Corel Corporation Reports Third Quarter FY 2002 Results; Net Income Impacted by Non-Cash Impairment Charge for the Write-off of Goodwill.Business Editors OTTAWA--(BUSINESS WIRE)--Sept. 25, 2002 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 the third quarter ended August 31, 2002. All figures are reported in U.S. currency. Revenues for the third quarter of fiscal year 2002 were $31.3 million compared with revenues in the same period last year of $34.2 million. Without the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of goodwill, net loss in the third quarter of 2002 was $8.6 million, compared with a net loss of $6.3 million in the second quarter of this year and a gain of $500,000 for the same period last year. Excluding the goodwill write-off on a per share basis, the net loss was $(.09) for the third quarter of fiscal 2002, compared with $(.07) for the second quarter of this year and $.01 for the third quarter of last year. Net loss in the third quarter of 2002 was $59.1 million, or $(.64) per share, which includes an impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. loss from the write-off of goodwill. During the quarter, given the Company's market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. and other factors, it completed an assessment of the value of its goodwill and, as a result of this assessment, recorded a $50.5 million non-cash charge Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. representing the write-off of all of its goodwill. Review of Operations The Company's third-quarter 2002 revenues were two per cent, or $500,000, greater than results in the second quarter of fiscal 2002, due mainly to higher sales of 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 (R) and the introduction late in the quarter of 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 (R) Graphics Suite 11. These two factors combined more than offset both the typical seasonal decline in sales in 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). and the decline in sales of the previous version of CorelDRAW
graphics suite usually seen prior to the release of an upgrade.
CorelDRAW Graphics Suite 11 started shipping in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. in August
2002, while localized Translated into the spoken language of the country. See localization. versions of the product began shipment in Europe
in early September September: see month. 2002.The Company's third-quarter fiscal 2002 revenues compares with revenues of $34.2 million for the same quarter last year, a decline of $2.9 million, or eight per cent. The difference in revenues on a year-to-year basis is primarily associated with the loss of sales this quarter of two creative product lines, procreate pro·cre·ate v. 1. To beget and conceive offspring; to reproduce. 2. To produce or create; originate. pro (TM) and Bryce Bryce is a given name and surname in English. It can refer to: People
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. technology. The increase in sales of WordPerfect both on a year-to-year comparison for the quarter and on a sequential basis is primarily due to successes with upgrade purchases by the government sector both in the U.S. and 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 . The government sector tends to allow for a period of maturity prior to upgrading and lags the commercial market. In addition, the successful implementation of a more enterprise-direct sales force is supporting business applications revenues. The Company has historically included the amortization of technology acquired as a component of cost of goods sold Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold . To make analysis of the Company's financial results more comparable with general industry practices, these costs have been reclassified for financial statement presentation to depreciation and amortization expense. After this change, gross margin for the third quarter of 2002 was 89 per cent, up from 86 per cent for the same period in the prior year. The increase in gross margin is primarily related to reduced royalty costs, in particular those associated with the procreate and Bryce product lines. Included in the loss in the quarter were $1.5 million in amortization of technology acquired with SoftQuad in March 2002, $1 million of which is expected to be incurred on a go-forward basis. Results were also impacted by the initiation campaign for DaVE, a mobile, multimedia, hands-on hands-on adj. Involving active participation; applied, as opposed to theoretical: "We're involved in hands-on operations, pulling levers, pushing buttons" Arthur R. Taylor. software demonstration exhibit focused on the creative professional and academic markets and increased spending required for the significant launch efforts of CorelDRAW Graphics Suite 11. 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. , commented: "Although sales were in line with our expectations, expenses were somewhat higher as we continue to balance costs related to marketing and advertising required to support new product launches, to recapture recapture n. in income tax, the requirement that the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains upon sale of property. (See: income tax) RECAPTURE, war. market share, as well as to build new solutions and further develop a direct sales organization with a global reach." Mr. Burney added: "We remain focused on our strategy to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. our expertise in graphics innovation and design and open standards Specifications for hardware and software that are developed by a standards organization or a consortium involved in supporting a standard. Available to the public for developing compliant products, open standards imply "open systems;" that an existing component in a system can be replaced such as XML to feed the driving forces of the technology arena toward wireless and Web-based services. We will continue to leverage the strength of our core products while developing new solutions for enterprise customers which inject in·ject v. 1. To introduce a substance, such as a drug or vaccine, into a body part. 2. To treat by means of injection. 'visual' intelligence to help them simplify and accelerate the exchange of information. "Success is dependent upon our disciplined manner of balancing investment in sales, marketing and development with management of our cost structure. Today's economy is challenging for software sales, but not insurmountable if you have the technology and know-how. Our balanced approach with resources is devoted to improving our core products, the Company's overall market share and new product development. This should enable us to emerge as one of the leading service providers in the enterprise software arena when major industry shifts occur after this economic downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. ." During the quarter, several new arrangements with major computer manufacturers for providing core Corel products on their equipment were announced. The bundling arrangements included providing Corel WordPerfect See WordPerfect Office and WordPerfect Corporation. and Quattro(R) Pro as competitively-priced, fully-featured word processing word processing, use of a computer program or a dedicated hardware and software package to write, edit, format, and print a document. Text is most commonly entered using a keyboard similar to a typewriter's, although handwritten input (see pen-based computer) and and spreadsheet spreadsheet Computer software that allows the user to enter columns and rows of numbers in a ledgerlike format. Any cell of the ledger may contain either data or a formula that describes the value that should be inserted therein based on the values in other cells. alternatives on select Hewlett Packard and Dell consumer brand computer models. Supporting Balance Sheet At August 31, 2002, cash, cash equivalents and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has (excluding restricted cash) was $77.7 million, compared with $103.0 million at the end of fiscal 2001. The Company has no long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. . EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become for the quarter was $(2.6) million and capital expenditures were $1.6 million resulting in cash consumption of $4.2 million. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. Results Corel's year-to-date revenues for fiscal 2002 were $93.2 million with year-to-date net loss of $68.6 million, or $(0.78) per share. Excluding the impairment charge for goodwill, the year-to date net loss was $18.1 million, or $(0.21) per share. By comparison, Corel reported revenues of $102.7 million for the first nine months of fiscal 2001, producing a net income of $3.7 million or $.03 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. The decline in revenues for the nine-month period is primarily related to the lower sales of personal computers and a decline in information technology spending as a result of the persistently weak economy. The higher expenses for the nine-month period are a result of an 18 per cent increase in research and development costs associated with new enterprise product development integrating XML into text, graphics and process software for improving communications and capabilities within organizations. Year-to-date expenses were also impacted by other costs mentioned previously in the quarterly expense review. Outlook Corel expects revenues in the fourth quarter of 2002 to be in the range of $34 million to $38 million. The anticipated increase in revenues is driven primarily by the introduction of CorelDRAW Graphics Suite 11 both in North America and Europe, the release in the fourth quarter of Ventura 10, a publishing solution that incorporates the leading standards-based technology XML, the release of new versions of the iGrafx family of solutions, interactive, graphically-detailed process management tools, and the typical seasonal increase in sales in Europe. Gross margins are expected to remain in the 89-91 per cent range, while operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: improve from the growth in revenues and continued cost reduction actions. For fiscal 2003, which begins December 1, 2002, Corel anticipates a moderate increase in revenues from the phased launch throughout the year of over a dozen new products or upgrades. The new software solution sets, specifically designed for enterprise use, will incorporate XML and smart graphics allowing its users more efficient means of content creation, exchange and interaction. These new product solutions, combined with incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. sales of the company's core products, should help to offset the persistent softness in technology spending due to the economy and the attrition Attrition The reduction in staff and employees in a company through normal means, such as retirement and resignation. This is natural in any business and industry. Notes: of products no longer emphasized due to their lack of fit with the company's strategy. As they gain market acceptance, the new software solutions will have a more evenly paced build-up build·up also build-up n. 1. The act or process of amassing or increasing: a military buildup; a buildup of tension during the strike. 2. of revenues compared with a product upgrade or localized version launch from the core product line. The Company is planning to reduce costs by $2.0 to $3.5 million per quarter, bringing total quarterly expenses to a range of between $35 and $37 million. This, combined with gradually improving revenues, should continue to drive the Company to a level of positive cash flow and profitability within the latter half of 2003. Mr. Burney noted: "Over the next six to 18 months, we expect our new enterprise solutions will be part of a dynamic trend shift for the industry as a whole. The capabilities we gained through our acquisitions, combined with our own widely-recognized technological expertise, will enable us to address the developing needs of users and multi-modal equipment to propel pro·pel tr.v. pro·pelled, pro·pel·ling, pro·pels To cause to move forward or onward. See Synonyms at push. [Middle English propellen, from Latin the interchange An interchange is a location where two things meet, usually perform some kind of exchange, and possibly go on their ways again. It is most commonly used in four contexts:
Conference Call Information The Corel Corporation third quarter 2002 conference call and Webcast to discuss results, corporate strategy and outlook is scheduled for 4:30 pm EST EST electroshock therapy. EST abbr. electroshock therapy on Wednesday, September 25, 2002. To access the live or archived Webcast, please visit www.corel.com/investor. You should 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 software. About Corel Corporation Founded in 1985, Corel Corporation (www.corel.com) is a leading technology company that offers software for home and small business users, creative professionals and enterprise customers. With its headquarters in Ottawa, Canada, 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 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. 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) 2002 Corel Corporation. All rights reserved. Corel, WordPerfect, CorelDRAW, procreate, Bryce, iGrafx, Ventura and the Corel logo are trademarks or registered trademarks of Corel Corporation and/or its subsidiaries in the U.S., Canada and/or other countries. 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$)
Aug 31, November 30,
2002 2001
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ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $25,982 $24,924
Restricted cash 19,430 19,367
Marketable securities 51,702 78,076
Accounts receivable
Trade 25,714 18,689
Other 214 1,272
Inventory 776 799
Prepaid expenses 3,710 1,779
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Total current assets 127,528 144,906
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Investments 8,818 9,886
Deferred financing charge 25 250
Capital assets 45,665 43,123
Goodwill 37,534
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Total assets $182,036 $235,699
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $19,700 $27,862
Participation rights obligation 16,338 16,338
Income taxes payable 5,214 4,749
Deferred revenue 11,379 10,160
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Total current liabilities 52,631 59,109
Future income tax liability 9,515 4,967
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Total liabilities 62,146 64,076
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Shareholders' equity
Share capital 405,091 388,193
Contributed surplus 4,990 4,990
Deficit (290,191) (221,560)
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Total shareholders' equity 119,890 171,623
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Total liabilities and
shareholders' equity $182,036 $235,699
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COREL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND DEFICIT
(in thousands of US$, except per share data)
(unaudited)
Three months ended Nine months ended
---------------------------------------------------------------------
Aug 31, Aug 31,
2002 2001 2002 2001
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Sales $31,251 $34,151 $93,227 $102,701
Cost of sales 3,461 4,723 9,389 13,856
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Gross profit 27,790 29,428 83,838 88,845
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Expenses
Advertising 7,654 5,918 16,548 15,673
Selling, general and
administrative 17,885 13,328 51,439 44,013
Research and development 6,518 6,551 21,227 17,969
Depreciation and
amortization 5,737 3,646 14,238 10,268
Write-down of goodwill 50,508 50,508
Loss on foreign exchange (978) (531) (1,060) 215
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87,324 28,912 152,900 88,138
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Income (loss)
from operations (59,534) 516 (69,062) 707
Loss on investment (1,000) (137) (1,000)
Interest income 411 1,198 1,311 4,439
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Income (loss) before
income taxes (59,123) 714 (67,888) 4,146
Income tax recovery (expense) 390 (185) 188 (439)
Share of loss in
equity investment (411) (29) (931) (347)
---------------------------------------------------------------------
Net Income (loss) $(59,144) $500 $(68,631) $3,360
Deficit beginning
of period (231,047) (211,376) (221,560) (214,236)
---------------------------------------------------------------------
Deficit end of period (290,191) (210,876) (290,191) (210,876)
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Earnings (loss) per share:
Net loss
Basic $(0.64) $0.01 $(0.78) $0.05
Diluted $(0.64) $0.01 $(0.78) $0.03
Average number of Common
Shares outstanding (000s)
Basic 91,781 73,746 87,579 73,707
Diluted 91,781 97,943 87,579 97,851
COREL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands of US$)
(unaudited)
Nine months ended
------------------------------------------------------------------
Aug 31, Aug 31,
2002 2001
------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $(68,631) $3,360
Items which do not involve cash or
cash equivalents:
Depreciation 4,539 4,242
Amortization 11,630 8,292
Write-off of goodwill 50,508
Bad debt expense 52 3,047
Gain on disposal of assets (306)
Future income taxes (1,406) 139
Equity loss in investments 931 347
Loss on investment 137 1,000
Changes in operating assets and liabilities
Restricted cash (63) 729
Accounts receivable (5,072) 5,366
Inventory 23 1,943
Prepaid expenses (1,922) 105
Accounts payable and
accrued liabilities (10,531) (5,116)
Income taxes payable 465 (5,061)
Deferred revenue 1,219 (1,930)
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Net cash provided by (used in)
operating activities $(18,121) $16,157
------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 64 201
Bridge loan to Micrografx (2,500)
Repayment of Novell obligations (10,000)
------------------------------------------------------------------
Net cash provided by (used in)
financing activities $64 $(12,299)
------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (1,379)
Purchase of marketable securities 26,435 (76,793)
Purchase of capital assets (3,009) (6,878)
Acquisition of Micrografx Inc , net
of cash acquired (680)
Acquisition of SoftQuad Inc , net
of cash acquired (3,631)
Proceeds on disposal of assets 818
------------------------------------------------------------------
Net cash provided by (used in)
investing activities $19,115 $(84,232)
------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 1,058 (80,374)
Cash and cash equivalents at
beginning of period $24,924 $127,430
------------------------------------------------------------------
Cash and cash equivalents at end of period $25,982 $47,056
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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 A summary of sales by product, channel and by region from
consolidated operations is as follows:
Three Months Ended Nine Months Ended
---------------------------------------------------------------------
Aug 31, Aug 31, Aug 31, Aug 31,
2002 2001 2002 2001
---------------------------------------------------------------------
By product line
Creative Products $16,238 $23,009 $48,557 $57,761
Business Applications 11,687 10,364 34,775 43,855
Other 3,326 778 9,895 1,085
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Total sales $31,251 $34,151 $93,227 $102,701
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By sales channel
Retail packaged
products $18,125 $22,185 $51,804 $61,892
OEM licenses 1,667 1,880 5,824 8,797
Corporate licenses 11,459 10,086 35,599 32,012
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Total sales $31,251 $34,151 $93,227 $102,701
---------------------------------------------------------------------
---------------------------------------------------------------------
By region
Canada $3,075 $1,204 $7,229 $5,884
United States 18,499 20,481 50,008 58,372
Europe, Middle East,
Africa 7,724 8,572 28,673 25,953
Other international 1,953 3,894 7,317 12,492
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Total sales $31,251 $34,151 $93,227 $102,701
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