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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended September 28, 2001
[_] 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 000-31859
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CRYSTAL DECISIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0537234
(State or other
jurisdiction of
incorporation or (I.R.S. Employer
organization) Identification Number)
895 Emerson St., Palo
Alto, California 94301
(Address of principal
executive offices) (Zip Code)
Telephone: (650) 838-7410
(Registrant's telephone number, including area code)
-----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock, par value of $0.001
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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 [_]
On September 28, 2001, 75,472,691 shares of the registrant's common stock,
$0.001 par value per share, were issued and outstanding.
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CRYSTAL DECISIONS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 28, 2001 and June 29, 2001.................. 3
Consolidated Statements of Operations for the Quarters Ended September 28, 2001 and
September 29, 2000.................................................................... 4
Consolidated Statements of Cash Flows for the Quarters Ended September 28, 2001 and
September 29, 2000.................................................................... 5
Consolidated Statements of Stockholders' Equity for the Quarter Ended September 28, 2001
and for the Year Ended June 29, 2001.................................................. 6
Notes to Consolidated Financial Statements.............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 39
Item 6. Exhibits and Reports on Form 8-K........................................................ 39
SIGNATURES.............................................................................. 40
2
Item 1. Financial Statements (Unaudited)
CRYSTAL DECISIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September 28, June 29,
2001 2001 (1)
------------- --------
A S S E T S (note 10)
Current assets:
Cash and cash equivalents...................................................... $ 46,020 $ 34,379
Loan receivable from Seagate Technology LLC (note 9)........................... -- 3,429
Accounts receivable, net....................................................... 31,754 29,551
Income taxes receivable........................................................ -- 5,468
Inventories.................................................................... 557 725
Prepaid and other current assets............................................... 3,204 3,115
-------- --------
Total current assets....................................................... 81,535 76,667
Capital assets, net............................................................... 10,849 10,490
Intangibles, net.................................................................. 16,111 17,969
-------- --------
Total assets............................................................... $108,495 $105,126
======== ========
L I A B I L I T I E S
Current liabilities:
Accounts payable............................................................... $ 10,316 $ 11,247
Accrued employee compensation.................................................. 8,915 8,633
Accrued expenses............................................................... 12,582 11,848
Deferred revenue............................................................... 27,776 28,154
Income taxes payable (note 6).................................................. 7,577 6,035
-------- --------
Total current liabilities.................................................. 67,166 65,917
Deferred income taxes (note 6).................................................... 2,681 3,600
-------- --------
Total liabilities.......................................................... 69,847 69,517
Commitments and contingencies (note 13)
S T O C K H O L D E R S' E Q U I T Y
Common stock--150,000,000 shares authorized, shares issued and outstanding--
75,472,691 and 75,397,915 at $0.001 par value per share as of September 28, 2001
and June 29, 2001............................................................... 75 75
Additional paid-in capital........................................................ 42,380 42,081
Accumulated deficit............................................................... (4,096) (6,517)
Accumulated other comprehensive income (loss)..................................... 289 (30)
-------- --------
Total stockholders' equity................................................. 38,648 35,609
-------- --------
Total liabilities and stockholders' equity................................. $108,495 $105,126
======== ========
- --------
(1) The information in this column was derived from the audited consolidated
balance sheet as of June 29, 2001.
See notes to consolidated financial statements.
3
CRYSTAL DECISIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
For the quarters ended
--------------------------
September 28, September 29,
2001 2000
------------- -------------
Revenues:
Licensing (note 5)..................................................... $ 30,855 $ 22,958
Maintenance, support and services (note 5)............................. 17,193 13,946
----------- -----------
Total revenues..................................................... 48,048 36,904
Cost of revenues:
Licensing.............................................................. 1,529 1,028
Maintenance, support and services...................................... 9,882 10,019
Amortization of developed technologies................................. 1,269 53
----------- -----------
Total cost of revenues............................................. 12,680 11,100
----------- -----------
Gross profit.............................................................. 35,368 25,804
Operating expenses:
Sales and marketing.................................................... 21,102 17,068
Research and development............................................... 6,727 6,718
General and administrative (note 5).................................... 4,756 4,183
Amortization of goodwill and other intangibles......................... 589 389
Restructuring costs (note 4)........................................... -- 573
----------- -----------
Total operating expenses........................................... 33,174 28,931
----------- -----------
Income (loss) from operations............................................. 2,194 (3,127)
Interest and other income (expense), net (note 9)......................... 729 222
----------- -----------
Income (loss) before income taxes......................................... 2,923 (2,905)
Benefit from (provision for) income taxes (note 6)........................ (502) 726
----------- -----------
Net income (loss)......................................................... $ 2,421 $ (2,179)
=========== ===========
Net income (loss) per share (note 7):
Basic and diluted...................................................... $ 0.03 $ (0.03)
=========== ===========
Weighted average number of shares used in basic and diluted net income
(loss) per share:.................................................... 75,444,807 75,073,753
=========== ===========
See notes to consolidated financial statements.
4
CRYSTAL DECISIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the quarters ended
--------------------------
September 28, September 29,
2001 2000
------------- -------------
Operating activities
Net income (loss)................................................................ $ 2,421 $(2,179)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization................................................. 3,042 1,713
Bad debt expense (recovery)................................................... 214 (266)
Deferred income tax expense (recovery)........................................ (919) 162
------- -------
4,758 (570)
------- -------
Changes in operating assets and liabilities:
Accounts receivable........................................................... (2,338) (1,146)
Income taxes receivable....................................................... 5,468 (435)
Inventories................................................................... 167 157
Prepaid and other current assets.............................................. (86) 176
Accounts payable.............................................................. (899) (1,408)
Accrued employee compensation................................................. 291 3,324
Accrued expenses.............................................................. 791 (122)
Deferred revenue.............................................................. (365) 948
Income taxes payable.......................................................... 1,542 --
------- -------
Net cash and cash equivalents provided by operating activities............ 9,329 924
------- -------
Investing activities
Acquisition of capital assets.................................................... (1,622) (1,058)
------- -------
Net cash and cash equivalents (used in) investing activities.............. (1,622) (1,058)
------- -------
Financing activities
Issuance of common stock and common stock subject to repurchase.................. 299 900
Net borrowings/(repayments) from/(to) Seagate Technology LLC (note 9)............ (871) 380
Payment from Seagate Technology LLC on revolving loan receivable (note 9)........ 4,300 --
------- -------
Net cash and cash equivalents provided by financing activities............ 3,728 1,280
Effect of exchange rate changes on cash and cash equivalents..................... 206 (221)
------- -------
Increase in cash and cash equivalents............................................ 11,641 925
Cash and cash equivalents at the beginning of the period......................... 34,379 3,621
------- -------
Cash and cash equivalents at the end of the period............................... $46,020 $ 4,546
======= =======
See notes to consolidated financial statements.
5
CRYSTAL DECISIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the quarter ended September 28, 2001 and for the year ended June 29, 2001
(In thousands, except share data)
(Unaudited)
Accumulated
Common Stock Additional Other
----------------- Paid-In Comprehensive Accumulated
Shares Amount Capital Income (Loss) Deficit Total
---------- ------ ---------- ------------- ----------- --------
Balance at June 30, 2000.................... 75,002,050 $75 $ 407,893 $(167) $(384,688) $ 23,113
Components of comprehensive income
(loss):
Foreign currency translation............ 46 46
Net income (loss)....................... (11,469) (11,469)
--------
Comprehensive income (loss)............. (11,423)
Issuance of common stock eligible for
repurchase................................. 225,000 900 900
Income tax benefit from Seagate
Technology stock option exercises.......... 33 33
Compensation expense for Seagate
Technology Stock Options................... 1,851 1,851
Elimination of accumulated deficit and other
comprehensive loss......................... (389,731) 91 389,640 --
Push down adjustments reflecting new bases
of net assets.............................. 20,452 20,452
Issuance of common stock upon exercise of
employee stock options..................... 170,865 683 683
---------- --- --------- ----- --------- --------
Balance at June 29, 2001.................... 75,397,915 75 42,081 (30) (6,517) 35,609
Components of comprehensive income
(loss):
Foreign currency translation............ 319 319
Net income (loss)....................... 2,421 2,421
--------
Comprehensive income (loss)............. 2,740
Issuance of common stock upon exercise of
employee stock options..................... 74,776 299 299
---------- --- --------- ----- --------- --------
Balance at September 28, 2001............... 75,472,691 $75 $ 42,380 $ 289 $ (4,096) $ 38,648
========== === ========= ===== ========= ========
See notes to consolidated financial statements.
6
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
1. Description of Business and Basis of Presentation
Description of Business
Crystal Decisions, Inc. ("Crystal Decisions" or the "Company") is an
information infrastructure company that creates software products and provides
services for reporting, analysis and information delivery. Crystal Decisions
develops, markets and supports an integrated, scalable suite of enterprise
software products that enable businesses to access disparate data sources and
distribute secure, interactive reports and analysis across and beyond these
organizations. The Company believes its solutions provide direct and rapidly
achieved benefits including improved decision making, lower overall information
technology costs and better business performance. Crystal Decisions operates in
a broad industry segment that is often referred to as "business intelligence."
The Company's products, commonly referred to as business intelligence software,
permit the analysis and interpretation of data in order to make business
decisions.
The Company changed its name to Crystal Decisions, Inc. from Seagate
Software Information Management Group Holdings, Inc. in March 2001. Crystal
Decisions is incorporated in Delaware and is headquartered in Palo Alto,
California.
Crystal Decisions is a majority owned subsidiary of Seagate Software
(Cayman) Holdings, a Cayman Islands limited corporation ("Suez Software"),
which is a wholly owned subsidiary of New SAC, a Cayman Islands limited
corporation ("New SAC"), whose predecessor was Seagate Technology, Inc.
("Seagate Technology"). Prior to November 22, 2000, the Company was a majority
owned subsidiary of Seagate Software Holdings, Inc. ("Seagate Software
Holdings", formerly known as Seagate Software, Inc.), a Delaware corporation
and wholly owned subsidiary of Seagate Technology. The minority interests in
the Company's capital stock amounted to approximately 13.1% and 13.0% on a
fully converted basis as of September 28, 2001 and June 29, 2001, respectively.
These minority interests are comprised of the Company's outstanding common
stock held by current and former employees of the Company, its former parent
and its subsidiaries, as well as the outstanding unexercised options granted to
purchase the Company's common stock.
Basis of Presentation
The consolidated financial statements of Crystal Decisions have been
prepared by the Company, without audit, in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with United States ("U.S.") generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). These
unaudited interim financial statements should be read in conjunction with the
consolidated and combined financial statements and related notes of the Company
in the Annual Report on Form 10-K for the year ended June 29, 2001 as filed
with the SEC on September 27, 2001.
The consolidated financial statements reflect, in the opinion of management,
all material adjustments (consisting of normal recurring items) necessary for
the fair presentation of the consolidated financial position, results of
operations and cash flows. The results of operations for the quarter ended
September 28, 2001 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 28, 2002.
Crystal Decisions operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to the end of June. Accordingly,
fiscal 2001 ended on June 29, 2001 and comprised 52 weeks.
7
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
Fiscal 2002 will be a 52-week year and will end on June 28, 2002. The quarters
ended September 28, 2001 and September 29, 2000 each comprised 13 weeks of
activity.
Certain comparative period figures have been reclassified to conform to the
current basis of presentation.
2. Change in Control of Crystal Decisions, Inc.
New SAC, through Suez Software, acquired 75,001,000 shares, or 99.7%, of
Crystal Decisions' outstanding common stock under the terms of a stock purchase
agreement (the "Stock Purchase Agreement"). The Stock Purchase Agreement was
entered into on March 29, 2000 by Seagate Technology, Seagate Software Holdings
and Suez Acquisition Company (Cayman) Limited ("Suez Acquisition Company"), an
entity affiliated with, among others, Silver Lake Partners L.P. and Texas
Pacific Group. Suez Acquisition Company was a limited corporation organized
under the laws of the Cayman Islands and was organized solely for the purpose
of entering into the Stock Purchase Agreement with Seagate Technology and
Seagate Software Holdings. At the closing of the transactions contemplated by
the Stock Purchase Agreement on November 22, 2000, Suez Acquisition Company
assigned all of its rights under such agreements to New SAC. This transaction
is referred to hereafter as the New SAC Transaction.
The purchase of Crystal Decisions' outstanding common stock by New SAC
resulted in a change in control of Crystal Decisions. Under rules and
regulations promulgated by the SEC, because more than 95% of Crystal Decisions
was acquired on November 22, 2000 and a change of ownership occurred, Crystal
Decisions restated all its assets and liabilities in the financial statements
as of November 22, 2000 on a "push down" accounting basis. Accordingly, results
of operations prior to November 22, 2000, and specifically the comparative
information for the quarter ended September 29, 2000, do not reflect these
adjustments.
Allocation of Purchase Price to Crystal Decisions Pursuant to the Application
of Push Down Accounting
The New SAC Transaction constituted a purchase transaction of Seagate
Technology and resulted in a change in control of Crystal Decisions. Under
purchase accounting rules, the net purchase price paid by New SAC was allocated
to the assets and liabilities of Seagate Technology and its subsidiaries,
including Crystal Decisions, based on their fair values at the date of the
closing of the New SAC Transaction. The fair values of the identifiable
tangible and intangible assets and liabilities of Seagate Technology and its
subsidiaries at the date of the New SAC Transaction exceeded the net purchase
price by approximately $909 million. Accordingly, the resulting negative
goodwill was allocated to the long-lived tangible and intangible assets,
including those of Crystal Decisions, on the basis of relative fair values.
This allocation reduced the recorded amounts by approximately 46%. The fair
values of tangible and intangible assets, including in-process research and
development, were determined based upon independent appraisals.
The consolidated statements of operations and cash flows do not reflect the
restatement of the assets and liabilities at November 22, 2000 caused by the
push down of the New SAC Transaction. As a result of the New SAC Transaction
and the push down accounting, the Company's results of operations after
November 22, 2000, particularly the depreciation and amortization charges, are
not necessarily comparable to the results of operations prior to that date.
The following describes the impact of push down accounting on the Company's
results. There was no impact on the financial information for the quarter ended
September 29, 2000.
. Revenues. Deferred revenues were revalued at the transaction date and
were reduced by $1.3 million and revenues were reduced on a declining
basis during the 12 months following the New SAC
8
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
Transaction. Consequently, revenues were approximately $1.2 million and
$103,000 lower for fiscal 2001 and for the quarter ended September 28,
2001, respectively, than they would have been had the push down
adjustments not occurred.
. Depreciation and amortization. Capital assets were reduced by $4.3
million on November 22, 2000, as a result of the allocation of negative
goodwill to the Company's long-lived tangible assets. Consequently,
approximately $1.5 million and $463,000 less of depreciation expense was
recorded in fiscal 2001 and for the quarter ended September 28, 2001,
respectively, than would have been recorded had the push down
adjustments not occurred. In addition, additional amortization expense
of approximately $3.3 million and $1.2 million during fiscal 2001 and
for the quarter ended September 28, 2001, respectively, was recorded
resulting from the recording of the incremental fair value of
intangibles from the push down adjustments.
3. Revenue Recognition
Crystal Decisions revenues are derived from two sources, license fees and
services. Licensing revenues are derived from sales of software licenses.
Maintenance, support and services revenues consist of technical support,
training, consulting and maintenance.
Crystal Decisions generally recognizes licensing revenues, whether sold
direct or through resellers, upon product delivery, provided persuasive
evidence of an arrangement exists, fees are fixed or determinable and the
resulting receivable is deemed collectible by management, and vendor-specific
objective evidence ("VSOE") exists to allocate the total fee to all delivered
and undelivered elements of the arrangement.
Typically, Crystal Decisions can establish VSOE for all elements of its
multi-element arrangements, and accordingly, revenues are allocated to the
individual elements on the basis of VSOE. During the second quarter of fiscal
2001, Crystal Decisions adopted a new sales model that limits the sale of
certain software license products sold on an individual basis and, as a result,
is not able to establish sufficient VSOE for these license products. As a
result of this change in circumstance, when these certain products are included
in bundled arrangements with technical support and maintenance services,
Crystal Decisions applies the residual method of accounting as specified in
Statement of Position ("SOP") 98-9 such that the total fair value of the
undelivered elements as indicated by VSOE, is deferred and subsequently
recognized in accordance with SOP 97-2 and the difference between the total
arrangement fee and the amount deferred for the undelivered elements is
accounted for as revenues related to the delivered elements. The impact on
revenues of applying the residual method of accounting in the quarter ended
September 28, 2001 was not material. Although not typical, some original
equipment manufacturer ("OEM") arrangements contain end user maintenance
elements for which VSOE has not been established, as sufficient evidence of
consistent pricing and renewal rates has not been present. In such
arrangements, Crystal Decisions has recognized the arrangement fee ratably over
the maintenance period in accordance with the provisions set forth in SOP 97-2.
Revenues from technical support and maintenance are realized ratably over
the term of the arrangement, generally one year. If maintenance is included in
an arrangement which includes a license agreement, amounts related to
maintenance are unbundled from the license fee based on VSOE. Revenues from
training and consulting are recognized as the services are performed.
4. Restructuring Costs
During the quarter ended September 29, 2000, Crystal Decisions incurred
$573,000 of restructuring charges. The charges related to the closure of eight
offices in Europe and were part of a restructuring plan announced in
9
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
September 2000 to consolidate the European sales organization into fewer
locations. The charges were primarily comprised of costs related to the
termination of office leases and other related closure costs, as well as
severance and benefits due to nine sales and marketing employees who were
terminated in September 2000. At September 28, 2001, amounts remaining accrued
but unpaid were not material.
5. Related Party Transactions
During the quarter ended December 29, 2000, Crystal Decisions signed a
software license agreement (the "License Agreement") with Seagate Technology.
Under the terms of the License Agreement, Crystal Decisions granted Seagate
Technology a non-exclusive, non-transferable, perpetual license to use its
business intelligence software and maintenance and support services. The total
value of the License Agreement was $1.6 million. The License Agreement was
priced at an approximate 50% discount to Crystal Decisions' established list
price. During the quarter ended September 28, 2001, Crystal Decisions
recognized approximately $91,000 of revenues from the License Agreement. At
September 28, 2001, an aggregate of $1.54 million of revenues had been
recognized with $61,000 remaining as deferred revenue. While Crystal Decisions
earned approximately $223,000 of consulting revenues related to the License
Agreement in fiscal 2001, no such revenues were earned in the quarter ended
September 28, 2001. As of September 28, 2001, there were no amounts outstanding
from Seagate Technology included in accounts receivable.
Seagate Technology LLC, an indirect subsidiary of New SAC, provides various
cash management, taxation, administrative, accounting and similar corporate and
managerial services as requested by Crystal Decisions, for which it charges
Crystal Decisions through corporate expense allocations. The amount of
corporate expense charges depends upon the total amount of allocable costs
incurred by Seagate Technology LLC on behalf of Crystal Decisions less amounts
charged as a specific cost or expense rather than by allocation. Such costs
have been proportionately allocated to Crystal Decisions based on detailed
inquiries and estimates of time incurred by Seagate Technology LLC's corporate
marketing and general and administrative departmental managers. Management
believes that the allocation methods applied to the costs provided under the
agreements in place are reasonable. Amounts charged to Crystal Decisions
general and administrative expense were $312,166 and $180,000 for the quarters
ended September 28, 2001 and September 29, 2000, respectively. Management
believes Seagate Technology LLC charged Crystal Decisions the fair market value
of these services and thus no material additional costs would have been
incurred had Crystal Decisions obtained these services from a third party. See
note 6 and 9.
6. Income Taxes
Prior to the close of the New SAC Transaction, Crystal Decisions was
included in the consolidated federal and certain combined and consolidated
foreign and state income tax returns of Seagate Technology. Seagate Technology
and Crystal Decisions had entered into a tax sharing agreement (the "Tax
Allocation Agreement") pursuant to which Crystal Decisions computed
hypothetical tax returns as if Crystal Decisions was not joined in the combined
or consolidated returns with Seagate Technology. Crystal Decisions paid Seagate
Technology the positive amount of any such hypothetical taxes. If the
hypothetical tax returns showed entitlement to refunds, including any refunds
attributable to a carry back, then Seagate Technology would pay Crystal
Decisions the amount of such refunds. On November 22, 2000, the Tax Allocation
Agreement was terminated.
Prior to the termination of the Tax Allocation Agreement, Crystal Decisions
had received substantial cash payments from its tax losses utilized by Seagate
Technology, which it had used to reduce its obligations to Seagate Technology
under the Revolving Loan Agreement. Such benefits will not be available to
Crystal Decisions in the future as a result of the termination of the Tax
Allocation Agreement.
10
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
Crystal Decisions recorded an income tax provision of $502,000 for the
quarter ended September 28, 2001 compared with an income tax benefit of
$726,000 for the quarter ended September 29, 2000. The tax provision for the
quarter ended September 28, 2001 reflects increased taxable income in both
domestic and foreign jurisdictions. A valuation allowance has been provided
against the deferred tax assets arising from temporary differences and
operating losses carried forward due to the uncertainty of their realizability.
The tax benefit for the quarter ended September 29, 2000 reflects the benefits
recorded during the period under the Tax Allocation Agreement that Crystal
Decisions had with Seagate Technology.
The effective rate used to record income tax expense for the quarter ended
September 28, 2001 was less than the U.S. federal statutory tax rate primarily
due to operating in foreign jurisdictions which have differing tax treatments
as compared to the United States. The effective rate also differs due to
non-deductible charges arising from push down accounting. The effective rate
that was used to record the benefit from income taxes for the quarter ended
September 29, 2000 was lower than the U.S. federal statutory tax rate primarily
as a result of non-deductible amortization incurred in foreign jurisdictions.
7. Net Income (Loss) Per Share
Basic net income (loss) per share has been computed using the weighted
average number of shares of common stock outstanding during each of the periods
presented. Diluted net income (loss) per share is computed using the weighted
average number of shares of common and dilutive common equivalent stock
outstanding during each of the periods presented assuming exercise of options
to purchase common stock. Common equivalent shares consist of shares issuable
upon the exercise of stock options using the treasury stock method. Options to
purchase common stock were excluded from the computation of diluted net income
(loss) per share, as their effect is not dilutive.
Below is a reconciliation of the numerator and denominator used to calculate
net income (loss) per share (in thousands, except share and per share data).
For the quarters ended
--------------------------
September 28, September 29,
2001 2000
------------- -------------
Basic and diluted net income (loss) per share computation:
Numerator:
Net income (loss)...................................... $ 2,421 $ (2,179)
=========== ===========
Denominator:
Weighted average number of common shares outstanding... 75,444,807 75,073,753
=========== ===========
Net income (loss) per share--basic and diluted............ $ 0.03 $ (0.03)
=========== ===========
As of September 28, 2001 and September 29, 2000, respectively, the total
number of outstanding options to purchase common stock was 10,865,766 and
8,883,166. During the quarter ended September 28, 2001, Crystal Decisions
issued 74,776 shares of common stock upon the exercise of options granted under
the 1999 Stock Option Plan.
11
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
8. Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and other
comprehensive income (loss), the latter being recorded directly as a separate
component of stockholders' equity and excluded from the calculation of net
income (loss). Other comprehensive income (loss) relates to foreign currency
translation adjustments from those subsidiaries not using the U.S. Dollar as
their functional currency. The components of comprehensive income (loss) were
as follows (in thousands):
For the quarters ended
--------------------------
September 28, September 29,
2001 2000
------------- -------------
Net income (loss)....................... $2,421 $(2,179)
Foreign currency translation adjustments 319 153
------ -------
Comprehensive Income (Loss).......... $2,740 $(2,026)
====== =======
9. Revolving Loan Agreement with Seagate Technology LLC
On July 4, 2001, Crystal Decisions and Seagate Technology LLC renewed the
revolving loan agreement ("Revolving Loan Agreement") originally dated June 28,
1996 and subsequently amended on July 4, 2000. The renewed Revolving Loan
Agreement provides for maximum outstanding borrowings of up to $15.0 million
and expires on July 4, 2002. Interest is calculated at Seagate Technology LLC's
in-house portfolio yield rate on balances receivable and at LIBOR plus 3.5% on
balances payable. The loan is receivable or payable upon termination of the
agreement and the loan balance is presented on the balance sheet as a net
receivable or net payable in accordance with the terms of the Revolving Loan
Agreement. While the funds were available for use under the Revolving Loan
Agreement, Crystal Decisions did not have any borrowings outstanding under the
agreement in fiscal 2001 or during the quarter ended September 28, 2001.
During the quarter ended June 29, 2001, Seagate Technology LLC repaid $31.0
million of the balance receivable under the Revolving Loan Agreement, thereby
decreasing the receivable balance to $3.4 million. During the quarter ended
September 28, 2001, Seagate Technology LLC repaid the remaining portion of the
receivable balance under the Revolving Loan Agreement. At September 28, 2001,
there was no balance receivable or payable under the Revolving Loan Agreement
by Crystal Decisions or Seagate Technology LLC.
During the quarters ended September 28, 2001 and September 29, 2000, Crystal
Decisions earned interest income on a monthly basis on the net receivable
revolving loan balance outstanding at a rate calculated to be Seagate
Technology LLC's in-house portfolio yield rate (average of 3.71% and 7.08% for
the quarters ended September 28, 2001 and September 29, 2000, respectively).
Interest income and expense, as presented in the Company's statements of
operations, primarily relates to interest on the revolving loan. Interest
income of approximately $301,000 and $242,000 was earned on the net receivable
loan balance for the quarters ended September 28, 2001 and September 29, 2000,
respectively.
Although Crystal Decisions incurred net losses during the three-year period
ended June 29, 2001, the Company generated net income for the quarter ended
September 28, 2001 and had positive cash flow for fiscal 2001 and the quarter
ended September 28, 2001. Crystal Decisions believes that the Company's
combined sources of financing including current cash balances, available
borrowings from Seagate Technology LLC under the Revolving Loan Agreement, and
cash flows generated from the Company's operations, will be sufficient to meet
the anticipated cash needs for working capital and capital expenditures for at
least the next 12 months.
12
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
Should Crystal Decisions require additional financing that is not available
from Seagate Technology LLC at terms that are satisfactory to Crystal
Decisions, Crystal Decisions may seek additional equity and financing from
other sources, subject to concurrence by the lenders who financed the New SAC
Transaction. As part of the closing of the New SAC Transaction, Crystal
Decisions guaranteed the debt used to finance the New SAC Transaction and
pledged a majority of its assets. As a result of restrictive covenants under
the debt agreement, the ability of Crystal Decisions to raise additional debt
or equity from other sources may be limited. See note 10.
10. Debt Guarantees and Pledge of Assets
Senior Secured Credit Facility
On the closing of the New SAC Transaction, New SAC entered into senior
credit facilities with a syndicate of banks and other financial institutions.
The senior credit facilities provide senior secured financing of up to $900
million, consisting of:
. a $200 million revolving credit facility for general corporate purposes,
with a sub-limit of $100 million for letters of credit, which will
terminate in November 2005;
. a $200 million term loan A facility due in scheduled installments with a
maturity of November 2005; and
. a $500 million term loan B facility due in scheduled installments with a
maturity of November 2006.
New SAC did not borrow under the revolving credit facility to fund the
purchase price of the New SAC Transaction. At September 28, 2001, approximately
$145 million of the revolving credit facility was available and approximately
$55 million of existing letters of credit were outstanding.
New SAC drew the full amount of the term loan A facility and the term loan B
facility on the closing of the New SAC Transaction to finance the acquisition
of Seagate Technology's operating assets, including Crystal Decisions. Of the
$700 million of outstanding loans under the term loan A and B facilities, $690
million remained outstanding at September 28, 2001, as a result of total debt
repayments of $10 million by New SAC. The amounts are repayable in semi-annual
payments due as follows (in thousands):
Fiscal
- ------
2002...... $ 17,500
2003...... 40,000
2004...... 50,000
2005...... 60,000
2006...... 285,000
Thereafter 237,500
--------
Total.. $690,000
========
The loans bear interest at variable rates dependent upon market interest
rates and the nature of the borrowings, as well as the consolidated financial
position of New SAC at applicable measurement dates. The average interest rates
being charged under these borrowings from the date of the New SAC Transaction
ranged from 6.06% (LIBOR plus 2.5%) to 9.69% (LIBOR plus 3%).
13
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
New SAC, and certain of its subsidiaries, including Crystal Decisions and
certain of its subsidiaries, are guarantors on a joint and several, whole and
unconditional basis under term loan A and term loan B (the "senior credit
facilities"). In addition, the majority of New SAC's and certain of its
subsidiaries' assets, including certain of Crystal Decisions' assets and its
capital stock, have been pledged under this credit agreement. New SAC, and
certain of its subsidiaries, including Crystal Decisions and certain of its
subsidiaries, have agreed to certain covenants under the loan agreements
including restrictions on future equity and borrowing transactions, business
acquisitions and disposals, making certain restricted payments and dividends,
making certain capital expenditures, incurring guarantee obligations and
engaging in mergers or consolidations. Further, Crystal Decisions, as part of
the consolidated group, is subject to certain financial covenants, which are
assessed on the consolidated operating results and financial position of New
SAC and its subsidiaries.
The credit agreement provides for the release of Crystal Decisions from its
guarantee obligations and asset pledge upon an approved transfer or sale of
Crystal Decisions' common stock, or an initial public offering of at least 10%,
on a fully diluted basis, of Crystal Decisions' voting common stock.
Senior Subordinated Notes
In connection with the closing and financing of the New SAC Transaction,
Seagate Technology International, which is an indirect subsidiary of New SAC,
issued unsecured senior subordinated notes under an Indenture Agreement dated
November 22, 2000, at a discount to the aggregate principal amount of $210.0
million, for gross proceeds of approximately $201.0 million. The notes mature
on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5%
per annum. New SAC and certain of its subsidiaries, including Crystal Decisions
and certain of its subsidiaries, are guarantors on a joint and several, whole
and unconditional basis, of the notes. In addition, New SAC and certain of its
subsidiaries, including Crystal Decisions and certain of its subsidiaries, have
agreed to certain restrictive covenants under the terms of these notes
including restrictions on future equity and borrowing transactions, business
acquisitions and disposals, making certain restricted payments and dividends,
making certain capital expenditures, incurring guarantee obligations and
engaging in mergers or consolidations. Crystal Decisions may be released from
its guarantee obligation if there are certain sales of its capital stock,
including an initial public offering, but would remain subject to the
restrictive covenants of the Indenture until Crystal Decisions and its
subsidiaries are no longer subsidiaries of New SAC or are deemed no longer to
be subject to the restrictive covenants.
New SAC will not require Crystal Decisions' cash flow to be used to service
the obligations pursuant to the senior secured credit facility and the senior
subordinated notes. The Company believes that none of its guarantee obligations
or asset pledge under the senior credit facility or its guarantee obligations
under the Indenture are likely to be invoked.
14
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
11. Business Segment and Geographic Information
Crystal Decisions operates in a single industry segment--information
infrastructure software. Crystal Decisions' products and services are sold
worldwide, through direct and indirect methods. Within the segment, the chief
operating decision maker, Crystal Decisions' chief executive officer, evaluates
the performance of the business based upon revenues from product and services,
revenues by geographic regions and revenues by distribution channels.
Product and services revenues (in thousands):
For the quarters ended
---------------------------
September 28, September 29,
2001 2000
------------- -------------
Licensing........................ $30,855 $22,958
Maintenance, support and services 17,193 13,946
------- -------
Total revenues................ $48,048 $36,904
======= =======
Geographic revenues (in thousands) (1), (2):
For the quarters ended
---------------------------
September 28, September 29,
2001 2000
------------- -------------
United States..... $32,677 $26,135
Europe............ 8,493 6,634
Other............. 6,878 4,135
------- -------
Total revenues. $48,048 $36,904
======= =======
Channel revenues (in thousands):
For the quarters ended
---------------------------
September 28, September 29,
2001 2000
------------- -------------
Direct............ $32,937 $22,993
Indirect (3)...... 15,111 13,911
------- -------
Total revenues. $48,048 $36,904
======= =======
Long-lived tangible and intangible assets (in thousands):
September 28, June 29,
2001 2001
------------- --------
United States...................................... $11,205 $12,310
Canada............................................. 14,059 14,120
Other.............................................. 1,696 2,029
------- -------
Total long-lived tangible and intangible assets. $26,960 $28,459
======= =======
15
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
Reconciliation of total assets (in thousands):
September 28, June 29,
2001 2001
------------- --------
Total long-lived tangible and intangible assets $ 26,960 $ 28,459
Other assets, including current................ 81,535 76,667
-------- --------
Total assets................................ $108,495 $105,126
======== ========
- --------
(1) Europe includes South Africa and the Middle East.
(2) Revenues are attributed to geographic locations based on the location of
the customer.
(3) Includes distributors and OEMs.
During the quarters ended September 28, 2001 and September 29, 2000,
respectively, revenues from a third-party customer, Ingram Micro, Inc.
("Ingram"), accounted for a total of $5.1 million and $8.3 million in revenues,
respectively, and accounted for more than 10% of total revenues in each period.
No other customer accounted for 10% or more of the Company's total revenues
during these periods.
12. Recent Pronouncements
On June 29, 2001, the Financial Accounting Standards Board approved the
issuance of Statements of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets". SFAS 141 requires all business combinations initiated after
July 1, 2001 to be accounted for using the purchase method of accounting for
business combinations and includes new criteria for recognizing intangibles
separately from goodwill. Under SFAS 142, which is effective for all fiscal
years beginning after December 15, 2001, goodwill and other intangible assets
with indefinite lives are no longer amortized but are reviewed at least
annually for impairment. Separate intangible assets that are deemed to have a
definite life will continue to be amortized over their estimated useful life.
The Company is still assessing the impact of these Statements on its
consolidated results of operations, financial position and cash flows.
13. Commitments and Contingencies
(a) Litigation
On November 10, 1997, Vedatech Corporation ("Vedatech") commenced an action
in the Chancery Division of the High Court of Justice in the United Kingdom
against Crystal Decisions (UK) Limited, a wholly owned subsidiary of Crystal
Decisions. The original pleading alleged a breach of an oral agreement and
infringement of Vedatech's U.K. copyright in one of Crystal Decisions' products
and sought monetary and injunctive relief. On August 22, 2000, Vedatech
requested and obtained permission from the court to amend its action to include
claims for unjust enrichment, unlawful interference and quantum meruit. On May
9, 2001, Vedatech was given further leave to amend its pleading. Vedatech seeks
to enjoin Crystal Decisions (UK) Limited from infringing the U.K. copyright and
seeks forfeiture to Vedatech of all infringing software copies. Of the relief
sought, the only claim that has been settled is a claim for JPY 26,624,181
(approximately U.S. $240,000) for unpaid invoices. Crystal Decisions has hired
local counsel in the U.K., reviewed documents, conducted interviews and
participated in the discovery process. Taking into account Crystal Decisions'
counterclaim (which is approximately U.S. $200,000) and a deposit with the
court of an amount equal to U.S. $200,000, Crystal Decisions has offered
Vedatech U.S. $400,000 in settlement of its quantum meruit claim. The court has
granted Vedatech's request to delay commencement of the trial until February of
2002 with the caveat
16
CRYSTAL DECISIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of September 28, 2001 and September 29, 2000 is unaudited)
that the hearing of the trial will be split between liability and quantum (if
required). The Company has defenses to all the causes of action, including the
claim for quantum meruit, and intends vigorously to defend the actions. Were an
unfavorable outcome to arise, there can be no assurance that such outcome would
not have a material adverse affect on the liquidity, financial position or
results of operations of the Company. The outcome of this matter and amount of
related claims are not determinable at this time.
In addition to the foregoing, Crystal Decisions is subject to other
litigation in the ordinary course of its business. While Crystal Decisions
believes that the ultimate outcome of these matters will not have a material
adverse effect on the Company, the outcome of these matters is not determinable
and negative outcomes may adversely affect Crystal Decisions' financial
position, liquidity or results of operations.
(b) Commitments related to New SAC Transaction
Concurrent with the consummation of the New SAC Transaction under the terms
of a Merger Agreement, VERITAS Software Corporation ("VERITAS") acquired
Seagate Technology and a wholly owned subsidiary of VERITAS merged with and
into Seagate Technology, with Seagate Technology becoming a wholly owned
subsidiary of VERITAS. This transaction is referred to as the Merger. VERITAS
did not acquire Seagate Technology's disc drive business or any other Seagate
Technology operating business, including Crystal Decisions.
As part of the New SAC Transaction, New SAC, Seagate Technology and Crystal
Decisions agreed to assume and indemnify VERITAS for substantially all
liabilities arising in connection with Seagate Technology's operating assets,
including those of Crystal Decisions. On March 29, 2000, Seagate Technology,
VERITAS and New SAC entered into an Indemnification Agreement, pursuant to
which these entities and certain other subsidiaries of Seagate Technology,
including Crystal Decisions, were required to indemnify VERITAS and its
affiliates for any liability for taxes of Seagate Technology and the
subsidiaries of Seagate Technology, including Crystal Decisions, acquired by
New SAC, in excess of an amount deposited into an escrow account by VERITAS.
VERITAS deposited $150 million in an escrow account. This amount may be
withdrawn by New SAC to satisfy these tax liabilities, including those of
Crystal Decisions and its subsidiaries. New SAC is responsible for any
liabilities in excess of $150 million.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the historical
financial statements and the notes hereto included in Item 1 of this Quarterly
Report on Form 10-Q and the Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K
for the year ended June 29, 2001 as filed with the Securities and Exchange
Commission ("SEC") on September 27, 2001.
Except for historical information, the discussion in this Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Private
Securities Litigation Reform Act of 1995. These statements refer to our future
plans, objectives, expectations and intentions. These statements may be
identified by the use of words such as "expect", "anticipate", "believe",
"intend", "plan" and similar expressions. Our actual results could differ
materially from those anticipated in such forward-looking statements. Factors
that could contribute to these differences include, but are not limited to, the
risks discussed in the section titled "Factors Affecting Future Operating
Results" in this Form 10-Q. We do not undertake any obligation to publicly
update any forward-looking statement to reflect events or circumstances after
the date on which any such statement is made or to reflect the occurrence of
unanticipated events.
Overview
We are an information infrastructure company that creates software products
and provides services for reporting, analysis and information delivery. We
develop, market and support an integrated, scalable suite of enterprise
software products that enable businesses to access disparate data sources and
distribute secure, interactive reports and analysis across and beyond these
organizations. We believe our solutions provide direct and rapidly achieved
benefits including improved decision making, lower overall information
technology costs and better business performance. We operate in a broad
industry segment that is commonly referred to as "business intelligence." We
believe our products meet an extensive range of data-centric business and
organizational needs commonly referred to under a number of different labels,
including information delivery, enterprise reporting, enterprise business
intelligence, enterprise information portals, developer reporting, ad hoc query
and reporting, business analytics, OLAP reporting, analytic application
development and packaged analytic applications. We sell our products through
our direct sales force and certain indirect sales channels, such as distributor
and original equipment manufacturer ("OEM") relationships.
We derive revenues from the sale of licenses for our software products and
from services that support our products such as maintenance, consulting,
training and technical support.
As of November 22, 2000, as a result of the completion of a stock purchase
agreement (the "Stock Purchase Agreement"), we became a majority owned
subsidiary of Seagate Software (Cayman) Holdings ("Suez Software"), which is a
wholly owned subsidiary of New SAC, a Cayman Islands limited corporation ("New
SAC"), whose predecessor was Seagate Technology, Inc. ("Seagate Technology").
Silver Lake Partners L.P. and Texas Pacific Group control New SAC.
As a result of the New SAC Transaction, New SAC acquired 75,001,000 shares,
or 99.7%, of Crystal Decisions' outstanding common stock on November 22, 2000.
The remaining shares of our common stock are held by current and former
employees of our company, our former parent company and our subsidiaries. The
outstanding unexercised options granted under the 1999 and 2000 Stock Option
Plans continued to remain outstanding. The minority interests in our capital
stock amounted to approximately 13.1% and 13.0% on a fully converted basis as
of September 28, 2001 and June 29, 2001, respectively. The outstanding common
stock held by our current and former employees and affiliated companies, as
well as the outstanding unexercised options granted to purchase our common
stock, comprise these minority interests.
18
We changed our name to Crystal Decisions, Inc. from Seagate Software
Information Management Group Holdings, Inc. in March 2001. We were incorporated
in Delaware in August 1999. In February 2001, we relocated our headquarters to
895 Emerson St., Palo Alto, California 94301. Our telephone number is (650)
838-7410.
We operate and report financial results on a fiscal year of 52 or 53 weeks
ending on the Friday closest to the end of June. Accordingly, fiscal 2001 ended
on June 29, 2001 and fiscal 2002 will end on June 28, 2002. The quarters ended
September 28, 2001 and September 29, 2000 each comprised 13 weeks of activity.
Change in Control of Crystal Decisions, Inc.
Under rules and regulations promulgated by the SEC, because more than 95% of
our company was acquired and a change of ownership occurred, Crystal Decisions
restated all its assets and liabilities as of November 22, 2000 on a "push
down" accounting basis. Accordingly, our results of operations prior to
November 22, 2000, and specifically the comparative information for the quarter
ended September 29, 2000, do not reflect these adjustments.
Sale of Seagate Technology
Under the Stock Purchase Agreement, New SAC agreed to purchase for $1.840
billion cash, including transaction costs of $25.0 million, substantially all
of the operating assets of Seagate Technology and its consolidated
subsidiaries, including Seagate Technology's rigid disc drive, storage area
network, removable tape storage solutions, and information infrastructure
software businesses and operations, including our common stock, and certain
cash balances, but excluding the approximately 128 million shares of VERITAS
Software Corporation ("VERITAS") common stock then held by Seagate Software
Holdings, Inc. and Seagate Technology's equity investments in Gadzoox Networks,
Inc. and Lernout & Hauspie Speech Products N.V. In addition, under the Stock
Purchase Agreement, wholly owned subsidiaries of New SAC assumed substantially
all of the operating liabilities of Seagate Technology, Seagate Software
Holdings and their consolidated subsidiaries. New SAC also acquired Seagate
Technology Investments, Inc., a subsidiary of Seagate Technology, which holds
certain strategic equity investments in various companies. This transaction is
referred to hereafter as the New SAC Transaction.
Concurrent with the consummation of the New SAC Transaction, under the terms
of a merger agreement, a wholly owned subsidiary of VERITAS merged with and
into Seagate Technology, and Seagate Technology became a wholly owned
subsidiary of VERITAS. This transaction is referred to as the Merger. VERITAS
did not acquire Seagate Technology's disc drive business or any other Seagate
Technology operating business, including ours.
As part of the New SAC Transaction, New SAC, Seagate Technology and our
Company agreed to assume and indemnify VERITAS for substantially all
liabilities arising in connection with Seagate Technology's operating assets,
including ours. On March 29, 2000, Seagate Technology, VERITAS and New SAC
entered into an Indemnification Agreement, pursuant to which these entities and
certain other subsidiaries of Seagate Technology, including us, have agreed to
certain indemnification provisions regarding tax and other matters that may
arise in connection with the New SAC Transaction and the Merger. In addition, a
majority of our assets, along with certain other assets of Seagate Technology,
are now pledged as a guarantee for debt issued to finance the New SAC
Transaction.
The tax allocation agreement we had with Seagate Technology was terminated
on November 22, 2000, and we no longer file income tax returns on a
consolidated basis with Seagate Technology. Therefore, Seagate Technology will
not benefit from nor will it reimburse us pursuant to the tax allocation
agreement for tax losses that we sustain subsequent to consummation of the
transaction. In prior periods, we received substantial cash payments from our
tax losses utilized by Seagate Technology, which we used to reduce our
obligations to
19
Seagate Technology under a revolving loan agreement. As a result of the
termination of the tax allocation agreement, we may not be able to convert any
future tax losses into cash.
Allocation of Purchase Price to our Company Pursuant to the Application of
Push Down Accounting
The New SAC Transaction constituted a purchase business transaction of
Seagate Technology and resulted in a change in control of our company. Under
purchase accounting rules, the net purchase price paid by New SAC was allocated
to the assets and liabilities of Seagate Technology and its subsidiaries,
including our company, based on their fair values at the date of the closing of
the New SAC Transaction. The fair values of the identifiable tangible and
intangible assets and liabilities of Seagate Technology and its subsidiaries at
the date of the New SAC Transaction were greater than the amount paid,
resulting in negative goodwill. The negative goodwill was allocated to the
long-lived tangible and intangible assets, including our assets, on the basis
of relative fair values. The fair values of tangible and intangible assets,
including in-process research and development ("IPR&D"), were determined based
upon independent appraisals.
The accounting for the purchase transaction has been "pushed down" to our
financial statements. The consolidated statements of operations and cash flows
do not reflect the restatement of assets and liabilities as at November 22,
2000 caused by the push down of the New SAC Transaction. As a result of the New
SAC Transaction and the push down accounting, our results of operations after
November 22, 2000, particularly the depreciation and amortization charges, are
not necessarily comparable to the results of operations prior to that date.
The following describes the impact of push down accounting on our results.
There was no impact on the financial information for the quarter ended
September 29, 2000.
. Revenues. Deferred revenues were revalued at the transaction date and
were reduced by $1.3 million and revenues were reduced on a declining
basis during the 12 months following the New SAC Transaction.
Consequently, revenues were approximately $1.2 million and $103,000
lower for fiscal 2001 and for the quarter ended September 28, 2001,
respectively, than they would have been had the push down adjustments
not occurred.
. Depreciation and amortization. Capital assets were reduced by $4.3
million on November 22, 2000, as a result of the allocation of negative
goodwill to our long-lived tangible assets. Consequently, we recorded
approximately $1.5 million and $463,000 less of depreciation expense for
fiscal 2001 and for the quarter ended September 28, 2001, respectively,
than we would have recorded had the push down adjustments not occurred.
In addition, we recorded additional amortization expense of
approximately $3.3 million and $1.2 million for fiscal 2001 and for the
quarter ended September 28, 2001, respectively, resulting from the
recording of the incremental fair value of intangibles from the push
down adjustments.
. In-process research and development. We expensed $7.1 million of IPR&D
during fiscal 2001. We did not incur any such charges during the quarter
ended September 28, 2001.
20
Results of Operations
The following table sets forth certain consolidated statement of operations
data as a percent of total revenues for the periods indicated:
For the quarters ended
---------------------------
September 28, September 29,
2001 2000
------------- -------------
Revenues:
Licensing...................................... 64% 62%
Maintenance, support and services.............. 36% 38%
---- ----
Total revenues............................. 100% 100%
---- ----
Cost of revenues:
Licensing...................................... 3% 3%
Maintenance, support and services.............. 20% 27%
Amortization of developed technologies......... 3% 0%
---- ----
Total cost of revenues..................... 26% 30%
---- ----
Gross profit...................................... 74% 70%
Operating expenses:
Sales and marketing............................ 44% 46%
Research and development....................... 14% 18%
General and administrative..................... 10% 11%
Amortization of goodwill and other intangibles. 1% 1%
Restructuring costs............................ 0% 2%
---- ----
Total operating expenses................... 69% 78%
---- ----
Revenues
Total revenues increased 30% from $36.9 million for the quarter ended
September 29, 2000 to $48.0 million for the quarter ended September 28, 2001.
In each period presented, a majority of our revenues were derived from
licensing fees for our products. We also derive revenues from maintenance
related to the licensing of our products, consulting services, training
activities and technical support. We anticipate that license fees, which
represented approximately 64% and 62% of our total revenues for the quarters
ended September 28, 2001 and September 29, 2000, respectively, will continue to
represent the majority of our revenues for the foreseeable future.
The increase in total revenues was primarily attributable to an increase in
the size and productivity of our sales force. In addition, the release of new
software products in the second half of fiscal 2001 resulted in increased unit
sales in most of our products, which contributed to the overall revenue growth
in the quarter ended September 28, 2001. While we expect our revenues to
continue to grow and we believe the current demand for our solutions is strong,
the current economic environment and the slowing global economy have resulted
in a decline in information technology spending. This decline may impact the
spending by our existing and potential customers in the near term. As a result,
we may not be able to maintain the revenue growth rates we have achieved.
During the quarters ended September 28, 2001 and September 29, 2000,
respectively, revenues from a third-party customer, Ingram Micro, Inc.
("Ingram"), accounted for a total of $5.1 million and $8.3 million in revenues,
respectively, and accounted for more than 10% of total revenues in each period.
No other customer accounted for 10% or more of our total revenues during these
periods.
21
Licensing revenues. Licensing revenues consist of license fees for our
products. Licensing revenues increased 34% from $23.0 million for the quarter
ended September 29, 2000 to $30.9 million for the quarter ended September 28,
2001. The increase in licensing revenues was primarily attributable to an
overall increase in the size and productivity of our direct sales force,
resulting in an increase in our customer base, as well as additional sales to
our existing customers. In addition, new product releases, including Crystal
Enterprise and Crystal Reports 8.5 during the latter half of fiscal 2001
contributed to the increases in revenues during the quarter ended September 28,
2001.
Maintenance, support and services revenues. Our maintenance, support and
services revenues consist of revenues from maintenance related to our products,
consulting services, training activities and technical support. Maintenance,
support and services revenues increased 23% from $13.9 million for the quarter
ended September 29, 2000 to $17.1 million for the quarter ended September 28,
2001. As a percentage of total revenues, maintenance, support and services
revenues decreased to 36% of total revenues for the quarter ended September 28,
2001 from 38% for the quarter ended September 29, 2000. The year-over-year
absolute dollar increases in maintenance, support and services revenues were
attributable to the higher cumulative installed customer base receiving ongoing
maintenance and support. In addition, both consulting and technical support
revenues increased as a result of new and continued agreements with our
customers.
Revenues based on the geographic location of customers were as follows (in
thousands):
For the quarters ended
---------------------------
September 28, September 29,
2001 2000
------------- -------------
United States..... $32,677 $26,135
Europe............ 8,493 6,634
Other............. 6,878 4,135
------- -------
Total revenues. $48,048 $36,904
======= =======
Revenues from sales outside of the United States represented 32% and 29% of
total revenues for the quarters ended September 28, 2001 and September 29,
2000, respectively. Revenues from sales outside the United States increased by
43% from $10.8 million for the quarter ended September 29, 2000 to $15.4
million for the quarter ended September 28, 2001. The increase in revenues from
sales outside the United States for the quarter ended September 28, 2001 was
primarily attributable the increase in the size and productivity of our direct
sales force and the resulting expansion of our customer base in these regions.
In addition to the increase in revenues from sales outside the United States,
our domestic sales continued to grow with an increase in total revenues of $6.5
million, or 25%, in the quarter ended September 28, 2001 over total revenues
for the quarter ended September 29, 2000. While not as significant as the
increase in our direct sales revenues, we also saw increases in revenue from
our indirect sales channels across most geographic regions as compared to the
quarter ended September 29, 2000. Our operating results from Europe and other
regions are impacted by seasonal reductions in business activity in the summer
months; however, to date, the impact has not been material.
A majority of our revenues are denominated in U.S. Dollars, the currency in
which we report our operating results. We also collect a portion of our
revenues in currencies other than the U.S. Dollar such as Canadian Dollars,
British Pounds Sterling, German Marks, French Francs, Australian Dollars and
Japanese Yen. We expect an increasing portion of our revenues to be denominated
and collected in the Single European Currency (the "Euro") in the future.
During the quarter ended September 28 2001, approximately 4% of our revenues
were denominated and collected in currencies that will be denominated and
collected in the Euro. To date, the foreign exchange gains and losses on
transactions and revenues reported by those subsidiaries to be denominated in
the Euro have not been significant nor have any costs we have incurred related
to the Euro conversion. Translation adjustments from consolidation of such
foreign operations are presented within other comprehensive income (loss).
22
Cost of Revenues
Cost of revenues increased 14% to $12.7 million, or 26% of total revenues,
for the quarter ended September 28, 2001 from $11.1 million, or 30% of total
revenues, for the quarter ended September 29, 2000. The absolute dollar
increase in cost of revenues was primarily attributable to a $1.2 million
increase in the amortization of developed technologies which was attributable
to the push down adjustments to our financials which were recorded in the
quarter ended September 28, 2001. Excluding the effect of the increase in
amortization of developed technologies, the cost of revenues was relatively
unchanged. This is largely attributable to a corporate-wide initiative to
manage costs while supporting revenue growth, and increased productivity across
most functional areas.
Cost of licensing revenues. Cost of licensing revenues consists primarily of
materials, product packaging, distribution costs, related fulfillment personnel
and third party royalties. The cost of licensing revenues increased 49% to $1.5
million, or 5% of licensing revenues, for the quarter ended September 28, 2001
from $1.0 million, or 4% of licensing revenues, for the quarter ended September
29, 2000. The absolute dollar increase in cost of licensing revenues was
primarily due to the license revenue mix and the increased volume of shipments
during the quarter ended September 28, 2001. We expect cost of licensing
revenues to increase in absolute dollars and as a percentage of total revenues
because of costs incurred with new product releases, increased order
fulfillment costs, new packaging of our products and printing costs associated
with revised documentation materials.
Cost of maintenance, support and services revenues. Cost of maintenance,
support and services revenues consists of personnel and related overhead costs
for technical support, training, consulting and maintenance services and the
cost of materials delivered with enhancement releases. Cost of maintenance,
support and services revenues decreased by 1% to $9.9 million, or 57% of
maintenance, support and services revenues, for the quarter ended September 28,
2001 from $10.0 million, or 72% of maintenance, support and services revenues,
for the quarter ended September 29, 2000. The decline in cost of maintenance,
support and services revenues as a percentage of maintenance, support and
services revenues was primarily attributable to an increased use of company
personnel rather than sub-contracted consultants, which generally have higher
costs and lower margins than if we perform the services ourselves. In addition,
the gross margins of our technical support group have improved as a result of
the more efficient delivery of the majority of our support services. This
decline was offset by the costs associated with increased headcount to support
our service activities. Cost of maintenance, support and services revenues may
vary between periods because of the mix of services we provide and the extent
to which we use outside consultants to assist us in earning revenue. We expect
the cost of maintenance, support and services revenue to continue to grow in
absolute dollars in the future as we continue to expand our customer support
and professional services organizations to meet our customers' demands for our
services.
Amortization of Developed Technologies. Amortization of developed
technologies increased by $1.2 million to $1.3 million, or 3% of total
revenues, for the quarter ended September 28, 2001 from $53,000 for the quarter
ended September 29, 2000. The increase in amortization of developed
technologies was attributable to the push down of the net fair value of our
intangible assets of $29.4 million acquired by New SAC on November 22, 2000,
which included $15.2 million related to developed technologies. Effective
November 23, 2000, we began amortizing these developed technologies over 36
months. Amortization of developed technologies prior to November 22, 2000, and
included in the quarter ended September 29, 2000, comprised the amortization of
developed technologies arising from push down accounting of other intangibles
as a result of prior share transactions between Seagate Software Holdings, Inc.
and Seagate Technology. These intangibles were revalued as part of the New SAC
Transaction.
Gross Profit
Our gross profit as a percentage of total revenues increased from 70% for
the quarter ended September 29, 2000 to 74% for the quarter ended September 28,
2001. The increase in our gross profit was attributable to
23
increased margins for the majority of revenue sources and across most
geographic regions compared to September 29, 2000 and the year ended June 29,
2001.
Operating Expenses
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and bonuses earned by sales and marketing personnel, advertising
and product promotional activities, travel, related facilities and other costs.
Sales and marketing expenses increased 24% to $21.1 million, or 44% of total
revenues, for the quarter ended September 28, 2001 from $17.1 million, or 46%
of total revenues, for the quarter ended September 29, 2000. The absolute
dollar increase in sales and marketing expenses was primarily associated with
increased personnel costs, as a result of increased headcount in our sales
force, and higher commissions associated with increased revenues. The decrease
in sales and marketing expense as a percentage of total revenues was primarily
attributable to the increase in productivity of our sales force which resulted
in revenues growing at a faster rate than sales and marketing costs. We expect
sales and marketing expenses to increase in absolute dollars and to vary as a
percentage of total revenues as we continue to increase our direct sales force
headcount and promote our products and services.
Research and Development. Research and development expenses consist
primarily of personnel and related costs associated with the development of new
products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses remained constant at
$6.7 million for each of the quarters ended September 28, 2001 and September
29, 2000. However, research and development costs varied as a percentage of
total revenues, representing 14% of total revenues for the quarter ended
September 28, 2001 and 18% of total revenues for the quarter ended September
29, 2000. The decrease in research and development costs as a percentage of
total revenues was the result of revenues increasing at a greater rate than
research and development costs. In absolute dollars, research and development
costs have increased as a result of personnel costs resulting from additional
headcount, which was offset in part by efficiencies in our product management
group. We expect research and development expenses to continue to increase in
absolute dollars and vary as a percentage of total revenues in the future as we
continue to invest in our products.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for finance, legal, human resources, information
systems and other administrative costs, including bad debt expense. General and
administrative expenses increased 14% to $4.8 million, or 10% of total
revenues, for the quarter ended September 28, 2001 from $4.2 million, or 11% of
total revenues, for the quarter ended September 29, 2000. The increase in
absolute dollars was primarily attributable to additional costs related to
certain outside services and bad debt expense in the quarter ended September
28, 2001. We expect general and administrative expenses to vary in absolute
dollars and as a percentage of total revenues as we continue to grow our
company.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased 52% to $589,000 for the quarter ended September 28,
2001 from $389,000 for the quarter ended September 29, 2000. As a percent of
total revenues, amortization of goodwill and other intangibles remained
constant. We expect our quarterly level of amortization expense to be
substantially the same for the remainder of fiscal 2002, as that recorded
during the quarter ended September 28, 2001.
The amortization of other intangibles for the quarter ended September 28,
2001 is attributable to the push down of the net fair value of our intangible
assets of $29.4 million acquired by New SAC on November 22, 2000, which
included $7.1 million related to other intangibles, which represented assembled
workforce. Effective November 23, 2000, we began amortizing assembled workforce
over 36 months. Amortization of goodwill and other intangibles prior to
November 22, 2000, and included in the quarter ended September 29, 2000,
comprised the amortization of goodwill and other intangibles arising from push
down accounting of goodwill and other intangibles as a result of prior share
transactions between Seagate Software Holdings and Seagate Technology. These
intangible assets were revalued as part of the New SAC Transaction.
24
On June 29, 2001, the Financial Accounting Standards Board approved the
issuance of Statement No. 142 ("SFAS 142"), which changes the accounting for
indefinite life intangibles from an amortization method to an impairment-only
approach. We are currently assessing the impact of SFAS 142 on our financial
statements.
Restructuring Costs. Restructuring charges of $573,000, representing 2% of
total revenues, were incurred during the quarter ended September 29, 2000. The
charges related to the closure of eight offices in Europe and were part of a
restructuring plan announced in September 2000 to consolidate the European
sales organization into fewer locations. The charges were primarily comprised
of costs related to the termination of office leases and other related office
closure costs, as well as severance and benefits due to nine sales and
marketing employees who were terminated in September 2000. As at September 28,
2001, amounts remaining accrued but unpaid were not material. We believe this
restructuring was not significant and will not have a material impact on our
future revenues, operating costs or operating results. There were no
restructuring charges during the quarter ended September 28, 2001.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net was comprised of the following (in thousands):
For the quarters ended
--------------------------
September 28, September 29,
2001 2000
------------- -------------
Net interest income............................... $782 $255
Other income (expense)............................ (53) (33)
---- ----
Total interest and other income (expense), net. $729 $222
==== ====
Net interest income increased by approximately $527,000 during the quarter
ended September 28, 2001. Net interest income fluctuates depending on
fluctuations in Seagate Technology LLC's in-house portfolio yield rate, LIBOR,
the general level of interest rates in the United States, our net outstanding
loan balance receivable from or payable to Seagate Technology LLC, and our
average cash and cash equivalents. Historically, net interest income was
primarily attributable to interest earned on balances receivable under the
revolving loan agreement. Interest income from this loan balance was
approximately $301,000 and $242,000 during the quarters ended September 28,
2001 and September 29, 2000, respectively. During the quarter ended September
28, 2001, we also received non-recurring interest payments on tax refunds that
resulted from the carry back of losses in foreign jurisdictions. We expect that
for the remainder of fiscal 2002, the interest previously earned from balances
receivable under the revolving loan agreement will be replaced by interest
earned on our cash and cash equivalents.
Other income (expense) was comprised of net foreign currency exchange gains
and losses, which represent the impact of foreign currency fluctuations on the
translation of foreign currency transactions into U.S. Dollars and varies
depending upon currency exchange rates.
Income Taxes. We recorded an income tax provision of $502,000 at an
effective rate of 17% for the quarter ended September 28, 2001 compared with an
income tax benefit of $726,000 at an effective rate of 25% for the quarter
ended September 29, 2000. The tax provision for the quarter ended September 28,
2001 reflects increased taxable income in both domestic and foreign
jurisdictions. A valuation allowance has been provided against the deferred tax
assets arising from temporary differences and operating losses carried forward
due to the uncertainty that they will be realized. The tax benefit for the
quarter ended September 29, 2000 included benefits recorded during the period
from July 1, 2000 to September 29, 2000 as a result of the tax allocation
agreement with Seagate Technology. Because of the termination of the tax
allocation agreement on November 22, 2000, no such benefits were included in
the determination of the tax expense for the quarter ended September 28, 2001.
25
LIQUIDITY AND CAPITAL RESOURCES
Prior to the New SAC Transaction, Seagate Technology, as part of a general
services agreement, provided cash management services for us. After the closing
of the New SAC Transaction, New SAC continued to provide these services for us,
through an affiliated company, Seagate Technology LLC. We began performing
these cash management functions internally during the first quarter of fiscal
2002.
At September 28, 2001, we had $46.0 million in cash and cash equivalents, an
increase of $11.6 million, or 34%, from $34.4 million as of June 29, 2001. The
majority of our cash and cash equivalents are denominated in U.S. Dollars. A
small portion of our cash balances are denominated in the local currencies of
our foreign operations, including Canadian Dollars, British Pounds Sterling,
Japanese Yen and other currencies. All of our cash is maintained in accounts
with high credit quality financial institutions and our cash equivalents in
highly rated money market instruments. The increase in cash and cash
equivalents at September 28, 2001 was attributable to the repayment of the
remaining balance of the loan receivable by Seagate Technology LLC under the
revolving loan agreement, being $4.3 million, and the net receipt of
approximately $6.2 million of income tax refunds from tax authorities.
Prior to fiscal 2001, our operations were financed by borrowings from
Seagate Technology. These borrowings were available to us under a revolving
loan agreement with Seagate Technology that was subsequently amended on July 4,
2001 with Seagate Technology LLC. The revolving loan agreement provides for
maximum outstanding borrowings of up to $15.0 million and expires on July 4,
2002. If not paid earlier, the loan is payable or receivable upon termination
of the agreement. While the funds were available for use, we did not borrow any
amounts under the revolving loan agreement for fiscal 2001 or for the quarter
ended September 28, 2001.
Net cash provided by operating activities was $9.3 million and $1.0 million
for the quarters ended September 28, 2001 and September 29, 2000, respectively.
The cash provided by operating activities in the quarter ended September 28,
2001 was primarily attributable to the net receipt of approximately $6.2
million of income tax refunds from tax authorities and earnings from operations
of $4.8 million after non-cash expenses. The cash provided by operating
activities in the quarter ended September 29, 2000 was the result of the net
change in operating working capital offset by a cash operating loss of
approximately $600,000.
Net cash used in investing activities was $1.6 million and $1.1 million for
the quarters ended September 28, 2001 and September 29, 2000, respectively. Net
cash used in investing activities in both periods was primarily for new office
facilities, leasehold improvements and the purchase of computers, furniture and
office equipment to support our expansion. For fiscal 2002, we intend to invest
approximately $14.5 million in capital assets. As at September 28, 2001, we had
incurred approximately $1.6 million of expenditures to date. These anticipated
capital expenditures include leasehold improvements at office locations,
computer equipment and enhancements to our internal financial information
systems.
Net cash provided by financing activities was $3.7 million and $1.3 million
for the quarters ended September 28, 2001 and September 29, 2000, respectively.
The net cash provided by financing activities for the quarter ended September
28, 2001 was attributable to the repayment of the remainder of the receivable
balance due from Seagate Technology LLC of $4.3 million, which was offset by
net operating borrowings from Seagate Technology LLC of $871,000, and cash
received from stock option exercises. The net cash provided by financing
activities for the quarter ended September 29, 2000 was attributable to cash
received from stock option exercises and net borrowings from Seagate Technology
under the revolving loan agreement.
We believe our combined sources of financing including current cash
balances, available borrowings from Seagate Technology LLC under the revolving
loan agreement, and cash flows generated from our operations, will be
sufficient to meet our anticipated cash needs for working capital, capital
expenditures and lease commitments for at least the next 12 months. Should we
require additional financing that is not available from Seagate Technology LLC
on terms that are satisfactory to us, we may seek additional equity and
financing from other sources, subject to the concurrence by lenders who
financed the New SAC Transaction. As part of the
26
closing of the New SAC Transaction, we guaranteed the debt used to finance the
New SAC Transaction and pledged a majority of our assets. As a result of
restrictive covenants under the debt agreement, our ability to raise additional
debt or equity from other sources may be limited.
Although our assets have been pledged and our company, along with other
subsidiaries of New SAC, guaranteed debt in connection with the New SAC
Transaction, New SAC will not require our cash flow to be used to service the
obligations pursuant to the senior secured credit facility and the senior
subordinated notes. We believe that none of our obligations under the
guarantees or asset pledge are likely to be invoked.
Recent Pronouncements
On June 29, 2001, the Financial Accounting Standards Board approved the
issuance of Statements of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets". SFAS 141 requires all business combinations initiated after
July 1, 2001 to be accounted using the purchase method of accounting for
business combinations and includes new criteria for recognizing intangibles
separately from goodwill. Under SFAS 142, which is effective for all fiscal
years beginning after December 15, 2001, goodwill and other intangible assets
with indefinite lives are no longer amortized but are reviewed at least
annually for impairment. Separate intangible assets that are deemed to have a
definite life will continue to be amortized over their estimated useful life.
We are still assessing the impact of these Statements on our consolidated
results of operations, financial position and cash flows.
27
Factors Affecting Future Operating Results
You should be alerted that the following risks and uncertainties could
affect and in some instances in the past have affected our actual results and
could cause our results for future periods to differ materially. Additional
risks and uncertainties of which we are unaware or that we currently deem
immaterial also may become important factors and may adversely affect our
results of operations, financial condition or business.
Risks Associated with the New SAC Transaction
As a result of the New SAC Transaction closing, our business could be harmed
because:
. we have pledged a majority of our assets to guarantee the debt
obligation used to finance the New SAC Transaction, which could impair
our ability to raise additional capital or debt;
. we may not continue to have access to the same level of administrative
services and support from Seagate Technology LLC after the New SAC
Transaction due to the more limited resources of Seagate Technology LLC,
which may be a result of the burden of servicing the debt used to
finance the New SAC Transaction, and we may incur additional changes or
expenses to provide these services internally or obtain them from a
third party; and
. we may continue to rely on our parent company and its affiliates to
provide financing for some of our operating and capital needs.
Risks from Restrictions under the Covenants of the Debt Financing of the New
SAC Transaction
New SAC and certain of its subsidiaries, including our company and certain
of our subsidiaries, are guarantors under the senior credit facilities and
senior subordinated notes used to finance the New SAC Transaction. In addition,
the majority of New SAC's and certain of its subsidiaries assets, including a
majority of our assets and our capital stock held indirectly by New SAC, have
been pledged against the debt under the senior credit facility.
New SAC, and certain of its subsidiaries, including our company and certain
of our subsidiaries, have agreed to certain covenants, including restrictions
on future equity and borrowing transactions, business acquisitions and
disposals, making certain restricted payments and dividends, making certain
capital expenditures, incurring guarantee obligations and engaging in mergers
or consolidations. Further, our company, as part of the consolidated group, is
subject to certain financial covenants, which are assessed on the consolidated
operating results and financial position of New SAC and its subsidiaries.
New SAC is highly leveraged and has significant debt service obligations. If
New SAC is unable to meet its debt obligations, we may be required to pay
amounts due under these debt agreements and may need to liquidate assets or New
SAC may need to sell its interests in our company as a whole to meet its
obligations.
If New SAC is unable to meet the consolidated financial covenants under the
debt agreements, early repayment of debt may force us and certain of our
consolidated subsidiaries to contribute to the debt payments under the
guarantees and pledge obligations.
The restrictive covenants under the debt agreements may prevent us from
making acquisitions, consolidations and certain capital expenditures, if
approval from the lenders is not obtained.
We may be unable to obtain debt or other financing to support our liquidity
requirements and growth if waiver approval of the debt covenants cannot be
obtained or if New SAC is unable to provide additional financing to our company.
28
We Remain Liable to Third Parties after the New SAC Transaction and the Merger
In the New SAC Transaction, Seagate Technology sold all of its operating
assets (including our company) to New SAC, and New SAC and we have agreed to
assume and indemnify VERITAS for substantially all liabilities arising in
connection with our operating assets. As a result, we continue to face possible
liabilities for actions, events or circumstances arising or occurring both
before and after the New SAC Transaction and the Merger. Some areas of
potential liability include:
. tax liabilities;
. obligations under federal, state and foreign pension and retirement
benefit laws; and
. existing and future litigation.
As a result of our obligations to indemnify VERITAS, we could experience a
material adverse effect on our business and financial performance.
Risk from Composition of our Board of Directors
As a result of the New SAC Transaction, the composition of our board of
directors has changed. Upon the closing of the New SAC Transaction in November
2000, our company became a majority owned subsidiary of Seagate Software
(Cayman) Holdings, a wholly owned subsidiary of New SAC. As a result of the
change in ownership, New SAC controls more than 85% of our common stock on a
fully diluted basis and has appointed three of the six members of our board of
directors of which two of the remaining directors are officers of New SAC.
Through its influence on our board of directors and as majority stockholders,
New SAC has the ability to change the direction of our business, our operating
budget and possible acquisition or sales of our company.
Revenue Growth and Economic Conditions
The revenue growth and profitability of our business depend on the overall
demand for computer software and services, particularly in the business
intelligence and information infrastructure segments. If our customers
experience recession or other economic conditions which impact their operating
budgets, they may delay or cancel purchases of our software, which would reduce
our revenues and cause our business to suffer.
We cannot predict what impact the recent economic slowdown in the United
States will have on the business intelligence market or our business in
particular, but it may result in fewer purchases of licenses of our software or
substitution to our lower priced configurations by customers who previously
licensed our higher priced configurations. If the current economic slowdown
continues, our business, operating results and financial condition could be
materially, adversely affected.
Management of Growth
Our future operating results will depend on our ability to manage growth,
continuously hire and retain significant numbers of qualified employees, and
accurately forecast revenues and control expenses. To manage our growth and
expansion, we need continuously to improve and implement our internal systems,
processes and controls. If we are unable successfully to do so then our
business, operating results and financial condition could be materially
adversely affected.
Forecasting of Revenue
Our management and sales force use a "pipeline" system, a common industry
practice, to forecast sales and trends in our business. Our sales personnel
monitor the status of all proposals, such as the date on which they estimate
that a customer will make a purchasing decision and the potential dollar amount
of the sale. We aggregate these estimates periodically in order to generate an
analysis of our sales pipeline. While this pipeline
29
analysis provides us with some guidance in business planning and budgeting, our
estimates are necessarily speculative and may not consistently correlate to
revenues in a particular quarter or over a longer period of time. Variations in
the rate and timing of conversion of our pipeline into actual revenue could
cause us inaccurately to plan or budget and thereby adversely affect our
business. In particular, a slowdown in the economy may cause purchasing
decisions to be delayed, reduced in amount or cancelled which will adversely
affect the overall rate and timing of conversion of our pipeline into actual
revenue, so that our business, operating results and financial condition could
be materially adversely affected.
Dependence on Key Personnel and Hiring and Retention of Employees
Our future performance depends to a significant degree upon the continued
service of our key members of management including particularly our President
and Chief Executive Officer, Gregory B. Kerfoot, our Chief Operating Officer,
William Gibson, and our Chief Financial Officer, Eric Patel, as well as other
of our marketing, sales and product development personnel. We do not maintain
key man insurance on any of our officers or key employees. None of our officers
or key employees is bound by an employment agreement for any specific term. The
loss of one or more of our key personnel may have a material adverse effect on
our business, operating results and financial condition.
We believe our future growth and success depends upon our ability to
attract, train and retain highly skilled management, marketing, sales and
product development personnel. We have experienced intense competition for such
personnel and there can be no assurance that we will be able to retain our key
employees or that we will be successful in attracting, assimilating and
retaining them in the future. If we cannot successfully hire and retain
qualified employees, our business, operating results and financial condition
would be materially adversely affected.
Rights to use Software Licensed to us by Third Parties
We occasionally license certain technologies from third parties to be used
in our products, generally on a non-exclusive basis. The termination of such
licenses, or the failure of the third-party licensors adequately to maintain or
update their products, could delay our ability to ship certain of our products
while we seek to implement alternative technology offered by other sources. In
addition, alternate technology may not be available on commercially reasonable
terms or at all. If we are unable to obtain necessary or desirable third-party
technology licenses our business, operating results and financial condition
could be materially adversely affected.
Risks from Potential Fluctuations in Annual and/or Quarterly Operating Results
We often experience a high volume of sales at the end of our quarter.
Therefore, it may be late in the quarter before we are able to determine that
our costs are disproportionate to our actual sales. If this were to happen, we
would not be able to reduce these costs in a timely manner and, consequently,
we may experience a net loss or our net income may be reduced. In addition, our
operating results have been and, in the future, may be subject to significant
quarterly fluctuations as a result of a number of other factors including:
. general weakening of the economy resulting in a decrease in the overall
demand for computer software and services;
. disruption and delay of business processes generally due to man-made or
natural disasters, such as the terrorist attack of September 11;
. the size and timing of orders from and shipment of products to major
customers;
. our ability to develop, introduce and market new products and product
enhancements in a timely fashion;
. market acceptance of and demand for business intelligence and enterprise
reporting software, generally, and our products in particular;
30
. the length of our sales cycles;
. personnel changes;
. our success in expanding our direct sales force and increasing our
indirect distribution;
. changes in the prices of our products and our competitors' products;
. the mix of products and services of our customer orders, which can
affect the timing of our revenue recognition;
. the amount of customization required for our customer orders, which can
affect the timing of our revenue recognition;
. Our ability accurately to predict the rate and timing of conversion of
our direct sales "pipeline" into actual revenue;
. the impact of changes in foreign currency exchange rates on the cost of
our products and the effective price of such products to foreign
consumers;
. changes in our operating expense;
. competition and consolidation in our industry;
. the timing of new product releases; and
. seasonal factors, such as our typically lower pace of sales in our first
fiscal quarter.
Risks of Revenue Concentration
We currently obtain most of our revenue from a limited number of software
products and anticipate this to be the case in the foreseeable future. Sales to
a small number of customers generate a disproportionate amount of our revenues.
For example, we derived 11% and 23% of our total revenues from sales to Ingram
for the quarters ended September 28, 2001 and September 29, 2000, respectively.
If Ingram reduces its purchases from us our business, financial condition and
results of operations would be materially adversely affected unless we
substantially increase sales to other customers. Because our contracts with
Ingram and other customers do not require them to purchase any specified number
of software licenses from us, we cannot be sure that our more significant
customers will continue to purchase our products at their current levels.
Risks Associated with Long Sales Cycle
To date, our customers have typically invested substantial time, money and
other resources and involved many people in the decision to license our
software products, including proprietary Crystal Reports, Crystal Enterprise,
Crystal Info and Holos. As a result, we may wait six to nine months after the
first contact with a customer for that customer to place an order while they
seek internal approval for the purchase of our products. During this long sales
cycle, events may occur that affect the size, timing or even completion of the
order. For example, the customer's budget and purchasing priorities may change,
or new competing technology may enter the marketplace. We may lose sales or
experience reduced sales as the result of this long sales cycle, which would
reduce our revenues.
Risks Associated with Relying on Sales Staff, Channel Partners and Strategic
Relationships
We sell and support our products through:
. sales staff;
. third party distributors; and
. OEMs.
31
We also have a strategic relationship with Microsoft that enables us to
bundle our products with Microsoft's products, and we have developed and are
developing certain utilities and products to be a part of Microsoft's products.
If Microsoft reduces the nature and extent of its relationship with us and
instead develops a relationship with one of our competitors, our business,
operating results and financial condition in the long term may be impacted.
We have made significant expenditures in recent years to expand our sales
and marketing force. Our future success will depend in part upon the
productivity of our sales and marketing force. We believe that our ability to
continue to attract, integrate, train, motivate and retain new sales and
marketing personnel will also affect our success. We face intense competition
for sales and marketing personnel in the software industry, and we cannot be
sure that we will be successful in hiring and retaining such personnel in
accordance with our plans. Even if we hire and train sufficient numbers of
sales and marketing personnel, we cannot be sure that our recent and other
planned expenses will generate enough additional revenues to exceed these costs.
We generate a substantial portion of our revenues by selling our products to
distributors and OEMs. Our distributors and OEMs decide whether or not to
include our products with those they sell and generally can carry and sell
product lines that are competitive with ours. Because distributors and OEMs
carry other product lines and are not required to make a specified level of
purchases from us, we cannot be sure that they will prioritize selling our
products. These distributors are also generally entitled to terminate their
relationship with us without cause. Our business, financial results and
operating condition would be materially adversely affected if some or all of
our current distributors and OEMs discontinued selling our products and we
failed to find comparable replacements.
New Product Development and Technological Change
Our products are used in combination with other software. Our future success
depends on our ability to continue to support a number of popular operating
systems and databases. The emergence of new industry standards in related
fields may adversely affect the demand for our existing products. This could
happen, for example, if new web standards and technologies emerged that were
incompatible with customer deployments of our applications. Our applications
run primarily on the Microsoft operating systems. Therefore, our ability to
increase sales currently depends on the continued acceptance of the Microsoft's
operating system products. We cannot currently market all of our current
business intelligence applications to potential customers who use Unix
operating systems as their application server. Although we have invested
substantial resources to develop a complete Unix product line, we cannot be
certain that we will be able to introduce such a product line on a timely or
cost-effective basis or at all.
Business intelligence applications are inherently complex, and it can take a
long time to develop and test major new products and product enhancements. In
addition, customers may delay their purchasing decisions because they
anticipate that new or enhanced versions of our products will soon become
available. We cannot be sure that we will succeed in developing and marketing,
on a timely and cost-effective basis, product enhancements or new products that
respond to technological change, introductions of new competitive products or
customer requirements, nor can we be sure that our new products and product
enhancements will achieve market acceptance.
The markets for our products are characterized by rapidly changing
technology, changing customer needs, evolving industry standards and frequent
new product introductions and enhancements. Our future success therefore will
depend on our ability to design, develop, test and support new software
products and enhancements on a timely and cost-effective basis.
If we do not respond to changing market conditions, emerging industry
standards and changing customer requirements by developing and introducing new
products in a timely manner, then our business, operating results or financial
condition could be materially adversely affected.
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Risks of Systems Failures
Our operations are dependent on our ability to protect our computer
equipment and the information stored in our databases from damage by
catastrophic events such as fire, natural disaster, power loss,
telecommunications failures and unauthorized intrusion. We believe that we have
taken prudent measures to reduce the risk of interruption in our operations.
However, we cannot be sure that these measures are sufficient. Any damage or
failure that causes interruptions in our operations could have a material
adverse effect on our business, results of operations and financial condition.
For example, although we maintain business insurance, our operations may be
subject to some disruption that is not covered under our policies or the dollar
amount of the damages may exceed the applicable coverage limits.
Risks from International Operations
We have significant international operations including development
facilities, sales personnel and customer support operations. We derived 32% and
29% of our total revenues from sales outside of the United States for the
quarters ended September 28, 2001 and September 29, 2000, respectively. Our
international operations are subject to certain inherent risks including:
. fluctuations in currency exchange rates;
. uncertainties and potential disruption due to the currency conversion to
the Euro in many European countries;
. import and export restrictions, as well as tariffs;
. lack of acceptance of localized products;
. longer payment cycles for sales in certain foreign countries;
. difficulties in staffing and managing international operations;
. seasonal reductions in business activity in the summer months in Europe
and certain other countries;
. increases in tariffs, duties, price controls, other restrictions on
foreign currencies or trade barriers imposed by foreign countries;
. potentially adverse tax consequences;
. management of an enterprise spread over various countries; and
. the burden of complying with a wide variety of foreign laws.
These factors could have a material adverse effect on our business,
operating results and financial condition in the future. In addition, we intend
to continue to invest resources to expand our sales and support operations into
strategic international locations. If the international revenues generated by
these expanded operations are not adequate to offset the expense of
establishing these foreign operations then our business, operating results and
financial condition could be materially harmed.
Our products are generally priced in U.S. Dollars even when sold to
customers who are located outside of the United States. Currency instability in
foreign financial markets may make our products more expensive than products
sold by other manufacturers that are priced in one of the effected currencies.
Therefore, foreign customers may reduce purchases of our products.
Risks from Conversion to Euro
On January 1, 1999, certain member states of the European Economic Community
fixed their respective currencies to a new currency, the Euro. On that day, the
Euro became a functional legal currency within these countries. Until December
31, 2001, business in these countries will be conducted both in the existing
national
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currency, such as the French Franc or the German Mark, as well as the Euro.
Companies operating in or conducting business in these countries will need to
ensure that their financial and other software systems are capable of
processing transactions and properly handling the existing currencies and the
Euro.
In July 2001, we began conducting sales and paying expenses in the Euro.
Although the introduction and use of the Euro has not had a material adverse
impact on our financial condition to date, there can be no assurance that it
will not have such an impact in the future.
Dependence on Proprietary Technology
Our success is heavily dependent on our proprietary technology. We rely
primarily on the following to protect our proprietary rights:
. patents;
. copyrights;
. trademarks and trade secret rights;
. state and common law trade secret laws;
. confidentiality procedures;
. employee and third party nondisclosure agreements; and
. licensing restrictions.
Such efforts provide only limited protection. We also rely in part on
shrink-wrap licenses that are not signed by end users and, therefore, may be
unenforceable under the laws of certain jurisdictions.
Even though we take these steps, we have only limited protection for our
proprietary rights in our software, which makes it difficult to prevent third
parties from infringing upon our rights. Someone may be able to copy or
otherwise obtain and use our products and technology without authorization.
Policing unauthorized use of our products is difficult. Although we cannot
determine the extent of existing piracy of our products, we expect that
software piracy will be a persistent problem. Third parties may also develop
similar technology independently. We believe that effective protection of
intellectual property rights is unavailable or limited in certain foreign
countries. In addition, the laws of many countries do not protect our
proprietary rights to as great an extent as the United States.
Our competitors may successfully challenge the validity or scope of our
patents, copyrights and trademarks. We cannot be sure that our patents,
copyrights and trademarks will provide us with a competitive advantage or that
our competitors will not design around any patents issued to us. We are not
aware that any of our products infringe upon the proprietary rights of third
parties, but, in the future, third parties may claim that our current or future
products infringe that party's rights. We believe that software product
developers will be increasingly subject to claims of infringement as the
functionality of products in our industry segment overlaps. If we were subject
to a claim of infringement, regardless of the merit of our defense, such claim
would have the following impacts on us that could have a material adverse
effect on our business, operating results or financial condition in the
following ways:
. require costly litigation to resolve;
. absorb significant management time;
. require us to enter into unfavorable royalty or license agreements;
. require us to cease selling our products;
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. require us to indemnify our customers; or
. require us to expend additional development resources to redesign our
products.
Government Regulation May Impact Our Business
Due to increasing use of the Internet and the dramatically increased access
to personal information, the U.S. federal and various state and foreign
governments have proposed increased limitations on the collection and use of
personal information of users of the Internet and other public data networks.
Although we attempt to obtain permission from users prior to collecting or
processing their personal data, new laws or regulations governing personal
privacy may change the ways in which we and our customers and affiliates may
gather this personal information. In addition, in Europe, the European Union
Directive on Data Protection, a comprehensive administrative and regulatory
program, currently limits the ability of companies to collect, store and
exchange personal data with other entities.
Our growing business, eBusiness and our marketing strategy depend upon our
receiving personal information about subscribers. Privacy concerns may cause
some potential subscribers to forego subscribing to our service. If new laws or
regulations prohibit us from using information in the ways that we currently
do, or if users opt out of making their personal preferences and information
available to us and our affiliates, this could have a material adverse effect
on our business, operating results and financial condition. If personal
information is misused by us, our legal liability may be increased and our
growth may be limited.
Our success depends on increased use of the Internet for eCommerce and other
commercial and personal activities. Consumers and businesses may choose not to
use the Internet for a number of reasons, including:
. internet access costs;
. inconsistent service quality;
. unavailability of cost-effective, high-speed service;
. perceived security risks, such as a lack of confidence in encryption
technology; and
. privacy concerns.
In addition, governmental agencies and legislators may generate new laws and
regulations covering issues such as export, obscenity, freedom of expression,
pricing, content and quality of products and services, copyright and other
intellectual property issues and taxation. Such legislation or rule making
could dampen the growth in Internet use generally and decrease the acceptance
of the Internet as a commercial medium. If use of the Internet decreases, some
of our customers may purchase fewer licenses for our software products and our
operating results would be harmed.
Software Product Errors or Defects
Software products as complex as those we offer frequently contain undetected
errors, defects, failures or viruses especially when first introduced or when
new versions or enhancements are released or are configured to individual
customer systems. Despite product testing, our products may contain undetected
defects, errors or viruses. If our products have errors, they could:
. cause a negative customer reaction that could reduce future sales;
. generate negative publicity regarding us and our products;
. harm our reputation;
. reduce or limit customers' adoption of our products;
. require us to incur additional service and warranty costs;
. require us to make extensive changes to the product;
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. require us to divert additional development resources; or
. result in customers' delaying their purchase until the errors or defects
have been remedied, which would cause our revenues to be reduced or
delayed.
Any of these occurrences could have a material adverse effect upon our
business, operating results or financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. Existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions may make these provisions ineffective. Because our products are used
in system management, resource optimization and business intelligence
applications, our liability could be substantial if we receive an unfavorable
judgment. In addition, our insurance against product liability risks may not be
adequate to cover a potential claim. These factors could have a material
adverse effect upon our business, operating results or financial condition.
Facing Risks of Litigation
On November 10, 1997, Vedatech commenced an action in the Chancery Division
of the High Court of Justice in the United Kingdom against Crystal Decisions
(UK) Limited, a wholly owned subsidiary of Crystal Decisions. The original
pleading alleged a breach of an oral agreement and infringement of a Vedatech's
U.K. copyright in one of our products and sought monetary and injunctive
relief. On August 22, 2000, Vedatech requested and obtained permission from the
court to amend its action to include claims for unjust enrichment, unlawful
interference and quantum meruit. On May 9, 2001, Vedatech was given further
leave to amend its pleading. Vedatech seeks to enjoin Crystal Decisions (UK)
Limited from infringing the U.K. copyright and seeks forfeiture to Vedatech of
all infringing software copies. Of the relief sought, the only claim that has
been settled is a claim for JPY 26,624,181 (approximately U.S. $240,000) for
unpaid invoices. We have hired local counsel in the U.K., reviewed documents,
conducted interviews and participated in the discovery process. Taking into
account our counterclaim (which is approximately U.S. $200,000) and a deposit
with the court of an amount equal to U.S. $200,000, we have offered Vedatech
U.S. $400,000 in settlement of its quantum meruit claim. The court has granted
Vedatech's request to delay commencement of trial until February of 2002 with
the caveat that the hearing of the trial will be split between liability and
quantum (if required). We have defenses to all the causes of action, including
the claim for quantum meruit, and we intend vigorously to defend the actions.
Were an unfavorable outcome to arise, there can be no assurance that such
outcome would not have a material adverse affect on our liquidity, financial
position or results of operations. The outcome of this matter and amount of
related claims are not determinable at this time.
In addition to the foregoing, we are subject to other litigation in the
ordinary course of our business. While we believe that the ultimate outcome of
these matters will not have a material adverse effect on us, the outcome of
these matters is not determinable and negative outcomes may adversely affect
our financial position, liquidity, or results of operations.
There is no established trading market for our common stock, and we do not
expect that any trading market will be established.
Our common stock is not listed on any stock exchange, over-the-counter
market or other quotation system. We have not registered shares of our common
stock for sale to the public or registered for resale shares held by our
stockholders or that may be acquired by our optionees. We do not expect to
register our common stock for sale to the public or to apply for quotation of
our shares on any exchange, over-the-counter market or quotation system. As a
result, a purchaser of our common stock will not be able to dispose of the
shares the purchaser acquires from us unless the purchaser can rely on an
applicable exemption from registration, such as Rule 144 under the Securities
Act of 1933. We may not comply with the criteria required for a holder of our
common stock to utilize a given exemption.
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In the event that a trading market for our common stock develops, the market
prices of our common stock will likely be subject to substantial price and
volume fluctuations due to a number of factors, many of which will be beyond
our control, which may prevent our shareholders from reselling our common stock
at a profit.
The securities markets have experienced significant price and volume
fluctuations in the past, and the market prices of the securities of technology
companies have been especially volatile. This market volatility, as well as
general economic, market or political conditions, could reduce the market price
of our common stock in spite of our operating performance. In addition, our
operating results could be below the expectations of investment analysts and
investors, and in response the market price of our common stock could decrease
significantly. Investors may be unable to resell their shares of our common
stock at or above the purchase price paid by the investors. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we become the
object of securities class action litigation, it could result in substantial
costs, liabilities and a diversion of management's attention and resources.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in Item 2--"Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results" section of this Form 10-Q.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates to
our cash and cash equivalents and to our revolving loan agreement with Seagate
Technology LLC as further described in Item 2--"Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." At September 28, 2001, $37.9 million of our cash and cash
equivalents were held in U.S. Dollar denominated bank deposits and short-term
money market instruments. The remainder of our cash balances were denominated
in the local currencies of our foreign operations. If cash from operations is
not sufficient to fund working capital and operating activities, Seagate
Technology LLC has agreed to provide financing to us through a revolving loan
agreement. The revolving loan agreement provides for maximum outstanding
borrowings of up to $15.0 million and was renewed on July 4, 2001. We had no
outstanding borrowings under this agreement as of September 28, 2001.
Our interest income and expense, will fluctuate depending on fluctuations in
Seagate Technology LLC's in-house portfolio yield rate, LIBOR, the general
level of interest rates in the United States, our net outstanding loan balance
receivable from or payable to Seagate Technology LLC and fluctuations in our
cash and cash equivalents balance. Sensitivity analysis is used to measure our
interest rate risk. For the quarter ended September 28, 2001, a 100 basis-point
change in interest rates would have resulted in a 2% variance in our net income.
Equity Price Risk
We do not have any investments in equity or debt securities traded in the
public markets. Therefore, we do not currently have any direct equity price
risk.
Foreign Currency Risk
A majority of our sales are in the United States and, therefore, are
recorded in U.S. Dollars, the currency in which we report our operating
results. We conduct a portion of our business in currencies other than the U.S.
Dollar. The functional currency of most of our foreign operations is the local
currency.
Prior to July 2001, none of our foreign operations had significant
transactions in the Euro. We implemented Euro-based transactions effective July
1, 2001 for the participating countries. To date, the foreign exchange gains
and losses on transactions and revenues reported by our foreign subsidiaries
have not been significant. In addition, since most of our foreign operations
conduct business in their local currency, our earnings are not significantly
impacted by fluctuations in exchange rates. Translation adjustments from
consolidation of such foreign operations are presented within other
comprehensive income (loss). We cannot provide an assurance that foreign
currency denominated transactions will continue to be insignificant as revenues
from the foreign operations increase or exchange rates fluctuate significantly.
We cannot predict the effect of exchange rate fluctuations upon our future
operating results. To date, we have not engaged in a foreign currency-hedging
program to cover any exposure to which we may be exposed. Sensitivity analysis
is used to measure our foreign currency exchange rate risk. For the quarter
ended September 28, 2001, a combined variation of 10% of the exchange rates of
the main currencies in which we conduct business would not have a material
effect on our consolidated financial position, earnings or cash flow.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Part I. Financial Information, Note 13(a) to the Consolidated
Financial Statements for description of Litigation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1.3 1999 Stock Option Plan, as amended August 13, 2001
(b) Reports on Form 8-K
Crystal Decisions, Inc. did not file any reports on Form 8-K during the
quarter ended September 28, 2001 with the Securities and Exchange Commission.
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SIGNATURES
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, on November 13, 2001.
CRYSTAL DECISIONS, INC.
(Registrant)
/s/ GREGORY B. KERFOOT
By: _________________________________
(Gregory B. Kerfoot)
President and Chief Executive
Officer
(Principal Executive Officer)
/s/ ERIC PATEL
By: _________________________________
(Eric Patel)
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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