-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rc9XEtG8yDtsFIeFhAyJfd3wlwJGeHQqCkAjK6u4qxedIDmE9ZDGLoG6XbPGmRMX KSTJ9cyA3nwUG7rDn/7dsQ== 0000799089-95-000018.txt : 19951120 0000799089-95-000018.hdr.sgml : 19951120 ACCESSION NUMBER: 0000799089-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951115 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMIX CORP CENTRAL INDEX KEY: 0000799089 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943011736 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15325 FILM NUMBER: 95593361 BUSINESS ADDRESS: STREET 1: 4100 BOHANNON DR CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 4159266300 MAIL ADDRESS: STREET 1: 4100 BOHANNON DRIVE CITY: MENLOW PARK STATE: CA ZIP: 94025 10-Q 1 FORM 10-Q FILING SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Quarterly Period ended October 1, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 0-15325 INFORMIX CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3011736 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 4100 Bohannon Drive, Menlo Park, CA 94025 415-926-6300 (Address of Principal Executive Offices, including zip code: registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . At October 27, 1995, 134,566,906 shares of the Registrant's Common Stock were outstanding. Total number of pages 17. PART I. FINANCIAL INFORMATION INDEX
Item Page (1) Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Statements of Income for the three and nine month periods ended October 1, 1995 and October 2, 1994 3 Condensed Consolidated Balance Sheets as of October 1, 1995 and December 31, 1994 4 Condensed Consolidated Statements of Cash Flows for the nine month periods ended October 1, 1995 and October 2, 1994 5 Notes to Condensed Consolidated Financial Statements 6 (2) Management's Discussion and Analysis of Financial Condition and Results of Operations 7
INFORMIX CORPORATION and Subsidiaries Condensed Consolidated Statements of Income
(in thousands, except per share data) (Unaudited) Three months ended Nine months ended October 1, October 2, October 1, October 2, 1995 1994 1995 1994 Net revenues: Licenses $135,572 $ 88,230 $369,120 $245,996 Services 44,951 28,613 122,795 72,633 180,523 116,843 491,915 318,629 Costs and expenses: Cost of software distribution 8,958 6,287 24,975 16,741 Cost of services 22,855 12,510 61,996 33,118 Sales and marketing 76,670 48,587 210,824 134,807 Research and development 21,206 15,907 57,717 43,897 General and administrative 11,940 8,139 34,975 24,847 141,629 91,430 390,487 253,410 Operating income 38,894 25,413 101,428 65,219 Interest income 2,226 1,031 5,563 2,720 Interest expense (319) (44) (538) (213) Other income/(expense), net (352) (478) (56) (1,539) Income before income taxes 40,449 25,922 106,397 66,187 Income taxes 15,168 9,332 39,898 23,827 Net income $ 25,281 $ 16,590 $ 66,499 $ 42,360 Net income per share:** $ 0.18 $ 0.12 $ 0.48 $ 0.32 Weighted average number of common and common equivalent shares outstanding:** 140,038 133,918 139,000 134,188
** Share and per-share amounts applicable to the prior periods have been restated to reflect the two-for-one stock split (effected in the form of a stock dividend) which was effective June 26, 1995. See Notes to Condensed Consolidated Financial Statements. INFORMIX CORPORATION and Subsidiaries Condensed Consolidated Balance Sheets
(in thousands) October 1, December 31, 1995 1994 (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $123,291 $131,882 Short-term investments 87,848 59,644 Accounts receivable, net 171,807 131,548 Deferred taxes 9,978 9,978 Other current assets 20,933 14,964 Total current assets 413,857 348,016 Property and equipment, net 67,189 44,121 Software costs 34,815 24,681 Deferred taxes 7,651 7,651 Long-term investments 9,702 4,477 Intangible assets 42,317 6,089 Other assets 18,615 9,375 Total assets $594,146 $444,410 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,187 $ 18,737 Accrued expenses 30,416 27,784 Accrued employee compensation 41,830 33,777 Income taxes payable 47,275 17,725 Deferred taxes 1,612 1,612 Deferred revenue 61,568 48,580 Other liabilities 10,946 5,337 Total current liabilities 217,834 153,552 Deferred taxes 14,595 14,692 Other liabilities 1,330 522 Stockholders' equity: Common stock 1,345 655 Additional paid-in capital 156,603 139,897 Retained earnings 202,524 136,025 Unrealized gain on available-for-sale securities, net of tax 4,636 665 Foreign currency translation adjustment (4,721) (1,598) Total stockholders' equity 360,387 275,644 Total liabilities and stockholders' equity $594,146 $444,410
(Note) Derived from audited financial statements See Notes to Condensed Consolidated Financial Statements. INFORMIX CORPORATION and Subsidiaries Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited) Three months ended Nine months ended October 1, October 2, 1995 1994 OPERATING ACTIVITIES Net income $ 66,499 $42,360 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Depreciation and amortization 20,294 11,375 Amortization of capitalized software 8,465 5,467 Deferred tax expense 0 450 Provisions for losses on accounts receivable 4,742 1,707 Foreign currency transaction gain (3,688) (2,359) Changes in operating assets and liabilities: Accounts receivable (46,066) 45 Other current assets (8,004) (4,811) Accounts payable and accrued expenses 48,238 13,014 Deferred revenue 12,993 5,124 Net cash and cash equivalents provided by operating activities 103,473 72,372 INVESTING ACTIVITIES Purchases of held-to-maturity securities (124,204) (87,554) Purchases of available-for-sale securities (189) (104,901) Maturities of held-to-maturity securities 64,273 134,783 Sales of available-for-sale securities 26,690 68,465 Purchase of property and equipment (35,952) (19,698) Additions to software costs (18,599) (10,249) Business combinations, net of cash acquired (41,709) 0 Other (3,071) (8,919) Net cash and cash equivalents used in investing activities (132,761) (28,073) FINANCING ACTIVITIES Proceeds from issuance of stock 17,396 469 Principal payments on capital leases, net (1,063) (876) Acquisition of common stock 0 (22,139) Proceeds from reissuance of treasury stock 0 6,871 Net cash and cash equivalents provided by (used in) financing activities 16,333 (15,675) Effect of exchange rate changes on cash and cash equivalents 4,364 1,170 Increase (decrease) in cash and cash equivalents (8,591) 29,794 Cash and cash equivalents at beginning of period 131,882 67,329 Cash and cash equivalents at end of period $123,291 $97,123
See Notes to Condensed Consolidated Financial Statements. INFORMIX CORPORATION and Subsidiaries Notes to Condensed Consolidated Financial Statements October 1, 1995 (Unaudited) Note A - Presentation of Interim Financial Statements All significant adjustments, in the opinion of management, which are normal, recurring in nature and necessary for a fair presentation of the financial position and results of the operations of the Company and its subsidiaries, have been consistently recorded. The operating results for the interim periods presented are not necessarily indicative of expected performance for the entire year. Note B - Net Income Per Share Net income per share is based on the weighted average number of common and dilutive common equivalent shares outstanding during each period. All stock options are considered common stock equivalents and are included in the weighted average computations when the effect is dilutive. Note C - Stockholders' Equity
Reconciliation of outstanding shares: Shares outstanding at July 2, 1995 133,640,097 Shares issued upon exercises of stock options 824,697 Shares sold under terms of the Employee Stock Purchase Plan 55,386 Shares outstanding at October 1, 1995 134,520,180 All share and per-share amounts applicable to the prior periods have been restated to reflect the two-for-one stock split, effected in the form of a stock dividend, which was effective June 26, 1995.
Note D - Business Combinations In January 1995, the Company acquired a 90 percent interest in the database division of ASCII Corporation, a distributor of its products in Japan. The Company will acquire the remaining 10 percent in January 1996. This acquisition has been accounted for as a purchase. The purchase price of this business was approximately $46.0 million, of which $34.8 million has been allocated to intangible assets acquired which are being amortized over a weighted average life of seven years. The operating results of this business have not been material in relation to those of the Company and are included in the Company's consolidated results of operations from the date of acquisition. In April 1995, the Company acquired an 80 percent interest in the database division of Daou Corporation, a distributor of its products in Korea. The Company will acquire the remaining 20 percent by January 1997. This acquisition has been accounted for as a purchase. The purchase price of this business was approximately $4.6 million, of which $4.0 million has been allocated to intangible assets acquired which are being amortized over a weighted average life of seven years. The operating results of this business have not been material in relation to those of the Company and are included in the Company's consolidated results of operations from the date of acquisition. Note E - Subsequent Event In October 1995, the Company acquired Stanford Technology Group (STG), a U.S.-based company that provides on-line analytical processing technology, for approximately 570,000 shares of its common stock. The transaction will be accounted for as a pooling of interests. Since the operating results of STG are insignificant to the Company, prior period annual and quarterly financial statements of the Company will not be restated for this transaction. The Company's results of operations for the year ended December 31, 1995 will include the results of operations of STG for such year, all of which will be recorded in the fourth quarter. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth operating results as a percentage of net revenues for the three and nine month periods ended October 1, 1995 and October 2, 1994, respectively.
Percent of Net Revenues Three months ended Nine months ended October 1, October 2, October 1, October 2, 1995 1994 1995 1994 NET REVENUES: Licenses 75% 76% 75% 77% Services 25% 24% 25% 23% Total net revenues 100% 100% 100% 100% COSTS AND EXPENSES: Cost of software distribution 5% 5% 5% 5% Cost of services 12% 11% 12% 11% Sales and marketing 42% 41% 43% 42% Research and development 12% 14% 12% 14% General and administrative 7% 7% 7% 8% Total operating expenses 78% 78% 79% 80% OPERATING INCOME 22% 22% 21% 20% INTEREST INCOME 1% 1% 1% 1% INTEREST EXPENSE 0% 0% 0% 0% OTHER EXPENSE, NET (0%) (1%) (0%) (0%) INCOME BEFORE INCOME TAXES 23% 22% 22% 21% INCOME TAXES 9% 8% 8% 8% NET INCOME 14% 14% 14% 13%
The following table sets forth the percent change in the operating results for the three and nine month periods ended October 1, 1995 compared to the respective three and nine month periods ended October 2, 1994.
Period-to-Period Percent Increase (Decrease) Three months ended Nine months ended October 1, 1995 vs October 1, 1995 vs October 2, 1994 October 2, 1994 NET REVENUES: Licenses 54% 50% Services 57% 69% Total net revenues 55% 54% COSTS AND EXPENSES: Cost of software distribution 42% 49% Cost of services 83% 87% Sales and marketing 58% 56% Research and development 33% 31% General and administrative 47% 41% Total operating expenses 55% 54% OPERATING INCOME 53% 56% INTEREST INCOME 116% 105% INTEREST EXPENSE 625% 153% OTHER EXPENSE, NET (26%) (96%) INCOME BEFORE INCOME TAXES 56% 61% INCOME TAXES 63% 67% NET INCOME 52% 57%
The Company's operating income in the third quarter and the first nine months of 1995 was 22 percent and 21 percent of net revenues, respectively, compared to 22 percent and 20 percent in the corresponding periods in 1994. Although the Company's operating margins have exceeded or equaled 20 percent over the last several quarters, the Company's expenses are relatively fixed in the near term and unexpected variances in planned revenues, which are difficult to forecast, can result in variations in operating margins and cost ratios. The Company's quarterly operating margins have generally followed a seasonal pattern, with second half revenues and operating margins generally being higher than those of the preceding first half; however, there is no assurance that this seasonal pattern will be repeated. The Company derives revenues principally from licensing its software and providing technical product support and updates to customers. License revenues may involve the shipment of product by the Company or the granting of a license to manufacture products. The Company's products are sold directly to end user customers or through resellers: original equipment manufacturers (OEM's), system integrators, distributors, or application vendors. The Company's revenues have been increasingly derived from sales contracts directly with end-users and less from the distributor or OEM sales channels. These end-user sales contracts can be relatively large in size and are difficult to forecast both in timing and dollar value. In addition, these revenue contracts have relatively lower associated software distribution and selling costs. From time to time the Company has recognized substantial net revenue from these large software license agreements. These transactions, which are difficult to predict, have caused fluctuations in net revenues and net income because of the relatively high gross margin on such revenues. The Company expects that these sorts of transactions and the resulting fluctuations will continue. Throughout the remainder of 1995, the Company will continue to invest more in customer services, marketing and research and development, and make personnel additions to the Company's sales force worldwide. These additional expenses may adversely affect the Company's operating margin in 1995 if there are no offsetting increases in revenues or reductions in other operating expenses. As the number of software products and software patents in the industry increases, the Company believes that software developers may become increasingly subject to infringement claims. There can be no assurance that a third party will not assert that its patents or other proprietary rights are violated by products offered by the Company. Any such claims, with or without merit, can be time-consuming and expensive to defend and could have an adverse effect on the Company's business, results of operations, financial position and cash flows. The Company's stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts or others could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Additionally, as is common in the industry, a disproportionate amount of the Company's license revenue is derived from transactions that close in the last few weeks of a quarter that make quarterly revenues difficult to forecast. The Company may not learn of, or be able to confirm, revenue or earnings shortfalls until the end of each quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Finally, the Company participates in a highly dynamic industry, which often results in significant volatility of the Company's common stock price. Net Revenues
(DOLLARS IN MILLIONS) Quarter ended Nine months ended October 1, October 2, Change October 1, October 2, Change 1995 1994 1995 1994 License fees $135.6 $ 88.2 54% $369.1 $246.0 50% Percentage of net revenues 75% 76% 75% 77% Services $ 44.9 $ 28.6 57% $122.8 $ 72.6 69% Percentage of net revenues 25% 24% 25% 23% Net revenues $180.5 $116.8 55% $491.9 $318.6 54%
The increase in service revenue, which consists of customer support, training and consulting, was primarily attributable to the continued growth of the installed customer base, the renewal of maintenance contracts and increased consulting revenue. The Company continues to emphasize support services as a source of revenue. The revenue growth in the third quarter and the first nine months of 1995 primarily reflects continued strong worldwide acceptance for the Company's new and existing technology and products. Although the Company expects revenues to grow in the remainder of 1995, there can be no assurance that such growth will be achieved or that growth rates in the future will be comparable to those in the first nine months of 1995. The Company's revenues, along with those of the relational database management system (RDBMS) industry as a whole, have shown substantial growth over the last several years. The industry has benefited from trends to downsize from large proprietary computer systems and market acceptance of UNIX and other open operating environments. The Company has focused on the UNIX, open operating system market since 1980 and has broadened its open environments by releasing a Windows and Windows NT version of an Informix database server in 1994. The Company has also developed and released connectivity products to allow access to other relational databases, both proprietary and open, and access to this data through various protocols such as IBM's DRDA and X/Open's XA. The industry movement to new open operating systems like Windows NT and access through low-end, desktop machines may cause downward pressure on prices of database and related products. If such downward pressure on prices were to occur, margins would be adversely affected. The license revenue growth in the third quarter and the first nine months of 1995 reflects continued strong demand for the Company's products, particularly for the Company's new generation of database servers, INFORMIX-OnLine Dynamic Server (TM) . The Company has also started to see revenue growth in the tools area with the introduction of INFORMIX-NewEra (TM), a third-generation client/server application development tool which became available in the second half of 1994. During the third quarter of 1995, the Company introduced, on a limited basis, INFORMIX-OnLine Extended Parallel Server (XPS), a new high- performance, scalable database server based on the Company's Dynamic Scalable Architecture (TM) (DSA) and also introduced INFORMIX- NewEra (TM) 2.0 on the Windows platform. The Company's ability to sustain growth depends in part on the timely release of successful new and updated products, and the success of new and updated products from its competitors. The Company has experienced product delays in the past and may have delays in the future. A key factor in determining the success of the Company will continue to be the ability of the Company's products to interoperate and perform well with existing and future leading, industry-standard application software products intended to be used in connection with relational database management systems. Failure to meet existing or future interoperability and performance requirements of certain independent vendors marketing such applications in a timely manner could adversely affect the market for the Company's products. Over half of the Company's net revenues are derived from its international operations. In Europe and Asia/Pacific, most revenues and expenses are now denominated in local currencies. The U.S. dollar weakened in the first nine months of 1995 against the major European and Asia/Pacific currencies, which resulted in higher revenue and expenses recorded when translated into U.S. dollars and compared with the prior year periods. Through 1994, most revenues from Asia/Pacific, Canada, and Latin America were denominated in U.S. dollars. Accordingly, the translation of the revenues for these regions was less impacted by fluctuations in foreign exchange rates. The Company has increased its direct sales presence in Asia/Pacific by opening offices and acquiring its primary software distributors in Malaysia in 1994, and Japan and Korea in early 1995. This increased the proportion of direct sales denominated in local currency in these regions. The Company has also increased its direct presence in Latin America, although a significant percentage of the revenue is still denominated in U.S. dollars. In the future, the Company expects currency fluctuations in Mexico, and to a lesser extent, other Latin American countries to continue. The Company's operating and pricing strategies take into account changes in exchange rates over time; however, the Company's results of operations may be significantly affected in the short term by fluctuations in foreign currency exchange rates. The Company has a hedging program in place to minimize foreign exchange gains or losses, where possible, from recorded foreign denominated transactions resulting from fluctuations in exchange rates. This program involves the use of forward foreign exchange contracts in the primary European and Asian currencies. The Company has limited unhedged transaction exposures in certain secondary currencies in Latin America, Eastern Europe, and Asia Pacific because there are limited forward currency exchange markets in these currencies. The Company does not attempt to hedge the translation to U.S. dollars of foreign denominated revenues and expenses not yet incurred. The Company's distribution markets are organized into three general markets: North America; Europe, the Middle East, and Africa; and Intercontinental, consisting of Latin America and the Asia-Pacific region. In the third quarter of 1995, these organizations contributed 45 percent, 35 percent, and 21 percent of the Company's net revenues compared to 48 percent, 37 percent, and 15 percent for the same period in 1994. During the first nine months of 1995, these organizations contributed 42 percent, 38 percent, and 20 percent of the Company's net revenues compared to 44 percent, 40 percent, and 16 percent for the same period in 1994. Cost of Software Distribution
(DOLLARS IN MILLIONS) Quarter ended Nine months ended October 1, October 2, Change October 1, October 2, Change 1995 1994 1995 1994 Manufactured cost of software distribution $6.0 $4.3 40% $16.5 $11.3 46% Percentage of license revenue 5% 5% 5% 5% Amortization of capitalized software $2.9 $2.0 48% $ 8.5 $5.4 56% Percentage of license revenue 2% 2% 2% 2% Cost of software distribution $8.9 $6.3 42% $25.0 $16.7 49% Percentage of license revenue 7% 7% 7% 7%
Software distribution costs consist primarily of: 1) manufacturing and related costs such as media, documentation, product assembly and purchasing costs, freight and third party royalties; and 2) amortization of previously capitalized software development costs. The increase in amortization of capitalized software in absolute dollars in the third quarter and the first nine months of 1995 compared to the same periods in 1994 was due to the release of several products in the latter half of 1994 and the first half of 1995. The Company expects that amortization of capitalized software in absolute dollars will continue to increase in the future as new products are released. Manufactured cost of software distribution in the third quarter and the first nine months of 1995, as a percentage of license revenues, remained flat compared to the same periods in 1994. The cost of software distribution as a percentage of license revenue may vary depending upon whether the product is reproduced by the Company or by its customers. Cost of Services
(DOLLARS IN MILLIONS) Quarter ended Nine months ended October 1, October 2, Change October 1, October 2, Change 1995 1994 1995 1994 Cost of Services $22.9 $12.5 83% $62.0 $33.1 87% Percentage of service revenue 51% 44% 51% 46%
Cost of services consists primarily of maintenance, consulting and training expenses. The increase in cost of services in the third quarter and the first nine months of 1995 in absolute dollars and as a percentage of net revenues compared to the corresponding prior year periods is primarily due to the Company's increased expenditures in developing consulting and support services. In the future, the Company expects that cost of services as a percentage of net revenues will approximate the rate in the first nine months of 1995. Sales and Marketing Expenses
(DOLLARS IN MILLIONS) Quarter ended Nine months ended October 1, October 2, Change October 1, October 2, Change 1995 1994 1995 1994 Sales and marketing expenses $76.7 $48.6 58% $210.8 $134.8 56% Percentage of net revenue 42% 41% 43% 42%
The increase in sales and marketing expenses in the third quarter and the first nine months of 1995 in absolute dollars compared to the same periods in 1994 was a result of increased sales headcount worldwide and increased marketing programs associated with new product introductions. With the continuing expansion throughout 1995 of worldwide operations, as well as increased sales and marketing expenditures in 1995 aimed at positioning the Company and its new and existing products in the marketplace, the Company expects that sales and marketing expenses for the remainder of 1995, as a percentage of net revenues, will be similar to those of the first nine months of 1995. Research and Development Expenses The Company accounts for its product development costs in accordance with Statement of Financial Accounting Standards No. 86. This statement requires that once technological feasibility of a developing product has been established, all subsequent costs incurred in developing that product to a commercially acceptable level be capitalized and amortized ratably over the revenue life of the product. The Company's research and development expenses exclude capitalized software costs of $4.8 million and $3.7 million in the third quarters of 1995 and 1994, respectively, and $12.7 million and $9.7 million in the first nine months of 1995 and 1994, respectively, and exclude amortization costs of previously capitalized software. The following table summarizes research and product development costs for the periods ended October 1, 1995 and October 2, 1994:
(DOLLARS IN MILLIONS) Quarter ended Nine months ended October 1, October 2, October 1, October 2, 1995 1994 Change 1995 1994 Change Incurred product development costs $26.0 $19.6 33% $70.4 $53.6 31% Expenditures capitalized 4.8 3.7 30% 12.7 9.7 31% Research and development expenses $21.2 $15.9 33% $57.7 $43.9 31% Expenditures capitalized as a % of incurred 18% 19% n/a 18% 18% n/a Amortization 2.9 2.0 40% 8.5 5.4 56%
The increase in research and development expenditures in absolute dollars in the third quarter and the first nine months of 1995 compared to the corresponding periods in 1994 was resulted from an increase in staff working on new products and product extensions. The higher capitalization in absolute dollars of product development expenditures in the third quarter and the first nine months of 1995 compared to the same periods in 1994 resulted from an increase in the work involved in projects reaching technological feasibility as they neared their release dates. The Company expects the proportion of work on capitalized projects to remain relatively stable throughout the remainder of 1995. Major new programs currently under development include the expansion of the DSA family of servers and connectivity products and subsequent versions of the Company's graphical, object-oriented tool, INFORMIX- NewEra (TM). The Company believes that research and development expenditures are essential to maintaining its competitive position in its primary markets and expects the expenditure levels to increase in absolute dollars. General and Administrative Expenses General and administrative expenses for the third quarter and first nine months of 1995 remained relatively flat as a percentage of net revenues compared to the corresponding periods in 1994. The Company expects general and administrative expenses as a percentage of net revenues for the remainder of 1995 will be consistent with those of the first nine months of 1995.
(DOLLARS IN MILLIONS) Quarter ended Nine months ended October 1, October 2, Change October 1, October 2, Change 1995 1994 1995 1994 General and administrative expenses $11.9 $8.1 47% $35.0 $24.8 41% Percentage of net revenue 7% 7% 7% 8%
Provision for Income Taxes The Company's effective tax rate increased to 37.5 percent of pretax income in the third quarter and the first nine months of 1995 from 36.0 percent in the same periods in 1994. The higher effective tax rate for the third quarter and the first nine months of 1995 was primarily due to the expiration of the U.S. federal research and development tax credit in 1995. The Company anticipates its fiscal 1995 effective tax rate to be approximately 37.5 percent; however, this rate could change based on a change in the geographic mix of the Company's earnings and the amount of permanent reinvestment offshore of a portion of the 1995 earnings of the Company's lower-taxed Irish operations and the potential reinstatement of the U.S. federal research and development tax credit. Impact of Inflation The effect of inflation on the Company's financial position has not been significant. Liquidity and Capital Resources
(IN MILLIONS OF DOLLARS) Quarter ended Nine months ended October 1, October 2, 1995 1994 Cash, cash equivalents, and investments $220.8 $162.5 Working capital 196.0 160.3 Cash provided by operations 103.5 72.4 Cash used in investment activities, excluding investments of excess cash 99.3 38.9 Cash provided by (used in) financing activities 16.3 (15.7)
Cash generated by operations provided sufficient resources to fund the Company's headcount growth and capital asset needs in all periods presented. The increase in net cash and cash equivalents provided by operations in the first nine months of 1995 compared with the same period in 1994 was primarily attributable to higher income before depreciation and amortization charges. Net accounts receivable increased by $40.3 million in the third quarter of 1995 as compared to the fourth quarter of 1994, principally as a result of higher sales, partially offset by strong collections and the use of third party financing programs. Days sales outstanding was 86 in the third quarter of 1995 compared with 79 in the fourth quarter of 1994. Commencing in late 1993, the Company instituted programs to have third-party financial institutions provide financing for extended credit terms instead of such terms being provided by the Company. The days sales outstanding ratio is dependent on many factors, including the mix of contract-based revenue with significant OEMs and large corporate and government end-users versus revenue recognized on shipments to application vendors and distributors and the success of the Company's financing programs. Although a large portion of the Company's revenues are derived from resellers, the Company's revenues since 1993 have shifted substantially from distributors to direct end-users. These end-user sales contracts frequently bear extended payment terms which result in an increase in days sales outstanding ratios unless the contracts are financed. The aforementioned shift in distributor channels is likely to continue as products and markets mature. The Company is using a variety of activities to reduce the days sales outstanding ratio. In the future, the Company expects this ratio to vary within the range which prevailed in the last several quarters; however, there is no assurance that it will do so. Excluding investments of excess cash, net cash and cash equivalents used in investing activities increased in the first nine months of 1995 compared with the same period in 1994. In the first nine months of 1995 and 1994, the Company acquired $36.0 million and $19.7 million, respectively, of capital equipment consisting primarily of computer equipment, computer software and office equipment. The increase of capital equipment purchases in the first nine months of 1995 resulted from the Company's growing employee headcount, the replacement of obsolete equipment and investment in new technology. In the future, the Company anticipates the actual level of capital spending will be dependent on a variety of factors, including the Company's business requirements and general economic conditions. The Company's investments in software costs were previously discussed under "Results of Operations." In January 1995, the Company acquired a 90 percent interest in the database division of ASCII Corporation, a distributor of its products in Japan. The Company will acquire the remaining 10 percent interest in January 1996. The Company accounted for the acquisition as a purchase. The purchase price of ASCII's database division was approximately $46.0 million, of which approximately $34.8 million has been allocated to intangible assets acquired. In April 1995, the Company acquired an 80 percent interest in the database division of Daou Corporation, a distributor of its products in Korea. The Company will acquire the remaining 20 percent by January 1997. The acquisition was recorded as a purchase. The purchase price of this business was approximately $4.6 million, of which approximately $4.0 million has been allocated to intangible assets acquired. In October 1995, the Company acquired Stanford Technology Group (STG), a U.S.-based company that provides on-line analytical processing technology, for approximately 570,000 shares of its common stock. The transaction will be accounted for as a pooling of interests. Net cash and cash equivalents provided by financing activities in the first nine months of 1995 consisted primarily of proceeds from the sale of the Company's common stock to employees, partially offset by payments on capital leases. Net cash and cash equivalents used in financing activities in the first nine months of 1994 included repurchases of the Company's common stock and payments on capital leases, partially offset by proceeds from the sale of the Company's common stock to employees. In 1993 and 1994, the Board of Directors authorized the repurchase of up to 8 million (adjusted to reflect two-for-one stock splits, effected in the form of stock dividends, which were effective June 14, 1993 and June 26, 1995) shares of the Company's common stock in the open market. Through the third quarter of 1995, the Company had repurchased 3,580,000 shares with an aggregate cost of approximately $32.1 million on the open market. The Company expects current balances of cash, cash equivalents, and short-term investments will be sufficient to fund anticipated levels of operations at least through the third quarter of 1996 and may be used for investments and acquisitions to supplement internal revenue growth and for other corporate purposes. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) Exhibits Exhibit 11.1 - Statement Regarding Computation of Earnings Per Share. Exhibit 27 - Financial Data Schedule. B) Reports on Form 8-K. No reports on Form 8-K were filed during the three months ended October 1, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INFORMIX CORPORATION Dated: November 14, 1995 /s/ HOWARD H. GRAHAM Howard H. Graham Senior Vice President, Finance and Chief Financial Officer Dated: November 14, 1995 /s/ RICHARD C. BLASS Richard C. Blass Vice President, Corporate Controller and Chief Accounting Officer EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 INFORMIX CORPORATION STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 1995 1994 1995 1994 Net income $ 25,281 $ 16,590 $ 66,499 $ 42,360 Weighted average outstanding shares 134,050 128,990 132,662 129,318 Net effect of outstanding options 5,988 4,928 5,576 4,870 Weighted average common and common equivalent shares outstanding 140,038 133,918 138,238 134,188 Net income per share $0.18 $0.12 $0.48 $0.32
Fully diluted computation not presented since such amounts differ by less than 3 percent of the net income per share amounts shown above. EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains financial information extracted from the financial statements contained in the Company's Form 10Q for the period ending October 1, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1995 OCT-01-1995 123,291 97,550 171,807 8,901 2,977 413,857 132,379 65,190 594,146 217,834 0 0 0 1,345 359,042 594,146 369,120 491,915 24,975 390,487 0 4,742 538 106,397 39,898 66,499 0 0 0 66,499 0.48 0.48
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