10-K 1 d729704d10k.htm FORM 10-K FORM 10-K
Table of Contents
Index to Financial Statements

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

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

FOR THE FISCAL YEAR ENDED MAY 31, 2014

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, including zip code)

(646) 336-1700

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to section 12(b) of the act: None

Securities registered pursuant to section 12(g) of the act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  x    No  ¨

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  x

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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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   x  (Do not check if a smaller reporting company)   

Smaller reporting company

  ¨

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

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant is zero as of November 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter. The registrant is a privately held corporation.

The number of shares of the registrant’s common stock outstanding on July 21, 2014, was 1,000, par value $0.01 per share.

 

 

 


Table of Contents
Index to Financial Statements

DOCUMENTS INCORPORATED BY REFERENCE

None.


Table of Contents
Index to Financial Statements

INFOR, INC.

FORM 10-K

FISCAL YEAR ENDED May 31, 2014

INDEX

 

PART I.

     

Item 1.

   Business      1   

Item 1A.

   Risk Factors      12   

Item 1B.

   Unresolved Staff Comments      22   

Item 2.

   Properties      22   

Item 3.

   Legal Proceedings      22   

Item 4.

   Mine Safety Disclosures      22   

PART II.

     

Item 5.

   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      23   

Item 6.

   Selected Consolidated Financial Data      24   

Item 7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      25   

Item 7A.

   Quantitative and Qualitative Disclosures about Market Risk      50   

Item 8.

   Consolidated Financial Statements and Supplementary Data      51   

Item 9.

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      51   

Item 9A.

   Controls and Procedures      51   

Item 9B.

   Other Information      52   

PART III.

     

Item 10.

   Directors, Executive Officers and Corporate Governance      53   

Item 11.

   Executive Compensation      53   

Item 12.

   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      53   

Item 13.

   Certain Relationships and Related Transactions and Director Independence      53   

Item 14.

   Principal Accounting Fees and Services      53   

PART IV.

     

Item 15.

   Exhibits and Financial Statement Schedules      53   
   SIGNATURES      54   
   Index to Exhibits      115   


Table of Contents
Index to Financial Statements

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K for the fiscal year ended May 31, 2014, 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, statements about our future acquisitions and product development plans, 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, but not limited to, those that are discussed under Item 1A, Risk Factors, in this annual report.

Given these risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements included in this annual report. These forward-looking statements 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 this annual report and in other documents we file from time to time with the Securities and Exchange Commission (SEC) including our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

INDUSTRY AND MARKET DATA

This annual report includes industry data that we obtained from periodic industry publications. As noted in this annual report, Gartner, Inc. (Gartner) was the primary source for third-party industry data and forecasts. The Gartner report entitled “Forecast Analysis: Enterprise Application Software, Worldwide, 2011-2018, 2Q14 Update; Published: 17 June 2014; ID: G00260913” (the Gartner Report) represents data, research, opinion or viewpoints published, as part of syndicated services, by Gartner and are not representations of fact. The Gartner Report speaks as of its original publication date (and not as of the date of this annual report) and the opinions expressed in the Gartner Report are subject to change without notice. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of such information included in this annual report. We have not independently verified any of the data from these third-party sources or the underlying assumptions on which such data relies.

PART I

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. References to “Lawson” refer to Lawson Software, Inc. (now known as Infor (US), Inc.), a wholly owned subsidiary of Infor, Inc.

Unless otherwise indicated, references to our fiscal year 2014 and prior years mean the fiscal year ended on May 31 of such year. As disclosed in our Current Report on Form 8-K filed with the SEC on April 23, 2014, we have changed our fiscal year end to April 30 effective beginning with our fiscal year 2015. As a result, references to our fiscal year 2015 and beyond mean the fiscal year ended on April 30 of such year. In addition, in transitioning to our new fiscal year end, fiscal 2015 will reflect the 11 month period of June 1, 2014 through April 30, 2015.

 

Item 1. Business

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 and medium-sized enterprises in the manufacturing, distribution, healthcare, public sector, automotive, service industries, equipment services, management and rental (ESM&R), consumer products and retail and hospitality industries. Our software and services offerings are often “mission critical” for many of our customers as they help automate and integrate critical business processes, which enable our customers to better manage their suppliers, partners, customers and employees, as well as their business operations generally. Our industry-specific approach distinguishes us from larger competing enterprise software vendors, whose primary focus is on less specialized software programs that take more time and cost to tailor to target customers’ specific needs during periods of implementation and upgrade. We believe our products and services provide a lower relative total cost of ownership for customers than the offerings of larger competing vendors.

 

1


Table of Contents
Index to Financial Statements

We specialize in and target specific industries, or verticals, and have industry-specific business units that leverage our industry-oriented products and teams. Augmenting our vertical-specific applications, we have horizontal software applications, including our customer relationship management (CRM), enterprise asset management (EAM), financial applications, human capital management (HCM), and supply chain management (SCM) suites which, in addition to our proprietary light-weight middleware solution ION, are integrated with our enterprise software applications and sold across different verticals. In addition to providing software products, we help our customers implement and use our applications more effectively through our consulting services. We also provide on-going support and maintenance services for our customers through our subscription-based annual maintenance and support programs.

We serve a large, diverse and sophisticated customer base of over 70,000 customers world-wide. Our customers range from Fortune 500 enterprises to medium-sized businesses. Our market leadership in key verticals, including manufacturing, distribution, healthcare, public sector, automotive, service industries, ESM&R, consumer products and retail software, and hospitality software, results from the fact that we serve many of the largest and most well-known customers in those verticals. For example, 19 of the top 20 aerospace companies, the top 10 high tech companies, the top 10 pharmaceutical companies, 22 of the top 25 U.S. healthcare delivery networks, the top 20 automotive suppliers, 17 of the top 20 industrial distributors, 16 of the top 20 global retailers, and 4 of the top 5 brewers use our software products.

We serve customers across three geographic regions: the Americas; Europe, Middle East and Africa (EMEA); and Asia Pacific (APAC). We have approximately 12,920 employees worldwide and have offices in 40 countries. We offer our software in 32 languages, and we intend to continue to translate our systems as we enter into new geographical markets. 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. We generated revenues of approximately 57.3% from the Americas, 34.2% from EMEA and 8.5% from APAC in the fiscal year 2014. 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, especially in the EMEA and APAC regions.

We generate most of our revenue through sales of the following offerings: (1) software licenses and software subscriptions; (2) maintenance, which refers to our subscription-based services through which customers have access to product updates and technical support for products they license from us; and (3) consulting services. We market and sell our software and services primarily through a direct sales force, which is augmented by systems integrators and resellers.

We view our operations and manage our business as three reportable segments: License, Maintenance, and Consulting. See Note 20, Segment and Geographic Information, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.

Corporate Information

Infor, Inc. was formed on June 8, 2009, in the State of Delaware, as Steel Holdings, Inc. by Golden Gate Capital. Steel Holdings acquired SoftBrands, Inc. (SoftBrands) on August 13, 2009. Steel Holdings changed its name to GGC Software Holdings, Inc. (GGC Holdings) on April 25, 2011. GGC Holdings acquired Lawson Software, Inc. (Lawson) on July 5, 2011. Both SoftBrands and Lawson were publicly traded companies prior to the acquisitions. We have maintained the SoftBrands and Lawson brands.

The predecessor to Infor Global Solutions Intermediate Holdings Ltd. (IGS Intermediate Holdings) was formed in 2002 with the acquisition of certain assets of Systems & Computer Technology Corporation and completed through a series of subsequent acquisitions. On June 7, 2006, IGS Intermediate Holdings was formed as a Cayman Islands exempted company. The majority of IGS Intermediate Holdings’ capital stock is indirectly owned by Golden Gate Capital. IGS Intermediate Holdings operated through a variety of direct and indirect wholly owned subsidiaries throughout the world.

On April 5, 2012, we completed the combination of GGC Holdings and its subsidiaries with the operating subsidiaries of IGS Intermediate Holdings (such subsidiaries prior to the combination defined here as Infor Global Solutions) and the operations of these entities were merged together under GGC Holdings (the Infor Combination). Both Infor Global Solutions and GGC Holdings were under common control of Golden Gate Capital, and accordingly the financial statements contained herein are presented on a consolidated basis as if Infor Global Solutions and GGC Holdings were combined from the date of inception of common control. Financial statements and financial information presented for prior years have been retrospectively adjusted to furnish comparative information for periods during which the entities were under common control. On April 26, 2012, we formally changed the name of GGC Software Holdings, Inc. to Infor, Inc. In addition, in the first quarter of fiscal 2013, we changed the name of Lawson Software, Inc. to Infor (US), Inc. Transactions between Infor, Inc. and its subsidiaries, including subsidiaries obtained through the combining of GGC Holdings and Infor Global Solutions, have been eliminated for presentation.

Our principal executive offices are located at 641 Avenue of the Americas, New York, NY 10011 and our phone number is (646) 336-1700. Our website is www.infor.com. Other than the information expressly set forth in this annual report, the information contained or referred to on our website is not part of this annual report.

 

2


Table of Contents
Index to Financial Statements

Our Sponsors

We have entered into advisory agreements with both Golden Gate Capital and Summit Partners, L.P. (Summit Partners, and together with Golden Gate Capital, the Sponsors) 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 and certain other services. The Sponsors are our largest investors. See Note 21, Related Party Transactions, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.

Golden Gate Capital

Golden Gate Capital is a San Francisco-based private equity investment firm with approximately $12.0 billion of capital under management. Golden Gate Capital is dedicated to partnering with world-class management teams to invest in change-intensive growth businesses. The principals of Golden Gate Capital have a long and successful history of investing with management teams across a wide range of industries and transaction types, including leveraged buyouts, recapitalizations, corporate divestitures and spin-offs and buildups.

Golden Gate Capital is one of the most active software investors in the world, having invested in or acquired more than 65 software companies since its inception in 2000. Golden Gate Capital’s current portfolio of software companies had combined revenue in 2013 of approximately $8.0 billion.

Summit Partners

Summit Partners provides growth equity to exceptional entrepreneurs and management teams. Founded in 1984, the firm has raised nearly $15.0 billion in capital and provides equity and fixed income for growth, recapitalizations and management buyouts. Summit Partners has invested in more than 385 companies in technology, healthcare and other growth sectors. These companies have completed more than 130 public offerings, and more than 140 have been acquired through strategic mergers and sales. Summit Partners’ strategy is to partner with outstanding management teams that have built their companies to market leadership, and then support growth through strategic advice and operational assistance. Summit Partners maintains offices in North America and Europe, and invests in companies around the world.

Summit Partners is particularly active in the technology sector, having made investments in more than 200 technology companies, including more than 100 software companies. Summit Partners has helped build pioneering companies in the ERP, CRM, information and data security, antivirus, messaging management and archiving, and SaaS categories.

Notable software investments include AVAST, a market-leading provider of premium anti-virus software; Hyperion Software, a provider of business intelligence software (later acquired by Oracle); McAfee, a pioneer in security software (later acquired by Intel); MEDITECH, a leading healthcare software provider; RightNow Technologies, a provider of web-based customer support software and services (later acquired by Oracle); and Unica Corporation, a provider of enterprise marketing management solutions (later acquired by IBM).

Our Strategy

We are focused primarily on medium and large-sized enterprise customers that require advanced software products and services designed specifically for their needs. The principal features of our strategy include:

 

    Microvertical Software Suites. We develop enterprise software applications to meet the specific needs of customers in targeted industries and increasingly for the microvertical segments within these broader industries, generally enabling our customers to have functionality tailored to the unique needs of their businesses and markets. We intend to continue designing, developing and deploying microvertical-specific applications and technologies that maximize ease-of-use and provide a lower total cost of ownership for customers by saving them time and resources during implementation. To maximize the benefits of our solutions, we plan to complement our industry expertise through our professional services organization and strategic relationships with key partners.

 

    Architecture of the Internet. We believe enterprise software and technology have generally lagged the overall advancements delivered during the Internet era. As a result, our intent is to bring these advancements to our customers. For example, our technology approach for integrating the often disparate applications used by our customers is based on the loosely coupled architecture of the Internet, as opposed to the monolithic approach of the past. Infor ION 10X technology is lightweight middleware that uses the standards found in the Internet to connect both Infor and non-Infor applications. This approach simplifies implementations, minimizes the disruption and complexity of upgrades and helps increase the overall speed, agility and deployment flexibility of our customers. Infor 10X technology also includes other advancements in social collaboration, mobility, analytics and cloud deployment solutions.

 

   

Creating Experiences People Love. We also believe that the overall design and user experience delivered by enterprise applications has trailed the broader software market in recent years. As a result, we are focused on addressing this market need in two ways: 1) creating and investing in an internal design agency called Hook & Loop to bring top design talent and expertise

 

3


Table of Contents
Index to Financial Statements
 

to Infor and 2) delivering business software that is beautifully designed, easy to use, and consistent with what business users find in their personal lives. All the major applications released in Infor 10X feature the new Infor SoHo Experience, a reinvented HTML5 consumer-inspired user interface that is consistent across the user’s Infor experience.

Our Competitive Strengths

We believe we have the following competitive strengths:

 

    Strong Market Position in Targeted Verticals. Our products have scale, specialization, depth and a strong market position in a number of our targeted verticals, including manufacturing, distribution, healthcare, public sector, automotive, ESM&R, service industries, consumer products and retail, and hospitality. For example, in manufacturing, our largest vertical, our customers include 19 of the top 20 aerospace companies, the top 10 high tech companies, and the top 10 pharmaceutical companies. In healthcare, our second largest vertical, our customers include 22 of the top 25 U.S. healthcare delivery networks. In our other targeted verticals, we have similarly strong positions, counting over 3,600 public sector agencies, 16 of the largest 20 global retailers, and 17 of the top 20 industrial distributors as our customers.

 

    Product Portfolio with Vertical Focus that Creates Attractive Total Cost of Ownership for Customers. We believe that our vertically-specialized products generally have a lower total cost of ownership than those of our largest competitors. Industry-specific product functionality drives less required customization in our products, which we believe results in lower implementation and upgrade costs, as well as a lower cost of maintenance for our customers. We believe our cost advantage is further enhanced by our flexible approach to middleware and hardware. Our light-weight middleware and business vault technology, ION, is built on open standards and allows customers to connect and analyze the data from numerous applications, including those from our company and third parties. We also seek to provide value for our customers through our advanced portfolio of horizontal applications, including our CRM, EAM, financial applications, HCM and SCM suites, which can be bundled together and integrated with our core enterprise resources planning (ERP) offering or sold on an individual basis to customers who do not utilize our ERP products.

 

    Base of Recurring and High-Margin Revenue that Drives Visibility and Stability with Minimal Capital Expenditure Requirements. Our customers are often reluctant to change enterprise software vendors because full enterprise software suite implementations are disruptive, time-consuming and require large initial outlays of financial and human resources. Our industry-specific software products are deeply embedded in our customers’ everyday business processes. Our continued investment in our products and services, our product development emphasis on products that are versatile and adaptable to other software and platforms that complement our offerings, together with our focus on customer service and support, have resulted in high renewal rates. In addition, our business is not capital-intensive.

 

    Large Scale with a Diversified Base of Customers, Geographies and Industries. We are one of the largest enterprise software companies in the world. We serve over 70,000 customers, ranging from Fortune 500 enterprises to mid-sized businesses. Our revenue base is geographically diverse. Of our fiscal year 2014 revenues, approximately 57.3% was from the Americas, 34.2% was from EMEA and 8.5% was from APAC. Our strong presence in numerous industry verticals and the mission-critical nature of our products helps to diversify and mitigate the risk of industry-specific and cyclical downturns.

 

    Complementary Products Create Compelling Cross-Selling Opportunities. We expect to realize significant cross-selling opportunities among our broad array of product offerings and enhanced focus of the sales effort on our product portfolio. For example, our distribution products were historically sold to customer bases in different geographies with almost no overlap. Within our public sector vertical, some of our public sector products focus on asset management and constituent interaction, including service requests, permitting, licensing and utilities, whereas other public sector products provide governments with back-office systems that help control spending via procurement, financial and human resources (HR) applications. In general, we believe there is significant opportunity to leverage greater cross-sale activity among our various business units, and we continue to identify new synergies with respect to products we develop and acquire as they are integrated into our existing businesses.

 

    Experienced Management Team and Strong Sponsorship. Our management team is comprised of industry executives with extensive operational, strategic, financial and legal experience. We are led by our CEO Charles Phillips, a seasoned executive who was formerly President of Oracle Corporation (Oracle), where he led Oracle’s field organization and oversaw revenue growth of over 180% during his seven-year tenure. Mr. Phillips played a key role in the success of many of Oracle’s acquisitions, including, among others, BEA Systems, Hyperion Solutions and Siebel Systems. Since joining Infor in December 2010, Mr. Phillips and his team have transformed Infor into a product-led organization, increasing investment in research and development while maintaining strong margins. Mr. Phillips manages a deep team of senior executive talent, including: Co-President, Products and Support, Duncan Angove, with over 20 years of management experience from Oracle and Retek; Co-President, Global Field Operations, Stephan Scholl, a 15-year industry veteran from Lawson, Oracle and PeopleSoft; COO Pam Murphy, with more than a decade of experience from Oracle and Andersen Consulting: and CFO Nicole Anasenes, with 17 years of management and financial experience from IBM. Additionally, our principal stockholders, investment funds affiliated with our Sponsors, Golden Gate Capital and Summit Partners, provide ongoing support and advice to our management team. We believe we can draw on our Sponsors’ experience and expertise as two of the most active investors in the technology industry, having collectively invested in or acquired more than 265 technology companies since their respective inceptions in 2000 and 1984.

 

4


Table of Contents
Index to Financial Statements

Our Products and Services

We design, develop, market, sell, implement and support enterprise business software applications that provide our customers with highly functional and technically advanced products. We believe we offer a compelling choice to many enterprise software customers and that we have developed competitive advantages in serving our targeted industries. We offer both vertical-specific and horizontal software products. We also believe we offer a number of flexible deployment options for customers, allowing them to run our software on-premise, on a hosted basis or in the cloud using the same product.

Infor 10X Enterprise Release—Technology Platform

The Infor 10X technology platform achieves major advancements in the areas of core Infor ION integration, enterprise collaboration with Infor Ming.le, the Infor Motion mobile development platform and applications, and Infor Analytics, which includes the Business Vault, Reporting and pervasive business content. Major investments have been made in each application to achieve new features that support microvertical business processes in focus industries, performance and scalability enhancements, and packaged content to reduce deployment complexity and total cost of ownership.

ION. Infor ION is Infor’s innovative Intelligent Open Network (ION). This purpose-built middleware solution provides a simple but powerful and scalable framework, to help eliminate operational silos, improve exception management, and achieve unparalleled end-to-end efficiency. Our ION products are designed to enable communication and secure sharing of data across on-premise and cloud applications, to monitor the status of business tasks in relation to promised completion or established service level agreements, to automatically receive alerts about exceptions and potential non-compliance and to automate document routing and approvals via workflows across multiple applications.

Social. Infor Ming.le provides a comprehensive platform for social collaboration, business process improvement, and contextual analytics. Incorporating the most innovative social media concepts into a business environment, Infor Ming.le marries communications and business processes to help businesses work smarter and faster.

Mobile. Infor Motion is both a development platform and a set of business applications. Infor Motion permits customers to quickly and easily design, build, and deploy custom mobile apps that extend the value of existing Infor systems. Additionally, Infor Motion allows businesses to integrate mobile capabilities with existing Infor applications.

Analytics. Infor Analytics provides business intelligence (BI), operational reporting, Business Vault, pervasive and embedded analytics—all of which can be accessed from a mobile device. With Infor Analytics, businesses can build customized mobile dashboards to take action on items anytime, anywhere, as well as present business intelligence information in highly-visual, easy-to-understand ways.

Mongoose. Infor Mongoose is an application development framework and Platform-as-a-Service (PaaS). With Infor Mongoose, businesses can easily design and deploy small applications that enhance the core enterprise solution without knowledge of complex source codes or programming languages.

Enterprise Resource Planning (ERP)

Our ERP products help customers in targeted industries cut costs, improve operational efficiency, and make smarter decisions faster. Our offerings are specifically designed to meet the needs of customers in the manufacturing, distribution, healthcare, automotive, public sector, ESM&R and other services and/or trade-oriented businesses and include the following:

Infor LN. Software designed to manage the demands of larger, multi-site businesses with complex manufacturing and distribution environments. Key products include Financial Management, CRM, Order Management, SCM, Manufacturing Control, Sourcing & Procurement, Project Management, Quality Management and Service Management.

Infor Lawson Enterprise Business Management Solution. Software designed to help customers “staff, source and serve” in their respective markets. Key products are specifically designed to serve the healthcare, public sector and other services industries and include financial management, SCM, and services management.

Infor M3. Software designed to help customers who “make, move and maintain” goods or equipment in their markets. Key products include Financial Management, Manufacturing Operations, SCM, Enterprise Asset Management and Customer Sales & Service.

Infor SyteLine. Software designed to provide discrete manufacturing customers with the foundation to improve business efficiency, customer service, and overall manufacturing productivity. Key products include CRM, Sales & Order Management, Services Management, HCM, Financial Management, Production Management, SCM, Enterprise Planning and Master Data Management.

Infor VISUAL. Software designed for order-driven manufacturers who desire an affordable, easy-to-implement system that provides multiple scheduling options. Key products include Advanced Planning and Scheduling, Manufacturing Execution System, CRM, Quality Management, Lean Scheduling, Project Management, Financials and Dashboard.

 

5


Table of Contents
Index to Financial Statements

Infor Adage. Software designed for manufacturers in the food and beverage, chemical, and pharmaceutical industries, where bill of material-based software cannot model operations. Key products include CRM, Customer Demand Planning, Pricing & Order Management, Product Lifecycle Management, Asset Management, Financials, Production Planning, Production & Costing, Production Scheduling, Procurement, Warehouse & Inventory Management and Quality Management.

Industry-Specific Software Products

Our industry-specific enterprise software suites are tailored to meet the specific conditions and requirements of individual industries. We target specific industries, including manufacturing, healthcare, distribution, public sector, automotive, service industries, ESM&R, consumer products and retail, and hospitality. Within our target industries, our products are tailored to provide rich functionality at a micro-vertical level. We believe an industry-specific focus is fundamental to our ability to help our customers achieve their desired results and derive greater value from their enterprise software investments.

A brief overview of our industry-specific software products is provided below:

Manufacturing. Our manufacturing products help our customers manage fluctuating demand and costs. Our software covers many of the core and supporting areas that a manufacturing company needs, from initial forecasting, material and capacity planning through to production planning and warehouse management. Our easy-to-use tools and web-enabled technologies help our customers collaborate more effectively across their organizations and supply chain partners and better serve their customers. Features include, among others, powerful planning tools, support for lean manufacturing such as orderless production, advanced warehouse and logistics software products and integrated mobile solutions.

Healthcare. We offer innovative, industry-leading healthcare solutions used by organizations globally that substantially reduce operating costs by improving the integration, planning, tracking, and management of a healthcare organization’s most vital resources: people, supplies, and financial assets. Infor Healthcare solutions help healthcare organizations respond immediately to emerging healthcare needs, improve both the quality of clinical care and the viability of business operations to transform for the future.

Distribution. Our distribution products are designed to provide our customers with visibility and control to help manage high volumes, thin margins and wide product assortments. Features of our distribution software products include, among others, advanced order promising at point-of-sale, support for multi-channel sales, ability to handle supply and product diversity, auto balancing of stock across facilities and integrated route management.

Public Sector. Our public sector products are designed for organizations that serve the public. We invest in industry expertise and consult best practices in the government, education, public authorities and utilities industries. Our focus on the public sector allows us to enable our customers to serve the public in a personal, responsive and cost-effective fashion. Our public sector focused products are designed to fit most needs without unwanted functionality.

Automotive. Our automotive products are designed to meet the unique demands of the automotive manufacturing industry including original equipment manufacturers (OEMs), automotive tier suppliers, specialty vehicle manufacturers, manufacturers of licensed brand components, aftermarket service and specialty parts manufacturers, and companies that remanufacture complex parts. Features include powerful planning tools, support for lean manufacturing such as orderless production, advanced warehouse and logistics software products.

Service Industries. Our service industries’ products serve a wide variety of service-based organizations such as insurance companies, banks, airlines, shipping companies, casinos, religious institutions, utilities and professional service organizations. Our products offer both integrated products that are tailored to meet the needs of specific industries and a series of configurable components for planning, executing and controlling production in different environments.

Equipment Service, Management & Rental. ESM&R products are designed for equipment manufacturers, distributors and rental companies who focus on after-sales service and continuous customer care. Key products include Equipment and Component Control, Preventative Maintenance, Work Order Processing, Maintenance and Performance Costing, Maintenance Customer Order Processing, Maintenance Planning Board, Diagnostics Management and Vehicle Operations Management.

Consumer Products & Retail. We offer a comprehensive suite of enterprise software products for retail companies. These products offer our retail customers tools to help them improve profits and combat charge-backs. It also helps them gain greater control over their margins, products and relationships throughout the supply chain. Additionally, these products help companies to identify and quantify, in advance, potential business process improvements and helps prioritize improvement opportunities within their business.

Hospitality. Our hospitality products are used by more than 19,500 hospitality properties worldwide, including some of the world’s most recognizable hotels, resorts and gaming facilities. These products are suitable for a hospitality property of any type and size, including global chains, smaller chains, independent hotels or motels and government lodging. Our products help our customers manage their front-office tasks, reservations, housekeeping, sales and marketing, accounting, engineering and many other tasks.

Our strategic partnership with Salesforce integrates Salesforce’s Sales and Services applications with Infor’s ERP and financial products to create a powerful enterprise solution that spans the entire customer lifecycle. In addition to reselling Salesforce Sales Cloud and Salesforce Service Cloud, we have developed native applications as part of the offering.

 

6


Table of Contents
Index to Financial Statements

Enterprise Asset Management (EAM)

Our EAM products help our customers keep their plant, equipment, and facilities available, reliable, and safe. They are designed to help customers monitor, and manage the deployment, performance, and maintenance of company assets to eliminate operational downtimes and reduce costs, as well as provide customers with financial and physical controls required to control their energy consumption and the asset and operating infrastructure that underpins them. Key products include Infor EAM Enterprise, Infor EAM Energy Performance Management and Infor MP2.

Financial Management/Office of the CFO

Our financial management products help customers deliver timely, actionable financial information, enforce global financial standards and controls, and improve business transparency. They are designed for budgeting, forecasting, financial reporting, expense management, and compliance. Key products include Infor Lawson Financials, Infor SunSystems, Infor Expense Management, Infor HCM, Infor EAM Enterprise, Infor Lawson Supply Chain Management, Infor Corporate Performance Management, Infor BI, Infor Approva Continuous Monitoring, Infor Core Billing and Banking.

Human Capital Management (HCM)

Our comprehensive HCM products enable our customers to manage their workforce and transform the role of the HR professional from an administrative and policy enforcing role to that of a strategic business partner. Offerings include:

Infor Enwisen HR Service Delivery. Designed as a multi-tier HR service delivery model that empowers employees to take control of routine HR transactions. It includes a personalized, searchable knowledge base and case management tool, to streamline new hire onboarding, voluntary and involuntary offboarding, and total rewards communications.

Infor Learning Management. Designed as a fully-integrated learning management system (LMS) that incorporates a learning content management system, authoring tool, comprehensive learning management reports, and services for e-learning adoption and implementation.

Infor Talent Management. Designed to manage, develop and retain employees. Key products include Talent Acquisition, Goal Management, Performance Management, Compensation Management, Learning and Development, Succession Management and Global Human Resources.

Infor Human Resource Management. Designed to manage the HR processes related to employees. Key products include Absence Management, Benefits Administration, e-Recruiting, Employee and Manager Self-Service, Human Resources, Payroll, Performance Management for Healthcare, Personnel Administration, Resource Navigator, Teacher Contract Administration and TalentView of Performance.

Infor Workforce Management. Designed to automate time-intensive staffing and scheduling tasks. Key products include Scheduling and Staffing, Scheduling and Staffing for Casinos, Scheduling and Staffing for Healthcare and TimeOff Planner for Healthcare.

Customer Resource Management (CRM)

Our CRM products help users build deep relationships with their customers and improve service. This software is designed to help users react quickly, intelligently, and personally to customer interactions; plan, execute, and monitor outbound marketing campaigns; and convert customer leads into sales. Key products include Infor Orbis Marketing Resource Management, Infor Epiphany Interaction Advisor, Infor Epiphany Marketing, Infor Epiphany Sales and Infor Epiphany Service.

IBM Power Platform Enterprise Resource Planning Solutions

Infor XA. Designed for discrete manufacturers with mixed-mode processes including repetitive, engineer-to-order, configure-to-order, manufacture-to-order, assembly-to-order, and make-to-stock. Key products include Capacity Planning, Production Control, Order Management, Inventory Management, Forecasting, and Financial Management. Infor XA also utilizes an industry-leading Java-based architecture to provide a rich user experience that simplifies personalization and product customization.

Infor System21. Designed to help the fashion, apparel, food/beverage, automotive, electronics, industrial equipment, and general manufacturing and distribution companies. Key products include Finance, Inventory, Sales, Purchasing, Manufacturing, Distribution, Drinks, and Style functionality purpose built for our customer’s industries.

Infor LX. Designed for process manufacturers worldwide. Key products include Capacity Planning, Production Planning, Quality Management, Order Management, Inventory Management, Forecasting, and Enterprise Financials.

Supply Chain Management (SCM)

Our SCM products are designed to help customers manage their entire supply chain including designing, forecasting, planning and execution. Key products include Infor Sales & Operations Planning, Infor Demand Planning, Infor Advanced Planning, Infor Advanced Scheduling, Infor Network Design, Infor Supply Chain Execution, Infor Transportation Planning, Infor Warehouse Management and Infor Scheduling.

 

7


Table of Contents
Index to Financial Statements

Maintenance and Support Services

Our maintenance and technical support programs include product upgrades, updates and corrections for the software under maintenance, as well as various levels of technical support including access to our knowledge base and our product support team, technical advice and application management. These programs are comprehensive customer care programs that entitle our customers to various levels of support to meet their specific needs. Our maintenance and technical support offerings are delivered through the support organization operating from our support centers around the world.

Consulting Services

Our consulting services range from the initial assessment and planning of a project to the actual implementation and post-implementation of a project, including optimizing a customer’s use of its software. We also provide training and learning tools to help our customers become proficient in using our software quickly and effectively.

CloudSuite

Our CloudSuite offering provides buyers with deep industry functionality and a flexible subscription-based model, all designed to specifically reduce upfront IT expenditure and longer term management costs. Each of the industry-based CloudSuite solutions has been developed by unifying multiple applications that were often deployed independently in support of core business functions. This core, along with a SaaS pricing model, allows buyers a faster time to value, lower total cost of ownership, and access to the most up to date upgrades on a continuous basis.

These industry-specific CloudSuites are available on Amazon Web Services’ (AWS) cloud. This provides buyers an opportunity to take advantage of Amazon’s expertise and economies of scale to access resources as needed, on-demand with auto-scaling built into their Infor applications.

Today, industry suites, delivered on AWS include Infor CloudSuite Automotive, Infor CloudSuite Aerospace & Defense, Infor CloudSuite Corporate (with core best-in-class financials and HCM), and Infor CloudSuite Hospitality.

The Infor CloudSuite platform also includes:

Analytics. CloudSuite Analytic Packs provide industry components, data models, and industry dashboards to transform information into actionable insights.

Technology. Infor ION middleware, Infor Ming.le social collaboration, Infor Analytics, and Infor Mongoose development platform.

Core Enterprise Management. Infor LN, Infor M3, Infor Lawson, Infor SyteLine, and Infor SunSystem.

High Value Extension Applications. Infor EAM, Infor Expense Management, Infor HR Service Delivery (Enwisen), Infor PeopleAnswers Talent Science, Infor Learning Management, Infor Workforce Management, Infor Epiphany Interaction Advisor, Infor Orbis Marketing Resource Management, Infor Product Configuration Management, Infor Supplier Exchange, and more.

Our Industry

The enterprise application software industry is competitive, rapidly changing and significantly affected by new product offerings and other market activities. While traditional ERP products focused on “back-office” transactional activities, such as accounting, order management and inventory control, enterprise applications have expanded their focus to include managing customer interactions, managing supply chain and automation of and support for a range of administrative and operational business processes across multiple industries. According to the June 2014 Gartner Report, the world-wide enterprise application software market in 2013 was approximately $128.2 billion, a 7.7% increase over $119.0 billion in 2012. This market is forecasted to be approximately $138.4 billion in revenue for 2014, an 8.0% increase over 2013, driven by strength in CRM and supply chain management. The enterprise application software market is forecasted to grow at a compounded annual growth rate of 8.6% per annum from 2013 to 2018.

We believe our target markets are experiencing favorable trends. We believe that improving economic conditions will encourage companies to enhance their enterprise applications software spending as they refocus on growth and productivity enhancing initiatives. Moreover, a general post-recession catch-up in IT spending is expected to increase the entire enterprise applications market, as some companies resume their software spending that was put on hold during the recession by buying new systems or upgrading existing systems. We believe the healthcare market is experiencing positive trends given the momentum of the electronic health records initiative, new regulation and changes to existing rules that went into effect with the recently enacted healthcare legislation. With market leadership position in multiple enterprise applications products and verticals, we believe that we are well positioned to take advantage of these favorable trends and further enhance our revenue, profitability and market share in the coming years.

 

8


Table of Contents
Index to Financial Statements

The enterprise applications industry has experienced significant consolidation over the last ten years. Many ERP companies have made acquisitions to acquire access to a customer base, fill out their product lines or join forces to better compete in the market. For example, Oracle Corporation, one of our primary competitors, has acquired more than 95 companies since 2005, including market leaders such as PeopleSoft, Hyperion and Siebel. While this consolidation has created larger companies with broad product lines, it has also resulted in fewer competitors providing less choice for customers. Moreover, the broad product offerings from these large ERP players have become less targeted and more expensive for customers. Consolidation in our target markets has further enhanced our competitive positioning with our customers. We believe that for many customers, we present a compelling alternative to the large horizontal providers, such as Oracle Corporation and SAP AG, while maintaining an ability to compete with smaller niche providers.

A number of factors driving demand for enterprise application software products are listed below:

 

    Need for Vertical-Specific Enterprise Software. We believe that software applications from vendors such as Microsoft Corporation, Oracle Corporation, Intuit Inc., The Sage Group plc and SAP AG, with their broad or horizontal approach, do not adequately address the needs of businesses that have specific functionality requirements. In general, customers may need to customize these horizontal software products to suit their specific needs and may need to acquire select software modules from multiple vendors to integrate into their systems thereby creating one comprehensive software suite that meets their purpose. This approach can lead to a complex and time-consuming implementation and integration process and may drain customers’ human capital and financial resources and increase total cost of ownership. As a result, we believe enterprises in our target markets prefer a single vendor like us that can offer software that requires fewer customizations to adapt to their business needs, along with high-quality implementation, deployment and maintenance support services that help optimize the benefits of our product offerings.

 

    Complex Regulatory Requirements and Changing Industry Dynamics. Businesses across a range of industries are increasingly required to comply with regulations such as the Sarbanes-Oxley Act, Basel II, Solvency II and the Health Insurance Portability and Accountability Act, as well as complex tax and financial audit reporting and other regulatory compliance obligations. Such regulatory mandates often require organizations to audit, track and manage their information, systems and processes to comply with regulations that are often complex and that vary by geography and industry. We believe these regulations and the tightening of the overall regulatory environment are forcing businesses to continue to improve their ability to audit their practices in ever more efficient ways to confront accounting, business and financial management issues with a high degree of attention to avoid or mitigate potentially severe consequences of any failures. We believe such complexity and variability, and the increased operational cost that results, is encouraging businesses to implement information technology software products that help them automate and monitor regulatory compliance requirements in more cost-effective and scalable ways than their current systems can accommodate. Industry dynamics are shifting as organizations must stay current with changing rules and regulations. For example, in early 2010, the U.S. Government rolled out a five-year plan to computerize health records at all hospitals and physician clinics with a view that electronic health records would provide greater safety for patients and lower costs for healthcare providers. This electronic health record initiative has forced many healthcare providers to implement new (or upgrade their existing) IT systems to electronically capture their patients’ records, which has led to tremendous increase in the demand for healthcare IT software products in the market, including our software products. As more healthcare providers adopt IT software products to comply with this requirement, we believe license sales from our healthcare software products will experience growing demand.

 

    Increasing Focus on Human Capital. We believe that our customers consider efficient and effective utilization of their human capital as a key to their success. Many of our customers have complex human resource organizations, where their workforce is spread across locations, departments and verticals. The ability of our customers to manage their human resources effectively helps lower costs and also helps retain the right talent, enhancing overall productivity. We believe that an increasing focus on HCM among enterprises generally is responsible for driving growth rates in HCM spending that are among the fastest in the enterprise application software market.

 

    Need to Improve Process Efficiencies and Customer Service. Companies strive to innovate while controlling costs and offering superior customer service in order to survive and thrive in a highly competitive marketplace. We believe that businesses in general view information technology as a definitive way to modernize, automate and further increase the efficiency of their processes. As global competition increases, these businesses will need to replace their older technology systems or manual processes with more comprehensive business management software products in order to increase efficiencies, optimize their business performance and enhance their competitive advantage.

Competition

The enterprise software industry is intensely competitive, rapidly changing and significantly affected by new product offerings and other market activities. Some of our competitors have an advantage over us due to their larger customer bases, larger technical staffs, greater brand name recognition and greater financial and marketing resources. We believe the principal competitive factors affecting our market include:

 

    product features, functionality, performance and price;

 

    knowledge of a customer’s industry and tailored solutions;

 

9


Table of Contents
Index to Financial Statements
    company stability, resources and reputation;

 

    ease of integration and speed of implementation;

 

    level of customer service;

 

    sales and marketing efforts; and

 

    new product and technology introductions.

We believe we have competitive advantages over a number of our competitors. Some of these advantages include:

 

    industry-focused solutions;

 

    industry-specific experience and expertise;

 

    innovative applications that provide more meaningful user experiences;

 

    low total cost of ownership;

 

    innovative technology; and

 

    openness and flexibility of our software architecture.

We frequently encounter competitors such as SAP AG and Oracle Corporation. Both are large, global vendors that are increasingly targeting mid-sized businesses, particularly as their traditional larger-customer market becomes saturated. We believe there is demand for a vendor like us that can offer scalable applications that are simpler to implement and operate more efficiently than the more complex applications of SAP and Oracle. Our focus is on delivering differentiated industry-specific solutions with lower total ownership costs including license fees, consulting services and ongoing customer support. By increasing our scale and the range of our products, we believe we can compete and win against SAP, Oracle and other ERP vendors, globally in our targeted industries.

We have also strengthened our competitive position by launching innovative new products like Infor10 Workspace, ION Suite, Infor Business Cloud, and Inforce. We have also significantly improved our consulting and maintenance offerings to give our customers a greater choice in how we install and support their applications and technology.

Sales and Marketing

We market and sell our software and services solutions primarily through a direct sales force, augmented by strategic alliances with systems integrators and resellers. Our direct sales force and services organizations are aligned with our strategy of providing industry-tailored applications. Within each industry we have a dedicated, direct sales team. These industry teams further break down into regional sales teams that focus on specific geographic territories. Our sales and service offices are located in three geographic regions: the Americas, EMEA and APAC. In addition to industry teams, the Company has a Strategic Accounts group that focuses on our 125 largest and most strategic customers. Finally, we have a telesales group that focuses on inside sales to smaller customers and smaller transactions within larger customer accounts.

In addition to our direct sales teams, we have over 1,200 resellers and strategic alliances that focus on smaller companies and countries where Infor does not have a direct presence. Our third-party channel relationships allow us to expand our market presence through increased awareness of our software applications within our partners’ organizations and customer bases, and through their personnel who are trained to implement our software. Our partners market and promote our software products and typically provide implementation services to their end-users. Our channel partner network is able to generate sales leads, make initial customer contacts, and assess needs prior to our introduction. In addition, some of our systems integrations partners engage in customer support and localization of our products. We also engage in joint marketing programs, presentations at seminars, attendance at trade shows, and the hosting of conferences with many of our business partners.

Research and Development

Since our inception, we have made substantial investments in software product development. We believe that timely development of new software applications, enhancements to existing software applications and the acquisition of rights to sell or incorporate complementary technologies and products into our software offerings are essential to maintain our competitive position in the market. The business application software market is characterized by rapid technological change, frequent introductions of new products, changes in customer demands and rapidly evolving industry standards. We are committed to continued investment in R&D to enhance our existing products as well as developing new innovative applications.

Our total R&D expenses were $391.8 million for the year ended May 31, 2014, or 14.2% of revenue. As of May 31, 2014, our research and development organization consisted of approximately 3,780 employees. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further discussion of R&D expenses.

 

10


Table of Contents
Index to Financial Statements

Trademarks

“Infor,” Lawson,” “Lawson Software,” “ION,” “Infor10,” “Syteline,” “Visual” and “Inforce,” as well as other Infor product and brand names appearing in this document are trademarks of the Company in the U.S. and the European Union, among other jurisdictions. The trademark “Inforce” is jointly owned by Infor and salesforce.com. Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report on Form 10-K are listed without the ®, (TM) and (sm) symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. Other trademarks and trade names appearing in this document are the property of their respective holders. We disclaim proprietary interest in such marks and names of others.

Intellectual Property and Product Liability

We regard certain aspects of our internal operations, software and documentation as proprietary, and rely on a combination of contract, copyright, patent, trademark and trade secret laws and other measures, including confidentiality agreements and other contractual protections, to protect our proprietary information. We currently hold 67 United States-issued patents, eight pending United States patent applications, five foreign equivalent patents, and one foreign equivalent patent applications. While our legal and contractual mechanisms for protecting our intellectual property are helpful in protecting our market position, they may be inadequate to fully protect against individuals or companies that seek to misappropriate our proprietary technology. However, we believe that ultimately our success in the market will be more dependent on factors such as the knowledge, ability and experience of our employees, frequent software product enhancements and the timeliness and quality of support services.

We cannot guarantee that these legally available intellectual property protections will be adequate, or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. Some of our existing business units that we and our predecessors have acquired over the years have historically licensed software to customers under a model that allowed the customer to access source code for certain product lines. In general, however, our current practice is to license and distribute only object code versions of most of the software we offer, although we often enter into source code escrow arrangements with recognized third-party source code escrow companies on terms that are customary within the software industry, which provide customer access to source code only under very limited circumstances. Access to our source code may increase the likelihood of misappropriation or other misuse of our intellectual property. In addition, the laws of certain countries in which our software products may be licensed do not protect our software products and intellectual property rights to the same extent as the laws of the United States, and some jurisdictions are less likely to enforce of such laws may be limited in local jurisdictions as well.

We do not believe our software products, third-party software products we offer under sublicense agreements, our trademarks, or other proprietary rights infringe the property rights of third parties. However, we cannot guarantee that third parties will not assert infringement claims against us with respect to current or future software products or that any such assertion may not require us to enter into royalty arrangements or result in costly litigation. As described in this Annual Report on Form 10-K under Item 3, Legal Proceedings, we are currently defending patent infringement litigation in the U.S. Under the license agreements with our customers, we agree to indemnify our customers for third-party claims that may be brought against them asserting that our products infringe the intellectual property rights of those third parties.

We are also exposed to product liability risks under applicable country and state laws. We generally attempt to limit our exposure to product liability claims with customers as part of our license agreements. However, local laws or unfavorable judicial decisions might diminish or invalidate the scope of these limitations.

Employees

As of May 31, 2014 we had approximately 12,920 employees, including approximately 2,060 in sales and marketing, 3,780 in research and development, 5,300 in services and customer support and 1,780 in administration and other. None of our employees in the U.S. are represented by a labor union. We are party to a collective labor agreement applicable to our employees in Sweden and in certain other countries outside of the U.S. where we have operations, workers’ councils represent our employees.

Financial Information about Geographic Areas

For financial information about geographic areas see Note 20, Segment and Geographic Information, in Notes to Consolidated Financial Statements of this Form 10-K for additional information.

Available Information

We make available, free of charge, in the Investor section of our website (www.infor.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we have electronically filed or furnished such materials to the SEC. Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E.,

 

11


Table of Contents
Index to Financial Statements

Washington, D.C. 20549. Information regarding the SEC’s Public Reference Room can be obtained by calling 1-800-SEC-0330. Our filings are also available on the SEC’s website at www.sec.gov. The information posted on our website is not incorporated into this Annual Report on Form 10-K.

 

Item 1A. Risk Factors

Factors That May Affect Our Future Results

We operate in a rapidly changing environment that involves numerous uncertainties and risks. Investors evaluating our company and our business should carefully consider the factors described below and all other information contained in this Annual Report on Form 10-K. This section should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report. Any of the following factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties not currently known to us or that we currently consider immaterial could also harm our business, operating results and financial condition. We may make forward-looking statements from time to time, both written and oral. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements based on circumstances or events which occur in the future. Our actual results may differ materially from those projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this report.

Risks Related to Our Business

We face large, established competitors, specialized competitors and substantial price competition.

We compete with Oracle Corporation, SAP AG and other larger software companies that have advantages over us due to their larger customer bases, greater name recognition, long operating and product development history, greater international presence and substantially greater financial, technical and marketing resources. If customers or prospects want to reduce the number of their software vendors, they may elect to purchase competing products from Oracle or SAP since those larger vendors offer a wider range of products. Furthermore, Oracle is capable of bundling its software with its database applications, which underlie a significant portion of our installed applications. We also compete with a variety of more specialized software and services vendors, including:

 

    single-industry software vendors;

 

    human resource management software vendors;

 

    financial management software vendors;

 

    manufacturing software vendors;

 

    merchandising software vendors;

 

    services automation software vendors;

 

    software integrators and outsourced services providers; and

 

    internet (on demand) software vendors.

Some competitors offer payment terms, contractual warranties, implementation terms or guarantees that are more favorable to customers and prospects. Competitors may entice our customers and prospects to switch software vendors by offering those customers or prospects free or heavily discounted products or services, and other more favorable contract terms. We may be unable to continue to compete successfully with new and existing competitors without lowering prices or offering other favorable terms to customers that lower our margins and increase our risks. We expect competition to persist and intensify, which could negatively impact our operating results and market share.

We may need to change our pricing models to compete successfully.

The intense competition we face in the sales of our products and services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Our software license updates and product support fees and hardware systems support fees are generally priced as a percentage of our net new software license fees and net new hardware systems products fees, respectively. Our competitors may offer lower pricing on their support offerings, which could put pressure on us to further discount our new license prices.

Our revenues, and in particular our software license revenues, vary each quarter and are difficult to predict. If we are unsuccessful in predicting our results to enable reliable business planning, the value of your investment could decline substantially.

Revenues from license fees in any quarter depend substantially upon our licensing activity with new and existing customers, and our ability to recognize revenues in that quarter under our revenue recognition policies. A significant portion of our future revenue is dependent upon our existing installed base of customers continuing to license additional products, as well as purchasing consulting services and renewing their annual maintenance agreements. If we do not continue to develop or acquire new products, licensing activity with existing customers will decline. Licensing activity for our products drives maintenance and services revenues because we sell maintenance and services for only our

 

12


Table of Contents
Index to Financial Statements

products. A decrease in licensing activity will typically lead to a decrease in services revenue in the same or subsequent quarters. If we do not have sufficient new licensing activity each year, our maintenance revenue and profit for the following year will decline because new customers or sales of additional products to existing customers are needed to offset the percentage of existing customers who scale back their businesses, reduce licenses and maintenance contracts, are acquired, or otherwise choose not to renew annual maintenance. Our sales force and marketing team must continue to generate sales leads among existing customers and prospective customers. When we “qualify” a lead, that lead becomes part of our sales “pipeline.” If our pipeline does not continue to grow in our different markets and geographies, our revenues will eventually decline. The rate at which we convert our pipeline into actual sales can vary greatly from year to year for the following reasons:

 

    The period between initial customer contact and a purchase by a customer may vary and can be more than one year. During the sales cycle, prospective customers may decide not to purchase or may scale down purchases because of competing offers, budgetary constraints or changes in the prospect’s management, strategy, business or industry. Increasingly, customer or prospect organizations are taking more steps to approve the purchase of our products and services. Often times, we must wait for a customer or prospect’s board of directors to approve a purchase. These added approval requirements can delay the sales cycle and jeopardize the likelihood of completing the sale.

 

    A substantial number of our existing and prospective customers make their purchase decision within the last few weeks or days of each quarter. A delay or deferral in a small number of large new software license transactions could cause our quarterly license revenue to fall significantly short of our predictions.

 

    Prospective customers may decline or defer the purchase of new products if we do not have sufficient customer references for those products.

 

    New products or technologies, software industry mergers and other software industry news may create uncertainty and cause customers and prospective customers to cancel, postpone or reduce capital spending for our products.

Additionally, some of the important factors that may cause our revenues, operating results and cash flows to fluctuate from quarter to quarter include, without limitation:

 

    the growth rates of certain market segments in which we compete;

 

    the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business;

 

    changes in deferred revenue and unbilled deferred revenue balances, which may not be reflected in the balance sheet, due to seasonality, the compounding effects of renewals, invoice duration, invoice timing and new business linearity;

 

    changes in our pricing policies and terms of contracts, whether initiated by us or as a result of competition;

 

    the rate of expansion and productivity of our sales force and the impact of reorganizations of our sales force;

 

    technical difficulties or interruptions in our service;

 

    changes in foreign currency exchange rates;

 

    conditions, particularly sudden changes, in the markets we serve;

 

    changes in the effective tax rates due to changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, changes in federal, state or international tax laws and accounting principles, changes in judgment from the evaluation of new information that results in a recognition, derecognition or change in measurement of a tax position taken in a prior period, or results of tax examinations by local and foreign taxing authorities;

 

    expenses related to significant, unusual or discrete events which are recorded in the period in which the events occur;

 

    regulatory compliance costs;

 

    the timing of customer payments and payment defaults by customers;

 

    extraordinary expenses such as litigation or other dispute-related settlement payments; and

 

    the timing of commission, bonus, and other compensation payments to employees.

Many of these factors are outside of our control, and the occurrence of one or more of them might cause our operating results to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenues, operating results, changes in our deferred revenue and unbilled deferred revenue balances and cash flows may not be meaningful and should not be relied upon as an indication of future performance.

Economic, political and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting. These include:

 

    general economic and business conditions;

 

    the overall demand for enterprise software, hardware systems and services;

 

13


Table of Contents
Index to Financial Statements
    governmental budgetary constraints or shifts in government spending priorities;

 

    general political developments; and

 

    currency exchange rate fluctuations.

Macroeconomic developments like the recent recessions in the U.S. and Europe and the debt crisis in certain countries in the European Union could negatively affect our business, operating results or financial condition. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their information technology (IT) budgets or be unable to fund software and services purchases, which could cause customers to delay, decrease or cancel purchases of our products and services or cause customers not to pay us or to delay paying us for previously purchased products and services.

In addition, political unrest in regions like the Middle East, terrorist attacks around the globe and the potential for other hostilities in various parts of the world, potential public health crises and natural disasters continue to contribute to a climate of economic and political uncertainty that could adversely affect our results of operations and financial condition, including our revenue growth and profitability. These factors generally have the strongest effect on our sales of new software licenses and related services and, to a lesser extent, also may affect our renewal rates for software license updates and product support.

Our revenue is largely dependent on renewal of maintenance agreements by our customers.

We generate substantial recurring revenue from our customer support program and other software maintenance services, most of which renew annually at the customer’s option. The level of our maintenance revenue is directly related to the number of our software products that are in active use by customers. If our customers stop using our products, if we are unable to maintain the rate of addition of new customers, or if our customers determine that they cannot afford maintenance, our maintenance revenue can be expected to decline. We expect that maintenance revenue from legacy products for which we have decreased or curtailed development funding will decline over time.

Our sales to government clients subject us to risks including early termination, audits, investigations, sanctions and penalties.

We derive revenues from contracts with the U.S. government, state and local governments and their respective agencies, which in many cases permit the customer to terminate their contracts at any time, without cause. There is increased pressure for governments and their agencies, both domestically and internationally, to reduce spending. In many cases, our government contracts are subject to the approval of appropriations being made by legislators and other government funding authorizations to fund the expenditures under these contracts. Additionally, government contracts are generally subject to audits and investigations, as well as more stringent regulatory requirements and contract terms than would be applicable to contracts with private-sector clients, which could result in greater exposure to increased compliance costs, liability and restrictions that could adversely impact our financial condition or our ability to compete in these markets, including various civil and criminal penalties and administrative sanctions, termination of contracts, refund of all or a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.

We may not retain or attract customers if we do not develop new products and enhance our current products in response to technological changes and competing products.

The enterprise software market is faced with rapid technological change, evolving standards in computer hardware, software development, communications and security infrastructure, and changing needs and expectations of customers. Building new products and service offerings requires significant investment in development. A substantial portion of our research and development resources are devoted to regulatory and maintenance requirements and product upgrades that address new technology support. These demands put significant constraints on our resources available for new product development. We also face uncertainty when we develop or acquire new products because there is no assurance that a sufficient market will develop for those products.

The market for cloud-based applications embodied in the SaaS subscription model may develop more slowly than we expect.

We offer certain of our software applications and functionality within a cloud-based IT environment that we manage and offer via a subscription-based SaaS model. Our success in growing revenue and market share from our SaaS-based software offerings will depend, to a large extent, on the willingness of our customers and the markets we serve to accept this model for commercializing applications that they view as critical to the success of their business. Many companies have invested substantial effort and financial resources to integrate traditional enterprise software and IT staffing into their businesses and may be reluctant or unwilling to switch to a recurring fee model for our software applications or to migrate these applications to cloud-based services. Other factors that may affect market acceptance of our application include:

 

    the security capabilities, reliability and availability of cloud-based services;

 

    customer concerns with entrusting a third party to store and manage their data, especially confidential or sensitive data;

 

    our ability to minimize the time and resources required to offer our software under this model;

 

14


Table of Contents
Index to Financial Statements
    our ability to maintain high levels of customer satisfaction, including with respect to maintaining uptime and system availability standards consistent with market expectations;

 

    our ability to implement upgrades and other changes to our software without disrupting our service;

 

    the level of customization or configuration we offer;

 

    our ability to provide rapid response time during periods of intense activity on customer websites; and

 

    the price, performance and availability of competing products and services.

The market for these services may not develop further, or may develop more slowly than we expect, either of which would harm our business. Our business model continues to evolve and we may not be able to compete effectively, generate significant revenues or maintain profitability for our SaaS-based offerings. We incur expenses associated with the infrastructures and marketing of our SaaS subscription offerings in advance of our ability to recognize the revenues associated with these offerings. Demand for our SaaS subscription offerings may unfavorably impact demand for certain of our other products and services including new software licenses and software license updates and product support services traditionally provided with our offerings that customers host on their own premises.

We use a limited number of third-party data centers to deliver our SaaS services. Any disruption of service at these facilities could harm our business.

We manage our SaaS services and serve all of our SaaS customers from a limited number of third-party data center facilities. While we engineer the computer and storage systems upon which our programs run, we do not control the operation of these data center facilities.

The owners of these data facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to transfer to new data center facilities or develop our own, and we may incur significant costs in doing so.

These data centers are vulnerable to security breaches, damage or interruption from any number of actions beyond our control, including human error, intentional misconduct, war or terrorist attacks, natural disaster, power losses, hardware failures, systems failures, telecommunications failures and similar events. If these data facilities experience disruptions or other performance problems, our reputation and relationship with our customers may be harmed. Disruptions in services or security breaches might reduce our revenue and subject us to potential liability as our customers may ask us to issue credits or take other remedial action, terminate their subscriptions, or sue us.

The occurrence of a natural disaster, an act of terrorism, vandalism or other misconduct, or a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our services.

We may be unable to identify or complete suitable acquisitions and investments; and any acquisitions and investments we do complete could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the value of your investment.

As part of our business strategy, we intend to pursue strategic acquisitions in the future. We may be unable to identify suitable acquisitions or investment candidates. Even if we identify suitable candidates, we cannot provide assurance that we will be able to make acquisitions or investments on commercially acceptable terms. If we acquire a company, we may incur losses in the operations of that company and we may have difficulty integrating its technology, products, services, personnel and/or operations into our business. In addition, its key personnel may decide not to work for us. These difficulties could disrupt our on-going business, distract our management and workforce, increase our expenses and adversely affect our operating results. We may also incorrectly judge the value or worth of an acquired company or business. Furthermore, we may incur significant debt or issue equity securities to pay for future acquisitions or investments. If we finance acquisitions by issuing debt, we could face constraints related to the terms of and repayment obligation related to the incurrence of indebtedness which could affect the market price of our debt securities. The issuance of equity or convertible securities may be dilutive to our stockholders. If the products of an acquired company are not successful, those remaining assets could become impaired, which may result in an impairment loss that could materially adversely impact our financial position and results of operations. Other inherent risks include:

 

    the potential failure to achieve the expected benefits of the combination or acquisition, including the inability to generate sufficient revenue to offset acquisition or investment costs;

 

    risk associated with entering new markets in which we have little or no experience or where competitors may have stronger market positions;

 

    failure to retain and maintain relationships with customers and partners of the acquired company who might not accept new ownership and may transition to different technologies or attempt to renegotiate contract terms or relationships;

 

    potential for adverse impact on existing relationships between the acquired business and third-party suppliers of technologies and services, some of which may be critical to successfully commercializing or maintaining the acquired business and its assets;

 

    potential for unknown liabilities associated with the acquired businesses to materialize;

 

15


Table of Contents
Index to Financial Statements
    negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue;

 

    delays in customer purchases due to uncertainty related to any acquisition;

 

    customer and employee dissatisfaction and attrition resulting from required changes to pre-existing terms and course of dealing and the need to implement new controls, procedures and policies at the acquired company;

 

    challenges caused by distance, language and cultural differences;

 

    in the case of foreign acquisitions, the challenges associated with integrating operations across different cultures and languages and any currency, tax and regulatory risks associated with specific countries; or

 

    the tax effects of any such acquisitions.

Charges to earnings resulting from acquisitions may adversely affect our operating results.

Under business combination accounting standards pursuant to ASC 805, Business Combinations, we recognize the identifiable assets acquired, the liabilities assumed and any non-controlling interests in acquired companies generally at their acquisition date fair values and, in each case, separately from goodwill. Goodwill as of the acquisition date is measured as the excess amount of consideration transferred, which is also generally measured at fair value, and the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges and adversely affect our operating results and may adversely affect our cash flows:

 

    costs incurred to combine the operations of companies we acquire, such as transitional employee expenses and employee retention, redeployment or relocation expenses;

 

    impairment of goodwill or intangible assets;

 

    amortization of intangible assets acquired;

 

    a reduction in the useful lives of intangible assets acquired;

 

    identification of or changes to assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the amounts for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;

 

    charges to our operating results to maintain certain duplicative pre-merger activities for an extended period of time or to maintain these activities for a period of time that is longer than we had anticipated, charges to eliminate certain duplicative pre-merger activities, and charges to restructure our operations or to reduce our cost structure;

 

    charges to our operating results resulting from expenses incurred to effect the acquisition; and

 

    charges to our operating results due to the expensing of certain stock awards assumed in an acquisition.

Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods in which those costs are incurred. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities. A more detailed discussion of our accounting for business combinations and other items is presented in the “Critical Accounting Policies and Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Competitors may take advantage of our limited intellectual property protection.

We consider certain aspects of our internal operations, software and documentation to be proprietary, and rely on a combination of contract, copyright, trademark and trade secret laws to protect this information. In addition, we currently hold 67 patents and eight pending patent applications in the U.S. Generally, copyright laws afford only limited protection because those laws do not protect product ideas. In addition, when we license our products to customers, we may provide source code for some of our products. Some customers may also access source code through a source code escrow arrangement. Access to our source code could provide an opportunity for companies to offer competing maintenance and product modification services to our customers. Defending our intellectual property rights is time-consuming and costly.

Changes in intellectual property laws may disrupt or eliminate certain of our anticipated revenue stream.

Protecting our global intellectual property rights and combating unlicensed copying and use of software and other intellectual property is difficult. While piracy adversely affects U.S. revenue, the impact on revenue from outside the U.S. is more significant, particularly in countries where laws are less protective of intellectual property rights. Any changes to foreign intellectual property legislation which would restrict our ability to enforce certain intellectual property rights, including with respect to customer non-compliance and anti-assignment and other software license terms, may disrupt or eliminate our anticipated revenue streams from those affected areas.

 

16


Table of Contents
Index to Financial Statements

Others may claim that we infringe their intellectual property rights.

Many participants in the technology industry, and patent holding companies who have no independent product revenue, have an increasing number of patents and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual property infringement. These types of claims are time-consuming and costly to defend. We are currently defending a patent infringement lawsuit that enjoined the sales, support and servicing of certain of our software configurations. If a successful claim is made against us and we fail to develop or license a substitute technology, our business, results of operations, financial condition or cash flows could be adversely affected.

Our products are deployed in large and complex systems and may contain defects or security flaws or be implemented incorrectly.

Although our products are tested prior to release, because our products are deployed in large and complex systems, they can only be fully tested for reliability when deployed in networks for long periods of time. Our software programs may contain undetected defects when first introduced or as new versions are released. Our customers might encounter difficulties with the implementation of our products, experience corruption of their data or encounter performance or scaling problems only after our software programs have been deployed. The services needed for implementing our products are also complex, and require knowledge and cooperation between both the customer’s and the service provider’s teams. As a consequence, from time to time we have received customer complaints or been sued. In addition, our products are combined with products from other vendors. As a result, should problems occur, it may be difficult to identify the source of the problem. Software and data security are becoming increasingly important because of regulatory restrictions on data privacy and the significant legal exposures and business disruptions stemming from computer viruses and other unauthorized entry or use of computer systems. We may not be able to avoid or limit liability for disputes relating to product performance, software security or the provision of services. Product defects and security flaws could expose us to product liability and warranty claims, could delay the development or release of new products or new versions of our products and could adversely affect market acceptance of our products, which could impact our future sales of products and services. In addition, we may be legally required to publicly report security breaches of our services, which could adversely impact future business prospects for those services.

Privacy and security concerns, including evolving government regulation in the area of consumer data privacy, could adversely affect our business and operating results.

We are in the information technology business, and our products and services store, retrieve, manipulate and manage our customers’ information and data as well as our own. The effectiveness of our software products relies on our customers’ storage and use of data concerning their customers and personnel, including financial, personally identifying and other sensitive data, and our business uses similar systems that require us to store and use data with respect to our customers and personnel. Our collection and our customers’ collection and use of this data might raise privacy and security concerns and negatively impact our business or the demand for our products and services. If a breach of data security were to occur, our business may be materially and adversely impacted and our products may be perceived as less desirable, which would negatively affect our business and operating results.

Governments in some jurisdictions have enacted or are considering enacting consumer data privacy legislation, including laws and regulations applying to the solicitation, collection, processing and use of consumer data. This legislation could reduce the demand for our software products if we fail to design or enhance our products to enable our customers to comply with the privacy and security measures required by the legislation. Moreover, we may be exposed to liability under existing or new consumer data privacy legislation. Even technical violations of these laws can result in penalties that are assessed for each non-compliant transaction. If we or our customers were found to be subject to and in violation of any of these laws or other data privacy laws or regulations, our business could suffer and we and/or our customers would likely have to change our business practices. In addition, these laws and regulations could impose significant costs on us and our customers.

Additionally, despite our efforts to combat such measures, computer hackers may attempt to penetrate or bypass our data protection and other security measures and gain unauthorized access to our networks, systems and data or compromise the confidential information or data of our customers. Computer hackers may be able to develop and deploy computer viruses, worms, and other malicious software programs that could attack our products and services, exploit potential security vulnerabilities of our products and services, create system disruptions and cause shutdowns or denials of service. Data may also be accessed or modified improperly as a result of employee or supplier error or malfeasance and third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data, our customers’ data or our IT systems. These risks for us will increase as we continue to grow our cloud-based offerings and services and store and process increasingly large amounts of our customers’ confidential information and data and host or manage parts of our customers’ businesses in cloud-based IT environments, especially in customer sectors involving particularly sensitive data such as health sciences, financial services and the government. We also have an active acquisition program and have acquired a number of companies, products, services and technologies over the years. While we make significant efforts to address any IT security issues with respect to our acquisitions, we may still inherit such risks when we integrate these acquisitions within our business.

 

17


Table of Contents
Index to Financial Statements

Changes in regulation and industry practice, including particularly regulation and practice dealing with security and privacy, could cause us additional expense.

Recent legislation has increased the responsibilities of software companies and their clients regarding financial security, identity theft and privacy. In particular, the credit card industry has adopted credit card security guidelines intended to help minimize identity theft and credit card fraud. Our customers may not effectively implement all of the updated security features that we introduce or make all necessary changes to their operating procedures, or they may fail to implement other required security measures. It is possible that, regardless of our efforts to comply with credit card company requirements or to implement sound security measures through our software code, we could be subject to claims from our customers, or their clients, if unauthorized access to credit card data occurs through the use of our software.

We might experience significant errors or security flaws in our software products and services.

Despite testing prior to their release, software products frequently contain errors or security flaws, especially when first introduced or when new versions are released. The detection and correction of any security flaws can be time-consuming and costly. Errors in our software products could affect the ability of our products to work with other hardware or software products, could delay the development or release of new products or new versions of products and could adversely affect market acceptance of our products. If we experience errors or delays in releasing new software products or new versions of software products, we could lose revenues. In addition, there could be security issues with our products and networks and any security flaws, if exploited, could affect our ability to conduct internal business operations. End users, who rely on our software products and services for applications that are critical to their businesses, may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally. Software product errors and security flaws in our products or services could expose us to product liability, performance and/or warranty claims as well as harm our reputation, which could impact our future sales of products and services. In addition, we may be legally required to publicly report security breaches of our services, which could adversely impact future business prospects for those services.

Deterioration in our relationships with resellers, systems integrators and other third-parties that market and sell our products could reduce our revenues.

Our revenue growth will depend, in part, on adding new partners to expand our sales channels, as well as leveraging our relationships with existing partners. If our relationships with these resellers, system integrators and strategic and technology partners deteriorate or terminate, we may lose sales and marketing opportunities. Some current and potential customers rely on third-party systems integrators to implement and manage new and existing applications. These systems integrators may increase their promotion of competing enterprise software applications, or may otherwise discontinue their relationships with us.

Because we do not own all of the products that we license, we rely on our continued relationships with other software suppliers. Our failure to obtain licenses for third-party technologies could harm our business.

We license third-party software products that we incorporate into, or resell with, our own software products. For example, we incorporate in many of our products software supplied by Micro Focus International, Inc. We also have reseller and alliance relationships with IBM and other software suppliers businesses that allow us to resell their offerings with our products and services. These relationships and other technology licenses are subject to periodic renewal and may include minimum sales requirements. There can be no assurance that the licenses for these third-party technologies will not be terminated, that the licenses will be available on future terms acceptable to us, or that we will be able to license third-party software for future products. In the event that these third-party products were to become unavailable, we may be unable to readily replace these products with substitute products. Any interruption in the short term could have a detrimental effect on our ability to continue to market and sell those of our products relying on these specific third-party products and could adversely impact our business. Our use of third-party technologies exposes us to increased risks including, but not limited to, risks associated with the integration of new technology into our products, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs.

International sales and operations subject us to risks that can adversely affect our operating results.

We derive a substantial portion of our revenues, and have significant operations, outside of the U.S. Our international operations include software development, sales, customer support and administration. We face challenges in managing an organization operating in various countries, which can entail longer payment cycles and difficulties in collecting accounts receivable, fluctuations in currency exchange rates, overlapping tax regimes, difficulties in transferring funds from certain countries and reduced protection for intellectual property rights in some countries. We must comply with a variety of international laws and regulations, including trade restrictions, local labor ordinances, and import and export requirements. The risks and challenges associated with sales to customers outside the U.S. also include:

 

    added costs and challenges inherent with localization of our product and service offerings, including the need for accurate translation into foreign languages and associated expenses;

 

    laws and business practices that favor local competitors and may be unpredictable;

 

    compliance with privacy and data protection laws and regulations;

 

    regional data privacy laws that apply to the transmission of data across international borders;

 

18


Table of Contents
Index to Financial Statements
    treatment of revenue from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding income or other taxes in foreign jurisdictions;

 

    different pricing environments; and

 

    difficulties in staffing and managing foreign operations.

We may experience foreign currency gains and losses.

Certain transaction gains and losses are generated from inter-company balances that are not considered to be long-term in nature that will be settled between subsidiaries. We also recognize transaction gains and losses from revaluing debt denominated in Euros and held by subsidiaries whose functional currency is the U.S. Dollar. We conduct a significant portion of our business in currencies other than the U.S. Dollar. Our revenues and operating results are affected when the U.S. Dollar strengthens or weakens relative to other currencies. Changes in the value of major foreign currencies, particularly the Euro and the British Pound relative to the U.S. Dollar, can significantly affect our revenues and operating results. Net foreign currency transaction gains and losses, resulting primarily from recognized balance sheet exposures, are recorded within earnings in the period incurred.

Litigation may adversely affect our business, financial condition and results of operations.

We are subject to legal and regulatory requirements applicable to our business and industry throughout the world. We are subject to various 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. Litigation can be lengthy, expensive, and disruptive to our operations and results cannot be predicted with certainty. There may also be adverse publicity associated with litigation, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations.

Open source software may diminish our software license fees and subscriptions and impair the ownership of our products.

The open source community is comprised of many different formal and informal groups of companies, software developers and individuals who have created a wide variety of software and have made that software available for use, distribution and modification, often free of charge. Open source software, such as the Linux operating system, has been gaining in popularity among business users. If developers contribute enterprise application software to the open source community, and that software has competitive features and scale to business users in our markets, we will need to change our product pricing and distribution strategy to compete. If one of our developers embedded open source components into one of our products without our knowledge or authorization, our ownership and licensing of that product could be in jeopardy. Depending on the open source license terms, the use of an open source component could mean that all products delivered with that open source component become part of the open source community. In that case, our ownership rights and ability to charge license fees for those delivered products could be diminished or rendered worthless. We currently take steps to train our developers and monitor the content of products in development, but there is no assurance that these steps will always be effective.

Regional business disruptions could adversely affect our operating results.

A significant portion of our critical business operations, including research and development, product maintenance, services support, and general and administrative support are concentrated in a few geographic areas. A disruption or failure of our systems could cause delays in completing sales and providing maintenance and services to customers. A major earthquake, fire or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be materially and adversely affected.

We must attract and retain account executives in our sales organization to achieve our revenue goals.

Revenue growth, and in particular software license revenue growth, requires that we have a sufficient number of trained account executives in our sales organization to develop leads and call on prospective customers. Competition in our industry for experienced account executives is intense. Competitors and other software companies may lure away our account executives through signing bonuses and other special incentives. The failure to attract and retain account executives will negatively impact our revenue growth. When we hire a new account executive, the time period required for that person to become productive will vary, depending on their experience and training and the customer pipeline and length of sales cycle.

If we are unable to attract and retain senior management, software developers, services consultants, finance and accounting specialists, and other qualified personnel, we will be unable to develop new products and increase our revenue and profitability.

We also rely on the continued service of our senior management, software developers, services consultants, finance and accounting specialists, and other key employees. In the software industry, there is substantial and continuous competition for highly skilled business, product development, technical, financial and other personnel. The failure to attract, train, retain and effectively manage employees could negatively impact our development and efforts and cause a degradation of our customer service. If we are unable to attract and retain finance and accounting personnel who have experience with the software industry and U.S. accounting requirements, we will have to rely on more costly contractors to fill the roles necessary for us to meet our governance and regulatory requirements.

 

19


Table of Contents
Index to Financial Statements

We are required to delay revenue recognition into future periods for portions of our license and maintenance fee activity.

Our financial statements are prepared in accordance with U.S. GAAP. Under those rules, we are required to defer revenue recognition for software license fees and subscriptions and product updates and support fees in situations that include the following:

 

    the customer agreement includes essential services, including significant modifications, customization or complex interfaces;

 

    the customer agreement includes unique acceptance criteria;

 

    the customer agreement includes extended or contingent payment terms or fees;

 

    a third-party vendor, whose technology is incorporated into our products, delays delivery of its product to the customer; or

 

    we are not able to establish historical pricing and maintenance renewal rates with respect to our products, such as where the customer agreement includes products that are under development or has other undelivered elements, to meet the vendor-specific objective evidence (VSOE) requirements of these accounting rules.

We expect that we will continue to defer recognition of portions of our license and maintenance fee activity in each period. The amount of software license fees and subscriptions revenue and product updates and support fees deferred may be significant and will vary each quarter, depending on the specific terms of contracts executed during each quarterly period. As a result, much of the revenue we report in each quarter is attributable to agreements entered into during previous quarters. Consequently, a decline in sales to new customers, renewals by existing customers or market acceptance of our products in any one quarter will not necessarily be fully reflected in the revenues in that quarter and will negatively affect our revenues and profitability in future quarters.

We may have exposure to additional tax liabilities.

As a multinational organization, we are subject to income taxes as well as non-income based taxes in both the U.S. as well as in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision and other tax liabilities. In the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Although we believe that our tax estimates are reasonable, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals. We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, both in the U.S. and various foreign jurisdictions. We are regularly under audit by tax authorities with respect to these non-income taxes and may have additional exposure to additional non-income tax liabilities.

Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.

Our effective tax rate can be adversely affected by several factors, many of which are outside of our control, including:

 

    changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

 

    changing tax laws, regulations, and interpretations in multiple jurisdictions in which we operate;

 

    changes to the financial accounting rules for income taxes;

 

    unanticipated changes in tax rates;

 

    changes in accounting and tax treatment of equity-based compensation;

 

    the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods;

 

    changes to the valuation allowance on net deferred tax assets; or

 

    assessments, or any related tax interest or penalties, that could significantly affect our income tax expense for the period in which the settlements take place.

Based upon our corporate structure, a higher proportion of our income before taxes may be subject to U.S. tax compared to our predecessor companies and company groups. Since the combined U.S. federal and state tax rate is typically higher than the tax rates of the non-U.S. jurisdictions in which we operate, our tax expense and cash tax costs may increase as a result.

We report our results of operations in part based on our determination of the amount of taxes owed in the various tax jurisdictions in which we operate. Periodically, we receive notices from the relevant tax authorities claiming that we owe a greater amount of tax than we have reported. We regularly engage in discussions, and sometimes disputes, with these tax authorities regarding the amount of taxes owed. If the ultimate determination of our taxes owed is for an amount in excess of the tax provision we have recorded, our operating results, cash flows, and financial condition could be adversely affected.

We earn a significant amount of our operating income from outside the U.S., and any repatriation of funds currently held in foreign jurisdictions may result in higher effective tax rates for us. In addition, there have been proposals to change U.S. tax laws that would significantly impact how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form this proposed legislation will pass, if enacted it could have a material adverse impact on our tax expense and cash flow.

 

20


Table of Contents
Index to Financial Statements

Our periodic workforce restructurings can be disruptive.

We have in the past restructured or made other adjustments to our workforce, including our direct sales force and development and support teams, on all of which we rely heavily, in response to management changes, product changes, performance issues, acquisitions and other internal and external considerations. In the past, our attempts to realign our sales force and other restructurings have generally resulted in a temporary lack of focus and reduced productivity. These effects could recur in connection with future acquisitions and other restructurings and we may be required to incur financial charges in the period when we make such decisions, which could have a material adverse impact on our results of operations for that period. We may decide to take additional restructuring actions from time to time to improve our operational efficiencies.

We may not receive significant revenues from our current research and development efforts for several years, if at all.

Developing software products is expensive, and the investment in product development often involves a long return on investment cycle. We have made and expect to continue to make significant investments in research and development and related product opportunities. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we do not expect to receive significant revenues from these investments for several years, if at all.

The obligations associated with being a registered company require significant resources and management attention.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act). The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Furthermore, the need to maintain the corporate infrastructure demanded of a registrant may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a registrant. However, the measures we take may not be sufficient to satisfy our obligations. In addition, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements.

Risks Related to Our Debt

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations, including our Credit Facilities and senior notes, depends on our financial condition and operating performance, which in turn are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The Credit Facilities and the Indentures related to our senior notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and any proceeds we do receive may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

In addition, the Credit Facilities and the Indentures related to our senior notes contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.

 

21


Table of Contents
Index to Financial Statements

Repayment of our debt is dependent on cash flow generated by our subsidiaries.

Our subsidiaries own substantially all of our assets and conduct substantially all of our operations. Accordingly, repayment of our indebtedness is dependent, to a significant extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. A significant portion of our revenue is generated by subsidiaries located outside of the United States. While the Indenture related to our senior notes limits the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

 

Item 1B. Unresolved Staff Comments

None.

 

Item 2. Properties

Our properties consist primarily of leased office facilities which we use for our sales, marketing, consulting, customer support, product development, executive and administrative functions. Our corporate headquarters and executive offices are located in New York, New York where we currently lease approximately 43,000 square feet of space. The lease on this facility expires July 31, 2022. Our main operations center is in Alpharetta, Georgia where we lease approximately 132,300 square feet of space. The lease on this facility expires October 31, 2017. We also lease approximately 916,400 square feet of space in 42 other locations in the U.S., primarily for regional sales and support offices. In addition, internationally we lease or own approximately 1,475,700 square feet of space in 127 locations in 39 countries. Expiration dates of leases on all of our facilities range from 2014 to 2025. We believe that our existing domestic and international facilities are sufficient to meet our current needs. In addition, we believe suitable additional or alternative space would be available on commercially reasonable terms to accommodate expansion of our operations, if required. The restructuring plans we have implemented over the past few years have involved the exit or reduction in space of certain of our leased facilities. See Note 11, Restructuring Charges, in Notes to Consolidated Financial Statements of this Form 10-K for additional information. As of May 31, 2014, we have sublet approximately 173,800 square feet of the above space and have identified an additional 2,900 square feet that is being actively marketed for sublease or disposition.

 

Item 3. Legal Proceedings

Information regarding our legal proceedings can be found in Note 14, Commitments and Contingencies—Litigation, in Notes to Consolidated Financial Statements of this Form 10-K and is incorporated herein by reference.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

22


Table of Contents
Index to Financial Statements

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

There is no established public trading market for our common stock. As of May 31, 2014, there were 1,000 shares of Infor, Inc. common stock authorized, issued and outstanding, each with a par value of $0.01 per share. All of the outstanding shares of our common stock are held by, Infor Lux Bond Company (Lux Bond Co), our parent company. As of May 31, 2014, based on investments in Infor Enterprise Applications, LP (Infor Enterprise), an affiliate of the parent company of Infor, Inc., held by investment funds affiliated with Golden Gate Capital and investment funds affiliated with Summit Partners, Golden Gate Capital and Summit Partners have voting control equal to approximately 78.3% and 21.4%, respectively, of the Company.

Dividends

We did not declare or pay any dividends on our common stock in fiscal year 2014 or 2013. See Note 17, Dividend, in Notes to Consolidated Financial Statements of this Form 10-K for additional information.

Purchases of Equity Securities

There were no unregistered sales of our equity securities during the fourth quarter of fiscal 2014.

 

23


Table of Contents
Index to Financial Statements
Item 6. Selected Consolidated Financial Data

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth Infor’s selected historical consolidated financial data for the periods and at the dates indicated and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7, and our Consolidated Financial Statements and the related notes to those statements appearing in Part IV, Item 15. The selected consolidated financial data has been derived from our audited consolidated financial statements. Our historical results included below and elsewhere in this Annual Report on Form 10-K are not necessarily indicative of Infor’s future performance.

 

(in millions)    Year Ended May 31,  

Consolidated Statements of Operations Data:

   2014      2013     2012(1)     2011     2010(2)  

Revenues:

           

Software license fees and subscriptions

   $ 548.3       $ 518.1      $ 505.3      $ 367.9      $ 339.5   

Product updates and support fees

     1,465.9         1,441.2        1,284.4        995.8        1,000.0   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Software revenues

     2,014.2         1,959.3        1,789.7        1,363.7        1,339.5   

Consulting services and other fees

     747.6         758.7        751.0        510.0        497.1   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     2,761.8         2,718.0        2,540.7        1,873.7        1,836.6   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

           

Cost of software license fees and subscriptions

     99.8         86.4        90.1        65.6        56.7   

Cost of product updates and support fees

     261.9         254.2        258.5        204.0        211.4   

Cost of consulting services and other fees

     593.2         588.5        593.9        384.0        371.9   

Sales and marketing

     457.1         460.2        438.7        335.1        320.3   

Research and development

     391.8         351.9        322.3        207.4        199.1   

General and administrative

     192.8         210.4        233.4        185.5        196.2   

Amortization of intangible assets and depreciation

     264.3         275.7        323.6        237.3        275.5   

Restructuring

     18.6         10.2        67.8        14.9        28.8   

Acquisition-related and other costs

     27.6         15.0        75.9        6.2        17.7   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,307.1         2,252.5        2,404.2        1,640.0        1,677.6   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     454.7         465.5        136.5        233.7        159.0   

Total other expense, net

     320.4         519.1        462.8        424.9        209.8   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

     134.3         (53.6     (326.3     (191.2     (50.8

Income tax provision (benefit)

     12.6         22.6        (16.3     (50.8     44.6   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 121.7       $ (76.2   $ (310.0   $ (140.4   $ (95.4
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) On July 5, 2011 we completed our acquisition of Lawson Software, Inc. Fiscal 2012 includes Lawson results for the period from July 5, 2011 through May 31, 2012. See Note 3, Acquisitions, in Notes to Consolidated Financial Statements of this Form 10-K.
(2) On August 13, 2009 we completed our acquisition of SoftBrands, Inc. Fiscal 2010 includes SoftBrands results for the period from August 13, 2009 through May 31, 2010.

 

     May 31,  
(in millions)    2014     2013     2012     2011     2010  

Consolidated Balance Sheet Data:

          

Cash and cash equivalents

   $ 575.3      $ 421.9      $ 384.4      $ 337.0      $ 246.4   

Working capital deficit

     (305.9     (432.1     (526.0     (252.6     (253.0

Total assets

     6,778.1        6,591.1        6,533.7        4,666.2        4,452.2   

Total debt, including current maturities(1)

     5,371.3        5,324.1        5,358.6        4,384.4        4,162.5   

Due to affiliate(2)

     —          —          —          329.8        310.2   

Total stockholders’ deficit

     (460.0     (563.9     (620.5     (1,214.7     (1,142.5

Other Financial Information:

          

Capital expenditures

   $ (32.5   $ (36.0   $ (21.5   $ (11.9   $ (7.5

Dividends paid

     —          —          —          (40.0     —     

 

24


Table of Contents
Index to Financial Statements

 

(1) Over the past few fiscal years, in conjunction with our acquisitions of SoftBrands, Inc. in fiscal 2010 and Lawson in fiscal 2012, and in conjunction with the recapitalization and refinancing of our debt structure in fiscal 2012, 2013 and 2014, we have had significant changes to our long-term debt as we have entered into new credit facilities, issued various notes, amended certain existing facilities and repaid others. See Note 12, Debt, in Notes to Consolidated Financial Statements of this Form 10-K for additional information.
(2) Amounts relate to outstanding balances of loans to Lux Bond Co, Infor, Inc.’s parent. In conjunction with the recapitalization of our debt structure on April 5, 2012, the outstanding balance due to Lux Bond Co was contributed as equity and was no longer outstanding as of May 31, 2012. See Note 21, Related Party Transactions, in Notes to Consolidated Financial Statements of this Form 10-K for additional information.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Selected Historical Consolidated Financial Data presented above, our Consolidated Financial Statements, the notes to those statements and other financial information appearing elsewhere in this Annual Report on Form 10-K.

The discussion and analysis of our financial condition and results of operations are based upon our audited financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our financial statements, the reported amounts of revenues and expenses during the reporting periods presented, as well as our disclosures of contingent assets and liabilities. 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 returns, fair value of equity-based compensation, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, restructuring obligations and contingencies and litigation. We base our estimates and assumptions on our historical experience and on other information available to us at the time that these estimates and assumptions are made. We believe that these estimates and assumptions are reasonable under the circumstances and form the basis for making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from our estimates.

Basis of Financial Statement Presentation

On April 5, 2012, we completed the Infor Combination, the combination of Infor and its subsidiaries with the operating subsidiaries of IGS Intermediate Holdings. These entities were under common control of Golden Gate Capital, and accordingly the financial statements contained herein and related financial information for all periods are presented on a consolidated basis as if they were combined from the date of inception of common control.

Hereafter, any reference to we, our, us, Infor or the Company refers to the combined company and the consolidated financial statements thereof presented under common control.

Management Overview

General

Infor is a global provider of enterprise business applications software and services focused primarily on medium and large enterprises. We develop, market, distribute and service enterprise software applications that help organizations manage their businesses. We deliver integrated enterprise business solutions including customer relationship management (CRM), enterprise asset management (EAM), enterprise resource planning (ERP), financial management, human capital management (HCM), performance management, product lifecycle management, property management systems, central reservations systems, supplier relationship management and supply chain management (SCM), including business-specific inventory management, transportation logistics, manufacturing and warehouse management software. Infor also offers 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 solutions help automate and integrate critical business processes which enable our customers to better manage their suppliers, partners, customers and employees.

We specialize in and target specific industries (or verticals), and have industry-specific business units that leverage our industry-oriented products and teams. We provide industry-specific ERP software products to companies in the manufacturing, distribution, healthcare, public sector, automotive, service industries, equipment services, management and rental (ESM&R), consumer products & retail and hospitality industries. Our industry-specific approach distinguishes us from larger competing ERP vendors, whose primary focus is on less specialized software programs that take more time and cost to tailor to our target customers’ specific needs. Augmenting our vertical-specific applications, we have leading horizontal software applications, including our CRM, EAM, HCM, SCM and financial application suites, which, through our proprietary light-weight middleware solution ION, are integrated with our enterprise software applications and sold across verticals.

 

25


Table of Contents
Index to Financial Statements

We generate revenue primarily by licensing software, 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 customers across three geographic regions—the Americas, EMEA and APAC. We have approximately 12,920 employees worldwide and have offices in 40 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 fiscal 2014, our Americas, EMEA and APAC regions generated approximately 57.3%, 34.2% and 8.5% 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, especially in the EMEA and APAC regions.

Fiscal 2014 Overview

Fiscal 2014 was a year of continued investment, innovation and growth for Infor. Over the past twelve months, we continued to make significant investments in our products to meet the specific needs of customers in targeted microvertical industries, in our user interface to unify and beautify the user experience, and in cloud deployment options with Infor UpgradeX and Infor CloudSuite. Flexibility, agility, collaboration, mobility and ease of use were again our key design principles focused on helping our customers become faster and more efficient.

To that end, following the announcement of Infor 10X in the fourth quarter of fiscal 2013, we released 13 Infor 10X-certified product lines in fiscal 2014. These included major deliveries of Infor Syteline, Infor SX.e, Infor LN, and Infor M3. Infor 10X features Infor ION, our purpose-built middleware, Infor Ming.le, a comprehensive social collaboration platform, and the Infor SoHo user interface, whose beautiful design not only improves the user experience but also helps increase productivity. Beyond our core enterprise software applications, additional major Infor 10X product releases in fiscal 2014 included Infor Enterprise Asset Management, Infor Rhythm for e-Commerce, Infor Dynamic Enterprise Performance Management and Infor Human Capital Management. In January 2014, we significantly augmented Infor HCM by acquiring Dallas-based PeopleAnswers, a privately held leader in predictive talent analytics and talent science software delivered via the cloud. PeopleAnswers helps companies improve employee selection, development, and succession planning; reduce turnover; improve performance; and optimize the HR processes associated with these activities.

We expanded our cloud offerings in two significant ways in fiscal 2014, giving our existing and new customers greater choice in deployment options. In our second quarter, we announced Infor UpgradeX, which we designed to help our customers get to our latest releases faster by automating the upgrade process. UpgradeX provides data migration tools, implementation accelerator tools and prepackaged solutions to move on-premises applications to Infor 10X cloud versions. UpgradeX helps our customers reduce costs and minimize disruptions related to on-premises upgrades but more importantly, enjoy all the benefits of Infor10X faster than ever before. In addition, once a customer is live on the cloud, Infor manages the applications, provides ongoing and predictive support, education, and additional upgrade services.

In the third quarter fiscal 2014, we announced Infor CloudSuite in partnership with Amazon Web Services (AWS), a leader in global cloud infrastructure and services. Infor CloudSuite features industry-specific application suites available on the AWS cloud via a subscription-based pricing model to reduce upfront IT costs. Infor CloudSuite customers can take advantage of Infor’s expertise in the application layer. Infor leverages Amazon’s expertise and economies of scale to access infrastructure when we need it, on demand and with auto-scaling, to deliver these applications to our customers. AWS provides services in 10 regions, 25 availability zones and 51 Amazon CloudFront Edge locations globally. By the end of fiscal 2014, we had delivered more than 5 Infor CloudSuite products, including specific industry suites for Automotive, Aerospace & Defense, Hospitality, Corporate-Enterprise, Healthcare; technology (Infor ION, Infor Ming.le), core ERP, extension applications and analytics.

These significant investments helped drive our results in fiscal 2014 and received strong, positive reactions from our customers. In total, we signed over 15,200 deals with existing customers and over 3,200 deals with new customers during the year and our customer retention rate continues to exceed 93%. Our total revenues for fiscal 2014 increased 1.4% compared to fiscal 2013, excluding the favorable foreign currency impact of 0.2%. We continued to expand our development capabilities during fiscal 2014, allowing us to offer a significant number of new and innovative solutions to our customers. Our fiscal 2014 refinancing activities resulted in a significant reduction in the cost of servicing our debt. In addition, favorable foreign currency translation fluctuations also contributed to a significant increase in our net income in fiscal 2014 compared to last year.

 

26


Table of Contents
Index to Financial Statements

During fiscal 2014, the global economic environment continued to show signs of improvement. However, there remain concerns and uncertainty about the strength of the recovery, future domestic and global economic growth, the global financial system including the ongoing European debt crisis, fiscal uncertainty in the U.S., and the numerous ongoing geopolitical issues around the globe. This economic uncertainty may negatively affect the overall demand environment in fiscal 2015, particularly in our EMEA region. We continue to believe that there will be a focus on IT products and services that can reduce cost and deliver rapid return on investment (ROI). We believe that our expanded offerings of industry-specific solutions, flexible distribution, and implementation model and innovative technology that allows for increased business flexibility and rapid ROI, will enable us to stay competitive in a challenging economic environment and outperform the broader market as IT managers continue to focus on projects that quickly deliver value.

Acquisitions

An active acquisition program is another important element of our corporate strategy. In recent years, 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, grow 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, in Notes to Consolidated Financial Statements of this Form 10-K 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 our pending and future acquisitions with our internally available cash, cash equivalents and marketable securities, cash generated from operations 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 2014 Acquisitions

On January 7, 2014, we acquired PeopleAnswers, a privately held company based in Dallas, Texas, for approximately $200.0 million. PeopleAnswers is a provider of predictive talent analytics which complements and further expands our Infor HCM suite. This acquisition was not material to our results of operations in fiscal 2014.

During the fourth quarter of fiscal 2014 we completed an additional acquisition for a purchase price of approximately $1.8 million.

Fiscal 2013 Acquisitions

During fiscal 2013 we completed five acquisitions for an aggregate purchase price of $119.7 million, net of cash acquired. These acquisitions were not significant, either individually or in the aggregate.

Fiscal 2012 Acquisitions

On July 5, 2011, GGC Holdings (now known as Infor, Inc.) purchased 100% of the outstanding voting shares of Lawson Software, Inc., a publicly traded company located in St. Paul, MN, for approximately $1,482.2 million, net of cash acquired.

During fiscal 2012 we completed four additional acquisitions for an aggregate purchase price of $29.3 million, net of cash acquired. These acquisitions were not significant, either individually or in the aggregate.

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. Most recently in fiscal 2014 we amended our Credit Agreement to refinance certain of our credit facilities at favorable interest rates and affiliates of Infor issued senior notes to finance the repayment of their existing debt and fund distributions to our equity inventors.

In the first quarter of fiscal 2014, on June 3, 2013, we entered into an amendment to our Credit Agreement pursuant to which we refinanced the outstanding balance of our Tranche B-1 Term Loan and our Euro Term Loan with a new $483.0 million Tranche B-3 Term Loan and a new €350.0 million Euro Tranche B Term Loan. Under this amendment we reduced the applicable interest rate margins and base interest rate floors and extended the maturity dates related to the refinanced term loans. Under this amendment, the Credit Agreement was also amended to, among other things, limit the applicability of the financial maintenance covenants related to our leverage ratio to the Revolver and only for those fiscal quarters in which we have significant borrowings under our Revolver as of the last day of such quarter. Proceeds from the Tranche B-3 Term Loan and Euro Tranche B Term Loan were used to refinance the outstanding principal of our Tranche B-1 Term Loan and our Euro Term Loan, together with accrued and unpaid interest and applicable fees. In addition, certain of the proceeds were used to repay a portion of the outstanding balance of our Tranche B-2 Term Loan.

 

27


Table of Contents
Index to Financial Statements

On January 2, 2014, we entered into an amendment to our Credit Agreement pursuant to which we refinanced all of the outstanding balance of our Tranche B-2 Term Loan with a new $2,550.0 million Tranche B-5 Term Loan. Under this amendment we reduced the applicable interest rate margins and base interest rate floors related to the refinanced term loan and extended the maturity date related to the Tranche B-5 Term Loan. Proceeds from the Tranche B-5 Term Loan were used to refinance the outstanding principal of our Tranche B-2 Term Loan, together with accrued and unpaid interest and applicable fees.

On January 31, 2014, we entered into an amendment to our Credit Agreement pursuant to which we reduced the interest rate margins applicable to borrowings made in respect of our $150.0 million Revolving Credit Facility.

In addition, on April 8, 2014, Infor Software Parent, LLC (HoldCo), an indirect holding company for Infor, and its direct subsidiary Infor Software Parent, Inc., issued $750.0 million in aggregate principal amount of their 7.125%/7.875% Senior Contingent Cash Pay Notes. Proceeds from the sale of these notes were used to repay the outstanding balance of HoldCo’s affiliate’s existing debt of $166.8 million, to make a $565.5 distribution to HoldCo equityholders, to pay a call premium and accrued interest related to their existing debt, and to pay related transaction fees and expenses. We may from time-to-time service interest payments related to these notes. Any payment of interest that we may pay will be funded primarily through dividend distributions from Infor to HoldCo. We have not reflected these notes in our consolidated financial statements for any of the periods presented based on applicable SEC guidance relating to inclusion of a parent’s debt in a subsidiaries financial statements. See Note12, Debt, in Notes to Consolidated Financial Statements of this Form 10-K for additional information related to our affiliate company borrowings.

See, Liquidity and Capital Resources—Long-Term Debt, below for further discussion of our financing activities.

Restructuring Activities

During recent years, the global economy has been weakened by a world-wide economic downturn, the ongoing Eurozone debt crisis, uncertainty regarding U.S. fiscal policy and federal deficit issues, and persistent high unemployment, which has led to low economic growth. There continues to be uncertainty about future domestic and global economic conditions and the timing and strength of the on-going recovery.

In response to these economic conditions we have undertaken certain restructuring actions to reduce our headcount and streamline our operations. We have also taken certain actions to better focus our efforts on our targeted industry-specific solutions. In addition, as a result of our active acquisition program, we have taken certain actions related to acquired entities over the past few years to streamline back-office functions and eliminate redundancies incurred through acquisitions. We also restructured and consolidated office lease arrangements to eliminate redundant locations worldwide.

Our results for fiscal 2014, fiscal 2013 and fiscal 2012 include restructuring charges of $18.6 million, $10.2 million and $67.8 million, respectively, relating to these actions. We continue to closely monitor our discretionary spending while preserving targeted investments that we believe will facilitate our long-term growth and increase our operational efficiencies. We may consider possible future actions to reduce our operating costs if circumstances warrant.

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 fiscal 2014, the average exchange rates for the U.S. Dollar against the Euro and British Pound weakened by approximately 5.0% and 2.8%, respectively, as compared to the average exchange rates for fiscal 2013. For fiscal 2013, the average exchange rates for the U.S. Dollar against the Euro and British Pound strengthened by approximately 4.9% and 1.3%, respectively, as compared to the average exchange rates for fiscal 2012.

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 U.S. Dollars 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 periods. In each of the tables below, we present the percent change based on actual results in reported currency and in constant currency.

 

28


Table of Contents
Index to Financial Statements

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 presented:

 

(in millions, except percentages)

Year Ended May 31, 2014 vs. 2013

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

Revenues:

            

Software license fees and subscriptions

   $ (0.1   $ 30.3     $ 30.2       0.0     5.8     5.8

Product updates and support fees

     3.1       21.6       24.7       0.2       1.5       1.7  
  

 

 

   

 

 

   

 

 

       

Software revenues

     3.0       51.9       54.9       0.2       2.6       2.8  

Consulting services and other fees

     3.3       (14.4     (11.1     0.4       (1.9     (1.5
  

 

 

   

 

 

   

 

 

       

Total revenues

   $ 6.3     $ 37.5     $ 43.8       0.2     1.4     1.6
  

 

 

   

 

 

   

 

 

       

Total operating expenses

   $ 3.6     $ 51.0     $ 54.6       0.1     2.3     2.4
  

 

 

   

 

 

   

 

 

       

(in millions, except percentages)

Year Ended May 31, 2013 vs. 2012

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

Revenues:

            

Software license fees and subscriptions

   $ (5.8   $ 18.6     $ 12.8       (1.2 )%      3.7     2.5

Product updates and support fees

     (18.2     175.0       156.8       (1.4     13.6       12.2  
  

 

 

   

 

 

   

 

 

       

Software revenues

     (24.0     193.6       169.6       (1.3     10.8       9.5  

Consulting services and other fees

     (15.3     23.0       7.7       (2.1     3.1       1.0  
  

 

 

   

 

 

   

 

 

       

Total revenues

   $ (39.3   $ 216.6     $ 177.3       (1.5 )%      8.5     7.0
  

 

 

   

 

 

   

 

 

       

Total operating expenses

   $ (36.9   $ (114.8   $ (151.7     (1.5 )%      (4.8 )%      (6.3 )% 
  

 

 

   

 

 

   

 

 

       

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our audited Consolidated Financial Statements, which have been prepared in conformity with accounting principles generally accepted in the U.S. (GAAP) as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). GAAP requires us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. The accounting policies that reflect management’s significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following areas:

 

    Revenue Recognition;

 

    Business Combinations;

 

    Restructuring;

 

    Valuation of Accounts Receivable;

 

    Valuation of Goodwill and Intangible Assets;

 

    Income Taxes and Valuation of Deferred Tax Assets;

 

    Contingencies—Litigation Reserves; and

 

    Equity-Based Compensation.

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. Our senior management has reviewed the below critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.

 

29


Table of Contents
Index to Financial Statements

Revenue Recognition

Revenue is a key component of our results of operations and is a key metric used by management and investors to evaluate our performance. Revenue recognition for software businesses is very complex. We follow specific guidelines in determining the proper amount of revenue to be recorded. However, certain judgments affect the application of our revenue recognition policy. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from year to year. The significant judgments for revenue recognition typically involve whether collectability can be considered probable and whether fees are fixed or determinable. In addition, our transactions often consist of multiple-element arrangements, which typically include software license fees, maintenance and support fees and consulting service fees. The amounts of revenue reported in our Consolidated Statements of Operations may vary, due to the amount of judgment required to address significant assumptions, risks and uncertainties in applying the guidelines under GAAP.

We generate revenues primarily by licensing software and SaaS subscriptions, providing software support and product updates, and providing consulting services to our customers. We record all revenues in accordance with the guidance provided by ASC 985-605, Software—Revenue Recognition, ASC 605, Revenue Recognition, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants. Revenue is recorded net of applicable taxes. Our specific revenue recognition policies are as follows:

Software license fees and subscriptions

Software license fees and subscriptions revenues are primarily from sales of perpetual software licenses granting customers use of our software products and access to software products through our SaaS subscription offerings. Software license fees are recognized when the following criteria are met: 1) there is persuasive evidence of an arrangement, 2) the software product has been delivered, 3) the fees are fixed or determinable, and 4) collectability is reasonably assured. SaaS subscription revenues are recognized over the contract term once the software is made available through our SaaS offerings.

We do not generally offer rights of return or acceptance clauses. If a software license contains rights of return or customer acceptance criteria, recognition of the software license fee revenue is deferred until the earlier of customer acceptance or the expiration of the acceptance period or cancellation of the right of return.

We record revenues from sales of third-party products on a “gross” basis pursuant to ASC 605-45 Revenue Recognition, Principal Agent Considerations when we 1) have obtained persuasive evidence of an arrangement, 2) have taken title to the products being sold and 3) have the risks and rewards of ownership such as retaining the risk for collection. If these criteria have not been met, revenue is recognized net of related direct costs.

Revenue arrangements through our resellers that involve Infor contracting directly with an end user follow the same revenue recognition rules as our direct sales business. Revenue arrangements which involve Infor contracting directly with a reseller are generally recognized when the reseller purchases a product for resale to an identified end user provided that all other revenue recognition criteria have been met.

We enter into multiple element arrangements for software and software related products and services, which may include software licenses, product updates and support and/or implementation and consulting services agreements. Revenue is allocated to undelivered elements based upon their fair value as determined by vendor-specific objective evidence (VSOE). VSOE of fair value for the elements in an arrangement reflects the price charged when the undelivered element is sold separately.

We generally do not have VSOE of fair value for software license fees as software licenses are typically not sold separately from product updates and support. Since the fair value of a delivered element (license) has not been established, the residual method is used to record license revenue when VSOE of fair value of all undelivered elements is determinable. Under the residual method, the VSOE of fair value of an undelivered element (product updates and support and/or services) is deferred and the remaining portion of the fee is allocated to the delivered element (license) and is recognized as revenue in accordance with the provisions of ASC 985-605. In instances where VSOE of fair value of one or more of the undelivered elements is not established, license revenue is recognized ratably over the term of the arrangement once all other services have been delivered and one undelivered element remains.

Certain software products are offered as term based license arrangements where the customer has the right to use the software for a specified period of time. Under these arrangements, license fees for multi-year term licenses can either be recognized up front when product updates and support obligations are charged separately and the product updates and support renewal rate and term are considered substantive, or are recognized ratably over the term of the underlying arrangement if the product updates and support renewal rate and term are not considered to be substantive.

For customer arrangements that include software license fees, implementation and/or other consulting services, the portion of the fees related to software licenses is generally recognized when delivered, as the implementation and consulting services typically qualify for separate recognition. The significant factors considered in determining whether the elements constitute multiple units of accounting for revenue recognition purposes include: 1) the nature of the services and consideration of whether the services are essential to the functionality of the licensed product, 2) degree of risk related to delivering the services, 3) availability of comparable services from other vendors, 4) timing of payments and 5) impact of milestones or acceptance criteria on the recognition of the software license fee. The portion of the fees related to

 

30


Table of Contents
Index to Financial Statements

implementation and other consulting services is recognized as such services are performed. If there is a significant uncertainty about the project completion or receipt of payment for the services, revenues are deferred until the uncertainty is sufficiently resolved. If it is determined that the services are not separable from the arrangement for revenue recognition purposes, the license fees and services are recognized using contract accounting either on a percentage of completion basis, measured by the percentage of labor hours incurred to date to estimated total labor hours for each contract, or on a completed contract basis when dependable estimates are not available. Contract accounting is applied to any arrangements: 1) that include milestones or customer-specific acceptance criteria that may affect collection of the software license fees; 2) where services include significant modification or customization of the software; or 3) where the software license payment is tied to the performance of consulting services.

We also enter into multiple element arrangements that may include a combination of our various software-related and non-software related products and services offerings including software licenses, SaaS subscriptions, product updates and support, consulting services, education and hosting services. Each element within a non-software multiple element arrangement is accounted for as a separate unit of accounting provided the following criteria are met: 1) the delivered item or items have value to the customer on a standalone basis, and 2) if the arrangement includes a general right to return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in our control. We consider a deliverable to have standalone value if the product or service is sold separately by Infor or another vendor or could be resold by the customer. In such arrangements, we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements. We then further allocate consideration within the software group to the respective elements within that group following the guidance in ASC 985-605 and our policies as described above. For the non-software group, revenue is then allocated to each element using a selling price hierarchy; VSOE if available, third-party evidence (TPE) if VSOE is not available, or best estimate of selling price (BESP) if neither VSOE nor TPE are available.

To determine the selling price in non-software multiple-element arrangements, we establish VSOE of selling price, as described earlier, to the extent possible. We establish TPE by evaluating similar and interchangeable competitor products or service in standalone arrangements with similarly situated customers. If we are unable to determine the selling price because VSOE or TPE is unavailable, BESP is determined for the purposes of allocating the arrangement. The objective of BESP is to determine the price at which the vendor would transact if the deliverable were sold by the vendor regularly on a standalone basis. Infor determines BESP for its offerings by considering many factors, including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices.

Product Updates and Support Fees

Product updates and support fees entitle the customer 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. The term of product updates and support services is typically twelve months. The product updates and support fees are recorded as product updates and support fees revenue and recognized ratably over the term of the agreement. Revenues for maintenance and support that are bundled with license fees are deferred based on the VSOE of fair value of the bundled maintenance and support and recognized over the term of the agreement.

Consulting Services and Other Fees

We also provide software-related services, including systems implementation and integration services, consulting, training, custom modification and application managed services. Consulting services are usually separately priced and are generally not essential to the functionality of our software products. Consulting services are generally provided under time and materials contracts and revenues are recognized as the services are provided. However, when we enter into arrangements with a fixed-fee or a maximum-fee basis where services are not considered essential to the functionality of the software, revenue is recognized based upon a proportionate performance method. When we enter into arrangements where services are considered essential to the functionality of the software, revenue is recognized based upon a percentage of completion method. Under this method, revenue is recognized based upon labor hours incurred as a percentage of total estimated labor hours to complete the project. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. Revenues for consulting services that are bundled with license fees are deferred based on the VSOE of fair value of the bundled services and recognized when the services are performed.

Consulting services and other fees also include education and hosting services. Hosted customers with perpetual licenses 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 its hosting arrangement upon its expiration and can deploy the software internally or contract with another party unrelated to Infor to host the software. Customers can self-host and any penalties to do so are not significant. Accordingly, the portion of an arrangement allocated to the hosting element is recognized once the service begins and then ratably over the term of the hosting arrangement.

In accordance with the provisions set forth in ASC 605, we recognize amounts associated with reimbursements from customers for out-of-pocket expenses as revenue on a gross basis. Such amounts have been classified as consulting services and other fees.

 

31


Table of Contents
Index to Financial Statements

Deferred Revenues

Deferred revenues represent amounts billed or payments received from customers for software licenses, SaaS subscriptions, product updates and support and/or services in advance of recognizing revenue or performing services. We defer revenues for any undelivered elements, and recognize revenues when the product is delivered or over the period in which the service is performed, in accordance with its revenue recognition policy for such elements. Product updates and support is normally billed quarterly or annually in advance of performing the service.

Deferred Expenses

Commissions payable to our direct sales force and independent affiliates who resell our software products, as well as royalties payable to third-party software vendors, are recorded when a sale is completed or cash received, which coincides with the timing of revenue recognition in most cases. When revenue is recognized ratably over time, related commissions and royalties are deferred and amortized over the same period as the recognition of the revenue.

Collectability

We assess the probability of collection based upon several factors including 1) third-party credit agency information, 2) customer financial statements and/or 3) customer payment history. We typically do not provide for payment terms in excess of six months. Certain customer arrangements are recognized upon collection due to their specific collection history.

Business Combinations

We account for acquisitions in accordance with ASC 805, Business Combinations. ASC 805 requires recognition of the assets acquired and the liabilities assumed separately from goodwill, generally at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While best estimates and assumptions are used as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, adjustments are recorded to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our results of operations.

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, support obligations assumed, estimated restructuring liabilities, contingent consideration and pre-acquisition contingencies. Although we believe the assumptions and estimates made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to:

 

    future expected cash flows from software license fees and subscriptions, product updates and support fees, consulting contracts, other customer contracts and acquired developed technologies and patents;

 

    expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed;

 

    the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; and

 

    discount rates.

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

In connection with the purchase price allocations for our acquisitions, we estimate the fair value of product updates and support, SaaS subscription and service contract obligations assumed. The acquired deferred revenue is recognized at fair value to the extent it represents a legal obligation assumed by Infor. We consider post-contract support (PCS) obligations/services in their entirety, SaaS subscription contracts and service contracts to be legal obligations of the acquired entity. PCS arrangements of acquired entities typically include unspecified product upgrades (when and if available), release updates, regulatory updates and patches, as well as support including access to technical information and technical support staff. SaaS subscription arrangements of acquired entities provide access to product functionality through a hosted environment and other services. We consider PCS and SaaS subscription arrangements to be separate elements when determining the legal obligations assumed from the acquired entity. We expect to fulfill each underlying obligation element of these arrangements. The estimated fair values of these PCS arrangements, SaaS subscription contracts and service contracts are determined utilizing a top-down approach. The top-down approach relies on market indicators of expected revenue for any obligation yet to be delivered with appropriate adjustments. Conceptually, we start with the amount we would expect to receive in a transaction, less the estimated selling effort, which has already been performed, including an estimated profit margin on that selling effort.

 

32


Table of Contents
Index to Financial Statements

The purchase agreements related to certain of our acquisitions may include provisions for the payment of additional cash consideration if certain future performance conditions are met. These contingent consideration arrangements are to be recognized at their acquisition date fair value and included as part of the purchase price at the acquisition date. The estimated fair value of these contingent consideration arrangements are classified as accrued liabilities or other long-term liabilities on our Consolidated Balance Sheets. As such, their fair value is remeasured each reporting period with any change in fair value being recognized in the applicable period’s results of operations and included in acquisition-related and other costs in our Consolidated Statements of Operations. Measuring the fair value of contingent consideration at the acquisition date, and for all subsequent remeasurement periods, requires a careful examination of the facts and circumstances to determine the probable resolution of the contingency(ies).

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date and we reevaluate these items periodically with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period and we continue to collect information in order to determine their estimated values. Subsequent to the measurement period or our final determination of the uncertain tax positions estimated value or tax related valuation allowances, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our Consolidated Statements of Operations and could have a material impact on our results of operations and financial position.

Restructuring

Costs to exit or restructure certain activities of an acquired company, or our internal operations, are accounted for as one-time termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations. If acquisition related, they are accounted for separately from the business combination. Liabilities for costs associated with an exit or disposal activity are measured at fair value on our Consolidated Balance Sheet and recognized in our Consolidated Statement of Operations in the period in which the liability is incurred. In the normal course of business, Infor may incur restructuring charges related to personnel which are accounted for in accordance with ASC 712, Compensation—Nonretirement Postemployment Benefits. These restructuring charges represent severance associated with redundant positions. When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from actual results. This may require revision of initial estimates which may materially affect our results of operations and financial position in the period the change in estimate occurs.

We estimate the amounts of these costs based on our expectations at the time the charges are taken and we reevaluate the remaining accruals at each reporting date based on current facts and circumstances. If our estimates or expectations change because we are subjected to contractual obligations or negotiations we did not anticipate, we choose to further restructure our operations, or there are other costs or changes we did not foresee, we adjust the restructuring accruals in the period that our estimates change. Such changes are recorded as increases or decreases to the restructuring related charges in our results of operations.

Valuation of Accounts Receivable

We have established an allowance for estimated billing adjustments and an allowance for estimated amounts that will not be collected. We record provisions for billing adjustments as a reduction of revenue and provisions for doubtful accounts as a component of general and administrative expense in our Consolidated Statements of Operations. We review specific accounts, including significant accounts with balances past due over 90 days, for collectability based on circumstances known at the date of the financial statements.

In judging the adequacy of the allowance for doubtful accounts, we consider multiple factors including historical bad debt experience, the general economic environment, the need for specific customer reserves and the aging of our receivables. To assess the need for specific customer reserves, we evaluate the probability of collection based upon several factors including: 1) third-party credit agency information, 2) customer financial statements and/or 3) customer payment history. A considerable amount of judgment is required in assessing these factors. If the factors used in determining the allowance do not reflect future events, then a change in the allowance for doubtful accounts would be necessary at the time of determination. Such a change may have a significant impact on our future results of operations. Accounts receivable are charged off against the allowance when we determine it is probable the receivable will not be recovered.

Valuation of Goodwill and Intangible Assets

Our goodwill and intangible assets resulted primarily from our acquisitions. We account for intangible assets and goodwill pursuant to ASC 350, Intangibles—Goodwill and Other. Whenever events or changes in circumstances indicate the carrying amount may not be recoverable we review these assets for impairment or disposal. Events or changes in circumstances that indicate the carrying amount of the assets may not be recoverable include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the extent or manner in which the business or asset acquired is used or a significant adverse change in the business climate in which we operate. In order to perform these reviews we must first determine our reporting units in accordance with ASC 280, Segment Reporting. ASC 280 requires a public enterprise to report financial and descriptive information about its reportable operating segments, and thus its reporting units. We have determined that we operate as three reporting units: License, Maintenance and Consulting.

We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with ASC 350, Intangibles—Goodwill and Other. We have adopted the FASB guidance that allows for an initial qualitative analysis to assess potential goodwill impairment prior to performing the two-step impairment test. Our annual testing for goodwill

 

33


Table of Contents
Index to Financial Statements

impairment begins with a qualitative comparison of a reporting unit’s fair value to its carrying value to determine if it is more-likely-than-not (i.e. a likelihood of more than 50 percent) that the fair value is less than the carrying value and thus whether any further two-step impairment tests are necessary. If further two-step impairment testing is necessary, the first step is used to identify potential impairment and compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further testing. If our carrying amount exceeds fair value, the second step of the goodwill impairment test would be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test is used to measure the amount of impairment loss and compares the implied fair value of the goodwill with its carrying amount. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss would be recognized in an amount equal to the excess. Any loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is the new accounting basis. A subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed and the loss has been recognized.

The estimate of the total fair value of our reporting units requires the use of significant estimates and assumptions including projections of future cash flows and discount rates. The discount rate utilized is based on management’s best estimate of the related risks and return at the time the impairment assessment is made. We perform our annual goodwill impairment test as of September 30. The results of our most recent annual tests performed in fiscal 2014, 2013 and 2012 did not indicate any potential impairment of our goodwill and we have no accumulated impairment charges related to our goodwill.

The carrying amount of our intangible assets, other than acquired technology, are reviewed whenever circumstances arise that indicate the carrying amount of an asset may not be recoverable. The carrying amount of our acquired technology is reviewed for recoverability on at least an annual basis. The carrying value of our intangible assets is compared to the undiscounted future cash flows the assets are expected to generate. An asset is considered to be impaired if the carrying value of that asset exceeds its estimated fair value and this difference is recognized as an impairment loss. The estimated fair value of these intangible assets requires the use of significant estimates and assumptions including projections of future cash flows and remaining useful lives of the intangible assets. We have not recognized any losses from impairment of our intangible assets during fiscal 2014, 2013 and 2012.

Income Taxes and Valuation of Deferred Tax Assets

Our provision for income taxes consists of provisions for federal, state, and foreign income taxes. We operate in an international environment with significant operations in various locations outside of the U.S. Accordingly, our combined income tax rate is a composite rate reflecting our operating results in various locations and the applicable rates.

Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Our judgments, assumptions, and estimates relative to the provision for income taxes take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Although we believe that our estimates are reasonable, the final tax outcome of matters could be different from that which is reflected in our historical income tax provision and accruals. Such differences, if identified in future periods, could have a material effect on the amounts recorded in our consolidated financial statements.

We utilize the asset and liability method of accounting for income taxes as set forth in ASC 740 Income Taxes. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates that are applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized to the differences between the financial statements carrying amount and the tax bases of existing assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in net loss (or net income) in the period in which the tax rate change is enacted. The statement also requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets may not be realized.

Our worldwide net deferred tax assets consist primarily of net operating loss carryforwards, tax credit carryforwards, disallowed interest expense carryforwards and temporary differences between taxable income (loss) on our tax returns and income (loss) before income taxes under GAAP, primarily related to goodwill and intangible assets. A deferred tax asset generally represents future tax benefits to be received when these carryforwards can be applied against future taxable income or when expenses previously reported in our financial statements become deductible for income tax purposes. We maintain certain strategic management and operational activities in overseas subsidiaries and our foreign earnings are taxed at rates that are generally lower than in the U.S. As of May 31, 2014, we did not provide for U.S. federal income taxes or foreign withholding taxes on the undistributed earnings of our foreign subsidiaries as such earnings are expected to be reinvested indefinitely.

A valuation allowance is recognized for a portion of our net deferred tax assets in the U.S. as well as certain foreign tax jurisdictions. This valuation allowance is based on our assessment of the realizability of these assets. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. Projected future taxable income is based on our expected results and assumptions as to the jurisdiction in which the income will be earned. We expect to continue to provide a valuation allowance against these assets until, or unless, we can sustain a level of profitability in the respective tax jurisdictions that demonstrates our ability to utilize these assets. At that time, the valuation allowance could be reduced in part or in total.

 

34


Table of Contents
Index to Financial Statements

We are subject to the provisions of ASC 740-10, which defines the accounting for uncertainty in income taxes by prescribing thresholds and attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings and refinement of estimates or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination is made.

The provisions of ASC 740-10 contain a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in the provision for income taxes line of our Consolidated Statements of Operations.

The Company is included in the GGC Software Parent, Inc. consolidated federal income tax return. The Company and its subsidiaries provide for income taxes under the separate return method, by which Infor, Inc. and its subsidiaries compute tax expense as though they file a separate company tax return.

Contingencies—Litigation Reserves

We may, from time to time, have unresolved regulatory, legal, tax or other matters. We provide for contingent liabilities in accordance with ASC 450, Contingencies. Pursuant to this guidance, a loss contingency is charged to income when it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not recorded until realized. We expense all legal costs to resolve regulatory, legal, tax, or other matters in the period incurred.

Periodically, at a minimum at each reporting date, we review the status of each significant matter to assess our potential financial exposure. If a potential loss is considered probable and the amount can be reasonably estimated as defined by the guidance related to accounting for contingencies, we reflect the estimated loss in our results of operations. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability can be reasonably estimated. Because of uncertainties related to these matters, accruals are based on the best information available to us at that time. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in the accompanying consolidated financial statements. As additional information becomes available, we reassess the potential liability related to any pending claims and litigation and may revise our estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our future results of operations, financial position and cash flows.

Litigation by its nature is uncertain and the determination of whether any particular case involves a probable loss and quantifying the amount of loss for purposes of establishing or adjusting applicable reserves requires us to exercise considerable judgment, which is applied as of a certain date. The required reserves may change in the future due to new matters, developments in existing matters or if we determine to change our strategy with respect to the resolution of any particular matter.

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 and the estimated number of securities we ultimately expect will vest.

We utilize the Option-Pricing Method to estimate the fair value of our equity awards. This approach models the various classes of equity securities as a series of call options on our total equity. The exercise prices of the call options are derived based on the distribution waterfall of the issuing entity. Assumptions utilized under the Option–Pricing Method include: (a) stock price, derived from the estimated fair value of our total equity, (b) time to expiration, derived from the expected time to a potential liquidity event, (c) risk-free interest rate, derived from the U.S. Treasury rate over the expected time to expiration, (d) expected dividend yield and (e) expected volatility of the total equity value.

 

35


Table of Contents
Index to Financial Statements

Circumstances may change and additional data may become available over time which could result in changes to these input assumptions and our estimates of the number of securities we expect will vest. Such changes could materially impact our fair value estimates and how much we recognize as equity-based compensation.

As more fully described in Note 16, Share Purchase and Option Plans, certain stock options, restricted stock and other equity-based awards outstanding under our Share Purchase and Option Plans are subject to vesting and repurchase features that function as in-substance forfeiture provisions. The repurchase features are removed only following the Company’s election not to exercise such repurchase rights within a certain period of time following the termination of the recipient’s employment. If the exercise of the Company’s repurchase rights is not considered probable as of given reporting date, no compensation costs are recognized for securities subject to these repurchase features in that period.

Results of Operations

The following tables set forth certain line items in our Consolidated Statements of Operations as reported in conformity with GAAP, the period-over-period actual percentage change (Actual) and the period-over-period constant currency percentage change (Constant Currency), for the periods indicated:

 

     Year Ended May 31,     Fiscal 2014 vs. 2013     Fiscal 2013 vs. 2012  
(in millions, except percentages)    2014     2013     2012     Actual     Constant
Currency
    Actual     Constant
Currency
 

Revenues:

              

Software license fees and subscriptions

   $ 548.3     $ 518.1     $ 505.3       5.8     5.8     2.5     3.7

Product updates and support fees

     1,465.9       1,441.2       1,284.4       1.7       1.5       12.2       13.6  
  

 

 

   

 

 

   

 

 

         

Software revenues

     2,014.2       1,959.3       1,789.7       2.8       2.6       9.5       10.8  

Consulting services and other fees

     747.6       758.7       751.0       (1.5     (1.9     1.0       3.1  
  

 

 

   

 

 

   

 

 

         

Total revenues

     2,761.8       2,718.0       2,540.7       1.6       1.4       7.0       8.5  
  

 

 

   

 

 

   

 

 

         

Operating expenses:

              

Cost of software license fees and subscriptions

     99.8       86.4       90.1       15.5       15.6       (4.1     (3.0

Cost of product updates and support fees

     261.9       254.2       258.5       3.0       3.1       (1.7     0.1  

Cost of consulting services and other fees

     593.2       588.5       593.9       0.8       0.4       (0.9     1.3  

Sales and marketing

     457.1       460.2       438.7       (0.7     (0.4     4.9       6.7  

Research and development

     391.8       351.9       322.3       11.3       11.1       9.2       10.5  

General and administrative

     192.8       210.4       233.4       (8.4     (8.2     (9.9     (8.8

Amortization of intangible assets and depreciation

     264.3       275.7       323.6       (4.1     (4.6     (14.8     (13.9

Restructuring costs

     18.6       10.2       67.8       82.4       77.5       (85.0     (83.6

Acquisition-related and other costs

     27.6       15.0       75.9       84.0       82.7       (80.2     (80.2
  

 

 

   

 

 

   

 

 

         

Total operating expenses

     2,307.1       2,252.5       2,404.2       2.4       2.3       (6.3     (4.8
  

 

 

   

 

 

   

 

 

         

Income from operations

     454.7       465.5       136.5       (2.3     (2.9     241.0       242.8  
  

 

 

   

 

 

   

 

 

         

Interest expense, net

     378.0       418.1       467.4       (9.6     (9.6     (10.5     (10.5

Loss on extinguishment of debt

     5.2       1.8       107.1       188.9       188.9       (98.3     (98.3

Other (income) expense, net

     (62.8     99.2       (111.7     NM        NM        NM        NM   
  

 

 

   

 

 

   

 

 

         

Income (loss) before income tax

     134.3       (53.6     (326.3     NM        NM        (83.6     (85.4

Income tax provision (benefit)

     12.6       22.6       (16.3     (44.2     (37.6     NM        NM   
  

 

 

   

 

 

   

 

 

         

Net income (loss)

   $ 121.7     $ (76.2   $ (310.0     NM     NM     (75.4 )%      (77.4 )% 
  

 

 

   

 

 

   

 

 

         

 

* NM Percentage not meaningful

The discussion that follows relating to our results of operations for the comparable fiscal years ended May 31, 2014, 2013 and 2012, should be read in conjunction with the accompanying audited Consolidated Financial Statements and related notes and with the information presented in the above table. This analysis addresses the actual changes in our results of operations for the comparable fiscal years as presented in accordance with GAAP as well as changes excluding the impact of foreign currency fluctuations, as reflected in the constant currency percentages in the above table and the tables that follow. See the Foreign Currency discussion, above, for further explanation of the impact on our results of operations.

 

36


Table of Contents
Index to Financial Statements

Revenues

 

     Year Ended May 31,      Fiscal 2014 vs. 2013     Fiscal 2013 vs. 2012  
(in millions, except percentages)    2014      2013      2012        Actual       Constant
  Currency  
      Actual       Constant
  Currency  
 

Revenues:

                 

Software license fees and subscriptions

   $ 548.3      $ 518.1      $ 505.3        5.8     5.8     2.5     3.7

Product updates and support fees

     1,465.9        1,441.2        1,284.4        1.7       1.5        12.2       13.6   
  

 

 

    

 

 

    

 

 

          

Software revenues

     2,014.2        1,959.3        1,789.7        2.8       2.6        9.5       10.8   

Consulting services and other fees

     747.6        758.7        751.0        (1.5     (1.9     1.0       3.1   
  

 

 

    

 

 

    

 

 

          

Total revenues

   $ 2,761.8      $ 2,718.0      $ 2,540.7        1.6     1.4     7.0     8.5
  

 

 

    

 

 

    

 

 

          

Total Revenues. We generate revenues from licensing our software, providing access to our software through SaaS subscriptions, providing product updates and support related to our licensed products and providing consulting services. We utilize written contracts as the means to establish the terms and conditions by which our products, product updates and support and consulting services are sold to our customers. As our product updates and support and consulting services are primarily attributable to our licensed products, growth in our product updates and support and consulting services is generally tied to the level of our license contracting activity.

Total revenues increased by 1.4% in fiscal 2014 compared to fiscal 2013, excluding the favorable foreign currency impact of 0.2%. On a constant currency basis, the increase was due to growth in our software license fees and subscriptions, primarily our SaaS revenues, as well as growth in our product updates and support fees. These increases more than offset a decrease in the volume of our consulting services and other fees. Our fiscal 2014 results were positively impacted by our recent acquisitions.

Total revenues increased by 8.5% in fiscal 2013 compared to fiscal 2012, excluding the unfavorable foreign currency impact of 1.5%. On a constant currency basis, the increase was due to growth in our software license fees and subscriptions primarily our SaaS subscription revenues, significant growth in our product updates and support fees and growth in the volume of our consulting services and other fees. Our fiscal 2013 results were positively impacted by our acquisitions, including the impact of Lawson, the results of which were included in our results for the full year in fiscal 2013 compared to approximately eleven months in fiscal 2012.

Software License Fees and Subscriptions. Our software license fees and subscriptions primarily consist of fees resulting from products licensed to customers on a perpetual 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. Software license fees and subscriptions also include subscription revenues related to our SaaS offerings.

Fiscal 2014 software license fees and subscriptions revenues increased by 5.8%, compared to fiscal 2013, excluding an insignificant favorable foreign currency rate impact of less than 0.1%. At constant currency, 5.2 points of the increase was due to higher volume of SaaS subscription revenues including the positive impact of our recent acquisitions. Our license fee revenues were also up slightly, accounting for an increase of less than 1.0 point.

Fiscal 2013 software license fees and subscriptions revenues increased by 3.7% compared to fiscal 2012, excluding a 1.2% unfavorable foreign currency rate impact. At constant currency, the increase was primarily due to a 5.7 point increase related to increased SaaS subscription revenues which offset a 2.0 point decrease in license fees revenues as a result of a decrease in software licensing transactions in fiscal 2013 compared to fiscal 2012. We experienced a decrease in the volume of small and mid-size transactions, those under $250,000. These decreases were offset by an increase in the volume of large transactions, those greater than $250,000. In addition, strong fourth quarter license fees revenues related to our release of Infor 10X contributed to lessening the year-over-year decrease.

Product Updates and Support Fees. Our product updates and support fees revenues 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. Product updates and support revenues can fluctuate based on the number and timing of new license contracts, renewal rates and price increases.

Fiscal 2014 product updates and support fees increased by 1.5%, excluding the favorable foreign currency impact of 0.2%, compared to fiscal 2013. At constant currency, the increase was primarily the result of revenues related to new maintenance pull-through from new license transactions and price increases offsetting customer attrition. We continue to experience maintenance retention rates of over 93%.

Product updates and support fees increased by 13.6%, excluding the unfavorable foreign currency impact of 1.4%, in fiscal 2013 compared to fiscal 2012. At constant currency, the increase was primarily the result of our acquisition of Lawson the results of which were included in our results for the full year in fiscal 2013 compared to approximately eleven months in fiscal 2012 which accounted for an increase of 2.9 points. In addition, the impact on our results of the purchase accounting revenue adjustments primarily related to Lawson product

 

37


Table of Contents
Index to Financial Statements

updates and support fees decreased in fiscal 2013 compared to the prior year accounting for an increase of 9.4 points. The remaining increase was attributable to increases in revenues related to new maintenance pull-through from new license sales and price increases offsetting customer attrition.

Consulting Services and Other Fees. Our consulting services and other fees revenues consist primarily of software-related services, including systems implementation and integration services, consulting, custom modification, hosting services, application managed services and education and training services for customers who have licensed our products. Consulting services and other fees revenues also includes revenues related to hardware systems products.

Consulting services and other fees decreased by 1.9%, excluding the favorable foreign currency impact of 0.4%, in fiscal 2014 compared to fiscal 2013. At constant currency, consulting services and other fees were down less than 1.0 point as a result of our focus on expanding our system integrator channel which impacted demand for our consulting services. Additionally, consulting services and other fees were down less than 1.0 point as a result of the timing of Inforum, our annual customer event. It was held in April of fiscal 2013, while we had no such event during fiscal 2014 as it is scheduled to be held in September 2014 of our fiscal 2015.

Consulting services and other fees increased by 3.1%, excluding the unfavorable foreign currency impact of 2.1%, in fiscal 2013 compared to fiscal 2012. At constant currency, consulting services and other fees increased primarily as a result of our acquisition of Lawson the results of which were included in our results for the full year in fiscal 2013 compared to approximately eleven months in fiscal 2012.

Deferred Revenue. Certain of our revenues are deferred when all conditions of revenue recognition have not been met. Deferred revenue represents revenue that is to be recognized in future periods when such conditions have been satisfied related to certain license agreements (including SaaS), maintenance contracts and certain consulting arrangements, as discussed above. We had total deferred revenues of $994.8 million at May 31, 2014, compared to $949.0 million at May 31, 2013.

The following table sets forth the components of deferred revenue:

 

     May 31,  
(in millions)    2014      2013  

Software license fees and subscriptions

   $ 51.1       $ 40.0   

Product updates and support fees

     869.4         837.4   

Consulting services and other fees

     74.3         71.6   
  

 

 

    

 

 

 

Total deferred revenue

     994.8         949.0   

Less: current portion

     975.3         927.7   
  

 

 

    

 

 

 

Deferred revenue—non-current

   $ 19.5       $ 21.3   
  

 

 

    

 

 

 

In general, changes in the balance of our deferred revenue are cyclical and primarily driven by the timing of our maintenance services renewal cycles. Our renewal dates primarily occur in the third and fourth quarters of our fiscal year with revenues being recognized ratably over the applicable service periods. We generate substantial recurring product update and support fees revenue from our customer support programs and other software maintenance services. Maintaining our current level of product update and support fees revenue is dependent upon our ability to enroll our customers in our maintenance programs and having our customer’s renew their maintenance agreements, primarily on an annual basis.

 

38


Table of Contents
Index to Financial Statements

Operating Expenses

 

     Year Ended May 31,      Fiscal 2014 vs. 2013     Fiscal 2013 vs. 2012  
(in millions, except percentages)    2014      2013      2012        Actual       Constant
  Currency  
      Actual       Constant
  Currency  
 

Operating expenses:

                 

Cost of software license fees and subscriptions

   $ 99.8      $ 86.4      $ 90.1        15.5     15.6     (4.1 )%      (3.0 )% 

Cost of product updates and support fees

     261.9        254.2        258.5        3.0       3.1       (1.7     0.1  

Cost of consulting services and other fees

     593.2        588.5        593.9        0.8       0.4       (0.9     1.3  

Sales and marketing

     457.1        460.2        438.7        (0.7     (0.4     4.9       6.7  

Research and development

     391.8        351.9        322.3        11.3       11.1       9.2       10.5  

General and administrative

     192.8        210.4        233.4        (8.4     (8.2     (9.9     (8.8

Amortization of intangible assets and depreciation

     264.3        275.7        323.6        (4.1     (4.6     (14.8     (13.9

Restructuring costs

     18.6        10.2        67.8        82.4       77.5       (85.0     (83.6

Acquisition-related and other costs

     27.6        15.0        75.9        84.0       82.7       (80.2     (80.2
  

 

 

    

 

 

    

 

 

          

Total operating expenses

   $ 2,307.1      $ 2,252.5      $ 2,404.2        2.4     2.3     (6.3 )%      (4.8 )% 
  

 

 

    

 

 

    

 

 

          

Cost of Software License Fees and Subscriptions. Cost of software license fees and subscriptions includes royalties to third-parties, channel partner commissions and other software delivery expenses. Our software solutions may include embedded components of third-party vendors for which a fee is paid to the vendor upon the sale of our products. In addition, we resell third-party products in conjunction with the license of our software solutions, which also results in a fee. We also resell our software solutions through our third-party channel relationships which require us to pay applicable commissions to our channel partners. The cost of software license fees and subscriptions is generally higher, as a percentage of revenues, when we resell products of third-party vendors. As a result, software license fees and subscriptions gross margins will vary depending on the proportion of third-party product sales in our revenue mix. In addition, cost of software license fees and subscriptions reflects costs related to our SaaS offerings.

Cost of license fees and subscriptions for fiscal 2014 increased by 15.6%, excluding the favorable foreign currency impact of 0.1%, compared to fiscal 2013. At constant currency, this increase was primarily due to a 12.9 point increase related to higher SaaS costs in-line with our higher subscriptions revenues in fiscal 2014. In addition, we had a 3.3 point increase related to higher channel partner commissions due to the mix of sales in the current year.

Cost of software license fees and subscriptions for fiscal 2013 decreased by 3.0%, excluding the favorable foreign currency impact of 1.1%, compared to fiscal 2012. At constant currency, this decrease was primarily due to lower third-party royalties which accounted for a decrease of 11.4 points. This decrease was somewhat offset by a 6.4 point increase related to higher SaaS costs in-line with our higher SaaS revenues in fiscal 2013 and a 1.2 point increase related to higher channel partner commissions.

Cost of Product Updates and Support Fees. Cost of product updates and support fees includes salaries, employee benefits, related travel, third-party maintenance costs associated with embedded and non-embedded third-party products, related channel partner commissions, and the overhead costs of providing our customers product updates and support.

For fiscal 2014, cost of product updates and support fees increased by 3.1%, excluding the favorable foreign currency impact of 0.1%, compared to fiscal 2013. At constant currency, higher channel partner commissions, primarily in our Americas and EMEA regions, and higher third-party royalties, primarily in our Americas region, accounted for an increase of 2.2 points. In addition, an increase of 1.4 points related to increased employee-related support costs due to higher headcount in our customer support organization in fiscal 2014 compared to last year. These increases were somewhat offset by a decrease in other support costs.

Fiscal 2013 cost of product updates and support fees increased by 0.1%, excluding the favorable foreign currency impact of 1.8%, compared to fiscal 2012. At constant currency, product updates and support fees were relatively flat with an increase in our channel partner commissions and third-party royalties being mostly offset by a decrease in employee-related support costs and third-party support.

Cost of Consulting Services and Other Fees. Cost of consulting services and other fees includes salaries, employee benefits, third-party consulting costs, related travel, and the overhead costs of providing our customers systems implementation and integration services, consulting, custom modification, hosting services, application managed services and education and training services. Cost of consulting services and other fees also includes costs associated with our hardware business.

 

39


Table of Contents
Index to Financial Statements

For fiscal 2014, cost of consulting services and other fees increased by 0.4%, excluding the unfavorable foreign currency impact of 0.4%, compared to the fiscal 2013. At constant currency, the increase was primarily due to higher equity –based compensation costs.

For fiscal 2013, cost of consulting services and other fees increased by 1.3%, excluding the favorable foreign currency impact of 2.2%, compared to the corresponding prior period. At constant currency, cost of consulting services and other fees increased primarily as a result of a an increase in billable employee costs, in-line with increased consulting revenues in fiscal 2013 compared to fiscal 2012, which contributed a 1.0 point increase, as well as an increase in our hardware systems costs and costs related to our education and training services. These increases were somewhat offset by a decrease in our hosting services costs.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, employee benefits, travel, trade show activities, advertising and branding costs and overhead costs related to our sales and marketing personnel.

Sales and marketing expenses decreased by 0.4%, excluding the favorable foreign currency impact of 0.3%, in fiscal 2014 compared to fiscal 2013. On a constant currency basis, sales and marketing expenses decreased as a result of lower marketing program costs primarily due to the timing of Inforum, our annual customer event, which will be held in the second quarter of fiscal 2015 compared to the fourth quarter last year. In addition, our employee-related costs decreased primarily due to lower headcount in our marketing organization. The decrease in employee-related costs included a decrease in salaries and travel costs which were somewhat offset by an increase in equity-based compensation and commission costs.

Sales and marketing expenses increased by 6.7%, excluding the favorable foreign currency impact of 1.8%, in fiscal 2013 compared to fiscal 2012. On a constant currency basis, sales and marketing expenses increased 6.2 points primarily as a result of increased employee-related sales costs due to an increase in headcount in our sales and marketing organizations in fiscal 2013 of approximately 107, or 5.3%, compared to the prior year as we invested in our sales organization to better focus on our targeted verticals. The increase in employee-related administrative costs includes an increase in travel costs and an increase in equity-based compensation. In addition, marketing costs related to trade shows accounted for an increase of 0.8 points. The inclusion of Lawson for the full year-to-date period of fiscal 2013 also contributed to the increase. These increases were somewhat offset by a decrease in certain sales incentive costs and professional services.

Research and Development. Research and development expenses consist primarily of personnel-related expenditures.

Research and development expenses increased by 11.1%, excluding the unfavorable foreign currency impact of 0.2%, in fiscal 2014 compared to fiscal 2013. On a constant currency basis, research and development expenses increased 9.3 points as a result of higher employee-related costs due to a net increase of 235, or 6.6%, in our developer headcount in the fiscal 2014 compared to last year. During fiscal 2014, we made significant investments in our development capacity as we continued to bring a number of new products to market.

Research and development expense increased by 10.5%, excluding the favorable foreign currency impact of 1.3%, in fiscal 2013 compared to fiscal 2012. On a constant currency basis, research and development expenses increased 8.1 points primarily as a result of higher employee-related costs due to a net increase of 157, or 4.6%, in our developer headcount in fiscal 2013 as compared to the prior year as we made significant investments in our development capacity in fiscal 2013. The increase in employee-related research and development costs included an increase in equity-based compensation. In addition, professional fees increased year-over-year which accounted for an increase of 1.8 points. The inclusion of Lawson for the full year-to-date period of fiscal 2013 also contributed to the increase.

General and Administrative. General and administrative expenses consist primarily of personnel related expenditures for information technology, finance, legal and human resources support functions.

Fiscal 2014 general and administrative expenses decreased by 8.2%, excluding the favorable foreign currency impact of 0.2%, compared to fiscal 2013. On a constant currency basis, this decrease was primarily due to a 6.1 point decrease related to a change in estimate of the accrual we had recorded related to certain patent litigation matters (See Note 14, Commitments and Contingencies- Litigation). We also had a 1.9 point decrease related to lower professional fees including fees related to certain patent litigation matters.

Fiscal 2013 general and administrative expenses decreased by 8.8%, excluding the favorable foreign currency impact of 1.1%, compared to fiscal 2012. On a constant currency basis, general and administrative expenses decreased 6.0 points due to a decrease in employee-related costs as a result of a net decrease of 144, or 8.8%, in our administrative functions’ headcount in fiscal 2013 as compared to the prior year primarily due to our restructuring activities. The decrease in employee-related administrative costs included a decrease in equity-based compensation and a decrease in incentive compensation costs. Professional fees accounted for a year-over-year decrease of 2.1 points primarily due to lower legal costs related to certain patent litigation matters. In addition, we had a decrease in management fees paid to our equity sponsors as well as a decrease in other general and administrative expenses. These decreases were somewhat offset by the inclusion of Lawson for the full year-to-date period of fiscal 2013 as well as a 0.9 point increase related to certain patent litigation settlement costs.

Amortization of Intangible Assets and Depreciation. Amortization of intangibles assets primarily relates to the on-going amortization of intangible assets acquired in acquisitions. Depreciation expense relates primarily to our computer equipment and purchased software, furniture and fixtures as well as amortization of leasehold improvements.

 

40


Table of Contents
Index to Financial Statements

Fiscal 2014 amortization of intangible assets and depreciation decreased by 4.6%, excluding the unfavorable impact of foreign currency of 0.5%, compared to fiscal 2013. The decrease resulted primarily from certain assets being fully amortized /depreciated in fiscal 2013 with no corresponding expense recorded in fiscal 2014. This decrease was somewhat offset by additional amortization expense related to intangible assets recorded as part of our recent acquisitions.

Fiscal 2013 amortization of intangible assets and depreciation decreased by 13.9%, excluding the favorable impact of foreign currency of 0.9%, compared to fiscal 2012. This decrease resulted primarily from certain assets being fully amortized /depreciated in fiscal 2012 with no corresponding expense recorded in fiscal 2013. The decrease was somewhat offset by the increase in amortization of intangible assets related to our acquisitions and the inclusion of amortization related to Lawson for the full year of fiscal 2013.

Restructuring. We have recorded restructuring charges related to our acquisitions and in the ordinary course of business 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. These restructuring charges represent severance associated with redundant positions and costs related to redundant office locations. See Note 11, Restructuring Charges.

In fiscal 2014, we incurred restructuring charges of $18.6 million compared to $10.2 in fiscal 2013 and $67.8 million in fiscal 2012. The fiscal 2014 restructuring charges were primarily for employee severance costs related to actions taken in our professional services and sales organizations in our EMEA region. The restructuring charges recorded in fiscal 2013 were primarily for employee severance costs related to actions taken in connection with the combination of certain of our operations including GGC Holdings and Infor Global Solutions. Fiscal 2012 restructuring charges were primarily for employee severance costs related to our Lawson acquisition. Our management approved, committed to and initiated these actions in order to eliminate redundancies and better align our cost structure.

Acquisition-Related and Other Costs. Acquisition-related and other costs include transaction costs related to our acquisitions, primarily professional services fees, and integration costs, primarily employee-related costs of transitional and certain other employees. Acquisition-related and other costs also include certain costs incurred in financing our acquisitions, reorganizing our operations and other debt financing activities.

Fiscal 2014 acquisition-related and other costs of $27.6 million increased by approximately $12.6 million compared to $15.0 million in fiscal 2013. For fiscal 2014, acquisition-related and other costs related primarily to our refinancing activities during the year as well as costs incurred related to our acquisition of PeopleAnswers.

Fiscal 2013 acquisition-related and other costs of $15.0 million decreased by approximately $60.9 million compared to $75.9 million in fiscal 2012. For fiscal 2013, acquisition-related and other costs included costs related primarily to our refinancing activities, integration costs related to the combination of our operating entities, as well as costs related to our acquisitions during the year. Fiscal 2012 costs related to our acquisition of Lawson, the integration of Lawson’s operations into Infor, cost incurred for related financing activities, as well as costs incurred related to the combination of Infor’s operating entities.

Non-Operating Income and Expenses

 

     Year Ended May 31,     Fiscal 2014 vs. 2013     Fiscal 2013 vs. 2012  
(in millions, except percentages)    2014     2013      2012       Actual       Constant
  Currency  
      Actual       Constant
  Currency  
 

Interest expense, net

   $ 378.0     $ 418.1      $ 467.4       (9.6 )%      (9.6 )%      (10.5 )%      (10.5 )% 

Loss on extinguishment of debt

     5.2       1.8        107.1       188.9       188.9        (98.3     (98.3

Other (income) expense, net

     (62.8     99.2        (111.7     NM        NM        NM        NM   
  

 

 

   

 

 

    

 

 

         

Total non-operating expenses

   $ 320.4     $ 519.1      $ 462.8       (38.3 )%      (37.5 )%      12.2      11.4 
  

 

 

   

 

 

    

 

 

         

 

* NM Percentage not meaningful

Interest Expense, Net. Interest expense, net consists of the interest expense related to our debt less the interest income on cash and marketable securities.

Interest expense, net decreased by $40.1 million, or 9.6% to $378.0 million in fiscal 2014, compared to $418.1 million in fiscal 2013. The decrease in interest expense was primarily due to the refinancing of our Tranche B Term Loan in the second quarter of fiscal 2013, our Tranche B-1 Term Loan and our Euro Term Loan in the first quarter of fiscal 2014, and most recently, the refinancing of our Tranche B-2 Term Loan in the third quarter of fiscal 2014, at favorable interest rates. See Liquidity and Capital Resources – Long-Term Debt, below. As a result of these refinancing transactions our interest expense decreased by approximately $42.2 million year-over-year. This decrease was somewhat offset by an increase in amortization of deferred financing fees and an increase in amortization of debt discounts in fiscal 2014 compared to fiscal 2013.

 

41


Table of Contents
Index to Financial Statements

Fiscal 2013 interest expense, net decreased by $49.3 million, or 10.5%, to $418.1 million compared to $467.4 million in fiscal 2012. The decrease in interest expense was primarily due to a decrease in outstanding debt balances as a result of the recapitalization of our debt structure in the fourth quarter of fiscal 2012 and the refinancing of our Tranche B Term Loan at favorable interest rates in the second quarter of fiscal 2013. As a result of these refinancing transactions, interest expense decreased by approximately $11.0 million due to lower interest rates and $20.1 million due to lower amortization of deferred financing fees and debt discounts. In addition, we had a $17.6 million decrease in interest expense related to affiliate loans as the outstanding balance on these loans was contributed as equity as part of the recapitalization of our debt structure in fiscal 2012.

Loss on Extinguishment of Debt. The $5.2 million loss on extinguishment of debt recorded in fiscal 2014 related to the refinancing of certain portions of our long-term debt. This amount represent the net book value of deferred financing fees written off and other costs incurred in connection with our refinancing transactions during the first and third quarters of fiscal 2014 for those lenders treated as an extinguishment rather than a modification of the related debt. See Note 12, Debt.

The $1.8 million loss on extinguishment of debt recorded in fiscal 2013 represented the net book value of deferred financing fees written off in second quarter of fiscal 2013 and other costs incurred in connection with our refinancing transactions during the second quarter for those lenders treated as an extinguishment rather than a modification of debt.

The $107.1 million loss on extinguishment of debt recorded in fiscal 2012 related primarily to the net book value of deferred financing fees and the remaining debt discounts written off in connection with our debt transactions during the year.

Other (Income) Expense, Net. Other (income) expense, net consists of the effects of foreign currency fluctuations, gain/loss on the sale of fixed assets, and other costs.

For fiscal 2014, other (income) expense, net was net income of $62.8 million compared to net expense of $99.2 million in fiscal 2013. The change in other (income) expense, net was primarily due to fluctuations in foreign currency exchange rates primarily related to the British Pound and the Euro.

For fiscal 2013, other (income) expense, net changed by $210.9 million to an expense of $99.2 million compared to net income of $111.7 million in fiscal 2012. The change in other (income) expense, net was primarily due to fluctuations in foreign currency exchange rates primarily related to the Euro.

Income Tax Provision (Benefit)

 

     Year Ended May 31,     Fiscal 2014 vs. 2013     Fiscal 2013 vs. 2012  
(in millions, except percentages)    2014     2013     2012       Actual       Constant
  Currency  
      Actual        Constant
  Currency  
 

Income tax provision (benefit)

   $ 12.6     $ 22.6     $ (16.3     (44.2 )%      (37.6 )%      NM         NM   

Effective income tax rate

     9.4     (42.2 )%      5.0         

 

* NM Percentage not meaningful

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.

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, states taxes, and foreign earnings taxed at lower income tax rates than in the U.S.

For fiscal 2014, we recorded income tax expense of $12.6 million, resulting in an effective tax rate of 9.4%. The change in our effective tax rate for fiscal 2014 compared to fiscal 2013 was driven by an increase in foreign earnings subject to lower tax rates, the elimination of the requirement to provide additional valuation allowance for IRC Section 163(j) interest disallowance, the release of foreign related valuation allowances due to the increase in foreign earnings and various foreign entity restructurings, the elimination of the need to provide for a valuation allowance for certain foreign earnings, and a reduction in the amount of unrecognized tax benefits due to the lapse of statutes for various exposures.

 

42


Table of Contents
Index to Financial Statements

For fiscal 2013, we recorded an income tax expense of $22.6 million, resulting in an effective tax rate of (42.2)%. The change in the effective tax rate for fiscal 2013, compared to the prior year, was primarily due to the change in earnings levels as a result of our acquisition of Lawson, a shift in the jurisdictional mix of operating income in the respective periods, the release of the valuation allowance for various foreign deferred tax assets, foreign subsidiary net operating losses not providing benefits, Subpart F inclusions, the establishment of a valuation allowance for nondeductible interest under IRC Section 163(j), the change in recorded liabilities for unrecognized tax benefits related to uncertain tax positions in various jurisdictions, the change in reorganizational costs, changes in various withholding tax, and tax law changes in Australia, Sweden, Japan and the United Kingdom.

For fiscal 2012, we recorded an income tax benefit of $16.3 million, resulting in an effective tax rate of 5.0%.

Following the Infor Combination transaction that occurred on April 5, 2012, we evaluated various tax structuring alternatives to rationalize various legal entities and reduce our overall global tax liability. During fiscal 2013, we completed several organizational restructuring actions resulting in the discrete release of the valuation allowance for various foreign deferred tax assets in the amount of $24.4 million. During fiscal 2014, we continued to execute multiple legal entity organizational restructuring actions to streamline and simplify business operations, lower back office costs, and provide access to various foreign deferred tax assets. As a result of such actions, various foreign valuation allowances were able to be eliminated during fiscal year 2014.

Infor is included in the GGC Software Parent, Inc. consolidated federal income tax return. The Company and its subsidiaries provided for income taxes under the separate return method, by which Infor, Inc. and its subsidiaries compute tax expense as though they file a separate tax return. GGC Software Parent, Inc. entered into a tax allocation agreement (Tax Allocation Agreement) with the Company that is effective as of April 5, 2012. The Tax Allocation Agreement sets forth the obligation of the Company and its 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 fiscal 2014 and fiscal 2013, we made cash payments of $11.5 million and $9.5 million, respectively, to GGC Software Parent, Inc. under the terms of the Tax Allocation Agreement.

Non-GAAP Financial Measures

Our results of operations in this Management’s Discussion and Analysis are presented in accordance with GAAP. In addition to reporting our financial results in accordance with GAAP, we present our non-GAAP revenues as well. We believe our presentation of non-GAAP revenues provides meaningful insight into our operating performance and an alternative perspective of our results of operations. We use these non-GAAP measures to assess our operating performance, to develop budgets, and to serve as a measurement for incentive compensation awards. 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 financial measures provide users an enhanced understanding of our operations, facilitate analysis and comparisons of our current and past results of operations, facilitate comparisons of our operating results with those of our competitors and provide insight into the prospects of our future performance. We also believe that the non-GAAP measures are useful to users because they provide supplemental information that research analysts frequently use to analyze software companies including those that have recently made significant acquisitions. Additionally, certain non-GAAP disclosures are required by our lenders in our reporting to them.

The method we use to produce non-GAAP results is not in accordance with GAAP and may differ from the methods used by other companies. These non-GAAP results should not be regarded as a substitute for corresponding GAAP measures but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with GAAP and the reconciliation of the supplemental non-GAAP financial measures to the comparable GAAP results provided for each period presented below.

 

43


Table of Contents
Index to Financial Statements

Non-GAAP Revenues

 

     Year Ended May 31,      Fiscal 2014 vs. 2013     Fiscal 2013 vs. 2012  

(in millions, except percentages)

   2014      2013      2012        Actual       Constant
  Currency  
      Actual       Constant
  Currency  
 

GAAP revenues

   $ 2,761.8      $ 2,718.0      $ 2,540.7        1.6     1.4     7.0     8.5

Non-GAAP revenue adjustments:

                 

Purchase accounting impact on software license fees and subscriptions

     5.1        13.5        25.5           

Purchase accounting impact on product updates and support fees

     1.2        1.5        122.6           

Purchase accounting impact on consulting services and other fees

     1.9        4.8        6.8           
  

 

 

    

 

 

    

 

 

          

Total non-GAAP revenue adjustments

     8.2        19.8        154.9           
  

 

 

    

 

 

    

 

 

          

Non-GAAP revenues

   $ 2,770.0      $ 2,737.8      $ 2,695.6        1.2     0.9     1.6     3.0
  

 

 

    

 

 

    

 

 

          

The non-GAAP adjustments we make to our reported GAAP revenues are primarily related to purchase accounting and other acquisition matters. These amounts reflect pro forma adjustments to increase software license fees and subscriptions, product updates and support fees, and consulting services and other fees that we would have recognized if we had not adjusted acquired deferred revenues to their fair values as required by GAAP. Certain deferred revenue for software license fees and subscriptions, product updates and support fees, and consulting services and other fees on the acquired entity’s balance sheet, at the time of the acquisition, were eliminated from our GAAP results as part of the purchase accounting for the acquisition as they do not reflect the fair value of performance obligations to us. As a result, our GAAP results do not, in management’s view, reflect all of our software license fees and subscriptions, product updates and support fees, and consulting services and other fees. We believe the inclusion of the pro forma revenue adjustment provides users a helpful alternative view of our operations.

Liquidity and Capital Resources

Cash Flows

 

     Year Ended May 31,     Fiscal 2014
  vs. 2013  
    Fiscal 2013
  vs. 2012  
 

(in millions, except percentages)

   2014     2013     2012      

Cash provided by (used in):

          

Operating activities

   $ 414.6      $ 282.4      $ 158.2        46.8     78.5

Investing activities

     (251.7     (139.8     (1,533.2     80.0        (90.9

Financing activities

     (15.7     (106.6     1,444.2        (85.3     NM   

Effect of exchange rate changes on cash and cash equivalents

     6.2        1.5        (21.8     313.3        NM   
  

 

 

   

 

 

   

 

 

     

Net change in cash and cash equivalents

   $ 153.4      $ 37.5      $ 47.4        309.1     (20.9 )% 
  

 

 

   

 

 

   

 

 

     

 

* NM Percentage not meaningful

Capital Resources

 

     May 31,     Fiscal 2014
  vs. 2013  
    Fiscal 2013
  vs. 2012  
 

(in millions, except percentages)

   2014     2013     2012      

Working capital deficit

   $ (305.9   $ (432.1   $ (526.0     (29.2 )%      (17.9 )% 

Cash and cash equivalents

   $ 575.3      $ 421.9      $ 384.4        36.4     9.8

Our most significant source of operating cash flows is cash collections from our customers following the purchase and renewal of their subscriptions for licensed software updates (maintenance) and product support agreements. Payments from customers for these maintenance and support agreements are generally received near the beginning of the contracts’ terms, which are generally one year in length. We also generate significant cash from new software license sales and, to a lesser extent, consulting and other services. Our primary uses of cash for

 

44


Table of Contents
Index to Financial Statements

operating activities are for personnel-related expenditures. We also make cash payments related to interest payments, taxes and leased facilities. During fiscal 2014 we also had significant investing and financing activities related to our acquisitions, primarily of PeopleAnswers, and the refinancing of portions of our debt. We are highly leveraged and our liquidity requirements are significant, primarily due to our debt service requirements.

As part of our business strategy, we may use cash to acquire additional companies or products from time-to-time to enhance our product lines, which could have a material effect on our capital resources. In fiscal 2014, we completed two acquisitions for a purchase price of approximately $202.0 million. In fiscal 2013, we completed five acquisitions for an aggregate purchase price of $119.7 million, net of cash acquired. In fiscal 2012, we completed five acquisitions for an aggregate purchase price of $1,511.5 million, net of cash acquired. See Note 3, Acquisitions.

As of each of our reported balance sheet dates, we have reported a deficit in working capital. This deficit in working capital represents an excess of our current liabilities over our current assets and is primarily the result of the significant balance of deferred revenue, reported as a current liability, at each balance sheet date. Our deferred revenues represent the excess of our collections from, or our billings due from our customers, for which the related revenues have not yet met all the criteria necessary to be recognized as earned in our Consolidated Statements of Operations. See Critical Accounting Policies and Estimates—Revenue Recognition above for a further description of those criteria.

We believe that cash flows from operations, together with our cash and cash equivalents and borrowing capacity under our revolving credit facility, will be sufficient to meet our cash requirements for working capital, capital expenditures, restructuring activities, and investments for fiscal 2015 and for the foreseeable future. At some point in the future we may require additional funds for either operating or strategic purposes and may seek to raise the additional funds through public or private debt or equity financing. If we ever need to seek additional financing, there is no assurance that this additional financing will be available, or if available, will be on reasonable terms. If our liquidity and capital resources are insufficient to meet our requirements or fund our debt service obligations, we could face substantial liquidity problems and may not be able to generate sufficient cash to service all our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Cash Flows from Operating Activities

Net cash provided by operating activities for fiscal 2014 was $414.6 million. Our net income plus non-cash items provided $380.4 million in cash due to strong cash flows from operations, and changes in operating assets and liabilities provided cash of $34.2 million. The operating assets and liabilities sources of cash related to a $28.9 million increase in deferred revenue, primarily due to increased deferred SaaS revenue as well as increased deferred maintenance, and a $19.9 million increase in accounts payable, accrued expenses and other liabilities, primarily due to an increase in accrued interest. The sources of cash were partially offset by a $29.5 million change in income tax receivable/payable.

Net cash provided by operating activities for fiscal 2013 was $282.4 million. Our net loss plus non-cash items provided $313.7 million in cash due to strong cash flows from operations while changes in operating assets and liabilities used cash of $31.3 million. The uses of cash were primarily from a $97.1 million decrease in accounts payable, accrued expenses and other liabilities, predominantly related to a decrease in accrued interest and a reduction in accrued incentive compensation, and a $19.4 million increase in prepaid expenses and other assets. These uses of cash were somewhat offset by a $58.0 million increase in deferred revenue, primarily due to the timing of maintenance renewals, $13.7 million related to our income tax receivable/payable and a $13.5 million decrease in accounts receivable, net.

Net cash provided by operating activities for fiscal 2012 was $158.2 million. Changes in operating assets and liabilities provided cash of $113.0 million, primarily from a $119.8 million increase in deferred revenue, primarily due to the timing of maintenance renewals. Accounts payable, accrued expenses and other liabilities increased $41.5 million, predominantly related to an increase in accrued incentive compensation. These sources of cash were partially offset by a $33.5 million change in income tax receivable/payable, a $12.4 million increase in accounts receivable, net and a $2.4 million increase in prepaids and other assets. Overall non-cash items plus net loss from operations, provided $45.2 million in cash. The net loss from operations was the most substantial offset to the sources of cash, which included significant cash payments for transaction related expenses and severance for terminated employees related to the Lawson acquisition.

Cash Flows from Investing Activities

Net cash used in investing activities was $251.7 million in fiscal 2014. The primary uses of cash were $199.7 million net cash used for our acquisitions, $32.5 million used to purchase property, equipment and software and a $19.5 million increase in restricted cash.

Net cash used in investing activities was $139.8 million in fiscal 2013. The primary uses of cash were $106.0 million net cash used for our acquisitions and $36.0 million used to purchase other property, equipment and software.

Net cash used in investing activities was $1,533.2 million in fiscal 2012. The primary use of cash was the $1,511.5 million net cash used for our acquisitions, primarily Lawson, and the acquisition of other property, equipment and software of $21.5 million.

 

45


Table of Contents
Index to Financial Statements

Cash Flows from Financing Activities

Net cash used in financing activities was $15.7 million in fiscal 2014. The primary uses of cash were $3,457.5 million in debt repayments and $37.5 million that we capitalized as deferred financing fees relating to our refinancing transactions during the year. These uses of cash were mostly offset by $3,487.7 million from the issuance of debt related to our recent refinancing transactions.

Net cash used in financing activities was $106.6 million in fiscal 2013. The primary uses of cash were $2,847.2 million in debt repayments, $27.6 million that we capitalized as deferred financing fees relating to the refinancing of our Tranche B Term Loan and $8.7 million related to stockholder loans. These uses of cash were mostly offset by $2,778.9 million proceeds from the issuance of debt related to our second quarter debt refinancing.

Net cash provided by financing activities was $1,444.2 million in fiscal 2012. During the year we purchased Lawson, refinanced the Infor Global Solutions First Lien Term Loan and recapitalized our debt structure. Proceeds from the issuance of debt related to these actions totaled $6,916.9 million and related payments on long-term debt totaled $6,084.1 million. In addition, we capitalized a total of $192.7 million in deferred financing fees in conjunction with these actions. We received additional cash of $807.5 million from equity transactions.

Effect of Exchange Rate Changes

In fiscal 2014, changes in foreign currency exchange rates resulted in a $6.2 million increase in our cash and cash equivalents. Foreign currency exchange rate changes increased our cash and cash equivalents by $1.5 million in fiscal 2013 and decreased our cash and cash equivalents by $21.8 million in fiscal 2012.

Working Capital Deficit

Our working capital deficit, defined as current assets less current liabilities, was $305.9 million at May 31, 2014, compared to $432.1 million at May 31, 2013. At May 31, 2014, our cash increased by $153.4 million compared to the balance at May 31, 2013. Generally, increases in current assets are considered to be uses of cash and increases in current liabilities are considered to be sources of cash. During fiscal 2014, the most significant changes in our current assets, other than cash, included an increase of $14.9 million in other current assets primarily due to an increase in our restricted cash. During fiscal 2014 the most significant changes in our current liabilities included a $59.5 million decrease in our current portion of long-term debt related to our recent refinancing transactions, an increase in our deferred revenue of $47.6 million, primarily due to increased deferred SaaS revenues as well as an increase in deferred maintenance, and an increase in accrued expenses of $39.9, primarily due to an increase in accrued interest as a result of an early interest payment made at the end of fiscal 2013 in relation to our debt refinancing, as well as an increase in deferred rent.

Cash and Cash Equivalents

As of May 31, 2014, we had $575.3 million in cash and cash equivalents including amounts in operating accounts, money market investments and other short-term, highly liquid investments with initial maturities of three months or less. As of May 31, 2014, $227.4 million of our unrestricted cash and cash equivalents were held in the U.S. The remaining $347.9 million of our unrestricted cash and cash equivalents were held in foreign countries. Under current tax laws and regulations, if cash and cash equivalents and short-term investments held outside the U.S. are distributed to the U.S. in the form of dividends or otherwise, we may be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. It is not practicable to estimate the amount of these potential additional taxes due to the complexities of the tax laws in various jurisdictions, the number of jurisdictions in which we operate, the complexity of our legal entity structure, and the hypothetical nature of the calculations.

In addition, our cash and cash equivalents include amounts held by our Venezuelan subsidiary of $0.4 million and $2.4 million at May 31, 2014 and 2013, respectively. While we plan to use these funds to expand our operations in Venezuela, these amounts are subject to the governmental restrictions and currency exchange controls in Venezuela which may limit the total amount of cash and cash equivalents that we may be able to repatriate at any given time in the future. See Note 2, Summary of Significant Accounting Policies—Highly Inflationary Accounting—Venezuela. The Venezuelan government has established official exchange rates for the Venezuelan Bolivar (BsF) and from time-to-time has devalued its currency, most recently in January and March of 2014. As a result of these devaluations, we recorded foreign currency transaction losses related to the remeasurement of the assets and liabilities of our Venezuelan operations denominated in BsF of $2.2 million in fiscal 2014 and a $2.3 million reduction in the cash and cash equivalents held by our Venezuelan subsidiary as of May 31, 2014.

 

46


Table of Contents
Index to Financial Statements

Long-Term Debt

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

 

     May 31, 2014     May 31, 2013  
(in millions)    Amount     Effective Rate     Amount     Effective Rate  

First lien Term B-1 due October 5, 2016

   $ —          —        $ 340.0        5.750

First lien Term B-2 due April 5, 2018

     —          —          2,779.1        5.250

First lien Term B-3 due June 3, 2020

     477.4        3.750     —          —     

First lien Term B-5 due June 3, 2020

     2,543.6        3.750     —          —     

First lien Euro Term due April 5, 2018

     —          —          321.7        6.750

First lien Euro Term B due June 3, 2020

     472.0        4.000     —          —     

9.375% senior notes due April 1, 2019

     1,015.0        9.375     1,015.0        9.375

10.0% senior notes due April 1, 2019

     340.7        10.000     324.9        10.000

11.5% senior notes due July 15, 2018

     560.0        11.500     560.0        11.500

Debt discounts

     (37.4       (16.6  
  

 

 

     

 

 

   

Total long-term debt

     5,371.3          5,324.1     

Less: current portion

     (31.7       (91.2  
  

 

 

     

 

 

   

Total long-term debt—non-current

   $ 5,339.6        $ 5,232.9     
  

 

 

     

 

 

   

As of May 31, 2014, we were in compliance with all applicable financial covenants included in the terms of our credit facilities and the indentures that govern our senior notes.

Recapitalization of Debt Structure

On April 5, 2012, we completed the Infor Combination. As part of these transactions, investment funds affiliated with Golden Gate Capital and Summit Partners invested $550.0 million in Infor Enterprise, of which $325.0 million was contributed as equity to Infor, Inc., and $225.0 million was used to repay a portion of the Lux PIK Term Loan (discussed below). Additionally, $344.0 million that we owed to Lux Bond Co, our parent, was forgiven and contributed as capital. In addition, we successfully refinanced our debt structure by entering into a new credit agreement, which consists of a new secured term loan facility and a new secured revolving credit facility, and issuing new senior notes. Proceeds from the borrowings under our new credit facilities, issuance of the notes and the additional equity investments were used to repay the outstanding balances related to our prior credit facilities and to pay related fees and expenses.

Credit Facilities

On April 5, 2012, we entered into a secured credit agreement with certain banks which consists of a secured term loan facility and a secured revolving credit facility (the Credit Agreement) which was subsequently amended pursuant to refinancing amendments described below.

Under the secured term loan facility (the Term Loan Facility), we borrowed initial term loans having aggregate principal amounts of $2,770.0 million (the Tranche B Term Loan), $400.0 million (the Tranche B-1 Term Loan) and €250.0 million (the Euro Term Loan) on April 5, 2012. 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 the case of certain situations.

The secured revolving credit facility (the Revolver) has a maximum availability of $150.0 million. As of May 31, 2014, we have made no draws against the Revolver and no amounts are currently outstanding. However, $9.9 million of outstanding (undrawn) letters of credit have reduced the amount available under the Revolver to $140.1 million. Pursuant to the Credit Agreement there is an undrawn line fee of 0.50% per annum (subject to a step-down to 0.375% if our total leverage ratio is below a certain threshold) and the Revolver matures on March 31, 2017. Amounts under the Revolver may be borrowed (and reborrowed) to finance working capital needs and for general corporate purposes.

At our election, the annual interest rate applicable to the term loans and revolver borrowings under the Credit Agreement are based on a fluctuating rate of interest determined by reference to either (a) Adjusted LIBOR (as defined below) plus an applicable margin or (b) Adjusted Base Rate (ABR—as defined below) plus an applicable margin. For purposes of the Credit Agreement, as of May 31, 2014:

 

    Adjusted LIBOR is defined as the London interbank offered rate for the applicable currency, adjusted for statutory reserve requirements; provided, the Adjusted LIBOR for the Tranche B-3 Term Loan, Tranche B-5 Term Loan and the Euro Tranche B Term Loan will at no time be less than 1.00% per annum.

 

47


Table of Contents
Index to Financial Statements
    ABR is defined as the highest of (i) the administrative agent’s prime rate, (ii) the federal funds effective rate plus 1/2 of 1.0% and (iii) one-month Adjusted LIBOR plus 1.0% per annum, provided that ABR for the Tranche B-3 and B-5 Term Loans will at no time be less than 2.00% per annum.

The credit facilities are guaranteed by Infor, Inc. and certain of our wholly owned domestic subsidiaries, and are secured by liens on substantially all of the borrower’s assets and the assets of the guarantors. Prior to the Second Amendment described below, under the Credit Agreement we were required to maintain a total leverage ratio not to exceed certain levels as of the last day of each fiscal quarter. However, pursuant to the Second Amendment, this financial maintenance covenant is applicable only for the Revolver and then only for those fiscal quarters in which we have significant borrowings under the Revolver as of the last day of such fiscal quarter. We are subject to certain other customary affirmative and negative covenants as well.

Refinancing Amendments

On April 22, 2014, we entered into the Sixth Amendment to the Credit Agreement (as amended) to reflect the change in our fiscal year end from May 31 to April 30 effective June 1, 2014. No other changes were made to the terms of Credit Agreement or the related credit facilities.

On January 31, 2014, we entered into the Fifth Amendment to the Credit Agreement (as amended). The Fifth Amendment provides for the reduction of the interest rate margins applicable to borrowings made under our Revolver. 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. No other changes were made to the terms of the Revolver.

On January 2, 2014, we entered into the Fourth Amendment to the Credit Agreement (as amended). The Fourth Amendment provided for the refinancing of all of the outstanding balance of our Tranche B-2 Term Loan with the proceeds of a new $2,550.0 million term loan (the Tranche B-5 Term Loan). Interest on the Tranche B-5 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 a 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%. This was a reduction in our effective rate related to the new term loan as compared to the Tranche B-2 Term Loan which was based on an Adjusted LIBOR rate plus a margin of 4.0% per annum, with an Adjusted LIBOR floor of 1.25% per annum. The Tranche B-5 Term Loan matures on June 3, 2020, which is an extension of approximately 26 months compared to the original Tranche B-2 Term Loan maturity date. Pursuant to the terms of the Credit Agreement, the Tranche B-5 Term Loan is guaranteed by Infor and certain of our domestic subsidiaries, and is secured by liens on substantially all of our assets and the assets of the guarantors.

Proceeds from the Tranche B-5 Term Loan were used to refinance the outstanding principal of our Tranche B-2 Term Loan, together with accrued and unpaid interest and applicable fees.

On October 9, 2013, we entered into the Third Amendment to the Credit Agreement (as amended) to reflect a technical change clarifying certain defined terms added pursuant to the Second Amendment.

On June 3, 2013, we entered into the Second Amendment to the Credit Agreement (as amended). The Second Amendment provided for the refinancing of the then outstanding principal balance of our Tranche B-1 Term Loan and our Euro Term Loan with the proceeds of a new $483.0 million term loan (the Tranche B-3 Term Loan) and a new €350.0 million term loan (the Euro Tranche B Term Loan). Interest on the Tranche B-3 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-3 Term Loan matures on June 3, 2020, which is an extension of approximately three and a half years compared to the original Tranche B-1 Term Loan maturity date. Interest on the Euro Tranche B Term Loan is based on a fluctuating rate of interest determined by reference to an Adjusted LIBOR rate, plus a margin of 3.0% per annum, with an Adjusted LIBOR floor of 1.0%. The Euro Tranche B Term Loan matures on June 3, 2020, which is an extension of approximately 24 months compared to the original Euro Term Loan maturity date. Pursuant to the terms of the Credit Agreement, the Tranche B-3 Term Loan and Euro Tranche B Term Loan are guaranteed by the same guarantors, and are secured by liens on substantially all of the borrower’s assets and the assets the guarantors. The Second Amendment also amended the Credit Agreement to, among other things, limit the applicability of the financial maintenance covenant (maximum total leverage ratio) to the Revolver and then only for those fiscal quarters in which we have significant borrowings under our Revolver outstanding as of the last day of such fiscal quarter.

Proceeds from the Tranche B-3 Term Loan and Euro Tranche B Term Loan were used to refinance the outstanding principal balance of our Tranche B-1 Term Loan and our Euro Term Loan, together with accrued and unpaid interest and applicable fees. In addition, $250.0 million of the proceeds were used to repay a portion of the outstanding balance of our Tranche B-2 Term Loan.

On September 27, 2012, we entered into the Refinancing Amendment No. 1 (the First Amendment) to the Credit Agreement. The First Amendment provided for the refinancing of the then outstanding principal balance of our Tranche B Term Loan of $2,763.0 million with the

 

48


Table of Contents
Index to Financial Statements

proceeds of a new $2,793.1 million term loan (the Tranche B-2 Term Loan). Interest on the Tranche B-2 Term Loan is based on a fluctuating rate of interest determined by reference to, at our option, an Adjusted LIBOR rate, plus a margin of 4.0% per annum, with an Adjusted LIBOR floor of 1.25% per annum, or ABR, plus a margin of 3.0% per annum, with an ABR floor of 2.25% per annum. This was a reduction in our effective rate related to this term loan as compared to the Tranche B Term Loan which was based on an Adjusted LIBOR rate plus a margin of 5.0% per annum. The Tranche B-2 Term Loan matures on April 5, 2018, which is the same as the original Tranche B Term Loan maturity date. Pursuant to the terms of the Credit Agreement, the Tranche B-2 Term Loan is guaranteed by the same guarantors, and is secured by liens on substantially all of our assets and the assets of the guarantors.

Proceeds from the Tranche B-2 Term Loan were used to refinance the outstanding principal of our Tranche B Term Loan, together with accrued and unpaid interest and applicable fees, including a prepayment premium of 1.0% of the principal amount thereof, in accordance with the terms of the Credit Agreement.

Senior Notes

Infor 9 3/8% and 10.0% Senior Notes

On April 5, 2012, we issued approximately $1,015.0 million in aggregate principal amount of our 9 3/8% Senior Notes and €250.0 million aggregate principal amount of our 10.0% Senior Notes. The 9 3/8% and 10.0% Senior Notes mature on April 1, 2019, and bear interest at the applicable rates per annum that is payable semi-annually in cash in arrears, on April 1 and October 1 each year, beginning on October 1, 2012.

Infor 11.5% Senior Notes

On July 5, 2011, we issued approximately $560.0 million in aggregate principal amount of our 11.5% Senior Notes. The 11.5% Senior Notes mature on July 15, 2018 and bear interest at a rate of 11.5% per annum payable semi-annually in arrears, on January 15 and July 15, beginning January 15, 2012.

The senior notes are general unsecured obligations of Infor (US), Inc. and are guaranteed by Infor, Inc. and certain of our wholly owned domestic subsidiaries. Under the indentures governing the senior notes, we are subject to certain customary affirmative and negative covenants.

On August 23, 2012, we filed a Registration Statement on Form S-4 with the SEC which included an exchange offer related to our 9.375%, 10.0% and 11.5% Senior Notes (Exchange Offer). The terms of the exchange notes are substantially identical to those of the original senior notes, except the transfer restrictions, registration rights and certain additional interest provisions relating to the senior notes no longer apply. Under the Exchange Offer all of the notes were exchanged for applicable exchange notes.

Restricted Cash

We had approximately $26.8 million of restricted cash as of May 31, 2014, of which approximately $18.9 million and $7.9 million have been reflected in other current assets and other assets, respectively, on our Consolidated Balance Sheets. The restricted cash balance relates primarily to amounts held in escrow for certain litigation matters, which based on the current status of these matters we do not believe we will have to pay, and various collateral arrangements related to our property leases worldwide.

We had approximately $7.2 million held as restricted cash as of May 31, 2013, of which $0.1 million and $7.1 million have been classified as current and non-current assets, respectively, on our Consolidated Balance Sheets. These balances relate primarily to various collateral arrangements related to our property leases worldwide.

 

49


Table of Contents
Index to Financial Statements

Disclosures about Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations and commercial commitments as of May 31, 2014, and the effect these obligations and commitments are expected to have on our liquidity and cash flows in future periods:

 

(in millions)    Total      1 Year
or Less (1)
     1 - 3
Years
     3 - 5
Years
     More than
5 Years
 

Balance sheet contractual obligations:

              

Total outstanding debt (gross, excluding debt discount)

   $ 5,408.7       $ 31.7       $ 70.2       $ 1,985.9       $ 3,320.9   

Interest on long-term debt

     1,716.0         324.6         650.5         612.9         128.0   

Capital leases

     8.8         4.8         3.6         0.4         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total balance sheet contractual obligations

     7,133.5         361.1         724.3         2,599.2         3,448.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other contractual obligations:

              

Operating leases

     193.3         48.3         75.0         33.6         36.4   

Purchase obligations

     84.1         27.6         21.1         15.1         20.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other contractual obligations

     277.4         75.9         96.1         48.7         56.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 7,410.9       $ 437.0       $ 820.4       $ 2,647.9       $ 3,505.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Reflects the 11 month period of June 1, 2014 through April 30, 2015, as a result of the change in our fiscal year end. See Note 1, Nature of Business and Basis of Presentation—Fiscal Year

Total contractual obligations at May 31, 2014 were $7,410.9 million. Our purchase obligations represent those commitments greater than $0.1 million annually. Total unrecognized tax benefits of $161.7 million are not included in the above table as we are unable to reasonably estimate when these amounts will ultimately be settled. See Note 18, Income Taxes, in Notes to Consolidated Financial Statements of this Form 10-K for additional information. Over the next 12 months, we do not expect any significant cash payments or significant additional changes related to these uncertain tax positions. For the purposes of this disclosure, we have estimated our future interest payments based on the weighted average interest rates applicable to the components of our debt structure as of May 31, 2014, over the projection period.

Off-Balance-Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recent Accounting Pronouncements—Not Yet Adopted

Information regarding recent accounting pronouncements can be found in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements of this Form 10-K and is incorporated herein by reference.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

A significant portion of our business is conducted in currencies other than the U.S. Dollar, the currency in which our financial statements are stated. Accordingly, we face exposure to adverse movements in foreign currency exchange rates relative to the U.S. Dollar which could materially impact our revenue, operating results and financial position. Our international operations are, for the most part, naturally hedged against exchange rate fluctuations since the majority of revenues and expenses of each foreign affiliate are denominated in the same currency. Therefore, we do not engage in formal hedging activities, but we do periodically review the potential impact of this risk to ensure that the risks of significant potential losses remain minimal. Certain transaction gains and losses are generated from inter-company balances that are not considered to be long-term in nature that will be settled between subsidiaries. We also recognize transaction gains and losses from revaluing debt denominated in Euros and held by subsidiaries whose functional currency is the U.S. Dollar.

Our international revenues and expenses are denominated in foreign currencies, principally the Euro and British Pound. The functional currency of each of our foreign subsidiaries is the local currency. International revenues represented 49.6%, 50.9% and 52.2% of our total revenues for fiscal 2014, 2013 and 2012, respectively. International cost of revenues and operating expenses accounted for 48.6%, 49.0% and 49.2% of our total cost of revenues and operating expenses for fiscal 2014, 2013 and 2012, respectively.

 

50


Table of Contents
Index to Financial Statements

As of May 31, 2014 and May 31, 2013, a 10% adverse change in foreign exchange rates versus the U.S. Dollar would have decreased our aggregate reported cash and cash equivalents by approximately 7.2% and 7.3%, respectively. A 10% adverse change in the Euro exchange rate versus the U.S. Dollar would have decreased our aggregate reported cash and cash equivalents by approximately 1.3% and 4.0% as of May 31, 2014 and May 31, 2013, respectively. A 10% adverse change in the British Pound exchange rate versus the U.S. Dollar would have decreased our aggregate reported cash and cash equivalents by approximately 1.0% and 0.5% as of May 31, 2014 and May 31, 2013, respectively.

Interest Rates

We face exposure to changes in interest rates primarily relating to our variable rate long-term debt. As of May 31, 2014 and May 31, 2013, we had $5,371.3 million and $5,324.1 million, respectively, outstanding under our debt agreements. Pursuant to the terms of certain of the debt agreements we have in place at May 31, 2014, interest expense is calculated using the LIBOR or the EURIBOR rates, depending on the debt agreement. In addition, certain of our debt agreements have a LIBOR or EURIBOR floor of 1.00% or 2.00%. On May 31, 2014, the three-month LIBOR and the EURIBOR rates were 0.23% and 0.31%, respectively. Accordingly, we used the LIBOR/EURIBOR floors, as applicable. An increase in applicable interest rates of 50 basis points over the May 31, 2014, rates would not increase our total monthly interest expense as the LIBOR and EURIBOR floors related to debt would not be impacted by such a change.

As part of our strategy to limit exposure to interest rate risk, primarily future variability in the three-month LIBOR, in fiscal 2014 we entered into interest rate swap agreements with notional amounts totaling $945.0 million or approximately 27.1% of our variable rate debt. We entered into the interest rate swaps for hedging purposes only to convert a portion of the interest payments on our variable rate debt to fixed rate payments, not for trading or speculation. We have designated these instruments as cash flow hedges and accounted for them accordingly. For further discussion of these derivative instruments see Note 2, Summary of Significant Accounting Policies- Derivative Financial Instruments and Comprehensive Income (Loss), Note 5, Fair Value, and Note 15, Derivative Financial Instruments.

 

Item 8. Consolidated Financial Statements and Supplementary Data

The information required by this Item is included in Part IV Item 15(a)(1) and (2).

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

We have established and maintained disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As required by Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, we conducted an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 31, 2014.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Securities Exchange Act Rules 13a-15(f) or 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP.

We conducted an assessment of the effectiveness of our internal control over financial reporting as of May 31, 2014, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. This assessment was based on the guidelines set forth in Internal Control—Integrated Framework issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of this evaluation, management concluded that our internal control over financial reporting was effective as of May 31, 2014. During this assessment, management did not identify any material weaknesses in our internal control over financial reporting.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. We do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

 

51


Table of Contents
Index to Financial Statements

Our Management’s Report on Internal Control over Financial Reporting was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only our report. Therefore, this Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act) during the quarter ended May 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

None.

 

52


Table of Contents
Index to Financial Statements

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

To be filed by amendment.

 

Item 11. Executive Compensation

To be filed by amendment.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

To be filed by amendment.

 

Item 13. Certain Relationships and Related Transactions and Director Independence

To be filed by amendment.

 

Item 14. Principal Accounting Fees and Services

To be filed by amendment.

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

  (a) Documents filed as part of this report:

 

  1. Financial Statements:

Report of Independent Registered Public Accounting Firm;

Consolidated Balance Sheets;

Consolidated Statements of Operations;

Consolidated Statements of Comprehensive Income (Loss);

Consolidated Statements of Stockholders’ Deficit;

Consolidated Statements of Cash Flows; and

Notes to Consolidated Financial Statements.

 

  2. Financial Statement Schedules.

Schedules have been omitted because they are not applicable or are not required or the information required to be set forth in those schedules is included in the financial statements or related notes.

 

  3. Exhibits.

The Index to Exhibits attached to this report is incorporated by reference herein.

 

53


Table of Contents
Index to Financial Statements

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

INFOR, INC.

  
Dated: July 28, 2014   By:   

/s/ CHARLES E. PHILLIPS, JR.

  
     Charles E. Phillips, Jr.   
    

Chief Executive Officer

(principal executive officer)

  

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Nicole Anasenes and Gregory M. Giangiordano, and each of them, his true and lawful attorney-in-fact and agents, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, the following persons in the capacities and on the dates indicated have signed this Annual Report on Form 10-K.

 

Name

  

Title

 

Date

/s/ CHARLES E. PHILLIPS, JR.

Charles E. Phillips, Jr.

  

Chief Executive Officer and Director

(principal executive officer)

  July 28, 2014

/s/ NICOLE ANASENES

Nicole Anasenes

  

Chief Financial Officer

(principal financial officer)

  July 28, 2014

/s/ JAY HOPKINS

Jay Hopkins

  

Chief Accounting Officer,

Senior Vice President and Controller

(principal accounting officer)

  July 28, 2014

/s/ DAVID DOMINIK

David Dominik

  

Director

  July 28, 2014

/s/ PRESCOTT ASHE

Prescott Ashe

  

Director

  July 28, 2014

/s/ C. JAMES SCHAPER

C. James Schaper

  

Director

  July 28, 2014

/s/ STEWART BLOOM

Stewart Bloom

  

Director

  July 28, 2014

/s/ C.J. FITGERALD

C.J. Fitzgerald

  

Director

  July 28, 2014

 

54


Table of Contents
Index to Financial Statements

INDEX TO THE FINANCIAL STATEMENTS—ITEM 15(a) 1-2

 

     Page
Number
 

Report of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm

     56   

Consolidated Balance Sheets at May 31, 2014 and 2013

     57   

Consolidated Statements of Operations for the years ended May 31, 2014, 2013 and 2012

     58   

Consolidated Statements of Comprehensive Income (Loss) for the years ended May 31, 2014, 2013 and 2012

     59   

Consolidated Statements of Stockholders’ Deficit for the years ended May 31, 2014, 2013 and 2012

     60   

Consolidated Statements of Cash Flows for the years ended May 31, 2014, 2013 and 2012

     61   

Notes to Consolidated Financial Statements

     62   

 

55


Table of Contents
Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Infor, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit and cash flows present fairly, in all material respects, the financial position of Infor, Inc. and its subsidiaries at May 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2014, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

Atlanta, Georgia

July 28, 2014

 

56


Table of Contents
Index to Financial Statements

INFOR, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts which are actuals)

 

     May 31,  
     2014     2013  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 575.3      $ 421.9   

Accounts receivable, net

     404.2        407.2   

Prepaid expenses

     108.1        108.5   

Income tax receivable

     33.7        32.5   

Other current assets

     33.5        18.6   

Deferred tax assets

     27.5        38.1   
  

 

 

   

 

 

 

Total current assets

     1,182.3        1,026.8   

Property and equipment, net

     82.8        71.3   

Intangible assets, net

     950.7        1,087.7   

Goodwill

     4,317.2        4,139.8   

Deferred tax assets

     88.6        87.8   

Other assets

     31.5        36.6   

Deferred financing fees, net

     125.0        141.1   
  

 

 

   

 

 

 

Total assets

   $ 6,778.1      $ 6,591.1   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

    

Current liabilities:

    

Accounts payable

   $ 53.8      $ 40.6   

Income taxes payable

     19.8        28.7   

Accrued expenses

     406.3        366.4   

Deferred tax liabilities

     1.3        4.3   

Deferred revenue

     975.3        927.7   

Current portion of long-term obligations

     31.7        91.2   
  

 

 

   

 

 

 

Total current liabilities

     1,488.2        1,458.9   

Long-term debt

     5,339.6        5,232.9   

Deferred tax liabilities

     192.5        231.0   

Other long-term liabilities

     217.8        232.2   
  

 

 

   

 

 

 

Total liabilities

     7,238.1        7,155.0   
  

 

 

   

 

 

 

Commitments and contingencies (Note 14)

    

Stockholders’ deficit

    

Common stock, $0.01 par value; 1,000 shares authorized; 1,000 shares issued and outstanding at May 31, 2014 and May 31, 2013

     —          —     

Additional paid-in capital

     1,276.3        1,247.6   

Receivable from stockholders

     (35.3     (30.1

Accumulated other comprehensive income (loss)

     48.7        90.0   

Accumulated deficit

     (1,749.7     (1,871.4
  

 

 

   

 

 

 

Total stockholders’ deficit

     (460.0     (563.9
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 6,778.1      $ 6,591.1   
  

 

 

   

 

 

 

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

 

57


Table of Contents
Index to Financial Statements

INFOR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions)

 

     Year Ended May 31,  
     2014     2013     2012  

Revenues:

      

Software license fees and subscriptions

   $ 548.3      $ 518.1      $ 505.3   

Product updates and support fees

     1,465.9        1,441.2        1,284.4   
  

 

 

   

 

 

   

 

 

 

Software revenues

     2,014.2        1,959.3        1,789.7   

Consulting services and other fees

     747.6        758.7        751.0   
  

 

 

   

 

 

   

 

 

 

Total revenues

     2,761.8        2,718.0        2,540.7   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Cost of software license fees and subscriptions(1)

     99.8        86.4        90.1   

Cost of product updates and support fees(1)

     261.9        254.2        258.5   

Cost of consulting services and other fees(1)

     593.2        588.5        593.9   

Sales and marketing

     457.1        460.2        438.7   

Research and development

     391.8        351.9        322.3   

General and administrative

     192.8        210.4        233.4   

Amortization of intangible assets and depreciation

     264.3        275.7        323.6   

Restructuring costs

     18.6        10.2        67.8   

Acquisition-related and other costs

     27.6        15.0        75.9   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,307.1        2,252.5        2,404.2   
  

 

 

   

 

 

   

 

 

 

Income from operations

     454.7        465.5        136.5   
  

 

 

   

 

 

   

 

 

 

Other expense, net:

      

Interest expense, net

     378.0        418.1        467.4   

Loss on extinguishment of debt

     5.2        1.8        107.1   

Other (income) expense, net

     (62.8     99.2        (111.7
  

 

 

   

 

 

   

 

 

 

Total other expense, net

     320.4        519.1        462.8   
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

     134.3        (53.6     (326.3

Income tax provision (benefit)

     12.6        22.6        (16.3
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 121.7      $ (76.2   $ (310.0
  

 

 

   

 

 

   

 

 

 

 

(1) Excludes depreciation and amortization of intangible assets which are separately stated below

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

 

58


Table of Contents
Index to Financial Statements

INFOR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

 

     Year Ended May 31,  
     2014     2013     2012  

Net income (loss)

   $ 121.7      $ (76.2   $ (310.0
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

      

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

     (32.9     126.5        (248.2

Defined benefit plan funding status, net of tax

     1.5        1.6        (7.9

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

     (9.9     —          —     
  

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     (41.3     128.1        (256.1
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 80.4      $ 51.9      $ (566.1
  

 

 

   

 

 

   

 

 

 

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

 

59


Table of Contents
Index to Financial Statements

INFOR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in millions, except share amounts which are actuals)

 

     Infor, Inc.
Common Stock
     APIC     Stockholder
Receivable
    Accumulated
Other
Comprehensive

Income (Loss)
    Accumulated
Deficit
    Total
Stockholders’

Deficit
 
     Shares      Amount             

Balance, May 31, 2011

     1,000       $ —         $ 71.3      $ (18.8   $ 218.0      $ (1,485.2   $ (1,214.7

Sponsor equity contribution

     —           —           807.5        —          —          —          807.5   

Equity-based compensation expense

     —           —           11.2        —          —          —          11.2   

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

     —           —           —          —          (248.2     —          (248.2

Defined benefit plan funding status, net of tax

     —           —           —          —          (7.9     —          (7.9

Forgiveness of amounts due to affiliate

     —           —           344.0        —          —          —          344.0   

Interest on stockholder receivables

     —           —           0.2        (0.2     —          —          —     

Receivable from stockholders

     —           —           —          (7.6     —          —          (7.6

Repayment of stockholder receivable principal

     —           —           —          5.2        —          —          5.2   

Net income (loss)

     —           —           —          —          —          (310.0     (310.0
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2012

     1,000         —           1,234.2        (21.4     (38.1     (1,795.2     (620.5

Equity-based compensation expense

     —           —           14.0        —          —          —          14.0   

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

     —           —           —          —          126.5        —          126.5   

Defined benefit plan funding status, net of tax

     —           —           —          —          1.6        —          1.6   

Receivable from stockholders

     —           —           —          (8.7     —          —          (8.7

Other

     —           —           (0.6     —          —          —          (0.6

Net income (loss)

     —           —           —          —          —          (76.2     (76.2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2013

     1,000         —           1,247.6        (30.1     90.0        (1,871.4     (563.9

Equity-based compensation expense

     —           —           28.7        —          —          —          28.7   

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

     —           —           —          —          (32.9     —          (32.9

Defined benefit plan funding status, net of tax

     —           —           —          —          1.5        —          1.5   

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

     —           —           —          —          (9.9     —          (9.9

Receivable from stockholders

     —           —           —          (5.2     —          —          (5.2

Net income (loss)

     —           —           —          —          —          121.7        121.7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2014

     1,000       $ —         $ 1,276.3      $ (35.3   $ 48.7      $ (1,749.7   $ (460.0
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

60


Table of Contents
Index to Financial Statements

INFOR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

     Year Ended May 31,  
     2014     2013     2012  

Cash flows from operating activities:

      

Net income (loss)

   $ 121.7      $ (76.2   $ (310.0

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

      

Depreciation and amortization

     264.3        275.7        323.6   

Provision for doubtful accounts, billing adjustments and sales allowances

     17.7        11.3        9.2   

Deferred income taxes

     (23.5     (36.4     (33.4

Non-cash (gain) loss on foreign currency

     (65.0     99.3        (111.4

Non-cash interest

     27.6        25.5        50.6   

Non-cash loss on extinguishment of debt

     5.2        1.3        106.0   

Equity-based compensation expense

     28.7        14.0        11.2   

Other

     3.7        (0.8     (0.6

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

      

Prepaid expenses and other assets

     12.8        (19.4     (2.4

Accounts receivable, net

     2.1        13.5        (12.4

Income tax receivable/payable

     (29.5     13.7        (33.5

Deferred revenue

     28.9        58.0        119.8   

Accounts payable, accrued expenses and other liabilities

     19.9        (97.1     41.5   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     414.6        282.4        158.2   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Acquisitions, net of cash acquired

     (199.7     (106.0     (1,511.5

Change in restricted cash

     (19.5     2.2        (0.2

Purchases of property, equipment and software

     (32.5     (36.0     (21.5
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (251.7     (139.8     (1,533.2
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Proceeds from issuance of stock

     —          —          807.5   

Proceeds from repayment of stockholder loans

     —          —          5.2   

Loans to stockholders

     (5.2     (8.7     (7.6

Payments on capital lease obligations

     (2.3     (1.5     (1.0

Proceeds from issuance of debt

     3,487.7        2,778.9        6,916.9   

Payments on long-term debt

     (3,457.5     (2,847.2     (6,084.1

Deferred financing fees

     (37.5     (27.6     (192.7

Other

     (0.9     (0.5     —     
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (15.7     (106.6     1,444.2   
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     6.2        1.5        (21.8
  

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

     153.4        37.5        47.4   

Cash and cash equivalents at the beginning of the period

     421.9        384.4        337.0   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   $ 575.3      $ 421.9      $ 384.4   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information

      

Cash paid for interest

   $ 326.7      $ 424.5      $ 335.4   

Cash paid for income taxes

   $ 65.0      $ 45.6      $ 49.7   

Supplemental disclosure of non-cash investing and financing activities

      

Assets acquired in acquisitions, net of cash acquired

   $ 207.3      $ 147.9      $ 2,447.5   

Liabilities assumed in acquisitions

   $ 7.6      $ 41.9      $ 936.0   

Capital lease obligations

   $ 3.0      $ 2.8      $ 1.4   

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

 

61


Table of Contents
Index to Financial Statements

INFOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Infor is a global provider of enterprise business applications software and services focused primarily on medium and large enterprises. We provide industry-specific enterprise resource planning (ERP) software products to companies in the manufacturing, distribution, healthcare, public sector, automotive, service industries, equipment services, management and rental (ESM&R), consumer products & retail and hospitality industries. We serve customers in 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 solutions help automate and integrate critical business processes which enable our customers to better manage their suppliers, partners, customers and employees. Augmenting our vertical-specific applications, we have horizontal software applications, including our customer relationship management (CRM), enterprise asset management (EAM), financial applications, human capital management (HCM), and supply chain management (SCM) suites which, in addition to our proprietary light-weight middleware solution ION, can be integrated with our enterprise software applications and sold across verticals. In addition to providing software products, we help our customers implement and use our applications effectively through our consulting services. We also provide on-going support and maintenance services for our customers through our maintenance and support programs.

Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the U.S. (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 U.S. Securities and Exchange Commission (SEC). Our Consolidated Financial Statements include the accounts of Infor and our wholly-owned and majority-owned subsidiaries operating in the Americas, EMEA and APAC. All significant intercompany accounts and transactions have been eliminated.

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 returns, fair value of equity-based compensation, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, restructuring obligations, contingencies and litigation, fair value of derivative financial instruments, among others. We believe that these estimates and assumptions are reasonable under the circumstances and that 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.

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 establishes standards for, and requires disclosure of, certain financial information related to reportable operating segments and geographic regions. Factors used to identify our reportable operating segments include the financial information regularly utilized for evaluation by our chief operating decision-maker (CODM) in making decisions about how to allocate resources and in assessing our performance. We have determined that our CODM, as defined by this segment reporting guidance, is our Chief Executive Officer. See Note 20, Segment and Geographic Information.

Fiscal Year

Our fiscal year has historically been from June 1 through May 31. Unless otherwise stated, references to the years 2014, 2013 and 2012 relate to the fiscal years ended May 31, 2014, 2013 and 2012, respectively.

On April 22, 2014, our Board of Directors approved a change in our fiscal year-end from May 31 to April 30. This change was effective beginning June 1, 2014, the start of our fiscal year 2015 which will end on April 30, 2015. This change did not impact our current fiscal year 2014 which ended on May 31, 2014. As a result of this change, for fiscal 2015 we will report an eleven month transition period from June 1, 2014 to April 30, 2015.

 

62


Table of Contents
Index to Financial Statements

Beginning in the first quarter of fiscal 2015, we will report our quarterly results on Form 10-Q based on our new fiscal quarters. Accordingly, we intend to report the first quarter of fiscal year 2015 as the three month period ended July 31, 2014, which will include the results of May 2014, the last month of fiscal year 2014.

2. Summary of Significant Accounting Policies

Adoption of New Accounting Pronouncements

None

Recent Accounting Pronouncements—Not Yet Adopted

In May 2014, the FASB issued guidance that clarifies the principles for revenue recognition. This guidance is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new rules establish 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. This guidance is effective for annual reporting periods beginning after December 15, 2016 (our fiscal 2018) and early adoption is not permitted. Initial adoption may be accounted for either retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initial application recognized at the date of adoption. We are currently evaluating how this guidance will affect our revenue recognition, which transition approach we will use upon adoption and the impact it may have on our financial position, results of operations or cash flows.

In July 2013, the FASB issued guidance on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exist. This guidance requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and the entity intends to use the deferred tax asset for that purpose. This guidance is effective for annual periods beginning after December 15, 2013 (our fiscal 2015). Early adoption and retrospective application are permitted. We do not expect the adoption of this guidance will have a material impact on our financial position, results of operations or cash flows.

In March 2013, the FASB amended existing guidance on foreign currency matters relating to the releasing of cumulative translation adjustments to net income when an entity ceases to have a controlling financial interest in a subsidiary or business within a foreign entity. According to this guidance, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, or, if a controlling financial interest is no longer held. This revised guidance is effective on a prospective basis for fiscal years beginning after December 15, 2013 (our fiscal 2015), with early adoption permitted. We do not expect the adoption of this guidance will have a material impact on our financial position, results of operations or cash flows.

Revenue Recognition

We generate revenues primarily by licensing software and SaaS subscriptions, providing software support and product updates, and providing consulting services to our customers. We record all revenues in accordance with the guidance provided by ASC 985-605, Software—Revenue Recognition, ASC 605, Revenue Recognition, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants. Revenue is recorded net of applicable taxes. Our specific revenue recognition policies are as follows:

Software license fees and subscriptions

Software license fees and subscriptions revenues are primarily from sales of perpetual software licenses granting customers use of our software products and access to software products through our SaaS subscription offerings. Software license fees are recognized when the following criteria are met: 1) there is persuasive evidence of an arrangement, 2) the software product has been delivered, 3) the fees are fixed or determinable, and 4) collectability is reasonably assured. SaaS subscription revenues are recognized over the contract term once the software is made available through our SaaS offerings. SaaS subscription revenues are included in software license fees and subscriptions revenues in our Consolidated Statements of Operations and were approximately $74.9 million, $47.8 million and $19.2 million in fiscal 2014, 2013 and 2012, respectively.

We do not generally offer rights of return or acceptance clauses. If a software license contains rights of return or customer acceptance criteria, recognition of the software license fee revenue is deferred until the earlier of customer acceptance or the expiration of the acceptance period or cancellation of the right of return.

 

63


Table of Contents
Index to Financial Statements

We record revenues from sales of third-party products on a “gross” basis pursuant to ASC 605-45 Revenue Recognition, Principal Agent Considerations when we 1) have obtained persuasive evidence of an arrangement, 2) have taken title to the products being sold and 3) have the risks and rewards of ownership such as retaining the risk for collection. If these criteria have not been met, revenue is recognized net of related direct costs.

Revenue arrangements through our resellers that involve Infor contracting directly with an end user follow the same revenue recognition rules as our direct sales business. Revenue arrangements which involve Infor contracting directly with a reseller are generally recognized when the reseller purchases a product for resale to an identified end user provided that all other revenue recognition criteria have been met.

We enter into multiple element arrangements for software and software related products and services, which may include software licenses, product updates and support and/or implementation and consulting services agreements. Revenue is allocated to undelivered elements based upon their fair value as determined by vendor-specific objective evidence (VSOE). VSOE of fair value for the elements in an arrangement reflects the price charged when the undelivered element is sold separately.

We generally do not have VSOE of fair value for software license fees as software licenses are typically not sold separately from product updates and support. Since the fair value of a delivered element (license) has not been established, the residual method is used to record license revenue when VSOE of fair value of all undelivered elements is determinable. Under the residual method, the VSOE of fair value of an undelivered element (product updates and support and/or services) is deferred and the remaining portion of the fee is allocated to the delivered element (license) and is recognized as revenue in accordance with the provisions of ASC 985-605. In instances where VSOE of fair value of one or more of the undelivered elements is not established, license revenue is recognized ratably over the term of the arrangement once all other services have been delivered and one undelivered element remains.

Certain software products are offered as term based license arrangements where the customer has the right to use the software for a specified period of time. Under these arrangements, license fees for multi-year term licenses can either be recognized up front when product updates and support obligations are charged separately and the product updates and support renewal rate and term are considered substantive, or are recognized ratably over the term of the underlying arrangement if the product updates and support renewal rate and term are not considered to be substantive.

For customer arrangements that include software license fees, implementation and/or other consulting services, the portion of the fees related to software licenses is generally recognized when delivered, as the implementation and consulting services typically qualify for separate recognition. The significant factors considered in determining whether the elements constitute multiple units of accounting for revenue recognition purposes include: 1) the nature of the services and consideration of whether the services are essential to the functionality of the licensed product, 2) degree of risk related to delivering the services, 3) availability of comparable services from other vendors, 4) timing of payments and 5) impact of milestones or acceptance criteria on the recognition of the software license fee. The portion of the fees related to implementation and other consulting services is recognized as such services are performed. If there is a significant uncertainty about the project completion or receipt of payment for the services, revenues are deferred until the uncertainty is sufficiently resolved. If it is determined that the services are not separable from the arrangement for revenue recognition purposes, the license fees and services are recognized using contract accounting either on a percentage of completion basis, measured by the percentage of labor hours incurred to date to estimated total labor hours for each contract, or on a completed contract basis when dependable estimates are not available. Contract accounting is applied to any arrangements: 1) that include milestones or customer-specific acceptance criteria that may affect collection of the software license fees; 2) where services include significant modification or customization of the software; or 3) where the software license payment is tied to the performance of consulting services.

We also enter into multiple element arrangements that may include a combination of our various software-related and non-software related products and services offerings including software licenses, SaaS subscriptions, product updates and support, consulting services, education and hosting services. Each element within a non-software multiple element arrangement is accounted for as a separate unit of accounting provided the following criteria are met: 1) the delivered item or items have value to the customer on a standalone basis, and 2) if the arrangement includes a general right to return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in our control. We consider a deliverable to have standalone value if the product or service is sold separately by Infor or another vendor or could be resold by the customer. In such arrangements, we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements. We then further allocate consideration within the software group to the respective elements within that group following the guidance in ASC 985-605 and our policies as described above. For the non-software group, revenue is then allocated to each element using a selling price hierarchy; VSOE if available, third-party evidence (TPE) if VSOE is not available, or best estimate of selling price (BESP) if neither VSOE nor TPE are available.

To determine the selling price in non-software multiple-element arrangements, we establish VSOE of selling price, as described earlier, to the extent possible. We establish TPE by evaluating similar and interchangeable competitor products or service in standalone arrangements with similarly situated customers. If we are unable to determine the selling price because VSOE or TPE is unavailable, BESP is determined for the purposes of allocating the arrangement. The objective of BESP is to determine the price at which the vendor would transact if the deliverable were sold by the vendor regularly on a standalone basis. Infor determines BESP for its offerings by considering many factors, including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices.

 

64


Table of Contents
Index to Financial Statements

Product Updates and Support Fees

Product updates and support fees entitle the customer 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. The term of product updates and support services is typically twelve months. The product updates and support fees are recorded as product updates and support fees revenue and recognized ratably over the term of the agreement. Revenues for maintenance and support that are bundled with license fees are deferred based on the VSOE of fair value of the bundled maintenance and support and recognized over the term of the agreement.

Consulting Services and Other Fees

We also provide software-related services, including systems implementation and integration services, consulting, training, custom modification and application managed services. Consulting services are usually separately priced and are generally not essential to the functionality of our software products. Consulting services are generally provided under time and materials contracts and revenues are recognized as the services are provided. However, when we enter into arrangements with a fixed-fee or a maximum-fee basis where services are not considered essential to the functionality of the software, revenue is recognized based upon a proportionate performance method. When we enter into arrangements where services are considered essential to the functionality of the software, revenue is recognized based upon a percentage of completion method. Under this method, revenue is recognized based upon labor hours incurred as a percentage of total estimated labor hours to complete the project. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. Revenues for consulting services that are bundled with license fees are deferred based on the VSOE of fair value of the bundled services and recognized when the services are performed.

Consulting services and other fees also include education and hosting services. Hosted customers with perpetual licenses 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 its hosting arrangement upon its expiration and can deploy the software internally or contract with another party unrelated to Infor to host the software. Customers can self-host and any penalties to do so are not significant. Accordingly, the portion of an arrangement allocated to the hosting element is recognized once the service begins and then ratably over the term of the hosting arrangement.

In accordance with the provisions set forth in ASC 605, we recognize amounts associated with reimbursements from customers for out-of-pocket expenses as revenue on a gross basis. Such amounts have been classified as consulting services and other fees.

Deferred Revenues

Deferred revenues represent amounts billed or payments received from customers for software licenses, SaaS subscriptions, product updates and support and/or services in advance of recognizing revenue or performing services. We defer revenues for any undelivered elements, and recognize revenues when the product is delivered or over the period in which the service is performed, in accordance with its revenue recognition policy for such elements. Product updates and support is normally billed quarterly or annually in advance of performing the service.

Deferred Expenses

Commissions payable to our direct sales force and independent affiliates who resell our software products, as well as royalties payable to third-party software vendors, are recorded when a sale is completed or cash received, which coincides with the timing of revenue recognition in most cases. When revenue is recognized ratably over time, related commissions and royalties are deferred and amortized over the same period as the recognition of the revenue.

Collectability

We assess the probability of collection based upon several factors including 1) third-party credit agency information, 2) customer financial statements and/or 3) customer payment history. We typically do not provide for payment terms in excess of six months. Certain customer arrangements are recognized upon collection due to their specific collection history.

Business Combinations

We account for acquisitions in accordance with ASC 805, Business Combinations. ASC 805 requires recognition of the assets acquired and the liabilities assumed separately from goodwill, generally at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While best estimates and assumptions are used as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, estimates are inherently uncertain and subject to refinement. As a result, during the measurement

 

65


Table of Contents
Index to Financial Statements

period, which may be up to one year from the acquisition date, adjustments are recorded to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our results of operations.

The provisions of ASC 805 also require that:

 

    the direct transaction costs associated with the business combination are expensed as incurred; and

 

    any changes in estimates associated with income tax valuation allowances or uncertain tax positions after the measurement period are generally recognized as income tax expense with application of this policy also applied prospectively to all business combinations regardless of the acquisition.

For a given acquisition, certain pre-acquisition contingencies are generally identified as of the acquisition date and may extend the review and evaluation of these pre-acquisition contingencies throughout the measurement period (up to one year from the acquisition date) in order to obtain sufficient information to assess whether to include these contingencies as a part of the purchase price allocation and, if so, to determine the estimated amounts.

If it is determined that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, an estimate is recorded for such a contingency as a part of the preliminary purchase price allocation. We often continue to gather information for and evaluate our pre-acquisition contingencies throughout the measurement period and if changes are made to the amounts recorded or if additional pre-acquisition contingencies are identified during the measurement period, such amounts will be included in the purchase price allocation during the measurement period and, subsequently, in our results of operations.

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date and are reevaluated with any adjustments to preliminary estimates being recorded to goodwill within the measurement period. Subsequent to the measurement period or the final determination of the tax allowance’s or contingency’s estimated value, changes to these uncertain tax positions and tax related valuation allowances impact the provision for income taxes in our Consolidated Statement of Operations and could have a material impact on our results of operations and financial position.

In connection with the purchase price allocations for our acquisitions, we estimate the fair value of product updates and support, SaaS subscription and service contract obligations assumed. The acquired deferred revenue is recognized at fair value to the extent it represents a legal obligation assumed by Infor. We consider post-contract support (PCS) obligations/services in their entirety, SaaS subscription contracts and service contracts to be legal obligations of the acquired entity. PCS arrangements of acquired entities typically include unspecified product upgrades (when and if available), release updates, regulatory updates and patches, as well as support including access to technical information and technical support staff. SaaS subscription arrangements of acquired entities provide access to product functionality through a hosted environment and other services. We consider PCS and SaaS subscription arrangements to be separate elements when determining the legal obligations assumed from the acquired entity. We expect to fulfill each underlying obligation element of these arrangements. The estimated fair values of these PCS arrangements, SaaS subscription contracts and service contracts are determined utilizing a top-down approach. The top-down approach relies on market indicators of expected revenue for any obligation yet to be delivered with appropriate adjustments. Conceptually, we start with the amount we would expect to receive in a transaction, less the estimated selling effort, which has already been performed, including an estimated profit margin on that selling effort.

We record receivables acquired in business combinations at their estimated fair market values. Subsequent changes to acquired receivables are reflected as changes in the provision for doubtful accounts included as a component of general and administrative expense in our Consolidated Statements of Operations.

The purchase agreements related to certain of our acquisitions may include provisions for the payment of additional cash consideration if certain future performance conditions are met. These contingent consideration arrangements are to be recognized at their acquisition date fair value and included as part of the purchase price at the acquisition date. The estimated fair value of these contingent consideration arrangements are classified as accrued liabilities or other long-term liabilities on our Consolidated Balance Sheets. As such, their fair value is remeasured each reporting period with any change in fair value being recognized in the applicable period’s results of operations and included in acquisition-related and other costs in our Consolidated Statements of Operations.

Restructuring

Costs to exit or restructure certain activities of an acquired company, or our internal operations, are accounted for as one-time termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations. If acquisition related, they are accounted for separately from the business combination. Liabilities for costs associated with an exit or disposal activity are measured at fair value on our Consolidated Balance Sheet and recognized in our Consolidated Statement of Operations in the period in which the liability is incurred. In the normal course of business, Infor may incur restructuring charges related to personnel which are accounted for in accordance with ASC 712, Compensation—Nonretirement Postemployment Benefits. These restructuring charges represent severance associated with redundant positions. When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from actual results. This may require revision of initial estimates which may materially affect our results of operations and financial position in the period the change in estimate occurs. See Note 11, Restructuring Charges.

 

66


Table of Contents
Index to Financial Statements

We estimate the amounts of these costs based on our expectations at the time the charges are taken and we reevaluate the remaining accruals at each reporting date based on current facts and circumstances. If our estimates or expectations change because we are subjected to contractual obligations or negotiations we did not anticipate, we choose to further restructure our operations, or there are other costs or changes we did not foresee, we adjust the restructuring accruals in the period that our estimates change. Such changes are recorded as increases or decreases to restructuring costs in our Consolidated Statements of Operations.

Accounts Receivable

Accounts receivable are comprised of gross amounts invoiced to customers and accrued revenue, which represents earned but unbilled revenue at the balance sheet date. The gross amount invoiced includes pass-through taxes and fees, which are recorded as liabilities at the time they are billed. We offset our accounts receivable and deferred revenue for invoices for which the maintenance period has not started as of the balance sheet date.

Allowances for Doubtful Accounts, Cancellations and Billing Adjustments

We have established an allowance for estimated billing adjustments and an allowance for estimated amounts that will not be collected. We record provisions for billing adjustments as a reduction of revenue and provisions for doubtful accounts as a component of general and administrative expense in our Consolidated Statements of Operations. We review specific accounts, including significant accounts with balances past due over 90 days, for collectability based on circumstances known at the date of the financial statements. In addition, we maintain reserves based on historical billing adjustments and write-offs. These estimates are reviewed periodically and consider specific customer situations, historical experience and write-offs, customer credit-worthiness, current economic trends and changes in customer payment terms. A considerable amount of judgment is required in assessing these factors. If the factors utilized in determining the allowance do not reflect future performance, a change in the allowance would be necessary in the period such determination is made which would affect future results of operations. Accounts receivable are charged off against the allowance when we determine it is probable the receivable will not be recovered.

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 have allowed for sales allowances. We record a provision against revenue for estimated sales allowances on license and consulting revenues in the same period the related revenues are recorded or when current information indicates additional allowances are required. These estimates are based on historical experience determined by analysis of claim activities, specifically identified customers and other known factors. If the historical data utilized does not reflect expected future performance, a change in the allowances would be recorded in the period such determination is made affecting current and future results of operations. The balance of our sales reserve is reflected in deferred revenue on our Consolidated Balance Sheets.

Following is a rollforward of our sales reserve:

 

(in millions)       

Balance, May 31, 2011

   $ —     

Warranty reserve acquired(1)

     13.0   

Provision

     2.8   

Write-offs

     (5.1

Currency translation effect

     (1.1
  

 

 

 

Balance, May 31, 2012

     9.6   

Provision

     4.8   

Write-offs

     (4.3

Currency translation effect

     0.6   
  

 

 

 

Balance, May 31, 2013

     10.7   

Provision

     4.6   

Write-offs

     (7.6

Currency translation effect

     0.2   
  

 

 

 

Balance, May 31, 2014

   $ 7.9   
  

 

 

 

 

67


Table of Contents
Index to Financial Statements

 

(1) Balance acquired with the acquisition of Lawson, see Note 3, Acquisitions.

Property and Equipment

Property and equipment is stated at the lower of cost or realizable value, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based upon the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining term of the leases to which they relate. Repair and maintenance costs are expensed as incurred if they do not increase the life or productivity of the related capitalized asset. Assets acquired under capital leases are included in property and equipment with corresponding depreciation included in accumulated depreciation. Capital leases are amortized on a straight-line basis over the lesser of the estimated useful life of the respective assets, or the term of the capital lease.

We have asset retirement obligations accounted for under the provisions of ASC 410-20, Asset Retirement and Environmental Obligations—Asset Retirement Obligations, primarily related to certain leased facilities in Europe. We record the asset retirement obligation and a corresponding leasehold improvement which is depreciated over the expected term of the lease. Subsequent to initial recognition, we record period-to-period changes in the asset retirement obligations liability resulting from the passage of time to general and administrative expense and revisions to either the timing or the amount of the original expected cash flows to the related assets. See Note 8, Property and Equipment, for details of the asset retirement obligations amounts.

Gains or losses are reflected in results of operations upon retirement or sale of property and equipment. Property and equipment is reviewed for impairment when circumstances indicate that the carrying value of the property and equipment may not be recoverable. We did not recognize any impairment charges for property and equipment during fiscal 2014, 2013 and 2012.

Lease Obligations

We recognize lease obligations with scheduled rent increases over the terms of the leases on straight-line basis in accordance with FASB guidance related to operating leases. Accordingly, the total amount of base rentals over the term of our leases is charged to expense using a straight-line method, with the amount of rental expense in excess of lease payments recorded as a deferred rent liability on our Consolidated Balance Sheets. As of May 31, 2014 and 2013, we had deferred rent liabilities of $16.9 million and $9.5 million, respectively. We also recognize capital lease obligations and record the underlying assets and liabilities on our Consolidated Balance Sheets. See Note 14, Commitments and Contingencies—Leases.

Contingencies—Litigation Reserves

We provide for contingent liabilities, including those related to litigation matters, in accordance with ASC 450, Contingencies. Pursuant to this guidance, a loss contingency is charged to income when it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. We disclosure in the notes to our financial statements those loss contingencies that do not meet both conditions if there is a reasonable possibility that a loss may have been incurred. We do not record gain contingencies until they are realized. We expense all legal costs to resolve regulatory, legal, tax, or other matters in the period incurred.

We review the status of each significant matter to assess our potential financial exposure at each reporting date. If a potential loss is considered probable and the amount can be reasonably estimated as defined by the guidance related to accounting for contingencies, we reflect the estimated loss in our results of operations. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability can be reasonably estimated. Because of uncertainties related to these matters, accruals are based on the best information available to us at that time. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in our Consolidated Financial Statements. As additional information becomes available, we reassess the potential liability related to any pending claims and litigation and may revise our estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our future results of operations, financial position and cash flows. See Note 14, Commitments and Contingencies—Litigation.

Software Development Costs

Expenditures for software research and development consist primarily of salaries, employee benefits, related overhead costs, and consulting fees associated with product development, testing, quality assurance, documentation, enhancements and upgrades for existing customers under maintenance. We apply ASC 985-20, Software—Costs of Software to Be Sold, Leased, or Marketed, in analyzing our software development costs. ASC 985-20 requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility for a software product in development. Research and development costs associated with establishing technological feasibility are expensed as incurred. Based on our software development process, technological feasibility is established upon the completion of a working model. Costs capitalized in accordance with ASC 985-20 for the completion of work between the time of technological feasibility and the point at which the software is ready for general release were $4.4 million, $3.2 million and $2.5 million in fiscal 2014, 2013 and 2012, respectively. Amortization expense for assets capitalized totaled $3.5 million, $2.7 million and $1.9 million for fiscal 2014, 2013 and 2012, respectively. Unamortized costs capitalized totaled $3.9 million and $3.0 million as of May 31, 2014 and 2013, respectively.

 

68


Table of Contents
Index to Financial Statements

We begin amortizing capitalized software development costs once a product is available for general release. Amortization of capitalized software development costs and acquired technology is recognized based upon the greater of 1) the ratio of current revenues to total anticipated product revenues, or 2) the amount computed on a straight-line basis with reference to the products’ expected useful life. Annually, we perform a net realizable value analysis and the amount by which unamortized software development costs exceed the net realizable value, if any, is recognized as expense in the period it is determined. Amortization expense associated with capitalized software development costs and acquired technology is recorded as a component of amortization of intangible assets and depreciation in our Consolidated Statements of Operations.

We apply ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software, in review of certain systems projects. These system projects generally relate to software we do not intend to sell or otherwise market. In addition, we apply this guidance to our review of development projects related to software used exclusively for our SaaS subscription offerings. In these reviews, all costs incurred during the preliminary project stages are expensed as incurred. Once the projects have been committed to and it is probable that the projects will meet functional requirements, expenses are capitalized. These capitalized software costs are amortized on a project-by-project basis over the expected economic life of the underlying product on a straight-line basis, which is typically three to seven years. Amortization commences when the software is available for its intended use. During fiscal 2014 we capitalized approximately $0.9 million related to internal use software and recorded approximately $0.4 million in related amortization expense. For fiscal 2013 and 2012, the amounts capitalized for internal use software were not significant. In addition, the amortization expense for assets capitalized was insignificant for fiscal 2013 and 2012.

Intangible Assets

Intangible assets represent customer contracts and relationships, acquired technology and trade names obtained in connection with acquisitions. These intangible assets, other than acquired technology, are being amortized using either straight-line or accelerated amortization over their estimated useful lives, ranging from twelve months to twenty years. The accelerated amortization method is used should the realization of the economic value of the asset be deemed to have characteristics that more closely match an accelerated amortization methodology, as may exist principally with customer relationships. In those cases, the asset is amortized proportionally based upon the annual proportion of economic value contributed as it relates to the asset’s total economic value. Acquired technology is amortized at the greater of straight-line or the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product. See Note 9, Intangible Assets.

The carrying amount of intangible assets are reviewed whenever circumstances arise that indicate the carrying amount of an asset may not be recoverable, also known as a “triggering event.” The carrying value of these assets is compared to the undiscounted future cash flows the assets are expected to generate. If the asset is considered to be impaired, the carrying value is compared to the fair value and this difference is recognized as an impairment loss. We have not recognized a loss from impairment of intangible assets during fiscal 2014, 2013 or 2012.

Goodwill

Goodwill represents the excess of consideration transferred over the fair value of net tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill amounts are not amortized, but rather are evaluated for potential impairment on an annual basis unless circumstances indicate the need for impairment testing between the annual tests. The judgments regarding the existence of impairment indicators are based on legal factors, market conditions, and operational performance, among other things.

Annual testing for goodwill impairment may begin with a qualitative comparison of our reporting units’ fair value to their carrying value to determine if it is more-likely-than-not that the fair value is less than the carrying value and thus whether any further impairment tests are necessary. Further testing for goodwill impairment is a two-step process. The first step screens for potential impairment, and if there is an indication of possible impairment, the second step must be completed to measure the amount of impairment loss, if any. The first step of the goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with the carrying value of its net assets. If the fair value of the reporting unit is less than the carrying value of the reporting unit, the second step of the goodwill impairment test would be performed to measure the amount of impairment loss we would be required to record, if any. The second step, if required, would compare the implied fair value of our recorded goodwill with the current carrying amount. If the implied fair value of our goodwill is less than the carrying value, an impairment charge equal to the difference would be recorded as a charge to our operations.

We believe that our reportable segments are also representative of our reporting units for purposes of our goodwill impairment testing. We allocate our goodwill to each of these reporting units based upon their relative fair values. For purposes of allocating our recorded goodwill to our reporting units, we estimated their fair values using a combination of an income approach (discounted cash flow method) and a market approach (market transaction method).

We conduct our annual impairment test in the second quarter of each fiscal year, as of September 30. The results of the annual tests performed in fiscal 2014, 2013 and 2012 indicated no impairment of goodwill. See Note 4, Goodwill.

 

69


Table of Contents
Index to Financial Statements

Deferred Financing Fees

Deferred financing fees, net of amortization, are reflected on our Consolidated Balance Sheets in deferred financing fees, net. Deferred financing fees include direct financing fees, bank origination fees, amendment fees, legal and other fees incurred in obtaining and/or amending term and facility debt obligations. These deferred costs are being amortized using the straight-line method and the effective interest method over the expected life of the related obligation and such amortization is included in interest expense, net in our Consolidated Statements of Operations. In fiscal 2014 and 2013, we capitalized significant deferred financing fees related to amending and obtaining new term debt and credit arrangements and we wrote off certain unamortized deferred financing fees in conjunction with our debt amendments and debt recapitalization. See Note 12, Debt—Deferred Financing Fees.

Derivative Financial Instruments

In accordance with ASC 815, Derivatives and Hedging, we record derivative instruments on our Consolidated Balance Sheets as assets or liabilities at their fair value. Changes in their fair value are recognized currently in our results of operations in other (income) expense, net on our Consolidated Statements of Operations unless certain specific hedge accounting criteria are met. These criteria include among other things that we formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. For derivative instruments that are designated and qualify as hedging instruments, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative instrument representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. The unrealized gains (losses) resulting from changes in the fair value of the derivative instruments are reflected as a component of stockholders’ deficit in accumulated other comprehensive income (loss) on our Consolidated Balance Sheets. Cash inflows or outflows associated with the derivative instruments are included in cash flows from operating activities on our Consolidated Statements of Cash Flows, as are the related interest payments.

We use interest rate swaps to limit our exposure to interest rate risk by converting the interest payments on variable rate debt to fixed rate payments. Interest rate swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional debt amounts. These cash flow hedges are typically designated as accounting hedges until the time the underlying hedged instrument changes. Individual swaps are designated as hedges of our variable rate debt. The periodic settlement of our interest rate swaps will be recorded as interest expense in our Consolidated Statements of Operations. We entered into the interest rate swaps for hedging purposes only and not for trading or speculation.

We are exposed to certain credit-related risks in the event of non-performance by the counterparties to our derivative financial instruments. The credit risk is limited to unrealized gains related to our derivative instruments in the case that any of the counterparties fail to perform as agreed under the terms of the applicable agreements. To mitigate this risk, we only enter into agreements with counterparties that have investment-grade credit ratings.

The additional disclosures regarding derivatives are included below under Comprehensive Income (Loss) and in Note 5, Fair Value, and Note 15, Derivative Financial Instruments.

Foreign Currency

The functional currency of our foreign subsidiaries is typically the applicable local currency. The translation from the respective foreign currencies to U.S. Dollars 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 period. Gains or losses resulting from such translation are included as a separate component of accumulated other comprehensive income. Gains or losses resulting from foreign currency transactions are included in foreign currency income or loss except for the effect of exchange rates on long-term inter-company transactions considered to be a long-term investment, which are accumulated and credited or charged to other comprehensive income.

Transaction gains and losses are recognized in our results of operations based on the difference between the foreign exchange rates on the transaction date and on the reporting date. We recognized a net foreign exchange gain of $62.7 million, net foreign exchange loss of $99.3 million, and a net foreign exchange gain of $111.4 million in fiscal 2014, 2013 and 2012, respectively. The foreign currency exchange gains and losses are included as a component of other (income) expense, net, in the accompanying Consolidated Statements of Operations.

Certain transaction gains and losses are generated from inter-company balances that are not considered to be long-term in nature that will be settled between subsidiaries. The inter-company balances are a result of normal transfer pricing transactions among various operating subsidiaries, as well as certain loans initiated between subsidiaries. The proceeds from these loans were primarily used to fund various acquisitions. We also recognize transaction gains and losses from revaluing debt denominated in Euros and held by subsidiaries whose functional currency is the U.S. Dollar. See Note 12, Debt. Unlike translation gains and losses which occur by revaluing a subsidiary’s financial statements into our reporting currency, the transaction gains or losses recognized when revaluing this debt affects functional currency cash flows and is included in determining net income or loss for the period in which exchange rates change. Changes in exchange rates create unrealized gains and losses at each reporting date until the balances are settled and recognized in our results of operations. When the balances are settled, the unrealized gains and losses become realized.

 

70


Table of Contents
Index to Financial Statements

Highly Inflationary Accounting—Venezuela

Since 2010, the economy in Venezuela has been determined to be highly inflationary and accordingly, we have applied highly inflationary accounting. As a result, our Venezuelan operations have had a functional currency of U.S. Dollars since that time, and our monetary assets and liabilities denominated in Venezuelan Bolivars (BsF) have been remeasured into U.S. Dollars at each balance sheet date at the exchange rate at which such balances could be settled with the impact of Venezuelan currency fluctuations being reported in our results of operations.

Prior to January 2014, we utilized the official fixed exchange rate for the BsF as established by the Venezuelan National Foreign Trade Center (the CENCOEX rate) of 6.30 BsF to $1.00 to remeasure our Venezuelan operations into our U.S. Dollar reporting currency. In January 2014, the Venezuelan government established a new variable foreign exchange rate which is applicable for use in settling certain operations including those of Infor. This foreign exchange mechanism is called the “Complimentary System of Foreign Currency Acquirement” (SICAD1). Most recently, in March 2014, the Venezuelan government established an additional variable foreign exchange rate (SICAD2) which is applicable to all industry sectors and all transaction types. We have used the variable SICAD1 and SICAD2 rates, rather than the official fixed CENCOEX rate, to remeasure our Venezuelan operations into U.S. Dollars since January 2014 and April 2014, respectively. The current SICAD2 rate as of our fiscal year ended May 31, 2014, was approximately 50.0 BsF to $1.00. As a result of the changes in the exchange rate utilized to remeasure our Venezuelan operations during the current fiscal period, we recorded a foreign currency transaction loss related to the remeasurement of approximately $2.2 million in the fiscal 2014.

As of May 31, 2014 and May 31, 2013, our net monetary assets denominated in BsF were approximately $0.1 million and $2.0 million, and were remeasured using the current SICAD2 rate of 50.0 BsF to $1.00 and the official CENCOEX rate for the BsF of 6.30 BsF to $1.00, respectively. Our net monetary assets consist primarily of cash and accounts receivable partially offset by income taxes payable. The net monetary assets included $0.4 million and $2.4 million in cash and cash equivalents at May 31, 2014 and May 31, 2013, respectively. We plan to use the SICAD2 rate to remeasure our Venezuelan operations into U.S. Dollars in the future but we will continue to monitor and assess the proper exchange rate that we should use for remeasurement purposes.

In addition, the Venezuelan government has implemented foreign currency exchange control regulations which make it difficult to convert BsF to U.S. Dollars and potentially limit our ability to repatriate our earnings in a timely manner. The amounts being reported on our consolidated balance sheets, including cash and cash equivalents, which have been remeasured based on either the official exchange rate or the current SICAD2 rate, may not accurately represent the amount of U.S. Dollars that we could ultimately realize.

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 net income or loss, the change in foreign currency translation adjustments, net of tax, and changes in defined benefit plan obligations.

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

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)
    Derivative
Instruments
Unrealized
Gain (Loss)(2)
    Accumulated
Other
Comprehensive
Income (Loss)
 

Balance, May 31, 2012

   $ (27.6   $ (10.5   $ —        $ (38.1

Other comprehensive income (loss)

     126.5        1.6        —          128.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2013

     98.9        (8.9     —          90.0   

Other comprehensive income (loss)

     (32.9     1.5        (9.9     (41.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2014

   $ 66.0      $ (7.4   $ (9.9   $ 48.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

71


Table of Contents
Index to Financial Statements

 

(1) Funded status of defined benefit pension plan is presented net of tax benefit of $2.5 million, $2.8 million and $2.2 million as of May 31, 2014, 2013 and 2012, respectively.
(2) Derivative instruments unrealized gain (loss) is presented net of tax benefit of $6.2 million as of May 31, 2014.

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

 

(in millions)    Before-Tax     Income Tax
(Expense) Benefit
    Net-of-Tax  

Fiscal 2014

      

Foreign currency translation adjustment

   $ (32.9   $ —        $ (32.9

Change in funded status of defined benefit plans

     4.3        (0.3     4.0   

Derivative instruments unrealized gain (loss)

     (16.1     6.2        (9.9

Reclassification adjustments:

      

Amortization of net actuarial gain—defined benefit plans(1)

     (0.6     —          (0.6

Amortization of prior service costs—defined benefit plans(1)

     (1.9     —          (1.9
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

   $ (47.2   $ 5.9      $ (41.3
  

 

 

   

 

 

   

 

 

 

Fiscal 2013

      

Foreign currency translation adjustment

   $ 126.5      $ —        $ 126.5   

Change in funded status of defined benefit plans

     1.5        0.6        2.1   

Reclassification adjustments:

      

Amortization of net actuarial gain—defined benefit plans(1)

     (0.3     —          (0.3

Amortization of prior service costs—defined benefit plans(1)

     (0.2     —          (0.2
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

   $ 127.5      $ 0.6      $ 128.1   
  

 

 

   

 

 

   

 

 

 

Fiscal 2012

      

Foreign currency translation adjustment

   $ (248.2   $ —        $ (248.2

Change in funded status of defined benefit plans

     (9.5     1.8        (7.7

Reclassification adjustments:

      

Amortization of prior service costs—defined benefit plans(1)

     (0.2     —          (0.2
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

   $ (257.9   $ 1.8      $ (256.1
  

 

 

   

 

 

   

 

 

 

 

(1) Amounts reclassified out of accumulated other comprehensive income related to defined benefit plan adjustments were included in general and administrative expenses in our Consolidated Statement of Operations. These amounts were included as a component of our net periodic pension costs. See Note 19, Retirement Plans—Defined Benefit Plans, for additional detail.

Advertising Costs

We expense advertising costs as incurred. These costs are included in sales and marketing expense in our Consolidated Statement of Operations. For fiscal 2014, 2013 and 2012, advertising expenses were $13.2 million, $11.4 million and $14.6 million, respectively.

Concentration of Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and trade receivables with customers. Cash and cash equivalents are generally held with a number of large, diverse financial institutions worldwide to reduce the amount of exposure to any single financial institution. We have implemented investment policies that limit purchases of marketable debt securities to investment grade securities. We do not require collateral to secure accounts receivable. Credit risk with respect to trade receivables is mitigated by credit evaluations performed on existing and prospective customers and by the diversification of our customer base across different industries and geographic areas. No one customer accounted for more than 10% of our consolidated trade accounts receivable balance at May 31, 2014 or 2013. In addition, no individual customer accounted for more than 10% of our consolidated revenues during fiscal 2014, 2013 or 2012.

 

72


Table of Contents
Index to Financial Statements

A significant portion of our business is conducted in currencies other than the U.S. Dollar, the currency in which our financial statements are reported. Significant changes in these currencies, especially the Euro and the British Pound, relative to the U.S. Dollar could materially impact our revenue, operating results and financial position. During fiscal 2014, 2013 and 2012, we did not pursue hedging strategies to mitigate foreign currency exposure.

Fair Value of Financial Instruments

We apply the provision of ASC 820, Fair Value Measurements and Disclosures, to our financial instruments that we are required to carry at fair value pursuant to other accounting standards, including derivative financial instruments. We have not applied the fair value option to those financial instruments that we are not required to carry at fair value pursuant to other accounting standards. The additional disclosures regarding fair value measurements are included in Note 5, Fair Value.

Income Taxes

We utilize the asset and liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates that are applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized to the differences between the financial statements carrying amount and the tax bases of existing assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in our results of operations in the period in which the tax rate change is enacted. The statement also requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets may not be realized. See Note 18, Income Taxes.

The provisions of ASC 740-10 contain a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50.0% likely to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in (benefit) provision for income taxes in the accompanying Consolidated Statements of Operations.

The Company is included in the GGC Software Parent, Inc. consolidated federal income tax return. The Company and its subsidiaries provided for income taxes under the separate return method, by which Infor, Inc. and its subsidiaries compute tax expense as though they file a separate tax return. GGC Software Parent, Inc. entered into a Tax Allocation Agreement (the Tax Allocation Agreement) with the Company that was effective as of April 5, 2012. The Tax Allocation Agreement sets forth the obligation of the Company and its 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. See Note 21, Related Party Transactions.

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 share-based payments (to the extent they are compensatory) be recognized in our results of operations based on their fair values and the estimated number of securities we ultimately expects will vest. All equity-based payments are based upon equity issued by a parent Company of Infor. Pursuant to applicable FASB guidance related to equity-based awards, we have reflected stock compensation expense related to our parent companies’ equity grants within our results of operations with an offset to additional paid-in capital.

In fiscal 2012, Infor Enterprise Applications, LP (Infor Enterprise), an affiliate of the parent company of Infor, issued Class C units in conjunction with a voluntary share exchange program in which we offered certain Infor employees an opportunity to exchange all of their outstanding restricted shares, outstanding options to purchase restricted shares, and other management incentive unit awards granted to such employees under Infor and Infor Global Solutions’ and its predecessors’ various Share Purchase and Options Plans then owned by them and/or their Permitted Transferees (as defined under the various Share Purchase and Options Plans) for newly issued Class C units. The Class C units are non-voting ordinary units of Infor Enterprise. As a result, the majority of all outstanding equity awards other than the Class C units awards were cancelled during fiscal 2012. See Note 16, Share Purchase and Option Plans.

Certain stock options, restricted stock and other equity-based awards outstanding under our Share Purchase and Option Plans are subject to vesting and repurchase features that function as in-substance forfeiture provisions. These in-substance forfeiture provisions preclude recognition of compensation cost for accounting purposes until such repurchase features are removed upon an employee termination event or change in control as defined in the applicable plan agreement. No compensation expense is recognized until the repurchase features lapse. For all other awards not subject to such repurchase features, the fair value of the equity-based awards is recorded as compensation expense over the applicable vesting periods.

 

73


Table of Contents
Index to Financial Statements

We utilize the Option-Pricing Method to estimate the fair value of our parent company’s equity awards. This approach models the various classes of equity securities as a series of call options on our total equity. The exercise prices of the call options are derived based on the distribution waterfall of the issuing entity. Assumptions utilized under the Option—Pricing Method include: (a) stock price, derived from the estimated fair value of our parent company’s total equity, (b) time to expiration, derived from the expected time to a potential liquidity event, (c) risk- free interest rate, derived from the U.S. Treasury rate over the expected time to expiration, (d) expected dividend yield and (e) expected volatility of the total equity value. The following is a summary of the weighted average assumptions used in estimating the fair value of equity awards granted in the periods indicated and the resulting fair values of such awards.

 

     Year Ended May 31,  
     2014     2013     2012  

Expected term (years)

     2.00        1.25        1.25   

Risk-free interest rate

     0.35     0.18     0.22

Dividend yield

     0.00     0.00     0.00

Volatility

     50.00     70.71     75.00

Weighted average fair value per unit granted

   $ 7.29      $ 4.96      $ 3.53   

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

 

     Year Ended May 31,  
(in millions)    2014      2013      2012  

Product updates and support fees

   $ 0.4       $ —         $ —     

Consulting services and other fees

     3.0         —           —     

Sales and marketing

     9.7         5.9         2.4   

Research and development

     8.1         5.3         2.4   

General and administrative

     7.5         2.8         6.4   
  

 

 

    

 

 

    

 

 

 

Total

   $ 28.7       $ 14.0       $ 11.2   
  

 

 

    

 

 

    

 

 

 

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

3. Acquisitions

Acquisitions—Fiscal 2014

On January 7, 2014, we acquired PeopleAnswers, LLC (formerly PeopleAnswers, Inc.) (PeopleAnswers), a privately held company based in Dallas, Texas, for approximately $200.0 million. PeopleAnswers is a provider of predictive talent analytics whose cloud-based talent science platform is used by companies to optimize hiring, promotion, learning, and compensation processes. The acquisition of PeopleAnswers complements and further expands our Infor Human Capital Management (HCM) suite offerings in the high-growth HCM market. We have recorded approximately $84.0 million of identifiable intangible assets and $114.3 million of goodwill related to our acquisition of PeopleAnswers. The acquired intangible assets relating to PeopleAnswers’ existing technology and customer relationships are being amortized over their weighted average estimated useful lives of approximately ten years. We have determined that the goodwill arising from this acquisition will be deductible for tax purposes.

During the fourth quarter of fiscal 2014 we completed an additional acquisition for a purchase price of approximately $1.8 million.

The results of our fiscal 2014 acquisitions have been included in our Consolidated Financial Statements from the acquisition dates. These acquisitions were not significant individually or in the aggregate and their results were not material to our results for fiscal 2014. The companies we acquired in fiscal 2014 contributed, in aggregate and to the extent separately identifiable, approximately $11.5 million in revenues during fiscal 2014.

 

74


Table of Contents
Index to Financial Statements

Acquisitions—Fiscal 2013

We completed five acquisitions in fiscal 2013 for a combined purchase price of $119.7 million, net of cash acquired, to expand our product and service offerings in our targeted verticals, primarily manufacturing and distribution, and our HCM and CRM horizontal offerings. We have included the results of the acquired companies in our Consolidated Financial Statements from the applicable acquisition dates. These acquisitions were not significant individually or in the aggregate.

We have recorded $55.6 million of identifiable intangible assets, $9.4 million of net liabilities and $73.5 million of goodwill related to our fiscal 2013 acquisitions. The acquired intangible assets relating to these acquisitions’ existing technology and customer relationships are being amortized over their weighted average estimated useful lives of approximately seven years. We have determined that the goodwill arising from these acquisitions will not be deductible for tax purposes.

The purchase consideration related to certain of these acquisitions is subject to post-closing adjustments and may include additional contingent cash consideration payable to the sellers if certain future performance conditions are met as detailed in the applicable purchase agreements. We estimated the fair value of the contingent consideration to be $13.2 million as of May 31, 2013. Any changes in the estimated fair value of the contingent consideration, during the contingency period through settlement, are recorded in our results of operations in the period of such change. During the third quarter of fiscal 2014, we paid $0.7 million related to the settlement of certain of the contingent consideration agreements. We have estimated the fair value of the remaining contingent consideration agreements to be $12.4 million as of May 31, 2014. The potential undiscounted amount of future payments that we may be required to make related to the contingent consideration is between $0.0 and approximately $40.0 million.

Acquisitions—Fiscal 2012

Lawson—Fiscal 2012

On July 5, 2011, we completed our acquisition of Lawson through Infor’s acquisition of all of Lawson’s outstanding common stock. Lawson is a global provider of business application software, consulting and maintenance to customers primarily in healthcare, services, trade and manufacturing/distribution industries. The results of operations of Lawson have been included in our results of operations from the date of acquisition.

The cash purchase consideration totaled approximately $1,958.2 million, $1,482.2 net of cash acquired. We funded the purchase price from a combination of cash, additional debt and additional equity contributions. See Note 12, Debt. Transaction and merger related integration costs of $24.8 million associated with Lawson were expensed as incurred and are reflected in our results of operations for fiscal 2012, in acquisition-related and other costs. In addition, we took certain actions relating to Lawson’s operations to eliminate redundancies, improve our operational efficiency and reduce our operating costs. See Note 11, Restructuring Charges. The excess of the consideration transferred over the fair values of the net assets acquired and liabilities assumed was recorded as goodwill, which represents operating efficiencies expected to be realized.

The following table summarizes our allocation of the Lawson purchase consideration:

 

(in millions)       

Cash

   $ 476.0   

Accounts receivable, net

     105.6   

Identified intangible assets:

  

Existing technology

     300.0   

Existing customer relationships

     614.4   

Tradenames

     25.4   

Goodwill

     1,168.0   

Deferred tax liability, net

     (239.2

Deferred revenue

     (182.0

Long-term debt

     (258.0

All other tangible liabilities, net

     (52.0
  

 

 

 

Total fair value of purchase consideration

   $ 1,958.2   
  

 

 

 

The gross contractual accounts receivable at the acquisition date was $109.2 million and our best estimate of the contractual cash flows not expected to be collected at that date was $3.6 million. The acquired intangible assets relating to Lawson’s existing technology, existing customer relationships and tradenames are being amortized over their weighted average estimated useful lives of approximately six years, twelve years and three years, respectively. We have determined that the goodwill arising from the acquisition of Lawson will not be deductible for tax purposes.

 

75


Table of Contents
Index to Financial Statements

The following unaudited pro forma financial information is based on the historical financial information of Infor and Lawson giving effect to the acquisition as if it had occurred on June 1, 2010, the beginning of the fiscal year prior to the year of acquisition and applying certain assumptions and pro forma adjustments. These pro forma adjustments primarily relate to the amortization of acquired intangibles, interest expense and the estimated impact on our income tax provision. We believe that the assumptions used and the adjustments made are reasonable given the information available to us as of the date of this quarterly report. This pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the acquisition occurred at such earlier time or of the results that may be achieved in the future. In addition, these pro forma financial statements do not reflect the realization of any cost savings that we may achieve from operating efficiencies, synergies or other restructuring activities that may result from the acquisition.

The following summarizes the unaudited pro forma financial information of Infor and Lawson for applicable periods as if the acquisition closed on June 1, 2010:

 

(in millions)    Year Ended
May 31, 2012
 

Software license fees and subscriptions

   $ 526.7   

Product updates and support fees

     1,441.7   
  

 

 

 

Software revenues

     1,968.4   

Consulting services and other fees

     779.5   
  

 

 

 

Total revenues

   $ 2,747.9   
  

 

 

 

Operating income

   $ 318.7   
  

 

 

 

Other Acquisitions—Fiscal 2012

We completed four additional acquisitions in fiscal 2012 which were not significant, either individually or in the aggregate. The total cash purchase price of these acquisitions was $29.3 million, net of cash acquired.

4. Goodwill

The following table reflects changes in the carrying amount of our goodwill by reportable segment for fiscal 2013 and 2014:

 

(in millions)    License      Maintenance      Consulting      Total  

Balance, May 31, 2012

   $ 784.8       $ 2,961.4       $ 265.2       $ 4,011.4   

Goodwill acquired

     56.6         8.5         8.4         73.5   

Currency translation effect

     8.2         43.0         3.7         54.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, May 31, 2013

     849.6         3,012.9         277.3         4,139.8   

Goodwill acquired

     114.8         0.5         —           115.3   

Currency translation effect

     14.7         43.1         4.3         62.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, May 31, 2014

   $ 979.1       $ 3,056.5       $ 281.6       $ 4,317.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Goodwill acquired during fiscal 2014 totaled $115.3 million primarily related to our acquisition of PeopleAnswers. Goodwill acquired during fiscal 2013 totaled $73.5 million related to our fiscal 2013 acquisitions. See Note 3, Acquisitions.

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 indicate 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.

 

76


Table of Contents
Index to Financial Statements

We conducted our most recent annual impairment assessment in the second quarter of fiscal 2014. While our qualitative assessment did not show any indication of potential impairment, we chose to perform a Step 1 goodwill impairment assessment as of September 30, 2013. This assessment did not indicate any potential impairment for any of our reporting units and no further testing was required. We believe there was no impairment of our goodwill and no indication of potential impairment existed as of May 31, 2014. The results of the annual tests performed in fiscal 2013 and 2012 indicated no impairment of goodwill and 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 asset and liabilities that are recognized at fair value on a nonrecurring basis. This guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as an “exit price” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The above mentioned guidance also requires the use of valuation techniques to measure fair values that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, the guidance establishes a fair value hierarchy which identifies and prioritizes three levels of inputs to be used in measuring fair value.

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.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. In addition, the fair value of liabilities should include consideration of non-performance risk including the Company’s own credit risk.

We measure certain financial assets and liabilities at fair value including our cash equivalents and contingent consideration liabilities. 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 May 31, 2014 and 2013:

 

     May 31, 2014  
     Fair Value Measurements Using Inputs Considered as      Fair Value  
     Level 1      Level 2      Level 3     
(in millions)                            

Assets

           

Cash equivalents

   $ 209.5       $ —         $ —         $ 209.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 209.5       $ —         $ —         $ 209.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Contingent consideration

   $ —         $ —         $ 12.4       $ 12.4   

Derivative instruments

     —           16.1         —           16.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 16.1       $ 12.4       $ 28.5   
  

 

 

    

 

 

    

 

 

    

 

 

 
     May 31, 2013