10-K 1 d163360d10k.htm 10-K 10-K
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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 APRIL 30, 2016

OR

 

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

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  ¨    No  x

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

Note: 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, but has not been subject to such filing requirements for such period as the Company’s registration statement on Form S-4 became effective on February 12, 2016.

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    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 was zero as of October 31, 2015, 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 June 1, 2016, was 1,000, par value $0.01 per share.

 

 

 


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INFOR, INC.

FORM 10-K

FISCAL YEAR ENDED April 30, 2016

INDEX

 

PART I.

  

Item 1.

  Business      1   

Item 1A.

  Risk Factors      12   

Item 1B.

  Unresolved Staff Comments      24   

Item 2.

  Properties      24   

Item 3.

  Legal Proceedings      24   

Item 4.

  Mine Safety Disclosures      24   

PART II.

  

Item 5.

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      25   

Item 6.

  Selected Consolidated Financial Data      25   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      27   

Item 7A.

  Quantitative and Qualitative Disclosures about Market Risk      54   

Item 8.

  Consolidated Financial Statements and Supplementary Data      55   

Item 9.

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      55   

Item 9A.

  Controls and Procedures      55   

Item 9B.

  Other Information      56   

PART III.

  

Item 10.

  Directors. Executive Officers and Corporate Governance      57   

Item 11.

  Executive Compensation      57   

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      57   

Item 13.

  Certain Relationships and Related Transactions and Director Independence      57   

Item 14.

  Principal Accounting Fees and Services      57   

PART IV.

  

Item 15.

  Exhibits and Financial Statement Schedules      57   
  Signatures      58   
  Index to Exhibits      121   


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FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K for the fiscal year ended April 30, 2016, 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) and International Data Corporation (IDC) were the primary sources for third-party industry data and forecasts, including the Gartner reports “Forecast: Enterprise Software Markets, Worldwide, 2013-2020, 1Q16 Update; Published: 17 March 2016; ID: G00294997” (the March 2016 Gartner Report) and “Forecast: Public Cloud Services, Worldwide, 2014-2020, 1Q16 Update; Published: 01 April 2016; ID: G00302290” (the April 2016 Gartner Report). The Gartner Reports described herein, (the Gartner Reports) represent research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, and are not representations of fact. Each 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 Reports are subject to change without notice. The IDC report “Worldwide Software Forecast, 2015-2019; published December 2015; IDC #US40710015” (the December 2015 IDC Report) and the represented data, research, opinion or viewpoints published, as part of syndicated service, by IDC, are not representations of fact. The IDC Reports speak as of its original publication date (and not as of the date of this annual report) and the opinions expressed in the IDC 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 mean the fiscal year ended on April 30 of such year. As disclosed in our Current Report on Form 8-K filed with the SEC on April 23, 2014, we changed our fiscal year end to April 30 effective beginning with our fiscal 2015. As a result, references to our fiscal 2015 and beyond mean the fiscal year ended on April 30 of such year. In addition, in transitioning to our new fiscal year end, we reported fiscal 2015 as the 11-month transition 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 many industries, including 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 software programs that are less specialized and more difficult to run in the cloud, and take more time and cost to tailor to 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.

 

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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. By delivering deep industry functionality coupled with lightweight integration, our customers can take advantage of these mission-critical applications and suites in the cloud, running on Amazon Web Services, a hosting services industry leader. Additionally, Infor offers the GT Nexus, Inc. (GT Nexus) supply chain network platform to connect companies with their suppliers, distributors, and 3PLs in a commerce cloud. In addition to providing software products, we help our customers implement and use our applications more effectively through our consulting services. We also provide ongoing support and maintenance services for our customers through our subscription-based annual maintenance and support programs.

We serve a large, diverse and sophisticated global customer base. 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, and hospitality software, results from the fact that we serve many of the largest and most well-known customers in those verticals. For example, 18 of the top 20 aerospace companies, 8 of 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, 19 of the top 20 industrial distributors, 18 of the top 20 global retailers, and 4 of the top 5 brewers use our software products.

We serve customers across three major geographic regions: the Americas; Europe, Middle East and Africa (EMEA); and Asia Pacific (APAC). We have approximately 14,390 employees worldwide and have offices in 43 countries. Across our applications, we offer our solutions in over 40 languages, and we intend to continue to translate our systems into new languages 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 62.8% from the Americas, 29.6% from EMEA and 7.6% from APAC in fiscal 2016. 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, including 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, on June 21, 2012, 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.

 

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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.

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 $15.0 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 60 software companies with combined revenues of over $7.0 billion. On a consolidated basis, Golden Gate Capital’s software portfolio would represent the fourth largest global enterprise software company behind only Microsoft, Oracle Corporation (Oracle), and SAP AG (SAP).

Summit Partners

Summit Partners provides growth equity to exceptional entrepreneurs and management teams. Founded in 1984, the firm had invested more than $6.5 billion into equity and fixed income opportunities as of December 31, 2015. As of December 31, 2015, Summit had invested in more than 430 companies in healthcare and life sciences, technology and other growth sectors. These companies have completed more than 135 public offerings, and more than 160 have been acquired through strategic mergers and sales. 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 250 technology companies, including more than 120 software companies, as of December 31, 2015. Summit Partners has helped build pioneering companies in the ERP, CRM, information and data security, antivirus, messaging management and archiving, and software-as-a-service (SaaS) categories.

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 technology is lightweight middleware that uses the standards found in the Internet to connect both Infor and non-Infor applications. This approach enables cloud deployment including multi-tenancy, simplifies implementations, minimizes the disruption and complexity of upgrades and helps increase the overall speed, agility and deployment flexibility of our customers. The Infor 10X technology platform achieves major advancements in the areas of core Infor ION integration, and also includes other advancements in social collaboration, mobility, and analytics.

 

    Creating Experiences People Love. We also believe that the overall design and user experience delivered by enterprise applications has trailed the broader consumer software market in recent years. As a result, we are 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 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.

 

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    Engineered with Data Science. Our customers have a high volume of data, much of which is stored in our systems, and to help them harness the power of that data to make better decisions, we build data science into our applications through Infor Dynamic Science Labs. Based in Kendall Square, Cambridge, Massachusetts, Infor Dynamic Science Labs is a team of scientists, mathematicians, economists, and engineers that help our customers take advantage of their data without having to employ their own team of expensive data scientists to uncover opportunities and recommend next steps, and drive strategies in all areas of their business, from recruiting and staffing to asset management and pricing.

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 18 of the top 20 aerospace companies, 8 of 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 where our customers include 18 of the largest 20 global retailers, 19 of the top 20 industrial distributors, and over 4,100 public sector agencies including 18 of the 20 largest U.S. states and the top 20 largest U.S. cities.

 

    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.

 

    Unique Cloud Suites and Upgrade Program that Enables Customers to Move Mission Critical Applications to the Cloud. Many traditional software vendors are struggling to pivot to the cloud era for ERP and other mission critical applications. One of the reasons they are having this struggle is the need for extensive customization of their software to meet the specific needs of customers in various industries. Because Infor software has decades of industry-specific functionality built-in and is architected for the Internet era, Infor is the first company to deliver applications and suites in a multi-tenant public cloud through Amazon Web Services. In addition, the Infor UpgradeX Program offers a clear, appealing, and predictable path for modernizing customers’ existing on-premises deployments of Infor applications. Through UpgradeX, Infor will execute all the services required for the initial migration or upgrade to the cloud, where Infor can handle maintenance, support and upgrades.

 

    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 a large, diverse and sophisticated global customer base, ranging from Fortune 500 enterprises to mid-sized businesses. Our revenue base is geographically diverse. Of our fiscal 2016 revenues, approximately 62.8% was from the Americas, 29.6% was from EMEA and 7.6% 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.

 

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    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, where he led Oracle’s field organization and oversaw revenue growth of more than 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 more than 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 Jeffrey M. Laborde, over 18 years of extensive finance, accounting, investment and operational experience from his various roles covering the technology industry. 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 310 technology companies since their respective inceptions in 2000 and 1984.

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 Technology Platform

The Infor 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.

 

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Enterprise Resource Planning

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. 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.

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 product offerings include 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.

 

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Hospitality. Our hospitality products are used by 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.

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 and deployment model, allows buyers a faster time to value, and access to the most up-to-date upgrades on a continuous basis.

These industry-specific CloudSuites are delivered on top of the Amazon Web Services’ (AWS) cloud. This enables us to take advantage of Amazon’s expertise and economies of scale to access resources as needed, on-demand with auto-scaling built into Infor applications. That allows Infor to focus on building rich application functionality versus managing infrastructure.

Today, industry suites delivered on AWS include Infor CloudSuite Automotive, Infor CloudSuite Aerospace & Defense, Infor CloudSuite Business (with core best-in-class financials and HCM), Infor CloudSuite Food & Beverage, Infor CloudSuite Hospitality, Infor CloudSuite Industrial, and Infor CloudSuite Public Sector.

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.

Enterprise Asset Management

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 Dynamic Enterprise Performance Management (d/EPM), 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

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.

 

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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.

Infor Talent Science. Designed to empower HR professionals with data science and analytics, Infor Talent Science helps organizations recruit, retain, and promote top performing employees. Developed by behavioral scientists, the application analyzes individual applicants and employees to determine their “Behavioral DNA Profile” and compares that to the profiles of top-performers in the organization leading to reduced turnover, greater job satisfaction, and increased performance.

Customer Resource Management

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 CRM, Infor Orbis Marketing Resource Management, Infor Epiphany Interaction Advisor, Infor Epiphany Marketing, Infor Epiphany Sales and Infor Epiphany Service.

Supply Chain Management

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.

GT Nexus Commerce Network

Companies today have vast supplier networks that help manufacture, design, distribute, ship, and sell their products. Traditional enterprise software has been limited to data and information contained within a single enterprise, which does not provide companies with visibility across their growing supply chains. In a complex, high velocity supply chain, all partners need to know what was ordered, when it was built, where it is in transit, if the order has changed, and if it has cleared customs. Specialization and speed are moving the future of manufacturing into the commerce cloud. Through our GT Nexus platform, data from ERP and other systems flows across the supply chain to help companies manage production and monitor goods in transit and at rest.

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.

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. In addition, how enterprise software applications are deployed is evolving and becoming more flexible, from on-site to in the cloud, or a combination of both. According to the March 2016 Gartner Report, the worldwide enterprise application software market in 2015 was approximately $149.8 billion (constant currency), a 7.4% increase from approximately $139.5 billion (constant currency) in 2014. This market is forecasted to be approximately $160.6 billion in revenue for 2016 (constant currency), a 7.2% increase over 2015. The enterprise application software market is forecasted to grow at a compounded annual growth rate of 7.6% per annum from 2015 to 2020. In addition, according to the April 2016

 

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Gartner Report, in 2015 the worldwide market for public cloud application services, which includes SaaS revenues, was approximately $31.6 billion, a 15.8% increase from approximately $27.3 billion in 2014. This market is forecasted to be approximately $37.8 billion in revenue for 2016, a 19.6% increase over 2015. The market for public cloud application services, including SaaS, is forecast to grow at a compound annual growth rate of approximately 17.9% per annum from 2015 to 2020.

The enterprise software industry is experiencing a pivot to the cloud. Companies have been using edge software applications like CRM and HCM in the cloud for years. We believe there is strong appetite for companies to expand their cloud ecosystem to include mission critical applications like ERP and Financial Management. The cloud offers increased flexibility, faster deployment and upgrades, and enhanced security measures to protect against increasing cyber threats and attacks. According to the December 2015 IDC Report, the percent of worldwide application software revenue provided in the public cloud in 2014 was 18.6%, as compared to 81.4% provided on-premise or through other delivery, and is anticipated to increase to 29.8% of worldwide application software revenue by 2019. Per IDC, the worldwide market for application software revenue is forecast to grow at a compound annual growth rate of approximately 5.8% per annum from 2014 to 2019 with public cloud applications revenues forecast to grow at a compound annual growth rate of approximately 16.3% per annum from 2014 to 2019 compared to 2.7% for on-premise/other delivery methods.

We believe our target markets are experiencing favorable trends. We believe that improving economic conditions will continue to encourage companies to enhance their enterprise applications software spending as they refocus on growth and productivity enhancing initiatives. 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.

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, one of our primary competitors, has acquired more than 100 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 largest horizontal providers, such as Oracle and SAP, 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, Intuit Inc., The Sage Group plc and SAP, 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, flexible deployment options, 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.

 

    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.

 

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    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;

 

    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;

 

    ability to deploy full industry suites in a public cloud on AWS;

 

    innovative technology; and

 

    openness and flexibility of our software architecture.

We frequently encounter competitors such as SAP and Oracle. 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 continue to 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 Infor Ming.le, ION Suite, Infor CloudSuite, Infor Rhythm, and Infor Dynamic Enterprise Performance Management (d/EPM). 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

Sales

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. We also have a telesales group that focuses on inside sales to smaller customers and smaller transactions within larger customer accounts.

 

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In addition to our direct sales teams, we have over 1,670 active resellers and strategic alliances that focus generally 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.

Marketing

We have significantly increased our marketing efforts toward achieving greater brand awareness and visibility over the last 12 months. Our “No Two Clouds Should Be Alike” campaign continues to run in major airports around the world including Chicago O’Hare, Dubai, London Heathrow, Munich, Newark Liberty, New York JFK, New York LaGuardia, and San Francisco International. In addition, Infor advertisements have been running in the Financial Times in Europe.

Increased public interest in the Company can also be shown by the increasing media attention given to Infor. Media coverage of Infor doubled in each of the last two fiscal years, and continued to grow at a healthy pace in fiscal 2016. Our executives are routinely invited to speak at leading events including Fortune Brainstorm Tech, Web Summit, Bloomberg Next Big Thing, and Collision, among others. Our CEO frequently appears on national and international news programs to share insight and expertise including CNBC, Bloomberg, and Fox Business Network.

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 continue to be committed to significant investment in research and development to enhance our existing products as well as developing new innovative applications.

Our total R&D expenses were $421.6 million for the year ended April 30, 2016, or 15.7% of revenue. As of April 30, 2016, our research and development organization consisted of approximately 4,570 employees an increase of over 20% from 3,770 employees at the end of last year. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further discussion of research and development expenses.

Trademarks

“Infor,”Lawson,” “Lawson Software,” “ION,” “Infor10,” “Syteline,” “Visual,” “Inforce,” and “GT Nexus,” 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 64 United States-issued patents, six pending United States patent applications, five foreign equivalent patents, and five 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.

 

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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 such laws.

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. 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 April 30, 2016 we had approximately 14,390 employees, including approximately 2,140 in sales and marketing, 4,570 in research and development, 5,430 in services and customer support and 2,250 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 Annual Report on Form 10-K for additional information.

Available Information

We make available, free of charge, in the Investors 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., 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.

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

 

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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.

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

We compete with Oracle, SAP 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;

 

    CRM 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 perpetual software license fees revenues, vary from quarter-to-quarter and are difficult to predict. If we are unsuccessful in achieving anticipated levels of revenue, the value of your investment could decline substantially.

                Our software license fees and subscription revenue in any quarter depends upon our perpetual licensing and subscription activity with new and existing customers in each quarter, 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 ability to sell perpetual licenses and software subscriptions to new customers and our existing customers continuing to license and subscribe for additional products, as well as new and existing customers purchasing consulting services and renewing their annual maintenance agreements (if installed customers) or renewing their subscriptions at current or higher service levels (if SaaS customers). If we do not continue to develop or acquire new products, perpetual licensing activity and subscription activity with existing customers will decline. Perpetual licensing activity for our products drives maintenance and services revenues because we sell maintenance and services for only our products. A decrease in perpetual licensing activity will typically lead to a decrease in services revenue in the same or subsequent quarters. If we do not have sufficient new perpetual 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. In addition, conversion of our customer base from on-premise maintenance to SaaS subscriptions may lead to a decrease in maintenance revenue. Our sales force and marketing team must continue to generate perpetual license and SaaS subscription 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:

 

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    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. Customer or prospect organizations typically take multiple 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 perpetual software license or subscription transactions could cause our quarterly license or subscription 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;

 

    shifts in our licensing activity from perpetual licenses to our subscription-based CloudSuite and other SaaS offerings;

 

    changes to the financial accounting rules for revenue recognition or other accounting guidelines;

 

    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.

Because we recognize subscription services revenues ratably over the term of the applicable subscription agreement, decreases or increases related to our subscription renewals or new subscription agreements may not be reflected immediately in our operating results and may be difficult to discern.

We generally recognize subscription services revenues from customers ratably over the terms of the applicable subscription agreements, which are typically one to three years. As a result, the majority of our reported quarterly subscriptions revenues are attributable to the recognition of unearned revenue relating to subscription agreements entered into during previous quarters. A decrease in new or renewed

 

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subscription agreements in any one quarter will not be fully reflected in our revenue in that quarter but such a decrease will negatively affect our subscriptions revenues in future quarters. As a result, the effect of significant downturns in sales and market acceptance of our CloudSuite and other SaaS subscription offerings, and potential changes in our pricing policies or rate of renewals in a particular quarter, may not be fully reflected in our results of operations until future periods. In addition, we may be unable to adjust our cost structure to reflect the changes in our subscriptions revenues as a significant majority of our related costs are expensed as incurred, while revenues are recognized over the term of the subscription agreements. As a result, increased growth in the number of our subscription customers could result in our recognition of more costs than revenues in the earlier periods of the terms of the subscription agreements. Our SaaS model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new subscription customers are generally recognized over the applicable subscription term.

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;

 

    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 and for SaaS offerings.

Our revenue is heavily 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 revenue is also dependent on renewal of subscription agreements by our customers.

We generate substantial recurring revenue from our CloudSuite and other SaaS subscription offerings, which generally renew annually once the initial term expires. Our customers have no obligation to renew their subscription agreements after their subscription terms expire, and they may not renew their subscriptions at the same or higher levels. Our subscription renewal rates may fluctuate because of several factors, including our customers’ level of satisfaction with our services, the pricing of our subscription offerings and/or the pricing of our competitors’ offerings, reductions in our customers’ spending levels due to the macroeconomic environment, or other factors. If our customers do not renew their subscription agreements, renew on less favorable terms, or renew for fewer elements of our offerings, our subscriptions revenues may 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. and foreign governments, 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

 

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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 time and 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 businesses. 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 SaaS applications 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;

 

    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 have and will continue to 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 CloudSuite offerings and other 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. With a continued shift away from the sale of perpetual software licenses to providing access to our software through subscription agreements we may, in the near term, experience a deferral of revenues and to a lesser extent cash received from our customers.

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.

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 disasters, power losses, hardware failures, systems failures, telecommunications failures and similar events. If these data centers 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.

 

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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;

 

    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;

 

    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 the Financial Accounting Standards Board (FASB) Accounting Standards Codification (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;

 

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    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 64 United States-issued patents, six pending United States patent applications, five foreign equivalent patents and five foreign equivalent patent applications. 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, or infringe our intellectual property. 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.

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. 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.

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.

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

 

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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.

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.

 

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There can be no guarantee that we will receive significant revenues from our current research and development efforts for several years, if at all.

Developing software products is expensive and time consuming, 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 typically do not expect to receive significant revenues from these investments for several years, if at all.

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. 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;

 

    compliance with applicable anti-corruption laws;

 

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

 

    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 intercompany 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.

 

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Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations.

We have a significant amount of indebtedness. As of April 30, 2016, our total debt outstanding (net of deferred financing fees, discounts and premiums) was $5,710.0 million, and we had unused commitments of $150.0 million under our revolving credit facility (without giving effect to approximately $11.7 million of outstanding letters of credit). Subject to the limits contained in our credit facilities and the indentures governing our senior notes, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences to the holders of our debt, including:

 

    making it more difficult for us to satisfy our obligations with respect to our debt;

 

    limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

 

    requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

    increasing our vulnerability to general adverse economic and industry conditions;

 

    exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our credit facilities, are at variable rates of interest;

 

    limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

 

    placing us at a disadvantage compared to other, less leveraged competitors; and

 

    increasing our cost of borrowing.

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.

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 indentures related to our senior notes limit 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.

 

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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.

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 information and communication 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.

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, all of which are important to our business, 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 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 accounting principles generally accepted in the 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

 

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    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.

                In addition, our tax provision could be negatively impacted by changes in the tax laws or other tax reforms in foreign jurisdictions. Faced with continuing global fiscal challenges, many countries, various levels of government, and international organizations are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue and to ensure that corporations are taxed on a larger percentage of their earnings. For example, the Organisation for Economic Co-operation and Development (OECD), which represents a coalition of member countries, has recently issued recommendations that would make substantial changes to numerous long-standing tax positions and principles. Under its base erosion and profit shifting (BEPS) project, the OCED provided changes to guidance covering various topics, including transfer pricing, country-by-country reporting and definitional changes to permanent establishment. Many of these changes, if implemented, could increase uncertainty in our tax positions and may adversely affect our provision for income taxes, increase our effective tax rate and have a material adverse impact on our operating results, cash flows, and financial condition.

 

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Changes in financial accounting standards or practices may adversely affect our results of operations or cause unexpected fluctuations in our reported operating results.

Changes in GAAP and applicable interpretations could have a negative impact on our reported financial results and may affect our reporting of transactions completed before the effective date of such guidance. We are currently evaluating the impact that new accounting pronouncements and varying interpretations of accounting pronouncements might have on our financial position, results of operations and cash flows. See Note 2, Summary of Significant Accounting Policies Recent Accounting Pronouncements—Not Yet Adopted, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. Depending upon the outcome of our evaluation of these new accounting pronouncements, and the potential impact of future accounting pronouncements, implementation guidelines, and interpretations, we may be required to modify our reported results or business practices, which could have a material adverse impact on our results of operations.

The obligations associated with public filings require significant resources and management attention.

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.

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 149,100 square feet of space. The leases on these facilities expire on February 28, 2025 and 2027. Our main operations center is in Alpharetta, Georgia where we lease approximately 113,800 square feet of space. The lease on this facility expires October 31, 2024. We also lease approximately 913,600 square feet of space in 50 other locations in the U.S., primarily for regional sales and support offices. In addition, internationally we lease or own approximately 1,525,800 square feet of space in 127 locations in 42 countries. Expiration dates of leases on all of our facilities range from 2016 to 2027. 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 Annual Report on Form 10-K for additional information. As of April 30, 2016, we have sublet approximately 55,800 square feet of the above space and have identified an additional 116,900 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 Annual Report on Form 10-K and is incorporated herein by reference.

Item 4. Mine Safety Disclosures

Not applicable.

 

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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 April 30, 2016, 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 Software Parent LLC. As of April 30, 2016, 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 2016 or 2015. See Note 17, Dividend, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.

Purchases of Equity Securities

There were no purchases of our equity securities during fiscal 2016 or 2015.

 

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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 of this Annual Report on Form 10-K. 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     11 Months Ended     Year Ended May 31,  

Consolidated Statements of Operations Data:

  April 30, 2016(1)     April 30, 2015 (2)     2014     2013     2012(3)  

Revenues:

         

Software license fees and subscriptions

  $ 615.7      $ 479.2      $ 548.3      $ 518.1      $ 505.3   

Product updates and support fees

    1,405.8        1,330.3        1,465.9        1,441.2        1,284.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software revenues

    2,021.5        1,809.5        2,014.2        1,959.3        1,789.7   

Consulting services and other fees

    670.1        629.4        747.6        758.7        751.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    2,691.6        2,438.9        2,761.8        2,718.0        2,540.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

         

Cost of software license fees and subscriptions(4)

    170.3        109.7        99.8        86.4        90.1   

Cost of product updates and support fees(4)

    248.9        238.2        261.9        254.2        258.5   

Cost of consulting services and other fees(4)

    563.2        507.2        593.2        588.5        593.9   

Sales and marketing

    433.5        412.9        457.1        460.2        438.7   

Research and development

    421.6        369.8        391.8        351.9        322.3   

General and administrative

    193.3        177.9        192.8        210.4        233.4   

Amortization of intangible assets and depreciation

    243.9        222.9        264.3        275.7        323.6   

Restructuring

    28.0        5.7        18.6        10.2        67.8   

Acquisition-related and other costs

    17.1        1.4        27.6        15.0        75.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    2,319.8        2,045.7        2,307.1        2,252.5        2,404.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    371.8        393.2        454.7        465.5        136.5   

Total other expense, net

    387.4        425.7        320.4        519.1        462.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

    (15.6     (32.5     134.3        (53.6     (326.3

Income tax provision (benefit)

    (48.8     (52.2     12.6        22.6        (16.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    33.2        19.7        121.7        (76.2     (310.0

Net loss attributable to noncontrolling interests

    (2.0     —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Infor, Inc.

  $ 35.2      $ 19.7      $ 121.7      $ (76.2   $ (310.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) On September 18, 2015, we completed our acquisition of GT Nexus. Fiscal 2016 includes GT Nexus results for the period from September 18, 2015 through April 30, 2016.
(2) 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 2, Summary of Significant Accounting Policies – Fiscal Year, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. All other periods presented include twelve months with fiscal 2014, 2013 and 2012 as originally reported.
(3) 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.
(4) Excludes amortization of intangible assets and depreciation, which are separately stated below.

 

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     April 30,     May 31,  
(in millions)    2016     2015     2014     2013     2012  

Consolidated Balance Sheet Data:

          

Cash and cash equivalents

   $ 705.7      $ 526.7      $ 575.3      $ 421.9      $ 384.4   

Working capital deficit

     (208.5     (226.4     (305.9     (432.1     (526.0

Total assets

     7,006.0        6,048.5        6,656.9        6,454.3        6,400.9   

Total debt, including current maturities(1)

     5,710.0        5,226.8        5,250.1        5,187.3        5,225.8   

Total stockholders’ deficit

     (738.9     (796.8     (460.0     (563.9     (620.5

Other Financial Information:

          

Capital expenditures

   $ (65.5   $ (35.7   $ (32.5   $ (36.0   $ (21.5

Dividends paid

     (35.0     (65.7     —          —          —     

 

 

(1) Over the past few fiscal years, in conjunction with certain of our acquisitions and the recapitalization and refinancing of our debt structure in fiscal 2012 through 2015, we have had significant changes to our long-term debt. In particular, we have entered into new credit facilities, issued various notes, amended certain existing facilities and repaid then-existing indebtedness, including notes and credit facilities. See Note 12, Debt, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.

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

We have changed our fiscal year end from May 31 to April 30, effective for our fiscal year 2015 and subsequent years. Accordingly, in this Annual Report on Form 10-K, we have reported fiscal 2016 as the period of May 1, 2015 through April 30, 2016 and fiscal 2015 as the 11-month transition period from June 1, 2014 through April 30, 2015.

Within this Management’s Discussion and Analysis, fiscal 2016 is compared to our fiscal 2015 11-month transition period as originally reported. In addition, to facilitate comparisons to our fiscal 2015 11-month transition period as originally reported, we have presented the similar unaudited 11-month period as recast for fiscal 2014 (June 1, 2013 through April 30, 2014).

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 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.

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

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.

 

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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.

We generate revenue primarily from the sale of perpetual software licenses granting customers use of our software products, providing access to software products through our SaaS subscription offerings, 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 14,390 employees worldwide and have offices in 43 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 2016, our Americas, EMEA and APAC regions generated approximately 62.8%, 29.6% and 7.6% 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 2016 Overview

Fiscal 2016 was another year of investment, innovation and growth for Infor as we continued our pivot to the cloud. 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 upgrading our customer base through Infor UpgradeX to Infor CloudSuite. Flexibility, agility, collaboration, mobility and ease of use are our key design principles focused on helping our customers become faster and more efficient.

We now have more than 58 million users accessing Infor cloud applications in 100 different countries. We have expanded our Infor CloudSuite portfolio by delivering 12 industry suites: Infor CloudSuite Automotive, Infor CloudSuite Aerospace & Defense, Infor CloudSuite Chemicals, Infor CloudSuite Distribution, Infor CloudSuite Equipment, Infor CloudSuite Fashion, Infor CloudSuite Food & Beverage, Infor CloudSuite Healthcare, Infor CloudSuite High-Tech, Infor CloudSuite Hospitality, Infor CloudSuite Industrial, and Infor CloudSuite Public Sector. We also delivered Infor CloudSuite Corporate and Infor CloudSuite Business, ready-to-run ERP cloud platforms that provide streamlined back-office management and deep visibility into business facets, from financials, reporting, and human resources to supply chain, project, sales, and customer relationship management for large enterprises (Corporate) and SMBs (Business). We also offer CloudSuite products for Financial Management (Infor CloudSuite Financials) and facilities management (Infor CloudSuite Facilities).Infor now has more than 4,700 cloud customers in more than 7,200 customer sites. As a result of our robust CloudSuite offerings, our SaaS revenues continued to experience significant growth in fiscal 2016.

We are actively rolling-out our Infor Xi platform across all of our growth products, with many complete this year. Building on our previous release, Infor 10x, Infor Xi delivers a major step in achieving our vision for cloud applications that address specific industry needs with responsive design infused with machine-learning and big data analytics.

Our fiscal 2016 results were driven by our continued investments in innovative products and applications and the expansion of our CloudSuite offerings. We entered into over 16,570 deals and added approximately 2,500 new customers. Our customer retention rate continues to exceed 93%. Our average deal size continues to grow; we experienced a 37.1% increase in the number of deals valued at greater than $1 million and a 14.3% increase in the average size of deals valued at greater than $1 million in fiscal 2016 compared to fiscal 2015. Total revenues increased by 15.5% in fiscal 2016 compared to fiscal 2015, excluding the unfavorable foreign currency impact of 5.1%, as we realized strong growth in our software license fees and subscription revenue across all regions.

 

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Acquisitions

An acquisition program is an important element of our corporate strategy. We have invested billions of dollars to acquire a number of complementary companies, products, services and technologies. We believe our acquisition program strengthens our competitive position, enhances the products and services that we can offer to customers, expands our customer base, provides greater scale to accelerate innovation, grows our revenues and earnings, and increases our overall value. We expect to continue to acquire companies, products, services and technologies in furtherance of our corporate strategy. See Note 3, Acquisitions, in Notes to Consolidated Financial Statements of this Annual Report on 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 future acquisitions with our internally available cash, cash equivalents and marketable securities, cash generated from operations, additional borrowings, or additional equity. 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 2016 Acquisitions

On September 18, 2015, we acquired a majority ownership stake of 81.48% in GT Nexus, for $549.9 million, net of cash acquired (the GT Nexus Acquisition). GT Nexus is a cloud-based SCM vendor based in Oakland, California and provides the cloud platform that some of the world’s largest companies, across many sectors, such as manufacturing and retail, use to monitor and orchestrate their global supply chains including automation of sourcing, trade finance and logistics operations, enabling Infor to create a global commerce cloud providing end-to-end visibility and control across physical and financial supply chains. We funded the total consideration related to this transaction through the use of the proceeds of the issuance of our Senior Secured Notes discussed below, together with cash on hand and equity issued to certain shareholders and management of GT Nexus.

Fiscal 2015 Acquisitions

In fiscal 2015, we completed one acquisition. On September 2, 2014, we acquired the assets of Saleslogix, a division of privately held Swiftpage, Inc., for approximately $30.1 million, net of cash acquired. Based in Scottsdale, Arizona, Saleslogix is a provider of SaaS CRM software accessible via mobile devices, desktops, and laptops. The acquisition of Saleslogix complemented our CRM product offerings and added additional sales and service functionality to our industry-focused Infor CloudSuites in the high-growth CRM market.

Fiscal 2014 Acquisitions

In fiscal 2014, we completed two 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 complemented and further expanded our Infor HCM suite. During the fourth quarter of fiscal 2014 we completed an additional acquisition for a purchase price of approximately $1.8 million.

Financing Activities

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

In fiscal 2016, in connection with the GT Nexus Acquisition, we issued $500.0 million in aggregate principal amount of 5.75% first lien senior secured notes. Net proceeds from the issuance of our Senior Secured Notes (as defined below), after fees and expenses, of approximately $478.5 million were used to fund the GT Nexus Acquisition, and to pay related transaction fees and expenses.

In fiscal 2015 we issued $1,630.0 million in aggregate principal amount of our 6.5% Senior Notes and €350.0 million aggregate principal amount of our 5.75% Senior Notes. The proceeds from the issuance of the 6.5% and 5.75% Senior Notes were used to repay the balance of all of our outstanding senior notes, including our 9 3/8%, 10.0% and 11.5% Senior Notes, as well as applicable redemption premiums thereon, accrued and unpaid interest, and to pay related transaction fees and expenses.

In fiscal 2014 we amended our Credit Agreement to refinance all of our then outstanding term loans under our credit facilities at favorable interest rates and extended the applicable maturity dates.

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

                In addition, in fiscal 2014 affiliates of Infor issued senior notes to finance the repayment of their existing debt and fund distributions to our equity investors. 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 (the HoldCo 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 the HoldCo Notes. Any payment of interest that we may pay will be funded primarily through dividend distributions from Infor to HoldCo. We have not reflected the HoldCo Notes in our Consolidated Financial Statements for any of the periods presented in accordance with applicable SEC guidance. See Note 12, Debt, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for additional information related to our affiliate company borrowings.

 

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Restructuring Activities

Over the past few years, in response to the challenging and sometimes uncertain domestic and global 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 from time-to-time 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 2016, 2015 and 2014 include restructuring charges of $28.0 million, $5.7 million and $18.6 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. During fiscal 2016, we engaged an outside consulting firm to provide restructuring advisory services focusing on all areas of our operations across all geographies. Specific actions related to these efforts are reflected in the restructuring charges taken in fiscal 2016. 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 2016, the average exchange rates for the U.S. Dollar against the Euro and British Pound strengthened by approximately 9.9% and 5.5%, respectively, as compared to the average exchange rates for fiscal 2015. For fiscal 2015, the average exchange rates for the U.S. Dollar against the Euro and British Pound strengthened by approximately 8.9% and 1.2%, respectively, as compared to the average exchange rates for fiscal 2014.

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

The following tables summarize the period-over-period change, both in U.S. Dollars and percentages, in revenues and costs and expenses, isolating the fluctuations in exchange rates from changes in activity and pricing on a constant currency basis for the fiscal year ended April 30, 2016 versus the 11-month transition period ended April 30, 2015, and for the 11-month transition period ended April 30, 2015 versus the comparable unaudited 11-month period ended April 30, 2014, as recast:

 

(in millions, except percentages)

Fiscal 2016 vs. 11 Months Ended April 30, 2015

   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

   $ (19.4   $ 155.9      $ 136.5        (4.0 )%      32.5      28.5 

Product updates and support fees

     (63.5     139.0        75.5        (4.7     10.4       5.7  
  

 

 

   

 

 

    

 

 

        

Software revenues

     (82.9     294.9        212.0        (4.6     16.3       11.7  

Consulting services and other fees

     (41.4     82.1        40.7        (6.5     13.0       6.5  
  

 

 

   

 

 

    

 

 

        

Total revenues

   $ (124.3   $ 377.0      $ 252.7        (5.1 )%      15.5      10.4 
  

 

 

   

 

 

    

 

 

        

Total operating expenses

   $ (109.6   $ 383.7      $ 274.1        (5.4 )%      18.8      13.4 
  

 

 

   

 

 

    

 

 

        

 

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(in millions, except percentages)

11 Months Ended April 30, 2015 vs. 2014 (unaudited - recast)

   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

   $ (24.2   $ 75.6     $ 51.4       (5.7 )%      17.7      12.0 

Product updates and support fees

     (44.3     33.7       (10.6     (3.3     2.5       (0.8
  

 

 

   

 

 

   

 

 

       

Software revenues

     (68.5     109.3       40.8       (3.9     6.2       2.3  

Consulting services and other fees

     (33.1     (14.5     (47.6     (4.9     (2.1     (7.0
  

 

 

   

 

 

   

 

 

       

Total revenues

   $ (101.6   $ 94.8     $ (6.8     (4.2 )%      3.9      (0.3 )% 
  

 

 

   

 

 

   

 

 

       

Total operating expenses

   $ (75.6   $ 43.8     $ (31.8     (3.6 )%      2.1      (1.5 )% 
  

 

 

   

 

 

   

 

 

       

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements are prepared in conformity with GAAP as set forth in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) which requires us to make certain estimates, judgments and assumptions. We believe that these estimates, judgments and assumptions are reasonable based upon information available to us at the time that they are made. 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 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 detail in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. The policies that reflect those areas that require more significant use of estimates, judgments and assumptions in the preparation of our financial statements include the following:

 

    Revenue Recognition;

 

    Business Combinations;

 

    Restructuring;

 

    Valuation of Accounts Receivable;

 

    Valuation and Assessment of Impairment 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 our critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.

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 software license, product updates and support, and related service revenues in accordance with the guidance provided by ASC 985-605, Software—Revenue Recognition, and we record revenues related to non-software deliverables such as SaaS subscriptions and related service revenue in accordance with guidance provided by ASC 605, Revenue Recognition. Revenue is recorded net of applicable taxes. Our specific revenue recognition policies are as follows:

 

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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 for use in an environment hosted, supported, and maintained by Infor.

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 are the primary obligor in the arrangement with the end customer and have the risks and rewards as principal in the transaction, such as responsibility for fulfillment, retaining the risk for collection, and establishing the price of the products. If these indicators have not been met, or if indicators of net revenue reporting specified in ASC 605-45 are present in the arrangement, 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 of ASC 605-25 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

 

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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 prices, as described earlier, to the extent possible. We establish TPE by evaluating similar and interchangeable competitor products or services 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 product updates and support that are bundled with license fees are deferred based on the VSOE of fair value of the bundled product updates 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 our revenue recognition policy for such elements. Product updates and support is normally billed quarterly or annually in advance of performing the service.

Deferred Costs

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.

 

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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 to the assets acquired and liabilities assumed, with the corresponding offset to goodwill, are recorded in the reporting period in which the adjustment amounts are determined. 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 in the reporting period such adjustments are made.

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.

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).

 

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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 and Assessment of Impairment 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 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.

 

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Index to Financial Statements

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 2016, 2015 and 2014 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 2016, 2015 and 2014.

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 April 30, 2016, 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.

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

 

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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 from 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.

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 considered probable as of a given reporting date, no compensation costs are recognized for securities subject to these repurchase features in that period.

 

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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. With the change in our fiscal year, we have presented our results of operations for fiscal 2016 (12 months) compared to our fiscal 2015 11-month transition period as originally reported. In addition, to facilitate comparisons to our fiscal 2015 11-month transition period as originally reported, we have presented the similar unaudited 11-month period as recast for fiscal 2014 (June 1, 2013 through April 30, 2014).

 

                             Fiscal 2016 vs.     11 Months Ended  
                             11 Months Ended     April 30,  
                             April 30, 2015     2015 vs. 2014  
     Year Ended     11 Months Ended April 30,     Year Ended           Constant           Constant  
(in millions, except percentages)    April 30, 2016     2015     2014     May 31, 2014     Actual     Currency     Actual     Currency  
                 (unaudited)                                
                 (recast)                                

Revenues:

                

Software license fees and subscriptions

   $ 615.7     $ 479.2     $ 427.8     $ 548.3       28.5     32.5     12.0     17.7

Product updates and support fees

     1,405.8       1,330.3       1,340.9       1,465.9       5.7       10.4       (0.8     2.5  
  

 

 

   

 

 

   

 

 

   

 

 

         

Software revenues

     2,021.5       1,809.5       1,768.7       2,014.2       11.7       16.3       2.3       6.2  

Consulting services and other fees

     670.1       629.4       677.0       747.6       6.5       13.0       (7.0     (2.1
  

 

 

   

 

 

   

 

 

   

 

 

         

Total revenues

     2,691.6       2,438.9       2,445.7       2,761.8       10.4       15.5       (0.3     3.9  
  

 

 

   

 

 

   

 

 

   

 

 

         

Operating expenses:

                

Cost of software license fees and subscriptions

     170.3       109.7       81.9       99.8       55.2       59.0       33.9       37.5  

Cost of product updates and support fees

     248.9       238.2       239.1       261.9       4.5       10.0       (0.4     3.0  

Cost of consulting services and other fees

     563.2       507.2       540.3       593.2       11.0       18.4       (6.1     (1.4

Sales and marketing

     433.5       412.9       403.3       457.1       5.0       9.3       2.4       5.6  

Research and development

     421.6       369.8       357.1       391.8       14.0       18.0       3.6       6.8  

General and administrative

     193.3       177.9       174.2       192.8       8.7       16.0       2.1       6.8  

Amortization of intangible assets and depreciation

     243.9       222.9       241.5       264.3       9.4       13.0       (7.7     (5.0

Restructuring costs

     28.0       5.7       12.8       18.6       391.2       414.0       (55.5     (53.9

Acquisition-related and other costs

     17.1       1.4       27.3       27.6       NM        NM        (94.9     (94.9
  

 

 

   

 

 

   

 

 

   

 

 

         

Total operating expenses

     2,319.8       2,045.7       2,077.5       2,307.1       13.4       18.8       (1.5     2.1  
  

 

 

   

 

 

   

 

 

   

 

 

         

Income from operations

     371.8       393.2       368.2       454.7       (5.4     (1.7     6.8       13.9  
  

 

 

   

 

 

   

 

 

   

 

 

         

Interest expense, net

     311.5       320.1       348.4       378.0       (2.7     (2.7     (8.1     (8.1

Loss on extinguishment of debt

     —          172.4       5.2       5.2       (100.0     (100.0     NM        NM   

Other (income) expense, net

     75.9       (66.8     (52.0     (62.8     NM        NM        28.5       5.6  
  

 

 

   

 

 

   

 

 

   

 

 

         

Income (loss) before income tax

     (15.6     (32.5     66.6       134.3       (52.0     (88.6     (148.8     (127.6

Income tax provision (benefit)

     (48.8     (52.2     (0.4     12.6       (6.5     (10.7     NM        NM   
  

 

 

   

 

 

   

 

 

   

 

 

         

Net income

     33.2       19.7       67.0       121.7       68.5       117.8       (70.6     (52.7

Net loss attributable to noncontrolling interests

     (2.0     —          —          —          NM        NM        NM        NM   
  

 

 

   

 

 

   

 

 

   

 

 

         

Net income attributable to Infor, Inc.

   $ 35.2     $ 19.7     $ 67.0     $ 121.7       78.7     127.9     (70.6 )%      (52.7 )% 
  

 

 

   

 

 

   

 

 

   

 

 

         

 

* NM Percentage not meaningful

 

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The discussion that follows relates to our results of operations for:

 

    Fiscal 2016 (the 12-month period of May 1, 2015 through April 30, 2016) compared to fiscal 2015 (the 11-month transition period, as originally reported, of June 1, 2014 through April 30, 2015).

 

    Fiscal 2016 results include the month of May 2015, leading to the comparison of fiscal 2016 12-month vs. 11-month results for fiscal 2015.

 

    Fiscal 2015 11-month transition period, as originally reported, compared to the similar 11-month period for fiscal 2014 as recast (fiscal 2014 recast).

 

    Fiscal 2014 recast results of operations are unaudited.

 

    Fiscal 2014 recast results exclude the month of May 2014, the last month of our prior fiscal year, which has historically been one of our stronger revenue generating months each fiscal year.

This discussion should be read in conjunction with the accompanying audited Consolidated Financial Statements and related Notes of this Annual Report on Form 10-K and with the information presented in the above table. This analysis addresses the actual changes in our results of operations for the comparable fiscal periods 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.

Revenues

 

                                 Fiscal 2016 vs.     11 Months Ended  
                                 11 Months Ended     April 30,  
                   April 30, 2015     2015 vs. 2014  
     Year Ended      11 Months Ended April 30,      Year Ended            Constant           Constant  
(in millions, except percentages)    April 30, 2016      2015      2014      May 31, 2014      Actual     Currency     Actual     Currency  
                   (unaudited)                                  
                   (recast)                                  

Revenues:

                    

Software license fees and subscriptions

   $ 615.7      $ 479.2      $ 427.8      $ 548.3        28.5     32.5     12.0     17.7

Product updates and support fees

     1,405.8        1,330.3        1,340.9        1,465.9        5.7       10.4        (0.8     2.5   
  

 

 

    

 

 

    

 

 

    

 

 

          

Software revenues

     2,021.5        1,809.5        1,768.7        2,014.2        11.7       16.3        2.3       6.2   

Consulting services and other fees

     670.1        629.4        677.0        747.6        6.5       13.0        (7.0     (2.1
  

 

 

    

 

 

    

 

 

    

 

 

          

Total revenues

   $ 2,691.6      $ 2,438.9      $ 2,445.7      $ 2,761.8        10.4     15.5     (0.3 )%      3.9
  

 

 

    

 

 

    

 

 

    

 

 

          

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 15.5% in fiscal 2016 compared to fiscal 2015, excluding the unfavorable foreign currency impact of 5.1%. On a constant currency basis, revenues in each category increased including a 32.5% increase in our software license fees and subscriptions, primarily our SaaS revenues as we continue to expand our CloudSuite offerings and shift our license mix to SaaS subscriptions, a 10.4% increase in our product updates and support fees, as well as a 13.0% increase in our consulting services and other fees revenues. The increase in total revenues also reflects the inclusion of the results of operations of GT Nexus since the acquisition in the second quarter of fiscal 2016. On a constant currency basis the May 2015 impact on total revenues was an increase of 9.1 points and the other 11 months of fiscal 2016 resulted in an increase of 6.4 points.

Total revenues increased by 3.9% in fiscal 2015 compared to fiscal 2014 recast, excluding the unfavorable foreign currency impact of 4.2%. On a constant currency basis, the increase was due primarily to growth in our software license fees and subscriptions revenues, which were up 17.7%. We realized growth in our software license fees and subscriptions revenues across all geographic regions primarily due to continued momentum in our SaaS subscription and CloudeSuite offerings. In fiscal 2015 we continued to see traction in the higher growth products where we have made investments over the past three years and with our SaaS subscription offerings. On a constant currency basis our product updates and support fees revenues were also up 2.5% across all regions. These increases were somewhat offset by a year-over-year decrease of 2.1% in our consulting services and other fees revenues as demand for our consulting services continues to be lower globally.

 

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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 and subscription revenues related to our SaaS offerings. 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.

Fiscal 2016 software license fees and subscriptions revenues increased by 32.5% compared to fiscal 2015, excluding the unfavorable foreign currency rate impact of 4.0%. At constant currency, we reported higher subscriptions revenues for fiscal 2016 which contributed an increase of 28.8 points. The increase in subscriptions revenues was experienced across all geographic regions, especially in the Americas, as we continued to see strong demand for our expanding CloudSuite and other subscription offerings. The increase in subscriptions revenues in fiscal 2016 also reflects the inclusion of the results of GT Nexus, acquired in the second quarter of fiscal 2016, with no related amounts in the corresponding prior period. GT Nexus contributed 13.9 points of the increase. The impact of May 2015 subscriptions revenues was an increase of approximately 2.7 points while the remaining 11 months’ subscriptions revenues accounted for a 26.1 point increase. Higher license fees revenues accounted for 3.7 points of the increase, with increases in the Americas and EMEA regions more than offsetting a decrease in our APAC region. May 2015 software license fees accounted for approximately 5.1 points of the year-to-date increase while the remaining 11 months’ software license fees resulted in a decrease of 1.3 points. We continued to see a shift in our software license business from the sale of perpetual licenses to the sale of SaaS subscriptions, which negatively impacts our perpetual license fees revenues. Revenue from perpetual licensing transactions is generally recorded up-front, while revenue from SaaS transactions is recognized over the term of the subscription contract.

For fiscal 2015, license fees and subscriptions revenues increased by 17.7% compared to fiscal 2014 recast, excluding the unfavorable foreign currency impact of 5.7%. At constant currency, the increase was due to higher subscriptions revenues, which contributed 9.9 points of the increase and includes the results of our recent acquisitions, primarily PeopleAnswers. In fiscal 2015 we increased the volume and the average deal size of our SaaS transactions. In addition, license fees revenues accounted for 7.8 points of the increase. The year-to-date increase was across all of our geographic regions. The total number of perpetual licensing transactions for fiscal 2015 was relatively flat compared to last year, however we had an increase of over 18.8% in transactions with total contract values greater than $250,000. The increase in license fees was also benefitted by the change in our fiscal year, which drove the focus of our fourth quarter quarterly sales cycle to April 30 in fiscal 2015 compared to May 31 in fiscal 2014.

Product Updates and Support Fees. Our product updates and support fees revenues represent the ratable recognition of fees to enroll and renew on-premise licensed products in our maintenance programs. These fees are typically charged annually and are based on the on-premise license fees initially paid by the customer. Product updates and support revenues can fluctuate based on the number and timing of new on-premise license contracts, renewal rates and price increases.

For fiscal 2016, product updates and support fees increased by 10.4%, excluding the unfavorable foreign currency impact of 4.7%, compared to fiscal 2015. The increase in product updates and support fees was across all geographic regions. At constant currency, the increase was primarily the result of the impact of May 2015, which accounted for an increase of approximately 9.6 points. Product updates and support fees were relatively flat for the other 11 months of fiscal 2016, accounting for a 0.8 point increase, as revenues related to new maintenance pull-through from new on-premise license transactions and price increases offset customer attrition and decreases related to customers converting from on-premise maintenance to our SaaS subscription offerings. We continue to experience maintenance retention rates of over 93.0%.

Product updates and support fees increased by 2.5%, excluding the unfavorable foreign currency impact of 3.3%, in fiscal 2015 compared to fiscal 2014 recast. The increase was primarily the result of revenues related to new maintenance pull-through from new on-premise license transactions and price increases offsetting customer attrition. In addition, fiscal 2015 was favorably impacted by the inclusion of the results of our recent acquisitions, primarily Saleslogix.

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 and Inforum, our customer event.

Consulting services and other fees increased by 13.0%, excluding the unfavorable foreign currency impact of 6.5%, in fiscal 2016 compared to fiscal 2015. At constant currency, our consulting services revenues were up across all geographic regions and accounted for an increase of 11.8 points with the Americas, EMEA and APAC accounting for increases of approximately 7.3, 4.0 and 0.5 points, respectively. In addition, our other fees revenues increased by 1.2 points compared to fiscal 2015. The May 2015 impact on consulting services and other fees revenues was an increase of approximately 8.7 points and the other 11 months of fiscal 2016 accounted for an increase of 4.3 points.

 

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Fiscal 2015 consulting services and other fees decreased by 2.1%, excluding the unfavorable foreign currency impact of 4.9%, compared to fiscal 2014 recast. At constant currency, the decrease in consulting services revenues was experienced in all of our regions with EMEA, APAC and Americas accounting for decreases of approximately 1.4, 1.1 and 0.7 points, respectively, compared to last year. These decreases were somewhat offset by a 1.0 point increase in other fees primarily related to the timing of Inforum, our annual customer event, which was held in September during the second quarter of fiscal 2015 with no amounts recorded in the fiscal 2014 recast period as our previous Inforum event was held in April 2013.

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 $973.9 million and $894.1 million at April 30, 2016 and 2015, respectively.

The following table sets forth the components of deferred revenue:

 

     April 30,  
(in millions)    2016      2015  

Software license fees and subscriptions

   $ 152.5       $ 79.5   

Product updates and support fees

     757.8         754.9   

Consulting services and other fees

     63.6         59.7   
  

 

 

    

 

 

 

Total deferred revenue

     973.9         894.1   

Less: current portion

     936.7         867.0   
  

 

 

    

 

 

 

Deferred revenue—non-current

   $ 37.2       $ 27.1   
  

 

 

    

 

 

 

Within our fiscal year, changes in the balance of our deferred revenue are cyclical and primarily driven by the timing of our maintenance services renewal cycles. Our peak renewal activity levels occur in December and May 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 customers renew their maintenance agreements, primarily on an annual basis. Deferred SaaS subscription revenues are a growing part of our deferred software license fees and subscriptions balance and are less cyclical than the balance of our deferred product updates and support fees revenues.

Operating Expenses

 

                                 Fiscal 2016 vs.     11 Months Ended  
                                 11 Months Ended     April 30,  
                   April 30, 2015     2015 vs. 2014  
     Year Ended      11 Months Ended April 30,      Year Ended            Constant           Constant  
(in millions, except percentages)    April 30, 2016      2015      2014      May 31, 2014      Actual     Currency     Actual     Currency  
                   (unaudited)                                  
                   (recast)                                  

Operating expenses:

                    

Cost of software license fees and subscriptions

   $ 170.3      $ 109.7      $ 81.9      $ 99.8        55.2     59.0     33.9     37.5

Cost of product updates and support fees

     248.9        238.2        239.1        261.9        4.5       10.0       (0.4     3.0  

Cost of consulting services and other fees

     563.2        507.2        540.3        593.2        11.0       18.4       (6.1     (1.4

Sales and marketing

     433.5        412.9        403.3        457.1        5.0       9.3       2.4       5.6  

Research and development

     421.6        369.8        357.1        391.8        14.0       18.0       3.6       6.8  

General and administrative

     193.3        177.9        174.2        192.8        8.7       16.0       2.1       6.8  

Amortization of intangible assets and depreciation

     243.9        222.9        241.5        264.3        9.4       13.0       (7.7     (5.0

Restructuring costs

     28.0        5.7        12.8        18.6        391.2       414.0       (55.5     (53.9

Acquisition-related and other costs

     17.1        1.4        27.3        27.6        NM        NM        (94.9     (94.9
  

 

 

    

 

 

    

 

 

    

 

 

          

Total operating expenses

   $ 2,319.8      $ 2,045.7      $ 2,077.5      $ 2,307.1        13.4     18.8     (1.5 )%      2.1
  

 

 

    

 

 

    

 

 

    

 

 

          

 

* NM Percentage not meaningful

 

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Cost of Software License Fees and Subscriptions. Cost of software license fees and subscriptions reflects costs related to the sale of our software licenses including royalties to third parties, channel partner commissions and other software delivery expenses, and costs related to our SaaS offerings including salaries, employee benefits, vendor costs associated with providing our subscription offerings, and applicable overhead costs. 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 sell 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 sell 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 and/or sales through our business partner channel in our revenue mix.

Cost of license fees and subscriptions for fiscal 2016 increased by 59.0%, excluding the favorable foreign currency impact of 3.8%, compared to fiscal 2015. At constant currency, this increase was primarily due to a 49.2 point increase related to higher SaaS costs in-line with higher subscriptions revenues, a 6.3 point increase related to higher third-party royalties, a 2.7 point increase related to higher channel partner commissions, and a 0.8 point increase in other costs. The impact of May 2015 on cost of license fees and subscriptions was an increase of approximately 6.4 points.

Fiscal 2015 cost of license fees and subscriptions increased by 37.5%, excluding the favorable foreign currency impact of 3.6%, compared to fiscal 2014 recast. At constant currency, this increase was primarily due to a 32.0 point increase related to higher SaaS costs in line with our higher revenues. In addition, we recorded higher channel partner commissions and third-party royalties which accounted for increases of 8.3 and 0.9 points, respectively, again in-line with our higher revenues in fiscal 2015. These increases were somewhat offset by a 3.7 point decrease related to other costs.

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 2016, cost of product updates and support fees increased by 10.0%, excluding the favorable foreign currency impact of 5.5%, compared to fiscal 2015. At constant currency, the increase was primarily due to a 6.1 point increase related to higher third-party royalties, a 2.7 point increase related to higher professional fees, a 0.8 point increase in employee-related support costs and overhead allocations, and a 0.4 point increase due to higher channel partner commissions. The impact of May 2015 on cost of product updates and support fees was an increase of approximately 9.3 points.

Fiscal 2015 cost of product updates and support fees increased by 3.0%, excluding the favorable foreign currency impact of 3.4%, compared to the corresponding prior period. At constant currency, the increase was primarily due to a 2.0 point increase related to higher channel partner commissions, a 1.9 point increase related to higher professional fees, and a 0.6 point increase related to higher third-party royalties. These increases were somewhat offset by a 1.5 point decrease in employee-related costs and related overhead allocations due to lower headcount in our customer support organization in fiscal 2015 compared to last year.

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.

For fiscal 2016, cost of consulting services and other fees increased by 18.4%, excluding the favorable foreign currency impact of 7.4%, compared to fiscal 2015. At constant currency, cost of consulting services increased 14.0 points due to higher employee-related costs and overhead allocations, a 2.6 point increase related to higher billable employee costs, and a 1.8 point increase related to an increase in other costs. The impact of May 2015 on cost of consulting services and other fees was an increase of approximately 9.7 points.

For fiscal 2015, cost of consulting services and other fees decreased by 1.4%, excluding the favorable foreign currency impact of 4.7%, compared to the corresponding prior period. At constant currency, the decrease was primarily due to a 0.9 point decrease in employee costs and related overhead allocations due to lower headcount in our professional services organizations, a 0.3 point decrease due to lower professional fees, and 0.6 points related to a decrease in other service costs. These decreases were somewhat offset by a 0.2 point increase in billable employee costs and a 0.2 point increase related to 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, overhead costs related to our sales and marketing functions, and the costs of Inforum, our customer event.

 

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For fiscal 2016, sales and marketing expenses increased by 9.3%, excluding the favorable foreign currency impact of 4.3%, compared to fiscal 2015. On a constant currency basis, sales and marketing expenses increased 9.7 points due to higher employee-related sales costs and related overhead allocations and 0.3 points due to an increase in other sales costs. These increases were somewhat offset by a 0.7 point decrease related to lower marketing program costs. The impact of May 2015 on sales and marketing expenses was an increase of approximately 8.3 points.

Sales and marketing expenses increased by 5.6%, excluding the favorable foreign currency impact of 3.2%, in fiscal 2015, compared to fiscal 2014 recast. On a constant currency basis, sales and marketing expenses increased 3.3 points due to an increase in our marketing program costs primarily related to our September 2014 Inforum customer conference. In addition, 2.3 points relate to increased employee-related costs and overhead allocations. The increase in employee-related costs included an increase in salaries and commission costs which were somewhat offset by a decrease in equity-based compensation.

Research and Development. Research and development expenses consist primarily of personnel-related expenditures, third-party consulting and professional services, and overhead costs related to our research and development function.

For fiscal 2016, research and development expenses increased by 18.0%, excluding the favorable foreign currency impact of 4.0%, compared to fiscal 2015. On a constant currency basis, research and development expenses increased 16.0 points as a result of higher employee-related costs and related overhead allocations due to higher headcount in our development organization, 6.9 points related to higher professional fees, 2.1 points related to higher share-based compensation, and 0.6 points related to an increase in other development costs. These increases were somewhat offset by a 7.6 point decrease related to higher capitalization of software development costs in fiscal 2016 compared to fiscal 2015. The impact of May 2015 on research and development expenses was an increase of approximately 9.9 points.

Research and development expenses increased 6.8%, excluding the favorable foreign currency impact of 3.2%, in fiscal 2015, compared to fiscal 2014 recast. On a constant currency basis, research and development expenses increased 4.2 points due to an increase in professional fees, 2.8 points as a result of higher employee-related costs and 0.6 points in overhead allocations. The increase in employee-related costs included an increase in salaries which was somewhat offset by a decrease in equity-based compensation. These increases were somewhat offset by a 0.8 point decrease related to other development costs.

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

For fiscal 2016, general and administrative expenses increased by 16.0%, excluding the favorable foreign currency impact of 7.3%, compared to fiscal 2015. On a constant currency basis, general and administrative expenses increased approximately 11.3 points due to higher employee-related costs and related overhead allocations, 4.4 points related to higher consulting and professional fees, and 6.0 points related to an increase in other general and administrative expenses. These increases were partially offset by a decrease of 4.7 points due to lower legal settlement costs incurred in fiscal 2016 compared to fiscal 2015 and 1.0 points due to lower share-based compensation. The impact of May 2015 on general and administrative expenses was an increase of approximately 9.3 points.

Fiscal 2015 general and administrative expenses increased by 6.8%, excluding the favorable foreign currency impact of 4.7%, compared to fiscal 2014 recast. On a constant currency basis, general and administrative expenses increased approximately 8.6 points due to higher legal settlement costs incurred in fiscal 2015 compared to the reversal, recorded in the second quarter last year, of the accrual we had recorded related to certain patent litigation matters (see Note 14, Commitments and Contingencies- Litigation, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K). In addition, higher premise cost accounted for a 0.9 point increase, and an increase in other general and administrative expenses accounted for 1.6 points. These increases were partially offset by a 3.0 point decrease related to consulting and professional fees, primarily due to lower legal fees, and lower employee-related costs and overhead allocations of 1.3 points.

Amortization of Intangible Assets and Depreciation. Amortization of intangible 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.

Fiscal 2016 amortization of intangible assets and depreciation increased by 13.0%, excluding the favorable impact of foreign currency of 3.6%, compared to fiscal 2015. The increase resulted primarily from the impact of May 2015, which accounted for an increase of approximately 9.6 points, as well as higher amortization expense related to intangible assets and depreciation of fixed assets recorded as part of the GT Nexus Acquisition. These increases were somewhat offset by lower amortization related to certain of our assets being fully amortized or depreciated in fiscal 2016 with no corresponding expense recorded in fiscal 2015.

Fiscal 2015 amortization of intangible assets and depreciation decreased by 5.0%, excluding the favorable impact of foreign currency of 2.7%, compared with fiscal 2014 recast. The decrease resulted primarily from certain of our intangible assets being fully amortized in fiscal 2014 recast with no corresponding expense recorded in fiscal 2015, somewhat offset by additional amortization expense related to intangible assets recorded as part of our recent acquisitions.

 

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Restructuring. We have recorded restructuring charges related to our acquisitions and on occasion to eliminate redundancies, improve our operational efficiency and reduce our operating costs. These cost reduction measures included workforce reductions relating to restructuring our workforce, the exiting of certain leased facilities and the consolidation of space in certain other facilities. These restructuring charges include employee severance costs and costs related to the reduction of office space. See Note 11, Restructuring Charges, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

In fiscal 2016, we incurred restructuring charges of $28.0 million compared to $5.7 million in fiscal 2015 and $12.8 million in fiscal 2014 recast. The restructuring charges recorded in fiscal 2016 were related to employee severance costs for personnel in all functions and across all geographies as well as charges related to exiting or consolidating space in certain leased facilities. During fiscal 2016, we engaged an outside consulting firm to provide restructuring advisory services focusing on all areas of our operations. These efforts resulted in the charges taken in fiscal 2016. The restructuring charges recorded in fiscal 2015 were related to employee severance costs for personnel in our sales and professional services organizations primarily in our EMEA region as well as personnel in our product development organization primarily in our APAC region. 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.

Acquisition-Related and Other Costs. Acquisition-related and other costs include transaction and integration costs related to our acquisitions, including professional services fees, certain employee costs related to transitional and certain other employees, as well as changes to the estimated fair value of contingent consideration liabilities related to our acquisitions. Acquisition-related and other costs also include certain costs incurred in financing our acquisitions, reorganizing our operations and other debt financing activities.

Fiscal 2016 acquisition-related and other costs of $17.1 million increased by approximately $15.7 million compared to $1.4 million in fiscal 2015. For fiscal 2016, acquisition-related and other costs were primarily for the GT Nexus Acquisition in September 2015, adjustments to the estimated fair value of our contingent consideration liability related to previous acquisitions, costs related to our investment in LogicBlox-Predictix Holdings, Inc. (Predictix), as well as costs of the Registration Statement on Form S-4 that we filed with the SEC (Form S-4) related to the Exchange Offer (as defined below). See Liquidity and Capital Resources – Long-Term Debt, below.

Fiscal 2015 acquisition-related and other costs of $1.4 million decreased by approximately $25.9 million compared to $27.3 million in fiscal 2014 recast. Fiscal 2015 acquisition-related and other costs related primarily to costs incurred for our recent acquisitions, primarily Saleslogix, as well as cost related to changing our fiscal year end. These costs were somewhat offset by adjustments to the estimated fair value of our contingent consideration liabilities related to prior period acquisitions. 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.

Non-Operating Income and Expenses

 

                            Fiscal 2016 vs.     11 Months Ended  
                            11 Months Ended     April 30,  
                April 30, 2015     2015 vs. 2014  
    Year Ended     11 Months Ended April 30,     Year Ended           Constant           Constant  
(in millions, except percentages)   April 30, 2016     2015     2014     May 31, 2014     Actual     Currency     Actual     Currency  
                (unaudited)                                
                (recast)                                
               

Interest expense, net

  $ 311.5     $ 320.1     $ 348.4     $ 378.0       (2.7 )%      (2.7 )%      (8.1 )%      (8.1 )% 

Loss on extinguishment of debt

    —          172.4       5.2       5.2       (100.0     (100.0     NM        NM   

Other (income) expense, net

    75.9       (66.8     (52.0     (62.8     NM        NM        28.5       5.6  
 

 

 

   

 

 

   

 

 

   

 

 

         

Total non-operating expenses

  $ 387.4     $ 425.7     $ 301.6     $ 320.4       (9.0 )%      (8.3 )%      41.1     45.1
 

 

 

   

 

 

   

 

 

   

 

 

         

 

* 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.

Fiscal 2016 interest expense, net of $311.5 million decreased by $8.6 million, or 2.7%, compared to $320.1 million in fiscal 2015. The decrease in our interest expense was primarily due to the refinancing of our Senior Notes in the fourth quarter of fiscal 2015 at more favorable interest rates somewhat offset by interest on our Senior Secured Notes issued in the second quarter of fiscal 2016. See Liquidity and Capital Resources – Long-Term Debt, below. As a result of these refinancing transactions, our interest expense decreased by approximately $19.3 million. This decrease was somewhat offset by $10.8 million of additional interest related to our interest rate swaps. The May 2015 impact on interest expense, net was an unfavorable $24.4 million and the other 11 months of fiscal 2016 was a favorable $33.0 million, for a net favorable impact of $8.6 million.

 

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Fiscal 2015 interest expense, net of $320.1 million decreased by $28.3 million, or 8.1%, compared to $348.4 million in fiscal 2014 recast. The decrease was primarily due to the refinancing of our term loans under our Credit Agreement in fiscal 2014 and the refinancing of our senior notes in April 2015 at favorable interest rates which resulted in a $28.3 million decrease in our interest expense. In addition, the amortization of deferred financing fees decreased $2.8 million from fiscal 2014 recast. These decreases were somewhat offset by a $1.8 million increase in the amortization of debt discounts and $1.0 million in additional interest related to our interest rate swaps.

Loss on Extinguishment of Debt. Loss on extinguishment of debt consists of redemption premiums paid, the net book value of deferred financing fees and debt discounts written off, and other costs incurred in connection with our refinancing activities. See Note 12, Debt, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

In fiscal 2015, we recorded a loss on extinguishment of debt of $172.4 million related to the refinancing of our existing senior notes in the fourth quarter of fiscal 2015. This amount includes $134.7 million in applicable redemption premiums on our existing senior notes, $34.8 million related to the net book value of deferred financing fees and debt discounts written off, and $2.9 million in other costs incurred in connection with the repayment of our existing senior notes.

The $5.2 million loss on extinguishment of debt recorded in fiscal 2014 related to the amendments to our Credit Agreement refinancing our then outstanding term loans. This amount represents the net book value of deferred financing fees written off in connection with our refinancing transactions during the first and third quarters of fiscal 2014 for those lenders whose participation was treated as an extinguishment rather than a modification of the related debt.

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.

Fiscal 2016 other (income) expense, net was net expense of $75.9 million compared to net income of $66.8 million in fiscal 2015 and $52.0 million in fiscal 2014 recast. These changes in other (income) expense, net were primarily due to fluctuations in foreign currency exchange rates primarily related to the Euro and British Pound. In fiscal 2016, the May 2015 impact on other (income) expense was a favorable $19.4 million and the other 11 months of fiscal 2016 was an unfavorable $162.0 million, for a net unfavorable impact of $142.7 million.

Income Tax Provision (Benefit)

 

                            Fiscal 2016 vs.     11 Months Ended  
                            11 Months Ended     April 30,  
                            April 30, 2015     2015 vs. 2014  
    Year Ended     11 Months Ended April 30,     Year Ended           Constant           Constant  
(in millions, except percentages)   April 30, 2016     2015     2014     May 31, 2014     Actual     Currency     Actual     Currency  
                (unaudited)                                
                (recast)                                

Income tax provision (benefit)

  $ (48.8   $ (52.2   $ (0.4   $ 12.6       (6.5 )%      (10.7 )%      NM     NM

Effective income tax rate

    312.8     160.6     (0.6 )%      9.4        

 

* 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 2016, we recorded an income tax benefit of $48.8 million, resulting in an effective tax rate of 312.8%. The change in our effective tax rate for fiscal 2016 compared to fiscal 2015 was driven by a reduction in our valuation allowance for various foreign deferred tax assets, a reduction in tax expense as a result of various U.S. Federal and State research and development tax credits, a reduction in the foreign tax rate benefit from differential tax rates due to a change in our mix of earnings and an increase in the amount of unrecognized tax benefits.

For fiscal 2015, we recorded an income tax benefit of $52.2 million, resulting in an effective tax rate of 160.6%. The change in our effective tax rate for fiscal 2015 compared to fiscal 2014 was driven by a reduction in foreign earnings subject to U.S. taxes (Subpart F income), a reduction in non-deductible stock compensation, the ability to utilize the benefits of IRC Section 199 for domestic manufacturing, and a reduction in various permanent taxable income addbacks.

 

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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.

During fiscal 2014, 2015 and 2016, we executed multiple legal entity organizational restructuring actions to streamline and simplify business operations, lower backoffice 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 2014, 2015 and 2016. In fiscal 2016, we released the valuation allowance on our deferred tax assets in the Netherlands based on the removal of negative evidence related to the entities’ most recent three years of operating results, as well as the execution of a tax planning strategy. During fiscal 2016, we completed certain tax planning strategies in the Netherlands which resulted in the release of a $51.5 million valuation allowance relating to certain net operating losses and deferred tax assets. During fiscal 2016, we continued to examine various tax structuring alternatives that may be executed during fiscal 2017 which could provide additional positive evidence in our valuation allowance considerations.

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. and Infor Software Parent LLC have entered into a tax allocation agreement (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. In fiscal 2016, 2015 and fiscal 2014, we made cash payments of $17.6 million, $11.7 million and $11.5 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 certain non-GAAP financial measures, including non-GAAP revenues, earnings before interest, taxes, depreciation and amortization (EBITDA), Adjusted EBITDA as defined in our credit agreements and the indentures that govern our senior notes, and Adjusted EBITDA margin. We believe our presentation of these non-GAAP financial measures provide 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. In addition, Adjusted EBITDA is a key measurement of our operating performance as per the financial covenants in our debt agreements. 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 these non-GAAP measures are useful to users because they provide supplemental information that research analysts, investment bankers and lenders 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 financial measures is not in accordance with GAAP and may differ from the methods used by other companies reporting similar measures. These non-GAAP financial measures should not be regarded as a substitute for the corresponding GAAP measures but instead should be utilized as supplemental measures 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 measures presented below.

 

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Non-GAAP Revenues

The following table presents the reconciliation of our non-GAAP revenues to our GAAP revenues as reported for the periods indicated:

 

                            Fiscal 2016 vs.     11 Months Ended  
                            11 Months Ended     April 30,  
                            April 30, 2015     2015 vs. 2014  
    Year Ended     11 Months Ended April 30,     Year Ended           Constant           Constant  
(in millions, except percentages)   April 30, 2016     2015     2014     May 31, 2014     Actual     Currency     Actual     Currency  
                (unaudited)                                
                (recast)                                

GAAP revenues

  $ 2,691.6     $ 2,438.9     $ 2,445.7     $ 2,761.8       10.4     15.5     (0.3 )%      3.9

Non-GAAP revenue adjustments:

               

Purchase accounting impact on license fees and subscriptions

    11.4       0.7       4.7       5.1          

Purchase accounting impact on product updates and support fees

    0.5       3.5       1.1       1.2          

Purchase accounting impact on consulting services and other fees

    0.1       0.3       1.8       1.9          
 

 

 

   

 

 

   

 

 

   

 

 

         

Total non-GAAP revenue adjustments

    12.0       4.5       7.6       8.2          
 

 

 

   

 

 

   

 

 

   

 

 

         

Non-GAAP revenues

  $ 2,703.6     $ 2,443.4     $ 2,453.3     $ 2,770.0       10.6     15.7     (0.4 )%      3.7
 

 

 

   

 

 

   

 

 

   

 

 

         

The non-GAAP adjustments we make to our reported GAAP revenues are primarily related to purchase accounting and other acquisition matters. These amounts reflect 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 presentation of non-GAAP revenues provides investors and other external users a helpful alternative view of our operations.

Adjusted EBITDA

The following table presents the reconciliation of our GAAP net income attributable to Infor as reported to Adjusted EBITDA for the periods indicated:

 

                            Fiscal 2016 vs.     11 Months Ended  
                            11 Months Ended     April 30,  
                            April 30, 2015     2015 vs. 2014  
    Year Ended     11 Months Ended April 30,     Year Ended           Constant           Constant  
(in millions, except percentages)   April 30, 2016     2015     2014     May 31, 2014     Actual     Currency     Actual     Currency  
                (unaudited)                                
                (recast)                                

GAAP net income attributable to Infor, Inc.

  $ 35.2     $ 19.7     $ 67.0     $ 121.7       78.7     127.9     (70.6 )%      (52.7 )% 

Interest expense, net (1)

    312.8       321.2       349.6       379.3          

Income tax provision (benefit)

    (48.8     (52.2     (0.4     12.6          

Amortization of intangible assets and depreciation

    243.9       222.9       241.5       264.3          

Purchase accounting impact revenues/costs, net

    12.0       4.5       7.4       8.0          

Share-based compensation

    19.7       15.5       25.5       28.7          

Acquisition-related and other costs

    17.1       1.4       27.3       27.6          

Restructuring costs

    28.0       5.7       12.8       18.6          

Foreign currency (gain) loss

    76.1       (66.7     (52.0     (62.7        

Loss on extinguishment of debt

    —          172.4       5.2       5.2          

Other (2)

    54.2       21.3       9.6       10.7          
 

 

 

   

 

 

   

 

 

   

 

 

         

Adjusted EBITDA

  $ 750.2     $ 665.7     $ 693.5     $ 814.0       12.7     16.3     (4.0 )%      0.7
 

 

 

   

 

 

   

 

 

   

 

 

         

Adjusted EBITDA margin (3)

    27.7     27.2     28.3     29.4        

 

 

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(1) Includes other bank and financing fees associated with our debt as defined by our debt agreements.
(2) Includes costs incurred related to certain litigation and/or settlements, anticipated cost savings related to specific cost saving actions, operating expense reductions and the integration of recent acquisitions, pre-acquisition adjusted EBITDA of recent acquisitions, sponsor management fees, and other non-recurring costs that are allowed to be added back under the provisions of our debt agreements.
(3) Adjusted EBITDA Margin is defined as the ratio of Adjusted EBITDA to Non-GAAP revenues.

The non-GAAP adjustments we make to our reported GAAP net income attributable to Infor to get to Adjusted EBITDA include certain non-operating expenses and non-cash charges that are allowed to be added back under the provisions of our debt agreements. These adjustments eliminate the impact of items that we do not consider indicative of our core operating performance or that may vary from period to period without any correlation to the results of our core operations. We believe the presentation of Adjusted EBITDA provides investors and other external users a supplemental measure of our performance and a helpful alternative view of our operations. In addition, the reporting of Adjusted EBITDA is a requirement of our debt agreements.

While Adjusted EBITDA is a key metric that is frequently used by our lenders, analysts and others in their evaluation of our performance, it has limitations as an analytical tool and should not be used in isolation or as a substitute for analysis of our GAAP results as reported. For example, Adjusted EBITDA excludes a number of significant cash and non-cash recurring items including but not limited to interest paid on our debt, income tax payments, the amortization of intangible assets and depreciation of capitalized tangible assets used in generating revenues in our business, and share-based compensation expense.

Liquidity and Capital Resources

Cash Flows

 

                             Fiscal 2016 vs.     11 Months Ended  
     Year Ended     11 Months Ended April 30,     Year Ended     11 Months Ended     April 30,  
(in millions, except percentages)    April 30, 2016     2015     2014     May 31, 2014     April 30, 2015     2015 vs. 2014  
                 (unaudited)
(recast)
                   

Cash provided by (used in):

            

Operating activities

   $ 419.1     $ 208.2     $ 280.8     $ 414.6       101.3     (25.9 )% 

Investing activities

     (641.4     (48.7     (249.8     (251.7     NM        (80.5

Financing activities

     402.5       (158.2     (15.7     (15.7     NM        NM   

Effect of exchange rate changes on cash and cash equivalents

     (1.2     (49.9     9.9       6.2        (97.6     NM   
  

 

 

   

 

 

   

 

 

   

 

 

     

Net change in cash and cash equivalents

   $ 179.0     $ (48.6   $ 25.2     $ 153.4       NM     NM
  

 

 

   

 

 

   

 

 

   

 

 

     

 

* NM Percentage not meaningful

Capital Resources

 

     April 30,           April 30, 2016 vs.     April 30, 2015 vs.  
(in millions, except percentages)    2016     2015     May 31, 2014     April 30, 2015     May 31, 2014  

Working capital deficit

   $ (208.5   $ (226.4   $ (305.9     (7.9 )%      (26.0 )% 

Cash and cash equivalents

   $ 705.7      $ 526.7      $ 575.3        34.0     (8.4 )% 

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 operating activities are for personnel-related expenditures. We also make significant cash payments related to interest payments, taxes and leased facilities. During fiscal 2016, 2015 and 2014 we have also undertaken significant investing and financing activities related to our acquisitions and the refinancing of our long-term debt. We are highly leveraged and our liquidity requirements are significant, primarily due to 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 and expand our customer base, which could have a material effect on our capital resources. In fiscal 2016, we completed one acquisition for a purchase price of $549.9 million, net of cash acquired. In fiscal 2015, we completed one acquisition for a purchase price of $30.1 million, net of cash acquired. In fiscal 2014, we completed two acquisitions for an aggregate purchase price of approximately $202.0 million, net of cash acquired. See Note 3, Acquisitions, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

 

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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 2017 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, 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 2016 was $419.1 million. Our net income adjusted for non-cash items provided $316.0 million in cash due to strong cash flows from operations, and changes in operating assets and liabilities provided cash of $103.1 million. The operating assets and liabilities sources of cash related primarily to a $107.5 million increase in accounts payable, accrued expenses and other liabilities, primarily due to an increase in accrued interest due to the timing of debt payments and an increase in accounts payable, and a $58.6 million increase in deferred revenue, primarily due to increased deferred SaaS revenue. The sources of cash were partially offset by a $38.2 million increase in prepaid expenses and other assets, primarily due to the timing of certain of our significant service agreements, and a $32.3 million increase in accounts receivable, net.

Net cash provided by operating activities for fiscal 2015 was $208.2 million. Our net income adjusted for non-cash items provided $322.6 million in cash due to strong cash flows from operations, while changes in operating assets and liabilities used cash of $114.4 million. The operating assets and liabilities uses of cash related primarily to a $68.1 million decrease in deferred revenue, primarily due to decreased deferred maintenance resulting from the timing of our maintenance renewals in May, and a $39.8 million decrease in accounts payable, accrued expenses and other liabilities, primarily due to a decrease in accrued interest related to the recent refinancing of our senior notes. The uses of cash were partially offset by a $29.4 million decrease in accounts receivable, net.

Net cash provided by operating activities for fiscal 2014 was $414.6 million. Our net income adjusted for 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.

Cash Flows from Investing Activities

Net cash used in investing activities was $641.4 million in fiscal 2016. The primary uses of cash were $549.6 million net cash used for the GT Nexus Acquisition, $65.5 million used to purchase property, equipment and software, and $25.0 million for our investment in Predictix.

Net cash used in investing activities was $48.7 million in fiscal 2015. The primary uses of cash were $35.7 million used to purchase property, equipment and software, and $30.1 million net cash used for our acquisitions, partially offset by $17.1 million decrease in restricted cash.

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.

Cash Flows from Financing Activities

Net cash provided by financing activities was $402.5 million in fiscal 2016. The source of cash was $495.0 million in proceeds from the issuance of debt in connection with the GT Nexus Acquisition. This was partially offset by uses of cash, primarily $35.0 million in dividend payments, $34.2 million in debt repayments, and $16.5 million in deferred financing fees related to the issuance of our Senior Secured Notes.

 

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Net cash used in financing activities was $158.2 million in fiscal 2015. The primary uses of cash were $1,932.5 million in debt repayments including the outstanding balances of our senior notes in April 2015, $168.7 million in fees paid relating to our refinancing transactions during the fiscal year including approximately $137.7 million in early redemption premiums and other fees related to the repayment of our existing senior notes and $31.0 million that we capitalized as deferred financing fees related to the issuance of our new senior notes, and $65.7 million for dividends paid. These uses of cash were mostly offset by $2,019.7 million in proceeds from the issuance of debt related to the refinancing of our senior notes in April 2015.

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.

Effect of Exchange Rate Changes

In fiscal 2016, changes in foreign currency exchange rates resulted in a $1.2 million decrease in our cash and cash equivalents. In fiscal 2015, changes in foreign currency exchange rates resulted in a $49.9 million decrease in our cash and cash equivalents. Foreign currency exchange rate changes increased our cash and cash equivalents by $6.2 million in fiscal 2014.

Working Capital Deficit

Our working capital deficit, defined as current assets less current liabilities, was $208.5 million at April 30, 2016, compared to $226.4 million at April 30, 2015. At April 30, 2016, our cash increased by $179.0 million compared to the balance at April 30, 2015. 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 2016, the most significant changes in our current assets, other than cash, were an increase of $53.9 million in accounts receivable, net, and a $37.3 million increase in prepaid expenses. During fiscal 2016 the most significant changes in our current liabilities included an increase in accrued expenses of $93.6 million, primarily due to an increase in accrued interest in relation to the timing of our debt payments and an increase in accrued restructuring charges, a $69.7 million increase in deferred revenue, primarily in deferred SaaS revenue, a $56.2 million increase in the current portion of our long-term debt due to the timing of payments related to our term loans, and a $54.4 million increase in accounts payable.

Cash and Cash Equivalents

As of April 30, 2016, we had $705.7 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 April 30, 2016, $163.7 million of our unrestricted cash and cash equivalents were held in the U.S. The remaining $542.0 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.

Long-Term Debt

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

 

     April 30, 2016     April 30, 2015  
     Principal     Net     Contractual     Principal     Net     Contractual  
(in millions)    Amount     Amount (1)     Rate     Amount     Amount (1)     Rate  

First lien Term B-3 due June 3, 2020

   $ 461.8      $ 458.1        3.750   $ 466.7      $ 462.2        3.750

First lien Term B-5 due June 3, 2020

     2,447.5        2,373.2        3.750     2,473.0        2,382.0        3.750

First lien Euro Term B due June 3, 2020

     386.2        382.0        4.000     382.3        377.0        4.000

6.5% senior notes due May 15, 2022

     1,630.0        1,619.7        6.500     1,630.0        1,618.4        6.500

5.75% senior notes due May 15, 2022

     401.0        395.9        5.750     393.0        387.2        5.750

5.75% senior secured notes due August 15, 2020

     500.0        481.1        5.750     —          —          —     

Deferred financing fees, debt discounts and premiums, net

     (116.5     —            (118.2     —       
  

 

 

   

 

 

     

 

 

   

 

 

   

Total long-term debt

     5,710.0        5,710.0          5,226.8        5,226.8     

Less: current portion

     (56.3     (56.3       (0.1     (0.1  
  

 

 

   

 

 

     

 

 

   

 

 

   

Total long-term debt—non-current

   $ 5,653.7      $ 5,653.7        $ 5,226.7      $ 5,226.7     
  

 

 

   

 

 

     

 

 

   

 

 

   

 

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

 

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As of April 30, 2016, we were in compliance with all applicable covenants included in the terms of our credit facilities and the indentures that govern our senior notes.

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 several refinancing amendments described below.

Under the secured 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, each of which has been refinanced with additional term loans as described below. Interest on the term loans borrowed under the secured term loan facility 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 April 30, 2016, we have made no draws against the Revolver and no amounts are currently outstanding. However, $11.7 million of outstanding (undrawn) letters of credit have reduced the amount available under the Revolver to $138.3 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 April 5, 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 April 30, 2016:

 

    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.

 

    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 (the Guarantors), 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 then 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

 

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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 of 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 proceeds of a new $2,793.1 million term loan (the Tranche B-2 Term Loan). Interest on the Tranche B-2 Term Loan was 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 was to mature on April 5, 2018, which was 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 was guaranteed by the same guarantors, and was 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 6.5% and 5.75% Senior Notes

On April 1, 2015, we issued approximately $1,030.0 million in aggregate principal amount of our 6.5% Senior Notes and €350.0 million in aggregate principal amount of our 5.75% Senior Notes at an issue price of 100% (together, the Senior Notes). On April 23, 2015, we issued an additional $600.0 million in aggregate principal amount of our 6.5% Senior Notes at an issue price of 102.25% plus accrued interest from April 1, 2015. The 6.5% and 5.75% Senior Notes mature on May 15, 2022, and bear interest at the applicable rates per annum that is payable semi-annually in cash in arrears, on May 15 and November 15 each year, beginning on November 15, 2015.

In connection with the issuance of the 6.5% and 5.75% Senior Notes, we entered into a registration rights agreements with the initial purchasers of the notes. Under the registration rights agreements we agreed to file with the SEC a registration statement with respect to an offer to exchange the 6.5% and 5.75% Senior Notes for a new issue of substantially identical notes no later than 365 days after the date of the original issuance of the notes. The requisite registration statement on Form S-4 was filed with the SEC on January 25, 2016 and was declared effective by the SEC on February 12, 2016. See Senior Notes Exchange Offer, below.

 

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Proceeds from the issuance of the 6.5% and 5.75% Senior Notes were used to repay the outstanding balances of our 9 3/8%, 10.0% and 11.5% Senior Notes, discussed below, including applicable redemption premiums thereon, accrued and unpaid interest, and to pay related transaction fees and expenses.

The 6.5% and 5.75% 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.

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 were to mature on April 1, 2019, and bore interest at the applicable rates per annum that was payable semi-annually in cash in arrears, on April 1 and October 1 each year, beginning on October 1, 2012. The outstanding balances of our 9 3/8% and 10.0% Senior Notes, including applicable call premiums of $71.4 million and $20.1 million, respectively, were repaid on April 1, 2015, with the proceeds from the issuance of our 6.5% and 5.75% Senior Notes.

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 were to mature on July 15, 2018 and bore 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 outstanding balance of our 11.5% Senior Notes, including applicable call premium of $43.2 million, was repaid on April 23, 2015, with the proceeds from the issuance of our additional 6.5% Senior Notes.

Senior Notes Exchange Offer

On January 25, 2016, we filed a Registration Statement on Form S-4 with the SEC (Form S-4), relating to an offer to exchange our Senior Notes (the Exchange Offer) and the related guarantees for the notes that were registered with the SEC. The Exchange Offer commenced on February 12, 2016, the fourth quarter of fiscal 2016. Under the terms of the Exchange Offer, holders of our Senior Notes could exchange their original 6.5% and 5.75% Senior Notes (the Original Notes) for a like principal amount of 6.5% and 5.75% Senior Notes (the Exchange Notes) that were registered with the SEC. The terms of the Exchange Notes are substantially identical to those of the Original Notes, except that the transfer restrictions, registration rights and certain additional interest provisions relating to the Original Notes do not apply to the Exchange Notes. The exchange has been completed and the Exchange Offer expired on March 15, 2016. We did not receive any proceeds from the Exchange Offer.

First Lien Senior Secured Notes

On August 25, 2015, in connection with the GT Nexus Acquisition, we issued $500.0 million in aggregate principal amount of 5.75% first lien senior secured notes (the Senior Secured Notes) at an issue price of 99.00% plus accrued interest, if any, from August 25, 2015. The Senior Secured Notes mature on August 15, 2020, and bear interest at the applicable rate per annum that is payable semi-annually in cash in arrears, on February 15 and August 15 each year, beginning on February 15, 2016.

The Senior Secured Notes are first lien senior secured obligations of Infor (US), Inc. and are fully and unconditionally guaranteed on a senior secured basis by Infor, Inc., and certain of our existing and future wholly-owned domestic subsidiaries. Under the indenture governing the Senior Secured Notes, we are subject to certain customary affirmative and negative covenants.

Net proceeds from the issuance of our Senior Secured Notes, after fees and expenses, of approximately $478.5 million were used to fund the GT Nexus Acquisition, including related transaction fees and expenses.

Affiliate Company Borrowings

In addition to the debt held by Infor and its subsidiaries discussed above, certain affiliates of the Company have other borrowings which are not reflected in our Consolidated Financial Statements for any of the periods presented. See Note 12, Debt – Affiliate Company Borrowings, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Restricted Cash

We had approximately $10.5 million of restricted cash as of April 30, 2016, of which approximately $0.3 million and $10.2 million have been reflected in other current assets and other assets on our Consolidated Balance Sheets, respectively. These balances related primarily to various collateral arrangements related to our property leases worldwide.

 

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We had approximately $8.1 million of restricted cash as of April 30, 2015, of which approximately $0.2 million and $7.9 million have been reflected in other current assets and other assets on our Consolidated Balance Sheets, respectively. These balances related primarily to various collateral arrangements related to our property leases worldwide.

Disclosures about Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations and commercial commitments as of April 30, 2016, and the effect these obligations and commitments are expected to have on our liquidity and cash flows in future periods:

 

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

Balance sheet contractual obligations:

              

Total outstanding debt (principal)

   $ 5,826.5       $ 56.3       $ 1.4       $ 3,737.8       $ 2,031.0   

Interest on long-term debt

     1,504.1         285.7         572.4         452.5         193.5   

Capital leases

     6.0         3.7         2.2         0.1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total balance sheet contractual obligations

     7,336.6         345.7         576.0         4,190.4         2,224.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other contractual obligations:

              

Operating leases

     285.2         62.1         86.4         59.6         77.1   

Purchase obligations

     199.8         63.0         68.9         51.8         16.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other contractual obligations

     485.0         125.1         155.3         111.4         93.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 7,821.6       $ 470.8       $ 731.3       $ 4,301.8       $ 2,317.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations at April 30, 2016 were $7,821.6 million. Our purchase obligations represent those commitments greater than $0.1 million annually. Total unrecognized tax benefits of $155.3 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 Annual Report on 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 April 30, 2016, 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 Annual Report on 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. Significant changes in these currencies, especially the Euro and British Pound, relative to the U.S. Dollar 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 intercompany 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 43.2%, 46.9% and 49.6% of our total revenues for fiscal 2016, 2015 and 2014, respectively. International cost of revenues and operating expenses accounted for 42.1%, 46.3% and 48.6% of our total cost of revenues and operating expenses for fiscal 2016, 2015 and 2014, respectively.

 

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As of April 30, 2016 and 2015, 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 4.3% and 3.4%, 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 2.1% and 1.1% as of April 30, 2016 and 2015, 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 0.2% and 0.6% as of April 30, 2016 and 2015, respectively.

Interest Rates

We face exposure to changes in interest rates primarily relating to our variable rate long-term debt. As of April 30, 2016 and 2015, we had $5.7 billion and $5.2 billion, respectively, outstanding under our debt agreements. Pursuant to the terms of certain of the debt agreements we have in place at April 30, 2016, 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 April 30, 2016, the three-month LIBOR and the EURIBOR rates were 0.64% and -0.25%, respectively. Accordingly, we used the LIBOR/EURIBOR floors, as applicable. An increase in applicable interest rates of 50 basis points over the April 30, 2016, rates would not have a significant impact on our total monthly interest expense as such a change would have a negligible impact on the LIBOR and EURIBOR floors related to our debt.

As part of our strategy to limit exposure to interest rate risk, primarily future variability in the three-month LIBOR, we have entered into interest rate swap agreements with notional amounts totaling $945.0 million or approximately 28.7% 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, in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

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 April 30, 2016.

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 April 30, 2016, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on the results of this assessment, management concluded that our internal control over financial reporting was effective as of April 30, 2016. During this assessment, management did not identify any material weaknesses in our internal control over financial reporting.

 

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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.

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 April 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

 

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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 and Redeemable Noncontrolling Interests;

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.

 

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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: June 23, 2016   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 Jeffrey M. Laborde 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 Annual Report on 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)

  June 23, 2016

/s/ JEFFREY M. LABORDE

    
Jeffrey M. Laborde   

Chief Financial Officer

(principal financial officer)

  June 23, 2016

/s/ JAY HOPKINS

    
Jay Hopkins   

Chief Accounting Officer,

Senior Vice President and Controller

(principal accounting officer)

  June 23, 2016

/s/ DAVID DOMINIK

    
David Dominik    Director   June 23, 2016

/s/ PRESCOTT ASHE

    
Prescott Ashe    Director   June 23, 2016

/s/ C. JAMES SCHAPER

    
C. James Schaper    Director   June 23, 2016

/s/ STEWART BLOOM

    
Stewart Bloom    Director   June 23, 2016

/s/ C.J. FITZGERALD

    
C.J. Fitzgerald    Director   June 23, 2016

/s/ RISHI CHANDNA

    
Rishi Chandna    Director   June 23, 2016

 

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

 

     Page
Number
 

Report of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm

     60   

Consolidated Balance Sheets at April 30, 2016 and 2015

     61   

Consolidated Statements of Operations for the fiscal year ended April  30, 2016, the 11 months ended April 30, 2015 and 2014, and the fiscal year ended May 31, 2014

     62   

Consolidated Statements of Comprehensive Income (Loss) for the fiscal year ended April 30, 2016, the 11 months ended April 30, 2015 and 2014, and the fiscal year ended May 31, 2014

     63   

Consolidated Statements of Stockholders’ Deficit and Redeemable Noncontrolling Interests for the fiscal year ended April 30, 2016, the 11 months ended April 30, 2015, and the fiscal year ended May 31, 2014

     64   

Consolidated Statements of Cash Flows for the fiscal year ended April  30, 2016, the 11 months ended April 30, 2015 and 2014, and the fiscal year ended May 31, 2014

     65   

Notes to Consolidated Financial Statements

     66   

 

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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 redeemable noncontrolling interests and cash flows present fairly, in all material respects, the financial position of Infor, Inc. and its subsidiaries at April 30, 2016 and April 30, 2015, and the results of their operations and their cash flows for the year ended April 30, 2016, the eleven months ended April 30, 2015 and the year 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

June 23, 2016

 

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INFOR, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts which are actuals)

 

     April 30,  
     2016     2015  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 705.7      $ 526.7   

Accounts receivable, net

     391.9        338.0   

Prepaid expenses

     151.2        113.9   

Income tax receivable

     61.2        49.6   

Other current assets

     22.9        17.8   

Deferred tax assets

     43.1        30.8   
  

 

 

   

 

 

 

Total current assets

     1,376.0        1,076.8   

Property and equipment, net

     125.0        81.8   

Intangible assets, net

     896.6        731.0   

Goodwill

     4,398.0        4,045.8   

Deferred tax assets

     76.1        72.8   

Other assets

     134.3        40.3   
  

 

 

   

 

 

 

Total assets

   $ 7,006.0      $ 6,048.5   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

    

Current liabilities:

    

Accounts payable

   $ 116.8      $ 62.4   

Income taxes payable

     40.7        33.5   

Accrued expenses

     432.7        339.1   

Deferred tax liabilities

     1.3        1.1   

Deferred revenue

     936.7        867.0   

Current portion of long-term obligations

     56.3        0.1   
  

 

 

   

 

 

 

Total current liabilities

     1,584.5        1,303.2   

Long-term debt, net

     5,653.7        5,226.7   

Deferred tax liabilities

     127.3        107.0   

Other long-term liabilities

     239.4        208.4   
  

 

 

   

 

 

 

Total liabilities

     7,604.9        6,845.3   
  

 

 

   

 

 

 

Commitments and contingencies (Note 14)

    

Redeemable noncontrolling interests

     140.0        —     

Stockholders’ deficit

    

Common stock, $0.01 par value; 1,000 shares authorized;
1,000 shares issued and outstanding at April 30, 2016 and 2015

     —          —     

Additional paid-in capital

     1,175.7        1,209.1   

Receivable from stockholders

     (36.9     (35.3

Accumulated other comprehensive income (loss)

     (193.0     (240.6

Accumulated deficit

     (1,694.8     (1,730.0
  

 

 

   

 

 

 

Total Infor, Inc. stockholders’ deficit

     (749.0     (796.8

Noncontrolling interests

     10.1        —     
  

 

 

   

 

 

 

Total stockholders’ deficit

     (738.9     (796.8
  

 

 

   

 

 

 

Total liabilities, redeemable noncontrolling interests and stockholders’ deficit

   $ 7,006.0      $ 6,048.5   
  

 

 

   

 

 

 

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

 

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INFOR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions)

 

     Year Ended     11 Months Ended April 30,     Year Ended  
     April 30, 2016     2015     2014     May 31, 2014  
                 (unaudited)
(recast)
       

Revenues:

        

Software license fees and subscriptions

   $ 615.7      $ 479.2      $ 427.8      $ 548.3   

Product updates and support fees

     1,405.8        1,330.3        1,340.9        1,465.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Software revenues

     2,021.5        1,809.5        1,768.7        2,014.2   

Consulting services and other fees

     670.1        629.4        677.0        747.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     2,691.6        2,438.9        2,445.7        2,761.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Cost of software license fees and subscriptions (1)

     170.3        109.7        81.9        99.8   

Cost of product updates and support fees (1)

     248.9        238.2        239.1        261.9   

Cost of consulting services and other fees (1)

     563.2        507.2        540.3        593.2   

Sales and marketing

     433.5        412.9        403.3        457.1   

Research and development

     421.6        369.8        357.1        391.8   

General and administrative

     193.3        177.9        174.2        192.8   

Amortization of intangible assets and depreciation

     243.9        222.9        241.5        264.3   

Restructuring costs

     28.0        5.7        12.8        18.6   

Acquisition-related and other costs

     17.1        1.4        27.3        27.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,319.8        2,045.7        2,077.5        2,307.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     371.8        393.2        368.2        454.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net:

        

Interest expense, net

     311.5        320.1        348.4        378.0   

Loss on extinguishment of debt

     —          172.4        5.2        5.2   

Other (income) expense, net

     75.9        (66.8     (52.0     (62.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     387.4        425.7        301.6        320.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

     (15.6     (32.5     66.6        134.3   

Income tax provision (benefit)

     (48.8     (52.2     (0.4     12.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     33.2        19.7        67.0        121.7   

Net loss attributable to noncontrolling interests

     (2.0     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Infor, Inc.

   $ 35.2      $ 19.7      $ 67.0      $ 121.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

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

 

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INFOR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

 

     Year Ended     11 Months Ended April 30,     Year Ended  
     April 30, 2016     2015     2014     May 31, 2014  
                 (unaudited)
(recast)
       

Net income

   $ 33.2      $ 19.7      $ 67.0      $ 121.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

        

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

     43.6        (277.5     (10.6     (32.9

Change in defined benefit plan funding status, net of tax

     0.2        (8.9     0.7        1.5   

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

     3.3        (2.9     (7.9     (9.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     47.1        (289.3     (17.8     (41.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     80.3        (269.6     49.2        80.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noncontrolling interests comprehensive income (loss)

     (2.5     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Infor, Inc.

   $ 82.8      $ (269.6   $ 49.2      $ 80.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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INFOR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

AND REDEEMABLE NONCONTROLLING INTERESTS

(in millions, except share amounts which are actuals)

 

    Infor, Inc. Stockholders’ Deficit                    
    Infor, Inc.
Common Stock
          Stockholders’    

Accumulated

Other

Comprehensive

    Accumulated    

Total

Infor, Inc.

Stockholders’

    Noncontrolling     Total
Stockholders’
    Redeemable
Noncontrolling
 
    Shares     Amount     APIC     Receivable     Income (Loss)     Deficit     Deficit     Interests     Deficit     Interests  

Balance, May 31, 2013

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

Equity-based compensation expense

    —          —          28.7       —          —          —          28.7       —          28.7       —     

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

    —          —          —          —          (32.9     —          (32.9     —          (32.9     —     

Defined benefit plan funding status, net of tax

    —          —          —          —          1.5       —          1.5       —          1.5       —     

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

    —          —          —          —          (9.9     —          (9.9     —          (9.9     —     

Receivable from stockholders

    —          —          —          (5.2     —          —          (5.2     —          (5.2     —     

Net income

    —          —          —          —          —          121.7       121.7       —          121.7       —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2014

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

Equity-based compensation expense

    —          —          15.5       —          —          —          15.5       —          15.5       —     

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

    —          —          —          —          (277.5     —          (277.5     —          (277.5     —     

Defined benefit plan funding status, net of tax

    —          —          —          —          (8.9     —          (8.9     —          (8.9     —     

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

    —          —          —          —          (2.9     —          (2.9     —          (2.9     —     

Dividend paid/accrued

    —          —          (82.7     —          —          —          (82.7     —          (82.7     —     

Net income

    —          —          —          —          —          19.7       19.7       —          19.7       —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, April 30, 2015

    1,000       —          1,209.1       (35.3     (240.6     (1,730.0     (796.8     —          (796.8     —     

Equity-based compensation expense

    —          —          19.7       —          —          —          19.7       —          19.7       —     

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

    —          —          —          —          44.1       —          44.1       (0.7     43.4       —     

Defined benefit plan funding status, net of tax

    —          —          —          —          0.2       —          0.2       —          0.2       —     

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

    —          —          —          —          3.3       —          3.3       —          3.3       —     

Receivable from stockholders

    —          —          —          (1.6     —          —          (1.6     —          (1.6     —     

Dividend paid/accrued

    —          —          (35.5     —          —          —          (35.5     —          (35.5     —     

Redeemable noncontrolling interests due to business combination

    —          —          —          —          —          —          —          —          —          125.0  

Accretion of redeemable noncontrolling interests redemption value

    —          —          (17.6     —          —          —          (17.6     —          (17.6     17.6  

Noncontrolling interests acquired

    —          —          —          —          —          —          —          10.2       10.2       —     

Net income

    —          —          —          —          —          35.2       35.2       0.6       35.8       (2.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, April 30, 2016

    1,000     $ —        $ 1,175.7     $ (36.9   $ (193.0   $ (1,694.8   $ (749.0   $ 10.1     $ (738.9   $ 140.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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INFOR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

     Year Ended     11 Months Ended April 30,     Year Ended  
     April 30, 2016     2015     2014     May 31, 2014  
                 (unaudited)
(recast)
       

Cash flows from operating activities:

        

Net income

   $ 33.2      $ 19.7      $ 67.0      $ 121.7   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     243.9        222.9        241.5        264.3   

Provision for doubtful accounts, billing adjustments and sales allowances

     21.1        16.0        15.0        17.7   

Deferred income taxes

     (107.2     (79.1     0.9        (23.5

Non-cash (gain) loss on foreign currency

     76.5        (66.2     (54.3     (65.0

Non-cash interest

     26.1        24.4        25.4        27.6   

Loss on extinguishment of debt

     —          172.4        5.2        5.2   

Equity-based compensation expense

     19.7        15.5        25.5        28.7   

Other

     2.7        (3.0     2.5        3.7   

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

        

Prepaid expenses and other assets

     (38.2     (21.9     12.9        12.8   

Accounts receivable, net

     (32.3     29.4        97.5        2.1   

Income tax receivable/payable, net

     7.5        (14.0     (52.3     (29.5

Deferred revenue

     58.6        (68.1     (65.9     28.9   

Accounts payable, accrued expenses and other liabilities

     107.5        (39.8     (40.1     19.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     419.1        208.2        280.8        414.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

         .        .   

Acquisitions, net of cash acquired

     (549.6     (30.1     (199.7     (199.7

Purchase of other investments

     (25.0     —          —          —     

Change in restricted cash

     (1.3     17.1        (20.2     (19.5

Purchases of property, equipment and software

     (65.5     (35.7     (29.9     (32.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (641.4     (48.7     (249.8     (251.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Dividends paid

     (35.0     (65.7     —          —     

Loans to stockholders

     (1.6     —          (5.2     (5.2

Payments on capital lease obligations

     (3.7     (2.5     (2.3     (2.3

Proceeds from issuance of debt

     495.0        2,019.7        3,487.7        3,487.7   

Payments on long-term debt

     (34.2     (1,932.5     (3,457.5     (3,457.5

Deferred financing and early debt redemption fees paid

     (16.5     (168.7     (37.5     (37.5

Other

     (1.5     (8.5     (0.9     (0.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     402.5        (158.2     (15.7     (15.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1.2     (49.9     9.9        6.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     179.0        (48.6     25.2        153.4   

Cash and cash equivalents at the beginning of the period

     526.7        575.3        421.9        421.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   $ 705.7      $ 526.7      $ 447.1      $ 575.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information

        

Cash paid for interest

   $ 220.1      $ 344.4      $ 326.7      $ 326.7   

Cash paid for income taxes

   $ 50.7      $ 41.5      $ 45.8      $ 65.0   

Supplemental disclosure of non-cash investing and financing activities

        

Assets acquired in acquisitions, net of cash acquired

   $ 799.2      $ 36.3      $ 207.3      $ 207.3   

Liabilities assumed in acquisitions

   $ 249.6      $ 6.2      $ 7.6      $ 7.6   

Capital lease obligations

   $ 0.7      $ 5.2      $ 2.7      $ 3.0   

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

 

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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 business operations generally as well as 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 provide on-going support and maintenance services for our customers through our subscription-based annual maintenance and support programs. We also help our customers implement and use our applications more effectively through our consulting services.

Basis of Presentation

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, Inc. and our wholly-owned and majority-owned subsidiaries operating in the Americas, EMEA and APAC. All significant intercompany accounts and transactions have been eliminated.

Noncontrolling Interests

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

Noncontrolling interests with redemption features, such as put options, that are not solely within our control (redeemable noncontrolling interests) are reported as mezzanine equity on our Consolidated Balance Sheets, between liabilities and equity, at the greater of redemption value or initial carrying value. The redeemable noncontrolling interest that we report relates to an 18.52% interest in GT Nexus, Inc. (GT Nexus) that Infor does not own. See Note 3, Acquisitions. The noncontrolling interest that we report as equity on our Consolidated Balance Sheets relates to a minority interest held in an international subsidiary acquired in the GT Nexus Acquisition (as defined below).

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, fair value of contingent consideration related to our acquisitions, contingencies and litigation, and 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.

 

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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 is from May 1 through April 30. Unless otherwise stated, references to fiscal 2016 and 2015 relate to our fiscal years ended April 30, 2016 and 2015, respectively. References to future years also relate to our fiscal years ending April 30.

Prior to fiscal 2015, our fiscal year had historically been from June 1 through May 31. Unless otherwise stated, references to fiscal 2014 relates to our fiscal year ended May 31, 2014. References to prior years also relate to our fiscal years ending May 31.

Beginning in the first quarter of fiscal 2015, we changed our fiscal year end from May 31 to April 30. This change was effective beginning June 1, 2014, the start of our fiscal 2015, which ended on April 30, 2015. As a result of this change, for fiscal 2015 we reported an 11-month transition period from June 1, 2014 to April 30, 2015. Accordingly, our Consolidated Balance Sheets are presented as of April 30, 2016 and 2015. The accompanying Consolidated Financial Statements, and the Notes thereto, include our results of operations and cash flows for the fiscal year ended April 30, 2016, the 11-month transition period of fiscal 2015, and the fiscal year ended May 31, 2014 as originally reported. In addition, we have presented on the accompanying Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income (Loss), and Consolidated Statements of Cash Flows our unaudited results of operations and cash flows for the comparable 11-month recast period of fiscal 2014 (the period from June 1, 2013 to April 30, 2014).

2. Summary of Significant Accounting Policies

Adoption of New Accounting Pronouncements

On November 1, 2015, we early adopted the FASB updated guidance on simplifying the accounting for measurement-period adjustments relating to business combinations. This guidance requires that an acquirer recognize post-close measurement adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Prior to the issuance of this guidance, entities were required to retrospectively apply adjustments made to provisional amounts recognized in a business combination. We applied the updated guidance prospectively beginning in the third quarter of fiscal 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

Recent Accounting Pronouncements—Not Yet Adopted

In May 2014, the FASB issued guidance on 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 was to be effective for annual reporting periods beginning after December 15, 2016 (our fiscal 2018) and early adoption was not permitted. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017, for annual reporting periods beginning after that date (our fiscal 2019). The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. 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 November 2015, the FASB issued guidance simplifying the balance sheet presentation of deferred taxes. Under this guidance, deferred tax assets and deferred tax liabilities are to be classified as non-current in a classified statement of financial position, amending the guidance requiring companies to separate deferred income tax liabilities and assets into current and non-current amounts. This guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods (our first quarter of fiscal 2018), and early adoption is permitted. This guidance may be applied either prospectively to all deferred tax assets and liabilities, or retrospectively to all periods presented. The adoption of this guidance will only impact presentation on our consolidated balance sheets and related disclosures and will not have a material impact on our financial position, results of operations or cash flows. We are currently evaluating the timing of adoption of this guidance and adoption method.

 

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In February 2016, the FASB issued a new leasing standard that will supersede current guidance related to accounting for leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard will be effective for the first interim period within annual periods beginning after December 15, 2018 (our fiscal 2020), with early adoption permitted. The standard is required to be adopted using the modified retrospective approach. We are currently evaluating how this guidance will impact our financial position, results of operations and cash flows.

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

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 software license, product updates and support, and related service revenues in accordance with the guidance provided by ASC 985-605, Software—Revenue Recognition, and we record revenues related to non-software deliverables such as SaaS subscriptions and related service revenue in accordance with guidance provided by ASC 605, Revenue Recognition. 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 for use in an environment hosted, supported, and maintained by Infor. SaaS subscription revenues are included in software license fees and subscriptions revenues in our Consolidated Statements of Operations and were approximately $242.6 million, $107.1 million and $74.9 million in fiscal 2016, 2015 and 2014, 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.