Informix faces SEC investigation
Financial mismanagement has landed Informix in the SEC hot seat.
Stricken database supplier Informix has been forced to restate its results for the past three years as it revealed that Q3 figures were worse than expected, causing the Securities and Exchange Commission (SEC) to launch an investigation.
Informix CEO Robert Finocchio went to New York last week 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.
The scale of the restatement was greater than the market had been led to expect. In September, Informix admitted it would restate its 1995 and 1996 results, following the initiation of a company audit by Finocchio upon his appointment. It was originally thought the restatement might exceed $250 million, but the mismanagement went as far back as 1994. Net income was less than $236 million as previously stated, while revenue was off by $278 million.
'We have made significant progress,' insisted Finocchio, who was appointed chief executive earlier this year when his predecessor, Phil White, was replaced following the company's collapse into massive losses.
Under investigation
'Today's financial restatement is a thorough, comprehensive answer to questions regarding Informix' past revenue recognition and related matters,' Finocchio said.
He admitted that Informix was being formally investigated by the SEC.
While this had been widely known in Silicon Valley, the company had declined to discuss the matter.
'In light of the restatement, we are not surprised that there is an SEC investigation. We have been co-operating fully,' he said.
While declining to go into specific detail about the situation - shareholder lawsuits are still pending against the company and its former management team - Finocchio said 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 its business practises over revenue from resellers, which make up 50 per cent of its revenue. The firm was booking money as soon as product was shipped to the channel, not when it was sold on to the user.
This policy has now been scrapped and revenue will not be booked when product is still in the channel.
Informix has also amended its Q1 and Q2 results of this year. 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.
Revenue for Q3 ended 30 September was $149.9 million with a net loss of $110.7 million, which included a $49.7 million restructuring charge.
North American revenue was $75.1 million, European revenue was $44.8 million and Intercontinental revenue was $30.1 million.
Tightening the belt
'It was a very weak Q3, 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 about $235 million in Q1 1997 to $195 million in Q3, with a run-rate currently below $185 million.
The company has also reduced its staff from 4,500 at the end of 1996 to 3,600 in November. Spending on research and development, service and support remained constant.
However Finocchio set out to convince Wall Street that Informix has a chance at staging a recovery. He revealed that an affiliate of Credit Suisse First Boston has lent 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 line of credit with the Bank of Boston and Canadian Imperial Bank.
Informix has only to wait and see how Wall Street reacts to the announcement, but the the company faces delisting from the exchange for failing to file its statutory financial reports with the SEC.