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Corel Reports Q2 Results; Reduces Workforce 9%

Monday, June 30, 2003

Press release from the issuing company

OTTAWA--June 27, 2003-- Corel Corporation today announced results for its second quarter of fiscal 2003, ended May 31, 2003. Corel also announced that it has reduced its global workforce by 66 employees or approximately 9% in order to manage expenses relative to the Company's expected revenue performance. All dollar amounts are expressed in US currency. For the second quarter of fiscal 2003, Corel reported revenue of $32.2 million and a net loss of $5.6 million, or $(0.06) per share. This compares with revenue of $28.3 million and a net loss of $574,000, or ($0.01) per share, for the first quarter of fiscal 2003. Corel's second quarter 2003 results also compare with revenue of $30.8 million and a net loss of $6.3 million, or $(0.07) per share, for the same period last year. Cash and cash equivalents, restricted cash and short-term investments at the end of the second quarter of fiscal 2003 stood at $75.5 million, compared with $73.0 million at the end of the first quarter of fiscal 2003. Corel received an income tax refund for $3.9 million during the second quarter of fiscal 2003 which was added to this balance. Derek Burney, President and CEO of Corel Corporation, commented: "The second quarter was a busy period for Corel as we launched four new products - WordPerfect Office 11, Corel DESIGNER 10, Corel Painter 8 and Corel Smart Graphics Studio - all of which have received positive feedback from industry observers, product reviewers, customers and partners. While we did experience a slight increase in revenue due primarily to the launch of the office suite, meaningful revenue growth continues to be a challenge for the Company, particularly as we work to offset declining revenue in mature markets with revenue from our new technology solutions based on XML." Performance By Solution Category Graphics Solutions Corel's graphics solutions revenue for the second quarter of fiscal 2003 was $14.0 million, decreasing by 15.6% from $16.5 million in the previous year. On a sequential basis, graphics solutions revenue decreased by 8.6% from $15.3 million in the first quarter of fiscal 2003. This is primarily due to declining revenue from the Company's CorelDRAW Graphics Suite caused by adverse economic conditions in Germany and the delayed release of the Simplified Chinese, Traditional Chinese and Korean versions of CorelDRAW Graphics Suite 11 in Asia-Pacific. Office Productivity Solutions Revenue from Corel's office productivity solutions increased by 33% on a year-to-year basis, from $11.2 million in the second quarter of fiscal 2002 to $15.0 million in the second quarter of fiscal 2003. Sequentially, revenue from the Company's office productivity solutions increased by 66.6% from $9.0 million in the first quarter of fiscal 2003. The increase can be attributed to the introduction of WordPerfect Office 11, a new version of Corel's flagship office suite, in April 2003. While revenue to date from the launch of WordPerfect Office 11 is consistent with expectations, overall revenue is lower when compared with the spike associated with previous launches of this product. Process Management Solutions Revenue from Corel's process management solutions declined by 11.2% on a year-to-year comparison, from $2.5 million in the second quarter of fiscal 2002 to $2.2 million in the second quarter of fiscal 2003. Sequentially, revenue from the company's process management solutions remained relatively stable, dropping from $2.3 million in the first quarter of fiscal 2003. XML Solutions(i) Revenue from Corel's XML solutions increased by 46.6%, from $311,000 in the second quarter of fiscal 2002 to $456,000 in the second quarter of fiscal 2003. Sequentially, revenue declined by 60%, dropping from $1.1 million in the first quarter of fiscal 2003. Performance by Region Revenue generated by Corel in the North American market grew 25.7% on a year-to-year basis, increasing from $16.3 million in the second quarter of fiscal 2002 to $20.5 million in the second quarter of fiscal 2003. Sequentially, North American revenue jumped by 59.7% from $12.8 million in the first quarter of fiscal 2003. Second quarter fiscal 2003 revenue from Corel's Europe, Middle East and Africa (EMEA) markets decreased by 23.2% on a year-to-year comparison, from $9.6 million in the second quarter of fiscal 2002 to $7.4 million in the second quarter of fiscal 2003. EMEA revenue also dropped by 23.1% on a sequential basis, from $9.6 million in the first quarter of fiscal 2003. Revenue from Corel's other international markets - Asia-Pacific and Latin America - declined by 34% on a year-to-year basis, from $2.8 million in the second quarter of fiscal 2002 to $1.8 million in the second quarter of fiscal 2003. Sequentially, revenue in these regions combined declined by 46%, from $3.4 million in the first quarter of fiscal 2003. Revenue from Corel's OEM arrangements during the second quarter of fiscal 2003 increased by 19.6% on a year-to-year basis, from $2.1 million in the second quarter of fiscal 2002 to $2.6 million in the second quarter of fiscal 2003. Sequentially, OEM revenue remained flat from the first quarter of fiscal 2003, when it was $2.6 million. Expenses Sales, marketing, research and development (R&D), and general and administrative (G&A) expenses for the second quarter of fiscal 2003 were $30.4 million, up 1.9% on a year-to-year basis from $29.8 million in the second quarter of fiscal 2002. Sequentially, these expenses increased 16.3% from $26.2 million in the first quarter of fiscal 2003. Corel's second quarter fiscal 2003 expenses include approximately $2.5 million for costs which are not related to the ongoing operation of the Company, including severance payments, the foreign exchange impact due to the high Canadian dollar and expenses associated with the proposed acquisition by Vector Capital. Gross profit as a percent of sales decreased to 85.6% in the second quarter of fiscal 2003, from 90.2% in the second quarter of fiscal 2002 and 87% in the first quarter of fiscal 2002. Cost of sales for the second quarter of fiscal 2003 increased by 54% on a year-to-year basis in the second quarter of fiscal 2003, from $3.0 million in the second quarter of fiscal 2002 to $4.7 million in the second quarter of fiscal 2003. Sequentially, cost of sales was up 27.5% from $3.6 million in the first quarter of fiscal 2003. Consistent with the Company's ongoing efforts to maintain rigorous financial controls, Corel has made adjustments to its workforce in order to manage expenses relative to its expected revenue performance. The adjustments will result in a payroll cost reduction of approximately $4.2 million per year on an ongoing basis. To implement these changes, the Company will incur severance costs amounting to approximately $655,000. These expenses will be incurred during the third quarter of fiscal 2003. Mr. Burney stated: "In keeping with our commitment to profitability in 2003, and with our second quarter revenue coming in lower than anticipated, we have made these workforce adjustments as part of our ongoing efforts to keep costs in line with expected revenue."

 

 

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