Corel Corporation Reports Second Quarter 2003 Results; Company Adjusts Workforce to Manage Expenses Relative to Expected Revenue Performance.Business Editors/High-Tech Writers OTTAWA--(BUSINESS WIRE)--June 27, 2003 Corel Corporation (company) Corel Corporation - A software publisher best known for the CorelDraw application. Founded in June 1985 by Dr. Michael Cowpland, Corel Corporation was originally a systems integration company. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CORL CORL Corel Corporation (stock symbol) CORL Coalition of Reef Lovers CORL capital outlay revenue limit CORL change-orientated reflective listening (psychotherapy) CORL Central Ontario Ringette League ) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :COR cor (kor) [L.] heart. acute cor pulmonale acute overload of the right ventricle due to pulmonary hypertension, usually due to acute pulmonary embolism. ) today announced results for its second quarter of fiscal 2003, ended May 31, 2003. Corel (Corel Corporation, Ottawa, Ontario, www.corel.com) A leading Canadian software company, founded in 1985 by Dr. Michael Cowpland. For many years, it has been widely known for its award-winning CorelDRAW graphics programs for Windows, Mac and Unix. also announced that it has reduced its global workforce by 66 employees or approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 9% in order to manage expenses relative to the Company's expected revenue performance. All dollar amounts are expressed in US currency. For the second quarter of fiscal 2003, Corel reported revenue of $32.2 million and a net loss of $5.6 million, or $(0.06) per share. This compares with revenue of $28.3 million and a net loss of $574,000, or ($0.01) per share, for the first quarter of fiscal 2003. Corel's second quarter 2003 results also compare with revenue of $30.8 million and a net loss of $6.3 million, or $(0.07) per share, for the same period last year. Cash and cash equivalents, restricted cash and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments at the end of the second quarter of fiscal 2003 stood at $75.5 million, compared with $73.0 million at the end of the first quarter of fiscal 2003. Corel received an income tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. for $3.9 million during the second quarter of fiscal 2003 which was added to this balance. Derek Burney Derek Hudson Burney (born 1939) is a Canadian businessman. He is also a former diplomat and political strategist for the Progressive Conservative government of Brian Mulroney. , President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Corel Corporation, commented: "The second quarter was a busy period for Corel as we launched four new products - WordPerfect Office A suite of office applications for Windows from Corel that includes WordPerfect, Quattro Pro, Corel Presentations, Paradox and CorelCENTRAL (PIM, scheduling, etc.). It is the successor to Corel WordPerfect Suite, which was the successor to Corel Office. 11, Corel DESIGNER A full-featured Windows drawing program from Corel that has been widely used by technical illustrators. Originally developed by Micrografx, which was acquired by Corel in 2001, Corel DESIGNER is a very sophisticated vector graphics program providing many features of a CAD program, 10, Corel Painter Painter is the name of a raster graphics software package used to create natural-looking artistic images using a computer. Originally available on the Macintosh, it is now also available for Windows. 8 and Corel Smart Graphics Studio - all of which have received positive feedback from industry observers, product reviewers, customers and partners. While we did experience a slight increase in revenue due primarily to the launch of the office suite, meaningful revenue growth continues to be a challenge for the Company, particularly as we work to offset declining revenue in mature markets with revenue from our new technology solutions based on XML XML in full Extensible Markup Language. Markup language developed to be a simplified and more structural version of SGML. It incorporates features of HTML (e.g., hypertext linking), but is designed to overcome some of HTML's limitations. ." Performance By Solution Category Graphics Solutions Corel's graphics solutions revenue for the second quarter of fiscal 2003 was $14.0 million, decreasing by 15.6% from $16.5 million in the previous year. On a sequential One after the other in some consecutive order such as by name or number. basis, graphics solutions revenue decreased by 8.6% from $15.3 million in the first quarter of fiscal 2003. This is primarily due to declining revenue from the Company's CorelDRAW A drawing program for Windows and the Mac from Corel. Introduced in 1989, CorelDRAW has been Corel's flagship program, which became very popular due to its speed and features. CorelDRAW has been offered in various suites with other Corel programs, including at one time, the Corel VENTURA Graphics Suite caused by adverse economic conditions in Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). and the delayed release of the Simplified Chinese Chinese, subfamily of the Sino-Tibetan family of languages (see Sino-Tibetan languages), which is also sometimes grouped with the Tai, or Thai, languages in a Sinitic subfamily of the Sino-Tibetan language stock. , Traditional Chinese and Korean Korean, language of uncertain ancestry. It is thought by some scholars to be akin to Japanese, by others to be a member of the Altaic subfamily of the Ural-Altaic family of languages (see Uralic and Altaic languages), and by still others to be unrelated to any known versions of CorelDRAW Graphics Suite 11 in Asia-Pacific The term Asia-Pacific generally applies to littoral East Asia, Southeast Asia and Australasia near the Pacific Ocean, plus the states in the ocean itself (Oceania). . Office Productivity Solutions Revenue from Corel's office productivity solutions increased by 33% on a year-to-year basis, from $11.2 million in the second quarter of fiscal 2002 to $15.0 million in the second quarter of fiscal 2003. Sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen , revenue from the Company's office productivity solutions increased by 66.6% from $9.0 million in the first quarter of fiscal 2003. The increase can be attributed to the introduction of WordPerfect Office 11, a new version of Corel's flagship office suite, in April 2003. While revenue to date from the launch of WordPerfect Office 11 is consistent with expectations, overall revenue is lower when compared with the spike A burst of extra voltage in a power line that lasts only a few nanoseconds. See power surge, power swell, sag and surge suppression. (jargon) spike - To defeat a selection mechanism by introducing a (sometimes temporary) device that forces a specific result. associated with previous launches of this product. Process Management Solutions Revenue from Corel's process management solutions declined by 11.2% on a year-to-year comparison, from $2.5 million in the second quarter of fiscal 2002 to $2.2 million in the second quarter of fiscal 2003. Sequentially, revenue from the company's process management solutions remained relatively stable, dropping from $2.3 million in the first quarter of fiscal 2003. XML Solutions(i) Revenue from Corel's XML solutions increased by 46.6%, from $311,000 in the second quarter of fiscal 2002 to $456,000 in the second quarter of fiscal 2003. Sequentially, revenue declined by 60%, dropping from $1.1 million in the first quarter of fiscal 2003. Performance by Region Revenue generated by Corel in the North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. market grew 25.7% on a year-to-year basis, increasing from $16.3 million in the second quarter of fiscal 2002 to $20.5 million in the second quarter of fiscal 2003. Sequentially, North American revenue jumped by 59.7% from $12.8 million in the first quarter of fiscal 2003. Second quarter fiscal 2003 revenue from Corel's Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , Middle
East and Africa (EMEA (Europe, Middle East, Africa) Refers to that region of the world. For example, one might see products packaged differently for the UK, EMEA and Asia Pacific markets. ) markets decreased by 23.2% on a year-to-year
comparison, from $9.6 million in the second quarter of fiscal 2002 to
$7.4 million in the second quarter of fiscal 2003. EMEA revenue also
dropped by 23.1% on a sequential basis, from $9.6 million in the first
quarter of fiscal 2003.Revenue from Corel's other international markets - Asia-Pacific and Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. - declined by 34% on a year-to-year basis, from $2.8 million in the second quarter of fiscal 2002 to $1.8 million in the second quarter of fiscal 2003. Sequentially, revenue in these regions combined declined by 46%, from $3.4 million in the first quarter of fiscal 2003. Revenue from Corel's OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and arrangements during the second quarter of fiscal 2003 increased by 19.6% on a year-to-year basis, from $2.1 million in the second quarter of fiscal 2002 to $2.6 million in the second quarter of fiscal 2003. Sequentially, OEM revenue remained flat from the first quarter of fiscal 2003, when it was $2.6 million. Expenses Sales, marketing, research and development (R&D), and general and administrative (G&A) expenses for the second quarter of fiscal 2003 were $30.4 million, up 1.9% on a year-to-year basis from $29.8 million in the second quarter of fiscal 2002. Sequentially, these expenses increased 16.3% from $26.2 million in the first quarter of fiscal 2003. Corel's second quarter fiscal 2003 expenses include approximately $2.5 million for costs which are not related to the ongoing operation of the Company, including severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when payments, the foreign exchange impact due to the high Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents and expenses associated with the proposed acquisition by Vector Capital. Gross profit as a percent of sales decreased to 85.6% in the second quarter of fiscal 2003, from 90.2% in the second quarter of fiscal 2002 and 87% in the first quarter of fiscal 2002. Cost of sales for the second quarter of fiscal 2003 increased by 54% on a year-to-year basis in the second quarter of fiscal 2003, from $3.0 million in the second quarter of fiscal 2002 to $4.7 million in the second quarter of fiscal 2003. Sequentially, cost of sales was up 27.5% from $3.6 million in the first quarter of fiscal 2003. Consistent with the Company's ongoing efforts to maintain rigorous financial controls, Corel has made adjustments to its workforce in order to manage expenses relative to its expected revenue performance. The adjustments will result in a payroll cost reduction of approximately $4.2 million per year on an ongoing basis. To implement these changes, the Company will incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. severance costs amounting to approximately $655,000. These expenses will be incurred during the third quarter of fiscal 2003. Mr. Burney Bur·ney , Frances Known as "Fanny." 1752-1840. British writer best known for her witty and sophisticated letters and diaries covering the years from 1768 until her death. stated: "In keeping with our commitment to profitability in 2003, and with our second quarter revenue coming in lower than anticipated, we have made these workforce adjustments as part of our ongoing efforts to keep costs in line with expected revenue." Conference Call Information Corel's second quarter 2003 conference call and Webcast to discuss the Company's financial results is scheduled for 10:30 a.m. Eastern Daylight For other uses, see Daylight (disambiguation). Daylight or the light of day is the combination of all direct and indirect sunlight outdoors during the daytime (and perhaps twilight). Time on Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , June June: see month. 27, 2003. To access the live or archived Webcast, please visit www.corel.com/investor. Please access the site at least 10-15 minutes prior to the call to download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. any necessary audio or plug-in An auxiliary program that works with a major software package to enhance its capability. For example, plug-ins are widely used in image editing programs such as Photoshop to add a filter for some special effect. software. (i) XML Solutions is part of the "other" category in the segmented information provided by the Company in its Statement of Operations See Income statement. . "Other" also includes technical support revenue from all of Corel's solution categories along with other miscellaneous revenue. About Corel Corporation Founded in 1985, Corel Corporation (www.corel.com) is a leading technology company specializing in content creation tools, business process management and XML-enabled enterprise solutions. The company's goal is to give consumers and enterprise customers the ability to create, exchange and instantly interact with visual content that is always relevant, accurate and available. With its headquarters in Ottawa Ottawa, city, Canada Ottawa (ŏt`əwə), city (1991 pop. 313,987), capital of Canada, SE Ont., at the confluence of the Ottawa and Rideau rivers. Hull, Que. , Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , Corel's common stock trades on the Nasdaq Stock Market Nasdaq stock market The first electronic stock market listing over 5000 companies. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap Market that trades emerging growth companies. under the symbol CORL and on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. under the symbol COR. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. as defined by the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995, involving the company's expectations about future financial results and other matters. These statements reflect management's current forecast of certain aspects of the company's future business. Specifically, this release contains forward-looking statements regarding the likely benefits from new product introductions and the need by the marketplace for the products under development; the programs being undertaken by the Company and expectations regarding the ability of the Company to increase sales and return to profitability and results in future quarter and for the next fiscal year. The words "plan", "expect", "believe", "intend", "anticipate", "forecast", "target", "estimate" and similar expressions identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results of operations to differ materially from historical results or current expectations. In particular, there can be no assurance that the Company's cost reductions will be adequate or that the Company will achieve a level of revenue that will allow the Company to return to profitability, that the company will be able to produce and launch new products or that the Company will be able to successfully implement or complete the short-term and long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. programs being undertaken by the Company. Risk factors include shifts in customer demand, product shipment schedules, product mix, competitive products and pricing, technological shifts, the Company's effectiveness at executing its sales, marketing and development plan, the market acceptance of new products and other variables. Readers are referred to Corel's most recent reports filed with the Securities and Exchange Commission for a more complete discussion of the other risks and uncertainties. The factors underlying forecasts are dynamic and subject to change. As a result, forecasts speak only as of the date they are given and do not necessarily reflect the company's outlook at any other point in time. The company does not undertake to update or review these forward-looking statements. (C) 2003 Corel Corporation. All rights reserved. Corel, WordPerfect See WordPerfect Office. 1. (text, tool, product) WordPerfect - A word processor for a wide range of computers. The first version was sold in 1980 for Data General machines, and by the end of 1993 versions were on sale for MS-DOS, Microsoft Windows and Macintosh , DESIGNER, Painter painter, animal: see puma. A full-featured paint program for Macintosh and Windows from Corel. Part of Corel's illustration and design line of products, Painter is the most sophisticated paint program on the market with an array of tool palettes that is , Smart Graphics Studio and the Corel logo are trademarks or registered trademarks of Corel Corporation and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. its subsidiaries. All other product, font font or typeface or type family Assortment or set of type (alphanumeric characters used for printing), all of one coherent style. Before the advent of computers, fonts were expressed in cast metal that was used as a template for printing. and company names and logos are trademarks or registered trademarks of their respective companies.
COREL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US$)
May 31, November 30,
2003 2002
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ASSETS (unaudited)
Current Assets
Cash and cash equivalents $40,594 $18,874
Restricted cash 1,566 1,558
Short-term investments 33,377 56,952
Accounts receivable
Trade 18,845 19,958
Other 222 250
Inventory 408 191
Prepaid expenses 2,677 2,786
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Total Current Assets 97,689 100,569
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Investments 7,770 8,590
Fixed assets 5,195 8,762
Intangible assets 10,477 13,006
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TOTAL ASSETS $121,131 $130,927
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
liabilities $19,386 $22,552
Income taxes payable 6,209 5,685
Deferred revenue 7,343 8,875
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Total Current Liabilities 32,938 37,112
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Deferred revenue 1,418 879
Future income tax liability 714 806
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Total Liabilities 35,070 38,797
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Shareholders' Equity
Share capital 405,181 405,124
Contributed surplus 4,990 4,990
Deficit (324,110) (317,984)
--------------------------------------------------------------------
Total Shareholders' Equity 86,061 92,130
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $121,131 $130,927
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COREL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of US$, except per share data)
(unaudited)
Three months Six months
ended May 31, ended May 31,
2003 2002 2003 2002
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Sales $32,206 $30,762 $60,536 $61,976
Cost of sales 4,650 3,019 8,297 5,927
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Gross profit 27,556 27,743 52,239 56,049
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Expenses
Sales 9,825 9,921 19,210 17,767
Marketing 6,074 4,759 10,816 9,632
Research and development 6,173 7,572 11,314 14,712
General and administrative 8,344 7,585 15,247 15,046
Depreciation and
amortization 3,032 4,196 6,799 8,502
Loss (gain) on foreign
exchange 278 (239) (310) (82)
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33,726 33,794 63,076 65,577
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Loss from operations (6,170) (6,051) (10,837) (9,528)
Loss on investment (119) (36) (137)
Gain on disposal of fixed
assets 33 33
Interest income 945 412 1,184 900
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Loss before income taxes (5,192) (5,758) (9,656) (8,765)
Income tax (recovery) expense 21 265 (4,302) 202
Share of loss in equity
investment 339 316 772 520
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Net loss ($5,552) ($6,339) ($6,126) ($9,487)
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Loss per share:
Basic ($0.06) ($0.07) ($0.07) ($0.11)
Diluted ($0.06) ($0.07) ($0.07) ($0.11)
Weighted average number of
Common Shares
outstanding (000s)
Basic 91,851 90,117 91,839 85,465
Diluted 91,851 90,117 91,839 85,465
COREL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US$)
(unaudited)
Three months Six months
ended May 31, ended May 31,
2003 2002 2003 2002
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Cash flows from operating
activities:
Net loss ($5,552) ($6,339) ($6,126) ($9,487)
Items which do not involve
cash or cash equivalents:
Depreciation 1,495 1,539 2,852 2,916
Amortization 1,791 3,445 4,521 6,824
Bad debt expense 32 - 95 52
Gain on disposal of assets (33) - (43) -
Future income taxes (46) (247) (92) (566)
Loss on writedown of
investments - 119 48 137
Share of loss in equity
investments 339 316 772 520
Changes in operating
assets and liabilities:
Restricted cash (5) (2) (8) 5
Accounts receivable (2,035) (3,228) 1,046 (3,262)
Inventory 779 102 (216) 230
Prepaid expenses 782 (1,303) 109 (2,290)
Accounts payable and
accrued liabilities 2,902 (2,929) (3,166) (8,161)
Income taxes payable 3,300 (141) 524 (210)
Deferred revenue (786) 712 (994) 697
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Cash flows from (used in)
operating activities 2,963 (7,956) (678) (12,595)
---------------------------------------------------------------------
Cash flows from financing
activities:
Issuance of common stock 30 - 57 64
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Cash flows from financing
activities 30 - 57 64
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Cash flows from investing
activities:
Purchase of other
non-current assets - 2,071 - -
Acquisition of Micrografx Inc.,
net of cash acquired - (543) - (543)
Acquisition of SoftQuad Inc.,
net of cash acquired - (2,605) - (2,605)
Purchase of capital assets (542) (381) (1,277) (1,412)
Redemption of marketable
securities (15,426) (16,746) 23,575 38,400
Proceeds on disposal of
assets 33 - 43 -
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Cash flows from (used in)
investing activities (15,935) (18,204) 22,341 33,840
---------------------------------------------------------------------
Increase (decrease) in
cash and cash equivalents (12,942) (26,160) 21,720 21,309
Cash and cash equivalents
at beginning of the period 53,536 72,393 18,874 24,924
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Cash and cash equivalents
at end of the period $40,594 $46,233 $40,594 $46,233
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Supplementary cash
information:
Cash paid (refund received)
for income taxes $(3,862) $29 $(5,546) $919
Schedule A
Segmented information
---------------------------------------------------------------------
The Company has only one global operating segment as detailed in the
consolidated financial statements included herein.
The company sells its products worldwide from four geographic regions
which exclude OEM. A summary of sales by product, region and major
customer from consolidated operations is as follows:
Three months Six months
ended May 31, ended May 31,
2003 2002 2003 2002
---------------------------------------------------------------------
By product
Graphic Solutions $13,952 $16,530 $29,216 $33,309
Office Productivity
Solutions 14,978 11,247 23,967 23,096
Process Management
Solutions 2,247 2,530 4,505 4,720
Other (including XML
Solutions) 1,029 455 2,848 851
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Total sales $32,206 $30,762 $60,536 $61,976
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By region
Canada $4,091 $2,355 $6,196 $4,120
United States 16,380 13,925 27,097 27,710
Europe, Middle East,
Africa 7,364 9,594 16,941 19,999
Other international 1,816 2,752 5,181 5,991
OEM 2,555 2,136 5,121 4,156
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Total sales $32,206 $30,762 $60,536 $61,976
---------------------------------------------------------------------
---------------------------------------------------------------------
By major customer
Ingram Micro. $11,987 $4,680 $19,315 $11,131
All Others 20,219 26,082 41,221 50,845
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Total sales $32,206 $30,762 $60,536 $61,976
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