaid and related primarily to rental obligations as 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 2002.
NOTE G - BUSINESS SEGMENTS
In recent years, the Company has operated under four reportable
operating segments which report to the Company's president and chief executive
officer, (the "Chief Operating Decision Maker"). These reportable operating
segments, North America, Europe, Asia/Pacific and Latin America, 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 has evaluated operating segment performance based
primarily on net revenues and certain operating expenses. The Company's products
are marketed internationally through 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 and nine-month periods ended
September 30, 2000 and 1999:
11
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three months ended North Asia Latin
September 30, America Europe Pacific America Eliminations Total
------------------------------- ----------- ----------- ----------- ----------- --------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
2000:
Net revenues from
unaffiliated customers....... $ 107,618 $ 61,635 $ 25,058 $ 16,794 $ -- $ 211,105
Transfers between segments..... (5,632) 2,655 956 2,021 -- --
Total net revenues............. 101,986 64,290 26,014 18,815 -- 211,105
Operating income (loss)........ (89,706) 14,932 (3,002) (1,986) (169) (79,931)
Net income (loss).............. $ (82,944) $ 12,788 $ (4,139) $ (1,898) $ (4,434) $ (80,627)
1999:
Net revenues from
unaffiliated customers....... $ 141,093 $ 73,554 $ 27,592 $ 18,885 $ -- $ 261,124
Transfers between segments..... (15,241) 11,778 1,467 1,996 -- --
Total net revenues............. 125,852 85,332 29,059 20,881 -- 261,124
Operating income (loss)........ 32,432 (7,486) 4,445 4,363 404 34,158
Net income (loss).............. $ 31,169 $ (7,611) $ 3,721 $ 2,584 $ (3,839) $ 26,024
</TABLE>
<TABLE>
<CAPTION>
Nine months ended North Asia Latin
September 30, America Europe Pacific America Eliminations Total
------------------------------- ----------- ----------- ----------- ----------- --------------- --------
(In thousands)
2000:
<S> <C> <C> <C> <C> <C> <C>
Net revenues from
unaffiliated customers....... $ 367,660 $ 208,808 $ 76,671 $ 49,344 $ -- $ 702,483
Transfers between segments..... (21,103) 7,753 8,343 5,007 -- --
Total net revenues............. 346,557 216,561 85,014 54,351 -- 702,483
Operating income (loss)........ (156,634) 52,464 2,693 379 (19) (101,117)
Net income (loss).............. $(141,534) $ 45,817 $ 846 $ 3,735 $ (7,456) $ (98,592)
1999:
Net revenues from
unaffiliated customers....... $ 397,154 $ 217,775 $ 77,137 $ 47,212 $ -- $ 739,278
Transfers between segments..... (27,726) 17,759 5,290 4,677 -- --
Total net revenues............. 369,428 235,534 82,427 51,889 -- 739,278
Operating income (loss)........ 18,114 22,319 8,878 4,657 1,139 55,107
Net income (loss).............. $ (76,120) $ 19,727 $ 7,890 $ (1,933) $ (5,256) $ (55,692)
</TABLE>
On September 19, 2000, the Company announced organizational changes
as part of its strategic realignment, which will involve the establishment of
two independent operating companies. The first, Informix Software, will focus
on providing database management systems for data warehousing, transaction
processing, and e-Business applications. The second is a new e-Business
solutions company that will focus on providing database and platform
independent software solutions and infrastructure that combines web
publishing, e-commerce and business intelligence. The Company expects to name
the new e-Business solutions company by December 31, 2000. This follows the
Company's announcement on August 9, 2000, of several strategic initiatives,
amongst which was the consolidation of five business groups into two
operations, Database Business Operations and Solutions Business Operations,
which more effectively capture the Company's current operations and form the
foundation for the two new operating companies. Net revenues for the Database
and
12
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Solutions Business Operations are summarized below for the three-month and
nine-month periods ended September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Database.......................................... $ 182,154 $ 237,396 $ 618,245 $ 686,642
Solutions......................................... 28,951 23,728 84,238 52,636
----------- ----------- ----------- -----------
Total ............................................ $ 211,105 $ 261,124 $ 702,483 $ 739,278
=========== =========== =========== ===========
</TABLE>
NOTE H - 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 the United States District Court for the Northern District of
California. These actions named as defendants the Company, certain of its
present and former officers and directors and, in some cases, its former
independent auditors. The complaints alleged various violations of the federal
securities laws and sought 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 alleged various violations of state law, any
monetary judgments in these 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 the directors' and officers'
insurance coverage presumes that 100 percent of the costs incurred in defending
claims asserted jointly against the Company and its current and former directors
and officers are allocable to the individuals' defense, the Company does not
have insurance to cover the costs of its own defense or to cover any liability
for any claims asserted against it. The Company has not set aside any financial
reserves relating to any of the above-referenced actions.
In October and November, 1999, state and federal courts granted final
approval of a settlement agreed to by the Company and the other parties to the
various private securities and related litigation against the Company (the
"Settlement"). The Settlement resolved all material litigation arising out of
the restatement of the Company's financial statements that was publicly
announced in November, 1997. In accordance with the terms of the Settlement, the
Company paid approximately $3.2 million in cash during the second quarter of
1999 and an additional amount of approximately $13.8 million of insurance
proceeds was contributed directly by certain insurance carriers on behalf of
certain of the Company's current and former officers and directors. The Company
will also contribute a minimum of 9.0 million shares of the Company's common
stock, which will have a guaranteed value of $91.0 million for a maximum term of
one year from the date of the final approval of the settlement by the courts.
The first distribution of shares of
13
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
the Company's common stock occurred in November and December 1999 when the
Company issued approximately 2.9 million shares to the plaintiff's counsel. The
Company will issue the remainder of the shares to be issued under the Settlement
after the claims administrator notifies the Company that it has processed all of
the claims submitted by class members. The Company's former independent
auditors, Ernst & Young LLP, will pay $34.0 million in cash. The total amount of
the Settlement will be $142.0 million.
EXPO 2000 filed an action against Informix Software GmbH (the Company's
German subsidiary) in the Hanover (Germany) district court in September 1998
seeking recovery of approximately $6.0 million, plus interest, for breach of a
sponsorship contract signed in 1997. Informix Software GmbH filed a counterclaim
for breach of contract and seeks recovery of approximately $3.1 million. In
August 1999, the court entered a judgment against Informix Software GmbH in the
amount of approximately $6.0 million, although approximately $2.1 million of
judgment is conditioned upon the return by EXPO 2000 of certain software. The
Company has reserved $2.9 million for the expected outcome of the appeal.
On February 3, 2000, International Business Machines Corporation
("IBM") filed an action against the Company in the United States District Court
for the District of Delaware alleging infringement of six United States patents
owned by IBM. In the complaints, IBM seeks against the Company, and the Company
seeks against IBM, permanent injunctions against further alleged infringement,
unspecified compensatory damages, unspecified treble damages, and interest,
costs and attorneys' fees. On March 28, 2000, the Company filed an answer and
counterclaims in the United States District Court for the District of Delaware
against IBM denying IBM's allegations of patent infringement and alleging
infringement by IBM of four United States patents owned by the Company. In
addition, on March 28, 2000, the Company filed a separate action against IBM in
the United States District Court for the Northern District of California
alleging infringement of four other United States patents owned by the Company.
On June 22, 2000, that action was transferred to the United States District
Court for the District of Delaware. The Company strongly believes that the
allegations in IBM's complaint are without merit and intends to defend the
action and prosecute the Company's claims vigorously.
Ardent is a defendant in actions filed against Unidata prior to its
merger with Ardent, one in May 1996 in the U.S. District Court for the
Western District of Washington, and one in September 1996 in the U.S.
District Court for the District of Colorado. The plaintiff, a company
controlled by a former stockholder of Unidata and a distributor of its
products in certain parts of Asia, alleges in both actions the improper
distribution of certain Unidata products in the plaintiff's exclusive
territory and asserts damages of approximately $30.0 million under claims for
fraud, breach of contract, unfair competition, racketeering and corruption,
and trademark and copyright infringement, among other relief. Unidata denied
the allegations against it in its answers to the complaints. In the Colorado
action, Unidata moved that the matter be resolved by arbitration in
accordance with its distribution agreement with the plaintiff. In May 1999,
the U.S. District Court for the District of Colorado issued an order
compelling arbitration and in September 2000, the arbitrator issued an award
against Ardent for $3.5 million plus attorneys' fees and expenses estimated
to be approximately $0.8 million. The Company is seeking reconsideration of
the award but, in the meantime, has reserved $4.3 million. Discovery has not
commenced in the Washington action, pending the outcome of the Colorado
arbitration. In addition, it is likely that Unidata will be joined in an
action against an end-user in China arising out of the same facts at issue in
the U.S. actions against Unidata. It is possible that either Ardent or the
Company will also be joined in the proceedings in China. While the outcome of
that action cannot be predicted with certainty, the Company believes that any
such action against Ardent or the Company would be without merit and would
oppose them vigorously.
In July 2000, the Company agreed to pay to Cincom Systems, Inc.
("Cincom") $3.0 million to reimburse Cincom for operating expenses of CinMark, a
joint venture entered into by Ardent and Cincom in 1996 to develop the Object
Studio product, and $4.0 million as a fee to license the Object Studio
technology. This agreement resolves all
14
<PAGE>
INFORMIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
claims and counterclaims asserted by both Cincom and Ardent. During the
three-month period ended September 30, 2000, the Company changed strategic
focus related to database management systems and discontinued use of the
licensed technology. The $4.0 million was expensed in the merger, realignment
and other charge.
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 condition.
NOTE I - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 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, 2000. 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 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition," ("SAB No. 101") to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements; however, SAB No. 101 does not change existing literature
on revenue recognition. SAB No. 101 explains the staff's general framework for
revenue recognition, stating that four criteria need to be met in order to
recognize revenue. The four criteria, all of which must be met, are the
following:
- There must be persuasive evidence of an arrangement,
- Delivery must have occurred or services must have been rendered,
- The selling price must be fixed or determinable, and
- Collectibility must be reasonably assured
The SEC recently issued further guidance with respect to the adoption
of specific issues addressed by SAB No. 101. The Company has not yet determined
the impact, if any, that it may have on its financial condition or results of
operations.
The FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB Opinion
No. 25" ("FIN No. 44") in March 2000. The Interpretation clarifies the
application of Opinion 25 for only certain issues such as the following: (a)
the definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN No. 44
was effective July 1, 2000 and did not have a material effect on the
Company's results of operations, financial position or liquidity.
In March 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-2,
"Accounting for Web Site Development Costs." EITF No. 00-2 establishes
accounting and reporting standards for capitalization of web site development
costs in accordance with Statement of Position No. 98-1. EITF No. 00-2 is
effective for web site development costs incurred for fiscal quarters
beginning after June 30, 2000. Adoption of this EITF did not have a material
impact on the results of operations, financial position or liquidity.
15
<PAGE>
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 COMPANY'S FUTURE FINANCIAL PERFORMANCE, 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.
This report should be read in conjunction with our annual report on
Form 10-K for the fiscal year ended December 31, 2000 and the Forms 10-Q for
the fiscal quarters ended March 31, 2000 and June 30, 2000, as filed with the
Securities and Exchange Commission.
References to or comparisons between the same "period" in this Form
10-Q refer to the Company's quarterly and/or nine-month periods of the relevant
fiscal year.
OVERVIEW
Informix Corporation is a leading provider of database management
systems for data warehousing, transaction processing and e-Business
applications, as well as e-Business solutions and applications and software
infrastructure for the Internet.
On March 1, 2000, we acquired Ardent Software, Inc. ("Ardent"), a
leading provider of data integration infrastructure software for data
warehouse, business intelligence, and e-business applications. In the
acquisition, the former shareholders of Ardent received 3.5 shares of our
common stock in exchange for each outstanding Ardent share and Informix
assumed all outstanding Ardent options and warrants. The transaction has been
accounted for as a pooling of interests and, therefore, all historical
financial information has been restated to include the historical information
of Ardent.
Beginning in August 2000, we began a realignment of our company and
business operations, including consolidating our four operating business
groups into two wholly owned operating subsidiaries and relocating our
corporate headquarters from Menlo Park, California to Westborough,
Massachusetts. Informix Software, Inc., which has been our principal
operating subsidiary, will continue to operate the database management
systems portion of our business from Menlo Park, California. Also, we have
formed a new wholly owned operating subsidiary, to be named by the end of
2000, which will operate the e-Business solutions and applications portion of
our business from Westborough, Massachusetts.
Informix Software will focus on database management systems
optimized for data warehousing, transaction processing, and e-Business
environments. The Company's strategic focus will be to grow the installed
base of Informix database customers by leveraging its technology advantages
of performance, scalability, and high reliability, and by bringing its
customers the most advanced e-Business database available on the market.
Informix is committed to delivering a single next-generation database engine
by progressively integrating the best features of multiple Informix
databases. In September 2000, we announced a program code-named "Arrowhead";
a single database-management system which is designed to satisfy the demands
of the widest range of business users. Arrowhead will use the best features
of Informix software products and technologies to comprehensively manage
complex sets of data across multiple transactional and decision-support
environments. The Company will also place a strong emphasis on growing the
associated services business to support its worldwide customer base.
The new e-Business solutions company will develop and market a suite
of next generation e-Business software solutions and infrastructure that will
be focused on supporting all leading databases, including those from Oracle,
IBM, Microsoft, Sybase and Informix. The new e-Business solutions company
will provide a complete, integrated solution that combines web publishing,
e-Commerce, and business intelligence. These offerings address the growing
demand of Global 2000 companies seeking common platforms that integrate
e-Commerce, content management, and analytic capabilities and uniquely enable
organizations to gain a transparent view of both traditional and new Internet
operations required by today's click and mortar businesses.
As more fully described in Note F to the Consolidated Financial
Statements, we recorded realignment and other
16
<PAGE>
charges of $62.1 million, net of reversals of prior charges of $8.5 million,
during the three-month period ended September 30, 2000. In addition to this
charge, we expect to incur further cash expenses, principally employee
compensation related, of approximately $5.7 million, $7.3 million and $4.0
million in Q4, 2000, Q1 2001 and Q2 2001 respectively in connection with the
realignment.
We expect to realize total quarterly expense reduction of approximately
$17.6 million as a result of this realignment and approximately 82% of this
expected amount will be cash with the balance attributable to reductions in
non-cash depreciation and amortization. The expected quarterly expense reduction
will begin in Q4 2000 but the full effect will not be realized until Q2 2001.
The expected quarterly expense reduction is estimated to reduce specific
quarterly expense components as follows: cost of software distribution, $2.8
million; cost of services, $2.2 million; sales and marketing, $6.8 million;
research and development, $3.4 million; general and administrative, $2.5
million.
These realignment and other charges are subject to continuing review and
adjustment as we implement the realignment.
17
<PAGE>
RESULTS OF OPERATIONS
The following table and discussion compares the results of operations
for the three-month and nine-month periods ended September 30, 2000 and 1999,
respectively.
<TABLE>
<CAPTION>
Percent of Net Revenues
---------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
---- ----- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES
Licenses.......................................... 39% 50% 43% 50%
Services.......................................... 61 50 57 50
---- ----- ---- ----
100 100 100 100
COSTS AND EXPENSES
Cost of software distribution..................... 5 5 5 5
Cost of services.................................. 23 20 20 21
Sales and marketing............................... 47 35 44 37
Research and development.......................... 19 18 18 19
General and administrative........................ 14 9 11 9
Write-off of acquired research and development.... -- -- -- 1
Merger, realignment and other charges............. 30 -- 16 1
---- ----- ---- ----
138 87 114 93
---- ----- ---- ----
Operating income (loss).............................. (38) 13 (14) 7
OTHER INCOME (EXPENSE)
Interest income................................... 2 1 1 1
Interest expense.................................. -- -- -- --
Litigation settlement expense..................... -- -- -- (13)
Other, net........................................ -- -- 1 --
---- ----- ---- ----
INCOME (LOSS) BEFORE INCOME TAXES (36) 14 (12) (5)
Income taxes...................................... 2 4 2 3
---- ----- ---- ----
NET INCOME (LOSS).................................... (38)% 10% (14)% (8)%
===== ===== ===== =====
</TABLE>
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 decreased 37% during the third quarter of 2000 and 19% during the
nine-month period ended September 30, 2000 as contrasted with the
corresponding periods in 1999. The decrease in license revenue was due in
large part to a significant decline in license revenue derived from our
client-server database and tools products. We believe that this decline is
attributable to slower market demand for some database client-server products
and development tools and the failure of our sales and field marketing
organizations to effectively market and sell our products due to a number of
factors, including attrition and turnover in senior and mid-level sales and
marketing management personnel, the announcement during the third quarter of
our corporate restructuring and reorganization, the replacement of our
President and Chief Executive Officer at the
18
<PAGE>
beginning of the third quarter and delays encountered in integrating Ardent's
operations and products into our sales, product marketing and general
operations. In addition to this decline in license revenue in absolute
dollars, our license revenue is also declining as a percentage of our total
revenue. Although we expect this latter trend to reverse in 2001, we are
unable to predict whether market demand for our traditional client-server and
tools products will rebound in future quarters or whether our license
revenues will continue to decline in absolute dollars.
Revenue from license agreements with resellers is recognized as
earned by us, generally when the licenses are resold or utilized by the
reseller and all of our related obligations have been satisfied. Accordingly,
amounts received from customers in advance of revenue being recognized are
recorded as a liability in "advances from customers" in our financial
statements. Advances in the amount of $14.8 million and $34.3 million as of
September 30, 2000 and December 31, 1999, respectively had not been recognized
as earned revenue. During the quarter ended September 30, 2000, we received
$2.8 million in customer advances and recognized revenue from resellers with
previously recorded customer advances of $11.3 million. Included in the
$11.3 million recognized were $3.8 million of licenses which were resold or
utilized by the reseller, $7.2 million related to contractual reductions in
customer advances and $0.3 million related to previously-deferred revenue for
solution sales which has now been recognized as services have been completed.
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.
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.
SERVICE REVENUES. Service revenues are comprised of maintenance, consulting
and training revenues. Service revenues for the quarter ended September 30,
2000 decreased $1.4 million, or 1%, to $128.7 million from $130.1 million for
the same period in 1999. During the first nine months of 2000, service
revenues increased $32.8 million, or 9%, to $399.2 million from $366.4
million for the same period in 1999. Service revenues accounted for 61% and
50% of net revenues in the third quarters of 2000 and 1999, respectively, and
accounted for 57% and 50% of net revenues during the first nine months of
2000 and 1999, respectively. The decrease in service revenues for the quarter
ended September 30, 2000 was attributable primarily to a decline in
consulting revenue in our database business. The increase in service
revenues, as a percentage of total revenues for the nine months ended
September 30, 2000, was attributable primarily to the renewal of maintenance
contracts and 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. During the first nine months of 2000, maintenance
revenues increased 17% to $311.3 million from $266.2 million for the same
period in 1999 while consulting and training revenues decreased to $87.9
million for the nine-month period ended September 30, 2000 from $100.3
million for the same period in 1999. This decrease in consulting and training
revenues was attributable primarily to a decline in license revenues.
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 (except during the quarter ended September 30, 2000, when we
wrote-off of approximately $15.2 million of capitalized software to merger,
realignment and other charges - for more information see Note F to the
Consolidated Financial Statements). During the third quarter of 2000, cost of
software distribution decreased $2.6 million to $11.3 million from $13.9
million for the third quarter of 1999 due to a decrease in capitalized
software amortization as older products became fully amortized and we
realized efficiencies due to the consolidation of our manufacturing
operations.
19
<PAGE>
During the first nine months of 2000, cost of software distribution increased
$1.5 million to $37.3 million from $35.9 million for the same period in 1999.
The increase in cost of software distribution was primarily due to an
increase in royalties related to new product offerings in our solutions markets
as amortization of capitalized software remained relatively consistent with the
prior year period.
COST OF SERVICES. Cost of services consists primarily of maintenance,
consulting and training expenses. Cost of services decreased approximately 8%
to $48.2 million for the third quarter of 2000 and decreased 7% to $145.0
million during the first nine months of 2000 when compared to the
corresponding periods in 1999. Service margins increased to 63% and 64%
during the three and nine-month periods ended September 30, 2000
respectively, from 60% and 57% achieved during the same periods of 1999. The
decrease in absolute dollars and as a percentage of net service revenues is
primarily due to cost containment actions that included improved utilization
of professional services personnel and synergies realized from the Ardent
acquisition.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily
of salaries, commissions, marketing and communications programs and related
overhead costs. Sales and marketing expenses increased 9% to $99.9 million
during the third quarter of 2000 and increased 12% to $306.7 million during
the first nine months of 2000 when compared to the same periods in 1999.
These increases were due primarily to increased marketing costs for
advertising and marketing programs focused on promoting our Internet-based
electronic commerce and business intelligence products and solutions.
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 for the three and
nine-month periods ended September 30, 2000 were $39.9 million and $126.9
million respectively, or 19% and 18% of net revenues, compared to $46.1
million and $138.3 million, or 18% and 19% of net revenues, for the
corresponding periods of 1999. As a percentage of net revenues, research and
development expenses remained fairly consistent at around 18% to 19% during
these periods while decreasing in absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of finance, legal, information systems, human resources,
bad debt expense and related overhead costs. During the third quarter of
2000, general and administrative expenses increased to $29.6 million from
$22.6 million during the same period in 1999. The increase in general and
administrative expenses experienced during the quarter ended September 30,
2000, was caused by increased legal expenses arising primarily from the $4.3
million reserve with respect to the Unidata lawsuit (see Note H to the
Consolidated Financial Statements). During the first nine months of 2000,
general and administrative expenses increased to $75.5 million from $65.9
million during the same period in 1999 due primarily to increased legal and
professional services fees.
WRITE-OFF OF ACQUIRED RESEARCH AND DEVELOPMENT. In connection with Ardent's
acquisition of Prism on April 26, 1999, Ardent recorded a charge of
approximately $5.1 million, or 6.6% of the $76.4 million in total consideration
and liabilities assumed, for in-process research and development expense that
had not yet reached technological feasibility and had no alternative future
uses.
MERGER, REALIGNMENT AND OTHER CHARGES. During the quarter ended September 30,
2000, we recorded a charge of $62.1 million mostly to account for the actions
taken to realign our operational structure into two separate companies and to
refine our product strategy. Included in this charge was $32.0 million for
the write-off of goodwill and intangible assets, $28.7 million for severance
and employment related costs, $3.9 million for the closure of facilities and
equipment costs, $3.5 million for costs to exit various commitments and
programs, $2.5 million of miscellaneous other charges and a credit of
approximately $8.5 million for adjustments recorded in order to reduce
previously accrued merger and restructuring charges primarily for a decrease
in estimated facility costs related to the merger with Ardent. (For more
information see Note F to the Consolidated Financial Statements)
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During the first quarter of 2000, we recorded a charge of $50.0 million
associated with the merger with Ardent. Of this amount, approximately $10.1
million related to integration and transition costs incurred during the quarter
ended March 31, 2000. Also included in the $50.0 million was approximately $39.9
million of accrued merger and restructuring costs which consisted of the
following components: $14.5 million for financial advisor, legal and accounting
fees related to the merger; $13.0 million for severance and employment related
costs; $8.9 million for the closure of facilities and equipment costs and $3.5
million for the write-off of redundant technology and other duplicate costs.
In May of 1999, Ardent adopted a formal plan to exit the operations of
O2 Technologies, Inc., which had been acquired by Ardent in December 1997, and
recorded a charge of $9.9 million for accrued restructuring charges. The charge
was comprised of $5.9 million for asset impairment, $3.6 million for severance
and related costs and $0.4 million for facility closings and other obligations.
During the first quarter of 1999, an adjustment of $0.6 million was
recorded to the results of operations, which appears as a credit to merger,
realignment and other charges in our financial statements, to adjust the
estimated severance and facility components of the 1997 restructuring charge
to actual costs incurred. (See Note F to the Consolidated Financial
Statements)
OTHER INCOME (EXPENSE)
INTEREST INCOME. Interest income for the first nine months of 2000 increased to
$10.7 million from $8.9 million for the same period in 1999 due to an increase
in the average interest-bearing cash and short-term investment balances in 2000
provided by increased operating cash flows.
INTEREST EXPENSE. Interest expense decreased to $0.4 million for the nine-month
period ended September 30, 2000 from $3.4 million for the same period in 1999
due primarily to a decline in interest charges related to the line of credit
which was terminated effective December 31, 1999.
OTHER INCOME (EXPENSE), NET. During the first nine months of 2000, other income
increased to $4.2 million from $0.3 million for the same period in 1999. During
the nine-month period ended September 30, 2000, other income included
approximately $2.9 million of net realized gains on the sale of long-term
investments and approximately $0.5 million of net foreign currency transaction
gains.
LITIGATION SETTLEMENT EXPENSE. During the second quarter of 1999 we incurred a
charge of $97.0 million in connection with our entering into a memorandum of
understanding regarding the settlement of the private securities and related
litigation against us. The charge consisted of $3.2 million in cash, $91.0
million in common stock and approximately $2.8 million in related legal fees.
The charge excludes approximately $13.8 million of insurance proceeds which,
according to the terms of the memorandum of understanding, were contributed
directly by our insurance carriers.
INCOME TAXES
During the first nine months of 2000 and 1999, income tax expense
resulted from foreign withholding taxes and taxable earnings in certain
foreign jurisdictions where we have fully utilized our net operating loss
carryforwards. During the quarter ended September 30, 2000, we recorded
income tax expense of $4.0 million even though we reported a consolidated
loss as certain deferred tax assets no longer were expected to be realized.
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LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
As of or for the
Nine Months Ended
September 30,
---------------------------
2000 1999
------------ ----------
(In millions)
<S> <C> <C>
Cash, cash equivalents, and short-term investments........................... $ 242.5 $ 253.8
Working capital.............................................................. $ 122.5 $ 133.7
Cash and cash equivalents provided by operations............................. $ 31.4 $ 14.8
Cash and cash equivalents used for investment activities..................... $ (79.4) $ (81.3)
Cash and cash equivalents provided by financing activities................... $ 9.1 $ 22.1
</TABLE>
OPERATING CASH FLOWS. We generated positive cash flows from operations
totaling $31.4 million for the nine-month period ended September 30, 2000,
primarily from operating income of approximately $11.1 million excluding merger,
realignment and other related charges. Also contributing to the increase in
operating cash flows was an increase in cash inflows from accounts receivable
which was offset by an increase in cash outflows for accounts payable and
accrued liabilities as well as a decrease in deferred maintenance revenue.
INVESTING CASH FLOWS. During the first nine months of 2000, we
decreased the amount of cash used in investing activities by approximately $1.9
million when compared to the same period in 1999. The decrease in cash used for
investing activities was primarily due to a decrease in our net investment of
excess cash of approximately $29.7 million offset by an increase in capital
expenditures of $16.3 million, an increase of $6.5 million of additions to
software costs and an increase in the purchase of strategic investments of $5.5
million.
FINANCING CASH FLOWS. Cash and cash equivalents provided by financing
activities during the nine-month period ended September 30, 2000 decreased by
approximately $13.0 million when compared to the same period in 1999. This
decrease was due primarily to the repurchase of 6.4 million shares of the
Company's Common Stock for approximately $33.7 million offset by an increase in
the 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.
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
- Whether we will have to change the terms of any financial instruments
in connection with our hedging activities
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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
RECENT ORGANIZATIONAL CHANGES COULD DISRUPT OUR BUSINESS OPERATIONS, ADVERSELY
AFFECT OUR ABILITY TO DEVELOP AND SELL OUR PRODUCTS AND MATERIALLY ADVERSELY
AFFECT OUR FINANCIAL RESULTS.
Beginning in August 2000, we began a comprehensive reorganization and
restructuring of our company and business operations, including, among other
things, consolidating our four operating business groups into two wholly owned
operating subsidiaries. For a detailed description of the reorganization and
restructuring, please see the "Overview" portion of this "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
section. In addition, during the quarter ended September 30, 2000, we moved our
corporate headquarters from Menlo Park, California to Westborough, Massachusetts
and we formalized plans to reduce total headcount to approximately 3,400 and to
consolidate certain physical locations in California and elsewhere.
It may take us longer than anticipated to separate our business
operations into two separate operating companies. Also, we may not achieve
the anticipated benefits of the reorganization and restructuring. Moreover,
it has and may in the future cause significant disruptions of our daily
business operations, including the loss of key personnel and other employees
necessary for us to effectively operate at all levels. Disruptions or
operational difficulties could result in delays in product development cycles
and sales of our products. In addition, we may not be able to create two
separate, publicly-traded companies as a result of financial market
conditions, a decrease in demand for the Company's product offerings and
other conditions beyond our control. The occurrence of one or more of these
factors could distract our management team and materially adversely affect
our business and financial results.
WE HAVE EXPERIENCED SIGNIFICANT TURNOVER AMONG OUR SENIOR MANAGEMENT AND
CONTINUED TURNOVER COULD HARM OUR ONGOING OPERATIONS AND JEOPARDIZE OUR
REORGANIZATION AND RESTRUCTURING WHICH COULD MATERIALLY ADVERSELY AFFECT OUR
OPERATING AND FINANCIAL RESULTS.
Over the past year many of our senior managing officers and
mid-level managers have been replaced. In particular, during the quarter
ended September 30, 2000 Peter Gyenes replaced Jean-Yves Dexmier as our
President and Chief Executive Officer and Jamie Arnold replaced Yon Yoon
Jorden as our Chief Financial Officer. If we continue to experience a high
rate of turnover among our management team, especially among our senior
executive officers, it could disrupt our business operations, cause
uncertainty among our employees, interfere with consistent strategic business
planning and jeopardize the ongoing reorganization and restructuring.
In addition, as a result of the ongoing restructuring and
reorganization, our current management team is working to develop two
separate business organizations. Our senior managers may be unable to devote
sufficient resources to this effort and at the same time ensure that their
organizations perform as expected or anticipated. Moreover, these senior
managers may be unable to attract and retain skilled middle managers for each
of the separate operating businesses. The inability of our management team to
accomplish these tasks or the occurrence of any of these factors relating to
management turnover could prevent us from realizing our operational and
financial goals and materially adversely affect our financial results.
WE MAY NOT BE ABLE TO RETAIN OUR KEY PERSONNEL DURING OUR ONGOING REORGANIZATION
AND RESTRUCTURING AND ATTRACT AND RETAIN THE NEW PERSONNEL NECESSARY TO GROW THE
TWO NEW OPERATING COMPANIES, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR ABILITY
TO DEVELOP AND SELL OUR PRODUCTS, SUPPORT OUR BUSINESS OPERATIONS AND GROW OUR
BUSINESSES.
Our future success depends on retaining the services of key personnel
in all functional areas of our company, including engineering, sales, marketing,
consulting and corporate services. For instance, we may be unable to continue to
develop and support technologically advanced products and services if we fail to
retain and attract highly qualified engineers, and to market and sell those
products and services if we fail to retain and attract well-qualified marketing
and sales professionals. We may be unable to retain key individuals in all of
these areas during our reorganization and restructuring and we may not succeed
in attracting new employees to one or both of the new operating companies after
the completion of the restructuring.
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<PAGE>
The competition for experienced, well-qualified personnel in the
software industry is intense, especially in the San Francisco and Boston
metropolitan areas. Our recent operating difficulties and our ongoing
reorganization and restructuring may make it difficult for us to compete
effectively for the services of these individuals. If we fail to retain, attract
and motivate key employees, we may be unable to complete the reorganization and
restructuring, develop, market and sell new products, support the operations of
the two new operating companies and sustain and grow the two businesses in the
future, the occurrence of any of which could materially adversely affect our
operating and financial results.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS CAUSED BY MANY
FACTORS, WHICH COULD RESULT IN OUR FAILING TO ACHIEVE REVENUE OR PROFITABILITY
EXPECTATIONS.
Our quarterly and annual results of operations have varied significantly in
the past and are likely to continue to vary in the future due to a number of
factors described below and elsewhere in this "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" section, many of
which are beyond our control. Any one or more of the factors listed below or
other factors could cause us to fail to achieve our revenue or profitability
expectations. In particular, the failure to meet market expectations could cause
a sharp drop in our stock price. These factors include:
- Changes in demand for our products and services, including changes in
growth rates in the industry as a whole and in the traditional
database market and the relatively new business intelligence and
electronic commerce markets in particular,
- The size, timing and contractual terms of large orders for our
software products,
- Adjustments of delivery schedules to accommodate customer or
regulatory requirements,
- The budgeting cycles of our customers and potential customers,
- The reaction of our customers and potential customers to our ongoing
reorganization and restructuring,
- 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 or enhanced
versions of our products and solutions,
- Changes in the mix of revenues attributable to domestic and
international sales, and
- Seasonal buying patterns which tend to peak in the fourth quarter.
OUR COMMON STOCK HAS BEEN AND LIKELY WILL CONTINUE TO BE SUBJECT TO SUBSTANTIAL
PRICE AND VOLUME FLUCTUATIONS WHICH MAY PREVENT STOCKHOLDERS FROM RESELLING
THEIR SHARES AT OR ABOVE THE PRICE AT WHICH THEY PURCHASED THEIR SHARES.
Fluctuations in the price and trading volume of our common stock may
prevent stockholders from reselling their shares above the price at which they
purchased their shares. 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
24
<PAGE>
operating performance. In addition, as occurred in the quarter ended September
30, 2000, our operating results may be below the expectations of public market
analysts and investors. If this were to occur again, the market price of our
common stock would likely decrease significantly again. The market price of our
common stock has fluctuated significantly in the past and may continue to
fluctuate significantly because of:
- Market uncertainty about the company's business prospects as a result
of our ongoing reorganization and restructuring,
- Market uncertainty about the company's business prospects or the
prospects for the relational database management systems ("RDBMS")
and object-relational database management systems ("ORDBMS") markets,
the business intelligence software market and the electronic commerce
software solutions market,
- Revenues or results of operations that do not meet or exceed analysts'
expectations,
- The introduction of new products or product enhancements by us or our
competitors, and
- General business conditions in the software industry.
FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY
TRANSACTION LOSSES.
Despite efforts to manage foreign exchange risk, our hedging activities may not
adequately protect us against the risks associated with foreign currency
fluctuations. As a consequence, we may incur losses in connection with
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, it is not possible
to 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. We have implemented a foreign exchange hedging program consisting
principally of the purchase of forward foreign exchange contracts in the primary
European and Asian currencies. This program 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. Additionally, uncertainties related to
the Euro conversion could adversely affect our hedging activities.
IF THE RDBMS AND THE ORDBMS MARKETS DECLINE OR DO NOT GROW, WE MAY SELL FEWER
DATABASE PRODUCTS AND OUR SEPARATE DATABASE OPERATING BUSINESS MAY BE UNABLE
TO SUSTAIN ITS CURRENT LEVEL OF OPERATIONS.
If the growth rates for the relational and object-relational database
management systems, or RDBMS or ORDBMS, respectively, decline for any reason,
there will be less demand for our products, which would have a negative impact
on our business and financial results. In particular, we cannot predict whether
the sharp decline in revenue derived from licenses of these products during the
quarter ended September 30, 2000 will continue. If it does, our financial
results will continue to be materially adversely affected. Moreover, after the
reorganization and restructuring, the operating and financial results of one of
the two operating companies will be completely dependent on revenue derived from
sales of database products. Declining demand for such products could threaten
the database operating company's ability to sustain its present level of
operations or to meet our expectations for future growth.
Delays in market acceptance of our ORDBMS products could result in
fewer product sales. 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
25
<PAGE>
scaleable environment. We have 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 upon
broader market acceptance of our products as a solution for this need.
Organizations may not choose to make the transition from conventional RDBMS
products to ORDBMS products.
IF THE BUSINESS INTELLIGENCE AND DATA WAREHOUSE MARKETS DO NOT CONTINUE TO GROW,
OR IF OUR PRODUCT OFFERINGS IN THESE MARKETS ARE NOT ACCEPTED, WE MAY NOT BE
ABLE TO SELL OUR PRODUCTS OR GROW OUR OPERATING BUSINESSES.
The business intelligence and data warehouse markets may not
continue to grow, or may not grow rapidly, and our customers may not expand
their use of data warehouse and business intelligence products. In addition,
we may not be able to market and sell our products in these markets or
otherwise compete effectively and generate significant revenue. Although
demand for data warehouse and business intelligence software has grown in
recent years, the markets are still emerging. Our future financial
performance in this area and the success of both of our operating businesses
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 and business
intelligence markets,
- Existing customers expanding their use of data warehouses, and
- The success of our solutions operating business in developing and
selling solutions for the business intelligence market.
INTENSE COMPETITION COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND
SOLUTIONS OR GROW OUR TWO OPERATING BUSINESSES.
We may not be able to compete successfully against current and/or
future competitors and such inability could impair our ability to sell our
products. The market for our products and solutions is highly competitive,
diverse and is subject to rapid change. In particular, we expect that the
technology underlying database solutions and products for the Internet and
business intelligence needs, will continue to change rapidly. For example, as
customers embrace the Internet, our new solutions operating business will need
to develop and enhance our software solutions to support Internet applications.
It is possible that our products and solutions will be rendered obsolete by
technological advances. In addition, it is possible that demand for our
traditional database products may decline sharply as customers demand more
comprehensive software solutions, thereby jeopardizing our ability to grow the
database operating business.
We currently face competition from a number of sources, including
several large vendors that develop and market databases, applications,
development tools, decision support products, consulting services and/or
complete database-driven solutions for the Internet. Our principal
competitors for our database operating business include Computer Associates,
IBM, Microsoft, NCR/Teradata, Oracle and Sybase. Our principal competitors
for the solutions operating business include IBM, Bulldog, Broadvision and
Informatica and small, highly-focused companies offering single products or
services that we include as part of an overall solution. A number of our
competitors have significantly greater financial, technical, marketing and
other resources than we have. As a result, these competitors may be able to
respond more quickly to new or emerging technologies, evolving markets and
changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than we can.
IF THE INTERNET DOES NOT DEVELOP AS A MARKET FOR OUR SOLUTIONS OFFERINGS, WE MAY
NOT BE ABLE TO GROW THE NEW SOLUTIONS OPERATING BUSINESS INTO A VIABLE
INDEPENDENT OPERATING BUSINESS.
The Internet is a rapidly evolving market. We are unable to predict
whether and to what extent Internet computing and electronic commerce will be
embraced by consumers and traditional businesses. Our successful introduction of
database-driven products and solutions for the Internet market will depend in
large measure on:
26
<PAGE>
- 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, and
- The ease of use and administration of the Internet relative to
client/server architecture.
In addition, if a sufficient number of vendors do 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. Also,
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 we have chosen will position our products to compete effectively for
business opportunities as they arise on the Internet. 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.
Even if the Internet and electronic commerce are widely accepted and
adopted by consumers and businesses, our database-driven solutions for the
Internet may not succeed. This market is new to our product development,
marketing and sales organizations. We may not be able to market and sell
products and solutions in this market successfully. In addition, our
database-driven solutions for the Internet may not compete effectively with our
competitors' products and solutions. Further, we may not generate significant
revenue and/or margin in this market. Any of these events could materially,
adversely affect our business, operating results and financial condition and our
ability to create a separate, viable operating company.
COMPETITION MAY AFFECT THE PRICING OF OUR PRODUCTS OR SERVICES, AND CHANGES IN
PRODUCT MIX MAY OCCUR, EITHER OF WHICH MAY REDUCE OUR MARGINS.
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. Also, a significant change in the mix
of software products and services that we sell, including the mix between higher
margin software and maintenance products and lower margin consulting and
training, could materially adversely affect our operating results for future
quarters. In addition, the pricing strategies of competitors in the software
database 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 prices of their products.
IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS
OR DO NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS, SALES OF
OUR SOLUTIONS OR PRODUCTS MAY DECLINE.
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 commercially viable enhancements to our existing products
and solutions on a timely basis to keep pace with technological developments,
evolving industry standards and changing customer requirements. If we do not
enhance our products to meet these evolving needs, we will not sell as many
products and solutions and our position in existing, emerging or potential
markets could be eroded rapidly by product advances. In addition, commercial
acceptance of our products and solutions could also be adversely affected by
critical or negative statements or reports by brokerage firms, industry and
financial analysts and industry periodicals about us, our products or business,
or by the advertising or marketing efforts of competitors, or by other factors
that could adversely affect consumer perception.
Our product development efforts will continue to require substantial
financial and operational investment. We may not have sufficient resources to
make the necessary investment or to attract and retain qualified software
27
<PAGE>
development engineers. In addition, we may not be able to internally develop new
products or solutions quickly enough to respond to market forces. As a result,
we may have to acquire technology or access to products or solutions through
mergers and acquisitions, investments and partnering arrangements. We may not
have sufficient cash, access to funding, or available equity to engage in such
transactions. Moreover, we may not be able to forge partnering arrangements or
strategic alliances on satisfactory terms, or at all, with the companies of our
choice.
IF A LARGE NUMBER OF THE ORDERS THAT ARE TYPICALLY BOOKED AT THE END OF A
QUARTER ARE NOT BOOKED, OUR NET INCOME FOR THAT QUARTER COULD BE SUBSTANTIALLY
REDUCED.
Our software license revenue in any quarter often 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, revenue in that quarter could be substantially
reduced.
SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS COULD ADVERSELY AFFECT OUR
QUARTERLY OPERATING RESULTS AND LENGTHY SALES CYCLES FOR PRODUCTS MAKES REVENUES
SUSCEPTIBLE TO FLUCTUATIONS.
Our sales of software products have been affected by seasonal
purchasing trends that materially affect our quarter-to-quarter operating
results. We expect these seasonal trends to continue in the future. Revenue and
operating results in our quarter ending December 31 are typically higher
relative to other quarters because many customers make purchase decisions based
on their calendar year-end budgeting requirements and because we measure our
sales incentive plans for sales personnel 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.
Our sales cycles typically take many months to complete and vary
depending on the product, service or solution that is being sold. The length of
the sales cycle may vary depending on a number of factors over which we have
little or no control, including the size of a potential transaction and the
level of competition that we encounter in our selling activities. The sales
cycle can be further extended for sales made through third party distributors.
OUR FUTURE REVENUE AND OUR ABILITY TO MAKE INVESTMENTS IN DEVELOPING OUR
PRODUCTS IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMER BASE CONTINUING
TO LICENSE OUR PRODUCTS AND RENEW OUR SERVICE AGREEMENTS.
We depend on our installed customer base for future revenue from
services and licenses of additional products. If our customers fail to renew
their maintenance agreements, our revenue will be harmed. The maintenance
agreements are generally renewable annually at the option of the customers and
there are no minimum payment obligations or obligations to license additional
software. Therefore, current customers may not necessarily generate significant
maintenance revenue in future periods. In addition, customers may not
necessarily purchase additional products or services. Our services revenue and
maintenance revenue also depend upon the continued use of these services by our
installed customer base. Any downturn in software license revenue could result
in lower services revenue in future quarters. Moreover, if either license
revenue or revenue from services declines, we may not have sufficient cash to
finance investments or acquire technology.
THE SUCCESS OF OUR INTERNATIONAL OPERATIONS IS DEPENDENT UPON MANY FACTORS WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS INTERNATIONALLY AND
COULD AFFECT OUR PROFITABILITY.
International sales represented approximately 50% of our total revenue
during the nine-month period ended September 30, 2000. The international
operations are, and any expanded international operations will be, subject to a
variety of risks associated with conducting business internationally that could
adversely affect our ability to sell our products internationally, and
therefore, our profitability, including the following:
- Difficulties in staffing and managing international operations,
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<PAGE>
- 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, and
- Increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries.
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE ABLE
TO USE OUR TECHNOLOGY OR TRADEMARKS AND THIS WOULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUE AND INCREASE COSTS.
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
proprietary rights may not be adequate, and the inability to protect
intellectual property rights may adversely affect our business and/or 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 be issued or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in actions against
alleged infringes. Our ability to sell our products and prevent competitors from
misappropriating our proprietary technology and trade names is dependent upon
protecting our intellectual property. 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-on
license by clicking on an acceptance icon and downloading the product, the
end-user agrees to be bound by the 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 is regarded as
proprietary. In addition, we have licensed the source code of our products to
certain customers under certain circumstances and for restricted uses. In
addition, 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 the company enters bankruptcy or liquidation proceedings or
otherwise ceases to conduct business. We may also be unable to protect our
technology because:
- Competitors may independently develop similar or superior technology,
- Policing unauthorized use of software is difficult,
- The laws of some foreign countries do not protect proprietary rights
in software 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, and
- Litigation to enforce intellectual property rights, to protect trade
secrets, or to determine the validity and scope
29
<PAGE>
of the proprietary rights of others could result in substantial costs
and diversion of resources.
IN THE FUTURE, THIRD PARTIES COULD, FOR COMPETITIVE OR OTHER REASONS, ASSERT
THAT OUR PRODUCTS INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS.
As discussed above under "Notes to Unaudited Condensed Consolidated
Financial Statements--Note H--Litigation," IBM recently filed a lawsuit against
us claiming that some of our products infringe certain of IBM's patents ("IBM
claim"). Although we dispute IBM's claims and intend to vigorously defend
against them, other third parties may claim that our current or future products
infringe their proprietary rights. These claims, with or without merit, could
harm our business by increasing costs and by adversely affecting our ability to
sell our products. Any such claim, including the IBM claim, with or without
merit, could be time consuming to defend, 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. It is expected 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 segments overlaps.
OUR INABILITY TO RELY ON THE STATUTORY "SAFE HARBOR" AS A RESULT OF THE
SETTLEMENT OF THE SEC INVESTIGATION COULD HARM OUR BUSINESS.
In July 1997, the SEC issued a formal order of private investigation
against us and certain unidentified other entities and persons with respect to
accounting matters, public disclosures and trading activity in our securities
that were not described in the formal order. During the course of the
investigation, we learned that the investigation concerned the events leading to
the restatement of its financial statements, including fiscal years 1994, 1995
and 1996, that was publicly announced in November 1997.
Effective January 11, 2000, the SEC and we entered into a settlement of
the investigation against us. Pursuant to the settlement, we consented to the
entry by the SEC of an Order Instituting Public Administrative Proceedings
Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the
Securities Exchange Act of 1934, Making Findings, and Imposing a Cease and
Desist Order. Pursuant to the order, we neither admitted nor denied the
findings, except as to jurisdiction, contained in the order.
The order prohibits us from violating and causing any violation of the
anti-fraud provisions of the federal securities laws, for example by making
materially false and misleading statements concerning its financial performance.
The order also prohibits us from violating or causing any violation of the
provisions of the federal securities laws requiring us to: (1) file accurate
quarterly and annual reports with the SEC; (2) maintain accurate accounting
books and records; and (3) maintain adequate internal accounting controls.
Pursuant to the order, we are also required to cooperate in the SEC's continuing
investigation of other entities and persons. In the event that we violate the
order, we could be subject to substantial monetary penalties.
As a consequence of the issuance of the order, we will not, for a
period of three years from the date of the issuance of the order, be able to
rely on the "safe harbor" for forward-looking statements contained in the
federal securities laws. The "safe harbor," among other things, limits potential
legal actions against us in the event a forward-looking statement concerning our
anticipated performance turns out to be inaccurate, unless it can be proved
that, at the time the statement was made, we actually knew that the statement
was false. If we become a defendant in any private securities litigation brought
under the federal securities laws, our legal position in the litigation could be
materially adversely affected by our inability to rely on the "safe harbor"
provisions for forward-looking statements.
OTHER PROVISIONS IN OUR CHARTER DOCUMENTS MAY DISCOURAGE POTENTIAL ACQUISITION
BIDS AND PREVENT CHANGES IN OUR MANAGEMENT THAT OUR STOCKHOLDERS MAY FAVOR.
Other provisions in our charter documents could discourage potential
acquisition proposals and could delay
30
<PAGE>
or prevent a change in control transaction that our stockholders may favor. The
provisions include:
- Elimination of the right of stockholders to act without holding a
meeting,
- Certain procedures for nominating directors and submitting proposals
for consideration at stockholder meetings, and
- A board of directors divided into three classes, with each class
standing for election once every three years.
These provisions are intended to enhance the likelihood of continuity
and stability in the 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
acquirers from making unsolicited acquisition bids.
DELAWARE LAW MAY INHIBIT POTENTIAL ACQUISITION BIDS, WHICH MAY ADVERSELY AFFECT
THE MARKET PRICE FOR OUR COMMON STOCK AND PREVENT CHANGES IN ITS MANAGEMENT THAT
OUR STOCKHOLDERS MAY FAVOR.
We are incorporated in Delaware and are subject to the anti-takeover
provisions of the Delaware General Corporation Law, which regulates corporate
acquisitions. Delaware law prevents certain Delaware corporations, including
those corporations, such as Informix, 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 Informix 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
anti-takeover provisions. We do not intend to "opt out" of these anti-takeover
provisions of Delaware law.
PROVISIONS IN OUR CHARTER DOCUMENTS WITH RESPECT TO UNDESIGNATED PREFERRED
STOCK MAY DISCOURAGE POTENTIAL ACQUISITION BIDS FOR INFORMIX.
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; and 50,000 shares have
been designated series B preferred, of which 7,000 shares remained
outstanding as of December 31, 1999. Subject to the prior consent of the
holders of the series B preferred stock, our board of directors can fix the
price, rights, preferences, privileges and restrictions of such preferred
stock without any further vote or action by its 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.
31
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RATE RISK
MARKET RATE RISK. The following discussion about our market rate risk
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates, foreign currency exchange rates and equity
security price risk. We do not use derivative financial instruments for
speculative trading purposes.
INTEREST RATE RISK. Our exposure to market rate risk for changes in
interest rates, relates primarily to our investment portfolio. We maintain a
short-term investment portfolio consisting mainly of debt securities with an
average maturity of less than two years. We do not use derivative financial
instruments in our investment portfolio and 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. These
available-for-sale securities are subject to interest rate risk and will fall in
value if market interest rates increase. If market interest rates were to
increase immediately and uniformly by 10% from levels at September 30, 2000, the
fair value of the portfolio would decline by an immaterial amount. We have the
ability to hold our fixed income investments until maturity and believe that the
effect, if any, of reasonably possible near-term changes in interest rates on
our financial position, results of operations and cash flows would not be
material.
EQUITY SECURITY PRICE RISK. We hold a small portfolio of
marketable-equity traded securities that are subject to market price volatility.
Equity price fluctuations of plus or minus 10% would have had a $0.9 million
impact on the value of these securities in 2000.
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 inter-company 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. 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 exposures in these currencies.
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
periodically assess market conditions and occasionally 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 for financial reporting purposes and, therefore, are marked to market.
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.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED
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 September 30, 2000 and
the forward rate, plus the unamortized premium or discount. All contracts mature
within twelve months.
FORWARD CONTRACTS
<TABLE>
<CAPTION>
Weighted-
Contract Average
AT SEPTEMBER 30, 2000 Amount Contract Rate Fair Value
--------------------- ------------- --------------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C>
Foreign currency to be sold under contract:
Euro............................................................$ 22,557 1.13 $ 10
Japanese Yen.................................................... 6,206 105.82 92
Australian Dollar............................................... 5,884 0.55 (14)
South African Rand.............................................. 4,941 7.32 (86)
Korean Won...................................................... 4,026 1,117.80 (15)
Taiwan Dollar................................................... 3,664 31.39 (12)
Swiss Franc..................................................... 2,565 1.72 6
German Mark..................................................... 2,354 2.21 (3)
Thai Bhat....................................................... 2,258 42.08 9
French Franc.................................................... 2,035 7.43 (3)
Czech Republic Koruna........................................... 1,613 41.11 (32)
Singapore Dollar................................................ 1,506 1.73 14
Other (individually less than $1 million)....................... 923 * --
------------- -----------
Total..............................................................$ 60,532 $ (34)
============= ============
Foreign currency to be purchased under contract:
British Pound...................................................$ 11,147 1.46 $ --
Other (individually less than $1 million)....................... 596 * --
------------- -----------
Total..............................................................$ 11,743 $ --
============= ===========
Total..............................................................$ 72,275 $ (34)
============= ============
</TABLE>
---
* Not meaningful
33
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 18, 2000, the sole remaining holder of the Company's Series B
Preferred Stock converted all 7,000 shares of the Company's remaining Series B
Preferred Stock into 1,630,751 shares of the Company's Common Stock. In
connection with this conversion, the Company also issued this Series B Preferred
Stockholder a warrant to purchase up to 326,150 shares of Common Stock at a
purchase price of $7.84 per share and paid cash dividends, which were previously
accrued, in the amount of $932,055 to this stockholder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
3.2(g)(1) Bylaws of the Registrant, as amended
3.2(h)(2) Amendment to Bylaws, dated April 24, 1998
3.2(i)(3) Amendment to Bylaws, dated June 19, 1998
3.2(j)(3) Amendment to Bylaws, dated July 15, 1998
3.2(k)(4) Amendment to Bylaws, dated April 30, 1999
3.2(l)(5) Amendment to Bylaws, dated August 16, 1999
3.2(m)(6) Amendment to Bylaws, dated November 15, 1999
3.2(n)(7) Amendment to Bylaws, dated March 16, 2000
3.2(o)(8) Amendment to Bylaws, dated June 13, 2000
3.2(p)* Amendment to Bylaws, dated September 18, 2000
10.77* Offer of Employment Letter, dated July 31, 2000, between Registrant
and Peter Gyenes
10.78* Change of Control and Severance Agreement, effective August 28,
2000, between Registrant and Peter Gyenes
10.79* Change of Control and Severance Agreement, effective October 3,
2000, between Registrant and Jamie Arnold
10.80* Indemnity Agreement dated September 14, 2000, between Registrant and
Peter Gyenes
10.81* Indemnity Agreement dated October 3, 2000, between Registrant and
Jamie Arnold
10.82* Settlement Agreement and General Release, effective July 12, 2000,
between the Registrant and Jean Yves Dexmier
10.83* Separation Agreement, effective September 30, 2000, between the
Registrant and F. Steven Weick
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
None.
<TABLE>
<CAPTION>
-------------------
<S> <C>
(1) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended July 2, 1995.
(2) Incorporated by reference to exhibits filed with the Registrant's annual report on Form 10-
K for the fiscal year ended December 31, 1997.
(3) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form
S-1 (333-43991).
(4) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended May 17, 1999.
(5) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended August 16, 1999.
(6) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended November 15, 1999.
(7) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended May 15, 2000.
(8) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended August 14, 2000.
</TABLE>
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFORMIX CORPORATION
Dated: November 14, 2000 By: /s/ JAMES R. ARNOLD, JR.
----------------------------------------------
James R. Arnold, Jr.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL OFFICER)
By: /s/ WILLIAM F. O'KELLY
----------------------------------------------
Bill O'Kelly
VICE PRESIDENT CORPORATE FINANCE (PRINCIPAL
ACCOUNTING OFFICER)
35
