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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 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
(State or other jurisdiction of
incorporation or organization)
94-3011736
(I.R.S. Employer Identification No.)
4100 Bohannon Drive, Menlo Park, CA 94025
(Address of principal executive office)
415-926-6300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of each class)
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 the 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of February 28, 1997 was approximately $2,616,000,000.
Shares of Common Stock held by each officer and director have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of February 28, 1997, Registrant had outstanding 151,163,317 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE (to be deemed filed only to the
extent specifically incorporated herein by reference and not otherwise
excluded by law):
PART III: Parts of the Proxy Statement to be used in conjunction
with Registrant's Annual Stockholders Meeting to be held May 22,
1997.
_______________________________________________________________________
INFORMIX CORPORATION
1996 ANNUAL REPORT ON FORM 10-K
Table of Contents
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
Signatures
_______________________________________________________________________
FORWARD LOOKING STATEMENTS
This Annual 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 risk
factors described in the section of this Report entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." Readers 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, specifically the Quarterly
Reports on Form 10-Q to be filed by the Company in 1997 and any Current
Reports on Form 8-K filed by the Company.
_______________________________________________________________________
PART I
ITEM 1. BUSINESS
BACKGROUND
The Company is a multinational supplier of high-performance,
parallel processing database technology for open systems. The Company's
products also include applications development tools for creating
client/server production applications, decision-support systems, ad-hoc
query interfaces, and software that allows information to be shared from
personal computers to mainframes within the corporate computing
environment. In addition to software products, the Company offers
training, consulting, and post-contract support to its customers. The
principal geographic markets for the Company's products are in North
America, Europe, Asia/Pacific, Japan, and Latin America. Customers
include large-, medium- and small-sized corporations in the
manufacturing, financial services, telecommunications, retail/wholesale,
hospitality and government services sectors.
The Company was initially incorporated in California in 1980 and
was reincorporated in Delaware in August 1986. Unless the context
requires otherwise, the terms "Company" and "Informix" refer to Informix
Corporation and its subsidiaries. The Company maintains its executive
offices at 4100 Bohannon Drive, Menlo Park, California 94025. Its
telephone number is (415) 926-6300.
All of the Company's database products developed since 1983 support
Structured Query Language ("SQL"), an industry standard created by IBM.
The Company's core database management software runs on the UNIX(R) ,
Windows(TM) and Windows/NT(TM) operating systems, and certain networks
composed of computers running these operating systems.
The Company's customers consist primarily of end-users, application
vendors, original computer equipment manufacturers ("OEMs") and
distributors. The Company markets its products directly to end-users
through its sales force and indirectly to end-users through application
vendors, OEMs and distributors. The Company markets its products
worldwide and has operating subsidiaries in 37 foreign countries.
In February 1996, the Company acquired Illustra Information
Technologies, Inc. ("Illustra"), a United States based provider of
object-relational database systems and tools for managing complex data,
such as audio, video, text and images. Approximately 12,700,000 shares
of the Company's common stock were issued to acquire all of the
outstanding shares of Illustra stock. An additional 2,300,000 shares
were reserved by the Company for future issuance in connection with the
assumption of Illustra's outstanding stock options and warrants. The
transaction was accounted for as a pooling of interests. In December
1996, the Company announced the availability of a new product based on
the Illustra technology named INFORMIX(R) -Universal Server. INFORMIX-
Universal Server combines the object relational technology developed by
Illustra with the core database technology based on Informix's Dynamic
Scalable Architecture(TM) giving customers the ability to manage all kinds
of data throughout their enterprises.
PRODUCTS
Database Servers and Connectivity Products
Database Servers
The Company offers a full line of relational database servers. The
Company's principal servers include:
INFORMIX-Universal Server, a new, enterprise capable, fully-
extensible object relational database server based on Informix's Dynamic
Scalable Architecture. This product became available in December 1996.
INFORMIX-Universal Server allows customers to intelligently manage
traditional datatypes alongside new kinds of data, such as audio, video,
text and images. This extensibility is obtained through the use of
DataBlade(R) modules - reusable, plug-in object extensions - which expand
the general purpose capabilities of INFORMIX-Universal Server to provide
data storage and management functionality for non-traditional datatypes.
Customers can select prebuilt DataBlade modules (available from the
Company and many other companies) or design their own DataBlade modules
with the INFORMIX-DataBlade Developer's Kit to accommodate their unique
data management requirements. DataBlade modules available from the
Company include: INFORMIX-Spatial, INFORMIX-TimeSeries, INFORMIX-Video
Foundation and INFORMIX-Web.
INFORMIX-OnLine Dynamic Server(TM) , a high performance,
enterprise capable online transaction processing database server. This
product is based on the Company's Dynamic Scalable Architecture and
features parallel data processing capability, replication and
connectivity options built into its core.
INFORMIX-OnLine Workgroup Server, a database management system
designed specifically for workgroups. This product is based on the
Company's Dynamic Scalable Architecture and comes bundled with Netscape
FastTrack Server. This product became available in the third quarter of
1996.
INFORMIX-OnLine Extended Parallel Server, a high-performance,
scalable database server which extends the Company's Dynamic Scalable
Architecture to loosely coupled, "shared nothing" computing
architectures, including clusters of symmetric multiprocessing systems
and massively parallel processing systems.
Connectivity Products
The Company's principal connectivity products include:
INFORMIX-Enterprise Gateway(TM) Manager, a connectivity tool
allowing applications running on UNIX, Microsoft Windows or Windows 95
to access data sources via loadable gateway drivers. The Company offers
gateway drivers for Oracle and Sybase databases. Drivers for additional
data sources are available from various third parties.
INFORMIX-Enterprise Gateway with DRDA, a UNIX-based
connectivity tool allowing interoperability to IBM databases such as
DB2, DB2/VM and DB2/400 from Windows and UNIX clients. INFORMIX-Gateway
with DRDA allows applications built with Informix application
development tools to access and modify information in Distributed
Relational Database Architecture(TM) -compliant database management systems.
INFORMIX-ESQL for C and COBOL, embedded SQL products which
permit developers to take advantage of SQL technology while building
applications in C or COBOL.
INFORMIX-CLI, a library of low level functions that provide
high performance direct access to Informix databases from applications
built in C or other third generation languages. INFORMIX-CLI is
compliant with Microsoft's ODBC specifications.
INFORMIX-Universal Web Connect(TM) , a tool that provides high
performance connectivity between Web servers and databases. INFORMIX-
Universal Web Connect enables Web developers to create "intelligent" web
applications that dynamically deliver multimedia rich, tailored Web
pages to users.
Database Tools
The Company offers a variety of database application development
tools designed to allow users to build applications. The Company's
principal database tools include:
INFORMIX-NewEra(TM) , a graphical, object-oriented development
environment designed for creating enterprise-wide multi-tier
client/server database applications. INFORMIX-NewEra features a fourth-
generation object-oriented programming language, reusable class
libraries, application partitioning, and flexible application
deployment, and supports open connectivity to Informix and non-Informix
databases. INFORMIX-NewEra is currently available for Microsoft(R)
Windows(TM) and OSF Motif(TM).
INFORMIX-4GL, a character-based development environment, which
includes a fourth-generation programming language with full screen-
building, report entry and SQL database input/output capabilities. The
INFORMIX-4GL product family is comprised of three core products:
INFORMIX-4GL Compiled, INFORMIX-4GL Rapid Development System and
INFORMIX-4GL Interactive Debugger.
INFORMIX-SQL, a package of five interactive tools for creating
character-based applications. INFORMIX-SQL consists of a forms package,
a report writer, an interactive SQL editor, a menu builder and an
interactive schema editor.
INFORMIX-MetaCube(TM) , a high-performance on-line analytical
processing engine that automatically preconsolidates data and provides a
multidimensional view of data without the constraints of a two
dimensional (row and table) data model. The INFORMIX-MetaCube product
family also includes MetaCube Explorer, an adhoc decision support tool
for end users, MetaCube Warehouse Manager, a graphical tool for
administering the "metadata" describing a database in a logical, user-
friendly view, MetaCube Scheduler for batch processing, MetaCube
Queryback for running queries in the background, MetaCube Aggregator for
creating and maintaining aggregates in a data warehouse, MetaCube for
Excel which enables data warehouse analysis in an Excel spreadsheet
environment, and MetaCube for the Web which brings MetaCube analysis
capabilities to intranets.
Maintenance, Consulting and Services
The Company maintains field-based and centralized corporate
technical staffs to provide a comprehensive range of assistance to its
customers. These services include pre- and post- sales technical
assistance, consulting, product and sales training and technical support
services. Consultants and trainers provide services to customers to
assist them in the use of the Company's products and the design and
development of applications that utilize the Company's products.
The Company provides post-sales support to its customers on an
optional basis for annual fees which generally range from 10% to 18% of
the license fees paid by the customer. These support services usually
include product updates.
The Company also has several Information Superstores. These
Superstores provide customers with a dedicated environment in which they
can plan, prototype and test information technology investments using
the expertise of Company specialists and partners. The typical customer
spends approximately one week on-site. The SuperStores provide
customers with the real world information they need to make informed
business decisions and mitigate the risk associated with making a
significant technology purchase. The Company now has SuperStores
located in Ashford UK; Denver, Mexico City, Munich, Paris, Sydney and
Tokyo.
MARKETING AND CUSTOMERS
The Company distributes its products through the channels of direct
end-user licensing, OEMs, application vendors addressing specific
markets and distributors. The Company has chosen a multiple channel
distribution strategy to maintain broad market coverage and product
availability. The Company, therefore, has generally avoided exclusive
relationships with its licensees and other resellers of its products.
Discount policies and reseller licensing programs are intended to
support each distribution channel with a minimum of channel conflict.
The Company also provides a financing option to customers in connection
with the license of software.
At December 31, 1996, the Company's sales, marketing and support
staff totaled 1,427 regular employees in the North America region; 122
regular employees in the Latin America region, 947 regular employees in
the Europe, Middle East and Africa regions, 344 regular employees in the
Asia/Pacific region and 99 regular employees in Japan.
LICENSING
End-User Licensing
The Company licenses its products to large companies and government
entities through its direct sales force, and to certain of these
companies, as well as smaller end-users, through its telemarketing sales
force. The Company believes that the common core technology of its
database management system products, based on standard operating systems
and the SQL database language, helps it sell into major corporations and
government agencies that wish to standardize their diverse computing
environments. As a result, certain of these end-user organizations have
entered into general purchasing agreements with the Company which offer
volume discounts.
Application Vendor Licensing
Since its inception, the Company has licensed application vendors
to distribute its products. A typical application vendor develops an
application product (e.g., an insurance agency management system) using
one of the Company's products and then licenses the resultant
application software to its customers in the target market. The
application vendor customer purchases a license for use of the Company's
product to develop an applications program. Depending on the
application program developed, it may include a run-only license, a full
version license or even multiple product licenses.
Application vendors develop applications using a wide array of
application development tools, including products from the Company, such
as INFORMIX-NewEra, INFORMIX-4GL and INFORMIX-SQL, as well as products
offered by third parties. Applications developed using the Company's
products are generally portable across various brands of computers and
different operating systems.
The Company has specialized programs to support the application
vendor distribution channel. Under these programs, the Company provides
to selected application vendors a combination of marketing development
services, consulting and technical marketing support and discounts.
OEM Licensing
The Company's products are also marketed with the assistance of the
sales forces of its OEM customers who have concluded that "solution
selling" of a combination of software and hardware to their respective
customers enhances the sales of their computer equipment. The Company
believes that the compatibility and range of applications for its
products is significant to this distribution channel.
Distributor Licensing
The Company has established a network of full service international
distributors who provide local service and support, as well as the
Company's products, to their respective national markets. Distributors
are used to supplement the Company's direct sales force and enable the
Company to sell its products and services in countries where the Company
has not established a direct sales force.
PRODUCT DEVELOPMENT
The computer software industry is highly competitive and rapidly
changing. Consequently, the Company dedicates considerable resources to
research and development efforts to enhance its existing product lines
and to develop new products to meet new market opportunities. Most of
the Company's current software products and accompanying documentation
have been developed internally; however, the Company has acquired
certain software products from others and plans to do so again in the
future.
Major product releases resulting from research and development
projects in 1996 included the release of INFORMIX-Universal Server, the
release of INFORMIX-OnLine WorkGroup Server and new releases of
INFORMIX-OnLine Dynamic Server and INFORMIX-OnLine Extended Parallel
Server.
Current product development is focused toward:
Improvement and enhancement of current products and new
products, with particular emphasis on parallel computer architecture,
user-defined database extensions, Web technology integration, graphical
desk top and system administration.
Improvements to the Company's products to provide greater
speed and support for larger numbers of concurrent users.
Adaptation of new products to the broad range of computer
brands and operating systems the Company currently supports and
adaptation of current products to new brands of computers and operating
systems which represent attractive market opportunities for the
Company's products.
There can be no assurance that the Company's product development
efforts will be successful or that any new products will achieve
significant market acceptance.
As of December 31, 1996, the Company had 967 regular employees
engaged in research and development.
During fiscal 1994, 1995 and 1996, the Company expended $77.9
million, $103.1 million and $148.6 million, respectively, on research
and development, representing approximately 17%, 14% and 16% of revenues
for such periods. Also during fiscal 1994, 1995 and 1996, the Company
capitalized costs in accordance with Statement of Financial Accounting
Standards No. 86 of $13.6 million, $17.5 million and $28.4 million,
respectively. See Item 7 of this Annual Report entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- - Research and Development Expenses."
COMPETITION
The Company faces intense competition in the market for relational
database management system software products. Companies in this market
compete primarily on the basis of price/performance characteristics,
name recognition, and technical support, training and consulting
services.
With respect to product performance, the Company believes that the
principal competitive factors include:
Application development productivity (the speed with which
applications can be built).
Database performance (the speed at which database storage and
retrieval functions are executed).
The ability to support large warehouses of information.
Reliability, availability and serviceability.
The distribution of software applications and data across
networks of computers from multiple suppliers.
Increasingly, the ability to manage complex data and solve
more complex business problems based on such data.
The Company believes that the technical advantages of its products,
its approach to sales and marketing, its relations with application
vendors, OEMs and distributors and its customer service and support
contribute to its ability to compete in this market.
The chief competition faced by the Company is currently provided by
Oracle Corporation, Sybase, Inc., IBM Corporation and Microsoft
Corporation. Several of the Company's current 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. Existing and future
competition or changes in the Company's product or service pricing
structure or product or service offerings could result in an immediate
reduction in the prices of the Company's products or services. If 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.
PRODUCT PROTECTION
The Company relies on a combination of trade secret, copyright and
trademark laws, license agreements and technical measures to protect its
rights in its software products. Like many software companies, the
Company has no patents to date, although it has several applications
pending. The Company maintains trademark and service mark registrations
in the United States and numerous other foreign jurisdictions.
The Company's products are generally licensed to end-users on a
"right-to-use" basis pursuant to a license that restricts the use of the
products for the customer's internal business purposes. The Company
also relies on "shrink-wrap" licenses. The Company's "shrink-wrap"
license includes a prominently displayed notice informing the end-user
that, by opening the product packaging, the end-user agrees to be bound
by the Company's license agreement printed on the package. Copyright
and trade secret protection for source and object code version of
software products may be unavailable in certain foreign countries. In
addition, "shrink-wrap" licenses may be wholly or partially
unenforceable under the laws of certain jurisdictions.
The Company protects the human readable, source code version of its
products as a trade secret and an unpublished copyrighted work. The
Company has licensed the source code of its products to certain
customers under certain circumstances, and for restricted uses. In
addition, the Company has entered into source code escrow agreements
with a number of its customers that generally require release of source
code to the customer in the event there is a bankruptcy or similar
proceeding by or against the Company, the Company ceases to do business
or the Company ceases to support the product. In the event of a release
of the source code to a customer, the customer is required to maintain
its confidentiality and, in general, to use the source code solely for
internal business purposes or for the purpose of providing maintenance
and support to its customers, and, in certain circumstances, to
embedding it in customer products.
The Company believes that, because of the rapid pace of
technological change in the computer software industry, patent, trade
secret and copyright protection are less significant than factors such
as the knowledge, ability and experience of the Company's personnel, new
product introduction, frequent product enhancement, name recognition and
ongoing product maintenance.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries had 4,491
regular employees worldwide, including 2,939 in sales, marketing and
support; 967 in research and development; 89 in operations and 496 in
administration and finance.
Competition in recruiting personnel in the database software
industry is intense. The Company believes that its future success will
depend on its continued ability to attract and retain highly skilled
sales, consulting, technical, marketing and management personnel.
None of the Company's U.S. employees are represented by a labor
union. A small number of employees located outside of the United States
are represented by labor unions. The degree of this representation
varies from country to country. The Company has experienced no work
stoppages.
EXECUTIVE OFFICERS
Set forth below in alphabetical order are biographical summaries of
the current executive officers of the Company.
Ronald M. Alvarez, 47, joined the Company in December 1991 as
Director of Latin America Operations. He was promoted to Executive
Director, Latin America Operations in March 1993, and to Vice
President, Latin America in May 1995. He was appointed to his current
position of Vice President, Americas Sales in January 1996.
Karen Blasing, 40, joined the Company in November 1992 as Director
of Financial Planning and Analysis and became Controller in June 1996.
From January 1989 to October 1992, Ms. Blasing was a Senior Financial
Manager at Oracle Corporation, a provider of information management
software and services.
Margaret R. Brauns, 42, became Vice President and Treasurer of the
Company in November 1992. Ms. Brauns joined the Company as Treasurer in
May 1990.
D. Kenneth Coulter, 52, joined the Company in February 1988 as
Managing Director, UK. From January 1990 to April 1992, Mr. Coulter was
Vice President, Europe. He became Senior Vice President, Europe, Middle
East and Africa, in April 1992 and was named Senior Vice President,
International in January 1996. Mr. Coulter became Executive Vice
President, Worldwide Field Operations in November 1996.
Ira H. Dorf, 56, joined the Company as Vice President, Human
Resources in October 1989.
Bruce Golden, 37, joined the Company in February 1996 as Vice
President of Business Units and became General Manager, Data Warehouse
Business Development Unit in September 1996. From June 1993 to February
1996, he was Vice President of Marketing of Illustra Information
Technologies, Inc., a supplier of object-relational database management
systems. Prior to Illustra, Mr. Golden was employed by Sun
Microsystems, Inc., a computer hardware and software company, for eight
years in a variety of positions, his last being Director of Commercial
Market Development.
James F. Hendrickson, Jr., 57, joined the Company as Vice
President, Customer Services in July 1992. In February 1995, Mr.
Hendrickson assumed the additional responsibility of Lenexa Site
Manager. From 1991 until the time he joined the Company, Mr.
Hendrickson was Senior Vice President of Marketing at Image Business
Systems.
Alan S. Henricks, 46, joined the Company as Executive Vice
President and Chief Financial Officer in January 1997. From May 1994 to
December 1996, Mr. Henricks was Vice President, Finance and Operations,
and Chief Financial Officer of Documentum, Inc., a provider of document
management software and services, where he was responsible for all
financial functions, as well as MIS, legal and operations. From
February 1988 to April 1994, Mr. Henricks was Senior Vice President,
Finance and Operations, and Chief Financial Officer, of Borland
International, a provider of software development tools.
Stephen E. Hill, 38, joined the Company in December 1985, and has
served the Company in a variety of strategic planning, development and
marketing positions. Mr. Hill currently serves as Vice President,
Advanced Technology.
Jeffrey V. Hudson, 44, joined the Company in June 1995 as Vice
President, Business Development and became Vice President, Business
Development and Product Marketing in May 1996. From December 1993 to
January 1995, Mr. Hudson was President and Chief Executive Officer of
Visioneer Communications, Inc. From June 1989 to December 1993, he was
Vice President, Sales, Marketing and Service for Netframe Systems, Inc.
Mike Saranga, 59, joined the Company as Senior Vice President,
Product Management and Development in May 1993. Prior to joining the
Company, Mr. Saranga was employed by IBM for 30 years, most recently as
Assistant General Manager of Programming Systems, where Mr. Saranga
developed IBM's technical and business strategies for key technologies
including client/server, distributed systems and multimedia.
David H. Stanley, 50, joined the Company as Vice President, Legal,
General Counsel and Assistant Secretary in July 1988. In August 1990,
Mr. Stanley was elected to the additional office of Secretary. In March
1995, Mr. Stanley assumed the additional responsibility for corporate
services and became Vice President, Legal and Corporate Services,
General Counsel and Secretary.
Michael R. Stonebraker, 53, joined the Company as Vice President
and Chief Technology Officer in February 1996. Dr. Stonebraker
cofounded Illustra Information Technologies, Inc., a supplier of object-
relational database management systems, in July 1992, and served in a
consulting capacity with Illustra as Chief Technology Officer until
February 1996. Dr. Stonebraker is professor emeritus of Electrical
Engineering and Computer Sciences at the University of California,
Berkeley, where he joined the faculty in 1971.
Phillip E. White, 54, has been the Company's Chief Executive
Officer and a director since January 1989. He has held the additional
office of President since August 1990 and of Chairman since December
1992. Mr. White also serves as a director of Adaptec, Inc., a computer
input/output technology company, and of Legato Systems, a manufacturer
and developer of network storage management software products.
Edwin C. Winder, 47, joined the Company in February 1990. Since
joining the Company, Mr. Winder has held a variety of executive
positions in sales, marketing and customer service. He is currently the
Company's Senior Vice President, Japan Operations.
______________
Distributed Relational Database Architecture, Microsoft, Motif, UNIX,
Windows and Windows/NT are trademarks of their respective owners. All
other names indicated by (R) or (TM) are trademarks of the Company.
ITEM 2. PROPERTIES
The Company's headquarters and its marketing, finance, Americas
sales, administration, customer service and research and development
operations are located in five modern buildings in a seven building
office park in Menlo Park, California, approximately 30 miles south of
San Francisco. The Company leases approximately 214,000 square feet of
space in these buildings. The leases for spaces in three of the
buildings expire in March 1998. The Company has options to renew each
lease for up to two additional five year terms at 95% of the then fair
rental value. The leases for space in the other two buildings expire in
September 2001.
The Company plans on relocating its corporate headquarters to a
site in Santa Clara, California approximately 15 miles south of the
Company's current headquarters. In November 1996, the Company leased
approximately 200,000 square feet of space in a high-rise office
building located in Santa Clara. This building is scheduled to be
available for occupancy by the Company in April 1998. The lease is for
a term of 15 years. Additionally, in January 1997, the Company leased
approximately 27 acres of undeveloped commercial real estate adjacent to
this leased building for the phased construction of additional office
buildings. The term of this lease is two years. At the expiration of
the lease the Company is required to either purchase the land for
$61,500,000 or find a buyer for the land and, if the net sales proceeds
are less than $61,500,000, pay the lessor the difference between the net
sales proceeds and $61,500,000. Facility construction on the Santa
Clara site will be phased over time based on the Company's utilization
needs. The Company intends to fund construction costs through outside
financing, the availability of which has not yet been determined.
Some of the research and development for the Company's tools
products, a portion of the Company's customer service organization, the
Company's principal domestic manufacturing facility and the Company's
telemarketing organization are located in two modern buildings
aggregating approximately 135,000 square feet in Lenexa, Kansas, a
suburb of Kansas City. The buildings are owned by a partnership, of
which the Company is a 50% partner, and leased by the partnership to the
Company under a lease with an initial ten-year term that expires in
March 1998. There are two five-year renewal options. Rental under this
lease remains fixed through 1998, and then adjusts to prevailing rates
for the renewal terms.
The Company also leases office space in approximately 56 facilities
in the United States and Canada and approximately 60 facilities
internationally.
The Company believes that its facilities are adequate for its
current needs and that suitable additional or substitute space will be
available as needed to accommodate the expansion of the Company's
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings, other than
ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security
holders during the fourth quarter of the fiscal year ended December 31,
1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Company's common stock has been traded on the over-the-counter
market under the NASDAQ symbol IFMX since the Company's initial public
offering on September 24, 1986. The following table sets forth the
range of high and low closing prices as reported on the NASDAQ National
Market System for the periods indicated.
High Low
Fiscal 1995*
First Quarter $19.63 $14.63
Second Quarter 25.94 17.06
Third Quarter 34.00 25.25
Fourth Quarter 33.00 24.13
Fiscal 1996
First Quarter 35.88 26.38
Second Quarter 26.88 18.38
Third Quarter 30.25 20.31
Fourth Quarter 28.63 17.63
* The prices shown reflect a two-for-one stock split effected in the
form of a stock dividend in June 1995.
Common Stockholders of Record and Dividends
At December 31, 1996, there were approximately 3,400 stockholders of
record of the Company's common stock, as shown in the records of the
Company's transfer agent. The Company has never paid dividends on its
common stock and its present policy is to retain its earnings to finance
anticipated future growth.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL OVERVIEW
Five-Year Summary (1)
(in thousands, except per share data) 1996 1995 1994 1993 1992 (2)
Net Revenues $939,311 $714,219 $470,112 $353,115 $283,594
Net Income 97,818 97,644 61,948 54,989 47,782
Net Income per Share (3) 0.63 0.65 0.43 0.40 0.38
Total Assets 903,842 691,146 449,545 328,001 231,459
Long-Term Obligations 2,359 2,846 892 451 1,797
The Company has not paid and does not anticipate paying cash dividends
on its common stock.
(1) The above information have been restated to reflect the Company's
business combination with Illustra Information Technologies, Inc. from
its inception date of July 31,1992 through the merger date of February
16, 1996, as a pooling of interests.
(2) In 1991, the Company was selected to provide the database component
of a decision-support system for the Army National Guard and Army
Reserves. In 1992, the Company received $26.8 million for license fees
and support as part of this Reserve Component Automation System (RCAS)
contract and recorded $21.8 million as license revenue and incurred $3.2
million in operating expenses in 1992. The remaining $5.0 million of
service revenue was recognized over the support period.
(3) Per-share information applicable to prior periods has been restated
to reflect a two-for-one stock split (effected in the form of a stock
dividend) which was effective June 26, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Management's Discussion and Analysis of Financial Condition and
Results of Operation contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual
results could differ materially from those projected in the forward-
looking statements as a result of certain factors described herein and
in other documents. Readers should carefully review the risk factors
described in the documents the Company files from time to time with the
Securities and Exchange Commission, specifically the Quarterly Reports
on Form 10-Q to be filed by the Company in 1997 and any Current Reports
on Form 8-K filed by the Company.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. All information is
based on the Company's fiscal calendar.
Selected elements of Informix's financial statements are shown below for
the last three years as a percentage of revenue and as a percentage
change from year to year.
% Increase (Decrease)
Percent of Net Revenue 1996 1995
Years Ended December 31, Compared Compared
1996 1995 1994 to 1995 to 1994
Licenses 75% 76% 78% 31% 48%
Services 25 24 22 33 65
Net revenues 100 100 100 32 52
Cost and Expenses:
Cost of software distribution 5 5 5 26 54
Cost of services 15 13 10 58 96
Sales and marketing 45 43 43 39 48
Research and development 13 12 14 40 33
General and administrative 6 7 8 26 45
Merger expenses 1 - - 100 -
Total costs and expenses 85 80 80 41 52
Operating income 15 20 20 (6) 53
Net income 10% 14% 13% 0% 58%
Operating Results
Informix's operating income was affected negatively in 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 research and development and due to integration expenses
and fees associated with the acquisition of Illustra Information
Technologies, Inc. (Illustra) as a pooling-of-interests in February
1996. In December 1996, Informix began shipping the INFORMIX-Universal
Server, based on Informix's proven Dynamic Scaleable Architecture(tm) (DSA)
and providing extensibility to handle the broad range of datatypes not
managed effectively by traditional relational databases. This product
merges the technology of Illustra and Informix. Informix incurred
significant marketing expenses in connection with the initial
announcement and launch of the Universal Server in 1996. The Company
expects selling and marketing expenses in 1997 to be at a level
comparable to 1996 both in support of INFORMIX-Universal Server and as
Informix continues developing specific market channels and specific
products for such channels. These development, integration and marketing
expenses and the relatively low operating margins of Illustra have
adversely affected Informix's ability to achieve operating margins
consistent with 1994 and 1995. In the near term, these development and
marketing efforts will continue to negatively affect the Company's
operating margins.
Revenues
The Company derives revenues principally from licensing its
software and from providing technical product services 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 (OEMs), distributors, and
value added resellers (VARs) including application vendors. Prior to
1996, the Company's customer mix had been decreasing in the distributor
and hardware OEM channels in favor of the end user and application
vendor channels. However, in 1996, this trend shifted towards a higher
proportion of OEM sales as the Company has increased the focus on its
partnerships with several hardware vendors in order to utilize their
sales forces, obtain access to their installed bases in certain
industries and benefit from their consulting and systems integration
organizations. The increased focus on OEM sales coupled with increases
in the other reseller channels resulted in total reseller sales
representing half of the Company's 1996 license revenue . The Company
estimates that almost half of the licenses sold to these resellers in
1996 were not resold to end users prior to December 31, 1996. If these
resellers do not commit to licensing the same level of products for
resale to end users in future periods, the Company's future revenues
could be adversely affected. The Company sold approximately $55 million
of software licenses to certain vendors during 1996 where the Company
concurrently committed to acquire goods or services in approximately the
same dollar amount. The Company's license sales transactions can be
relatively large in size and difficult to forecast both in timing and
dollar value. As a result, these transactions have caused fluctuations
in net revenues and net income because of the relatively high gross
margin on such revenues. As is common in the industry, a disproportional
amount of the Company's license revenue is derived from transactions
that close in the last few weeks of a quarter. The timing of closing
large license agreements also increases the risk of quarter-to-quarter
fluctuations. The Company expects that these sorts of transactions and
the resulting fluctuations will continue.
The overall revenue growth in 1996 compared to 1995 primarily
reflects continued acceptance of the Company's server products. 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 quarterly revenue growth rates and the geographical
growth trends rates slowed during the latter half of 1996 and there can
be no assurances that growth rates in 1997 will be comparable with those
achieved in 1996.
Informix's current server product line debuted in the fall of 1994
with INFORMIX-OnLine Dynamic Server for Sequent (DSA) and was expanded
to a wide array of Unix-based multi-processor systems in December 1994.
This product is now available on Windows/NT operating systems and
accounts for a majority of the Company's server sales. In the spring of
1996, the Company introduced a workgroup version of this product named
INFORMIX-OnLine Workgroup Server. In fall 1996, the Company released
INFORMIX-Online Extended Parallel Server 8.1, designed for very high end
use in "loosely-coupled" computer architectures. In late 1996, the first
version of INFORMIX-Universal Server was released which was the
combination of the INFORMIX-OnLine Dynamic Server product with the
Illustra server product.
The license revenue growth in 1996 compared to 1995 reflects strong
demand for the Company's server products, particularly the Company's
flagship database server, INFORMIX-OnLine Dynamic Server(TM). In addition,
many Informix partners, including OEM resellers, purchased high volumes
of product to resell in anticipation of customer demand. The Company
believes that the license revenues derived from its database tool
products declined from 1995 to 1996 primarily as a result of competitive
product offerings from other companies and an increase in the Company's
sales to resellers, which traditionally have concentrated on purchases
of database server products.
The increase in service revenue was primarily attributable to the
continued growth of the Company's installed customer base, and resulting
renewal of maintenance contracts and increased consulting revenue. The
Company continues to emphasize support services as a source of revenue.
As the Company's products become more complex, more support services
will be required. The Company intends to satisfy this requirement
through internal support, third-party services and OEM support. The
contribution margin on service revenue decreased from 48 percent in 1995
to 37 percent in 1996. The decrease resulted from increased costs
incurred to expand the support function due to sales increases and the
continuing complexity of the products. In addition, sales through the
reseller channel where the product has not been resold to end users has
not yet resulted in service revenue.
Approximately 58 percent, 58 percent and 54 percent of Informix's
net revenues were derived from sales to foreign customers in 1996, 1995,
and 1994, respectively. The increase in foreign revenues in absolute
dollars is primarily attributable to continued international acceptance
for Informix's new and existing server products, and the establishment
of new subsidiaries and sales offices in Europe, Asia/Pacific, Japan,
and Latin America. Over the past few quarters, revenue continued to be
stronger in Europe, but weaker in Japan. 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
in the future. In Europe, Asia/Pacific, and Japan, most revenues and
expenses are now denominated in local currencies. The U.S. dollar
strengthened in the fourth quarter and for the year 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 periods. The Company has also increased its direct
presence in Latin America, although a significant percentage of this
region's revenue is still denominated in U.S. dollars. Although the
effect was not significant in 1996, the Company has experienced
significant currency fluctuations in Mexico, and to a lesser extent,
other Latin American countries, and expects such fluctuations may occur
in the future. 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.
The Company enters into forward foreign exchange contracts
primarily to hedge the impact of fluctuations in exchange rates on
accounts receivable or accounts payable denominated in foreign
currencies 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
operates, on a limited basis, in certain countries in Latin America,
Eastern Europe, and Asia Pacific where there are limited forward
currency exchange markets and thus the Company has limited unhedged
transaction exposures 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.
Informix's distribution markets are organized into three general
markets: North America; Europe, which includes the Middle East and
Africa; and the Intercontinental Group, consisting of Latin America,
Japan, and the Asia/Pacific region. The North America, Europe, and
Intercontinental Group organizations contributed 42 percent, 39 percent
and 19 percent of Informix's net revenues respectively, in 1996,
compared to 42 percent, 38 percent and 20 percent, respectively, in
1995, and 46 percent, 38 percent and 16 percent, respectively, in 1994.
In 1996, the American Institute of Certified Public Accountants
issued an exposure draft on Software Revenue Recognition that is
proposed to supersede the Statement of Position 91-1. The Company is
evaluating the exposure draft in relation to its current revenue
recognition policy. Certain provisions of the exposure draft differ from
the Company's current policy. Adoption of the exposure draft in its
final form may significantly affect the revenue recognition practices of
Informix and could significantly alter, either favorably or unfavorably,
the timing of revenue recorded under the Company's current policy.
Cost of Software Distribution
(Dollars in Millions) 1996 Change 1995 Change 1994
Manufactured cost of software distribution $ 33.5 28% $ 26.2 54% $ 17.0
Percentage of license revenue 5% 5% 5%
Amortization of capitalized software $ 14.6 22% $ 12.0 54% $ 7.8
Percentage of license revenue 2% 2% 2%
Cost of software distribution $ 48.1 26% $ 38.2 54% $ 24.8
Percentage of license revenue 7% 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 costs that are no
longer realizable.
Excluding amortization of previously capitalized software
development costs, cost of software distribution as a percentage of
license revenue was 5 percent for both 1996 and 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
its customers.
Amortization of capitalized software increased 22 percent in 1996
compared to 1995 due to the release of several products in the latter
half of 1995 and 1996. Amortization expense will continue to rise in
absolute dollars in 1997 due to 1996 product releases including
INFORMIX-Universal Server. The absolute value of amortization of
capitalized software will vary from quarter to quarter as new products
are released and other product development costs become fully amortized.
Cost of Services
(Dollars in Millions) 1996 Change 1995 Change 1994
Cost of services $144.9 58% $ 91.5 96% $ 46.8
Percentage of service revenue 63% 52% 44%
Cost of services consists primarily of maintenance, consulting and
training expenses. The increase in cost of services in 1996 in absolute
dollars and as a percentage of net revenues compared to the prior year
is primarily due to the Company's expansion of consulting and support
service capabilities as products have become more complex. The increase
in cost of services as a percentage of net service revenue is due to
increases in support personnel in anticipation of additional consulting
revenue as more customers utilize the Company's products in more complex
applications. The Company has also subcontracted certain service
projects which reduces margins.
Sales and Marketing Expenses
(Dollars in Millions) 1996 Change 1995 Change 1994
Sales and marketing $418.7 39% $301.9 48% $203.8
Percentage of net revenue 45% 43% 43%
The increase in sales and marketing expenses in 1996 in absolute
dollars compared to 1995 was a result of the addition of new sales
offices and sales personnel worldwide as the Company expanded its
worldwide direct sales organizations, the opening of new subsidiaries,
higher commission expense associated with the increase in revenues, and
increased marketing programs associated with new product launches. As a
percentage of net revenues, sales and marketing expenses increased from
43 percent in 1995 to 45 percent in 1996.
With the expected continuing expansion in 1997 of worldwide
operations, as well as increased sales and marketing expenditures aimed
at positioning the Company and its new and existing products in the
marketplace, the Company expects that sales and marketing expenses for
1997 will increase. The increase in sales and marketing expense will
include depreciation of equipment, and facilities and manpower costs
associated with operating the Company's Information SuperStores, which
are more fully discussed in "Liquidity and Capital Resources".
Research and Development Expenses
Informix accounts for its software development expenses 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 prior three years:
(Dollars in Millions) 1996 Change 1995 Change 1994
Incurred product development costs $148.6 44% $103.1 32% $ 77.9
Expenditures capitalized 28.4 62% 17.5 29% 13.6
Research and development expenses $120.2 40% $ 85.6 33% $ 64.3
Expenditures capitalized as percent of incurred 19% 17% 17%
The increase in research and development expenditures in absolute
dollars from year to year is attributed to an increase in staff working
on new products and product extensions, including the Company's latest
product INFORMIX-Universal Server.
The higher capitalization in absolute dollars of product
development expenditures from year to year resulted from an increase in
the work involved in projects reaching technological feasibility as they
neared their release dates.
Significant programs currently under development include
improvements and enhancements of current products, with particular
emphasis on parallel computer architecture, user-defined database
extensions, web technology integration, and graphic desktop and systems
administration. The Company believes that research and development
expenditures are essential to maintaining its competitive position in
its primary markets and expects the expenditure levels to continue to
constitute a significant percentage of revenues.
General and Administrative Expenses
(Dollars in Millions) 1996 Change 1995 Change 1994
General and administrative expenses $ 64.2 26% $ 51.1 44% $ 35.4
Percentage of net revenues 6% 7% 8%
General and administrative expenses increased in absolute dollars
in 1996 compared to 1995 as a result of the continued expansion of the
Company's international operations. General and administrative expenses
in 1995 increased in absolute dollars compared to 1994 as a result of
the continued expansion in international operations as well as the
acquisition of several foreign distributors.
Merger Expenses
In the first quarter of 1996, the Company recorded expenses of
approximately $5.9 million as a result of the acquisition of Illustra,
which was accounted for as a pooling of interests. These costs consisted
primarily of investment banking, legal and accounting fees.
Interest Income
(Dollars in Millions) 1996 Change 1995 Change 1994
Interest income $ 9.9 22% $ 8.1 103% $ 4.0
Percentage of net revenues 1% 1% 1%
The increase in absolute dollars from 1994 to 1995 and 1995 to 1996
results from higher balances of cash and cash equivalents and short-term
investments, offset by slightly lower interest rates.
Provision for Income Taxes
(Dollars in Millions) 1996 Change 1995 Change 1994
Provision for income taxes $ 50.4 (9%) $ 55.2 62% $ 34.1
Effective tax rate 34% 36% 35%
Informix's effective tax rates for fiscal years 1996, 1995, and
1994 are less than the combined federal and state statutory rates
primarily due to the permanent reinvestment of a portion of the offshore
earnings of Informix's lower-taxed Irish operations and the
reinstatement of the federal research and development credit. The amount
considered permanently invested in the Irish operations may vary from
year to year and may affect Informix's effective tax rate.
Informix anticipates its fiscal 1997 effective tax rate to remain
approximately the same as 1996; however, this rate could change based on
a change in the geographic mix of Informix's financial results, the
amount of permanent reinvestment of a portion of the 1997 offshore
earnings of Informix's lower-taxed Irish operations, the reinstatement
of the federal research and development tax credit which is scheduled to
expire in 1997 and acquisitions by the Company.
Impact of Inflation
The effect of inflation on the Company's financial position has not
been significant.
Liquidity and Capital Resources
(Dollars in Millions)
1996 1995 1994
Cash, cash equivalents, and investments $267.7 $263.0 $198.6
Working capital 258.4 252.8 200.8
Cash provided by operations 178.3 158.2 104.1
Cash used in investment activities, excluding
investments of excess cash 203.0 125.4 51.9
Cash provided by financing activities 21.5 27.5 0.3
Cash generated by operations provided sufficient resources to fund
the Company's headcount growth and capital asset needs in all periods
presented. In addition, sufficient cash was generated in 1996 to
finance the Company's strong commitment to training and marketing
efforts surrounding the acquisition of Illustra and the development and
release of INFORMIX-Universal Server. The increases in cash and cash
equivalents provided by operations in 1996 compared with 1995 and in
1995 compared with 1994, were primarily attributable to higher income
before depreciation and amortization charges.
Net accounts receivable increased by $68.6 million in 1996 as
compared to December 1995. Days sales outstanding increased from
approximately 76 days in December 1995 to 84 days in December 1996. The
days sales outstanding ratio is dependent on many factors, including the
mix of contract-based revenue with significant OEMs and large corporate
and government end-users versus revenue recognized on shipments to
application vendors and distributors and the success of the Company's
third-party accounts receivable financing programs. The Company has
programs whereby third-party financing institutions provide financing
for extended credit terms instead of such financing being provided by
the Company. The Company at times enhances its cash position through
certain financing activities related to its account receivables.
Excluding investments of excess cash, net cash and cash equivalents
used for investing activities increased in 1996 compared with 1995; the
decrease in corporate acquisition activity (the Company acquired 90 percent
of the database division of ASCII Corporation in the first quarter of 1995)
was offset by investments in property and equipment and in software
development costs. In 1996, 1995 and 1994, the Company acquired $148.3
million, $56.5 million and $25.7 million, respectively, of capital
equipment consisting primarily of computer equipment, computer software
and office equipment. The increase of capital equipment purchases in
1996 resulted from the Company's investments in capital equipment used
in sales and product demonstration activities and an effort to improve
the level of consulting and support services provided to customers, and
to provide technology infrastructure for the Company's growing employee
headcount.
Informix plans to continue to launch a series of Information
SuperStores worldwide which demonstrate and offer the most recent
Informix technology advances. Along with the core Informix product line,
these locations have tools from leading third-party tools and
application vendors installed on a wide variety of hardware platforms.
Initial participants include Data General, Hewlett Packard, IBM, NCR,
Pyramid, Sequent, Silicon Graphics, and Sun, among others. Engineers
from both the Informix Professional Services and the Informix Advanced
Technology Group are working with prospects and customers at the
SuperStores to create information technology prototypes, such as pilot
data warehouses, based on comprehensive, proven methodology. To date,
the Company has spent approximately $63 million and has committed to
spend approximately an additional $45 million in the acquisition of
capital equipment to support the launch of the Information SuperStores
The Company expects to make further capital equipment expenditures
against these commitments in 1997.
The Company's investments in software costs were previously
discussed under "Results of Operations."
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 interest in January
1996. The acquisition was recorded as a purchase. The purchase price of
ASCII's database division was approximately $46.0 million, of which
approximately $35.4 million has been allocated to intangible assets
acquired.
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 acquired the remaining 20 percent in January 1997 for
approximately $1 million. The acquisition was recorded as a purchase.
The initial purchase price of this business was approximately $4.6
million, and was increased by approximately $3.0 million in January 1997
due to performance incentives outlined in the agreement; a total of
approximately $7.0 million has been allocated to intangible assets
acquired.
The operating results of these distributors subsequent to the
acquisition dates have been included in the consolidated results of
operations.
In February 1996, the Company acquired Illustra, a U.S.-based
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
stock options and warrants. The transaction has been accounted for as a
pooling of interests and accordingly all of the accompanying financial
statements have been restated to reflect the merger as of the beginning
of the earliest period presented. 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
1996 and 1995 consisted primarily of proceeds from the sale of the
Company's common stock to employees, partially offset by payments on
capital leases. Net cash and cash equivalents used in financing
activities in 1994 included payments on capital leases and repurchases
of the Company's common stock, offset by proceeds from the sale of the
Company's common stock to employees.
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. As of December 31, 1996, the Company had repurchased 3,580,000
shares with an aggregate cost of approximately $32.1 million on the open
market. All repurchased shares were re-issued to partially satisfy
requirements under Stock Option and Stock Purchase Plans. In 1996, the
Company rescinded the stock repurchase authorization.
The Company plans on relocating its corporate headquarters to Santa
Clara, California approximately 15 miles to the south of the Company's
current headquarters. To facilitate the move, in January 1997, the
Company entered into a two year lease for twenty seven acres of
undeveloped commercial real estate ("the Real Estate Lease"). Upon
termination of the lease term, the Company will have the option to
purchase the land, or if such purchase option is not exercised, arrange
for the sale of the parcels to an unrelated third party. In the event
the latter option is exercised, the Company is required to pay the lessor
any difference between the net sales proceeds and the lessor's
investment in the parcels, approximately $61.5 million. In order to
secure performance of its obligation under the lease, the Company was
required to pledge certain cash collateral to the lessor throughout the
full term of the lease. Accordingly, in January 1997, the Company
deposited $60 million in cash into a non-interest bearing collateral
account controlled by an affiliate of the lessor. Interest on these
deposits computed at market rates, otherwise due to the Company, have
been assigned by the Company to the lessor in order to reduce the gross
monthly lease payments due under the lease. The resulting net monthly
lease payments will be recognized by the Company as rent expense over
the lease term. The real estate lease also includes certain financial
performance criteria which must be met by the Company during the lease
term.
Construction of buildings on the Santa Clara site will be phased
over time based on the Company's utilization needs. The Company intends
to fund construction costs through outside financing, the availability of
which has not been determined.
In addition, in November 1996, the Company leased approximately
200,000 square feet of office space in Santa Clara adjacent to the
twenty seven acres described above. The lease term is for fifteen years
and minimum lease payments amount to $96.0 million over the term. The
minimum lease payments are scheduled to increase within a contractual
range based on changes in the Consumer Price Index.
After giving consideration to the Company's planned financing of
construction costs in Santa Clara, the Company expects that current
balances of cash, cash equivalents, and short-term investments will be
sufficient to fund anticipated levels of operations at least through
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 which culminate 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 are 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 expenditures are guided by projected
annual and quarterly revenue levels 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.
Personnel changes. The Company's future performance will depend to
a significant extent on its ability to attract and retain highly skilled
sales, consulting, technical, marketing and management personnel. The
competition for employees in the database software industry is intense,
and the Company expects that such competition will continue for the
foreseeable future. From time to time the Company has experienced
difficulty in locating candidates with appropriate qualifications. The
Company also believes stock options are a critical component for
motivating and retaining its key employees. The recent decline in the
price of the Company's Common Stock has made stock options previously
granted with higher exercise prices less valuable to the Company's
current employees and has consequently made it more difficult for the
Company to retain its key employees. The failure of the Company to
attract and retain key personnel could have an adverse effect on the
Company's business, results of operations, financial position and cash
flows.
Competition. The market for the Company's software products and
services is extremely competitive. Some of the Company's current
competitors have greater financial, technical and marketing resources
than the Company. The industry movement to new operating systems, like
Windows NT, access through low-end desktop machines, and access to data
through the Internet may cause downward pressure on prices of database
and related products. If such downward pressure on prices were to occur,
margins would be adversely affected. Also, new or enhanced products
introduced by existing or future competitors could have an adverse
effect on the Company's business, results of operations and financial
condition. Existing and future competition or changes in the Company's
product or service pricing structure or product or service offerings
could result in an immediate reduction in the prices of the Company's
products or services. If significant price reductions in the Company's
products or services were to occur and not be offset by increases in
sales volume, the Company's business, results of operations and
financial condition would be adversely affected. There can be no
assurance that the Company will continue to compete successfully with
its existing competitors or will be able to compete successfully with
new competitors.
Technological Change and New Products. 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 and that
meet dynamic customer requirements. There can be no assurance that the
Company will be successful in developing new products or enhancing its
existing products or that such new or enhanced products will receive
market acceptance or be delivered timely to the market. The Company has
experienced product delays in the past and may experience delays in the
future. Delays in the scheduled availability or a lack of market
acceptance of its products or failure to accurately anticipate customer
demand and meet customer performance requirements could have a material
adverse effect on the Company's business, results of operations and
financial condition. In addition, products as complex as those offered
by the Company may contain undetected errors or bugs when first
introduced or as new versions are released. There can be no assurance
that, despite testing, new products or new versions of existing products
will not contain undetected errors or bugs that will delay the
introduction or commercial acceptance of such products. A key factor in
determining the success of the Company will continue to be the ability
of the Company's products to interoperate and perform well with existing
and future leading, industry-standard application software products
intended to be used in connection with relational database management
systems. Failure to meet existing or future interoperability and
performance requirements of certain independent vendors marketing such
applications in a timely manner could adversely affect the market for
the Company's products. Commercial acceptance of the Company's products
and services could also be adversely affected by critical or negative
statements or reports by brokerage firms, industry and financial
analysts and industry periodicals concerning the Company, its products,
business or competitors or by the advertising or marketing efforts of
competitors, or other factors that could affect consumer perception.
International Operations. In 1995 and 1996, approximately 58 percent
of the Company's net revenues were derived from its international
operations. The Company's operations and financial results could be
significantly affected by factors associated with international
operations such as changes in foreign currency exchange rates and
uncertainties relative to regional economic circumstances, as well as
by other factors associated with international activities. Most of the
Company's international revenue and expenses are denominated in local
currencies. Although the Company takes into account changes in exchange
rates over time in its pricing strategy, the Company's business,
results of operations and financial condition could be materially and
adversely affected by fluctuations in foreign currency exchange rates.
Integration of Acquired Companies. The Company has completed
several acquisitions during the last two years, including the database
division of ASCII Corporation in Japan; distributors in Germany, Korea
and Malaysia; Stanford Technology Group; and, 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 like the Company have and will become increasingly
subject to infringement claims with respect to patents, trademarks and
other proprietary rights. Such claims, with or without merit, can be time
consuming and expensive to defend and could have an adverse effect on
the Company's business, results of operations, financial position, and
cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
(in thousands, except share and per-share amounts) 1996 1995
(Note)
ASSETS
Current Assets:
Cash and cash equivalents $ 226,508 $ 164,305
Short-term investments 34,512 88,904
Accounts receivable, less allowances for doubtful
accounts of $21,429 in 1996 and $12,854 in 1995 254,096 185,452
Deferred taxes 13,329 21,504
Other current assets 29,479 25,924
Total current assets 557,924 486,089
Property and Equipment, at cost
Computer equipment 225,336 103,650
Office equipment and leasehold improvements 67,982 49,292
293,318 152,942
Less accumulated depreciation and amortization (106,591) (71,310)
186,727 81,632
Software Costs, less accumulated amortization
of $41,559 in 1996 and $18,980 in 1995 54,486 36,866
Deferred taxes 7,775 16,248
Long-term investments 6,639 9,781
Intangible assets 34,693 40,730
Other assets 55,598 19,800
Total Assets $ 903,842 $ 691,146
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 65,446 $ 29,655
Accrued expenses 52,347 34,919
Accrued employee compensation 57,626 49,911
Income tax payable 32,896 41,221
Deferred taxes 1,612 1,612
Deferred revenue 84,102 66,681
Current portion of capital lease obligations 866 769
Other current liabilities 4,671 8,479
Total current liabilities 299,566 233,247
Capital lease obligations, less current portion 1,462 890
Other noncurrent liabilities 897 1,956
Deferred taxes 31,203 24,488
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01 per share- - -
5,000,000 shares authorized, none issued
Common stock, par value $.01 per share-
350,000,000 shares authorized, issued 150,782,000
and 147,984,000 in 1996 and 1995, respectively 1,508 1,480
Additional paid-in capital 243,564 204,448
Retained earnings 322,805 226,797
Unrealized gain on available-for-sale securities, net of tax 11,690 4,064
Foreign currency translation adjustment (8,853) (6,224)
Total stockholders' equity 570,714 430,565
Total Liabilities and Stockholders' Equity $ 903,842 $ 691,146
(Note) Balances at December 31, 1995 have been restated to reflect the
Company's business combination with Illustra Information Technologies,
Inc. as a pooling-of-interests.
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
(in thousands, except per-share data) 1996 1995 1994
(Note) (Note)
Net Revenues
Licenses $ 708,035 $ 539,733 $ 364,661
Services 231,276 174,486 105,451
939,311 714,219 470,112
Costs and Expenses
Cost of software distribution 48,058 38,165 24,773
Cost of services 144,850 91,540 46,799
Sales and marketing 418,695 301,932 203,816
Research and development 120,211 85,643 64,263
General and administrative 64,239 51,113 35,370
Expenses related to Illustra merger 5,914 - -
801,967 568,393 375,021
Operating income 137,344 145,826 95,091
Interest income 9,868 8,148 3,970
Interest expense (2,617) (1,154) (441)
Other income (expense), net 3,614 (12) (2,598)
Income before income taxes 148,209 152,808 96,022
Income Taxes 50,391 55,164 34,074
Net Income $ 97,818 $ 97,644 $ 61,948
Net Income Per Common Share $ 0.63 $ 0.65 $ 0.43
Weighted Average Number of Common and
Common Equivalent Shares Outstanding: 155,573 150,627 142,782
(Note) Amounts presented above applicable to the prior periods have been
restated to reflect the Company's business combination with Illustra
Information Technologies, Inc. as a pooling-of-interests.
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands) 1996 1995 1994
(Note) (Note)
Operating Activities
Net income $ 97,818 $ 97,644 $ 61,948
Adjustments to reconcile net income to cash and cash
equivalents provided by operating activities:
Depreciation and amortization 47,207 28,949 16,581
Amortization of capitalized software 14,626 12,041 7,848
Deferred tax expense 15,188 (593) (624)
Provisions for losses on accounts receivable 14,983 8,508 3,831
Foreign currency transaction gain (5,349) (4,609) (1,323)
Gain on sales of strategic investments (3,856) - -
Loss on disposal of property and equipment 2,393 605 -
Changes in operating assets and liabilities:
Accounts receivable (86,528) (65,683) (23,527)
Other current assets 4,172 (6,659) (1,709)
Accounts payable and accrued expenses 59,345 70,882 32,843
Deferred revenue 18,277 17,086 11,613
Net cash and cash equivalents provided by operating activities 178,276 158,171 107,481
Investing Activities
Investments of excess cash:
Purchases of held-to-maturity securities - (144,517) (124,102)
Purchases of available-for-sale securities (152,179) (4,303) (111,923)
Maturities of held-to-maturity securities - 83,159 106,513
Maturities of available-for-sale securities 126,137 6,104 -
Sales of available-for-sale securities 83,696 27,261 140,866
Purchases of strategic investments (12,737) (1,000) (1,623)
Proceeds from sales of strategic investments 7,299 - -
Purchase of property and equipment (148,270) (56,500) (25,747)
Proceeds from disposal of property and equipment 1,929 288 -
Additions to software costs (32,381) (23,977) (15,048)
Business combinations, net of cash acquired (4,340) (38,413) (8,799)
Other (14,541) (5,757) (721)
Net cash and cash equivalents used in investing activities (145,387) (157,655) (40,584)
Financing Activities
Proceeds from issuance of common stock, net 24,357 27,898 15,836
Principal payments on capital leases (1,025) (442) (1,342)
Acquisition of common stock (2,388) - (22,141)
Reissuance of treasury stock 578 - 7,915
Net cash and cash equivalents provided by financing activities 21,522 27,456 268
Effect of exchange rate changes on cash and cash equivalents 7,792 4,050 307
Increase in cash and cash equivalents 62,203 32,022 67,472
Cash and cash equivalents at beginning of year 164,305 132,283 64,811
Cash and cash equivalents at end of year $ 226,508 $ 164,305 $ 132,283
(Note) Amounts presented above applicable to the prior periods have been
restated to reflect the Company's business combination with Illustra
Information Technologies, Inc. as a pooling-of-interests.
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized Foreign
Additional Gain on Currency
Common Stock Paid-in Treasury Stock Retained Available-for- Translation
(in thousands) Shares Amount Capital Shares Amount Earnings Sale Securities Adjustment Totals
Balances at December 31, 1993 133,286 $1,333 $127,176 (266) $ (2,431) $ 84,030 $ - $(2,527) $207,581
Exercise of stock options 1,170 11 3,557 3,568
Sale of stock to employees under
employee stock purchase plan 90 1 1,052 1,053
Issuance of stock, net of costs 5,608 55 11,499 11,554
Tax benefits related to stock options 10,062 10,062
Foreign currency translation adjustment 929 929
Acquisition of treasury stock (3) (2,723) (22,139) (22,142)
Reissuance of treasury stock 2,989 24,570 (16,655) 7,915
Unrealized gain on available-for-sale
securities, net of tax 665 665
Net income 61,948 61,948
Balances at December 31, 1994 140,154 1,400 153,343 - - 129,323 665 (1,598) 283,133
Exercise of stock options 4,377 44 13,712 13,756
Sale of stock to employees under
employee stock purchase plan 349 3 6,603 6,606
Issuance of stock, net of costs 2,571 28 7,508 7,536
Tax benefits related to stock options 21,291 21,291
Acquisition of STG 533 5 1,991 (170) 1,826
Foreign currency translation adjustment (4,626) (4,626)
Unrealized gain on available-for-sale
securities, net of tax 3,399 3,399
Net income 97,644 97,644
Balances at December 31, 1995 147,984 1,480 204,448 - - 226,797 4,064 (6,224) 430,565
Exercise of stock options 2,182 22 13,343 13,365
Sale of stock to employees under
employee stock purchase plan 616 6 10,986 10,992
Acquisition of treasury stock - - - (100) (2,388) (2,388)
Reissuance of treasury stock - - - 100 2,388 (1,810) 578
Tax benefits related to stock options 14,787 14,787
Foreign currency translation adjustment (2,629) (2,629)
Unrealized gain on available-for-sale
securities, net of tax 7,626 7,626
Net income 97,818 97,818
Balances at December 31, 1996 150,782 $1,508 $243,564 - $ - $322,805 $11,690 $(8,853) $570,714
(Note) Data presented above applicable to the prior periods has
been restated to reflect the Company's business combination with
Illustra Information Technologies, Inc. as a pooling-of-interests.
See Notes to Consolidated Financial Statements.
Note 1 - Summary of Significant Accounting Policies
Organization and Operations. Informix Corporation ("the Company") is a
multinational supplier of high-performance, parallel processing database
technology for open systems. The Company's products also include
application development tools for creating client/server production
applications, decision-support systems, ad-hoc query interfaces, and
software that allows information to be shared transparently from
personal computers to mainframes within the corporate computing
environment. In addition to software products, the Company offers
training, consulting, and post-contract support to its customers. The
principal geographic markets for the Company's products are North
America, Europe, Asia/Pacific, Japan, and Latin America. Customers
include large-, medium- and small-sized corporations in the
manufacturing, financial services, telecommunications, retail/wholesale,
hospitality, and government services sectors.
Use of Estimates. The preparation of financial statements in conformity
with general accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Principles of Consolidation. The consolidated financial statements
include the accounts of Informix Corporation and its wholly owned
subsidiaries. All material intercompany accounts, transactions, and
profits have been eliminated in consolidation.
Restatement of Prior Year Data. As more fully described in Note 9, in
February 1996, Informix merged with Illustra Information Technologies,
Inc. (Illustra). The merger has been accounted for as a pooling of
interests and the historical consolidated financial statements of
Informix for all periods prior to the merger have been restated to
include the financial position, results of operations, and cash flows of
Illustra. Costs of the merger are included in the consolidated results
of operations in 1996.
Foreign Currency Translation. For foreign operations with the local
currency as the functional currency, assets and liabilities are
translated at year-end exchange rates, and statements of income are
translated at the average exchange rates during the year. Exchange gains
or losses arising from translation of foreign currency denominated
assets and liabilities are included as a component of stockholders'
equity.
For foreign operations with the U.S. dollar as the functional
currency, certain assets and liabilities are remeasured at the year-end
exchange rates. Statements of income are remeasured at the average
exchange rates during the year. Gains and losses resulting from foreign
currency remeasurement and realized gains and losses are included in
other expense, net.
The Company enters into forward foreign exchange contracts
primarily to hedge the value of accounts receivable or accounts payable
denominated in foreign currencies (mainly European and Asian foreign
currencies) against fluctuations in exchange rates until such
receivables are collected or such payables are disbursed. The Company
operates, on a limited basis, in certain countries in Latin America,
Eastern Europe, and Asia Pacific where there are limited forward
currency exchange markets and thus the Company has limited unhedged
transaction exposures in these currencies. Gains and losses associated
with exchange rate fluctuations on forward foreign exchange contracts
are recorded currently as income or loss as they offset corresponding
gains and losses on the foreign currency denominated assets and
liabilities being hedged. The costs of the forward foreign exchange
contracts are recorded as other expense, net. See Note 3 of Notes to
Consolidated Financial Statements.
Revenue Recognition. The Company generally recognizes license revenue
from sales of software licenses upon delivery of the software product to
a customer. However, for certain computer hardware manufacturers and
end-user licensees with amounts payable within twelve months, the
Company will recognize revenue at the time the customer makes a
contractual commitment for a minimum non-refundable license fee, if such
computer hardware manufacturers and end-user licensees meet certain
criteria established by the Company. License revenue from resellers
(such as distributors and application vendors) and from other computer
hardware manufacturers and end users may be recognized at the earlier of
either payment of the license fee or the shipment of the software media
on a per-unit basis. However, in no case is revenue recognized unless a
master or first copy is delivered to the customer.
Maintenance contracts generally call for the Company to provide
technical support and software updates to customers. Maintenance
contract revenue is recognized ratably over the term of the maintenance
contract, generally on a straight-line basis. Where maintenance revenue
is not separately invoiced, it is unbundled from license fees and
deferred for revenue recognition purposes. Other service revenue,
primarily training and consulting, is generally recognized at the time
the service is performed.
The Company's revenue recognition policy is in compliance with the
provisions of the American Institute of Certified Public Accountants'
Statement of Position 91-1, "Software Revenue Recognition."
The Company sold approximately $55 million of software licenses to
certain vendors during 1996 where the Company concurrently committed to
acquire goods or services in approximately the same dollar amount. These
transactions have been accounted for at their fair market value.
No single customer accounted for 10 percent or more of consolidated
revenues in 1996, 1995 or 1994.
Income Taxes. The Company accounts for income taxes in accordance with
the provisions of the Financial Accounting Standards Board Statement No.
109 (FAS 109) "Accounting for Income Taxes." Under FAS 109, the
liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and income tax bases of
assets and liabilities, and are measured by applying enacted tax rates
and laws to the taxable years in which such differences are expected to
reverse.
Inventories. Inventories, which consist primarily of software product
components, finished software products, and marketing and promotional
materials, are carried at the lower of cost (first in, first out) or
market value, and are included in other current assets.
Software Costs. The Company capitalizes software development costs
incurred in developing a product once technological feasibility of the
product has been determined. Software costs also include amounts paid
for purchased software and outside development on products which have
reached technological feasibility. All software costs are amortized as a
cost of software distribution either on a straight-line basis over the
remaining estimated economic life of the product or on the basis of each
product's projected revenues, whichever results in greater amortization.
The Company recorded amortization of $14.6 million, $12.0 million, and
$7.8 million of software costs in 1996, 1995, and 1994, respectively, in
cost of software distribution.
Property and Equipment. Depreciation of property and equipment is
calculated using the straight-line method over its estimated useful
life, generally the shorter of the applicable lease term or three-to-
seven years for financial reporting purposes.
Businesses Acquired. The purchase price of businesses acquired,
accounted for as purchased business combinations, is allocated to the
tangible and specifically identifiable intangible assets acquired based
on their fair values with any amount in excess of such allocations being
designated as goodwill. Intangible assets are amortized over their
estimated useful lives, which to date have been five to seven years. The
carrying values of goodwill and specified intangible assets are reviewed
if the facts and circumstances suggest that they may be impaired. If
this review indicates that the asset will not be recoverable, as
determined based on the undiscounted cash flows of the acquired business
over the remaining amortization period, the Company's carrying value is
reduced to net realizable value. There were no writedowns of intangible
assets in 1996, 1995 or 1994. As of December 31, 1996 and 1995, the
Company had $50.6 million and $48.4 million of intangible assets, with
accumulated amortization of $15.9 million and $7.7 million,
respectively, as a result of these acquisitions.
Net Income per Common Share. Net income per common share is based on the
weighted average number of common and dilutive common equivalent shares
outstanding during each year. All stock options are considered common
stock equivalents and are included in the weighted average computations
when the effect is dilutive.
Concentration of Credit Risk. The Company designs, develops,
manufactures, markets, and supports computer software systems to
customers in diversified industries and in diversified geographic
locations. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral.
Other Concentrations. In 1996, the Company derived half of its revenue
from software license agreements with resellers including original
computer equipment manufacturers (OEMs), distributors and value added
resellers (VARs) including application vendors. The Company estimates
that slightly less than half of the licenses sold to these resellers in
1996 were not resold to end users prior to December 31, 1996. If these
resellers do not commit to licensing the same level of products for
resale to end users in 1997, the Company's revenues in future periods
could be adversely affected.
Cash, Cash Equivalents, Short-Term Investments, and Long-Term
Investments. The Company considers liquid investments purchased with a
maturity of three months or less to be cash equivalents. The Company
considers investments with a maturity of more than three months but
less than one year to be short-term investments. Investments with an
original maturity of more than one year are considered long-term
investments. Short-term and long-term investments are classified as
available-for-sale and are carried at fair value. Cash equivalents are
carried at amortized cost.
The Company invests its excess cash in accordance with its short-
term and long-term investments policy, which is approved by the Board of
Directors. The policy authorizes the investment of excess cash in
government securities, municipal bonds, time deposits, certificates of
deposit with approved financial institutions, commercial paper rated A-
1/P-1 (a small portion of the portfolio may consist of commercial paper
rated A-2/P-2), and other specific money market instruments of similar
liquidity and credit quality. The Company has not experienced any
significant losses related to these investments.
Securities Held-to-Maturity and Available-for-Sale. Management
determines the appropriate classification of debt securities at the time
of purchase and re-evaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and the ability to hold the securities
until maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization, as well as any interest on the
securities, is included in interest income.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-
sale securities are carried at fair value, with the unrealized gains and
losses, net of tax, reported in a separate component of stockholders'
equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income. Realized
gains and losses and declines in value judged to be other-than-temporary
on available-for-sale securities are included in other expense, net. The
cost of securities sold is based on the specific identification method.
Interest on securities classified as available-for-sale are included in
interest income. There were no material gross realized gains or losses
from sales of securities during the year.
Fair Value of Financial Instruments. Fair values of cash, cash
equivalents, short and long term investments, other assets, and currency
forward contracts are based on quoted market price.
Reclassifications. Certain previously reported amounts have been
reclassified to conform to the current presentation format.
Note 2 -Financial Instruments
The following is a summary of available-for-sale debt and equity
securities:
December 31, 1996 Available-for-sale securities
(In thousands) Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury Securities $ 61,308 $ - $ (20) $ 61,288
Commercial Paper 15,872 14 (2) 15,884
Municipal Bonds 27,317 10 (48) 27,279
Auctioned Preferred Stock 4,504 - (4) 4,500
Total Debt Securities 109,001 24 (74) 108,951
U.S. Equity Securities 15,404 18,490 - 33,894
$124,405 $18,514 $ (74) $142,845
Amounts included in cash and cash equivalents $ 67,806 $ - $ (6) $ 67,800
Amounts included in short-term investments 34,548 19 (55) 34,512
Amounts included in long-term investments 6,647 5 (13) 6,639
Amounts included in other assets 15,404 18,490 - 33,894
$124,405 $18,514 $ (74) $142,845
The maturity dates of the financial instruments included in long-term
investments vary from 1998 to 2026.
December 31, 1995 Available-for-sale securities
(In thousands) Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury Securities $ 5,608 $ - $ - $ 5,608
Commercial Paper 51,288 146 (88) 51,346
Municipal Bonds 82,096 71 (213) 81,954
Auctioned Preferred Stock 2,506 - (5) 2,501
Total Debt Securities 141,498 217 (306) 141,409
U.S. Equity Securities 6,110 7,500 (831) 12,779
$147,608 $ 7,717 $(1,137) $154,188
Amounts included in cash and cash equivalents $ 42,724 $ - $ - $ 42,724
Amounts included in short-term investments 89,072 137 (305) 88,904
Amounts included in long-term investments 9,702 80 (1) 9,781
Amounts included in other assets 6,110 7,500 (831) 12,779
$147,608 $ 7,717 $(1,137) $154,188
In the fourth quarter of 1995, the Company re-evaluated the initial
designation of certain of its investments in debt securities as held-to-
maturity based on the Company's current ability and intent to hold such
securities to their contractual maturity. As a result, in December 1995,
these securities were transferred from held-to-maturity to available-
for-sale at their estimated fair value of $125.7 million. The difference
between amortized cost of $125.8 million and estimated fair value of
these securities at the date of transfer, $0.1 million, was charged to a
separate component of stockholders' equity.
Note 3 - Derivative Financial Instruments
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. The
purpose of the Company's foreign exchange exposure management policy and
practices is to attempt to minimize the impact of exchange rate
fluctuations on the value of the foreign currency denominated assets and
liabilities being hedged. Substantially all forward foreign exchange
contracts entered into by the Company have maturities of 360 days or
less. The Company's practice is to settle all foreign exchange contracts
within ten calendar days of year end and thus there is no material
difference between the contract value and the fair value of the
contracts at December 31, 1996 and 1995. At December 31, 1996 and 1995,
the Company had approximately $168.6 million and $77.2 million of
forward foreign exchange contracts outstanding, respectively. The table
below summarizes by currency the contractual amounts of the Company's
forward foreign exchange contracts at December 31, 1996 and December 31,
1995.
FORWARD CONTRACTS
At December 31, 1996 (In thousands) Face Value Unrealized Gain/(Loss)
Forward currency contracts sold:
Deutsche Mark $ 55,815 $ (24)
Japanese Yen 41,384 (143)
British Pound 16,051 (12)
French Franc 8,252 -
Malaysian Ringgit 5,914 1
Taiwanese NT 5,609 (2)
Italian Lira 4,555 (9)
Singapore Dollar 3,600 (8)
Holland Guilder 3,558 1
Sweden Krona 2,246 1
Swiss Franc 1,622 1
Portuguese Escudo 1,574 -
Other (under $1 million) 2,240 (1)
Total $152,420 $ (195)
Forward currency contracts purchased:
British Pound $ 10,501 $ (192)
Deutsche Mark 4,198 6
Other (under $1 million) 1,472 (7)
Total $ 16,171 $ (193)
Grand Total $168,591 $ (388)
FORWARD CONTRACTS
At December 31, 1995 (In thousands) Face Value Unrealized Gain/(Loss)
Forward currency contracts sold:
Deutsche Mark $ 25,356 $ (14)
Japanese Yen 21,817 (74)
Spanish Peseta 6,178 (4)
French Franc 4,807 (7)
Singapore Dollars 4,326 6
Italian Lira 2,403 4
British Pound 2,329 22
Malaysian Ringgit 2,287 (2)
Dutch Guilder 1,550 1
Portuguese Escudo 1,369 (1)
Austrian Schilling 1,361 -
Other 3,369 (1)
Total $ 77,152 $ (70)
Other than the use of forward foreign exchange contracts as
discussed immediately above, the Company does not currently invest in or
hold any other financial instruments defined as derivative financial
instruments by FAS 119.
Note 4 - Stock-based Benefit Plans
Option Plans
Under the Company's 1986 Employee Stock Option Plan, options are
granted at fair market value on the date of the grant. Options are
generally exercisable in cumulative annual installments over three to
five years. Payment for shares purchased upon exercise of options may be
by cash or, with Board approval, by full recourse promissory note or by
exchange of shares of the Company's common stock at fair market value on
the exercise date. Options under the 1986 Plan expired on July 29, 1996,
which was 10 years after the date of grant.
Additionally, 1,600,000 shares were authorized for issuance under
the 1989 Outside Directors Stock Option Plan, whereby non-employee
directors are automatically granted non-qualified stock options upon
election or re-election to the Board of Directors. At December 31, 1996,
675,000 shares were available for grant under this Plan.
In April 1994, the Company adopted the 1994 Stock Option and Award
Plan; 8,000,000 shares were authorized for grant under this Plan.
Options can be granted to employees on terms substantially equivalent to
those described above. The 1994 Stock Option and Award Plan also allows
the Company to award performance shares of the Company's common stock to
be paid to recipients on the achievement of certain performance goals
set with respect to each recipient. At December 31, 1996, 788,783 shares
were available for grant under this Plan.
In February 1996, on acquisition of Illustra, all of Illustra's
outstanding options were converted into options to purchase 2.4 million
shares of Informix common stock. All stock options were restated to
include Illustra's options under the pooling-of-interests method. There
were 172,677 shares available for grant under this Plan at December 31,
1996.
Following is a summary of activity for all stock option plans for
the three years ended December 31, 1996:
Number Options
of Shares Price per Share
Outstanding at December 31, 1993 15,739,957 $ 0.06 to $13.13
Options granted 4,029,815 0.19 to 14.44
Options exercised (3,627,468) 0.06 to 12.75
Options canceled (1,128,532) 0.06 to 11.88
Outstanding at December 31, 1994 15,013,772 0.06 to 14.44
Options granted and assumed 5,456,927 0.19 to 34.00
Options exercised (3,852,697) 0.19 to 13.88
Options canceled (864,920) 0.06 to 32.75
Outstanding at December 31, 1995 15,753,082 0.06 to 34.00
Weighted Average Price
Options granted and assumed 5,850,225 $ 24.3456
Options exercised (2,927,260) 4.6069
Options canceled (1,561,800) 17.1483
Outstanding at December 31, 1996 17,114,247 $ 13.4495
The following table summarizes information about options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
______________________________________________________ ____________________________________
Number Weighted-Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at December 31, 1996 Contractual Life Exercise Price at December 31, 1996 Exercise Price
$ 0.0700 - $ 0.6719 2,304,968 6.63 $ 0.3911 2,304,968 $ 0.3911
$ 0.6875 - $ 0.7500 380,100 4.38 $ 0.7447 380,100 $ 0.7447
$ 0.7656 - $ 3.5938 1,731,085 5.08 $ 3.2936 1,730,236 $ 3.2943
$ 3.7188 - $ 7.5000 1,888,065 6.88 $ 6.7008 1,087,165 $ 6.1130
$ 7.5938 - $ 8.6250 1,871,601 6.26 $ 8.6012 1,286,801 $ 8.6017
$ 8.6875 - $10.7813 420,675 6.79 $10.0854 184,300 $10.1559
$10.8750 - $18.2500 2,761,139 8.24 $17.8675 723,415 $17.6530
$18.3750 - $23.1250 2,001,650 9.74 $22.1668 37,750 $20.9894
$23.2500 - $24.1250 2,766,288 9.33 $24.0838 59,116 $23.8057
$24.2500 - $34.7500 988,676 9.08 $30.3152 194,325 $28.4078
$ 0.0700 - $34.7500 17,114,247 7.61 $13.4495 7,988,176 $ 5.8788
In connection with all stock option plans, 18,750,708 shares of
common stock were reserved for issuance as of December 31, 1996. At
December 31, 1995, 4,898,537 options were exercisable.
Employee Stock Purchase Plan
The Company also has a qualified Employee Stock Purchase Plan
(ESPP) under which 7,600,000 shares of common stock, in the aggregate,
have been authorized for issuance. Under the terms of the Plan,
employees may contribute, through payroll deductions, up to 10 percent
of their base pay and purchase up to 500 shares per quarter (with the
limitation of purchases of $25,000 annually in fair market value of the
shares). Employees may elect to withdraw from the Plan during any
quarter and have their contributions for the period returned to them.
Also, employees may elect to reduce the rate of contribution one time in
each quarter. The price at which employees may purchase shares is 85
percent of the lower of the fair market value of the stock at the
beginning or end of the quarter. The Plan is qualified under Section 423
of the Internal Revenue Code of 1986, as amended. During 1996, 1995, and
1994 the Company issued 616,128 shares, 347,743 shares, and 484,756
shares, respectively, under this Plan. In connection with the Employee
Stock Purchase Plan, 650,587 shares were reserved for issuance as of
December 31, 1996.
Stock Repurchase Authorization
The Board of Directors had authorized the purchase of up to 8
million shares of the Company's common stock in the open market to
satisfy requirements under Stock Option and Stock Purchase Plans under a
stock repurchase plan. In 1996, the Company rescinded the stock
repurchase authorization.
Stock Based Compensation
As permitted under FASB Statement No.123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) in accounting for stock-based awards to
employees. Under APB 25, the Company generally recognizes no
compensation expense with respect to such awards.
Pro forma information regarding the net income and earnings per
share is required by FASB 123 for awards granted or modified after
December 31, 1994 as if the Company had accounted for its stock based
awards to employees under the fair value method of FASB 123. The fair
value of the Company's stock-based awards to employees was estimated
using a Black-Scholes option pricing model. The Black-Scholes option
valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock-based awards to employee have
characteristics significantly different from those of traded options,
and because changes in the subjective assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reasonable single measure of the fair value of
its stock-based awards to employees. The fair value of the Company's
stock-based awards was estimated assuming no expected dividends and the
following weighted-average assumptions:
Options ESPP
1996 1995 1996 1995
Expected life (years) 4.5 year 4.5 year .25 year .25 year
Expected volatility (percent) .5822 - .6327 .5642 - .6239 .5765 - .9662 .4170 - .7295
Risk-free interest rate (percent) 5.20 - 6.09 5.82 - 7.72 5.01 - 5.85 5.49 - 6.07
For pro forma purposes, the estimated fair value of the Company's
stock based awards is amortized over the award's vesting period (for
options) and the three month purchase period (for stock purchases under
the ESPP). The Company's pro forma information follows (in thousands
except for net income per share information):
1996 1995
Net income As reported $ 97,818 $ 97,644
Pro forma $ 77,187 $ 87,696
Net income per share As reported $ 0.63 $ 0.65
Pro forma $ 0.50 $ 0.58
FASB 123 is applicable only to awards granted subsequent to
December 31, 1994, therefore its pro forma effect will not be fully
reflected until approximately 1998.
Calculated under FASB 123, the weighted-average fair value of the
options granted during 1996 and 1995 was $13.04 and $10.39 per share,
respectively. The weighted average fair value of employee stock
purchase rights granted under the ESPP during 1996 and 1995 were $7.47
and $5.27, respectively.
Note 5 - 401(k) Plan
The Company has a 401(k) plan covering substantially all of its
U.S. employees. Under this plan, participating employees may defer up to
15 percent of their pre-tax earnings, subject to the Internal Revenue
Service annual contribution limit ($9,500 for 1996). In 1996, the
Company matched 50 percent of each employee's contribution up to a
maximum of $2,000. The Company's matching contributions to this 401(k)
plan for 1996, 1995 and 1994 were $3.8 million, $2.5 million and $1.4
million, respectively.
Note 6 - Commitments
The Company leases certain computer and office equipment under
capital leases having terms of three-to-five years. Amounts capitalized
for such leases are included on the consolidated balance sheets as
follows:
(In thousands) December 31, 1996 December 31, 1995
Computer equipment $ 8,825 $ 7,924
Office equipment 2,474 1,636
11,299 9,560
Less: accumulated amortization 8,985 7,716
$ 2,314 $ 1,844
During 1996 and 1995, the Company financed approximately $1,800,000
and $1,677,000, respectively, of equipment purchases under capital lease
arrangements. Amortization with respect to leased equipment is
included in depreciation expense.
The Company leases certain of its office facilities and equipment
under non-cancelable operating leases and total rent expense was $42.4
million, $19.7 million and $17.3 million in 1996, 1995 and 1994,
respectively.
The Company plans on relocating its corporate headquarters to Santa
Clara, California approximately 15 miles to the south of the Company's
current headquarters. To facilitate the move, in January 1997, the
Company entered into a two-year lease for twenty seven acres of
undeveloped commercial real estate ("the Real Estate Lease"). Upon
termination of the lease term, the Company will have the option to
purchase the land, or if such purchase option is not exercised, arrange
for the sale of the parcels to an unrelated third party. In the event
the later option is exercised, the Company is required to pay the lessor
any difference between the net sales proceeds and the lessor's
investment in the parcels, approximately $61.5 million. In order to
secure performance of its obligation under the lease, the Company was
required to pledge certain cash collateral to the lessor throughout the
full term of the lease. Accordingly, in January 1997, the Company
deposited $60 million in cash into a non-interest bearing collateral
account controlled by an affiliate of the lessor. Interest on these
deposits computed at market rates, otherwise due to the Company, have
been assigned by the Company to the lessor in order to reduce the gross
monthly lease payments due under the lease. The resulting net monthly
lease payments will be recognized by the Company as rent expense over
the lease term. The real estate lease also includes certain financial
performance criteria which must be met by the Company during the lease
term.
In addition, in November 1996, the Company leased approximately
200,000 square feet of office space in Santa Clara adjacent to the
twenty seven acres described above. The lease term is for fifteen years
and minimum lease payments amount to $96.0 million over the term. The
minimum lease payments increase within a contractual range based on
changes in the Consumer Price Index.
As of December 31, 1996, the Company has spent approximately $63
million and is contractually obligated to additionally purchase
approximately $45 million in various computer equipment related to its
Superstores from certain vendors who have concurrently licensed the
Company's software. These transactions are consummated at fair market
value.
Future minimum payments, by year and in the aggregate, under the
capital and non-cancelable operating leases as of December 31, 1996, are
as follows:
Year Ending December 31 Capital Non-Cancelable
(In thousands) Leases Operating Leases
1997 $ 1,265 $ 45,941
1998 803 44,591
1999 386 41,244
2000 153 23,438
2001 - 16,396
Thereafter - 88,904
Total payments 2,607 $260,514
Less: amount representing interest 279
Present value of minimum lease payments 2,328
Less current portion 866
$ 1,462
Note 7 - Geographic Information
Net revenues, operating income, and identifiable assets for the
Company's U.S., European, Asia/Pacific and other foreign operations are
summarized below by year:
(In thousands) United States Europe Asia/Pacific Other Eliminations Total
1996:
Net revenues $471,559 $346,797 $119,757 $ 57,939 $ (56,741) $939,311
Operating income 43,169 72,754 10,554 11,876 (1,009) 137,344
Identifiable assets 699,285 250,773 116,160 45,182 (207,558) 903,842
1995:
Net revenues $383,746 $241,009 $ 97,884 $ 44,619 $ (53,039) $714,219
Operating income 96,321 31,313 12,607 6,990 (1,405) 145,826
Identifiable assets 620,966 227,058 85,712 29,445 (272,035) 691,146
1994:
Net revenues $261,336 $145,899 $ 50,008 $ 27,948 $ (15,079) $470,112
Operating income 38,708 15,969 31,045 10,322 (953) 95,091
Identifiable assets 387,785 109,939 19,394 16,658 (84,231) 449,545
Sales and transfers between geographic areas are accounted for at
prices which the Company believes are arm's length prices, and which in
general are in accordance with the rules and regulations of the
respective governing tax authorities.
Export revenues consisting of sales from the Company's U.S.
operating subsidiary to non-affiliated customers were as follows:
(In thousands) 1996 1995 1994
Canada $ 7,521 $ 6,216 $ 5,600
Latin America 6,556 6,817 6,641
Asia/Pacific 3,391 7,887 32,820
Other 3,437 1,301 3,015
Total $ 20,905 $ 22,221 $ 48,076
Note 8 - Income Taxes
The provision for income taxes applicable to income before income
taxes consists of the following:
(In thousands) 1996 1995 1994
Currently payable:
Federal $ 16,252 $ 43,286 $ 27,150
State 3,219 6,999 4,548
Foreign 11,511 13,181 6,160
30,982 63,466 37,858
Deferred:
Federal 19,147 285 (16)
State 3,082 523 386
Foreign (2,820) (9,110) (4,154)
19,409 (8,302) (3,784)
$ 50,391 $ 55,164 $ 34,074
In 1996, 1995 and 1994, the Company recognized tax benefits related
to stock option plans of $14.8 million, $21.3 million and $10.1 million,
respectively. Such benefits were recorded as an increase to additional
paid-in capital.
Income before income taxes consists of the following:
(In thousands) 1996 1995 1994
Domestic $ 67,906 $119,136 $ 85,253
Foreign 80,303 33,672 10,769
$148,209 $152,808 $ 96,022
The provision for income taxes differs from the amount computed by
applying the federal statutory income tax rate to income before income
taxes. The sources and tax effects of the differences are as follows:
1996 1995 1994
(In thousands) Amount Percent Amount Percent Amount Percent
Computed tax at federal statutory rate $ 51,873 35.0% $ 53,483 35.0% $ 33,608 35.0%
Losses which resulted in no current tax benefit - - - - 908 0.9%
Research and development credits (1,457) (1.0%) (1,435) (0.9%) (1,241) (1.3%)
State income taxes, net of federal tax benefit 3,972 2.7% 4,846 3.2% 3,171 3.3%
Benefit from net earnings of foreign subsidiaries
considered to be permanently reinvested
in non-U.S. operations (5,625) (3.8%) (3,000) (2.0%) (2,000) (2.1%)
Other, net 1,628 1.1% 1,270 0.8% (372) (0.3%)
$ 50,391 34.0% $ 55,164 36.1% $ 34,074 35.5%
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities as of December 31, 1996 and 1995 are as follows:
(In thousands) 1996 1995
Deferred Tax Assets:
Reserves and accrued expenses $ 9,519 $ 8,600
Deferred revenue 2,717 3,432
Foreign net operating loss carryforwards 9,182 6,964
Domestic net operating loss carryforwards 7,984 7,984
Foreign taxes in excess of taxes at U.S. rate - 3,226
Other 555 646
Total deferred tax assets 29,957 30,852
Valuation allowance for deferred tax assets (908) (908)
Net deferred tax assets 29,049 29,944
Deferred Tax Liabilities:
Capitalized software 17,704 10,329
Revenue recognition 1,612 1,612
Taxes on unremitted foreign earnings 14,990 3,850
Valuation of investment portfolio 6,454 2,501
Total deferred tax liabilities 40,760 18,292
Net deferred tax assets (liabilities) $(11,711) $11,652
Cumulative undistributed earnings of the Company's Irish subsidiary
for which no U.S. income taxes have been provided aggregated
approximately $45.9 million at December 31, 1996. These earnings are
considered to be permanently reinvested in non-U.S. operations.
Additional taxes of approximately $11.5 million would have to be
provided if these earnings were repatriated to the U.S.
At December 31, 1996, the Company had approximately $23.7 million,
$21.0 million and $10.5 million of foreign, federal and state net
operating loss carryforwards. The foreign and state net operating loss
carryovers expire at various dates beginning in 1998. The federal net
operating loss carryovers expire at various dates beginning in 2008.
Income taxes paid amounted to $22.7 million, $18.6 million and $22.5
million in 1996, 1995 and 1994, respectively.
Note 9 - Business Combinations
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 interest in January
1996. The acquisition was recorded as a purchase. The purchase price of
ASCII's database division was approximately $46.0 million, of which
approximately $35.4 million has been allocated to intangible assets
acquired.
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 acquisition was recorded as a purchase. The Company has
acquired the remaining 20 percent in January 1997 for approximately $1
million. The initial purchase price of this business was approximately
$4.6 million, and was increased by approximately $3.0 million in January
1997 due to performance incentives outlined in the agreement, of which
approximately $7.0 million has been allocated to intangible assets
acquired.
The operating results of these businesses 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 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 2.4 million shares of Informix common stock were
reserved for issuance in connection the assumption of Illustra's
outstanding stock options and warrants. The transaction has been
accounted for as a pooling of interests, and accordingly, the
consolidated financial statements for all prior periods presented have
been restated to include the accounts and operations of Illustra as if
the merger was consummated at the beginning of the earliest period
presented. Merger fees of approximately $5.9 million were recorded in
the first quarter of 1996. The following table presents the separate
operating results for Informix Corporation and Illustra for the periods
prior to the acquisition date (because the operating results of Illustra
for the period January 1, 1996 to the effective date of the merger were
immaterial to the combined Company, for the purposes of this table an
acquisition date of January 1, 1996 is assumed).
Year Ended Year Ended
December 31, 1995 December 31, 1994
Net revenues:
Informix $708,985 $468,697
Illustra 5,234 1,415
Combined $714,219 $470,112
Net income (loss):
Informix $105,333 $ 66,196
Illustra (7,689) (4,248)
Combined $ 97,644 $ 61,948
Note 10 - Litigation
In the ordinary course of business, various lawsuits and claims are
filed against the Company. It is the Company's opinion that the
resolution of such litigation will not have a material effect on the
Company's financial position, results of operations, or cash flows.
Note 11 - Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth
(In thousands, except per-share data) Quarter Quarter Quarter Quarter
1996:
Net revenues $204,021 $226,282 $238,180 $270,828
Gross profit 160,584 178,474 189,003 218,342
Net income 15,891 21,628 26,181 34,118
Net income per share 0.10 0.14 0.17 0.22
1995:
Net revenues $148,037 $164,068 $182,701 $219,413
Gross profit 121,893 134,042 150,183 178,396
Net income 17,646 20,184 23,896 35,918
Net income per share 0.12 0.14 0.16 0.23
INFORMIX CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
(1) (2)
Allowance For Doubtful Accounts
Year ended December 31, 1996 $ 12,854 $ 15,329 $ - $ 6,754 $ 21,429
Year ended December 31, 1995 $ 6,049 $ 8,247 $ 261 $ 1,703 $ 12,854
Year ended December 31, 1994 $ 3,181 $ 1,937 $ 1,900 $ 969 $ 6,049
(1) Charged to net revenues
(2) Uncollectible accounts written off, net of recoveries
(Note) Data at December 31, 1995 and December 31, 1994 have been
restated to reflect the Company's business combination with Illustra
Information Technologies, Inc. as a pooling-of-interests.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders - Informix Corporation
We have audited the accompanying consolidated balance sheets of
Informix Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Informix Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/Ernst & Young LLP
San Jose, California
February 3, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated herein by reference
from the section entitled "Election of Directors" of the Company's proxy
statement to be filed pursuant to Regulation 14A for its Annual
Stockholders Meeting to be held on May 22, 1997. For information
regarding executive officers of the Company, see the information
appearing under the caption "Executive Officers" in Part I, Item 1 of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein
by reference from the section entitled "Executive Compensation" of the
Company's proxy statement to be filed pursuant to Regulation 14A for its
Annual Stockholders Meeting to be held on May 22, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information regarding security ownership is incorporated herein by
reference from the section entitled "Stock Ownership of Certain Beneficial
Owners and Management" of the Company's proxy statement to be filed
pursuant to Regulation 14A for its Annual Stockholders Meeting to be held
on May 22, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is incorporated herein by reference from the sections
entitled "Stock Ownership of Certain Beneficial Owners and Management",
"Executive Compensation" and "Transactions with Management" of the
Company's proxy statement to be filed pursuant to Regulation 14A for its
Annual Stockholders Meeting to be held on May 22, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)1. Financial Statements
The following financial statements are filed as a part of this Annual
Report:
Financial Statements Covered by Report of Independent Auditors:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Financial Statements:
Balance Sheets at December 31, 1996 and 1995
Statements of Income for each of the three years in the
period ended December 31, 1996
Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1996
Statements of Cash Flows for each of the three years in
the period ended December 31, 1996
Notes to Consolidated Financial Statements (except Note
11)
Supplementary Financial Data Not Covered By Report of Independent
Auditors:
Note 11 of Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedule
The following financial statement schedule is filed as a part of
this Annual Report:
Financial Statement Schedule Covered By Report of Independent
Auditors:
Schedule as of and for the three years in the period ended
December 31, 1996, as applicable:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
omitted because they are not required under the related instructions or
are not applicable.
(a)3. Exhibits
3.1 (1) Restated Certificate of Incorporation, as amended.
3.2 (1) By-Laws, as amended.
4.1 (2) Amended and Restated Preferred Share Rights Agreement.
10.1 (3) Form of Indemnity Agreement.
10.2 (4) Form of Amended Indemnity Agreement.
10.3 (5) 1989 Directors Stock Option Plan.
10.4 (6) Amendment to the 1989 Directors Stock Option Plan.
10.5 Purchase Agreement dated as of January 6, 1997 between the
Company and BPN Leasing Corporation ("BPN").
10.6 Lease Agreement dated as of January 6, 1997 between the
Company and BPN.
10.7 Pledge Agreement dated as of January 6, 1997 between the
Company, BPN and Banque Nationale de Paris.
11 Schedule re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Power of Attorney (set forth on signature page).
27 Financial Data Schedules.
_______________
(1) Incorporated by reference to exhibits to the Form 10-Q of
Informix Corporation for the fiscal quarter ended July 2,
1995
(2) Incorporated by reference to exhibits to the Form 8-A/A
Registration Statement filed on August 11, 1995.
(3) Incorporated by reference to exhibits to the Form S-1
Registration Statement No. 33-8006.
(4) Incorporated by reference to exhibits to the Form 10-K of
Informix Corporation for the fiscal year ended December
31, 1988.
(5) Incorporated by reference to exhibits to the Form S-8
Registration Statement No. 33-31116.
(6) Incorporated by reference to exhibits to the Form S-8
Registration Statement No. 33-50608.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter
of the fiscal year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Informix Corporation, has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 28, 1997.
INFORMIX CORPORATION
By: /s/ PHILLIP E. WHITE
Phillip E. White, Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David H. Stanley, Alan S.
Henricks and Karen Blasing, jointly and severally, his or her
attorneys-in-fact, each with the power of substitution, for him or her
in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact,
or his or her substitute or substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
/s/ Phillip E. White Chairman, President, March 28, 1997
(Phillip E. White) Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Alan S. Henricks Executive Vice President, and March 28, 1997
(Alan S. Henricks) Chief Financial Officer
(Principal Financial Officer)
/s/ Albert F. Knorp, Jr. Director March 28, 1997
(Albert F. Knorp, Jr.)
/s/ James L. Koch Director March 28, 1997
(James L. Koch)
/s/ Thomas A. McDonnell Director March 28, 1997
(Thomas A. McDonnell)
/s/ Cyril J. Yansouni Director March 28, 1997
(Cyril J. Yansouni)
/s/ Karen Blasing Corporate Controller March 28, 1997
(Karen Blasing) (Principal Accounting Officer