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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 September 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 incorporation or (I.R.S. Employer Identification No.)
organization)
3565 Harbor Boulevard, Costa Mesa, CA 92626
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(Address of principal executive offices) (Zip code)
(714) 327-3400
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(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 October 30, 2000, there were 34,554,396 shares of the Registrant's common stock outstanding.
______________________________________________________________________________________________________
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FILENET CORPORATION
Index
Page
Number
--------------- --------------------------------------------------------------------------- ----------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
As of September 30, 2000 (unaudited) and December 31, 1999............... 3
Consolidated Statements of Income (unaudited)
For the three and nine month periods ended September 30, 2000 and 1999.... 4
Consolidated Statements of Comprehensive Income(unaudited)
For the three and nine month periods ended September 30, 2000 and 1999.... 5
Consolidated Statements of Cash Flows (unaudited)
For the nine month periods ended September 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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FILENET CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
2000 1999
_______________________ ____________________
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 89,765 $ 71,528
Short-term investments 39,098 31,581
Accounts receivable, net 74,909 72,736
Inventories, net 2,975 3,399
Prepaid expenses and other current assets 9,505 8,080
Deferred income taxes 1,090 938
-------------- --------------
Total current assets 217,342 188,262
Property, net 45,492 40,593
Long-term investments 2,237 5,542
Intangible assets, net 13,949 -
Deferred income taxes 4,720 4,752
Other assets 1,660 1,743
-------------- --------------
Total assets $ 285,400 $ 240,892
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,650 $ 16,642
Accrued compensation and benefits 24,711 24,079
Unearned maintenance revenue 23,847 16,286
Income taxes payable 9,766 7,808
Other accrued liabilities 21,821 21,670
-------------- --------------
Total current liabilities 90,795 86,485
Unearned maintenance revenue 6,157 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; 35,609,059 and 33,578,642 shares
outstanding at September 30, 2000 and December 31,
1999, respectively 169,912 149,779
Retained earnings
46,680 22,981
Accumulated other comprehensive operations
(13,577) (7,735)
------------- -------------
203,015 165,025
Treasury stock, at cost; 1,098,000 shares at
September 30, 2000 and December 31, 1999 respectively (14,567) (14,567)
-------------- --------------
Total stockholders' equity 188,448 150,458
-------------- --------------
Total liabilities and stockholders' equity $ 285,400 $ 240,892
============== ==============
See accompanying notes to consolidated financial statements.
3
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
_________________________________ __________________________________
2000 1999 2000 1999
_______________ _______________ ________________ ________________
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue:
Software $ 50,031 $ 43,055 $ 147,772 $ 133,690
Service 43,553 38,174 123,721 105,494
Hardware 5,561 4,303 15,533 13,879
--------------- --------------- ---------------- ---------------
Total revenue 99,145 85,532 287,026 253,063
--------------- --------------- ---------------- ---------------
ts and expenses:
Cost of software revenue 3,594 3,137 12,158 11,761
Cost of service revenue 25,929 21,731 72,110 62,550
Cost of hardware revenue 2,584 2,410 9,010 7,443
Research and development 14,932 13,752 43,001 40,088
Selling, general and administrative 39,586 38,735 119,882 118,926
Amortization of intangibles 761 - 1,015 -
Purchased in process research and
development - - 2,984 -
--------------- --------------- ---------------- ---------------
Total costs and expenses 87,386 79,765 260,160 240,768
--------------- --------------- ---------------- ---------------
Operating income 11,759 5,767 26,866 12,295
Other income, net 1,328 866 3,848 2,826
-------------- --------------- ---------------- ---------------
Income before income taxes 13,087 6,633 30,714 15,121
Provision for income taxes 2,879 1,990 7,015 4,536
--------------- --------------- ---------------- ---------------
Net income $ 10,208 $ 4,643 $ 23,699 $ 10,585
=============== =============== ================ ===============
Earnings per share:
Basic $ 0.30 $ 0.14 $ 0.70 $ 0.33
Diluted $ 0.28 $ 0.14 $ 0.65 $ 0.32
Weighted average shares outstanding:
Basic 34,382 32,160 33,970 32,047
Diluted 36,226 33,192 36,563 32,770
See accompanying notes to consolidated financial statements.
4
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _________________________________
2000 1999 2000 1999
_______________ ____________ ______________ _____________
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income $ 10,208 $ 4,643 $ 23,699 $ 10,585
--------------- ------------ -------------- -------------
Other comprehensive income(loss):
Foreign currency translation adjustments1 (4,014) 1,239 (5,892) (3,116)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)2 25 10 50 (70)
-------------- ------------ ----------- -------------
Total other comprehensive income (loss) (3,989) 1,249 (5,842) (3,186)
-------------- ------------ ----------- -------------
Comprehensive income $ 6,219 $ 5,892 $ 17,857 $ 7,399
============== ============ =========== =============
------------------------------------------------------------------------------------------------------------------------------------------------
1net of tax effect of $2,676 and tax benefit of $(826) for the three months ended September 30, 2000 and 1999,
respectively and net of tax effect of $3,928 and $2,077 for the nine months ended September 30, 2000 and 1999,
respectively
2net of tax benefit of $(17) and $(7) for the three months ended September 30, 2000 and 1999, respectively and net of
tax benefit of $(33) and tax effect of $47 for the nine months ended September 30, 2000 and 1999, respectively
See accompanying notes to consolidated financial statements.
5
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30,
___________________________________
2000 1999
______________ ______________
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 23,699 $ 10,585
Adjustments to reconcile net loss to net cash provided by
operating activities:
Purchased in-process research and development 2,984 -
Depreciation and amortization 14,157 12,969
Provision for doubtful accounts 231 252
Deferred income taxes (120) 25
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (6,977) (15,209)
Inventories 424 (1,190)
Prepaid expenses and other current assets (1,620) 729
Accounts payable (5,668) (5,583)
Accrued compensation and benefits 1,232 702
Unearned maintenance revenue 10,112 11,221
Income taxes payable 1,975 3,657
Other 3,896 3,521
-------------- -------------
Net cash provided by operating activities 44,325 21,679
-------------- -------------
Cash flows from investing activities:
Capital expenditures (19,182) (14,480)
Proceeds from sale of equipment 426 5,826
Cash paid for acquisitions (20,000) -
Purchases of marketable securities (31,301) (44,560)
Proceeds from sales and maturities of marketable
securities 26,342 29,600
-------------- -------------
Net cash used by investing activities
(43,715) (23,614)
-------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 20,133 2,659
-------------- -------------
Net cash provided by financing activities 20,133 2,659
-------------- -------------
Effect of exchange rate changes on cash and cash
equivalents (2,506) (1,491)
-------------- -------------
Net increase in cash and cash equivalents 18,237 (767)
Cash and cash equivalents, beginning of year 71,528 55,820
-------------- -------------
Cash and cash equivalents, end of period $ 89,765 $ 55,053
============== =============
Supplemental cash flow information:
Interest paid $ 46 $ 11
Income taxes paid $ 4,967 $ 97
See accompanying notes to consolidated financial statements.
6
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 September 30, 2000 and the results of its operations, its comprehensive income and its cash
flows for the three month and nine month periods ended September 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 June
30, 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 to be 88% complete at the date of the acquisition. The cost to complete the project was
estimated at $300,000 to occur over a three-month period. Since the date of acquisition the Company has incurred
approximately $356,000 of research and development expenses related to the project which is 100% complete as of September
30, 2000.
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 nine months ended September 30, 2000 and 1999.
7
Three Months ended September 30, Nine Months ended September 30,
__________________________________ __________________________________
2000 1999 2000 1999
_______________ _______________ ____________ _______________
Net income $ 10,208 $ 4,643 $ 23,699 $ 10,585
=============== =============== ============ ===============
Weighted average basic shares outstanding 34,382 32,160 33,970 32,047
Effect of dilutive stock options 1,844 1,032 2,593 723
--------------- --------------- ----------- ---------------
Weighted average diluted shares outstanding 36,226 33,192 36,563 32,770
=============== =============== =========== ===============
Basic earnings per share 0.30 0.14 0.70 0.33
Dilutd earnings per share 0.28 0.14 0.65 0.32
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 nine month period ended September 30,
2000. Accumulated other comprehensive operations as of September 30, 2000 is comprised of the following:
Accumulated
Foreign Currency Unrealized Other
Translation Holding Comprehensive
(In thousands) Adjustment Gains (Losses) Operations
_________________ _________________ _________________
Balance, December 31, 1999 $ (7,638) $ (97) $ (7,735)
Current period changes (5,892) 50 (5,842)
----------------- ----------------- -----------------
Balance September 30, 2000 $ (13,530) $ (47) $ (13,577)
================= ================= =================
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 nine month periods ended September 30, 2000 and 1999 are as follows:
Three months ended September 30, Nine months ended September 30,
In thousands 2000 1999 2000 1999
_____________________________________ _____________________________________
Software
Revenue $ 50,031 $ 43,055 $ 147,772 $ 133,690
Operating income (loss) 4,689 661 5,864 (2,064)
Customer Support
Revenue $ 26,393 $ 22,954 $ 76,896 $ 62,476
Operating income 6,439 3,929 20,198 11,575
Professional Services and Education
Revenue $ 15,751 $ 13,901 $ 42,822 $ 37,837
Operating income (loss) (636) 812 (960) 1,185
Hardware
Revenue $ 5,561 $ 4,303 $ 15,533 $ 13,879
Operating income (loss) 1,131 438 1,287 1,357
Other
Revenue $ 1,409 $ 1,319 $ 4,003 $ 5,181
Operating income 136 (73) 477 242
Total
Revenue $ 99,145 $ 85,532 $ 287,026 $ 253,063
Operating income 11,759 5,767 26,866 12,295
8
Included in software revenue is $29.2 million related to Web based product for the three months period
ended September 30, 2000 and $63.6 million for the nine months period ended September 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
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 June 30, 2000.
Results of Operations
Revenue
Three Months Ended September 30, Nine Months Ended September 30,
____________________________________ _____________________________________
(Dollars in millions) 2000 1999 % Change 2000 1999 % Change
____________ ___________ __________ ____________ ____________ ___________
Software revenue
Domestic $ 28.1 $ 27.1 4% $ 95.6 $ 86.8 10%
International 21.9 15.9 38% 52.1 46.9 11%
------------ ----------- ------------ ------------
Total software revenue $ 50.0 $ 43.0 16% $ 147.7 $ 133.7 10%
------------ ----------- ------------ ------------
Percentage of total revenue 50% 50% 51% 53%
Customer Support
Domestic $ 20.6 $ 17.9 15% $ 60.2 $ 49.4 22%
International 5.7 5.1 12% 16.7 13.2 27%
------------ ----------- ------------ ------------
Total customer support revenue $ 26.3 $ 23.0 14% $ 76.9 $ 62.6 23%
------------ ----------- ------------ ------------
Percentage of total revenue 27% 27% 27% 25%
Professional Services and Education
Domestic $ 11.4 $ 9.9 15% $ 32.3 $ 26.7 21%
International 4.4 4.0 10% 10.6 11.0 (4%)
------------ ----------- ------------ ------------
Total professional services and
education revenue $ 15.8 $ 13.9 14% $ 42.9 $ 37.7 14%
------------ ----------- ------------ ------------
Percentage of total revenue 16% 16% 15% 15%
Hardware revenue
Domestic $ 3.4 $ 3.3 3% $ 11.4 $ 10.4 10%
International 2.2 1.0 120% 4.2 3.4 24%
------------ ----------- ------------ ------------
Total hardware revenue $ 5.6 $ 4.3 30% $ 15.6 $ 13.8 13%
------------ ----------- ------------ ------------
Percentage of total revenue 6% 5% 5% 5%
Other revenue
Domestic $ 1.2 $ 1.1 9% $ 3.4 $ 4.2 (19%)
International 0.2 0.2 0% 0.5 1.0 (50%)
------------ ----------- ------------ ------------
Total other revenue $ 1.4 $ 1.3 8% $3.9 $5.2 (25%)
------------ ----------- ------------ ------------
Percentage of total revenue 1% 2% 2% 2%
------------ ----------- ------------ ------------
Total revenue
Domestic $ 64.7 $ 59.3 9% $ 202.9 $ 177.5 14%
International 34.4 26.2 31% 84.1 75.5 11%
------------ ----------- ------------ ------------
Total revenue $ 99.1 $ 85.5 16% $ 287.0 $ 253.0 13%
============ =========== ============ ============
Software revenue from the licensing of our software products increased 16% and 10% for the three and nine month periods,
respectively, ended September 30, 2000 over the comparable periods of 1999 due to increased demand and continued acceptance of our
products.
10
Customer support revenue consists of revenue from maintenance contracts and "fee for service" revenues. Customer support revenue
increased 14% and 23% for the three and nine month periods, ended September 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 14% for the three and nine
month periods ended September 30, 2000 over the comparable period of 1999 primarily as 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 30% and 13% for the three and nine month periods ended September 30, 2000 over the comparable periods of 1999 due to an
increase in demand for 30 gigabyte drives relative to a decrease in demand in 1999 due to year 2000 uncertainty. Hardware revenue,
however, is expected to resume its decline as a percentage of total revenue going forward.
Other revenue is generated from the sale of spare parts, supplies and third party products. Other revenue increased 8% and decreased
25% for the three and nine month periods, respectively, ended September 30, 2000 compared to the same periods in 1999 due to lower
demand for spares and an expected decrease in orders for third party product.
International revenue represented 35% and 31% of total revenues in the three month periods ended September 30, 2000 and 1999,
respectively. For the nine month periods ended September 30, 2000 and 1999 international revenue constituted
29% and 30% of total revenues, respectively. 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
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------- -----------------------------------
% %
2000 1999 Change 2000 1999 Change
(Dollars in millions) -------------------------------------- -----------------------------------
Cost of software revenue $ 3.6 $ 3.2 13% $ 12.2 $ 11.8 3%
Percentage of software revenue 7% 7% 8% 9%
Cost of customer support revenue $ 10.7 $ 9.5 13% $ 31.5 $ 27.3 15%
Percentage of customer support
revenue 41% 41% 41% 44%
Cost of professional services and
education revenue $ 14.0 $ 10.9 28% $ 37.4 $ 30.7 22%
Percentage of professional services
and education revenue 89% 78% 87% 81%
Cost of hardware revenue $ 2.6 $ 2.4 8% $ 9.0 $ 7.4 22%
Percentage of hardware revenue 46% 56% 58% 54%
Cost of other revenue $ 1.2 $ 1.3 (8%) $ 3.2 $ 4.5 (29%)
Percentage of other revenue 86% 100% 82% 87%
Total cost of revenue $ 32.1 $ 27.3 18% $ 93.3 $ 81.7 14%
Percentage of total revenue 32% 32% 33% 32%
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 September 30, 2000 remained constant at 7% for the same
period of 1999. The cost of software revenue as a percentage of software revenue for the nine month period ended September 30, 2000
decreased to 8% from 9% for the same period in 1999 due to a reduction in fixed software distribution costs.
11
The cost of customer support revenue includes customer support personnel, supplies, and the cost of third party hardware
maintenance. The cost of customer support revenue as a percentage of customer support revenue for the three month period ended
September 30, 2000 remained constant at 41% for the same period of 1999. The cost of customer support revenue for the nine month
period ended September 30, 2000 decreased to 41% from 44% 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 September 30, 2000 increased to 89% from 78% in the same period of 1999. The cost
of professional services and education revenue for the nine month period ended September 30, 2000 increased 87% from 81% for the
comparable period of 1999. The increase was due primarily to an increase in the number of personnel and contractors.
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 September 30, 2000 decreased to 46% from 56%
for the comparable period of 1999 due to a reduction in fixed costs. However, the cost of hardware revenue as a percentage of
hardware revenue for the nine month period ended September 30, 2000 increased to 58% from 54% for the comparable period of 1999. The
increase is due to higher costs associated with upgrading 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 September 30, 2000 decreased to 86% from 100% in the same period of 1999.
The cost of other revenue as a percentage of other revenue for the nine month period ended September 30, 2000 decreased to 82% from
87% for the comparable period of 1999. The decrease in cost of other revenue is the result of a reduction in fixed costs.
Operating Expenses
Three Months Ended September 30, Nine Months Ended September 30,
_____________________________________ ____________________________________
(Dollars in millions) 2000 1999 % Change 2000 1999 % Change
_______________________ ___________ ______________________ ___________
Research and development $ 14.9 $ 13.8 8% $ 43.0 $ 40.1 7%
Percentage of total revenue 15% 16% 15% 16%
Selling, general and
administrative $ 39.6 $ 38.7 2% $ 119.9 $ 118.9 1%
Percentage of total revenue 40% 45% 42% 47%
Research and development expenses increased 8% and 7% for the three and nine month periods ended September 30, 2000, respectively,
compared to the comparable periods of 1999. The increases in absolute dollars were due to a general increase in salaries and
payments to outside software development contractors. As a percentage of total revenue, research and development expenses were at
15% and 16% for the three-month period ended September 30, 2000 and 1999, respectively and 15% compared to 16% for the nine month
period ended September 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 increased 2% and 1% for the three and nine month periods ended September 30, 2000
compared to the same periods of 1999. The increase was primarily due to increase in salaries offset by overall reduced spending. As
a percentage of total revenue, selling, general and administrative expenses decreased to 40% for the three month period ended
September 30, 2000 from 45% in the same period of 1999. For the nine month period ended September 30, 2000 selling , general
administration expenses decreased to 42% compared to 47% for the same period in 1999 due to better cost containment.
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 $0.8 million and $1.0 million for the three and nine months periods ended September 30, 2000,
12
respectively. There were no similar costs in the same periods 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 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 cost to complete the project was
estimated at $300,000 to occur over a three-month period. Since the date of acquisition we have incurred approximately $356,000 of
research and development expenses related to the project which is 100% complete as of September 30, 2000.
Provision for Income Taxes. The combined federal, state and foreign annual effective tax rate for the three months ended September
30, 2000 was 22% compared to 30% for the comparable period in 1999. The combined federal, state and foreign annual tax rate for the
nine months ended September 30, 2000 was 23% compared to 30% for the comparable period in 1999. The decrease in rate is attributable
to an increase in the taxable income generated in lower tax jurisdictions outside of North America along with the utilization of net
operating loss carryforwards.
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 September 30, 2000, we had forward exchange contracts
outstanding totaling approximately $135,800 in 10 currencies. All of these contracts mature in three months.
Other comprehensive loss reflects an increase of $4.0 million for the three months ended September 30, 2000 and an increase of $5.8
million for the nine months ended September 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 September 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 September 30, 2000, combined cash, cash equivalents and investments totaled $131.1 million, an increase of $22.4 million from the
end of 1999. Cash provided by operating activities during the nine months ended September 30, 2000 totaled $44.3 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 increases in accounts
receivable. Cash used by investing activities totaled $43.7 million and was a result of capital expenditures of $19.2 million and
the acquisition of certain assets and in-process research and development of $20.0 million. Cash provided by financing activities
totaled $20.1 million and was a result of proceeds received from the exercise of employee stock options and the employee stock
purchase plan.
Accounts receivable increased to $74.9 million at September 30, 2000 from $72.7 million at December 31, 1999. Days sales outstanding
decreased to 69 days as of September 30, 2000 from 70 days as of December 31, 1999. Current liabilities increased to $90.8 million
at September 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.
13
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 September 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 adoption of this
standard will not impact 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 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.
14
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 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.
15
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 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
16
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.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Notes to Consolidated Financial Statements.
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 third quarter of 2000.
18
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
November 14, 2000
____________________
Date
By: _______________/s/___________________________________
Sam M. Auriemma, Chief Financial Officer and
Senior Vice President, Finance
(Principal Financial Officer)
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* 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 and 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 and 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 and 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).
______________________________________________
ncorporated herein by reference
20
Exhibit No. Description
__________ ____________________________________________________________________________________________________
10.10* Second Amended and Restated Stock Option 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 and 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.(filed
as Exhibit 10.24 to Form 10Q for the quarter ended June 30, 2000).
27.1 Financial Data Schedule.
_______________________________________________
* Incorporated herein by reference
