Stricken database supplier Informix used the announcement of a third quarter loss of $110.7 million to admit that it has restated $236 million of inaccurately reported profits dating back as far as 1994.
Informix chief executive Robert Finocchio went to New York on Tuesday to meet with Wall Street analysts in a bid to state the company?s case as it finally revealed the extent of the financial mismanagement of the former management team at the once high-flying database supplier.
"We have made significant progress," insisted Finocchio, who was appointed as chief executive earlier this year when his predecessor Phil White was replaced following the company?s collapse into massive losses as a result of dubious revenue recognition practices. "Today's financial restatement is a thorough, comprehensive answer to questions regarding Informix's past revenue recognition and related matters.?
Clearly keen to take all his pain in one sitting, Finocchio finally admitted that the company is being formally investigated by the US Securities and Exchange Commission (SEC). While this had been widely known in Silicon Valley, the company had declined to discuss the matter previously. ?In the light of the restatement, we are not surprised that there is an SEC investigation and we are co-operating fully,? he said.
The scale of the restatement was greater than the market had been led to expect. In September, Informix admitted that it wold restate its 1995 and 1996 results following the initiaition of a company audit by Finocchio upon his appointment. It was said then that the restatement might exceed $250 million. In the event, the scale of the mismanagement was such that the restatement had to reach back as far as 1994.
Net income was out by $236 million while revenues were $278 million wrong.
While declining to go into specific detail about culpability - shareholder law suits are still pending against the company and its former management team - Finocchio said that the ?irregularities? came in various forms, but were primarily the result of lack of employee compliance with internal procedures.
One of the main causes of the company?s problems was the was it recognised revenue from resellers, who make up 50% of its total revenue. The firm was booking money as soon as product was shipped to the channel, not when it was sold on to the end user. This policy has now been removed and revenue will not be booked when product is still in the channel.
The company has also amended its 1997 first and second quarter results in line with the overall restatement. This has had the effect of increasing revenue at the half year mark from an originally reported $298.4 to $331.2 million. A reported loss of $260.6 million was reduced to $255.6 million.
Revenues for the third quarter were $149.9 million with a net loss of $110.7 million, which includes a $49.7 million restructuring charge. North American revenues were $75.1 million, European revenues were $44.8 million, and Intercontinental revenues were $30.1 million. "This was a very weak third quarter, but this was expected -- particularly in light of the uncertainty caused by the announcements of our extended financial review process and the financial restatement we made during the period,? said Finocchio.
With renewed emphasis on cutting costs, Informix reduced operating expenses from approximately $235 million in the first quarter of 1997 to approximately $195 million in the third quarter, with a run rate currently below $185 million. The company has also reduced the number of employees from roughly 4,500 at the end of 1996 to approximately 3,600 in November. Spending on R&D, service and support remain constant.
With the bad news out of the way, Finocchio set out to convince Wall Street that the company has a chance at staging a recovery. First off, he revealed that an affiliate of Credit Suisse First Boston has lent the the firm $50 million. This comes on top of a $40 million equity investment by New York firm Fletcher International in August. The company has also negotiated a $75 million two year lineof credit with the Bank of Boston and Canadian Imperial Bank.
Finocchio has also managed to raise some ready cash to the tune of $60 million by disposing of land in Santa Clara to chip manufacturere Intel and a development venture led by Tishman Speyer Properties. The first $27 million has been paid already with the balance due next month.
The company can now only wait to see how Wall Street reacts to the candid confessions. There could be good news for the firm on Wednesday if the US Stock Exchange authorities accept Finocchio?s claim that Informix is now compliant with Nasdaq reporting requirements. The company faces delisting from the Exchange for failing to file its statutary financial reports with the SEC. A decision is expected imminently.
But whatever the outcome of that, arch-rival Oracle was quick to put the boot in yesterday, offering Informix customers lucrative trade-in deals on their software if they switch to Oracle products. As part of the deal $100,000 of Informix software can be traded for $70,000 of Oracle, no bills will be sent out for three months and payment can be split into four interest-free lumps. As a final inducement, Oracle will throw in three free days of consultancy.
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