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FILENET ANNOUNCES FINAL FISCAL 1992 RESULTS

 COSTA MESA, Calif., Feb. 11 /PRNewswire/ -- FileNet Corp. (NASDAQ-NMS: FILE) today announced revenue for the year ending Jan. 3, 1993, was $138.3 million, a 13-percent increase from the $122.5 million reported in 1991. The company reported a net loss for the year of $8 million, or 76 cents per share. Net income for the prior year was $8.1 million, or 75 cents per share. The net loss in 1992 includes a restructuring charge of $6.3 million after tax, or 60 cents per share and a benefit of $1.9 million, or 18 cents per share, from the adoption of SFAS 109, Accounting for Income Taxes.
 "As I indicated in our Jan. 4 release, we were surprised and very disappointed by our fourth quarter results," stated Ted Smith, FileNet's president and chief executive officer. "We have taken a number of steps to reposition the company for 1993, writing off proprietary products and implementing programs to reduce costs in our manufacturing and service organizations. With the recent announcements of our new relationship with Hewlett-Packard and Olivetti, we have strengthened our market position. In addition, our transition to industry-standard hardware and open systems is nearing completion."
 Changes from Preliminary Estimates
 On Jan. 4, 1993, FileNet issued a press release indicating its 1992 results would be substantially below expectations. The final results reported here differ from those preliminary estimates as follows:
 Final reported annual revenue was $138.3 million, $1.7 million below preliminary estimates of $140 million. Gross profit of $68.2 million was $2 million above preliminary estimates reflecting the net effect of a $0.9-million drop in gross profit due to the revenue shortfall and a $2.9-million decrease in cost of sales resulting from the reclassification of capitalized software and amortization expenses to the restructuring charge.
 Operating expenses were $0.9 million higher than preliminary estimates primarily due to a delay in signing of an engineering contract and additional expense accruals.
 The net effect of all changes was a $1.1-million increase in reported pretax income before the restructuring charge to a net pretax profit of $0.2 million, compared to original estimates of a net pretax loss of $0.9 million.
 The final restructuring charge totalled $10 million, compared to preliminary estimates of $6.8 million, due to the addition of $2.9 million in capitalized software write-offs reclassified from cost of sales and a $0.3-million increase in expenses.
 FileNet also elected to adopt SFAS 109 during the fourth quarter. This pronouncement allows the company to recognize the tax benefit of the restructuring charge established during the quarter. All companies are required to adopt SFAS 109 no later than fiscal 1993; however, the pronouncement recommends earlier adoption. The final tax benefit is $1.8 million compared to $1.5 million in the preliminary estimates.
 The net effect of all the changes described above was an increase in the net loss to $8 million, or 76 cents per share, for the year, compared with preliminary estimates of a net loss of $6.2 million, or 59 cents per share.
 Fourth Quarter Results
 Revenue for the fourth quarter was $31.8 million, down 14 percent from $37 million in the same quarter a year ago. The net loss for the quarter was $11.7 million, or $1.11 per share, compared with net income of $3.3 million, or 30 cents per share, in the fourth quarter of 1991. Preliminary estimates for the quarter were revenue of $33.5 million and a net loss of $9.9 million, or 94 cents per share. All of the factors discussed above affected the fourth quarter.
 "Existing customers and new prospects did not complete purchases as anticipated, resulting in a significant shortfall from expectations. Our fourth quarter has traditionally been our strongest in terms of revenue and profit performance, and we expected this pattern to continue. Earlier in the year, we also expanded our sales force significantly and expected the benefits of that growth to begin to be realized during the quarter," Smith explained.
 "While we recognized the uncertain economic outlook, particularly in Europe, our prospect pipeline led us to expect higher revenues than experienced. Delays in order due to the negative economic environment accounted for a significant portion of the revenue shortfall. While we only lost a few deals to competitors that were expected to close during the quarter, increased competitive activity did contribute to delays."
 Restructuring
 "We are restructuring FileNet's manufacturing and service operations to better position the company to take advantage of changes in the market as the industry moves rapidly to adopt open systems and industry- standard hardware," said Smith. "As part of this restructuring, we are implementing programs to reduce costs and improve operating efficiencies in our manufacturing and service organizations, thereby improving the outlook for long-term profitability. Accordingly, we have written off assets related to our proprietary products."
 The restructuring charge consists of the following elements:
 ($ in millions)
 Asset write-offs:
 Capitalized software $ 4.2
 Capital equipment and spare parts 2.9
 Inventory 1.7
 Severance expenses 1.2
 Total $10.0
 1992 Summary
 During the year 103 systems were shipped compared with 110 in 1991, adding 78 new customers. Total product revenues increased 6 percent from 1991, reflecting a 23-percent increase ($5.8 million) in international product revenues, most notably in Germany, a 2-percent growth ($1.2 million) in U.S. shipments and a 35-percent decline ($1.4 million) in OEM OSAR revenue. Software revenue as a percentage of total product revenue was 33 percent, up significantly from 21 percent in 1991, reflecting our continued focus on software content. Service revenue continued to grow due to the larger installed base.
 Product gross margin remained relatively constant, compared to 1991, as the benefit of the increased software content was offset by lower hardware margins, higher software amortization expense and higher inventory reserves. Service gross margin declined from 24 percent in 1991, to 19 percent in 1992, reflecting higher service costs in the European subsidiaries. As a result, total gross margin declined from 52.8 percent in 1991, to 49.3 percent in 1992, reflecting the increase in service revenue as a percentage of total revenue.
 Financial Condition Remains Strong
 FileNet's financial condition continues to be strong with cash and marketable securities, net of short-term bank debt, of $25 million, less than $100,000 in long-term debt and $72.6 million in shareholders' equity.
 Current Developments; New Relationships
 "We have substantially completed our transition to industry-standard platforms, and are now delivering our software on several models of IBM RISC-based servers," Smith said. "New scanning and printing solutions are being shipped using industry-standard PC servers. Our customers have been using our workstation software on their own PCs since January 1991.
 "In addition to running in the IBM UNIX (AIX) and Microsoft Windows environments, we have broadened FileNet's open systems capabilities via new relationships with Hewlett-Packard and Olivetti. FileNet software will be ported to HP's 9000 RISC series running HP/UX, their 3000 RISC series running MPE and Olivetti's LSX 5000 platforms under UNIX System V Release 4.
 "FileNet's direct sales force and distributors will market our software and professional services in conjunction with the worldwide HP sales force as they market the models 9000 and 3000. This will be the first time we have marketed a software-only product. Olivetti will market its hardware and FileNet's software in Europe under a licensing arrangement. Both the HP 9000 and Olivetti products are expected to be initially available during the third quarter of 1993."
 FileNet Corp. is an industry leader in imaging and business process automation solutions. The company's WorkFlo Business System software, a set of products that manages and controls the movement of images, data and text throughout an enterprise, is the most widely installed software of its kind. FileNet customers include paper-intensive organizations in virtually every industry and level of government. Headquartered in Costa Mesa, FileNet markets its products directly to end-users through the company's sales offices in the United States, Canada, France, Germany, the United Kingdom and Australia. FileNet systems are also sold in other countries by Ing. C. Olivetti &C. S.p.A.; Toyo Officemation Inc.; a Mitsui company; and various distributors. FileNet has installed more than 600 systems in 29 countries.
 NOTE: For additional information on FileNet Corp., via fax, no cost -- dial 800-PRO-INFO, code no. 065.
 -0- 2/11/93
 /CONTACT: Mark St. Clare, chief financial officer of FileNet, 714-966-3577; or Lise Needham of the Financial Relations Board, 415-986-1591, for FileNet/
 (FILE)


CO: FileNet Corp. ST: California IN: CPR SU: ERN

GT-SG -- SF003 -- 5545 02/11/93 09:07 EST
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