FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-15997
FILENET CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-3757924
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
3565 Harbor Boulevard, Costa Mesa, CA 92626
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(Address of principal executive offices) (Zip code)
(714) 327-3400
--------------------------------------------------------------------------------
(Registrant's telephone number including area code)
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 |_|
As of August 4, 2000, there were 34,306,344 shares of the Registrant's common
stock outstanding.
<PAGE>
FILENET CORPORATION
Index
Page
Number
------------------------------------------------------------------- ----------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
As of June 30, 2000 (unaudited) and December 31, 1999........ 3
Consolidated Statements of Income (unaudited)
For the three and six month periods ended June 30, 2000
and 1999...................................................... 4
Consolidated Statements of Comprehensive Income(unaudited)
For the three and six month periods ended June 30, 2000
and 1999...................................................... 5
Consolidated Statements of Cash Flows (unaudited)
For the six month periods ended June 30, 2000 and 1999........ 6
Notes to Consolidated Financial Statements (unaudited)........ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Material Events 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
SIGNATURE..................................................... 19
INDEX TO EXHIBITS............................................. 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FILENET CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 83,267 $ 71,528
Short-term investments 39,133 31,581
Accounts receivable, net 70,004 72,736
Inventories, net 3,069 3,399
Prepaid expenses and other current assets 9,974 8,080
Deferred income taxes 1,041 938
----------- ------------
Total current assets 206,488 188,262
Property, net 43,775 40,593
Long-term investments 1,881 5,542
Intangible assets, net 14,710 -
Deferred income taxes 4,735 4,752
Other assets 1,663 1,743
----------- ------------
Total assets $ 273,252 $ 240,892
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,022 $ 16,642
Accrued compensation and benefits 21,213 24,079
Unearned maintenance revenue 25,188 16,286
Income taxes payable 9,528 7,808
Other accrued liabilities 20,577 21,670
----------- ------------
Total current liabilities 87,528 86,485
Unearned maintenance revenue 5,906 3,949
Stockholders' equity:
Preferred stock - $.10 par value; 7,000,000 shares
authorized; none issued and outstanding
Common stock - $.01 par value; 100,000,000 shares
authorized; 35,377,871 and 33,578,642 shares
outstanding at June 30, 2000 and December 31, 1999,
respectively 167,502 149,779
Retained earnings 36,471 22,981
Accumulated other comprehensive operations (9,588) (7,735)
----------- ------------
194,385 165,025
Treasury stock, at cost; 1,098,000 shares at
June 30, 2000 and December 31, 1999 respectively (14,567) (14,567)
----------- ------------
Total stockholders' equity 179,818 150,458
----------- ------------
Total liabilities and stockholders' equity $ 273,252 $ 240,892
=========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------- -------------- --------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Software $ 49,629 $ 48,651 $ 97,741 $ 90,635
Service 40,686 33,893 80,168 67,320
Hardware 4,764 3,545 9,972 9,576
------------- ------------- ------------- ------------
Total revenue 95,079 86,089 187,881 167,531
------------- ------------- ------------- ------------
Costs and expenses:
Cost of software revenue 4,275 4,663 8,564 8,624
Cost of service revenue 23,076 20,515 46,181 40,819
Cost of hardware revenue 3,535 1,867 6,426 5,033
Research and development 13,931 13,234 28,069 26,336
Amortization of intangibles 254 - 254 -
Selling, general and
administrative 39,350 40,746 80,296 80,191
Purchased in process
research and development 2,984 - 2,984 -
------------- ------------- ------------- ------------
Total costs and expenses 87,405 81,025 172,774 161,003
------------- ------------- ------------- ------------
Operating income 7,674 5,064 15,107 6,528
Other income, net 1,328 499 2,520 1,960
------------- ------------- ------------- ------------
Income before income taxes 9,002 5,563 17,627 8,488
Provision for income taxes 1,980 1,669 4,136 2,546
------------- ------------- ------------- ------------
Net income $ 7,022 $ 3,894 $ 13,491 $ 5,942
============= ============= ============= ============
Earnings per share:
Basic $ 0.21 $ 0.12 $ 0.40 $ 0.19
Diluted $ 0.19 $ 0.12 $ 0.37 $ 0.18
Weighted average shares
outstanding:
Basic 34,183 32,066 33,763 31,990
Diluted 36,602 32,563 36,731 32,558
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 7,022 $ 3,894 $ 13,491 $ 5,942
-------------- --------------- -------------- ---------------
Other comprehensive income(loss):
Foreign currency translation adjustments1 (183) (1,702) (1,878) (4,355)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)2 32 (64) 25 (80)
-------------- --------------- -------------- ---------------
Total other comprehensive income (loss) (151) (1,766) (1,853) (4,435)
-------------- --------------- -------------- ---------------
Comprehensive income $ 6,871 $ 2,128 $ 11,638 $ 1,507
============== =============== ============== ===============
--------------------------------------------------------------------------------------------------------------------
1net of tax effect of $122 and $1,135 for the three months ended June 30, 2000
and 1999, respectively and net of tax effect of $1,252 and $2,903 for the six
months ended June 30, 2000 and 1999, respectively
2net of tax benefit of $(21) and tax effect of $43 for the three months ended
June 30, 2000 and 1999, respectively and net of tax benefit of $(17) and tax
effect of $53 for the six months ended June 30, 2000 and 1999, respectively
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
2000 1999
--------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,491 $ 5,942
Adjustments to reconcile net loss to net cash
provided by operating activities:
Purchased in-process research and development 2,984 -
Depreciation and amortization 8,877 8,688
Provision for doubtful accounts 158 202
Deferred income taxes (86) 59
Changes in operating assets and liabilities,
net of acquisition:
Accounts receivable 1,066 (9,263)
Inventories 330 (695)
Prepaid expenses and other current assets (1,936) 783
Accounts payable (5,513) (5,687)
Accrued compensation and benefits (2,622) 734
Unearned maintenance revenue 10,954 10,682
Income taxes payable 1,850 1,845
Other (3,649) 7,737
------------- ------------
Net cash provided by operating activities 25,904 21,027
------------- ------------
Cash flows from investing activities:
Capital expenditures (12,568) (8,898)
Proceeds from sale of equipment 419 1,313
Cash paid for acquisitions (20,000) -
Purchases of marketable securities (16,521) (28,048)
Proceeds from sales and maturities of marketable
securities 17,842 15,600
------------- ------------
Net cash used by investing activities
(30,828) (20,033)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 17,723 2,340
------------ ------------
Net cash provided by financing activities 17,723 2,340
------------ ------------
Effect of exchange rate changes on cash and cash
equivalents (1,060) (1,658)
------------ ------------
Net increase in cash and cash equivalents
11,739 1,676
Cash and cash equivalents, beginning of year
71,528 55,820
------------ ------------
Cash and cash equivalents, end of period $ 83,267 $ 57,496
============ ============
Supplemental cash flow information:
Interest paid $ 14 $ 9
Income taxes paid $ 2,336 $ 46
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
FILENET CORPORATION
Notes To Consolidated Financial Statements
(Unaudited)
1. In the opinion of the management of FileNET Corporation ("the Company"),
the accompanying unaudited consolidated financial statements reflect
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial position of the Company at June 30, 2000 and
the results of its operations, its comprehensive operations and its cash
flows for the three month and six month periods ended June 30, 2000 and
1999. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission ("SEC"), although the
Company believes that the disclosures in the consolidated financial
statements are adequate to ensure the information presented is not
misleading. These consolidated financial statements 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 contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and the Company's Quarterly Report on
form 10Q for the quarter ended March 31, 2000. The results of operations
for the interim periods are not necessarily indicative of the operating
results for the year.
2. On May 18, 2000, the Company acquired certain assets from Application
Partners Incorporated (API) for $20.0 million. The acquisition was
accounted for as an asset purchase, and the purchase price was allocated as
follows (in thousands):
Assembled workforce $ 386
Goodwill 14,578
In-process research and development 2,984
Prepaid expense 2,000
Fixed assets 78
------------
Total purchase price $ 20,026
============
The amount allocated to assembled workforce is being amortized over an
estimated useful life of three years. The amount allocated to goodwill is
being amortized over an estimated useful life of five years. Additionally,
retention payments of $2.0 million were recorded as a prepaid asset and
will be expensed based upon defined future employment requirements.
Based upon an independent third party appraisal, the Company allocated $3.0
million to in-process research and development which was an element of the
purchase price. The in-process research and development expenses related to
new product projects that were under development at the date of the
acquisition and were expected to eventually lead to new products but had
not yet established feasibility and for which no future alternative use was
identified. The valuation of the in-process research and development
projects was based upon the discounted expected future net cash flows of
the products over their expected life, reflecting the estimated percent of
completion of the projects and an estimate of the costs to complete the
projects. New product development projects underway at API at the time of
the acquisition included Sequis, an eService application which we estimated
was 88% complete at the date of the acquisition. The estimated cost to
complete the project will aggregate approximately $300,000 and will be
incurred over a three-month period. Since the date of acquisition, we have
incurred approximately $80,000 related to the project.
3. Certain reclassifications have been made to the prior year's consolidated
financial statements to conform with the current year's presentation.
4. The following table is a reconciliation of the earnings and share amounts
used in the calculation of basic earnings per share and diluted earnings
per share for the three and six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
------------------------------------------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 7,022 $ 3,894 $ 13,491 $ 5,942
=============== =============== =============== ==============
7
<PAGE>
Weighted average basic shares outstanding 34,183 32,066 33,763 31,990
Effect of dilutive stock options 2,419 497 2,968 568
--------------- --------------- --------------- ---------------
Weighted average diluted shares outstanding 36,602 32,563 36,731 32,558
=============== =============== =============== ===============
Basic earnings per share 0.21 0.12 0.40 0.19
Diluted earnings per share 0.19 0.12 0.37 0.18
</TABLE>
5. In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires enterprises to report
comprehensive income and its components in general-purpose financial
statements. SFAS No. 130 was effective for the Company beginning January 1,
1998. Accordingly, the Company has prepared Statements of Comprehensive
Operations for the six month period ended June 30, 2000. Accumulated other
comprehensive operations as of June 30, 2000 is comprised of the following:
<TABLE>
<CAPTION>
Accumulated
Foreign Currency Unrealized Other
Translation Holding Comprehensive
(In thousands) Adjustment Gains (Losses) Operations
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance, December 31, 1999 $ (7,638) $ (97) $ (7,735)
Current period changes (1,878) 25 (1,853)
----------------- ----------------- -----------------
Balance June 30, 2000 $ (9,516) $ (72) $ (9,588)
================= ================= =================
</TABLE>
6. The Company has prepared operating segment information in accordance with
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information", to report components that are evaluated regularly by the
Company's chief operating decision-maker, or decision making groups, in
deciding how to allocate resources and in assessing performance. The
operating segments are managed separately because each segment represents a
strategic business unit that offers different products or services. The
results of the segments reflect allocation of certain functional expense
categories consistent with its internal reporting which is not the same as
GAAP reporting.
Operating segments data for the three and six month periods ended June 30,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
In thousands 2000 1999 2000 1999
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Software
Revenue $ 49,629 $ 48,651 $ 97,741 $ 90,635
Operating income (loss) 1,456 939 1,175 (2,725)
Customer Support
Revenue $ 25,657 $ 19,629 $ 50,503 $ 39,522
Operating income 6,497 3,269 13,759 7,646
Professional Services and Education
Revenue $ 13,669 $ 12,542 $ 27,071 $ 23,936
Operating income (loss) (267) 309 (324) 373
Hardware
Revenue $ 4,765 $ 3,545 $ 9,972 $ 9,576
Operating income (loss) (252) 397 156 919
Other
Revenue $ 1,359 $ 1,722 $ 2,594 $ 3,862
Operating income 240 150 341 315
8
<PAGE>
Total
Revenue $ 95,079 $ 86,089 $ 187,881 $ 167,531
Operating income 7,674 5,064 15,107 6,528
</TABLE>
Included in software revenue is $21.0 million related to Web based product
for the three months period ended June 30, 2000 and $34.4 million for the
six months period ended June 30, 2000.
7. In October 1994, Wang Laboratories, Inc. ("Wang") filed a complaint in the
United States District Court for the District of Massachusetts alleging
that the Company is infringing five patents held by Wang (the FileNET
Case). On June 23, 1995, Wang amended its complaint to include an
additional related patent. On July 2, 1996, Wang filed a complaint in the
same court alleging that Watermark Software, Inc., formerly a wholly owned
subsidiary that was merged into the Company, is infringing three of the
same patents asserted in the initial complaint (the Watermark Case). On
October 9, 1996, Wang withdrew its claim in the FileNET Case that one of
the patents it initially asserted is infringed.
In March 1997, Eastman Kodak Company ("Kodak") purchased the Wang imaging
business unit that has responsibility for this litigation. On July 30,
1997, the Court permitted Eastman and Kodak Limited of England to be
substituted in the litigation in place of Wang.
The Company has moved for summary judgment on noninfringement as to each of
the five patents in the suit, and for summary judgment of invalidity as to
one of the patents. Eastman moved for summary judgment as to the Company's
unenforceability defense on one of the patents. In July 1998, the
Magistrate Judge assigned to the case heard oral arguments on the Company's
motion for summary judgment that U.S. Patent 4,918,588 is not infringed and
is invalid. The Magistrate Judge has not yet decided these motions. The
Company believes that after he has ruled on these motions, he will hear
oral arguments in the remaining motions in the sequence in which they were
filed. A trial date has not yet been set.
If it should be determined that the patents at issue in the litigation are
valid and are infringed by any of the Company's products, including
Watermark products, the Company will, depending on the product, redesign
the infringing products or seek to obtain a license to market the products.
There can be no assurance that the Company will be able to successfully
redesign the infringing products or obtain a license on acceptable terms.
Based on the Company's analysis of these patents and their respective file
histories, the Company believes that it has meritorious defenses to these
claims; however, the ultimate outcome or any resulting potential loss
cannot be determined at this time.
Subsequent to December 31, 1998, the former shareholders of Saros filed a
demand for mandatory arbitration to release approximately two hundred
thousand shares of FileNET stock which were held in escrow pursuant to the
Agreement and Plan of Merger dated January 17, 1996, among FileNET
Corporation, FileNET Acquisition Corporation, and Saros, and for damages.
Mandatory arbitration is scheduled for January 9, 2001. The Company
believes that it has meritorious reasons for not releasing the shares and
other defenses to the claims; however, the ultimate or any resulting
potential loss cannot be presently determined.
In the normal course of business, the Company is subject to various other
legal matters. While the results of litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of
these other matters will not have a material adverse effect on the
Company's consolidated results of operations or financial condition.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included in Part I--Item 1 and Factors
That May Affect Future Results in Item 2 of this Quarterly Report, and with the
audited consolidated financial statements and notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K for the fiscal year ended December
31, 1999 and our Quarterly Report on form 10Q for the quarter ended March 31,
2000.
Results of Operations
Revenue
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ ------------------------------------
(Dollars in millions) 2000 1999 % Change 2000 1999 % Change
------------ ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Software revenue
Domestic $ 35.6 $ 32.9 8% $ 67.5 $ 59.7 13%
International 14.0 15.8 (11%) 30.2 31.0 (3%)
----------- ---------- ----------- -----------
Total software revenue $ 49.6 $ 48.7 2% $ 97.7 $ 90.7 8%
----------- ---------- ----------- -----------
Percentage of total revenue 52% 57% 52% 54%
Customer Support
Domestic $ 20.4 $ 15.7 30% $ 39.6 $ 31.5 26%
International 5.3 4.0 33% 11.0 8.1 36%
----------- ---------- ----------- -----------
Total customer support revenue $ 25.7 $ 19.7 30% $ 50.6 $ 39.6 28%
----------- ---------- ----------- -----------
Percentage of total revenue 27% 23% 27% 24%
Professional Services and Education
Domestic $ 10.6 $ 9.0 18% $ 20.9 $ 16.8 24%
International 3.1 3.5 (11%) 6.2 7.0 (11%)
----------- ---------- ----------- -----------
Total professional services and
education revenue $ 13.7 $ 12.5 10% $ 27.1 $ 23.8 14%
----------- ---------- ----------- -----------
Percentage of total revenue 14% 14% 15% 14%
Hardware revenue
Domestic $ 3.6 $ 2.3 57% $ 8.0 $ 7.1 13%
International 1.2 1.2 0% 2.0 2.4 (17%)
------------ ---------- ----------- -----------
Total hardware revenue $ 4.8 $ 3.5 37% $ 10.0 $ 9.5 5%
------------ ---------- ----------- -----------
Percentage of total revenue 5% 4% 5% 6%
Other revenue
Domestic $ 1.1 $ 1.3 (15%) $ 2.2 $ 3.1 (29%)
International 0.2 0.4 (50%) 0.3 0.8 (63%)
------------ ---------- ----------- -----------
Total other revenue $ 1.3 $ 1.7 (24%) $ 2.5 $3.9 (36%)
------------ ---------- ----------- -----------
Percentage of total revenue 1% 2% 1% 2%
------------ ---------- ----------- -----------
Total revenue
Domestic $ 71.3 $ 61.2 17% $ 138.2 $ 118.2 17%
International 23.8 24.9 (4%) 49.7 49.3 1%
------------ ----------- ----------- -----------
Total revenue $ 95.1 $ 86.1 10% $ 187.9 $ 167.5 12%
============ =========== =========== ===========
</TABLE>
Software revenue from the licensing of our software products increased 2% and 8%
for the three and six month periods, respectively, ended June 30, 2000 over the
comparable periods of 1999. Software revenue growth was adversely affected by a
decline in international sales.
10
<PAGE>
Customer support revenue consists of revenue from maintenance contracts and "fee
for service" revenues. Customer support revenue increased 30% and 28% for the
three and six month periods, ended June 30, 2000 over the same periods of 1999
due to increased maintenance revenue from the growth of our installed base.
Professional services and education revenue is generated primarily from
consulting and implementation services provided to end users of our software
products, technical consulting services provided to our resellers, and training
services. Such services are primarily performed on a time and material basis.
Professional services and education revenue increased 10% and 14% for the three
and six month periods ended June 30, 2000 over the comparable period of 1999 and
is a result of an increase in consulting services and custom development
projects along with an increase in sales of pre-packaged service offerings which
include both consulting and training.
Hardware revenue is generated primarily from the sale of 12-inch optical storage
and retrieval libraries (OSAR). Hardware revenue increased by 37% and 5% for the
three and six month periods ended June 30, 2000 over the comparable period of
1999 due to an increase in 30 gigabyte drive orders. Hardware revenue, however,
is expected to continue to decline as a percentage of total revenue.
Other revenue is generated from the sale of spare parts, supplies and third
party products. Other revenue decreased 24% and 36% for the three and six month
periods, respectively, ended June 30, 2000 compared to the same periods in 1999
due to diminished demand for spares and expected decreased orders for third
party product.
International revenue represented 25% and 29% of total revenues in the three
month periods ended June 30, 2000 and 1999, respectively. For the six month
periods ended June 30 2000 and 1999 international revenue constituted 26% and
29%, respectively. Although weaker performance in our international operations
has resulted in a lower proportion of revenue being generated internationally,
management expects that international operations will continue to account for a
significant portion of total revenues. However, international revenues are
subject to certain risks including but not limited to political and economic
instability and currency fluctuation.
Cost of Revenue
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- -----------------------------------
% %
2000 1999 Change 2000 1999 Change
(Dollars in millions) -------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cost of software revenue $ 4.3 $ 4.7 (9%) $ 8.6 $ 8.6 0%
Percentage of software revenue 9% 10% 9% 9%
Cost of customer support revenue $ 10.2 $ 9.2 11% $ 20.8 $ 17.9 16%
Percentage of customer support
revenue 40% 47% 41% 45%
Cost of professional services and
education revenue $ 11.9 $ 9.9 20% $ 23.4 $ 19.7 19%
Percentage of professional services
and education revenue 87% 79% 86% 83%
Cost of hardware revenue $ 3.5 $ 1.8 94% $ 6.4 $ 5.0 28%
Percentage of hardware revenue 73% 51% 64% 53%
Cost of other revenue $ 1.0 $ 1.4 (29%) $ 2.0 $ 3.2 (38%)
Percentage of other revenue 77% 82% 80% 82%
Total cost of revenue $ 30.9 $ 27.0 14% $ 61.2 $ 54.4 13%
Percentage of total revenue 32% 31% 33% 32%
</TABLE>
The cost of software revenue includes royalties paid to third parties and the
cost of software distribution. The cost of software revenue as a percentage of
software revenue for the three month period ended June 30, 2000 decreased to 9%
from 10% in the same period of 1999. The cost of software revenue as a
percentage of software revenue for the six month period ended June 30, 2000
remained constant at 9% for the same period in 1999.
The cost of customer support revenue includes customer support personnel,
supplies, and the cost of third party hardware maintenance. The cost of customer
11
<PAGE>
support revenue as a percentage of customer support revenue for the three month
period ended June 30, 2000 decreased to 40% from 47% in the same period of 1999.
The cost of customer support revenue for the six month period ended June 30,
2000 decreased to 41% from 45% for the comparable period of 1999. The decrease
is attributable to increased revenue without a proportional increase in cost.
The cost of professional services and education revenue consists primarily of
professional services personnel, training personnel and third party contractors.
The cost of professional services and education revenue as a percentage of
professional services and education revenue for the three month period ended
June 30, 2000 increased to 87% from 79% in the same period of 1999. The cost of
professional services and education revenue for the six month period ended June
30, 2000 increased 86% from 83% for the comparable period of 1999. The increase
was due primarily to an increase in the number of personnel, the cost of which
has not been fully absorbed by proportional revenue growth.
The cost of hardware revenue includes the cost of manufacturing OSARs, and the
cost of hardware integration personnel. The cost of hardware revenue as a
percentage of hardware revenue for the three month period ended June 30, 2000
increased to 73% from 51% for the comparable period of 1999. The cost of
hardware revenue as a percentage of hardware revenue for the six month period
ended June 30, 2000 increased to 64% from 53% for the comparable period of 1999.
The increase is due to higher costs associated with upgrading and providing
warranty coverage for certain products.
The cost of other revenue includes the cost of supplies, spare parts and third
party product. The cost of other revenue as a percentage of other revenue for
the three months ended June 30, 2000 decreased to 77% from 82% in the same
period of 1999. The cost of other revenue as a percentage of other revenue for
the six month period ended June 30, 2000 decreased 80% from 82% for the
comparable period of 1999. The decrease in cost of other revenue is the result
of a reduction in fixed costs.
Operating Expenses
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ------------------------------------
(Dollars in millions) 2000 1999 % Change 2000 1999 % Change
----------------------- ----------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Research and development $ 13.9 $ 13.2 5% $ 28.0 $ 26.3 6%
Percentage of total revenue 15% 15% 15% 16%
Selling, general and
administrative $ 39.3 $ 40.8 (4%) $ 80.3 $ 80.2 0%
Percentage of total revenue 41% 47% 43% 48%
</TABLE>
Research and development expenses increased 5% and 6% for the three and six
month periods ended June 30, 2000, respectively, compared to the comparable
periods of 1999. The increases in absolute dollars were due to a general
increase in salaries. As a percentage of total revenue, research and development
expenses were at 15% for the three-month period ended June 30, 2000 and 1999,
respectively and 15% compared to 16% for the six month period ended June 30,
2000 and 1999, respectively.
We expect that competition for qualified technical personnel will remain intense
for the foreseeable future and may result in higher levels of compensation
expense. We believe that research and development expenditures, including
compensation of technical personnel, are essential to maintaining our
competitive position and expect these costs to continue to constitute a
significant percentage of revenues.
Selling, general and administrative expenses decreased 4% and 0% for the three
and six month periods ended June 30, 2000 compared to the same periods of 1999.
The decrease was primarily due overall reduced spending. As a percentage of
total revenue, selling, general and administrative expenses decreased to 41% for
the three month period ended June 30, 2000 from 47% in the same period of 1999.
For the six month period ended June 30, 2000 selling , general administration
expenses decreased to 43% compared to 48% for the same period in 1999 due to
expense levels growing at a lower rate than revenue.
Amortization of intangibles and in-process research and development. On May 18,
2000, we acquired certain assets from Application Partners Incorporated (API)
for $20.0 million. The acquisition was accounted for as a purchase. Amortization
expense for the purchased intangible assets was $254,000 for the period ended
June 30, 2000, compared with none in the same period of 1999. Based upon an
independent third party appraisal, $3.0 million of the purchase price was
allocated to in-process research and development which was immediately expensed.
The in-process research and development expenses related to new product projects
that were under development at the date of the acquisition and were expected to
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eventually lead to new products but had not yet established feasibility and for
which no future alternative use was identified. The valuation of the in-process
research and development projects was based upon the discounted expected future
net cash flows of the products over their expected life, reflecting the
estimated percent of completion of the projects and an estimate of the costs to
complete the projects. New product development projects underway at API at the
time of the acquisition included Sequis, an eService application which we
estimated was 88% complete at the date of the acquisition. The estimated cost to
complete the project will aggregate approximately $300,000 and will be incurred
over a three-month period. Since the date of acquisition, we have incurred
approximately $80,000 related to the project.
Uncertainties that could impede the progress of converting a development project
to a developed technology include the availability of financial resources to
complete the project, failure of the technology to function properly, continued
economic feasibility of developed technologies, failure to convert technology
into a repetitively manufacturable product, customer acceptance, customer
demand, and customer qualification of such new technology, and general
competitive conditions in the industry. There can be no assurance that the
in-process research and development projects will be successfully completed and
commercially introduced.
Provision for Income Taxes. The combined federal, state and foreign annual
effective tax rate for the three months ended June 30, 2000 was 22% compared to
30% for the comparable period in 1999. The combined federal, state and foreign
annual tax rate for the six months ended June 30, 2000 was 23% compared to 30%
for the comparable period in 1999. The decrease in the rate is attributable to
the utilization of domestic net operating loss carryforwards as a result of the
increase in domestic revenue.
Foreign Currency Fluctuations and Inflation. Our performance can be affected by
changes in foreign currency values relative to the U.S. dollar in relation to
the Company's revenue and operating expenses. The impact to net income from
foreign exchange transactions and hedging activities is immaterial for all
periods reported. As of June 30, 2000, we had forward exchange contracts
outstanding totaling approximately $2.9 million in 9 currencies. All of these
contracts mature in three months.
Other comprehensive loss reflects an increase of $0.2 million for the three
months ended June 30, 2000 and an increase of $1.9 million for the six months
ended June 30, 2000 in the unrealized loss due to foreign currency translation.
This increase was primarily attributable to unrealized losses associated with
the weakening of the Euro currency against the U.S. dollar during the period.
Management believes that inflation has not had a significant impact on the
prices of its products, the cost of its materials, or its operating results for
the three months ended June 30, 2000 and 1999.
Other Financial Instruments. We enter into forward foreign exchange contracts as
a hedge against the effects of fluctuating currency exchange rates on monetary
assets and liabilities denominated in currencies other than the functional
currency of the relevant entity. We are exposed to market risk on the forward
exchange contracts as a result of changes in foreign exchange rates; however,
the market risk should be offset by changes in the valuation of the underlying
exposures. Gains and losses on these contracts, which equal the difference
between the forward contract rate and the prevailing market spot rate at the
time of valuation, are recognized in the consolidated statement of operations.
The counterparties to these contracts are major financial institutions. We use
commercial rating agencies to evaluate the credit quality of the counterparties.
We do not anticipate a material loss resulting from any credit risks related to
any of these institutions.
Liquidity and Capital Resources
At June 30, 2000, combined cash, cash equivalents and investments totaled $124.3
million, an increase of $15.6 million from the end of 1999. Cash provided by
operating activities during the six months ended June 30, 2000 totaled $25.9
million and resulted primarily from net income; an increase in unearned
maintenance revenue related to prepaid maintenance contracts; and additions to
net income for depreciation and amortization expense offset by decreases in
accounts payable and accrued compensation and benefits. Cash used by investing
activities totaled $30.8 million and was a result of capital expenditures of
$12.6 million and the acquisition of certain assets and in-process research and
development of $20.0 million. Cash provided by financing activities totaled
$17.7 million and was a result of proceeds received from the exercise of
employee stock options and the employee stock purchase plan.
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Accounts receivable decreased to $70.0 million at June 30, 2000 from $72.7
million at December 31, 1999. Days sales outstanding decreased to 67 days as of
June 30, 2000 from 70 days as of December 31, 1999. Current liabilities
increased to $87.5 million at June 30, 2000 from $86.5 million at December 31,
1999. The increase in current liabilities is primarily a result of increases in
unearned maintenance revenue and income taxes payable, offset by decreases in
accounts payable, and accrued compensation and benefits.
We have a $20 million commercial line of credit that expires in June 2001.
Borrowings under the arrangement are unsecured and bear interest at one hundred
basis points over the London Interbank Offered Rate. A commitment fee of fifteen
basis points is assessed against any undrawn amounts. As of June 30, 2000, there
were no borrowings outstanding against the credit line.
We anticipate that our present cash balances together with internally generated
funds and credit lines will be sufficient to meet our working capital and
capital expenditure needs for at least the next twelve months.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued SOP
No. 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use". We adopted SOP No. 98-1 effective January 1, 1999 with no
significant effect on our results of operations and financial condition.
In December 1999, Staff Accounting Bulletin No. 101 ("SAB 101") was issued to
provide staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. SAB 101, is effective no later than
the fourth fiscal quarter of fiscal years beginning after December 15, 1999. We
are currently evaluating the impact this bulletin may have on our financial
statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued, SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 as amended, is effective for fiscal years beginning after June 15, 2000 and
will require us to record all derivatives on the balance sheet at fair value.
For derivatives that are hedges, changes in the fair value of derivatives will
be offset by the change in fair value of the hedged assets, liabilities, or firm
commitments. We believe the impact of adopting this standard will not be
material to our results of operations or equity.
Other Matters
Year 2000. In 1997, we implemented a year 2000 Integrity Program to ensure that
our computer software products and internal business systems would function
properly in year 2000 and thereafter. Since January 1, 2000 we have not
experienced any problems with our software products or internal business systems
to properly manage and manipulate data related to the year 2000. All new
generations of our software products are released as year 2000 compliant.
The EURO Conversion. On January 1, 1999, eleven of the fifteen member countries
of the European Union established fixed conversion rates between their existing
sovereign currencies and the EURO. These countries have agreed to adopt the EURO
as their common legal currency from that date. The EURO trades on currency
exchanges and is available for non-cash transactions. These countries will issue
sovereign debt exclusively in EURO and will re-denominate outstanding sovereign
debt. Effective on this date, these countries no longer control their own
monetary policies by directing independent interest rates for the legacy
currencies. Instead, the authority to direct monetary policy, including money
supply and official interest rates for the EURO, is exercised by the new
European Central Bank.
The legacy currencies are scheduled to remain legal tender in these countries as
a denomination of the EURO between January 1, 1999 and January 1, 2002 (the
"transition period"). During the transition period, public and private parties
may pay for goods and services using either the EURO or the country's legacy
currency on a "no compulsion, no prohibition" basis. However, conversion rates
no longer will be computed directly from one legacy currency to another.
Instead, a "triangulation" process will be applied whereby an amount denominated
in one legacy currency first will be converted into an amount denominated in
EURO, and the resultant EURO-denominated amount is converted into the second
legacy currency.
We have made the necessary changes to our internal business systems to support
transactions denominated in the EURO, including establishing EURO price lists
for effected countries. We have evaluated the impact the conversion to the EURO
will have on our financial condition and results of operations. Based on this
evaluation to date, we currently do not believe that there will be a material
impact on our financial condition or results of operations as a result of the
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EURO conversion, except that we cannot currently assess the impact that a common
EURO-based price list will have on how we market our products in Europe nor the
impact, if any, on revenues generated in Europe.
Environmental Matters. We are not aware of any issues related to environmental
matters that have, or are expected to have, a material affect on our business.
Factors That May Affect Future Results
Our business, financial condition, operating results and prospects can be
impacted by a number of factors, including but not limited to those set forth
below and elsewhere in this report, any one of which could cause our actual
results to differ materially from recent results or from our anticipated future
results.
Rapid Technological Change; Product Development. The market for our software and
services is characterized by rapid technological developments, evolving industry
standards, changes in customer requirements and frequent new product
introductions and enhancements. Our continued success will be dependent upon our
ability to continue to enhance our existing software and services offerings,
develop and introduce, in a timely manner, new software products incorporating
technological advances and respond to customer requirements. There can be no
assurance that we will be successful in developing and marketing new software
products and services offerings or enhancements to our existing software on a
timely basis or that any new or enhanced software and services offerings will
adequately address the changing needs of the marketplace. If we are unable to
develop and introduce new software and enhancements or new service offerings, in
a timely manner in response to changing market conditions or customer
requirements, our business and operating results could be adversely affected.
From time to time, we or our competitors may announce new software products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of our existing software products. There can be no assurance that
announcements of currently planned or other new software products will not cause
customers to delay their purchasing decisions in anticipation of such software
products, which could have a material adverse effect on our business and
operating results.
Uncertainty of Future Operating Results; Fluctuations in Quarterly Operating
Results. Prior growth rates in our revenue and operating results should not
necessarily be considered indicative of future growth or operating results.
Future operating results will depend upon many factors, including the demand for
our products; the level of software product and price competition; the length of
our sales cycle; variations in the productivity of our sales force; seasonality
of individual customer buying patterns; the size and timing of individual
transactions; the delay or deferral of customer implementations; the budget
cycles of our customers; the timing of new software introductions and software
enhancements by us and our competitors; the mix of sales by products, software,
services and distribution channels; levels of international sales; acquisitions
by competitors; changes in foreign currency exchange rates, impact of the EURO
currency; our ability to develop and market new software products and control
costs; and general domestic and international economic and political conditions.
As a result of these factors, revenues and operating results for any quarter are
subject to variation and are not predictable with any significant degree of
accuracy. Therefore, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Moreover, such factors could cause our
operating results in a given quarter to be below the expectations of public
market analysts and investors. In either case, the price of our common stock
could be materially adversely affected.
Competition. The Web content management, integrated document management,
imaging, workflow, computer output to laser disk and electronic document
management software markets are highly competitive, and there are certain
competitors of ours with substantially greater sales, marketing, development and
financial resources. We believe that the competitive factors affecting the
market for our software products and services include vendor and product
reputation; product quality, performance and price; the availability of software
products on multiple platforms; product scalability; product integration with
other enterprise applications; software functionality and features; software
ease of use; and the quality of professional services, customer support services
and training. The relative importance of each of these factors depends upon the
specific customer involved. While we believe we compete favorably in each of
these areas, there can be no assurance that we will continue to do so. Moreover,
our present or future competitors may be able to develop software products
comparable or superior to those offered by us, offer lower price products or
adapt more quickly than we do to new technologies or evolving customer
requirements. Competition is expected to intensify. In order to be successful in
the future, we must respond to technological change, customer requirements and
competitors' current software products and innovations. There can be no
assurance that we will be able to continue to compete effectively in our market
or that future competition will not have a material adverse effect on our
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business, financial condition or results of operations. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the markets served by us. Accordingly, it
is possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
could have a material adverse effect on our business, financial condition or
results of operations.
Intellectual Property and other Proprietary Rights. Our success depends, in
part, on our ability to protect our proprietary rights to the technologies used
in our principal products. We rely on a combination of copyrights, trademarks,
trade secrets, confidentiality procedures and contractual provisions to protect
our proprietary rights in our software products. There can be no assurance that
our existing or future copyrights, trademarks, trade secrets or other
intellectual property rights will be of sufficient scope or strength to provide
meaningful protection or a commercial advantage to us. We have no software
patents. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States. There
can be no assurance that such factors would not have a material adverse effect
on our business, financial condition or results of operations. In addition, we
also rely on certain software that we license from third parties, including
software that is integrated with internally developed software used in our
products to perform key functions. There can be no assurance that such third
parties will remain in business, that they will continue to support their
software products, or that their software products will otherwise continue to be
available to us on commercially reasonable terms. The loss or inability to
maintain any of these software licenses could result in delays or reductions in
software shipments until equivalent software can be developed, identified,
licensed and integrated, which could adversely affect our business, financial
condition or results of operations.
We may, from time to time, be notified that we are infringing certain patent or
intellectual property rights of others. Combinations of technology acquired
through past or future acquisitions and our technology will create new software
products and technology that may give rise to claims of infringement. While no
actions other than those discussed in Item I, Note 7, herein, are currently
pending against us for infringement of patent or other proprietary rights of
third parties, there can be no assurance that third parties will not initiate
infringement actions against us in the future. Infringement actions can result
in substantial cost to, and diversion of, resources. If we were found to
infringe upon the rights of others, no assurance can be given that we could
redesign the infringing products or could obtain licenses on acceptable terms or
at all, that significant damages for past infringement would not be assessed or
that further litigation relative to any such licenses or usage would not occur.
The failure to successfully defend any claims or redesign our products or obtain
necessary licenses or other rights, the ultimate disposition of any claims or
the advent of litigation arising out of any claims of infringement, could have a
material adverse effect on our business, financial condition or results of
operations.
Dependence on Certain Relationships. We have entered into a number of key
relationships with other companies such as Microsoft Corporation, IBM Global
Services, Siebel Systems Inc, SAP AG, Hewlett-Packard Company, and Sun
Microsystems, Inc. There can be no assurance that these companies will not
reduce or discontinue their relationships with, or support of, us and our
products.
Dependence on Key Management and Technical Personnel. Our success depends to a
significant degree upon the continued contributions of our key management,
marketing, technical and operational personnel. In general, we do not utilize
employment agreements for our key employees. The loss of the services of one or
more key employees could have a material adverse effect on our operating
results. We also believe our future success will depend in large part upon our
ability to attract and retain additional highly skilled management, technical,
marketing, product development, operational personnel and consultants.
Competition for such personnel, particularly software developers, professional
service consultants and other technical personnel, is intense, and pay scales in
the software industry have significantly increased. There can be no assurance
that we will be successful in attracting and retaining such personnel.
International Sales. Historically, we have derived approximately thirty percent
of our total revenues from international sales. International business is
subject to certain risks including varying technical standards; tariffs and
trade barriers; political and economic instability; reduced protection for
intellectual property rights in certain countries; difficulties in staffing and
maintaining foreign operations; difficulties in managing foreign distributors;
varying requirements for localized products; potentially adverse tax
consequences; currency exchange fluctuations including those related to the
EURO; the burden of complying with a wide variety of complex foreign laws,
regulations and treaties; and the possibility of difficulties in collecting
accounts receivable. There can be no assurance that any of these factors will
not have a material adverse effect on our business, financial condition or
results of operations.
Product Liability. Software and products as complex as those sold by us are
susceptible to errors or failures, especially when first introduced or when new
versions are released. Our software products are often intended for use in
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applications that are critical to a customer's business. As a result, our
customers may rely on the effective performance of the software to a greater
extent than the market for software products generally. We conduct extensive
software testing to ensure that our software is free of significant errors and
defects. In addition, we have designed and tested the most current versions of
our software products to be year 2000 compliant. However, some of our customers
are running earlier software products that are not year 2000 compliant. Although
we have been encouraging such customers to migrate to current software versions,
no assurance can be given that all of them will do so. Moreover, we also rely on
certain software that we license from third parties, including software that is
integrated with internally developed software and is used in our products to
perform key functions. There can be no assurance that such third party software
will be free of errors and defects or be year 2000 compliant. Although we have
not experienced any material product liability claims to date, there can be no
assurance that errors or defects, whether associated with year 2000 functions or
otherwise, will not result in product liability claims against us in the future.
A successful product liability claim brought against us could have a material
adverse effect upon our business, operating results and financial condition. Our
license agreements with customers typically contain provisions designed to limit
our exposure to potential product liability claims. However, it is possible that
such limitation of liability provisions may not be effective under the laws of
certain jurisdictions.
Stock Price Volatility. We believe that a variety of factors could cause the
trading price of our common stock to fluctuate, perhaps substantially, including
quarter-to-quarter variations in operating results; announcements of
developments related to our business; fluctuations in our order levels; general
conditions in the technology sector or the worldwide economy; announcements of
technological innovations, new software products or product enhancements by us
or our competitors; key management changes; changes in joint marketing and
development programs; developments relating to patents or other intellectual
property rights or disputes; and developments in our relationships with our
customers, resellers and suppliers. In addition, in recent years the stock
market in general, and the market for shares of high-technology stocks in
particular, have experienced extreme price fluctuations that have often been
unrelated to the operating performance of affected companies. Such fluctuations
could adversely affect the trading price of our common stock.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2000 Annual Meeting of Stockholders of the Company was held at 9:00
a.m. on May 18, 2000, in Costa Mesa, California.
(b) At the annual meeting, the following six individuals were elected to the
Company's Board of Directors, constituting all members of the Board of
Directors:
------------------------ -------------------------- ----------------------
Nominee Affirmative Votes Votes Withheld
------------------------ -------------------------- ----------------------
L. George Klaus 29,873,031 547,847
------------------------ -------------------------- ----------------------
William P. Lyons 29,874,561 546,317
------------------------ -------------------------- ----------------------
Lee D. Roberts 29,731,760 689,118
------------------------ -------------------------- ----------------------
John C. Savage 29,917,244 503,634
------------------------ -------------------------- ----------------------
Roger S. Siboni 29,872,230 548,648
------------------------ -------------------------- ----------------------
Theodore J. Smith 29,907,627 513,251
------------------------ -------------------------- ----------------------
(c) The Company's stockholders were asked to approve an amendment to the
Company's 1995 Stock Option Plan (the "1995 Plan") to increase the number
of shares of Common Stock issuable under the 1995 Plan by an additional
1,350,000 shares. This proposal was approved in accordance with the
following vote of stockholders:
------------------- ------------------ ------------------- ----------------
Broker
Votes For Votes Against Abstentions Non-Votes
------------------- ------------------ ------------------- ----------------
18,135,623 12,212,526 72,729 0
------------------- ------------------ ------------------- ---------------
(d) The Company's stockholders were asked to approve an amendment to the 1998
Employee Stock Purchase Plan (the "1998 Purchase Plan") to increase the
number of shares of Common Stock issuable under the 1998 Purchase Plan by
an additional 340,000 shares. This proposal was approved in accordance with
the following vote of stockholders:
-------------------- ------------------ ------------------- ---------------
Broker
Votes For Votes Against Abstentions Non-Votes
-------------------- ------------------ ------------------- ---------------
28,643,861 1,707,002 70,015 0
-------------------- ------------------ ------------------- ---------------
Item 5. Other Material Events
On May 18, 2000 the Company acquired certain assets from Application Partners,
Inc. (API) for $20.0 million. The Purchase Agreement is hereby incorporated by
reference in Exhibit 10.24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The list of exhibits contained in the accompanying Index to
Exhibits is herein incorporated by reference.
(b) No reports on Form 8-K were filed during the second quarter of 2000.
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SIGNATURE
Pursuant to the requirements 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.
FILENET CORPORATION
August 14, 2000 By:______________/s/_________________________
----------------
Date Lee D. Roberts, President and
Chief Executive Officer
(Principal Executive Officer)
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INDEX TO EXHIBITS
Exhibit No. Description
--------------- ----------------------------------------------------------------
3.1* Restated Certificate of Incorporation, as amended (filed as
Exhibit 3.1 to Form S-4 filed on January 26, 1996; Registration
No. 333-00676).
3.1.1* Certificate of Amendment of Restated Certificate of
Incorporation (filed as Exhibit 3.1.1 to Form S-4 filed on
January 26, 1996, Registration No. 333-00676).
3.2* Bylaws (filed as Exhibit 3.2 of the Registrant's
registration statement on Form S-1, Registration No. 33-15004
(the "Form S-1")).
4.1* Form of certificate evidencing Common Stock (filed as
Exhibit 4.1 to the Form S-1, Registration No. 33-15004).
4.2* Rights Agreement, dated as of November 4, 1988 between
FileNET Corporation and the First National Bank of Boston, which
includes the form of Rights Certificate as Exhibit A and the
Summary of Rights to Purchase Common Shares as Exhibit B (filed
as Exhibit 4.2 to Form S-4 filed on January 26, 1996;
Registration No. 333-00676).
4.3* Amendment One dated July 31, 1998 and Amendment Two dated
November 9,1998 to Rights Agreements between FileNET Corporation
and BANKBOSTON N.A. formerly known as The First National Bank of
Boston (filed as Exhibit 4.3 to Form 10-Q for the quarter ended
September 30, 1998).
10.1* 10.1* Second Amended and Restated Credit Agreement
(Multicurrency) by and among the Registrant and Bank of America
National Trust and Savings Association dated June 30, 1999,
effective June 30, 1999 (filed as Exhibit 10.1 to Form 10-Q for
the quarter ended June 30, 1999).
10.2* Business Alliance Program Agreement between the Registrant
and Oracle Corporation dated July 1, 1996, as amended by
Amendment One thereto (filed as Exhibit 10.4 to Form 10-QA for
the quarter ended June 30, 1996).
10.3* Runtime Sublicense Addendum between the Registrant and
Oracle Corporation dated July 1, 1996, as amended by Amendment
One thereto (filed as Exhibit 10.4 to Form 10-QA for the quarter
ended June 30, 1996).
10.3.1* Runtime Sublicense Addendum between the Registrant and
Oracle Corporation dated July 1, 1996; as amended by Amendments
Two through Six thereto (filed as Exhibit 10.3.1 to Form 10-Q
for the quarter ended September 30, 1998).
10.4* Full Use and Deployment Sublicense Addendum between
the Registrant and Oracle Corporation dated July 1, 1996. as
amended by Amendment One thereto (filed as Exhibit 10.4 to Form
10-QA for the quarter ended June 30, 1996).
10.5* Lease between the Registrant and C. J. Segerstrom & Sons
for the headquarters of the Company, dated April 30, 1987 (filed
as Exhibit 10.19 to the Form S-1).
10.6* Third Amendment to the Lease between the Registrant and C. J.
Segerstrom & Sons dated April 30, 1987, for additional
facilities at the headquarters of the Company, dated October 1,
1992 (filed as exhibit 10.7 to Form 10-K filed on April 4, 1997)
10.7* Fifth Amendment to the Lease between the Registrant and C. J.
Segerstrom & Sons dated April 30, 1987, for the extension of
the term of the lease, dated March 28, 1997 (filed as exhibit
10.8 to Form 10-Q for the quarter ended March 31, 1997).
10.8* 1989 Stock Option Plan for Non-Employee Directors of
FileNET Corporation, as amended by the First Amendment, Second
Amendment, Third Amendment thereto (filed as Exhibit 10.9 to
Form S-4 filed on January 26, 1996; Registration No. 333-00676).
10.9* Amended and Restated 1995 Stock Option Plan of FileNET
(filed as Exhibit 99.1 to Form S-8 filed on October 29, 1999;
Registration No. 333-89983).
----------------------------------------------
* Incorporated herein by reference
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Exhibit No. Description
--------------- ----------------------------------------------------------------
10.10* Second Amended and Restated Stock Optio n Plan of FileNET
Corporation, together with the forms of Incentive Stock Option
Agreement and Non-Qualified Stock Option Agreements (filed as
Exhibits 4(a), 4(b) and 4(c), respectively, to the Registrant's
Registration Statement on Form S-8, Registration No. 33-48499),
and an Amendment thereto (filed as Exhibit 4(d) to the
Registrant's Registration Statement on Form S-8, Registration No
33-69920), and the Second Amendment thereto (filed as Appendix A
to the Registrant's Proxy Statement for the Registrant's 1994
Annual Meeting of Stockholders, filed on April 29, 1994).
10.11* Non-Statutory Stock Option Agreement (with Notice of Grant of
Stock Option and Special Addendum) between Registrant and Mr.
Lee Roberts (filed as exhibit 99.17 to Form S-8 on August 20,
1997).
10.12* Non-Statutory Stock Option Agreement (with Notice of Grant
of Stock Option and Special Addendum) between Registrant and Mr.
Ron Ercanbrack (filed as exhibit 99.19 to Form S-8 on August 20,
1997).
10.18* Agreement and Plan of Merger between the Registrant and
Watermark Software Inc. dated July 18, 1995 (filed as Exhibit
10.27 to Form 10-Q for the quarter ended July 2, 1995).
10.19* Agreement and Plan of Merger between the Registrant and Saros
Corporation, as amended, dated January 17, 1996 (filed as
Exhibits 2.1, 2.2, 2.3, and 2.4 to Form 8-K on March 13, 1996).
10.20* Stock Purchase Agreement by and among FileNET Corporation, IFS
Acquisition Corporation, Jawaid Khan and Juergen Goersch dated
January 17, 1996 and Amendment 1 to Stock Purchase
Agreement dated January 30, 1996 (filed as Exhibit 10.2 to form
10-K for the year ended December 31, 1995).
10.21* Amended and Restated FileNET Corporation 1998 Employee Stock
Purchase Plan (filed as Exhibit 99.15 to Form S-8, filed on
October 29, 1999; Registration No. 333-89983).
10.22* FileNET Corporation International Employee Stock Purchase Plan
(filed as Exhibit 99.16 to Form S-8, filed on October 29, 1999;
Registration No. 333-89983).
10.23* Lease between the Registrant and C. J. Segerstrom & Sons for the
headquarters of the Company, dated September 1, 1999 (filed as
Exhibit 10.23 to Form 10Q for the quarter ended September 30,
1999).
10.24 Asset Purchase Agreement between the Registrant and Application
Partners, Inc. dated May 18, 2000.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule amneded for Quarter ended March 31, 2000
to reflect corrected date.
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* Incorporated herein by reference
21
