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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2018

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: 333-183494-06

 

 

 

LOGO

INFOR, INC.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   01-0924667
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

 

641 AVENUE OF THE AMERICAS

NEW YORK, NEW YORK

  10011
(Address of principal executive offices)   (Zip Code)

(646) 336-1700

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  ☒

Note: The registrant is a voluntary filer and is not subject to the filing requirements. However, the registrant has filed all

reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer     Accelerated filer  
Non-accelerated filer     Smaller reporting company  
Emerging growth company      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

The number of shares of our common stock outstanding on September 4, 2018, was 1,000, par value $0.01 per share.

 

 

 


Table of Contents

INFOR, INC.

Form 10-Q

Index

 

PART I.

 

FINANCIAL INFORMATION

     2  

Item 1.

 

Financial Statements (unaudited)

     2  
 

Condensed Consolidated Balance Sheets at July 31, 2018 and April  30, 2018

     2  
 

Condensed Consolidated Statements of Operations for the three months ended July 31, 2018 and 2017

     3  
 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended July 31, 2018 and 2017

     4  
 

Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 2018 and 2017

     5  
 

Notes to Condensed Consolidated Financial Statements

     6  

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     42  

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

     60  

Item 4.

 

Controls and Procedures

     61  

PART II.

 

OTHER INFORMATION

     62  

Item 1.

 

Legal Proceedings

     62  

Item 1A.

 

Risk Factors

     62  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     62  

Item 3.

 

Defaults Upon Senior Securities

     62  

Item 4.

 

Mine Safety Disclosures

     62  

Item 5.

  Other Information      62  

Item 6.

  Exhibits      63  
  Signatures      64  

 


Table of Contents

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 (this Quarterly Report on Form 10-Q), contains forward-looking statements within the meaning of securities laws. The forward-looking statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “forecast,” “project,” “should” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions, the outcome of pending litigation and the expected impact of recently issued accounting pronouncements. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. The forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those anticipated in the forward-looking statements; including those that are discussed under Risk Factors in documents we have filed with the U.S. Securities and Exchange Commission (the SEC), including our Annual Report on Form 10-K for our fiscal year ended April 30, 2018, filed with the SEC on June 28, 2018 (our Annual Report on Form 10-K).

Given these risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements included in this Quarterly Report. The forward-looking statements included in this Quarterly Report on Form 10-Q reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events or otherwise. Readers should carefully review the risk factors described in our Annual Report on Form 10-K and in other documents that we file from time to time with the SEC including our Quarterly Reports on Form 10-Q.

Available Information

We announce material information, including press releases, analyst presentations and financial information regarding the Company (as defined below), through a variety of means, including the Company’s website (www.infor.com), the Investors subpage of our website (www.infor.com/company/investors/), our blog (blogs.infor.com), press releases, filings with the SEC, public conference calls and social media, including the Company’s Twitter account (twitter.com/infor) and Facebook page (www.facebook.com/infor), in order to achieve broad, non-exclusionary distribution of information to the public. The Investors subpage is accessible by clicking on the tab labeled “About-Investors” on our website home page. We also use these channels to expedite public access to time-critical information regarding the Company in advance of or in lieu of distributing a press release or a filing with the SEC disclosing the same information. Therefore, investors should look to these channels for important and time-critical information. In addition, we make available on the Investors subpage of our website (under the link “Investor News”), free of charge, our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as soon as practicable after we electronically file such reports with the SEC. We encourage investors, the media and others interested in the Company to review the information we post on these various channels, as such information could be deemed to be material information. The information posted on our website, blog or social media is not incorporated into this Quarterly Report on Form 10-Q.

Additionally, the public may read and copy any of the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov.

 

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PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

INFOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts which are actuals)

(unaudited)

 

ASSETS    July 31,
2018
    April 30,
2018
 

Current assets:

    

Cash and cash equivalents

   $ 338.7     $ 417.6  

Accounts receivable, net

     432.5       505.9  

Prepaid expenses

     172.8       160.0  

Income tax receivable

     18.4       13.9  

Other current assets

     29.5       25.3  
  

 

 

   

 

 

 

Total current assets

     991.9       1,122.7  

Property and equipment, net

     156.4       160.9  

Intangible assets, net

     652.7       689.8  

Goodwill

     4,602.2       4,650.5  

Deferred tax assets

     117.5       77.4  

Other assets

     104.0       115.2  
  

 

 

   

 

 

 

Total assets

   $ 6,624.7     $ 6,816.5  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

    

Current liabilities:

    

Accounts payable

   $ 82.2     $ 82.6  

Income taxes payable

     67.3       60.5  

Accrued expenses

     363.3       452.9  

Deferred revenue

     1,124.1       1,143.8  

Current portion of long-term obligations

     3.0       42.5  
  

 

 

   

 

 

 

Total current liabilities

     1,639.9       1,782.3  

Long-term debt, net

     5,720.2       5,765.8  

Deferred tax liabilities

     32.9       41.9  

Other long-term liabilities

     184.2       236.3  
  

 

 

   

 

 

 

Total liabilities

     7,577.2       7,826.3  
  

 

 

   

 

 

 

Commitments and contingencies (Note 14)

    

Stockholders’ deficit:

    

Common stock, $0.01 par value; 1,000 shares authorized; 1,000 shares issued and outstanding at July 31, 2018 and April 30, 2018

     —         —    

Additional paid-in capital

     1,257.1       1,255.0  

Receivable from stockholders

     (58.5     (58.5

Accumulated other comprehensive (loss) income

     (182.8     (141.4

Accumulated deficit

     (1,977.3     (2,073.7
  

 

 

   

 

 

 

Total Infor, Inc. stockholders’ deficit

     (961.5     (1,018.6

Noncontrolling interests

     9.0       8.8  
  

 

 

   

 

 

 

Total stockholders’ deficit

     (952.5     (1,009.8
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 6,624.7     $ 6,816.5  
  

 

 

   

 

 

 

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

 

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INFOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions)

(unaudited)

 

     Three Months Ended
July 31,
 
     2018     2017  

Revenues

    

SaaS subscriptions

   $ 156.2     $ 123.1  

Software license fees

     65.9       77.8  
  

 

 

   

 

 

 

Software subscriptions and license fees

     222.1       200.9  

Product updates and support fees

     351.0       351.2  
  

 

 

   

 

 

 

Software revenues

     573.1       552.1  

Consulting services and other fees

     209.6       207.6  
  

 

 

   

 

 

 

Total revenues

     782.7       759.7  
  

 

 

   

 

 

 

Operating expenses

    

Cost of SaaS subscriptions (1)

     68.2       53.2  

Cost of software license fees (1)

     9.5       12.4  

Cost of product updates and support fees (1)

     56.0       59.2  

Cost of consulting services and other fees (1)

     171.3       164.7  

Sales and marketing

     117.8       131.1  

Research and development

     123.5       117.7  

General and administrative

     60.1       54.4  

Amortization of intangible assets and depreciation

     51.6       59.5  

Restructuring costs

     5.1       4.7  

Acquisition-related and other costs

     4.7       7.4  
  

 

 

   

 

 

 

Total operating expenses

     667.8       664.3  
  

 

 

   

 

 

 

Income from operations

     114.9       95.4  
  

 

 

   

 

 

 

Other expense, net:

    

Interest expense, net

     80.3       80.0  

Other (income) expense, net

     (45.2     184.7  
  

 

 

   

 

 

 

Total other expense, net

     35.1       264.7  
  

 

 

   

 

 

 

Income (loss) before income tax

     79.8       (169.3

Income tax provision

     2.2       5.7  
  

 

 

   

 

 

 

Net income (loss)

     77.6       (175.0

Net income attributable to noncontrolling interests

     0.3       0.3  
  

 

 

   

 

 

 

Net income (loss) attributable to Infor, Inc.

   $ 77.3     $ (175.3
  

 

 

   

 

 

 

 

(1)

Excludes amortization of intangible assets and depreciation, which are separately stated below.

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

 

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INFOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(unaudited) 

 

     Three Months Ended
July 31,
 
     2018     2017  

Net income (loss)

   $ 77.6     $ (175.0
  

 

 

   

 

 

 

Other comprehensive income (loss):

    

Unrealized gain (loss) on foreign currency translation, net of tax

     (42.4     167.6  

Change in defined benefit plan funding status, net of tax

     0.9       0.1  

Unrealized gain (loss) on derivative instruments, net of tax

     —         1.7  
  

 

 

   

 

 

 

Total other comprehensive income (loss)

     (41.5     169.4  
  

 

 

   

 

 

 

Comprehensive income (loss)

     36.1       (5.6
  

 

 

   

 

 

 

Noncontrolling interests comprehensive income (loss)

     0.2       0.2  
  

 

 

   

 

 

 

Comprehensive income (loss) attributable to Infor, Inc.

   $ 35.9     $ (5.8
  

 

 

   

 

 

 

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

 

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INFOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

 

     Three Months Ended
July 31,
 
     2018     2017  

Cash flows from operating activities

    

Net income (loss)

   $ 77.6     $ (175.0

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     51.6       59.5  

Provision for doubtful accounts, billing adjustments and sales allowances

     10.5       6.4  

Deferred income taxes

     (3.0     0.4  

Non-cash loss (gain) on foreign currency

     (45.0     185.0  

Non-cash interest

     5.7       5.6  

Equity-based compensation expense

     3.7       0.2  

Other

     0.4       1.1  

Changes in operating assets and liabilities (net of effects of acquisitions):

    

Prepaid expenses and other assets

     (27.1     4.0  

Accounts receivable, net

     47.2       50.3  

Income tax receivable/payable, net

     (0.9     (0.3

Deferred revenue

     (11.1     (6.3

Accounts payable, accrued expenses and other liabilities

     (74.7     (134.7
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     34.9       (3.8
  

 

 

   

 

 

 

Cash flows from investing activities

    

Acquisitions, net of cash acquired

     2.5       (67.1

Purchases of property, equipment and software

     (20.1     (24.5
  

 

 

   

 

 

 

Net cash used in investing activities

     (17.6     (91.6
  

 

 

   

 

 

 

Cash flows from financing activities

    

Equity contributions

     —         75.0  

Dividends paid

     (50.0     —    

Payments on capital lease obligations

     (0.6     (0.8

Payments on long-term debt

     (38.4     (8.2

Other

     (0.4     (6.1
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (89.4     59.9  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     (7.4     8.0  
  

 

 

   

 

 

 

Net decrease in cash, cash equivalents and restricted cash

     (79.5     (27.5

Cash, cash equivalents and restricted cash at the beginning of the period

     429.7       319.1  
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

   $ 350.2     $ 291.6  
  

 

 

   

 

 

 

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

 

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INFOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Business and Basis of Presentation

Infor is a global provider of enterprise business applications software and services focused primarily on large enterprises and small-to-midsize companies (SMB) in many industries including manufacturing, distribution, healthcare, public sector, retail, and hospitality. We serve a large, diverse and sophisticated global customer base across three geographic regions: the Americas; Europe, Middle East and Africa (EMEA); and Asia-Pacific, including Australia and New Zealand (APAC).

We offer a broad range of software applications and industry-specific solutions that we believe help our customers improve their business processes and reduce costs, resulting in better business or operational performance. Our software products are often “mission critical” for many of our customers as they automate and integrate essential business processes to better manage suppliers, partners, customers, employees, and general business operations.

We specialize in and target specific industries, or verticals, with integrated software suites of our industry-specific applications as well as horizontal (industry-nonspecific) applications. Our industry CloudSuites are each built around one of our industry-specific enterprise resource planning (ERP) applications. Our horizontal applications augment the ERP to manage industry-nonspecific processes, including customer relationship management (CRM), enterprise asset management (EAM), financial management, human capital management (HCM), and supply chain management (SCM). Underlying our software suites is Infor OS, our foundational operating system that integrates applications, delivers business insights and analytics, and enables flexibility to support changing business conditions and growth. Our suites are also integrated with our GT Nexus commerce network, which helps manage flow of inventory, transactions, and information across a global supply chain.

We generate revenue primarily from providing access to our software products through Software-as-a-Service (SaaS) subscription offerings, the sale of perpetual or term software licenses granting customers use of our software products, providing on-going product updates and support services for our customers through our subscription-based annual maintenance and support programs, and from providing consulting services which help our customers implement and use our applications more effectively.

Unless otherwise indicated or the context requires otherwise, hereafter any reference to Infor, we, our, us or the Company refers to Infor, Inc. and its consolidated subsidiaries.

Basis of Presentation

Our Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) and consider the various staff accounting bulletins and other applicable guidance issued by the SEC. Our Condensed Consolidated Financial Statements include the accounts of Infor, Inc. and our wholly-owned and majority-owned subsidiaries operating in the Americas, EMEA and APAC. Our investments in other non-consolidated entities are accounted for using the equity method or cost method depending upon the level of ownership and/or our ability to exercise significant influence over the operating and financial policies of the investee. All significant intercompany accounts and transactions have been eliminated.

The unaudited Condensed Consolidated Financial Statements and Notes are presented as permitted by FASB requirements for quarterly reports and do not contain all the information and disclosures included in our annual financial statements and related notes as required by GAAP. The Condensed Consolidated Balance Sheet data as of April 30, 2018, and other amounts presented herein as of April 30, 2018, or for the year then ended, were derived from our audited financial statements. The accompanying Condensed Consolidated Financial Statements reflect all adjustments, in the opinion of management, necessary to fairly state our financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal and recurring items. The results of operations for our interim periods are not necessarily indicative of results to be achieved for any future interim period or for our full fiscal year.

Effective May 1, 2018, we adopted the FASB guidance related to revenue recognition included in ASC 606, Revenue from Contracts with Customers (ASC 606), using the modified retrospective transition method. See Note 2, Summary of Significant Accounting Policies – Adoption of New Accounting Pronouncements. As a result, we have changed our accounting policy for revenue recognition. Our financial statements for reporting periods beginning after April 30, 2018, are presented under ASC 606, while amounts for prior periods have not been adjusted and continue to reflect amounts as originally reported in accordance with our historic accounting under ASC 985-605, Software—Revenue Recognition (ASC 985-605), for revenues related to software license, product updates and support, and related service revenues, and ASC 605, Revenue Recognition (ASC 605), for revenues related to non-software deliverables such as SaaS subscriptions and related service revenue.

 

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Certain prior period amounts have been reclassified on our Condensed Consolidated Financial Statements to conform with current year presentation and reflect the adoption of certain accounting standard updates.

The accompanying interim Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and related Notes for the fiscal year ended April 30, 2018, included in our Annual Report on Form 10-K.

Noncontrolling Interests

We consolidate our majority-owned subsidiaries and reflect noncontrolling interests on our Condensed Consolidated Balance Sheets for the portion of those entities that we do not own as a component of consolidated equity separate from the equity attributable to Infor, Inc.’s stockholders. The noncontrolling interests’ share in our net earnings are included in net income (loss) attributable to noncontrolling interests in our Condensed Consolidated Statements of Operations, and their portion of comprehensive income (loss) is included in comprehensive income (loss) attributable to noncontrolling interests in our Condensed Consolidated Statements of Comprehensive Income (Loss).

Business Segments

We view our operations and manage our business as three reportable segments: License, Maintenance, and Consulting. We determine our reportable operating segments in accordance with the provisions in the FASB guidance on segment reporting, which establish standards for, and require disclosure of, certain financial information related to reportable operating segments and geographic regions. See Note 15, Segment and Geographic Information.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires us to make certain estimates, judgments and assumptions. These estimates, judgments and assumptions are based upon information available to us at the time that they are made and are believed to be reliable. These estimates, judgments and assumptions can affect the reported amounts of our assets and liabilities as of the date of the financial statements as well as the reported amounts of our revenues and expenses during the periods presented. On an on-going basis we evaluate our estimates and assumptions, including, but not limited to, those related to revenue recognition, allowance for doubtful accounts and sales allowances, fair value of equity-based compensation, fair value of acquired intangible assets and goodwill, fair value of contingent consideration related to our acquisitions, useful lives of intangible assets and property and equipment, income taxes, restructuring obligations, and contingencies and litigation. We believe these estimates and assumptions are reasonable under the circumstances and they form a basis for making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources. Differences between these estimates, judgments or assumptions and actual results could materially impact our financial statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

Fiscal Year

Our fiscal year is from May 1 through April 30 and the first quarter of each fiscal year is from May 1 through July 31. Unless otherwise stated, references to fiscal 2019 and fiscal 2018 relate to our fiscal years ended April 30, 2019 and 2018, respectively. References to future years also relate to our fiscal years ending April 30.

2. Summary of Significant Accounting Policies

A detailed description of our significant accounting policies can be found in our financial statements for our fiscal year ended April 30, 2018, which is included in our Annual Report on Form 10-K. Except for the accounting policy for revenue recognition related to adopting ASC 606, discussed below, and the adoption of Accounting Standards Update 2016-16, Intra-Entity Transfer of Assets Other Than Inventory, (ASU 2016-16), there have been no changes to our significant accounting policies that have had a material impact on our Condensed Consolidated Financial Statements and Notes. The following Notes should be read in conjunction with such policies and other disclosures contained therein.

 

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Revenue Recognition

We apply the provisions of ASC 606 to determine the measurement of revenue and the timing of when it is recognized. Under ASC 606, revenue is measured as the amount of consideration we expect to be entitled to, in exchange for transferring products or providing services to our customers, and is recognized when performance obligations under the terms of contracts with our customers are satisfied. ASC 606 prescribes a five-step model for recognizing revenue from contracts with customers: (1) identify contract(s) with the customer; (2) identify the separate performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the separate performance obligations in the contract; and (5) recognize revenue when (or as) each performance obligation is satisfied.

We account for contracts with our customers when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights regarding products or services to be transferred are identified, payment terms are identified, the contract has commercial substance and collection of the consideration is probable. We utilize written contracts as the means to establish the terms and conditions by which our products, product updates and support and/or consulting services are sold to our customers.

Performance obligations are promises in a contract to transfer distinct products or services to our customers and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when the performance obligation is satisfied. A product or service is a distinct performance obligation if our customer can both benefit from the product or service either on its own or together with other resources that are readily available to the customer and it is separately identifiable from other items within the context of the contract. Performance obligations are satisfied by transferring control of the product or service to our customers. Control of the product or service is transferred either at a point in time or over time depending on the performance obligation.

Our revenues are generated primarily by providing access to our SaaS subscriptions, licensing our software, providing product updates and support related to our licensed products, and providing consulting services to our customers. Generally, revenue from software licenses sales are recognized upon delivery; SaaS subscriptions, product updates and support are recognized ratably over time; and consulting services are recognized as performed. Revenue is recorded net of applicable taxes. Our specific revenue recognition policies are as follows:

SaaS Subscriptions

Our SaaS subscriptions revenues are primarily from granting customers the right to access software products through our cloud-based SaaS subscription offerings. Under a SaaS subscription agreement, our customer receives a right to access the software for a specified period of time in an environment hosted, supported, and maintained by Infor. SaaS subscription services are a single performance obligation satisfied over time, and associated revenue is generally recognized ratably over the contract term once the software is made available to the customer. Our SaaS subscription offerings are typically sold with one to five-year subscription terms, generally invoiced in advance of each annual subscription period, and are non-cancelable during the committed subscription term.

Consulting services sold in conjunction with SaaS offerings such as implementation, configuration, customization, training, and data conversion services are considered separate performance obligations. Consequently, they are recognized separately from the SaaS subscription agreement, and applicable revenue is typically recognized as the services are delivered. See Contracts with Multiple Performance Obligations, below.

Software License Fees

Our software license fees revenues are primarily from sales of perpetual software licenses, granting customers the license right to use our software products, with no expiration date. Perpetual software licenses are satisfied at a point in time, and associated revenue is recognized upon transfer of control of the software.

Certain of our software products are offered as term-based license contracts, under which we grant customers the license right to use the software for a specified period. Term software licenses are satisfied at a point in time and associated revenue is recognized upon the later of 1) delivery of the software, or 2) the beginning of the period in which the customer has received the license right to use the software.

For customer contracts that include software license fees, implementation and/or other consulting services, the portion of the transaction price allocated to software licenses is generally recognized when delivered. The implementation and consulting services are typically distinct performance obligations and qualify for separate recognition. The portion of the transaction price allocated to implementation and other consulting services is generally recognized as such services are performed. See Contracts with Multiple Performance Obligations, below.

 

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Product Updates and Support Fees

Our product updates and support services entitle our customers to receive, for an agreed upon period, unspecified product upgrades (when and if available), release updates, regulatory updates and patches, as well as support services including access to technical information and technical support staff. These post contract support (PCS) services are stand-ready performance obligations that are satisfied over time, and considered a series of distinct services that are substantially the same with the same duration and measure of progress. Revenues for PCS services are recognized on a straight-line basis over the term of the service period. The term of our product updates and support services agreements are typically 12 months and are invoiced annually in advance of the service period.

Consulting Services and Other Fees

We also provide consulting services, including systems implementation and integration services, consulting, training, and application managed services. Our consulting services are contracted for in conjunction with the licensing of our software products or SaaS subscription offerings and/or on a standalone basis. Most of our services are sold under specific software services agreement terms, are priced separately from other promises, and meet the criteria for being considered separate performance obligations as they do not significantly customize or modify the software, are generally not essential to the functionality of our software products, and are also available from third-party vendors and systems integrators.

The majority of our consulting services agreements are provided under time and materials contracts, and the performance obligations are satisfied and related revenues are recognized over time as the services are provided.    

Our fixed price service contracts typically qualify as performance obligations that are satisfied over time and therefore are recognized on a proportional performance basis. For these fixed price projects, progress is measured based on labor hours performed to date relative to the total expected labor hours to complete the project. When it cannot be demonstrated that services meet the criteria for recognition over time, revenue from fixed price engagements is recognized only at points in time when the customer obtains control of promised products.

Consulting services and other fees also include hosting services. Customers who elect to host their software licenses by Infor have the contractual right to take possession of the software at any time during the hosted period. The customer has the right to choose not to renew hosting services upon its expiration and can deploy the software internally or contract with another party unrelated to Infor to host the software. The software provides standalone usage and functionality and, therefore, is not dependent upon the hosting service. Therefore, customers can self-host and any penalties to do so are insignificant. Accordingly, fees allocated to the hosting performance obligation are recognized once the service begins, separate from software licenses, and then ratably over the term of the hosting service.

Consulting services and other fees also include education services and fees related to Inforum, our customer event. Revenues related to these services are recognized when the services are provided or when the fees are received.

Contracts with Multiple Performance Obligation

We also enter into contracts that may include a combination of our various products and services offerings including SaaS subscriptions, software licenses, product updates and support, consulting services, and hosting services. For contracts with multiple performance obligations, we account for individual performance obligations separately if they are distinct. Significant judgment may be required to identify distinct obligations within a contract. The total transaction price is allocated to the individual performance obligations based on the ratio of the relative established standalone selling prices (SSP), or our best estimate of SSP, of each distinct product or service in the contract. Revenue is then recognized for each distinct performance obligation as described in the specific revenue recognition policies above.

Contract Modifications

Contract modifications may create new, or change existing, enforceable rights and obligations of the parties to the contract. We generally modify an existing contract using a new order form, an addendum, a signed service change order, or new services work orders. A contract modification is accounted for as a new contract if it reflects an increase in scope that is regarded as distinct from the original contract and is priced in-line with the standalone selling price for the related product or services obligated. If a contract modification is not considered a new contract, the modification is combined with the original contract and the impact on the revenue recognition profile depends on whether the remaining products and services are distinct from the original contract. If the remaining goods or services are distinct from those in the original contract, all remaining performance obligations will be accounted for on a prospective basis with unrecognized consideration allocated to the remaining performance obligations. If the remaining goods or

 

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services are not distinct, the modification will be treated as if it were a part of the existing contract, and the effect that the contract modification has on the transaction price, and on our measure of progress toward satisfaction of the performance obligations, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification on a cumulative catch-up basis.

Contract Balances

The timing of our revenue recognition may differ from the timing of invoicing to our customers, and these timing differences result in receivables, contract assets, or contract liabilities which are reflected on our Condensed Consolidated Balance Sheets. We record contract assets when we have transferred software products or provided services but do not yet have the right to related consideration, or contract liabilities when we have received or have the right to receive consideration but have not yet transferred software products or provided services to our customers. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.

Receivables and Contract Assets—We classify the right to consideration in exchange for software products or services transferred to our customers as either a receivable or a contract asset depending on whether those rights are conditional or unconditional. A receivable is a right to consideration that is unconditional as compared to a contract asset, which is a right to consideration that is conditional upon factors other than the passage of time.

Receivables are comprised of gross amounts due from customers for which we have an unconditional right to collect. The gross amount invoiced includes pass-through taxes and fees, which are recorded as liabilities at the time they are billed. We offset amounts billed and deferred revenue for invoices not billed under a committed contract for which the subscription period has not started as of the balance sheet date. We record receivables within accounts receivable, net, on our Condensed Consolidated Balance Sheets. See Note 6, Accounts Receivable, Net.

Contract assets relate to unbilled accounts receivable, which represent revenue recognized on arrangements for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date, and the right to consideration is generally subject to milestone completion, client acceptance or factors other than the passage of time. We record contract assets within other current assets on our Condensed Consolidated Balance Sheets.

In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts do not include a significant financing component as the period between transfers of goods/services and payment is generally less than one year. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our software products and related services, not to receive financing from our customers or to provide customers with financing.

Contract Liabilities – Deferred Revenues—We record contract liabilities as deferred revenues when we have received or have the right to receive consideration but have not yet transferred software products or provided services to our customers. Deferred revenues represent amounts billed or payments received from customers for SaaS subscriptions, software licenses, product updates and support and/or consulting services in advance of recognizing revenue or performing services. We defer revenue for these undelivered performance obligations and recognize revenues when the applicable software products are delivered or over the periods in which the services are performed, in accordance with our revenue recognition policy for such performance obligations. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue. The noncurrent portion of deferred revenue is included in other long-term liabilities on our Condensed Consolidated Balance Sheets.

The following table summarizes our contract balances for the periods indicated:

 

(in millions)    July 31,
2018
     May 1,
2018
 

Contract assets - Other current assets

   $ 16.8      $ 15.8  
  

 

 

    

 

 

 

Contract liabilities

     

Current deferred revenue

   $ 1,124.1      $ 1,132.6  

Noncurrent deferred revenue - Other liabilities

     26.1        36.3  
  

 

 

    

 

 

 

Total contract liabilities

   $ 1,150.2      $ 1,168.9  
  

 

 

    

 

 

 

 

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The following table sets forth the components of deferred revenue for the periods indicated:

 

(in millions)    July 31,
2018
     May 1,
2018
 

SaaS subscriptions

   $ 316.0      $ 327.7  

Software license fees

     10.8        8.6  
  

 

 

    

 

 

 

Software subscriptions and license fees

     326.8        336.3  

Product updates and support fees

     754.5        758.0  

Consulting services and other fees

     72.4        76.5  

Contract asset offset (1)

     (3.5      (1.9
  

 

 

    

 

 

 

Total deferred revenue

     1,150.2        1,168.9  

Less: current portion

     1,124.1        1,132.6  
  

 

 

    

 

 

 

Deferred revenue - non-current

   $ 26.1      $ 36.3  
  

 

 

    

 

 

 

 

(1)

Adjustment to reflect net contract assets and contract liabilities on a contract by contract basis under ASC 606 for periods beginning after April 30, 2018.

We recognized revenues of $468.5 million during the three months ended July 31, 2018, that were included in the deferred revenue balances at the beginning of the period, primarily related to product updates and support fees and SaaS subscriptions. The amount of revenue recognized during the three months ended July 31, 2018, from performance obligations satisfied (or partially satisfied) in previous periods was immaterial.

Costs to Obtain or Fulfill a Contract – Deferred Costs

Commissions payable to our direct sales force and independent affiliates who resell our software products are considered incremental and recoverable costs of obtaining or fulfilling contracts with our customers. Sales commissions are recorded when a sale is completed or when our SaaS subscription is provisioned, which generally coincides with the timing of revenue recognition in most cases. Certain of these costs are capitalized and amortized ratably over the expected customer relationship period during which we expect to recover those costs. In estimating the expected customer relationship period, we evaluated both quantitative and qualitative factors including the nature of our product/service offerings, expected renewals, and the estimated economic life of the applicable software. The current and noncurrent balances of these deferred costs are included in prepaid expenses and other assets, respectively, on our Condensed Consolidated Balance Sheets. Deferred commissions were $81.3 million and $72.0 million as of July 31, 2018, and May 1, 2018, respectively. The deferred costs are amortized over various periods; generally, five years for maintenance contracts, and three to six years for SaaS subscriptions. Amortization expense related to deferred commissions was $4.7 million for the three months ended July 31, 2018, and is included in sales and marketing expenses in our Condensed Consolidated Statements of Operations. We periodically evaluate the expected customer relationship period and whether there have been any changes in our business or market conditions which would indicate that these amortization periods should be adjusted or if there may be potential impairment related to the deferred costs. We have not recorded any impairment loss in relation to these deferred costs.

Remaining Performance Obligations

Remaining performance obligations represent the aggregate transaction price allocated to performance obligations that are unsatisfied, or partially unsatisfied, at the end of a reporting period. As of July 31, 2018, the aggregate amount of the transaction price allocated to our remaining performance obligations, or backlog, was approximately $2.6 billion. We expect to recognize 75% of the remaining performance obligations as revenue over the remainder of fiscal 2019 and 2020, with the remaining 25% recognized thereafter.

We have not disclosed the amount of the transaction price allocated to the remaining performance obligations or an explanation of when such revenue is expected to be recognized as of May 1, 2018, as allowed under the transition practical expedient.

 

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Sales Allowances

We do not generally provide a contractual right of return. However, in the course of arriving at practical business solutions to various claims arising from the sale of our products and delivery of our solutions, we may agree to terms that impact the transaction price allocated to performance obligations for the purposes of revenue recognition. We adjust the transaction price for these estimated variable consideration amounts specific to license and consulting revenues at the inception of each agreement using the expected value method, which results in an associated sales allowance being recorded. We also periodically reassess the associated estimated transaction price and related variable consideration throughout the course of each agreement. The balance of our sales allowance is reflected in deferred revenue on our Condensed Consolidated Balance Sheets.

The following is a rollforward of our sales reserve:

 

(in millions)       

Balance, April 30, 2018

   $ 21.3  

Provision

     5.3  

Write-offs

     (7.5

Currency translation effect

     (0.4
  

 

 

 

Balance, July 31, 2018

   $ 18.7  
  

 

 

 

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents are comprised primarily of unrestricted amounts in operating accounts, money market investments and other short-term, highly liquid investments with initial maturities of three months or less. Each is recorded at cost, which approximates fair market value given their short-term nature.

In addition, we have restricted cash balances which are classified as either other current assets or other assets on our Condensed Consolidated Balance Sheets depending on the nature of the restriction. Restricted cash is used to collateralize various operating guarantees such as leases, acquisition funding, or letters of credit and is recorded at cost, which approximates fair market value.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within our Condensed Consolidated Balance Sheets to amounts presented within our Condensed Consolidated Cash Flow Statements:

 

(in millions)    July 31,
2018
     April 30,
2018
 

Current assets

     

Cash and cash equivalents

   $ 338.7      $ 417.6  

Restricted cash - Other current assets

     0.7        1.1  

Other assets

     

Restricted cash - Other assets

     10.8        11.0  
  

 

 

    

 

 

 

Total cash, cash equivalents and restricted cash

   $ 350.2      $ 429.7  
  

 

 

    

 

 

 

Foreign Currency

The functional currency of our foreign subsidiaries is typically the applicable local currency. The translation from the respective foreign currencies to United States Dollars (U.S. Dollar) is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted average exchange rate during the applicable period. Gains or losses resulting from translation of balance sheet accounts are included as a separate component of accumulated other comprehensive income on our Condensed Consolidated Balance Sheets. Gains or losses resulting from foreign currency transactions are included in foreign currency gain or loss as a component of other (income) expense, net, in the accompanying Condensed Consolidated Statements of Operations. Foreign currency gains or losses related to intercompany transactions considered to be long-term investments are included in other comprehensive income (loss) as a net credit or charge.

 

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Transaction gains and losses are recognized in our results of operations based on the difference between the foreign currency exchange rates on the transaction date and on the reporting date. We recognized a net foreign currency exchange gain of $45.0 million and a net foreign currency exchange loss of $184.7 million for the three months ended July 31, 2018 and 2017, respectively.

Certain foreign currency transaction gains and losses are generated from our intercompany balances that are not considered to be long-term in nature and will be settled between subsidiaries. These intercompany balances are a result of normal transfer pricing transactions among our various operating subsidiaries, as well as certain loans initiated between subsidiaries. We also recognize transaction gains and losses from revaluing our debt denominated in Euros and held by subsidiaries whose functional currency is the U.S. Dollar. See Note 11, Debt.

Adoption of New Accounting Pronouncements

On May 1, 2018, we adopted the FASB guidance included in ASU 2016-16. This guidance amended prior GAAP which prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset had been sold to an outside party. This update requires an entity to recognize the income tax consequences of an intra-entity transfer for assets other than inventory when the transfer occurs. We adopted guidance on a modified retrospective basis through a cumulative-effect adjustment to the balance sheet as of the beginning of the period of adoption resulting in a $16.8 million increase to accumulated deficit, a net increase of $46.1 million to deferred tax assets, and a reduction of $62.9 million of deferred charges for taxes, included in other current assets and other assets on our Condensed Consolidated Balance Sheets. As part of the net $46.1 million cumulative-effect adjustment to deferred tax assets, a gross deferred tax asset of $48.6 million was not recognized due to a corresponding full valuation allowance of $48.6 million. This gross deferred tax asset and corresponding valuation allowance relates primarily to Sweden.

On May 1, 2018, we adopted the FASB guidance related to the classifications and presentation of changes in restricted cash in the statement of cash flows. This guidance requires that the statement of cash flows explain the change during the period in total of cash, cash equivalents and restricted cash. Accordingly, amounts generally described as restricted cash have been combined with unrestricted cash when reconciling the beginning and end of period balances on our Condensed Consolidated Statement of Cash Flows. The adoption of this guidance did not have a material impact on our financial position, our results of operations or cash flows.

On May 1, 2018, we adopted the FASB guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. Under this guidance, the service cost component of the net periodic benefit cost is presented in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are presented outside of the subtotal of operating income on the income statement and allows only the service cost component of net benefit costs to be eligible for capitalization. We applied this guidance retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The adoption of this guidance did not have a material impact on our financial position, our results of operations or cash flows.

On May 1, 2018, we adopted the FASB guidance which permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of recent tax reform legislation to retained earnings. We adopted this guidance on a prospective basis. The adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

On May 1, 2018, we adopted the FASB guidance on the principles for revenue recognition under ASC 606. This guidance is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most prior revenue recognition guidance, including industry-specific guidance. The new rules established a core principle that requires the recognition of revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. We adopted ASC 606 using the modified retrospective transition method by recognizing the cumulative effect of initial application at the date of adoption as an adjustment to our opening equity balance. Therefore, the comparative information presented has not been adjusted and continues to be reported under ASC 985-605 for revenues related to software license, product updates and support, and related service revenues, and ASC 605 for revenues related to non-software deliverables such as SaaS subscriptions and related service revenue. We elected to apply ASC 606 only to those contracts not completed as of May 1, 2018, as allowed under the modified retrospective transition method. For contract modifications, we did not evaluate individual modifications for those periods prior to the adoption date, but the aggregate effect of all modifications as of the adoption date.

 

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The major impacts of ASC 606 on our policies and practices related to recognition of revenue and certain related costs included the following:

 

   

Recognition of software license revenue from term licenses bundled with unspecified product updates and support is recognized upon delivery of the software and at the beginning of the license period, rather than over the term of the arrangement;

 

   

Accounting for deferred commissions including costs that qualify for deferral and the amortization period;

 

   

The removal of the historic limitation on contingent revenue which may result in revenue being recognized earlier for certain contracts;

 

   

The removal of the historic residual method of allocating software license fees within a multiple element arrangement which may impact reported revenues; and

 

   

Revenue attributable to the extension or renewal of a software license is deferred until the beginning of the extension or renewal period, rather than recognizing when the contract for the extension or renewal is effective.

The cumulative effect of the changes made to our May 1, 2018, balance sheet for the adoption of the new revenue recognition guidance was a credit of $35.9 million, reducing the opening balance of accumulated deficit.

The following table summarizes the cumulative effects of the changes made to our opening balance sheet accounts as of May 1, 2018, for the adoption of ASC 606 and ASU 2016-16:

 

           Adjustments Related to        
(in millions)    April 30, 2018
As Originally
Reported
    Adoption of
ASC 606
    Adoption of
ASU 2016-16
    May 1, 2018
As Adjusted
 

ASSETS

        

Current assets:

        

Cash and cash equivalents

   $ 417.6     $ —       $ —       $ 417.6  

Accounts receivable, net

     505.9       (14.0     —         491.9  

Prepaid expenses

     160.0       1.1       —         161.1  

Income tax receivable

     13.9       —         —         13.9  

Other current assets

     25.3       15.8       (10.7     30.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     1,122.7       2.9       (10.7     1,114.9  

Property and equipment, net

     160.9       —         —         160.9  

Intangible assets, net

     689.8       —         —         689.8  

Goodwill

     4,650.5       —         —         4,650.5  

Deferred tax assets

     77.4       0.4       46.1       123.9  

Other assets

     115.2       27.0       (52.2     90.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 6,816.5     $ 30.3     $ (16.8   $ 6,830.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’

        

DEFICIT

        

Current liabilities:

        

Accounts payable

   $ 82.6     $ —       $ —       $ 82.6  

Income taxes payable

     60.5       —         —         60.5  

Accrued expenses

     452.9       —         —         452.9  

Deferred revenue

     1,143.8       (11.2     —         1,132.6  

Current portion of long-term obligations

     42.5       —         —         42.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,782.3       (11.2     —         1,771.1  

Long-term debt, net

     5,765.8       —         —         5,765.8  

Deferred tax liabilities

     41.9       2.0       —         43.9  

Other long-term liabilities

     236.3       3.6       —         239.9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     7,826.3       (5.6     —         7,820.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Additional paid-in capital

     1,255.0       —         —         1,255.0  

Receivable from stockholders

     (58.5     —         —         (58.5

Accumulated other comprehensive income (loss)

     (141.4     —         —         (141.4

Accumulated deficit

     (2,073.7     35.9       (16.8     (2,054.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Infor, Inc. stockholders’ deficit

     (1,018.6     35.9       (16.8     (999.5

Noncontrolling interests

     8.8       —         —         8.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ deficit

     (1,009.8     35.9       (16.8     (990.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 6,816.5     $ 30.3     $ (16.8   $ 6,830.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following tables show select line items that were materially impacted by the adoption of ASC 606 on our unaudited Condensed Consolidated Financial Statements as of and for the period ended July 31, 2018:

 

     As of July 31, 2018  
(in millions)    As Reported
Under
ASC 606
     Adjustments
Related to
ASC 606
     As Adjusted
Without
Adoption of
ASC 606
 

ASSETS

        

Current assets:

        

Accounts receivable, net

   $ 432.5      $ 15.8      $ 448.3  

Prepaid expenses

     172.8        (1.5      171.3  

Other current assets

     29.5        (16.8      12.7  

Deferred tax assets

     117.5        (0.4      117.1  

Other assets

     104.0        (29.2      74.8  

LIABILITIES AND STOCKHOLDERS’ DEFICIT

        

Current liabilities:

        

Income taxes payable

     67.3        (0.2      67.1  

Deferred revenue

     1,124.1        12.5        1,136.6  

Deferred tax liabilities

     32.9        (2.2      30.7  

Other long-term liabilities

     184.2        (3.2      181.0  

Accumulated deficit

   $ (1,977.3    $ (39.0    $ (2,016.3

 

     Three Months Ended July 31, 2018  
(in millions)    As Reported
Under
ASC 606
     Adjustments
Related to
ASC 606
     As Adjusted
Without
Adoption of
ASC 606
 

Revenues

        

SaaS subscriptions

   $ 156.2      $ (1.6    $ 154.6  

Software license fees

     65.9        (1.1      64.8  
  

 

 

    

 

 

    

 

 

 

Software subscriptions and license fees

     222.1        (2.7      219.4  

Product updates and support fees

     351.0        0.1        351.1  
  

 

 

    

 

 

    

 

 

 

Software revenues

     573.1        (2.6      570.5  

Consulting services and other fees

     209.6        1.8        211.4  
  

 

 

    

 

 

    

 

 

 

Total revenues

     782.7        (0.8      781.9  
  

 

 

    

 

 

    

 

 

 

Operating expenses

        

Sales and marketing

     117.8        2.7        120.5  

Income from operations

     114.9        (3.5      111.4  

Income tax provision

     2.2        (0.4      1.8  

Net income (loss)

   $ 77.6      $ (3.1    $ 74.5  

 

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We believe that no other new accounting guidance was adopted during the first three months of fiscal 2019 that would be relevant to the readers of our financial statements.

Recent Accounting Pronouncements — Not Yet Adopted

In February 2016, the FASB issued a new leasing standard that will supersede current guidance related to accounting for leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under this guidance, lessees will recognize a right-of-use asset and a lease liability on their consolidated balance sheets for leases with accounting lease terms of more than 12 months. The liability recognized will be the present value of related lease payments, subject to certain adjustments. Leases will continue to be classified as either operating or finance for income statement purposes, which will affect the pattern of expense recognition in the consolidated statements of operations. The standard will be effective for the first interim period within annual periods beginning after December 15, 2018 (our fiscal 2020), with early adoption permitted. The standard was originally required to be adopted using the modified retrospective approach. In March 2018, the FASB approved the use of an optional transition method when adopting this guidance which allows for retrospective application with the cumulative effect of initial application recognized in the opening balance of retained earnings in the period of adoption. Under this optional method, entities would not be required to apply the new standard (including disclosure requirements) to comparative prior periods presented. We are currently evaluating how this guidance will impact our consolidated financial statements and related disclosures and evaluating the timing and method of adoption. We expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption, which will have a significant impact on our assets and liabilities. We do not expect that this guidance will have a material impact on our results of operations or cash flows.

As of the date of this Quarterly Report on Form 10-Q, there were no other recent accounting standard updates that we have not yet adopted that we believe would have a material impact on our financial position, results of operations or cash flows.

3. Acquisitions

Fiscal 2018

Asset Acquisition

On February 2, 2018, we acquired certain assets of Arvato Systems GmbH, based in Guetersloh, Germany. We acquired Arvato’s order management system, Aroma®, for $27.9 million, including contingent consideration of $8.1 million recorded at the time of the acquisition. The total purchase price may also include up to an additional $26.9 million if certain future performance conditions are met during our fiscal years 2019 through 2022. The acquired cross-channel commerce management solution, which is marketed under the name Infor Networked Order Management, provides a wide range of benefits for our customers that complement and further expand Infor CloudSuite Retail and our supply chain management offerings. The identifiable intangible assets related to this acquisition of existing technology are being amortized over their estimated useful lives of approximately four years.

Birst

On May 31, 2017, we acquired Birst, Inc. (Birst) for $68.5 million, net of cash acquired and including contingent consideration of $0.3 million recorded at the time of the acquisition (the Birst Acquisition). The total purchase price may also include up to an additional $29.7 million if certain future performance conditions are met. Based in San Francisco, California, Birst is a pioneer of cloud-native, business intelligence (BI), analytics, and data visualization. Birst is a unique, comprehensive platform for sourcing, refining, and presenting standardized data insights at scale to drive business decisions. Birst connects the entire enterprise through a network of virtualized BI instances on top of a shared common analytical fabric. Birst spans ETL (extract, transform, and load), operational reports, dashboards, semantic understanding, visualization, smart discovery, and data blending to form a rich, simplified end-to-end BI suite in the cloud. The Birst Acquisition provided Infor a cloud BI platform which significantly expanded our analytical applications. The Birst Acquisition was partially funded through capital contributions made to an affiliate of Infor’s parent company by certain of our equity holders, an affiliate of Koch Industries, Inc. (Koch Industries), investment funds affiliated with Golden Gate Capital, and our senior executives. See Note 16, Related Party Transactions – Equity Contributions.

We have recorded approximately $31.5 million of identifiable intangible assets and $43.9 million of goodwill related to the Birst Acquisition. The acquired intangible assets relating to Birst’s trade name, existing technology, customer relationships, and acquired favorable leases are being amortized over their weighted average estimated useful lives of approximately two, four, nine, and five years, respectively. The goodwill arising from the Birst Acquisition, related to expected synergies of our combined operations, is not deductible for tax purposes.

 

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Bankruptcy-Remote Special Purpose Entity

Platform Settlement Services, LLC (PSS), a wholly-owned subsidiary of Infor, is a bankruptcy-remote special purpose entity. PSS was established for the purpose of facilitating the settlement of transactions between our GT Nexus Platform customers and their supply chain providers. PSS acts as a collection and paying agent, receiving funds from customers and forwarding to appropriate credit parties. PSS is a custodian of the cash received from its customers and has no legal ownership rights to the funds held in such custodial accounts. Therefore, we do not report any cash in transit in the bank accounts of PSS at period end, nor any cash movements during a reporting period, in our Condensed Consolidated Financial Statements. The balance of cash in transit in custodial accounts held by PSS was $13.2 million and $25.6 million at July 31, 2018 and April 30, 2018, respectively.

Contingent Consideration

The agreements related to certain of our acquisitions include contingent consideration provisions. For business acquisitions, the change in the estimated fair value of the contingent consideration, during the contingency period through settlement, is recorded in our results of operations in the period of such change and is included in acquisition-related and other costs in our Condensed Consolidated Statements of Operations. For asset acquisitions, any such changes are recorded against the cost basis of the asset or assets acquired. Contingent consideration liabilities are included in accrued expenses and other long-term liabilities on our Condensed Consolidated Balance Sheets.

The purchase consideration related to certain of our acquisitions include additional contingent cash consideration payable to the sellers if certain future performance conditions are met as detailed in the applicable purchase agreements. During the first three months of fiscal 2019, we did not pay any amounts of contingent consideration under these contingent consideration arrangements, and the potential undiscounted amount of future payments that we may be required to make related to these arrangements is between $0.0 and $81.5 million. As of July 31, 2018, and April 30, 2018, we had recorded liabilities for the estimated fair value of these contingent consideration arrangements totaling approximately $12.9 million and $12.4 million, respectively.

4. Goodwill

The change in the carrying amount of our goodwill by reportable segment for the period indicated was as follows:

 

(in millions)    License      Maintenance      Consulting      Total  

Balance, April 30, 2018

   $ 1,458.5      $ 2,852.9      $ 339.1      $ 4,650.5  

Currency translation effect

     (11.4      (33.5      (3.4      (48.3
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, July 31, 2018

   $ 1,447.1      $ 2,819.4      $ 335.7      $ 4,602.2  
  

 

 

    

 

 

    

 

 

    

 

 

 

In accordance with the FASB guidance related to goodwill and other intangible assets, we are required to assess the carrying amount of our goodwill for potential impairment annually or more frequently if events or a change in circumstances indicates that impairment may have occurred. We conduct our annual impairment test in the second quarter of each fiscal year as of September 30. We believe that our reportable segments are also representative of our reporting units for purposes of our goodwill impairment testing.

We conducted our most recent annual impairment assessment in the second quarter of fiscal 2018, as of September 30, 2017. This assessment did not indicate impairment for any of our reporting units. We believe there was no impairment of our goodwill and no indication of potential impairment existed as of July 31, 2018. We have no accumulated impairment charges related to our goodwill.

5. Fair Value

Fair Value Hierarchy

The FASB has established guidance on financial assets and liabilities and nonfinancial assets and liabilities that are recognized at fair value on a recurring basis and guidance for nonfinancial assets and liabilities that are recognized at fair value on a nonrecurring basis. This guidance defines fair value, establishes a framework for measuring fair value and establishes a fair value hierarchy which requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to measure fair value.

 

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The three levels of the fair value hierarchy are as follows:

 

Level 1    —      Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2    —      Inputs other than the quoted prices in active markets that are observable either directly or indirectly including: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3    —      Unobservable inputs that are supported by little or no market data, are significant to the fair values of the assets or liabilities, and require the reporting entity to develop its own assumptions.

We measure certain of our financial assets and liabilities at fair value. The following table summarizes the fair value of our financial assets and liabilities that were accounted for at fair value on a recurring basis, by level within the fair value hierarchy, as of July 31, 2018 and April 30, 2018:

 

     July 31, 2018  
     Fair Value Measurements Using Inputs Considered as         
(in millions)    Level 1      Level 2      Level 3      Fair Value  

Liabilities

           

Contingent consideration

   $ —        $ —        $ 12.9      $ 12.9  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 12.9      $ 12.9  
  

 

 

    

 

 

    

 

 

    

 

 

 
     April 30, 2018  
     Fair Value Measurements Using Inputs Considered as         
(in millions)    Level 1      Level 2      Level 3      Fair Value  

Liabilities

           

Contingent consideration

   $ —        $ —        $ 12.4      $ 12.4  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 12.4      $ 12.4  
  

 

 

    

 

 

    

 

 

    

 

 

 

Contingent consideration liabilities relate to certain of our acquisitions. The estimated fair value of the contingent consideration was based primarily on our estimates of meeting the applicable contingency conditions as per the terms of the applicable agreements. These include estimates of various operating performance measures and our assessment of the probability of meeting such results, with the probability-weighted earn-out then discounted to estimate fair value. The various operating performance measures included in these contingent consideration agreements relate to revenue growth rates, the level of services, perpetual license revenues and/or SaaS subscription revenues, the ratio of EBITDA to total revenue, and the level of EBITDA. As these are unobservable inputs, the contingent consideration liabilities are included in Level 3 inputs. See Note 3, Acquisitions – Contingent Consideration.

 

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We have had no transfers of assets/liabilities into or out of Levels 1, 2 or 3 during fiscal 2019 or fiscal 2018. The following table reconciles the change in our Level 3 assets/liabilities for the periods indicated:

 

     Fair Value
Measurements Using
Significant
Unobservable Inputs
 
(in millions)    Level 3  

Balance, April 30, 2018

   $ 12.4  

Contingent consideration

     0.8  

Total (gain) loss recorded in earnings

     (0.2

Currency translation effect

     (0.1
  

 

 

 

Balance, July 31, 2018

   $ 12.9  
  

 

 

 

In addition to the financial assets and liabilities included in the above table, certain nonfinancial assets and liabilities are to be measured at fair value on a nonrecurring basis in accordance with applicable GAAP. This includes items such as non-financial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) and non-financial long-lived asset groups measured at fair value for an impairment assessment. In general, nonfinancial assets including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. As of July 31, 2018, we had not recorded any impairment related to such assets and had no other material nonfinancial assets or liabilities requiring adjustments or write-downs to their current fair value, except for the $45.9 million impairment of certain of our capitalized software costs recorded in the third quarter of fiscal 2018. See Note 8, Property and Equipment – Impairment of Capitalized Software, in notes to the consolidated financial statements for the fiscal year ended April 30, 2018, included in our Annual Report on Form 10-K.

As allowed by applicable FASB guidance, we have elected not to apply the fair value option for financial assets and liabilities to any of our currently eligible financial assets or liabilities. As of July 31, 2018 and April 30, 2018, our material financial assets and liabilities not carried at fair value included our cash equivalents, accounts receivable, accounts payable and accrued expenses. These financial instruments are recorded at their carrying values which are deemed to approximate fair value, generally due to their short periods to maturity.

Fair Value of Long-Term Debt

To estimate fair value of our long-term debt for disclosure purposes, we used recent market transactions and related market quotes of the bid and ask pricing of our long-term debt (Level 2 on the fair value hierarchy). As of July 31, 2018 and April 30, 2018, the total carrying value of our long-term debt was approximately $5.7 billion and $5.8 billion, respectively, and the estimated fair value of our long-term debt was approximately $5.8 billion and $6.0 billion, respectively.

6. Accounts Receivable, Net

Accounts receivable, net is comprised of the following for the periods indicated:

 

(in millions)    July 31,
2018
     April 30,
2018
 

Accounts receivable

   $ 409.2      $ 462.5  

Unbilled accounts receivable (1)

     46.0        63.5  

Less: allowance for doubtful accounts

     (22.7      (20.1
  

 

 

    

 

 

 

Accounts receivable, net

   $ 432.5      $ 505.9  
  

 

 

    

 

 

 

 

(1)

Unbilled accounts receivable of $15.8 million were reclassed to other current assets on our Condensed Consolidated Balance Sheets as “contract assets” as of May 1, 2018, with the adoption of ASC 606.

 

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With the adoption of ASC 606, the accounts receivable and unbilled accounts receivable balances as of July 31, 2018, are comprised of amounts for which we have an unconditional right to collect.

The accounts receivable balance as of April 30, 2018, is comprised of gross amounts invoiced to customers, and the unbilled accounts receivable balance reflects all revenue recognized on arrangements for which billings had not yet been presented to customers because the amounts were earned but not contractually billable as of that date.

We have established an allowance for estimated amounts that will not be collected and have adjusted transaction prices used in revenue recognition for estimated billing adjustments. We record provisions for doubtful accounts as a component of general and administrative expense, and we record estimated billing adjustments as a form of variable consideration impacting revenue recognized in our Condensed Consolidated Statements of Operations.    

The following is a rollforward of our allowance for doubtful accounts for the periods indicated:

 

(in millions)   

Balance, April 30, 2018

   $ 20.1  

Provision

     5.2  

Write-offs and recoveries

     (2.2

Currency translation effect

     (0.4
  

 

 

 

Balance, July 31, 2018

   $ 22.7  
  

 

 

 

7. Intangible Assets, Net

Our intangible assets, net consist of the following for the periods indicated:

 

     July 31, 2018      April 30, 2018         
     Gross                    Gross                    Estimated  
     Carrying      Accumulated             Carrying      Accumulated             Useful Lives  
(in millions)    Amounts      Amortization      Net (1)      Amounts      Amortization      Net      (in years)  

Customer contracts and relationships

   $ 2,041.4      $ 1,525.2      $ 516.2      $ 2,061.8      $ 1,518.9      $ 542.9        2 - 15  

Acquired and developed technology

     1,194.4        1,062.7        131.7        1,204.1        1,062.8        141.3        1 - 11  

Tradenames

     140.1        137.0        3.1        140.8        137.0        3.8        1 - 20  

Acquired favorable leases

     2.2        0.5        1.7        2.2        0.4        1.8        5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total

   $ 3,378.1      $ 2,725.4      $ 652.7      $ 3,408.9      $ 2,719.1      $ 689.8     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)

Net intangible assets decreased from April 30, 2018 to July 31, 2018 by approximately $3.0 million due to cumulative foreign currency translation adjustments, reflecting changes in the exchange rates of the currencies of the applicable underlying entities.

 

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The following table presents amortization expense recognized in our Condensed Consolidated Statements of Operations, by asset type, for the periods indicated:

 

     Three Months Ended  
     July 31,  
(in millions)    2018      2017  

Customer contracts and relationships

   $ 24.8      $ 27.1  

Acquired and developed technology

     10.3        16.4  

Tradenames

     0.8        0.9  

Acquired favorable leases

     0.1        0.1  
  

 

 

    

 

 

 

Total

   $ 36.0      $ 44.5  
  

 

 

    

 

 

 

The estimated future annual amortization expense related to these intangible assets as of July 31, 2018, was as follows:

 

(in millions)       

Fiscal 2019 (remaining 9 months)

   $ 104.9  

Fiscal 2020

     129.6  

Fiscal 2021

     120.0  

Fiscal 2022

     76.4  

Fiscal 2023

     54.1  

Fiscal 2024

     48.6  

Thereafter

     119.1  
  

 

 

 

Total

   $ 652.7  
  

 

 

 

8. Accrued Expenses

Accrued expenses consisted of the following for the periods indicated:

 

(in millions)    July 31,
2018
     April 30,
2018
 

Compensation and employee benefits

   $ 150.1      $ 181.4  

Taxes other than income

     24.6        31.4  

Royalties and partner commissions

     32.9        41.3  

Litigation

     47.1        7.0  

Professional fees

     13.8        12.4  

Subcontractor expense

     7.0        7.2  

Interest

     45.1        70.9  

Restructuring

     9.4        11.2  

Asset retirement obligations

     2.0        1.9  

Deferred rent

     4.2        3.9  

Deferred acquisition payments

     4.0        4.3  

Other

     23.1        80.0  
  

 

 

    

 

 

 

Accrued expenses

   $ 363.3      $ 452.9  
  

 

 

    

 

 

 

Included above in other accrued expenses as of April 30, 2018, was approximately $50.0 million in dividends accrued related to our affiliate companies. These dividends were settled in the first quarter of fiscal 2019. See Note 16, Related Party Transactions – Dividends Paid to Affiliates.

 

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9. Equity-Based Compensation

We account for equity-based payments, including grants of employee stock options, restricted stock and other equity-based awards, in accordance with ASC 718, Compensation—Stock Compensation, which requires that equity-based payments (to the extent they are compensatory) be recognized in our results of operations based on their fair values. We utilize the Option-Pricing Method to estimate the fair value of our equity awards. We recognize the effect of forfeitures when they occur. All equity-based payments are based upon equity issued by Infor Enterprise Applications, LP (Infor Enterprise) and IGS Holding LP (IGS Holding), affiliates of the parent company of Infor. Pursuant to applicable FASB guidance related to equity-based awards, we have reflected equity-based compensation expense related to our parent company’s equity grants within our results of operations with an offset to additional paid-in capital for equity-classified awards and to accrued expenses and other long-term liabilities for liability-classified awards on our Condensed Consolidated Balance Sheets.

The following table presents the equity-based compensation expense recognized in our Condensed Consolidated Statements of Operations, by category, for the periods indicated:

 

     Three Months Ended  
     July 31,  
(in millions)    2018      2017  

Cost of SaaS subscriptions

   $ 0.1      $ —    

Cost of consulting services and other fees

     0.3        —    

Sales and marketing

     1.3        —    

Research and development

     0.7        0.2  

General and administrative

     1.3        —    
  

 

 

    

 

 

 

Total

   $ 3.7      $ 0.2  
  

 

 

    

 

 

 

IGS Holding Class D Management Incentive Units

In the second and third quarters of fiscal 2018, IGS Holding granted management incentive units (MIUs) to certain executive officers and non-executive employees of Infor, pursuant to the IGS Holding LP Agreement of Limited Partnership (IGS LP Agreement) and certain MIU agreements. These MIUs are for Class D non-voting units (Class D Units) and vest over four years. We have recorded equity compensation expense of $3.4 million in the three months ended July 31, 2018, related to these grants with no corresponding expense recorded in the comparable prior period.

Modification of Infor Enterprise Management Incentive Units

In the second quarter of fiscal 2018, the outstanding Infor Enterprise Class C MIUs with repurchase features that function as in-substance forfeiture provisions were modified to remove the repurchase features. The removal of the repurchase features made these awards probable of vesting. In accordance with applicable FASB guidance, we treated this as a modification. We recorded equity compensation expense of $27.3 million in the second quarter of fiscal 2018, related to these awards with no corresponding expense recorded in the current quarter.

10. Restructuring Charges

We have recorded restructuring charges related to our acquisitions and on occasion to eliminate redundancies, improve our operational efficiency and reduce our operating costs. These cost reduction measures included workforce reductions relating to restructuring our workforce, the exiting of certain leased facilities and the consolidation of space in certain other facilities. In accordance with applicable FASB guidance, our restructuring charges are broken down into acquisition-related and other restructuring costs. These restructuring charges include employee severance costs and costs related to the reduction of office space. No business activities of the companies that we have acquired were discontinued. The workforce reductions were typically from all functional areas of our operations.

 

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Fiscal 2019 Restructuring Charges

During the first three months of fiscal 2019, we incurred restructuring costs of $5.6 million related to employee severance costs primarily for personnel actions taken in our general and administrative, sales, and product development organizations in our Americas and EMEA regions and facilities charges related to exiting or consolidating space in facilities in the Americas and EMEA regions. During the first three months of fiscal 2019, we made cash payments of approximately $0.9 million related to these actions. We expect to complete the remainder of these actions during the remainder of fiscal 2019.

Fiscal 2018 Restructuring Charges

During fiscal 2018, we incurred restructuring costs for employee severance costs primarily for personnel actions taken in our professional services and sales organizations in our Americas and EMEA and regions and facilities charges related to exiting or consolidating space in facilities in the Americas and EMEA regions. During the first three months of fiscal 2019, we recorded adjustments to these restructuring costs of $0.1 million and we made cash payments of approximately $4.7 million related to these actions. We expect to complete the remainder of these actions during the remainder of fiscal 2019.

Previous Restructuring and Acquisition-Related Charges

Prior to fiscal 2018, we had completed certain restructuring activities related to our ongoing operations as well as a series of acquisition-related restructuring actions. During the first three months of fiscal 2019, we recorded restructuring costs reversals of $0.6 million and we made cash payments of $1.2 million related to these actions. The remaining accruals associated with these prior restructuring charges relate primarily to lease obligations associated with the closure of redundant offices acquired in prior business combinations, as well as contractual payment obligations of severed employees. Actions related to these restructuring activities have been completed.

The following table sets forth the reserve activity related to our restructuring plans for the three-month period ended July 31, 2018. The adjustments to costs in the tables below consist of adjustments to the accrual that were accounted for as an adjustment to current period earnings (Expense) or adjustments to the accrual that were related to the impact of fluctuations in foreign currency exchange rates (Foreign Currency Effect):

 

                   Adjustment to Costs                         Total  
     Balance                   Foreign           Balance      Total Costs      Expected  
     April 30,      Initial            Currency     Cash     July 31,      Recognized      Program  
(in millions)    2018      Costs      Expense     Effect     Payments     2018      to Date      Costs  

Fiscal 2019 restructuring

                    

Severance

   $ —        $ 5.3    $ —       $ —       $ (0.9   $ 4.4    $ 5.3    $ 5.3

Facilities and other

     —          0.3      —         —         —         0.3      0.3      0.3
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total fiscal 2019 restructuring

     —          5.6      —         —         (0.9     4.7      5.6      5.6
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Fiscal 2018 restructuring

                    

Severance

     7.8      —          —         —         (4.6     3.2      17.6      17.6

Facilities and other

     0.3      —          0.1     —         (0.1     0.3      0.6      0.6
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total fiscal 2018 restructuring

     8.1      —          0.1     —         (4.7     3.5      18.2      18.2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Previous restructuring

                    

Severance

     1.4      —          (0.6     (0.1     (0.4     0.3      51.7      51.7

Facilities and other

     2.6      —          —         —         (0.4     2.2      8.6      8.6
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total previous restructuring

     4.0      —          (0.6     (0.1     (0.8     2.5      60.3      60.3
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Previous acquisition-related

                    

Facilities and other

     2.3      —          —         —         (0.4     1.9      6.2      6.2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total previous acquisition-related

     2.3      —          —         —         (0.4     1.9      6.2      6.2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total restructuring

   $ 14.4    $ 5.6    $ (0.5   $ (0.1   $ (6.8   $ 12.6    $ 90.3    $ 90.3
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

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The remaining restructuring reserve accruals related to severance and current facilities costs are included in accrued expenses with the long-term facilities cost reserve included in other long-term liabilities on our Condensed Consolidated Balance Sheets.

The following table summarizes the restructuring charges reflected in our results of operations for the periods indicated for each of our reportable segments including charges related to those functions not allocated to our segments.

 

     Three Months Ended  
     July 31,  
(in millions)    2018      2017  

License

   $ 1.5      $ 1.8  

Maintenance

     0.5        0.6  

Consulting

     0.3        2.3  

General and administrative and other functions

     2.8        —    
  

 

 

    

 

 

 

Total restructuring costs

   $ 5.1      $ 4.7  
  

 

 

    

 

 

 

11. Debt

The following table summarizes our long-term debt balances for the periods indicated:

 

     July 31, 2018     April 30, 2018  
(in millions)    Principal
Amount
    Net
Amount (1)
    Contractual
Rate
    Principal
Amount
    Net
Amount (1)
    Contractual
Rate
 

First lien Term B-6 due February 1, 2022

   $ 2,100.6     $ 2,053.8       4.83   $ 2,125.6     $ 2,075.8       4.65

First lien Euro Term B-2 due February 1, 2022

     1,155.2       1,150.0       3.25     1,207.0       1,201.5       3.25

5.75% first lien senior secured notes due August 15, 2020

     500.0       490.4       5.75     500.0       489.3       5.75

6.5% senior notes due May 15, 2022

     1,630.0       1,623.1       6.50     1,630.0       1,622.6       6.50

5.75% senior notes due May 15, 2022

     409.3       405.9       5.75     422.7       419.1       5.75

Deferred financing fees, debt discounts and premiums, net

     (71.9     —           (77.0     —      
  

 

 

   

 

 

     

 

 

   

 

 

   

Total long-term debt

     5,723.2       5,723.2         5,808.3       5,808.3    

Less: current portion

     (3.0     (3.0       (42.5     (42.5  
  

 

 

   

 

 

     

 

 

   

 

 

   

Total long-term debt - non-current

   $ 5,720.2     $ 5,720.2       $ 5,765.8     $ 5,765.8    
  

 

 

   

 

 

     

 

 

   

 

 

   

 

(1)

Debt balances net of applicable unamortized debt discounts, premiums and deferred financing fees.

The weighted average contractual interest rate at July 31, 2018 and April 30, 2018 was 5.13% and 5.05%, respectively. The effective interest rate of each of our debt obligations is not materially different from the contractual interest rate.

The following table summarizes our future repayment obligations related to the principal debt balances for all of our borrowings as of July 31, 2018:

 

Fiscal 2019 (remaining 9 months)

   $ —    

Fiscal 2020

     27.9  

Fiscal 2021

     533.2  

Fiscal 2022

     3,194.7  

Fiscal 2023

     2,039.3  

Fiscal 2024

     —    

Thereafter

     —    
  

 

 

 

Total

   $ 5,795.1  
  

 

 

 

 

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Credit Facilities

On April 5, 2012, we entered into a secured credit agreement with Infor (US), Inc. as borrower and a syndicate of certain banks and other financial institutions as lenders which consists of a secured revolving credit facility and a secured term loan facility (the Credit Agreement), which was subsequently amended. See Note 12, Debt, in notes to the consolidated financial statements for the fiscal year ended April 30, 2018, included in our Annual Report on Form 10-K, for a description of recent amendments.

The credit facilities are guaranteed by Infor, Inc. and certain of our wholly-owned domestic subsidiaries (the Guarantors), and are secured by liens on substantially all of the borrower’s assets and the assets of the Guarantors. Under the Credit Agreement, we are subject to a financial maintenance covenant that is applicable only for the revolving credit facility and then only for those fiscal quarters in which we have significant borrowings under the revolving credit facility outstanding as of the last day of such fiscal quarter. This covenant would require us to maintain a total leverage ratio not to exceed certain levels as of the last day of any such fiscal quarter. We are subject to certain other customary affirmative and negative covenants as well.

Revolver

The secured revolving credit facility (the Revolver) has a maximum availability of $120.0 million. We have made no draws against the Revolver and no amounts are currently outstanding. However, $11.0 million of letters of credit have reduced the amount available under the Revolver to $109.0 million as of July 31, 2018. Pursuant to the Credit Agreement, there is an undrawn line fee of 0.50% and the Revolver matures on February 1, 2022. Amounts under the Revolver may be borrowed (and reborrowed) to finance working capital needs and for general corporate purposes. While we have made no draws against the Revolver, interest on any future Revolver borrowings will be based on a fluctuating rate of interest determined by reference to either, at our option, an Adjusted LIBOR rate, plus a margin of 2.75% per annum, or an alternate base rate, plus a margin of 1.75% per annum.

Term Loans

Under the term loan facility, we currently have term loans outstanding with an aggregate principal amount of $3,255.8 million as of July 31, 2018, including the Tranche B-6 Term Loan of $2,100.6 million and the Euro Tranche B-2 Term Loan of €987.9 million ($1,155.2 million).

On February 6, 2017, we entered into the $2,147.1 million Tranche B-6 Term Loan. Interest on the Tranche B-6 Term Loan is based on a fluctuating rate of interest determined by reference to either, at our option, an Adjusted LIBOR rate, plus a margin of 2.75% per annum, with an Adjusted LIBOR floor of 1.0%, or an alternate base rate, plus a margin of 1.75% per annum, with a minimum alternative base rate floor of 2.0%. The Tranche B-6 Term Loan matures on February 1, 2022.

On November 22, 2017, we entered into the €1,002.0 million Euro Tranche B-2 Term Loan. Interest on the Euro Tranche B-2 Term Loan is based on a fluctuating rate of interest determined by reference to an Adjusted LIBOR rate, plus a margin of 2.25% per annum, with an Adjusted LIBOR floor of 1.0%. The Euro Tranche B-2 Term Loan matures on February 1, 2022.

Interest on the term loans borrowed under the secured term loan facility (the Term Loans) is payable quarterly, in arrears. Quarterly principal payment amounts are set for each of the Term Loans with balloon payments at the applicable maturity dates. The Term Loans are subject to mandatory prepayments in certain situations.

Senior Notes

Our 6.5% and 5.75% senior notes (the Senior Notes) include $1,630.0 million in aggregate principal amount of our 6.5% Senior Notes and €350.0 million in aggregate principal amount of our 5.75% Senior Notes. The Senior Notes bear interest at the applicable rates per annum, which is payable semi-annually in cash in arrears, on May 15 and November 15 each year. The Senior Notes mature on May 15, 2022. The Senior Notes are general unsecured obligations of Infor (US), Inc. and are guaranteed by Infor, Inc. and certain of our existing and future wholly-owned domestic subsidiaries. Under the indenture governing the Senior Notes, we are subject to certain customary affirmative and negative covenants.

First Lien Senior Secured Notes

Our 5.75% first lien senior secured notes (the Senior Secured Notes) include $500.0 million in aggregate principal and bear interest at the applicable rate per annum that is payable semi-annually in cash in arrears, on February 15 and August 15 each year. The Senior Secured Notes mature on August 15, 2020. The Senior Secured Notes are first lien senior secured obligations of Infor (US), Inc. and are fully and unconditionally guaranteed on a senior secured basis by Infor, Inc., and certain of our existing and future wholly-owned domestic subsidiaries. Under the indenture governing the Senior Secured Notes, we are subject to certain customary affirmative and negative covenants.

 

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Table of Contents

Deferred Financing Fees, Debt Discounts and Premiums

As of July 31, 2018 and April 30, 2018, deferred financing fees, net of amortization, related to our Term Loans, Senior Notes, and Secured Senior Notes of $58.8 million and $62.9 million, respectively, were reflected on our Condensed Consolidated Balance Sheets as a direct reduction in the carrying amount of our long-term debt. In addition, we had deferred financing fees, net of amortization, related to the Revolver of $1.3 million and $1.3 million as of July 31, 2018 and April 30, 2018, respectively, which were reflected on our Condensed Consolidated Balance Sheets in other assets. These deferred financing fees are being amortized over the applicable life of the Term Loans, the Senior Secured Notes and Senior Notes under the effective interest method. For the three months ended July 31, 2018 and 2017, we amortized $4.2 million and $4.1 million, respectively, in deferred financing fees which are included in interest expense, net in our Condensed Consolidated Statements of Operations.

In addition, we have recorded debt discounts, net of premiums and accumulated amortization, of $13.1 million and $14.1 million as of July 31, 2018 and April 30, 2018, respectively, as a direct reduction of the carrying amount of our long-term debt.

Affiliate Company Borrowings

In addition to the debt held by Infor and its subsidiaries discussed above, certain affiliates of the Company have other borrowings which are not reflected in our Condensed Consolidated Financial Statements for any of the periods presented. These affiliate company borrowings are described below.

Holding Company PIK Notes

On April 8, 2014, Infor Software Parent, LLC (HoldCo), an indirect holding company of Infor, Inc., and its direct subsidiary Infor Software Parent, Inc., issued $750.0 million in aggregate principal amount of 7.125%/7.875% Senior Contingent Cash Pay Notes (the HoldCo Notes). The HoldCo Notes mature on May 1, 2021, and bear interest at the applicable rates per annum that is payable semi-annually in arrears, on May 1 and November 1 each year.

Interest is payable entirely in cash, unless certain conditions are satisfied, in which case interest on the HoldCo Notes may be paid by increasing the principal amount of the HoldCo Notes or by issuing new notes (PIK interest), or through a combination of cash and PIK interest. Interest on the HoldCo Notes, if paid in cash, accrues at a rate of 7.125% per annum. PIK interest on the HoldCo Notes accrues at a rate of 7.875% per annum. As of July 31, 2018 and April 30, 2018, the total balance outstanding related to the HoldCo Notes was $750.0 million. We may from time-to-time service interest payments related to the HoldCo Notes. Any payment of interest that we may pay will be funded primarily through dividend distributions from Infor to HoldCo. See Note 16, Related Party Transactions – Dividends Paid to Affiliates.

The HoldCo Notes are HoldCo’s general unsecured senior obligations and are not guaranteed by any of HoldCo’s subsidiaries including Infor. The HoldCo Notes rank equally in right of payment with any future unsecured indebtedness of HoldCo, will be effectively subordinated to any future secured indebtedness of HoldCo to the extent of the value of the collateral securing such indebtedness, and will be structurally subordinated to all of the existing and future indebtedness and other liabilities of HoldCo’s subsidiaries, including Infor’s borrowings under our senior secured credit facilities and our Senior Notes.

12. Income Taxes

Income taxes have been provided in accordance with ASC 740, Income Taxes (ASC 740). The effective tax rate for the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. Our effective tax rate may fluctuate as a result of changes in the forecasted annual income level and geographical mix of our operating earnings as well as a result of acquisitions, changes in liabilities recorded for unrecognized tax benefits, changes in the valuation allowances for deferred tax assets, tax settlements with U.S. and foreign tax authorities, and the impact from changes in enacted tax laws, including changes in tax rates.

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the 2017 Tax Act) that instituted fundamental changes to the taxation of multinational corporations. The 2017 Tax Act included numerous changes to the U.S. tax code that affect our business, including among other things: permanently reducing the U.S. federal corporate tax rate from 35.0% to 21.0%; limiting various business deductions including interest expense; modifying the maximum deduction of certain net operating losses; creating a provision to tax global intangible low-taxed income (GILTI); a base-erosion anti-abuse tax (BEAT); a tax on foreign-derived intangible income (FDII); and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (Transition Tax). In addition, in conjunction with the 2017 Tax Act, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provides guidance on accounting for the tax effects of the 2017 Tax Act. SAB 118 allows for recording certain effects of the 2017 Tax Act as “provisional” during a one-year measurement period, which for the Company will end in the third quarter of fiscal 2019.

 

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Our income tax provision and overall effective tax rates were as follows for the periods indicated:

 

     Three Months Ended
July 31,
 
(in millions, except percentages)    2018     2017  

Income tax provision

   $ 2.2     $ 5.7  

Effective income tax rate

     2.8     (3.4 )% 

Our provision for income taxes differs from the tax computed at the U.S. federal statutory rate primarily due to certain earnings considered as indefinitely reinvested in foreign operations, state taxes, and foreign earnings taxed at lower income tax rates than in the U.S.

The change in our effective tax rate for the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018 was primarily driven by an increase in the amount of U.S. earnings and U.S. tax subject to a full valuation allowance offset, an increase in the amount of foreign earnings subject to foreign tax at a lower foreign tax rate, a reduction of the valuation allowance for foreign earnings, and an increase in the amount of unrecognized tax benefits.

During the first quarter of fiscal 2019, we have not reported any adjustments to the provisional amounts for the income tax effects of the 2017 Tax Act recorded in fiscal 2018. As of July 31, 2018, we have not yet completed our accounting for the income tax effects of the 2017 Tax Act. We expect to finalize the financial statement impact of the 2017 Tax Act as soon as practical, but not later than December 22, 2018, in the third quarter of fiscal 2019. The ultimate impact of the 2017 Tax Act may materially differ from the provisional amounts we have recorded, due to, among other things, additional analyses, changes in interpretations and assumptions that we have made and additional regulatory guidance that may be issued.

During the upcoming twelve months ending July 31, 2019, we expect a net reduction of approximately $6.6 million of unrecognized tax benefits, primarily due to the expiration of statutes of limitation in various jurisdictions.

Our deferred tax assets were $117.5 million and $77.4 million as of July 31, 2018 and April 30, 2018, respectively. We believe it is more likely than not that the net deferred tax assets will be realized in the foreseeable future. Realization of our net deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credit carryforwards. The amount of net deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.

We continued to examine various tax structuring alternatives that may be executed during the remainder of fiscal 2019, which could provide additional positive evidence in our valuation allowance considerations that may result in further foreign valuation releases. This includes actions that we may take in response to the enactment of the 2017 Tax Act.

As of July 31, 2018, we continue to consider available cash balances that existed at the end of fiscal 2017 related to undistributed pre-fiscal 2018 earnings and profits of certain U.S.-owned foreign subsidiaries to be indefinitely reinvested with certain limited exceptions. However, as a result of the 2017 Tax Act, pursuant to SAB 118, we are reassessing our intentions related to our indefinite reinvestment assertion as part of our provisional estimates. Should we decide to no longer indefinitely reinvest such earnings outside the U.S., we would have to adjust the income tax provision in the period such determination is made.

13. Comprehensive Income (Loss)

Comprehensive income (loss) is the change in equity of a business enterprise from non-stockholder transactions impacting stockholders’ deficit that are not included in the statement of operations and are reported as a separate component of stockholders’ deficit. Other comprehensive income (loss) includes the change in foreign currency translation adjustments, changes in defined benefit plan obligations, and unrealized gain (loss) on derivative instruments.

We report accumulated other comprehensive income (loss) as a separate line item in the stockholders’ deficit section of our Condensed Consolidated Balance Sheets. We report the components of comprehensive income (loss) on our Condensed Consolidated Statements of Comprehensive Income (Loss).

 

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Total accumulated other comprehensive income (loss) and its components were as follows for the periods indicated:

 

(in millions)    Foreign
Currency
Translation
Adjustment
    Funded Status
of Defined
Benefit
Pension Plan (1)
    Accumulated
Other
Comprehensive
Income (Loss)
 

Balance, April 30, 2018

   $ (123.1   $ (18.3   $ (141.4
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (42.4     0.9       (41.5

Less: other comprehensive (income) loss attributable to noncontrolling interests

     0.1       —         0.1  
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) attributable to Infor, Inc.

     (42.3     0.9       (41.4
  

 

 

   

 

 

   

 

 

 

Balance, July 31, 2018

   $ (165.4   $ (17.4   $ (182.8
  

 

 

   

 

 

   

 

 

 

 

(1)

Funded status of defined benefit pension plan is presented net of tax benefit of $3.5 million and $3.5 million as of July 31, 2018 and April 30, 2018, respectively.

The components of other comprehensive income (loss), including amounts reclassified out of accumulated other comprehensive income (loss), were as follows for the periods indicated:

 

(in millions)           Income Tax         

Three Months Ended

   Before-Tax      (Expense) Benefit      Net-of-Tax  

July 31, 2018

        

Foreign currency translation adjustment

   $ (42.4    $ —        $ (42.4

Change in funded status of defined benefit plans

     0.9        —          0.9  
  

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss)

   $ (41.5    $ —        $ (41.5
  

 

 

    

 

 

    

 

 

 

July 31, 2017

        

Foreign currency translation adjustment

   $ 167.6      $ —        $ 167.6  

Change in funded status of defined benefit plans

     0.1        —          0.1  

Derivative instruments unrealized gain (loss)

     (1.2      1.1        (0.1

Reclassification adjustments:

        

Amortization of derivative instruments unrealized loss

     3.0        (1.2      1.8  
  

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss)

   $ 169.5      $ (0.1    $ 169.4  
  

 

 

    

 

 

    

 

 

 

During fiscal 2018, we had certain derivative financial instruments related to interest rate swaps that we had designated as cash flow hedges and which were reflected in other comprehensive income and accumulated other comprehensive income in our Condensed Consolidated Statements of Comprehensive Income (Loss) and on our Condensed Consolidated Balance Sheets, respectively. See Note 15, Derivative Financial Instruments, in notes to the consolidated financial statements for the fiscal year ended April 30, 2018, included in our Annual Report on Form 10-K. For the three months ended July 31, 2017, we recorded an unrealized

 

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loss of $1.2 million in other comprehensive income related to the effective portion of these cash flow hedges and we reclassified $3.0 million loss from accumulated other comprehensive income into net income with no corresponding expense recorded in the comparable prior period, which was included in interest expense, net in our Condensed Consolidated Statements of Operations.

14. Commitments and Contingencies

Leases

We have entered into cancelable and non-cancelable operating leases, primarily related to rental of office space, certain office equipment and automobiles. Total rent expense for operating leases was $15.1 million and $14.9 million for the three-month periods ended July 31, 2018 and 2017, respectively.

We have also entered into certain capital lease commitments for buildings, company aircraft, computers and operating equipment and automobiles. Aggregate property acquired through capital leases and the associated depreciation of these assets is included in property and equipment, net on our Condensed Consolidated Balance Sheets. The current portion of capital lease obligations is included in accrued expenses, and the long-term portion of capital lease obligations is included in other long-term liabilities on our Condensed Consolidated Balance Sheets. Our total capital lease obligations were $6.8 million and $7.2 million as of July 31, 2018 and April 30, 2018, respectively.

Litigation

From time to time, we are subject to litigation in the normal course of business. In accordance with applicable FASB guidance, we accrue for litigation exposure when a loss is probable and estimable, and we provide disclosures of matters for which the likelihood of material loss is at least reasonably possible. As of July 31, 2018 and April 30, 2018, we had accrued $47.1 million and $49.2 million, respectively, related to current litigation matters, which are included in accrued expenses and other long-term liabilities on our Condensed Consolidated Balance Sheets. We expense all legal costs to resolve regulatory, legal, tax or other matters in the period incurred and include such costs in general and administrative expenses in our Condensed Consolidated Statements of Operations.

Felleskjøpet Agri SA (FKA) initiated legal proceedings against Infor (Steinhausen) II GmbH (Infor Steinhausen), a wholly-owned subsidiary of the Company, in Norway claiming damages of up to $53.1 million (NOK 420.0 million) related to the suspension and delay of an ERP implementation project. Infor Steinhausen denied FKA’s claims and asserted counterclaims. A trial was conducted in November-December 2017. On February 9, 2018, the court rendered its judgment finding Infor responsible for breach of contract and gross negligence, denying Infor’s counterclaims and awarding FKA certain damages plus applicable interest and legal costs. In addition, on February 23, 2018, FKA filed a motion seeking to amend the judgment to increase the damages awarded by $5.3 million (approximately NOK 42.0 million). On March 19, 2018, the trial court denied FKA’s motion to amend the judgment. We recorded litigation costs of $42.9 million (approximately NOK 338.0 million) in fiscal 2018 in relation to these actions. As of July 31, 2018, we had $42.2 million accrued related to these actions. Infor disputes the judgment and has filed an appeal where it will vigorously contest the lower court’s findings through a re-presentation of all witness testimony and evidence in a de novo proceeding before the appeals court. The appeals court scheduled the appeal hearing for March-April 2019. We continue to believe we have meritorious defenses to FKA’s claims, however, given the inherent unpredictability of litigation, we cannot at this time estimate the final outcome of the appeal of this lawsuit.

We are subject to various other legal proceedings and the risk of litigation by employees, customers, patent owners, suppliers, stockholders or others through private actions, class actions, administrative proceedings or other litigation. While the outcome of these claims cannot be predicted with certainty, we believe that, based on information presently available, the resolution of any such legal matters existing as of July 31, 2018, will not have a material adverse effect on our financial position, results of operations or cash flows.

Guarantees

We typically grant our customers a warranty that guarantees that our product will substantially conform to Infor’s current specifications for 90 days from the delivery date. We also indemnify our customers from third-party claims of intellectual property infringement relating to the use of our products. Infor’s standard software license agreements contain liability clauses that are limited in amount. We account for these clauses under ASC 460, Guarantees. We do not have a history of incurring costs to settle claims or paying awards under these indemnification obligations. Accordingly, we have not recorded any liabilities related to these agreements as of July 31, 2018 and April 30, 2018.

 

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15. Segment and Geographic Information

We are a global provider of enterprise business applications software and services focused primarily on large enterprises and SMBs. We provide industry-specific and other enterprise software products and related services to companies in many industries including manufacturing, distribution, healthcare, public sector, retail, and hospitality. We serve customers in the Americas, EMEA and APAC geographic regions. The following disclosures relate to our reportable segments and geographic regions. All prior period amounts are presented as originally reported and have not been adjusted for adoption of ASC 606 under the modified retrospective transition method. See Note 2, Summary of Significant Accounting Policies – Adoption of New Accounting Pronouncements.

Segment Information

We view our operations and manage our business as three reportable segments: License, Maintenance and Consulting. See Note 1, Nature of Business and Basis of Presentation – Business Segments. It is around these three key sets of business activities that we have organized our business and established budgets, forecasts and strategic objectives, including go-to-market strategies. Within our organization, multiple sets of information are available reflecting various views of our operations including vertical, geographic, product and/or functional information. However, the financial information provided to and used by our chief operating decision-maker (CODM) to assist in making operational decisions, allocating resources and assessing performance reflects revenues, cost of revenues and sales margin for these three segments.

LicenseOur License segment develops, markets and distributes enterprise business software applications including the following types of software: ERP, enterprise HCM, financial management, business intelligence, asset management, enterprise performance management, SCM, service management, manufacturing operations, business project management and property management for hospitality companies. License revenues include subscription revenues related to granting customers access to software products through our SaaS subscription offerings and license fees resulting from products licensed to our customers on a perpetual or term basis. Product license fees result from a customer’s licensing of a given software product for the first time or with a customer’s licensing of additional users for previously licensed products.

Maintenance Our Maintenance segment provides software updates and product support including when-and-if-available upgrades, release updates, regulatory updates and patches, access to our knowledge base and technical support team, technical advice and application management. Generally, these services are provided under annual contracts. Infor’s maintenance agreements are comprehensive customer support programs which entitle customers to various levels of support to meet their specific needs. Infor’s maintenance and customer support offerings are delivered through our global support organization operating from our support centers around the world. Maintenance revenues include product updates and support fees revenues which represent the ratable recognition of fees to enroll and renew licensed products in our maintenance programs. These fees are typically charged annually and are based on the license fees initially paid by the customer. These revenues can fluctuate based on the number and timing of new license contracts, renewal rates and price increases.

ConsultingOur Consulting segment provides software implementation, customization, integration, training and other consulting services related to Infor’s software products. Services in this segment are generally provided under time and materials contracts, and in certain situations, under fixed-fee or maximum-fee contracts. Infor’s consulting offerings range from initial assessment and planning of a project to the actual implementation and post-implementation of a project, including optimizing a customer’s use of our software, as well as training and learning tools designed to help customers become proficient in using Infor’s software quickly and effectively. Consulting services and other revenue include consulting services and other fees revenues from services provided to customers who have licensed Infor’s products.

The measure we use to assess our reportable segments’ operating performance is sales margin. Reportable segment sales margin includes segment revenues net of direct controllable costs. Segment revenues include adjustments to increase revenues that would have been recognized if we had not adjusted certain deferred revenue balances related to acquisitions to their fair values at the time of the acquisition as required by GAAP. Segment costs represent those costs of resources dedicated to each segment, direct sales costs, and allocation of certain operating expenses. Segment costs exclude any allocation of depreciation and amortization related to our acquired intangible assets or restructuring costs.

We do not have any intercompany revenue recorded between reportable segments. The accounting policies for our reportable segments are the same as those used in our consolidated financial statements. We do not assess or report assets or capital expenditures by reportable segment. For disclosure of goodwill by reportable segment see Note 4, Goodwill.

 

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The following table presents revenue and other financial information for our reportable segments for the periods indicated:

 

(in millions, except percentages)    Reportable Segment  

Three Months Ended

   License     Maintenance     Consulting     Total  

July 31, 2018

        

Revenues

   $ 222.2     $ 351.0     $ 209.6     $ 782.8  

Cost of revenues

     77.6       56.0       171.0       304.6  

Direct sales and other costs

     103.0       —         —         103.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Sales margin

   $ 41.6     $ 295.0     $ 38.6     $ 375.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Sales margin %

     18.7     84.0     18.4     47.9

July 31, 2017

        

Revenues

   $ 203.5     $ 351.7     $ 207.8     $ 763.0  

Cost of revenues

     65.6       59.2       164.7       289.5  

Direct sales and other costs

     106.2       —         10.6       116.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Sales margin

   $ 31.7     $ 292.5     $ 32.5     $ 356.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Sales margin %

     15.6     83.2     15.6     46.7

The following table presents a reconciliation of our reportable segment revenues, net of the reversal of purchase accounting revenue adjustments, and our reportable segment sales margin to total consolidated revenues and consolidated income (loss) before income tax for the periods indicated:

 

     Three Months Ended
July 31,
 
(in millions)    2018      2017  

Reportable segment revenues

   $ 782.8      $ 763.0  

Purchase accounting revenue adjustments (1)

     (0.1      (3.3
  

 

 

    

 

 

 

Total revenues

   $ 782.7      $ 759.7  
  

 

 

    

 

 

 

Reportable segment sales margin

   $ 375.2      $ 356.7  

Other unallocated costs and operating expenses (2)

     203.6        197.1  

Amortization of intangible assets and depreciation

     51.6        59.5  

Restructuring costs

     5.1        4.7  
  

 

 

    

 

 

 

Income from operations

     114.9        95.4  

Total other expense, net

     35.1        264.7  
  

 

 

    

 

 

 

Income (loss) before income tax

   $ 79.8      $ (169.3
  

 

 

    

 

 

 

 

(1)

Adjustments to decrease reportable segment revenue for revenue that we would have recognized had we not adjusted acquired deferred revenue as required by GAAP.

(2)

Other unallocated costs and operating expenses include certain sales and marketing expenses, research and development, general and administrative, acquisition-related and other costs, equity-based compensation, as well as adjustments for deferred costs recognized related to acquired deferred revenue.

 

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Geographic Information

The following table presents our revenues from contracts with customers disaggregated by revenue type, which we believe are the categories that best depict how economic factors affect the nature, amount, timing, and uncertainty of applicable revenue and cash flows (see Note 2, Summary of Significant Accounting Policies – Revenue Recognition, for details), and summarized by geographic region, based on the location at which each sale originates, for the periods indicated:

 

(in millions)    Geographic Region  

Three Months Ended

   Americas      EMEA      APAC      Total  

July 31, 2018

           

SaaS subscriptions

   $ 110.8      $ 26.6      $ 18.8      $ 156.2  

Software license fees

     31.3        23.1        11.5        65.9  
  

 

 

    

 

 

    

 

 

    

 

 

 

Software subscriptions and license fees

     142.1        49.7        30.3        222.1  

Product updates and support fees

     221.5        101.7        27.8        351.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Software revenues

     363.6        151.4        58.1        573.1  

Consulting services and other fees

     108.9        82.9        17.8        209.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 472.5      $ 234.3      $ 75.9      $ 782.7  
  

 

 

    

 

 

    

 

 

    

 

 

 

July 31, 2017

           

SaaS subscriptions

   $ 92.0      $ 16.6      $ 14.5      $ 123.1  

Software license fees

     43.6        26.1        8.1        77.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Software subscriptions and license fees

     135.6        42.7        22.6        200.9  

Product updates and support fees

     225.6        98.5        27.1        351.2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Software revenues

     361.2        141.2        49.7        552.1  

Consulting services and other fees

     113.6        76.7        17.3        207.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 474.8      $ 217.9      $ 67.0      $ 759.7  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents our long-lived tangible assets, consisting of property and equipment net of accumulated depreciation, summarized by geographic region:

 

     Geographic Region  
(in millions)    Americas      EMEA      APAC      Total  

July 31, 2018

   $ 119.2      $ 22.0      $ 15.2      $ 156.4  

April 30, 2018

   $ 121.9      $ 22.9      $ 16.1      $ 160.9  

 

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The following table sets forth our revenues by country for the periods indicated:

 

     Three Months Ended
July 31,
 
(in millions)    2018      2017  

United States

   $ 431.0      $ 429.5  

All other countries

     351.7        330.2  
  

 

 

    

 

 

 

Total revenues

   $ 782.7      $ 759.7  
  

 

 

    

 

 

 

Revenues attributable to the United States, our country of domicile, and foreign countries are based on the country in which our customers are located.

The following table sets forth long-lived tangible assets by country at the dates indicated:

 

(in millions)    July 31,
2018
     April 30,
2018
 

United States

   $ 117.2      $ 119.7  

All other countries

     39.2        41.2  
  

 

 

    

 

 

 

Total long-lived tangible assets

   $ 156.4      $ 160.9  
  

 

 

    

 

 

 

Only those countries in which revenues or long-lived assets exceed 10% of our consolidated revenues or long-lived assets are reflected in the above tables. In those fiscal periods when a country’s revenues or long-lived tangible assets are less than 10% of the consolidated totals, applicable amounts are included in “all other countries.”

16. Related Party Transactions

Our largest investors are our Sponsors, an affiliate of Koch Industries, Golden Gate Capital, and Summit Partners. The following is a summary of our transactions with our Sponsors and other related parties.

Sponsor Management and Other Fees

We have entered into advisory agreements with Golden Gate Capital and Summit Partners pursuant to which we have retained them to provide advisory services relating to financing and strategic business planning, acquisitions and investments, analysis and oversight, executive recruiting, certain other services and the reimbursement of reasonable out-of-pocket expenses. These advisory agreements are for an initial term of ten years with the annual management fees payable to Golden Gate Capital and Summit Partners on a quarterly basis. In addition, Infor Enterprise, Golden Gate Capital and Summit Partners have entered into a similar advisory agreement with Koch Equity Development (KED), the investment and acquisition subsidiary of Koch Industries. Under these advisory agreements, the total contractual annual management fee due is approximately $8.0 million which is payable to our Sponsors based on the provisions in the applicable agreements. We recognized these management fees as a component of general and administrative expenses in our Condensed Consolidated Statement of Operations.

 

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The following table sets forth management fees and applicable expenses rendered under the advisory agreements for the periods indicated:

 

     Three Months Ended
July 31,
 
(in millions)    2018      2017  

Koch Industries

   $ 1.0      $ 1.0  

Golden Gate Capital

     0.8        1.2  

Summit Partners

     0.2        0.3  
  

 

 

    

 

 

 

Total management fees and expenses

   $ 2.0      $ 2.5  
  

 

 

    

 

 

 

As of July 31, 2018, approximately $1.1 million, $0.4 million, and $0.1 million of the Sponsor management fees remained unpaid related to Koch Industries, Golden Gate Capital, and Summit Partners, respectively.

In addition, under the advisory agreements the Sponsors may be entitled to receive transaction fees in relation to certain consummated transactions including among others, acquisitions and financing transactions. In the first quarter of fiscal 2018 we expensed buyer transaction fees in connection with the Birst Acquisition of $0.4 million, $0.3 million and $0.1 million paid to Koch Industries, Golden Gate Capital and Summit Partners, respectively. The buyer transaction fees related to the Birst Acquisition were included in acquisition-related and other costs in our Condensed Consolidated Statement of Operations in the applicable periods.

Related Party Operating Activity

Revenues and Expenses

In the normal course of business, we may sell products and services to companies owned by our Sponsors. Revenues from companies affiliated with Koch Industries, Golden Gate Capital and Summit Partners, and are recognized according to our revenue recognition policy as described in Note 2, Summary of Significant Accounting Policies. All of these agreements were entered into at our customary rates. Revenues from companies affiliated with Koch Industries were approximately $7.5 million in the three months ended July 31, 2018, and $4.5 million in the comparable period of fiscal 2018. Revenues from Golden Gate Capital-owned companies were approximately $0.5 million in the three months ended July 31, 2018, and $0.8 million in the comparable period of fiscal 2018. We had revenues of less than $0.1 million from companies owned by Summit Partners in the first three months of fiscal 2019, and less than $0.1 million in the first three months of fiscal 2018.

In addition, we made payments to companies owned by Golden Gate Capital of $0.2 million in the first quarter of fiscal 2019, and $2.0 million in the comparable period of fiscal 2018. We have made an insignificant amount of payments to Koch Industries affiliated companies and companies owned by Summit Partners for products and services in the first quarter of fiscal 2019 and 2018.

Koch SaaS Agreements

Fiscal 2019

In the first quarter of fiscal 2019, we entered into SaaS subscription agreements with affiliates of Koch Industries for various Infor software over terms from three to four years. These agreements totaled approximately $0.4 million with average SaaS subscription revenues of approximately $0.1 million per year.

Fiscal 2018

In fiscal 2018, we entered into a SaaS subscription agreement with Flint Hills Resources, LLC, an affiliate of Koch Industries, under which Flint Hills Resources agreed to a five-year subscription to our EAM software. This agreement totals approximately $11.8 million with SaaS subscription revenues of approximately $2.4 million per year. In addition, we entered into other SaaS subscription agreements with affiliates of Koch Industries for various Infor software products over terms from three to five years. These agreements totaled approximately $1.1 million with average SaaS subscription revenues of approximately $0.2 million per year.

 

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Table of Contents

Equity Contributions

In the first quarter of fiscal 2018, we completed the Birst Acquisition. See Note 3, Acquisitions – Fiscal 2018—Birst. In conjunction with the Birst Acquisition, certain of our Sponsors and senior executives made new capital contributions to Infor Enterprise, an affiliate of the parent company of Infor, of $75.0 million, which was contributed as equity to Infor, Inc. The proceeds from the new equity contribution were used to fund the Birst Acquisition purchase consideration.

Due to/from Affiliates

Infor, through certain of our subsidiaries, had net receivables from our affiliates, HoldCo and GGC Software Parent, LLC, of $58.5 million as of July 31, 2018, and April 30, 2018. These receivables arose primarily due to our payment of deferred financing fees and interest related to certain acquired debt of HoldCo and activity related to the Tax Allocation Agreement, discussed below. These receivables are included in receivable from stockholders in the equity section on our Condensed Consolidated Balance Sheets.

We have entered into a Tax Allocation Agreement with GGC Software Parent, LLC, and HoldCo. Infor is included in the GGC Software Parent, LLC consolidated federal income tax return and the Tax Allocation Agreement sets forth the obligation of Infor and our domestic subsidiaries with regard to preparing and filing tax returns and allocating tax payments under the consolidated reporting rules of the Internal Revenue Code and similar state and local tax laws governing combined or consolidated filings. The Tax Allocation Agreement provides that each domestic subsidiary that is a member of the consolidated, unitary or combined tax group will pay its share of the taxes of the group. In the first three months of fiscal 2019 and 2018, we did not make any payments under the Tax Allocation Agreement.

Dividends Paid to Affiliates

Fiscal 2019

In the first quarter of fiscal 2019 we paid dividends to our affiliate companies totaling $50.0 million.

In April 2018, HoldCo elected to pay the semi-annual interest due related to the HoldCo Notes of approximately $26.7 million in cash with amounts we funded through dividend distributions from Infor to HoldCo of $27.0 million, which were accrued as of April 30, 2018. In addition, as of April 30, 2018, we had accrued dividend distributions of approximately $23.0 million to Infor Enterprise primarily to fund equity distributions to members of our executive management team under certain of their equity awards.

Fiscal 2018

In fiscal 2018, we paid dividends to certain of our affiliates totaling $23.7 million.

In the third quarter of fiscal 2018, we paid dividends to HoldCo totaling $23.7 million related to the funding of semi-annual interest on our affiliate’s debt. In October 2017, HoldCo elected to pay the semi-annual interest due related to the HoldCo Notes of approximately $26.7 million in cash (i) with $3.0 million cash on-hand, and (ii) with amounts we funded through dividend distributions from Infor to HoldCo.

In future periods, we may from time-to-time service additional interest payments related to the HoldCo Notes through further dividend distributions.

17. Supplemental Guarantor Financial Information

The Senior Notes and Senior Secured Notes issued by Infor (US), Inc. are fully and unconditionally guaranteed, except for certain customary automatic release provisions, jointly and severally, by Infor, Inc., its parent company, and substantially all of its existing and future wholly-owned domestic subsidiaries (collectively the Guarantor Subsidiaries). See Note 11, Debt. Its other subsidiaries (collectively, the Non-Guarantor Subsidiaries) are not guarantors of our borrowings. The indentures governing the Senior Notes and Senior Secured Notes limit, among other things, the ability of Infor, Inc. and the Guarantor Subsidiaries to incur additional indebtedness; declare or pay dividends; redeem stock or make other distributions to stockholders; make investments; create liens or use assets as security in other transactions; merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets; enter into transactions with affiliates; and sell or transfer certain assets.

 

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Table of Contents

The following tables set forth requisite financial information of Infor, Inc., Infor (US), Inc., the Guarantor Subsidiaries and Non-Guarantor Subsidiaries including our Condensed Consolidating Balance Sheets as of July 31, 2018 and April 30, 2018, our Condensed Consolidating Statements of Operations and our Condensed Consolidating Statements of Comprehensive Income (Loss) for the three months ended July 31, 2018 and 2017, and our Condensed Consolidating Statements of Cash Flows for the three months ended July 31, 2018 and 2017.

In the second quarter of fiscal 2018, LogicBlox, which was previously designated as an “Unrestricted Subsidiary,” was designated as a “Restricted Subsidiary” and was subsequently merged into Infor (US), Inc. Accordingly, it is included in the Subsidiary Issuer column retrospectively for all periods presented below.

Certain prior period amounts have been reclassified on the Condensed Consolidating Financial Statements below to conform with current year presentation and reflect the adoption of certain accounting standard updates.

In addition, we periodically consolidate our operating subsidiaries, primarily Guarantor Subsidiaries, into Infor (US), Inc. When such consolidations occur, we retrospectively adjust the Subsidiary Issuer and Guarantor Subsidiary columns accordingly for all periods presented below.

Condensed Consolidating Balance Sheets

 

     July 31, 2018  
(in millions)    Infor, Inc.
(Parent)
    Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total
Consolidated
 

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ —       $ 51.7   $ —        $ 287.0    $ —       $ 338.7

Accounts receivable, net

     —         212.6     11.3      208.6      —         432.5

Prepaid expenses

     —         126.3     2.9      43.6      —         172.8

Income tax receivable

     —         13.3     2.1      3.0      —         18.4

Other current assets

     —         21.3     —          8.2      —         29.5

Affiliate receivable

     —         121.7     149.4      230.6      (501.7     —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     —         546.9     165.7      781.0      (501.7     991.9

Property and equipment, net

     —         117.2     —          39.2      —         156.4

Intangible assets, net

     —         546.0     0.2      106.5      —         652.7

Goodwill

     —         2,959.3     62.6      1,580.3      —         4,602.2

Deferred tax assets

     —         0.4     0.8      117.1      (0.8     117.5

Other assets

     —         58.1     4.0      41.9      —         104.0

Affiliate receivable

     —         115.6     —          171.4      (287.0     —    

Investment in subsidiaries

     —         2,102.6     —          —          (2,102.6     —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ —       $ 6,446.1   $ 233.3    $ 2,837.4    $ (2,892.1   $ 6,624.7
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

              

Current liabilities:

              

Accounts payable

   $ —       $ 60.5   $ —        $ 21.7    $ —       $ 82.2

Income taxes payable

     —         0.2     —          67.1      —         67.3

Accrued expenses

     —         159.2     2.3      201.8      —         363.3

Deferred revenue

     —         733.8     27.2      363.1      —         1,124.1

Affiliate payable

     29.4     376.9     2.3      93.1      (501.7     —    

Current portion of long-term obligations

     —         3.0     —          —          —         3.0
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     29.4     1,333.6     31.8      746.8      (501.7     1,639.9

Long-term debt

     —         5,720.2     —          —          —         5,720.2

Deferred tax liabilities

     —         28.6     —          5.1      (0.8     32.9

Affiliate payable

     58.2     171.4     —          57.4      (287.0     —    

Other long-term liabilities

     —         66.2     1.4      116.6      —         184.2

Losses in excess of investment in subsidiaries

     873.9     —         —          —          (873.9     —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     961.5     7,320.0     33.2      925.9      (1,663.4     7,577.2

Total Infor, Inc. stockholders’ equity (deficit)

     (961.5     (873.9     200.1      1,902.5      (1,228.7     (961.5

Noncontrolling interests

     —         —         —          9.0      —         9.0
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (961.5     (873.9     200.1      1,911.5      (1,228.7     (952.5
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ —       $ 6,446.1   $ 233.3    $ 2,837.4    $ (2,892.1   $ 6,624.7
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     April 30, 2018  
(in millions)    Infor, Inc.
(Parent)
    Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total
Consolidated
 

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ —       $ 100.1   $ —        $ 317.5    $ —       $ 417.6

Accounts receivable, net

     —         251.2     12.8      241.9      —         505.9

Prepaid expenses

     —         112.7     2.8      44.5      —         160.0

Income tax receivable

     —         10.1     0.1      3.7      —         13.9

Other current assets

     —         6.2     —          19.1      —         25.3

Affiliate receivable

     —         128.0     142.1      205.8      (475.9     —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     —         608.3     157.8      832.5      (475.9     1,122.7

Property and equipment, net

     —         119.8     —          41.1      —         160.9

Intangible assets, net

     —         573.8     0.3      115.7      —         689.8

Goodwill

     —         2,959.4     62.6      1,628.5      —         4,650.5

Deferred tax assets

     —         0.3     0.1      77.0      —         77.4

Other assets

     —         31.4     2.4      81.4      —         115.2

Affiliate receivable

     —         116.9     —          175.5      (292.4     —    

Investment in subsidiaries

     —         2,100.2     —          —          (2,100.2     —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ —       $ 6,510.1   $ 223.2    $ 2,951.7    $ (2,868.5   $ 6,816.5
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

              

Current liabilities:

              

Accounts payable

   $ —       $ 53.2   $ —        $ 29.4    $ —       $ 82.6

Income taxes payable

     —         0.2     —          60.3      —         60.5

Accrued expenses

     —         262.3     3.2      187.4      —         452.9

Deferred revenue

     —         690.0     27.7      426.1      —         1,143.8

Affiliate payable

     29.4     345.9     1.6      99.0      (475.9     —    

Current portion of long-term obligations

     —         42.5     —          —          —         42.5
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     29.4     1,394.1     32.5      802.2      (475.9     1,782.3

Long-term debt

     —         5,765.8     —          —          —         5,765.8

Deferred tax liabilities

     —         32.3     —          9.6      —         41.9

Affiliate payable

     58.2     175.5     —          58.7      (292.4     —    

Other long-term liabilities

     —         73.4     1.7      161.2      —         236.3

Losses in excess of investment in subsidiaries

     931.0     —         —          —          (931.0     —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,018.6     7,441.1     34.2      1,031.7      (1,699.3     7,826.3

Total Infor, Inc. stockholders’ equity (deficit)

     (1,018.6     (931.0     189.0      1,911.2      (1,169.2     (1,018.6

Noncontrolling interests

     —         —         —          8.8      —         8.8
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (1,018.6     (931.0     189.0      1,920.0      (1,169.2     (1,009.8
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ —       $ 6,510.1   $ 223.2    $ 2,951.7    $ (2,868.5   $ 6,816.5
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Operations

 

     Three Months Ended July 31, 2018  
(in millions)    Infor, Inc.
(Parent)
    Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Revenues:

            

SaaS subscriptions

   $ —       $ 124.4   $ 3.0   $ 28.8   $ —       $ 156.2

Software license fees

     —         28.2     0.8     36.9     —         65.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software subscriptions and license fees

     —         152.6     3.8     65.7     —         222.1

Product updates and support fees

     —         199.6     8.9     142.5     —         351.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software revenues

     —         352.2     12.7     208.2     —         573.1

Consulting services and other fees

     —         94.6     6.2     108.8     —         209.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         446.8     18.9     317.0     —         782.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Cost of SaaS subscriptions

     —         57.2     0.3     10.7     —         68.2

Cost of software license fees

     —         5.8     —         3.7     —         9.5

Cost of product updates and support fees

     —         29.2     0.7     26.1     —         56.0

Cost of consulting services and other fees

     —         80.8     4.2     86.3     —         171.3

Sales and marketing

     —         67.7     4.8     45.3     —         117.8

Research and development

     —         74.9     1.4     47.2     —         123.5

General and administrative

     —         37.9     —         22.2     —         60.1

Amortization of intangible assets and depreciation

     —         40.9     0.1     10.6     —         51.6

Restructuring costs

     —         3.4     —         1.7     —         5.1

Acquisition-related and other costs

     —         3.7     —         1.0     —         4.7

Affiliate (income) expense, net

     —         0.9     0.9     (1.8     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —         402.4     12.4     253.0     —         667.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     —         44.4     6.5     64.0     —         114.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net:

            

Interest expense, net

     —         80.4     —         (0.1     —         80.3

Affiliate interest (income) expense, net

     —         1.8     —         (1.8     —         —    

Other (income) expense, net

     —         (59.7     —         14.5     —         (45.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     —         22.5     —         12.6     —         35.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

     —         21.9     6.5     51.4     —         79.8

Income tax provision (benefit)

     —         (5.9     (2.7     10.8     —         2.2

Equity in (earnings) loss of subsidiaries

     (77.6     (49.8     —         —         127.4     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     77.6     77.6     9.2     40.6     (127.4     77.6

Net income (loss) attributable to noncontrolling interests

     —         —         —         0.3     —         0.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Infor, Inc.

   $ 77.6   $ 77.6   $ 9.2   $ 40.3   $ (127.4   $ 77.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Table of Contents
     Three Months Ended July 31, 2017  
(in millions)    Infor, Inc.
(Parent)
    Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Revenues:

            

SaaS subscriptions

   $ —       $ 103.9   $ 2.2   $ 17.0   $ —       $ 123.1

Software license fees

     —         36.9     2.2     38.7     —         77.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software subscriptions and license fees

     —         140.8     4.4     55.7     —         200.9

Product updates and support fees

     —         203.7     8.7     138.8     —         351.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software revenues

     —         344.5     13.1     194.5     —         552.1

Consulting services and other fees

     —         101.7     5.0     100.9     —         207.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         446.2     18.1     295.4     —         759.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Cost of SaaS subscriptions

     —         45.8     —         7.4     —         53.2

Cost of software license fees

     —         7.7     0.3     4.4     —         12.4

Cost of product updates and support fees

     —         31.4     0.6     27.2     —         59.2

Cost of consulting services and other fees

     —         79.2     3.8     81.7     —         164.7

Sales and marketing

     —         79.9     6.1     45.1     —         131.1

Research and development

     —         72.5     1.3     43.9     —         117.7

General and administrative

     —         34.8     —         19.6     —         54.4

Amortization of intangible assets and depreciation

     —         47.3     0.3     11.9     —         59.5

Restructuring costs

     —         0.7     —         4.0     —         4.7

Acquisition-related and other costs

     —         6.8     —         0.6     —         7.4

Affiliate (income) expense, net

     —         15.3     0.6     (15.9     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —         421.4     13.0     229.9     —         664.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     —         24.8     5.1     65.5     —         95.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net:

            

Interest expense, net

     —         80.0     —         —         —         80.0

Affiliate interest (income) expense, net

     —         1.1     —         (1.1     —         —    

Other (income) expense, net

     —         135.2     0.1     49.4     —         184.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     —         216.3     0.1     48.3     —         264.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

     —         (191.5     5.0     17.2     —         (169.3

Income tax provision (benefit)

     —         3.9     (0.3     2.1     —         5.7

Equity in (earnings) loss of subsidiaries

     175.0     (20.4     —         —         (154.6     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (175.0     (175.0     5.3     15.1     154.6     (175.0

Net income (loss) attributable to noncontrolling interests

     —         —         —         0.3     —         0.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Infor, Inc.

   $ (175.0   $ (175.0   $ 5.3   $ 14.8   $ 154.6   $ (175.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

39


Table of Contents

Condensed Consolidating Statements of Comprehensive Income (Loss)

 

     Three Months Ended July 31, 2018  
(in millions)    Infor, Inc.
(Parent)
    Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Net income (loss)

   $ 77.6   $ 77.6   $ 9.2    $ 40.6   $ (127.4   $ 77.6
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

             

Unrealized gain (loss) on foreign currency translation, net of tax

     —         (0.2     —          (42.2     —         (42.4

Change in defined benefit plan funding status, net of tax

     —         —         —          0.9     —         0.9
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     —         (0.2     —          (41.3     —         (41.5
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     77.6     77.4     9.2      (0.7     (127.4     36.1
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Noncontrolling interests comprehensive income (loss)

     —         —         —          0.2     —         0.2
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Infor, Inc.

   $ 77.6   $ 77.4   $ 9.2    $ (0.9   $ (127.4   $ 35.9
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     Three Months Ended July 31, 2017  
(in millions)    Infor, Inc.
(Parent)
    Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Net income (loss)

   $ (175.0   $ (175.0   $ 5.3    $ 15.1   $ 154.6   $ (175.0
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

             

Unrealized gain (loss) on foreign currency translation, net of tax

     —         0.1     —          167.5     —         167.6

Change in defined benefit plan funding status, net of tax

     —         —         —          0.1     —         0.1

Unrealized gain (loss) on derivative instruments, net of tax

     —         1.7     —          —         —         1.7
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     —         1.8     —          167.6     —         169.4
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (175.0     (173.2     5.3      182.7     154.6     (5.6
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Noncontrolling interests comprehensive income (loss)

     —         —         —          0.2     —         0.2
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Infor, Inc.

   $ (175.0   $ (173.2   $ 5.3    $ 182.5   $ 154.6   $ (5.8
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Cash Flows

 

     Three Months Ended July 31, 2018  
(in millions)    Infor, Inc.
(Parent)
    Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Net cash provided by (used in) operating activities

   $ —       $ 58.1   $ —        $ (23.2   $ —       $ 34.9
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

             

Acquisitions, net of cash acquired

     —         2.5     —          —         —         2.5

Purchases of property, equipment and software

     —         (17.6     —          (2.5     —         (20.1
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     —         (15.1     —          (2.5     —         (17.6
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

             

Dividends received

     50.0     —         —          —         (50.0     —    

Dividends paid

     (50.0     (50.0     —          —         50.0     (50.0

Payments on capital lease obligations

     —         (0.3     —          (0.3     —         (0.6

Payments on long-term debt

     —         (38.4     —          —         —         (38.4

(Payments) proceeds from affiliate within group

     —         (2.2     —          2.2     —         —    

Other

     —         (0.4     —          —         —         (0.4
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     —         (91.3     —          1.9     —         (89.4
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     —         —         —          (7.4     —         (7.4
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     —         (48.3     —          (31.2     —         (79.5

Cash, cash equivalents and restricted cash at the beginning of the period

     —         100.0     —          329.7     —         429.7
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

   $ —       $ 51.7   $ —        $ 298.5   $ —       $ 350.2
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

     Three Months Ended July 31, 2017  
(in millions)    Infor, Inc.
(Parent)
     Infor (US), Inc.
(Subsidiary Issuer)
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations      Total
Consolidated
 

Net cash provided by (used in) operating activities

   $ —        $ 15.3   $ —        $ (19.1   $ —        $ (3.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flows from investing activities:

               

Acquisitions, net of cash acquired

     —          (68.7     —          1.6     —          (67.1

Purchases of property, equipment and software

     —          (18.4     —          (6.1     —          (24.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     —          (87.1     —          (4.5     —          (91.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flows from financing activities:

               

Equity contributions received

     —          75.0     —          —         —          75.0

Payments on capital lease obligations

     —          (0.4     —          (0.4     —          (0.8

Payments on long-term debt

     —          (8.2     —          —         —          (8.2

Other

     —          (0.4     —          (5.7     —          (6.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     —          66.0     —          (6.1     —          59.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     —          —         —          8.0     —          8.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     —          (5.8     —          (21.7     —          (27.5

Cash, cash equivalents and restricted cash at the beginning of the period

     —          89.1     —          230.0     —          319.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

   $ —        $ 83.3   $ —        $ 208.3   $ —        $ 291.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

41


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and result of operations for the fiscal period ended July 31, 2018, should be read in conjunction with the audited financial statements of Infor, Inc. for our fiscal year ended April 30, 2018, which are included in our Annual Report on Form 10-K, filed with the SEC on June 28, 2018 (our Annual Report on Form 10-K), and related notes thereto.

Any reference to Infor, we, our, us or the Company refers to Infor, Inc. and its consolidated subsidiaries.

Management Overview

General

Infor is one of the largest providers of enterprise software and services in the world. We provide industry-specific and other enterprise software products and related services, primarily to large enterprises and small-to-midsize companies (SMB) in many industries, including manufacturing, distribution, healthcare, public sector, retail, and hospitality. We deliver integrated enterprise business solutions and offer software license updates and product support as well as other services including consulting, advanced product services, hosting and education.

We offer a broad range of software applications and industry-specific solutions that we believe help our customers improve their business processes and reduce costs, resulting in better business or operational performance. Our software products are often “mission critical” for many of our customers as they automate and integrate essential business processes to better manage suppliers, partners, customers, employees, and general business operations. Our industry-specific approach differentiates us from our large enterprise software competitors, whose primary focus is on business applications that are less specialized, require costly customization, and impede companies’ ability to maximize the value of their business data. We believe our products better prepare companies to compete in the digital age by modernizing their operations and enabling business insights and analytics derived from “mission critical” data in the enterprise and across the supply chain, as well as providing a lower relative total cost of ownership.

We specialize in and target specific industries, or verticals, with integrated software suites of our industry-specific applications as well as horizontal (industry-nonspecific) applications. Our industry CloudSuites are built around one of our industry-specific ERP applications. Our horizontal applications augment the ERP to manage industry-nonspecific processes, including CRM, EAM, financial management, HCM, SCM. Underlying our software suites is Infor OS, our foundational operating system that integrates applications, delivers business insights and analytics, and enables flexibility to support changing business conditions and growth. Our suites are also integrated with our GT Nexus commerce network, which helps manage flow of inventory, transactions, and information across a global supply chain.

We generate revenue primarily from providing access to software products through our SaaS subscription offerings, the sale of perpetual or term software licenses granting customers use of our software products, providing product updates and support and providing consulting services to our customers. We operate in three segments: License, Maintenance and Consulting. We market and sell our software and services primarily through a direct sales force, which is augmented by systems integrators and resellers. In addition to providing software products, we generate substantial recurring revenue by providing on-going software support services to our customers through our maintenance and support programs. The product updates and support we provide are valued by our customers as evidenced by our high annual maintenance retention rates. We also help our customers implement and use our applications effectively through our consulting services offerings, including training, implementation and consulting services.

We serve a large, diverse and sophisticated global customer base across three geographic regions—the Americas, EMEA and APAC. Our customers range from Fortune 500 enterprises to SMBs. We have approximately 16,950 employees worldwide and have offices in 45 countries. We have established a worldwide infrastructure for distribution, development and support of our enterprise software. This worldwide coverage provides us with both economies of scale and the ability to leverage our geographical expertise to effectively enter new markets and segments. In the first three months of fiscal 2019, our Americas, EMEA and APAC regions generated approximately 60.4%, 29.9% and 9.7% of our revenues, respectively. Though we have a considerable presence outside of the U.S. today, we believe we have significant opportunities to expand internationally and capture market share, in particular in EMEA as more companies embrace cloud application deployment, and in APAC as countries achieve the critical infrastructure to support cloud business applications.

 

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Table of Contents

Adoption of New Accounting Standards

Effective May 1, 2018, we adopted the FASB guidance related to revenue recognition included in ASC 606, Revenue from Contracts with Customers (ASC 606), using the modified retrospective transition method. See Note 2, Summary of Significant Accounting Policies – Adoption of New Accounting Pronouncements. As a result, we have changed our accounting policy for revenue recognition. Our results of operations for reporting periods beginning after April 30, 2018, are presented under ASC 606, while amounts for prior periods have not been adjusted and continue to reflect amounts as originally reported in accordance with our historic accounting under ASC 985-605, Software—Revenue Recognition (ASC 985-605), for revenues related to software license, product updates and support, and related service revenues, and ASC 605, Revenue Recognition (ASC 605), for revenues related to non-software deliverables such as SaaS subscriptions and related service revenue.

Acquisitions

An acquisition program is an important element of our corporate strategy. We have invested billions of dollars to acquire a number of complementary companies, products, services and technologies. We believe our acquisition program strengthens our competitive position, enhances the products and services that we can offer to customers, expands our customer base, provides greater scale to accelerate innovation, grows our revenues and earnings, and increases our overall value. We expect to continue to acquire companies, products, services and technologies in furtherance of our corporate strategy. See Note 3, Acquisitions, for additional information related to our recent acquisitions. Operating results relating to these acquisitions have been included in our results of operations as of the applicable acquisition dates.

We believe we can fund future acquisitions with our internally available cash, cash equivalents and marketable securities, cash generated from operations, future equity contributions from our Sponsors, or additional borrowings. We estimate the financial impact of any potential acquisition with regard to earnings, operating margin, cash flow and return on invested capital targets before deciding to move forward with an acquisition.

Fiscal 2018 Acquisitions

Asset Acquisition

On February 2, 2018, we acquired certain assets of Arvato Systems GmbH, based in Guetersloh, Germany. We acquired Arvato’s order management system, Aroma®, for $27.9 million, including contingent consideration of $8.1 million recorded at the time of the acquisition. The total purchase price may also include up to an additional $26.9 million if certain future performance conditions are met during our fiscal years 2019 through 2022.

Birst

On May 31, 2017, we acquired Birst, Inc. (Birst) for $68.5 million, net of cash acquired and including contingent consideration of $0.3 million recorded at the time of the acquisition (the Birst Acquisition). The total purchase price may also include up to an additional $29.7 million if certain future performance conditions are met.

Financing Activities

Over the past few fiscal years, we have undertaken significant financing activities in conjunction with our acquisitions and the recapitalization and refinancing of our debt structure.

In the fourth quarter of fiscal 2018, we amended our Credit Agreement, which provided for an extension of the maturity date for the Revolver to February 1, 2022.

In the third quarter of fiscal 2018, we amended our Credit Agreement to refinance our outstanding Euro-based first lien term loans under our credit facilities at favorable interest rates.

See Liquidity and Capital Resources – Long-Term Debt, below for details of these financing activities.

In the first quarter of fiscal 2018, we completed the Birst Acquisition. See Note 3, Acquisitions – Fiscal 2018 - Birst. In conjunction with the Birst Acquisition, certain of our Sponsors and senior executives made capital contributions of $75.0 million which were used to fund the Birst Acquisition purchase consideration.

 

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Non-GAAP Financial Measures

Our results of operations in this Management’s Discussion and Analysis are presented in accordance with accounting principles generally accepted in the United States (GAAP). In addition to reporting our financial results in accordance with GAAP, we present certain non-GAAP financial measures as well. Presentation of these non-GAAP measures allows users to review our results of operations from the same perspective as management and our Board of Directors. These non-GAAP measures include non-GAAP revenues and Adjusted EBITDA. See Non-GAAP Financial Measure Reconciliations below for additional information regarding our use of these non-GAAP financial measures and reconciliations to the corresponding GAAP measures.

Foreign Currency

A significant portion of our business is conducted in currencies other than the U.S. Dollar, particularly the Euro and British Pound. Our revenues and operating expenses are affected by fluctuations in applicable foreign currency exchange rates. Downward fluctuations in the value of the U.S. Dollar compared to a foreign currency generally have the effect of increasing our revenues but also increasing our operating expenses denominated in currencies other than the U.S. Dollar. Similarly, strengthening in the U.S. Dollar compared to foreign currency exchange rates generally has the effect of reducing our revenues but also reducing our operating expenses denominated in currencies other than the U.S. Dollar. In addition, we have certain intercompany transfer pricing transactions, intercompany loans and other intercompany transactions that are not considered permanent in nature. Fluctuations in applicable foreign currency exchange rates on these intercompany balances may impact our results of operations.

For the first quarter of fiscal 2019, the average exchange rates for the U.S. Dollar against the Euro and British Pound weakened by approximately 4.0% and 3.1%, respectively, as compared to the average exchange rates for the first quarter of fiscal 2018.

Our international operations have provided and will continue to provide a significant portion of our total revenues and expenses. As a result, total revenues and expenses will continue to be affected by changes in the U.S. Dollar against major international currencies. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the percent change in the results from one period to another period using constant currency disclosure. To present this information, the most current period results for our entities reporting in currencies other than the U.S. Dollar are converted into U.S. Dollars at constant exchange rates (i.e., the average rates in effect in the prior comparable period) rather than the actual exchange rates in effect during the respective period. In each of the tables below, we present the percent change based on actual results in reported currency and in constant currency.

The following tables summarize the period-over-period change, both in U.S. Dollars and percentages, in revenues and costs and expenses, isolating the fluctuations in exchange rates from changes in activity and pricing on a constant currency basis for the periods indicated:

 

(in millions, except percentages)

Three Months Ended July 31,

2018 vs. 2017

   Change Due
to Currency
Fluctuations
     Change in
Constant
Currency
    Total Change     Change Due
to Currency
Fluctuations
    Change in
Constant
Currency
    Total Change  

Revenues:

             

SaaS subscriptions

   $ 0.5    $ 32.6   $ 33.1     0.4     26.5     26.9

Software license fees

     0.3      (12.2     (11.9