28
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period ended March 31, 1996
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)
415-926-6300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No .
At April 26, 1996, 146,720,472 shares of the Registrant's
Common Stock were outstanding.
Total number of pages 20.
FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking
statements as a result of certain factors described herein
and in other documents. Readers should pay particular
attention to the section of this Report entitled "Business
Risks" and should also carefully review the risk factors
described in the other documents the Company files from time
to time with the Securities and Exchange Commission.
PART I. FINANCIAL INFORMATION
INDEX
Part I. Financial Information
Page
Item 1. Condensed Consolidated Financial
Statements (Unaudited):
Condensed Consolidated Statements of Income
for the three-month periods ended
March 31, 1996 and April 2, 1995 3
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash
Flows for the three-month periods ended
March 31, 1996 and April 2, 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signature page 17
INFORMIX CORPORATION
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
Three months ended
March 31, April 2,
1996 1995
---------- ----------
(Note)
Net revenues:
Licenses $ 153,726 $ 110,488
Services 50,295 37,549
---------- ----------
204,021 148,037
Costs and expenses:
Cost of software distribution 10,028 7,893
Cost of services 33,409 18,251
Sales and marketing 91,143 65,472
Research and development 25,544 18,754
General and administrative 14,681 11,341
Expenses related to Illustra merger 5,914 -
---------- ----------
180,719 121,711
---------- ----------
Operating income 23,302 26,326
Interest income 2,250 1,591
Interest expense (264) (64)
Other income/(expense), net (64) 125
---------- ----------
Income before income taxes 25,224 27,978
Income taxes 9,333 10,332
---------- ----------
Net income $ 15,891 $ 17,646
========== ==========
Net income per share:* $ 0.10 $ 0.12
Weighted average number of common
and common equivalent shares
outstanding:* 155,788 146,730
(Note) The unaudited quarterly data presented above
applicable to the prior period has been restated to reflect
the Company's business combination with Illustra Information
Technologies, Inc. as a pooling-of-interests.
* Share and per-share amounts applicable to the prior
periods have been restated to reflect the two-for-one stock
split (effected in the form of a stock dividend) which was
effective June 26, 1995.
See Notes to Condensed Consolidated Financial Statements.
INFORMIX CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
March 31, December 31,
1996 1995
----------- -----------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 137,100 $ 164,305
Short-term investments 115,376 88,904
Accounts receivable, net 184,840 185,452
Deferred taxes 21,504 21,504
Other current assets 27,097 25,924
---------- ----------
Total current assets 485,917 486,089
Property and equipment, net 88,551 81,632
Software costs 39,853 36,866
Deferred taxes 16,248 16,248
Long-term investments 1,005 9,781
Intangible assets 38,731 40,730
Other assets 6,645 19,800
---------- ----------
Total assets $ 696,950 $ 691,146
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,975 $ 29,655
Accrued expenses 33,662 34,919
Accrued employee compensation 39,342 49,911
Income taxes payable 41,952 42,833
Deferred revenue 71,351 66,681
Other liabilities 3,377 9,248
---------- ----------
Total current liabilities 216,659 233,247
Deferred taxes 24,363 24,488
Other liabilities 2,342 2,846
Stockholders' equity:
Common stock 1,487 1,480
Additional paid-in capital 210,102 204,448
Retained earnings 242,688 226,797
Unrealized gain on available-
for-sale securities, net of tax 6,410 4,064
Foreign currency translation
adjustment (7,101) (6,224)
---------- ----------
Total stockholders' equity 453,586 430,565
---------- ----------
Total liabilities and
stockholders' equity $ 696,950 $ 691,146
========== ==========
(Note) Consolidated balance sheet data at December 31, 1995
presented above applicable to the prior period has been
restated to reflect the Company's business combination with
Illustra Information Technologies, Inc. as a pooling-of-
interests.
See Notes to Condensed Consolidated Financial Statements.
INFORMIX CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three months ended
------------------------
March 31, April 2,
1996 1995
---------- ----------
(Note)
OPERATING ACTIVITIES
Net income $ 15,891 $ 17,646
Adjustments to reconcile net
income to net cash and cash
equivalents provided by
operating activities:
Depreciation and
amortization 8,798 5,947
Amortization of capitalized
software 3,624 3,080
Deferred tax expense (134) 149
Provisions for losses on
accounts receivable 2,350 1,684
Foreign currency transaction
(gain) loss 1,138 (6,473)
Loss on disposal of property
and equipment 713 -
Changes in operating assets
and liabilities:
Accounts receivable (2,464) 9,393
Other current assets (1,442) (2,874)
Accounts payable and
accrued expenses (22,383) (5,670)
Deferred revenue 5,037 4,725
---------- ----------
Net cash and cash equivalents
provided by operating
activities 11,128 27,607
INVESTING ACTIVITIES
Purchases of held-to-maturity
securities - (34,755)
Purchases of available-for-sale
securities (55,827) -
Maturities of held-to-maturity
securities - 21,888
Maturities of available-for-sale
securities 38,053 23,690
Purchase of property and
equipment (15,797) (9,886)
Proceeds from disposal of
property and equipment 1,064 -
Additions to software costs (6,742) (4,695)
Business combinations, net of
cash acquired (1,000) (32,182)
Other (3,087) (1,825)
---------- ----------
Net cash and cash equivalents
used in investing activities (43,336) (37,765)
FINANCING ACTIVITIES
Proceeds from issuance of stock 5,661 4,627
Principal payments on capital
leases, net (207) (125)
---------- ----------
Net cash and cash equivalents
provided by financing
activities 5,454 4,502
---------- ----------
Effect of exchange rate changes
on cash and cash equivalents (451) 4,695
---------- ----------
Decrease in cash and cash
equivalents (27,205) (961)
Cash and cash equivalents
at beginning of period 164,305 134,509
---------- ----------
Cash and cash equivalents at
end of period $ 137,100 $ 133,548
========== ==========
(Note) The unaudited quarterly data presented above
applicable to the prior period has been restated to reflect
the Company's business combination with Illustra Information
Technologies, Inc. as a pooling-of-interests.
See Notes to Condensed Consolidated Financial Statements.
INFORMIX CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(Unaudited)
Note A - Presentation of Interim Financial Statements
All significant adjustments, in the opinion of
management, which are normal, recurring in nature and
necessary for a fair presentation of the financial position
and results of the operations of the Company, have been
consistently recorded. The operating results for the
interim periods presented are not necessarily indicative of
expected performance for the entire year.
The unaudited quarterly data presented applicable to
prior periods has been restated to reflect the Company's
business combination with Illustra Information Technologies,
Inc. as a pooling-of-interests, which was consummated on
February 19, 1996.
Note B - Net Income Per Share
Net income per share is based on the weighted average
number of common and dilutive common equivalent shares
outstanding during each period. All stock options are
considered common stock equivalents and are included in the
weighted average computations when the effect is dilutive.
Note C - Stockholders' Equity
Reconciliation of outstanding shares:
Shares outstanding at December 31, 1995 147,984,393
Shares issued upon exercises of stock options 604,448
Shares sold under terms of the Employee
Stock Purchase Plan 84,101
------------
Shares outstanding at March 31, 1996 148,672,942
============
Note D - Business Combinations
In February 1996, the Company acquired Illustra
Information Technologies, Inc. (Illustra), a company that
provides dynamic content management database software and
tools for managing complex data in the Internet,
multimedia/entertainment, financial services, earth sciences
and other markets. Approximately 12.7 million shares of
Informix common stock were issued to acquire all outstanding
shares of Illustra common stock. An additional 2.3 million
shares of Informix common stock were reserved for issuance
in connection with the assumption of Illustra's outstanding
options. The transaction has been accounted for as a pooling
of interests, and accordingly, the consolidated financial
statements for all periods presented include the accounts
and operations of Illustra. Related merger and transaction
fees of approximately $5.9 million have been recorded in the
first quarter of 1996.
In January 1995, the Company acquired a 90 percent
interest in the database division of ASCII Corporation, a
distributor of its products in Japan. The Company acquired
the remaining 10 percent in January 1996. This acquisition
has been recorded as a purchase. The purchase price of this
business was approximately $46.0 million, of which $35.4
million has been allocated to intangible assets acquired
which are being amortized over a weighted average life of
seven years. The operating results of this business have not
been material in relation to those of the Company and are
included in the Company's consolidated results of operations
from the date of acquisition.
In April 1995, the Company acquired an 80 percent
interest in the database division of Daou Corporation, a
distributor of its products in Korea. The Company will
acquire the remaining 20 percent by January 1997. The
acquisition was recorded as a purchase. The initial purchase
price of this business was approximately $4.6 million, of
which approximately $4.0 million has been allocated to
intangible assets acquired.
In October 1995, the Company acquired Stanford Technology
Group (STG), a U.S.-based company that provides on-line
analytical processing technology, in exchange for
approximately 533,000 shares of its common stock. The
transaction has been accounted for as a pooling of
interests. However, since the operating results of STG were
insignificant to the Company, prior period annual and
quarterly financial statements of the Company have not been
restated for this transaction.
The operating results of ASCII Corporation, Daou
Corporation and STG have not been material in relation to
those of the Company and are included in the Company's
consolidated results of operations from the date of
acquisition.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth operating results as a
percentage of net revenues for the three-month periods ended
March 31, 1996 and April 2, 1995, respectively, and the
percent change in the operating results for three-month
period ended March 31, 1996 compared to the respective three-
month period ended April 2, 1995.
Period-to-
Period
Percent
Percent of Increase
Net Revenues (Decrease)
------------------- ------------
Three months Three months
ended ended
------------------- ------------
March 31, April 2, March 31,
1996 1995 1996 vs.
April 2,
1995
--------- --------- ------------
NET REVENUES:
Licenses 75% 75% 39%
Services 25% 25% 34%
---- ----
Total net revenues 100% 100% 38%
COSTS AND EXPENSES:
Cost of software distribution 5% 5% 27%
Cost of services 16% 12% 83%
Sales and marketing 45% 44% 39%
Research and development 13% 13% 36%
General and administrative 7% 8% 29%
Merger expenses with Illustra 3% 0% N/A
---- ----
Total operating expenses 89% 82% 48%
---- ----
OPERATING INCOME 11% 18% (11%)
INTEREST INCOME 1% 1% 41%
INTEREST EXPENSE 0% 0% N/A
OTHER INCOME / (EXPENSE), NET 0% 0% N/A
---- ----
INCOME BEFORE INCOME TAXES 12% 19% (10%)
INCOME TAXES 4% 7% (10%)
---- ----
NET INCOME 8% 12% (10%)
==== ====
Informix's operating income was affected negatively in
the first quarter of 1996 as a result of operating expenses
growing more rapidly than revenues, primarily in the North
America region as Informix continues to invest heavily in
personnel in the areas of sales, marketing and customer
service; and of integration expenses and fees associated
with the acquisitions of Illustra Information Technologies,
Inc. (Illustra) and Stanford Technology Group (STG).
Informix is investing in extensive training for sales,
marketing, and customer service to educate employees of both
the acquired companies and Informix regarding the products
of the combined companies and revisions to Informix
operations required to integrate the operations of the
companies. The Company is investing in the development of a
database management system, the Informix Universal Server,
that will merge technology from both Illustra and Informix.
Informix incurred significant marketing expenses in
connection with the initial announcement of the Universal
Server in the first quarter of 1996 and will continue to
heavily market this product in 1996. This product is now
scheduled to be commercially available in either late 1996
or early 1997. In addition, both STG and Illustra businesses
operate in developing technology markets with relatively low
operating margins. These integration and marketing expenses
and the relatively low operating margins of the acquired
companies have adversely affected Informix's ability to
achieve quarterly operating margins consistent with recent
quarters. Also, Informix is continuously developing specific
market channels and specific products for such channels. In
the near term, these development efforts will negatively
affect the Company's operating margins.
.
Revenues
The Company derives revenues principally from licensing
its software and providing technical product support and
updates to customers. License revenues may involve the
shipment of product by the Company or the granting of a
license to a customer to manufacture products. Service
revenue consists of customer telephone or direct support,
update rights for new product versions, consulting, and
training fees. The Company's products are sold directly to
end-user customers or through resellers, including original
equipment manufacturers (OEM's), distributors, and
application vendors. The Company's revenues have been
increasingly derived from sales contracts directly with end
users and less from the distributor or OEM sales channels.
These end-user sales contracts can be relatively large in
size and are difficult to forecast both in timing and dollar
value. In addition, these revenue contracts have lower
associated software distribution and selling costs. From
time to time, the Company has recognized substantial net
revenue from these large software license agreements. These
transactions, which are difficult to predict, have caused
fluctuations in net revenues and net income because of the
relatively high gross margin on such revenues. The Company
expects that these sorts of transactions and the resulting
fluctuations will continue.
The overall revenue growth in the first quarter of 1996
compared to the first quarter of 1995 primarily reflects
continued strong worldwide acceptance for the Company's new
and existing technology and products. Although the Company
expects revenues in the aggregate to grow in the remainder
of 1996 compared to the first quarter of 1996, there can be
no assurance that quarterly revenues growth rates or
geographical growth rates will be comparable with those
achieved in the first quarter of 1996. As it has done from
time to time in the past, Informix restructured its sales
organization effective in the first quarter of 1996. The
reorganization includes new management in the North America
sales organization and the worldwide integration of Illustra
products and personnel.
The increase in service revenue, as a percentage of total
revenue, was primarily attributable to the continued growth
of the installed customer base, and resulting renewal of
maintenance contracts and increased consulting revenue. The
Company continues to emphasize support services as a source
of revenue.
The Company's revenues, along with those of the
relational database management system (RDBMS) industry as a
whole, have shown substantial growth over the last several
years. The industry has benefited from trends to downsize
from large proprietary computer systems and market
acceptance of UNIX(R), Windows(TM), Windows NT(TM) and other
open operating environments.
The Company has also developed and released connectivity
products to allow access to other relational databases, both
proprietary and open, and access to this data through
various protocols such as IBM's DRDA(TM). The industry
movement to new, open operating systems like Windows NT,
access through low-end desktop machines, and access to data
through the Internet may cause downward pressure on prices
of database and related products. If such downward pressure
on prices were to occur, margins would be adversely
affected.
The license revenue growth in the first quarter of 1996
compared to the first quarter of 1995 reflects strong demand
for the Company's products, particularly for the Company's
flagship database server, INFORMIX-OnLine Dynamic
Server(TM). In February 1996, the Company announced the
development of an enterprise-capable, fully extensible
database management system that can manage all information
assets - including numbers, images, maps, sound, video, Web
pages, and text, as well as other user-defined rich data
types. This product, the Informix Universal Server, will
incorporate Illustra's object-relational technology into
Informix's core database technology. It is now scheduled to
be commercially available in late 1996 or early 1997.
Over half of the Company's net revenues are derived from
its international operations. In Europe, Asia/Pacific, and
Japan, most revenues and expenses are now denominated in
local currencies. The U.S. dollar strengthened in the first
quarter of 1996 against the major European and Asia/Pacific
currencies, which resulted in lower revenue and expenses
recorded when translated into U.S. dollars, compared with
the prior year period. The Company has also increased its
direct presence in Latin America, although a significant
percentage of the revenue is still denominated in U.S.
dollars. In the future, the Company expects currency
fluctuations in Mexico, and to a lesser extent, other Latin
American countries, to continue. The Company's operating and
pricing strategies take into account changes in exchange
rates over time; however, the Company's results of
operations may be significantly affected in the short term
by fluctuations in foreign currency exchange rates.
Approximately 61 percent and 60 percent of Informix's net
revenues were derived from sales to foreign customers in the
first quarters of 1996 and 1995, respectively. The increase
in foreign revenues in absolute dollars is primarily
attributable to the continued international acceptance for
Informix's new and existing technology, the establishment of
new subsidiaries and sales offices in Europe, Asia/Pacific,
Japan, and Latin America and the acquisition of several
foreign distributors. Informix expects that foreign revenues
will continue to provide a significant portion of total
revenues. However, changes in foreign currency exchange
rates, the strength of local economies, and the general
volatility of software markets may result in a higher or
lower proportion of foreign revenues as a percentage of
total revenues in the future.
The Company enters into forward foreign exchange
contracts primarily to hedge the value of accounts
receivable or accounts payable denominated in foreign
currencies against fluctuations in exchange rates until such
receivables are collected or payables are disbursed. This
program involves the use of forward foreign exchange
contracts in the primary European and Asian currencies. The
Company has limited unhedged transaction exposures in
certain secondary currencies in Latin America, Eastern
Europe, and Asia Pacific because there are limited forward
currency exchange markets in these currencies. The Company
does not attempt to hedge the translation to U.S. dollars of
foreign denominated revenues and expenses not yet earned or
incurred, respectively.
Cost of Software Distribution
(DOLLARS IN MILLIONS) First First
Quarter Quarter Percentage
1996 1995 Change
------- ------- ----------
Manufactured cost of software
distribution $ 6.4 $ 4.8 33%
Percentage of license revenue 4% 4%
Amortization of capitalized
software $ 3.6 $ 3.1 16%
Percentage of license revenue 3% 3%
Cost of software distribution $10.0 $ 7.9 27%
Percentage of license revenue 7% 7%
Software distribution costs consist primarily of: 1)
manufacturing and related costs such as media,
documentation, product assembly and purchasing costs,
freight, customs, and third party royalties; and 2)
amortization of previously capitalized software development
costs and any write-offs of previously capitalized software.
Excluding amortization of previously capitalized software
development costs, cost of software distribution as a
percentage of license revenue remained flat at 4 percent in
the first quarter of 1996 compared to the same period in
1995. In the future, the cost of software distribution as a
percentage of revenue may vary depending upon whether the
product is reproduced by the Company or by customers.
The increase of amortization of capitalized software in
the first quarter of 1996 compared to the first quarter of
1995 is due to the release of several products in the latter
half of 1995. The absolute value of amortization of
capitalized software will vary slightly quarter to quarter
as new products are released and other products become fully
amortized.
Cost of Services
(DOLLARS IN MILLIONS) First First
Quarter Quarter Percentage
1996 1995 Change
------- ------- ----------
Cost of Services $ 33.4 $ 18.3 83%
Percentage of service revenue 66% 49%
Cost of services consists primarily of maintenance,
consulting and training expenses. The increase in cost of
services in the first quarter of 1996 in absolute dollars
and as a percentage of net revenues compared to the prior
year period is primarily due to the Company's increased
expenses to expand consulting and support service
capabilities. In the future, the Company expects that cost
of services as a percentage of net service revenue will
approximate the rate in the first quarter of 1996.
Sales and Marketing Expenses
(DOLLARS IN MILLIONS) First First
Quarter Quarter Percentage
1996 1995 Change
------- ------- ----------
Sales and marketing expenses $ 91.1 $ 65.5 39%
Percentage of net revenue 45% 44%
The increase in sales and marketing expenses in the first
quarter of 1996 in absolute dollars and as a percentage of
net revenues compared to the first quarter of 1995 was a
result of the addition of sales personnel worldwide as the
Company expanded its investment in the worldwide direct
sales organizations, opening of new subsidiaries, higher
commission expense associated with the increase in revenues,
and increased marketing programs associated with new product
launches.
With the continuing expansion throughout 1996 of
worldwide operations, as well as increased sales and
marketing expenditures in 1996 aimed at positioning the
Company and its new and existing products in the
marketplace, the Company expects that sales and marketing
expenses for the remainder of 1996, as a percentage of net
revenues, will be similar to those of the first quarter of
1996. However, sales and marketing expenses as a percentage
of net revenues would be higher should there be a shortfall
in expected revenues.
Research and Development Expenses
The Company accounts for its product development costs in
accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." This statement
requires that once technological feasibility of a developing
product has been established, all subsequent costs incurred
in developing that product to a commercially acceptable
level be capitalized and amortized ratably over the revenue
life of the product. The following table summarizes
research and development costs for the periods ended March
31, 1996 and April 2, 1995:
(DOLLARS IN MILLIONS) First First Percent-
Quarter Quarter age
1996 1995 Change
------- ------- ----------
Incurred product development
costs $ 31.6 $ 22.7 39%
Expenditures capitalized 6.1 3.9 56%
Research and development
expenses $ 25.5 $ 18.8 36%
Expenditures capitalized as a
percentage of incurred 19% 17%
The increase in research and development expenditures in
absolute dollars in the first quarter of 1996 was
attributed to an increase in staff working on new products
and product extensions.
The proportion of capitalized expenditures as a
percentage of total incurred expenses increased in the first
quarter of 1996 compared to the first quarter of 1995 as
several major projects in development had reached
technological feasibility just prior to or during the first
quarter of 1996. The Company expects the proportion of work
on capitalized projects for the remainder of 1996 to remain
relatively stable compared to the first quarter of 1996 as
other major new products reach technological feasibility,
and capitalization of the related software development costs
begins.
Major new programs currently under development in 1996
include the Informix Universal Server, an enterprise-
capable, fully extensible database management system that
can manage all information assets - including numbers,
images, maps, sound, video, Web pages, and text, as well as
other user-defined rich datatypes, the expansion of the DSA
family servers and connectivity products; and subsequent
versions of the Company's graphical, object-oriented tool,
Informix-NewEra(TM). The Company believes that research and
development expenditures are essential to maintaining its
competitive position in its primary markets and expects the
expenditure levels for the remainder of 1996 to increase in
absolute dollars.
General and Administrative Expenses
(DOLLARS IN MILLIONS) First First
Quarter Quarter Percentage
1996 1995 Change
------- ------- ----------
General and administrative
expenses $ 14.7 $ 11.3 29%
Percentage of net revenue 7% 8%
General and administrative expenses increased in absolute
dollars in the first quarter of 1996 compared to the same
prior year period as a result of the continued expansion in
international operations. The Company expects that general
and administrative expenses as a percentage of net revenues
for the remainder of 1996 will continue at this level.
Merger expenses
In the first quarter of 1996, the Company had expenses of
approximately $5.9 million as a result of the acquisition of
Illustra, which was accounted for as a pooling of interests.
These costs consist primarily of investment banking, legal
and accounting fees.
Provision for Income Taxes
The Company's effective tax rate was 37.0 percent of
pretax income in the first quarter of 1996 compared to 37.5
percent for the same period in 1995.
The Company anticipates its fiscal 1996 effective tax
rate to be approximately 37.0 percent; however, this rate
could change based on a change in the geographic mix of the
Company's earnings and the amount of permanent reinvestment
offshore of a portion of the 1996 earnings of the Company's
lower-taxed Irish operations and the reinstatement of the
U.S. federal research and development tax credit.
Impact of Inflation
The effect of inflation on the Company's financial
position has not been significant.
Liquidity and Capital Resources
(in millions of dollars) First Quarter
1996 1995
------ ------
Cash, cash equivalents, and investments $252.5 $178.6
Working capital 269.3 165.6
Cash provided by operations 11.1 27.6
Cash used for investment activities,
excluding investments of excess cash 25.6 48.6
Cash provided by financing activities 5.5 4.5
Cash generated by operations provided sufficient
resources to fund the Company's headcount growth and capital
asset needs in all periods presented.
The increase in net cash and cash equivalents provided by
operations in the first quarter of 1996 was lower compared
to the increase in the same period last year primarily due
to a reduction in accounts payable and accruals and an
increase in accounts receivable, partially offset by higher
depreciation and amortization, and lower foreign currency
gains.
Accounts receivable increased by $2.5 million in the
first quarter of 1996 as compared to the fourth quarter of
1995. Days sales outstanding increased from approximately 76
days in the fourth quarter of 1995 to 82 days in the first
quarter of 1996. The days sales outstanding ratio is
dependent on many factors, including the mix of contract-
based revenue with significant OEMs and large corporate and
government end-users versus revenue recognized on shipments
to application vendors and distributors and the success of
the Company's financing programs. The Company has programs
whereby third-party financing institutions provide financing
for extended credit terms instead of such financing being
provided by the Company. In the future, the Company expects
this ratio to vary within the range which prevailed in the
last several quarters.
Excluding investments of excess cash, net cash and cash
equivalents used in investing activities decreased in the
first quarter of 1996 compared with the same period in 1995
due to a decrease in corporate acquisition activity (the
Company acquired 90% of the database division of ASCII in
the first quarter of 1995). In the first quarters of 1996
and 1995, the Company acquired $15.8 million and $9.9
million, respectively, of capital equipment consisting
primarily of computer equipment, computer software and
office equipment. The increase of capital equipment
purchases in the first quarter of 1996 resulted from the
Company's growing employee headcount, the investment in new
equipment as well as new technology. In the future, the
Company anticipates the actual level of capital spending
will be dependent on a variety of factors, including the
Company's business requirements and general economic
conditions.
The Company's investments in software costs were
previously discussed under "Results of Operations."
In February 1996, the Company acquired Illustra
Information Technologies, Inc. (Illustra), a company that
provides dynamic content management database software and
tools for managing complex data in the Internet, multimedia/
entertainment, financial services, earth sciences and other
markets. Approximately 12.7 million shares of Informix
common stock were issued to acquire all outstanding shares
of Illustra stock. An additional 2.3 million shares of
Informix common stock were reserved for issuance in
connection with the assumption of Illustra's outstanding
options. The transaction has been accounted for as a pooling
of interests. Merger expenses of approximately $5.9 million
were recorded in the first quarter of 1996.
Net cash and cash equivalents provided by financing
activities in the first quarter of 1996 and 1995 included
proceeds from the sale of the Company's common stock to
employees, partially offset by payments on capital leases.
In 1993 and 1994, the Board of Directors authorized the
repurchase of up to 8 million shares of the Company's common
stock in the open market. There were no repurchases during
the first quarter of 1996, and through March 31, 1996, the
Company had repurchased 3,580,000 shares with an aggregate
cost of approximately $32.1 million on the open market.
The Company expects current balances of cash, cash
equivalents, and short-term investments will be sufficient
to fund anticipated levels of operations at least through
the first quarter of 1997 and may be used for investments
and acquisitions to supplement internal revenue growth and
for other corporate purposes.
Business Risks
Fluctuations in Quarterly Results. The Company's
operating results can vary substantially from period to
period. The timing and amount of the Company's license
revenues are subject to a number of factors that make
estimation of operating results prior to the end of a
quarter extremely uncertain. The Company has operated
historically with little or no backlog and, as a result,
license revenues in any quarter are dependent on contracts
entered into or orders booked and shipped in that quarter.
The Company's operating margins have generally followed a
historic pattern, with second half revenues and operating
margins being higher than those of the preceding first half.
The Company believes that this pattern has been primarily
related to customers' capital spending cycles at the end of
a calendar year as well as to the Company's selling efforts,
influenced by annual sales incentive plans, at the end of
the calendar year, which is the end of the Company's fiscal
year. Additionally, as is common in the industry, a
disproportionate amount of the Company's license revenues is
derived from transactions that close in the last few weeks
of a quarter. The timing of closing large license agreements
also increases the risks of quarter-to-quarter fluctuations
and the uncertainty of estimating quarterly operating
results. The Company's operating expenses are based on
projected annual and quarterly revenue levels, which have
been increasing at rates approaching the rate of total
revenue growth and are incurred approximately ratably
throughout each quarter. As a result, if projected revenues
are not realized in the expected period, the Company's
operating results for that period would be adversely
affected as the operating expenses are relatively fixed in
the short term. The Company's revenue generation is also
highly dependent on the economic conditions. If the economy
were to slow down, existing and potential customers might
delay the purchase of the Company's products, which would
negatively affect the Company's revenue. Failure to achieve
revenue, earnings and other operating and financial results
as forecasted or anticipated by brokerage firm analysts or
industry analysts could result in an immediate and adverse
effect on the market price of the Company's common stock.
Further, the Company may not learn of, or be able to
confirm, revenue or earnings shortfall until the end of each
quarter, which could result in an even more immediate and
adverse effect on the trading price of the Company's common
stock.
Volatility of Informix Stock Prices. The market for the
Company's common stock is highly volatile. The trading price
of the Company's common stock could be subject to wide
fluctuations in response to quarterly variations in
operating and financial results, announcements of
technological innovations or new products by the Company or
its competitors, changes in prices of the Company's or its
competitors' products and services, changes in product mix,
change in the Company's revenue and revenue growth rates for
the Company as a whole or for individual geographic areas,
business units, products or product categories, as well as
other events or factors. Statements or changes in opinions,
ratings, or earnings estimates made by brokerage firms or
industry analysts relating to the market in which the
Company does business or relating to the Company
specifically have resulted, and could in the future result,
in an immediate and adverse effect on the market price of
the Company's common stock. In addition, the stock market
has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market
price for the securities of many high technology companies
and which often have been unrelated to the operating
performance of these companies. These broad market
fluctuations may adversely affect the market price of the
Company's common stock.
Competition. The market for the Company's software
products and services is extremely competitive. Some of the
Company's current competitors and many potential competitors
have greater financial, technical and marketing resources
than the Company. To the extent that market acceptance for
personal computer oriented technologies increases at the
expense of UNIX or other non-PC platforms, this could result
in greater price pressure on certain of the Company's
database products and services. The availability and market
acceptance of Microsoft Corporation's Windows NT operating
system may increase the competition faced by the principal
operating system platforms on which the Company's products
operate and may result in greater price pressure on certain
of the Company's database products and services. Also, new
or enhanced products introduced by existing or future
competitors could have an adverse effect on the Company's
business, results of operations and financial condition.
Existing and future competition or changes in the Company's
product or services pricing structure or product or service
offerings could result in an immediate reduction in the
prices of the Company's products or services. If this were
to result in significant price declines - the effects of
which were not offset by any resulting increases in sales
volume of the Company's products or services - the Company's
business, results of operations and financial condition
would be adversely affected. There can be no assurance that
the Company will continue to compete successfully with its
existing competitors or will be able to compete successfully
with new competitors.
Technological Change and New Products. The market for the
Company's products and services is characterized by rapidly
changing technology and frequent new product introductions.
The Company's success will depend upon its ability to
enhance its existing products and to introduce new products
on a timely and cost-effective basis that meet dynamic
customer requirements. There can be no assurance that the
Company will be successful in developing new products or
enhancing its existing products or that such new or enhanced
products will receive market acceptance or be delivered
timely to the market. The Company has experienced product
delays in the past and may have delays in the future. Delays
in the scheduled availability or a lack of market acceptance
of its products or failure to accurately anticipate customer
demand and meet customer performance requirements could have
a material adverse effect on the Company's business, results
of operations and financial condition. In addition, products
as complex as those offered by the Company may contain
undetected errors or bugs when first introduced or as new
versions are released. There can be no assurance that,
despite testing, new products or new versions of existing
products will not contain undetected errors or bugs that
will delay the introduction or commercial acceptance of such
products. A key factor in determining the success of the
Company will continue to be the ability of the Company's
products to interoperate and perform well with existing and
future leading, industry-standard leading application
software products intended to be used in connection with
relational database management systems. Failure to meet
existing or future interoperability and performance
requirements of certain independent vendors marketing such
applications in a timely manner could adversely affect the
market for the Company's products. Commercial acceptance of
the Company's products and services could also be adversely
affected by critical or negative statements or reports by
brokerage firms, industry and financial analysts and
industry periodicals concerning the Company, its products,
business or competitors or by the advertising or marketing
efforts of competitors, or other factors that could affect
consumer perception.
International Operations. Over half of the Company's net
revenues are derived from its international operations. The
Company's operations and financial result could be
significantly affected by factors associated with
international operations could be significantly affected by
factors associated with international operations such as
changes in foreign currency exchange rates and uncertainties
relative to regional economic circumstances, as well as by
other risks associated with international activities. Most
of the Company's international revenue and expenses are
denominated in local currencies. Although the Company takes
into account changes in exchange rates over time in its
pricing strategy, the Company's business, results of
operations and financial condition could be materially and
adversely affected by fluctuations in foreign currency
exchange rates. There can be no assurance that the Company
will not experience fluctuations in international revenues.
Integration of Acquired Companies. The Company has
completed several acquisitions during the last eighteen
months, including the database division of ASCII Corporation
in Japan; distributors in Germany, Korea and Malaysia; STG
and, most recently, Illustra in the United States. The
Company may acquire other distributors, companies, products
or technologies in the future. There can be no assurance
that these acquisitions can be effectively integrated, that
such acquisitions will not result in costs and liabilities
that could adversely affect the Company's results of
operations and financial condition, or that the Company will
obtain the anticipated or desired benefits of such
acquisitions.
Infringement Claims. As the number of software products
and software patents in the industry increases, the Company
believes that software developers may become increasingly
subject to infringement claims. There can be no assurance
that a third party will not assert that its patents or other
proprietary rights are violated by products offered by the
Company. Any such claims, with or without merit, can be time
consuming and expensive to defend and could have an adverse
effect on the Company's business, results of operations,
financial position, and cash flows.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
Exhibit 11.1 - Statement Regarding Computation of
Earnings Per Share
Exhibit 27 - Financial Data Schedule.
B) Reports on Form 8-K.
The Company filed a Report on Form 8-K on February 7,
1996 reporting under Item 5 the execution of a definitive
agreement for the Company's acquisition of Illustra. This
Report included unaudited Pro Forma Combined Condensed
Financial Statements assuming a business combination between
the Company and Illustra accounted for on a pooling-of-
interests basis.
The Company filed a Report on Form 8-K on March 1, 1996
reporting under Item 2 the completion of the Company's
acquisition of Illustra effective February 16, 1996.
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: May 14, 1996
/s/ Howard H. Graham
------------------------------
Howard H. Graham
Senior Vice President, Finance
and Chief Financial Officer
EXHIBIT INDEX
Exhibit Exhibit Title Page
Number
- --------- ---------------------------- ------
11.1 Statement re Computation of
Earnings per Share 19
27 Financial Data Schedule 20