Exhibit 99.1
Restatements to the previously reported Quarterly Information for 2006 and 2005
As previously announced on February 13, 2007, the Company initiated a voluntary review of its stock option grants. The Company’s voluntary review addressed the timing of the grants and their related accounting and tax treatment, including whether the Company properly applied Accounting Principles Board Opinion (“APB”) 25 “Accounting for Stock Issued to Employees” (“APB 25”) and Statement of Financial Accounting Standards (“SFAS”) 123R, “Share-Based Payment” (“SFAS 123R”), in accounting for those grants. This review was conducted under the oversight of a special committee, consisting of two independent directors of the Company, as appointed by our Board of Directors. Outside counsel was engaged to conduct investigative and analytical portions of the review.
The review covered all stock option grants made from the Company’s initial public offering in August 1998 until the present, with particular focus upon grants made before implementation of the Sarbanes-Oxley Act in July 2002. During the course of the review, the Company and its advisors examined many thousands of paper and electronic documents and conducted interviews with 31 current and former employees, directors and advisors.
Through the review, the Company identified various stock option grants made during the period that had exercise prices lower than the fair market value of the Company’s common stock on the appropriate accounting measurement dates for those grants. Most of these instances occurred from March 1999 until August 2002; during that period there were instances of selecting favorable grant dates and associated exercise prices with hindsight, repricing of previously issued options to lower exercise prices, adding additional stock options after the fact to a previously approved batch of options, and reallocation of previously issued options to different recipients at a later time, as well as administrative errors. These issues affected options widely distributed to various personnel throughout the organization, and were not focused on grants to officers or other selected optionees.
As a result of the review, the Company concluded that it did not properly apply APB 25 in accounting for some past stock option grants, primarily during the period from 1999 to 2002, and that approximately $8.9 million in additional aggregate non-cash stock-based compensation expense should have been recognized over the period 1999 through 2005. Additionally, this resulted in approximately $0.5 million in related incremental payroll withholding taxes over the period 1999 to 2006. Consequently, the Company has recorded additional compensation expense for past stock option grants in an aggregate amount of approximately $9.4 million. Starting in our fiscal year ended December 31, 2006, we adopted SFAS 123R. As a result, for fiscal year 2006, the stock-based compensation expense required to be recorded for each option was equal to the fair value of these options on the actual grant date over the remaining vesting period of the option. The impact of the measurement date errors on the fair value of stock option grants was not material to 2006.
The Company does not consider the additional expense to be material to any of the prior years presented in this Annual Report. Based upon the results of the review, the Company is restating its financial statements. In lieu of amending prior SEC filings to restate financial statements, the Company is including the restatements in this Annual Report.
In addition to restatements to reflect the results of the stock option review, the annual and quarterly periods presented also include other adjustments that were not recorded in the originally filed financial statements due to their immateriality. Our December 31, 2006 financial statements reflect an aggregate reduction in non-cash stock-based compensation expense of approximately $2.0 million (or approximately $0.1 million for the first quarter of 2006 and $0.6 million per quarter for the second, third and fourth quarters of 2006) compared to previously disclosed 2006 financial results, because the earlier results included an over-expensing of non-cash stock-based compensation expense. Other adjustments to the financial statements relate to sales and use tax of $0.3 million not previously self-assessed on certain fixed asset purchases and the timing of revenue recognition on one professional service client engagement of less than $0.1 million.
We will restate our previously filed financial statements for the quarters ended March 31, 2006, June 30, 2006 and September 30, 2006, when included in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007, respectively. We have not amended and do not intend to amend any of the previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatements.
This exhibit includes the Selected Quarterly Condensed Consolidated Financial Data for the quarters ended September 30, 2006, June 30, 2006, March 31, 2006, December 31, 2005, September 30, 2005, June 30, 2005 and March 31, 2005. This exhibit also includes certain restated Management Discussion and Analysis information for the quarters ended September 30, 2006 and June 30, 2006.
1
The balance sheet impact of the restatement is as follows:
Condensed Consolidated Balance Sheet (Unaudited) | ||||||||||
(in thousands) | ||||||||||
September 30, 2006 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 34,278 | $ | - | $ | 34,278 | ||||
Marketable securities | 88,956 | - | 88,956 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $4,721 | 83,320 | - | 83,320 | |||||||
Inventory | 1,794 | - | 1,794 | |||||||
Prepaid expenses | 24,407 | - | 24,407 | |||||||
Other current assets | 594 | - | 594 | |||||||
Total current assets | 233,349 | - | 233,349 | |||||||
Property and equipment, net | 42,967 | 95 | 43,062 | |||||||
Capitalized software development costs, net | 31,950 | (106 | ) | 31,844 | ||||||
Acquired technology, net | 984 | - | 984 | |||||||
Intangible assets, net | 3,222 | - | 3,222 | |||||||
Goodwill | 9,589 | - | 9,589 | |||||||
Deferred tax asset | 6,756 | (2 | ) | 6,754 | ||||||
Other assets | 16,676 | - | 16,676 | |||||||
Total assets | $ | 345,493 | $ | (9 | ) | $ | 345,480 | |||
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Deferred revenue | $ | 100,563 | $ | (245 | ) | $ | 100,318 | |||
Accounts payable | 13,069 | - | 13,069 | |||||||
Accrued compensation costs | 17,187 | 406 | 17,593 | |||||||
Deferred tax liability | 6,756 | (2 | ) | 6,754 | ||||||
Other current liabilities | 15,873 | 629 | 16,502 | |||||||
Total current liabilities | 153,448 | 792 | 154,236 | |||||||
Deferred revenue | 13,283 | - | 13,283 | |||||||
Other long-term liabilities | 143 | - | 143 | |||||||
Total liabilities | 166,874 | 792 | 167,662 | |||||||
Stockholders’ Equity: | ||||||||||
Total stockholders’ equity | 178,619 | (801 | ) | 177,818 | ||||||
Total liabilities and stockholders’ equity | $ | 345,493 | $ | (9 | ) | $ | 345,480 | |||
2
Condensed Consolidated Balance Sheet (Unaudited) | ||||||||||
(in thousands) | ||||||||||
June 30, 2006 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 28,588 | $ | - | $ | 28,588 | ||||
Marketable securities | 92,375 | - | 92,375 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $4,503 | 75,573 | - | 75,573 | |||||||
Inventory | 1,611 | - | 1,611 | |||||||
Prepaid expenses | 23,235 | - | 23,235 | |||||||
Other current assets | 906 | - | 906 | |||||||
Total current assets | 222,288 | - | 222,288 | |||||||
Property and equipment, net | 42,390 | 110 | 42,500 | |||||||
Capitalized software development costs, net | 31,303 | - | 31,303 | |||||||
Acquired technology, net | 432 | - | 432 | |||||||
Intangible assets, net | 2,515 | - | 2,515 | |||||||
Deferred tax asset | 4,812 | 1 | 4,813 | |||||||
Goodwill | 6,669 | - | 6,669 | |||||||
Other assets | 18,970 | - | 17,985 | |||||||
Total assets | $ | 328,394 | $ | 111 | $ | 328,505 | ||||
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Deferred revenue | $ | 97,562 | $ | (245 | ) | $ | 97,317 | |||
Accounts payable | 13,653 | - | 13,653 | |||||||
Accrued compensation costs | 10,017 | 370 | 10,387 | |||||||
Deferred tax liability | 4,812 | 1 | 4,813 | |||||||
Other current liabilities | 18,970 | 611 | 19,581 | |||||||
Total current liabilities | 145,014 | 737 | 145,751 | |||||||
Deferred revenue | 14,057 | - | 14,057 | |||||||
Other long-term liabilities | 156 | - | 156 | |||||||
Total | 159,227 | 737 | 159,964 | |||||||
Stockholders’ equity: | ||||||||||
Total stockholders’ equity | 169,167 | (626 | ) | 168,541 | ||||||
Total liabilities and stockholders’ equity | $ | 328,394 | $ | 111 | $ | 328,505 | ||||
3
Condensed Consolidated Balance Sheet (Unaudited) | ||||||||||
(in thousands) | ||||||||||
March 31, 2006 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash | $ | 36,214 | $ | - | $ | 36,214 | ||||
Marketable securities | 81,979 | - | 81,979 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $6,246 | 81,512 | - | 81,512 | |||||||
Inventory | 2,157 | - | 2,157 | |||||||
Prepaid expenses | 21,263 | - | 21,263 | |||||||
Other current assets | 1,204 | - | 1,204 | |||||||
Total current assets | 224,329 | - | 224,329 | |||||||
Property and equipment, net | 42,562 | 125 | 42,687 | |||||||
Capitalized software development costs, net | 32,765 | - | 32,765 | |||||||
Acquired technology, net | 508 | - | 508 | |||||||
Intangible assets, net | 2,727 | - | 2,727 | |||||||
Deferred tax asset | 4,083 | (258 | ) | 3,825 | ||||||
Goodwill, net | 6,669 | - | 6,669 | |||||||
Other assets | 19,479 | - | 19,479 | |||||||
Total assets | $ | 333,122 | $ | (133 | ) | $ | 332,989 | |||
Liabilities and Stockholders' Equity | ||||||||||
Current liabilities: | ||||||||||
Deferred revenue | $ | 98,040 | $ | (178 | ) | $ | 97,862 | |||
Accounts payable | 22,490 | 22,490 | ||||||||
Accrued compensation costs | 15,772 | 335 | 16,107 | |||||||
Deferred tax liability | 4,083 | (258 | ) | 3,825 | ||||||
Other current liabilities | 14,749 | 574 | 15,323 | |||||||
Total current liabilities | 155,134 | 473 | 155,607 | |||||||
Deferred revenue | 14,827 | - | 14,827 | |||||||
Other long-term liabilities | 169 | - | 169 | |||||||
Total liabilities | 170,130 | 473 | 170,603 | |||||||
Stockholders' equity: | ||||||||||
Total stockholders' equity | 162,992 | (606 | ) | 162,386 | ||||||
Total liabilities and stockholders' equity | $ | 333,122 | $ | (133 | ) | $ | 332,989 | |||
4
Condensed Consolidated Balance Sheet (Unaudited) | ||||||||||
(in thousands) | ||||||||||
September 30, 2005 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 23,439 | $ | - | $ | 23,439 | ||||
Marketable securities | 83,643 | - | 83,643 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $4,821 | 75,195 | - | 75,195 | |||||||
Inventory | 2,134 | - | 2,134 | |||||||
Prepaid expenses | 18,373 | - | 18,373 | |||||||
Total current assets | 202,784 | - | 202,784 | |||||||
Property and equipment, net | 37,578 | 161 | 37,739 | |||||||
Capitalized software development costs, net | 33,551 | - | 33,551 | |||||||
Acquired technology, net | 3,813 | - | 3,813 | |||||||
Goodwill | 4,371 | - | 4,371 | |||||||
Other assets | 22,397 | - | 22,397 | |||||||
Total assets | $ | 304,494 | $ | 161 | $ | 304,655 | ||||
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Deferred revenue | $ | 106,453 | $ | - | $ | 106,453 | ||||
Accrued compensation costs | 14,386 | 277 | 14,663 | |||||||
Other current liabilities | 33,187 | 564 | 33,751 | |||||||
Total current liabilities | 154,026 | 841 | 154,867 | |||||||
Deferred revenue | 17,809 | - | 17,809 | |||||||
Other long-term liabilities | 1,258 | - | 1,258 | |||||||
Total liabilities | 173,093 | 841 | 173,934 | |||||||
Stockholders’ Equity: | ||||||||||
Total stockholders’ equity | 131,401 | (680 | ) | 130,721 | ||||||
Total liabilities and stockholders’ equity | $ | 304,494 | $ | 161 | $ | 304,655 | ||||
5
Condensed Consolidated Balance Sheet (Unaudited) | ||||||||||
(in thousands) | ||||||||||
June 30, 2005 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 71,265 | $ | - | $ | 71,265 | ||||
Marketable securities | 37,154 | - | 37,154 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $4,503 and $5,676, respectively | 64,947 | - | 64,947 | |||||||
Inventory | 1,672 | - | 1,672 | |||||||
Prepaid expenses | 17,923 | - | 17,923 | |||||||
Total current assets | 192,961 | - | 192,961 | |||||||
Property and equipment, net | 34,498 | 182 | 34,680 | |||||||
Capitalized software development costs, net | 32,335 | - | 32,335 | |||||||
Acquired technology, net | 4,102 | - | 4,102 | |||||||
Goodwill | 2,883 | - | 2,883 | |||||||
Other assets | 23,264 | - | 23,264 | |||||||
Total assets | $ | 290,043 | $ | 182 | $ | 290,225 | ||||
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Deferred revenue | $ | 102,083 | $ | - | $ | 102,083 | ||||
Accrued compensation costs | 16,501 | 256 | 16,757 | |||||||
Other current liabilities | 28,842 | 552 | 29,394 | |||||||
Total current liabilities | 147,426 | 808 | 148,234 | |||||||
Deferred revenue | 18,858 | - | 18,858 | |||||||
Other long-term liabilities | 1,266 | - | 1,266 | |||||||
Total liabilities | 167,550 | 808 | 168,358 | |||||||
Stockholders’ Equity: | ||||||||||
Total stockholders’ equity | 122,493 | (626 | ) | 121,867 | ||||||
Total liabilities and stockholders’ equity | $ | 290,043 | $ | 182 | $ | 290,225 | ||||
6
Condensed Consolidated Balance Sheet (Unaudited) | ||||||||||
(in thousands) | ||||||||||
March 31, 2005 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 69,344 | $ | - | $ | 69,344 | ||||
Marketable securities | 36,860 | - | 36,860 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $4,559 | 59,064 | - | 59,064 | |||||||
Inventory | 1,564 | - | 1,564 | |||||||
Prepaid expenses | 16,425 | - | 16,425 | |||||||
Other current assets | 2,605 | - | 2,605 | |||||||
Total current assets | 185,862 | - | 185,862 | |||||||
Property and equipment, net | 35,676 | 203 | 35,879 | |||||||
Capitalized software development costs, net | 32,994 | - | 32,994 | |||||||
Acquired technology, net | 4,390 | - | 4,390 | |||||||
Goodwill | 2,863 | - | 2,863 | |||||||
Other assets | 22,945 | - | 22,945 | |||||||
Total assets | $ | 284,730 | $ | 203 | $ | 284,933 | ||||
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Deferred revenue | $ | 107,234 | $ | - | $ | 107,234 | ||||
Accounts payable | 11,235 | - | 11,235 | |||||||
Accrued compensation costs | 14,003 | 234 | 14,237 | |||||||
Other current liabilities | 15,669 | 542 | 16,211 | |||||||
Total current liabilities | 148,141 | 776 | 148,917 | |||||||
Deferred revenue | 17,741 | - | 17,741 | |||||||
Other long-term liabilities | 538 | - | 538 | |||||||
Total liabilities | 166,420 | 776 | 167,196 | |||||||
Stockholders’ Equity: | ||||||||||
Total stockholders’ equity | 118,310 | (573 | ) | 117,737 | ||||||
Total liabilities and stockholders’ equity | $ | 284,730 | $ | 203 | $ | 284,933 | ||||
7
The impact of the restatement on the Condensed Consolidated Statements of Operations is as follows:
Condensed Consolidated Statements of Operations (Unaudited) | ||||||||||||
(in thousands, except per share data) | ||||||||||||
Three Months Ended September 30, 2006 | Nine Months Ended September 30, 2006 | |||||||||||
As previously reported | Adjustments | As restated | As previously reported | Adjustments | As restated | |||||||
Revenues: | ||||||||||||
Systems and services | $ 104,266 | $ - | $ 104,266 | $ 298,243 | $ 174 | $ 298,417 | ||||||
Hardware | 4,300 | - | 4,300 | 13,437 | - | 13,437 | ||||||
Total revenues | 108,566 | - | 108,566 | 311,680 | 174 | 311,854 | ||||||
Cost and expenses: | ||||||||||||
Cost of systems and services | 61,518 | (580) | 60,938 | 177,073 | (1,244) | 175,829 | ||||||
Cost of hardware | 3,489 | - | 3,489 | 10,991 | - | 10,991 | ||||||
Sales and marketing | 16,024 | 184 | 16,208 | 46,766 | 308 | 47,074 | ||||||
Research and development | 13,166 | (72) | 13,094 | 44,424 | (143) | 44,281 | ||||||
General and administrative | 6,762 | (9) | 6,753 | 17,961 | 5 | 17,966 | ||||||
Depreciation and amortization | 3,885 | - | 3,885 | 11,581 | - | 11,581 | ||||||
Restructuring charge | - | - | - | 8,547 | - | 8,547 | ||||||
Total costs and expenses | 104,844 | (477) | 104,367 | 317,343 | (1,074) | 316,269 | ||||||
Loss from operations | 3,722 | 477 | 4,199 | (5,663) | 1,248 | (4,415) | ||||||
Interest income, net | 1,389 | (11) | 1,378 | 3,873 | (33) | 3,840 | ||||||
Income (loss) before income taxes | 5,111 | 466 | 5,577 | (1,790) | 1,215 | (575) | ||||||
Provision for income taxes | - | - | - | - | - | - | ||||||
Net income (loss) | $ 5,111 | $ 466 | $ 5,577 | $ (1,790) | $ 1,215 | $ (575) | ||||||
Net income (loss) per share: | ||||||||||||
Basic net income (loss) per common share | $ 0.10 | $ 0.11 | $ (0.03) | $ (0.01) | ||||||||
Diluted net income (loss) per common share | $ 0.10 | $ 0.11 | $ (0.03) | $ (0.01) | ||||||||
Basic weighted average common shares outstanding | 51,712 | 51,712 | 51,312 | 51,312 | ||||||||
Diluted weighted average common shares outstanding | 52,791 | 52,767 | 51,312 | 51,312 | ||||||||
Condensed Consolidated Statements of Operations (Unaudited) | ||||||||||||
(in thousands, except per share data) | ||||||||||||
Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 | |||||||||||
As previously reported | Adjustments | As restated | As previously reported | Adjustments | As restated | |||||||
Revenues: | ||||||||||||
Systems and services | $ 97,754 | $ 67 | $ 97,821 | $ 193,977 | $ 174 | $ 194,151 | ||||||
Hardware | 4,576 | - | 4,576 | 9,137 | - | 9,137 | ||||||
Total revenues | 102,330 | 67 | 102,397 | 203,114 | 174 | 203,288 | ||||||
Cost and expenses: | ||||||||||||
Cost of systems and services | 59,097 | (679) | 58,418 | 115,555 | (663) | 114,892 | ||||||
Cost of hardware | 3,851 | - | 3,851 | 7,502 | - | 7,502 | ||||||
Sales and marketing | 14,473 | 182 | 14,655 | 30,742 | 123 | 30,865 | ||||||
Research and development | 14,296 | (71) | 14,225 | 31,258 | (71) | 31,187 | ||||||
General and administrative | 5,559 | (2) | 5,557 | 11,199 | 14 | 11,213 | ||||||
Depreciation and amortization | 3,894 | - | 3,894 | 7,696 | - | 7,696 | ||||||
Restructuring charge | 1,349 | - | 1,349 | 8,547 | - | 8,547 | ||||||
Total costs and expenses | 102,519 | (570) | 101,949 | 212,499 | (597) | 211,902 | ||||||
Loss from operations | (189) | 637 | 448 | (9,385) | 771 | (8,614) | ||||||
Interest income, net | 1,335 | (22) | 1,313 | 2,484 | (22) | 2,462 | ||||||
Income (loss) before income taxes | 1,146 | 615 | 1,761 | (6,901) | 749 | (6,152) | ||||||
Provision for income taxes | - | - | - | - | - | - | ||||||
Net income (loss) | $ 1,146 | $ 615 | $ 1,761 | $ (6,901) | $ 749 | $ (6,152) | ||||||
Net income (loss) per share: | ||||||||||||
Basic net income (loss) per common share | $ 0.02 | $ 0.03 | $ (0.14) | $ (0.12) | ||||||||
Diluted net income (loss) per common share | $ 0.02 | $ 0.03 | $ (0.14) | $ (0.12) | ||||||||
Basic weighted average common shares outstanding | 51,598 | 51,598 | 51,109 | 51,109 | ||||||||
Diluted weighted average common shares outstanding | 53,100 | 52,993 | 51,109 | 51,109 | ||||||||
8
Condensed Consolidated Statement of Operations (Unaudited) | ||||||||||
(in thousands, except per share data) | ||||||||||
Three Months Ended March 31, 2006 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Revenues: | ||||||||||
Systems and services | $ | 96,223 | $ | 107 | $ | 96,330 | ||||
Hardware | 4,561 | - | 4,561 | |||||||
Total revenues | 100,784 | 107 | 100,891 | |||||||
Cost and expenses: | ||||||||||
Cost of systems and services | 56,458 | 15 | 56,473 | |||||||
Cost of hardware | 3,651 | - | 3,651 | |||||||
Sales and marketing | 16,269 | (59 | ) | 16,210 | ||||||
Research and development | 16,962 | - | 16,962 | |||||||
General and administrative | 5,640 | 16 | 5,656 | |||||||
Depreciation and amortization | 3,802 | - | 3,802 | |||||||
Restructuring charge | 7,198 | - | 7,198 | |||||||
Total costs and expenses | 109,980 | (28 | ) | 109,952 | ||||||
Loss from operations | (9,196 | ) | 135 | (9,061 | ) | |||||
Interest income, net | 1,149 | - | 1,149 | |||||||
Loss before income taxes | (8,047 | ) | 135 | (7,912 | ) | |||||
Provision for income taxes | - | - | ||||||||
Net loss | $ | (8,047 | ) | $ | 135 | $ | (7,912 | ) | ||
Net income loss per share: | ||||||||||
Basic net loss per common share | $ | (0.16 | ) | $ | (0.16 | ) | ||||
Diluted net loss per common share | $ | (0.16 | ) | $ | (0.16 | ) | ||||
Basic weighted average common shares outstanding | 50,581 | 50,581 | ||||||||
Diluted weighted average common shares outstanding | 50,581 | 50,581 | ||||||||
9
Condensed Consolidated Statements of Operations (Unaudited) | |||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||
Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2005 | ||||||||||||||||||
As previously reported | Adjustments | As restated | As previously reported | Adjustments | As restated | ||||||||||||||
Revenues: | |||||||||||||||||||
Systems and services | $ | 94,806 | $ | - | $ | 94,806 | $ | 269,491 | $ | - | $ | 269,491 | |||||||
Hardware | 3,046 | - | 3,046 | 8,660 | - | 8,660 | |||||||||||||
Total revenues | 97,852 | - | 97,852 | 278,151 | - | 278,151 | |||||||||||||
Cost and expenses: | |||||||||||||||||||
Cost of systems and services | 56,776 | 109 | 56,885 | 165,601 | 6 | 165,607 | |||||||||||||
Cost of hardware | 2,575 | - | 2,575 | 7,233 | - | 7,233 | |||||||||||||
Sales and marketing | 14,076 | 149 | 14,225 | 47,136 | (70 | ) | 47,066 | ||||||||||||
Research and development | 12,726 | 19 | 12,745 | 39,276 | (23 | ) | 39,253 | ||||||||||||
General and administrative | 3,840 | 106 | 3,946 | 14,707 | 208 | 14,915 | |||||||||||||
Depreciation and amortization | 3,625 | - | 3,625 | 10,891 | - | 10,891 | |||||||||||||
Total costs and expenses | 93,618 | 383 | 94,001 | 284,844 | 121 | 284,965 | |||||||||||||
Loss from operations | 4,234 | (383 | ) | 3,851 | (6,693 | ) | (121 | ) | (6,814 | ) | |||||||||
Interest income, net | 865 | (6 | ) | 859 | 2,146 | (19 | ) | 2,127 | |||||||||||
Income (loss) before income taxes | 5,099 | (389 | ) | 4,710 | (4,547 | ) | (140 | ) | (4,687 | ) | |||||||||
Provision for income taxes | - | - | - | - | - | - | |||||||||||||
Net income (loss) | $ | 5,099 | $ | (389 | ) | $ | 4,710 | $ | (4,547 | ) | $ | (140 | ) | $ | (4,687 | ) | |||
Net income (loss) per share: | |||||||||||||||||||
Basic net income (loss) per common share | $ | 0.11 | $ | 0.10 | $ | (0.10 | ) | $ | (0.10 | ) | |||||||||
Diluted net income (loss) per common share | $ | 0.10 | $ | 0.09 | $ | (0.10 | ) | $ | (0.10 | ) | |||||||||
Basic weighted average common shares outstanding | 48,304 | 48,304 | 47,751 | 47,751 | |||||||||||||||
Diluted weighted average common shares outstanding | 51,316 | 51,240 | 47,751 | 47,751 | |||||||||||||||
Condensed Consolidated Statements of Operations (Unaudited) | |||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||
Three Months Ended June 30, 2005 | Six Months Ended June 30, 2005 | ||||||||||||||||||
As previously reported | Adjustments | As restated | As previously reported | Adjustments | As restated | ||||||||||||||
Revenues: | |||||||||||||||||||
Systems and services | $ | 91,557 | $ | - | $ | 91,557 | $ | 174,685 | $ | - | $ | 174,685 | |||||||
Hardware | 4,308 | - | 4,308 | 5,615 | - | 5,615 | |||||||||||||
Total revenues | 95,865 | - | 95,865 | 180,300 | - | 180,300 | |||||||||||||
Cost and expenses: | |||||||||||||||||||
Cost of systems and services | 55,248 | (11 | ) | 55,237 | 107,513 | (104) | 107,409 | ||||||||||||
Cost of hardware | 3,557 | - | 3,557 | 4,658 | - | 4,658 | |||||||||||||
Sales and marketing | 16,196 | (53 | ) | 16,143 | 34,372 | (218) | 34,154 | ||||||||||||
Research and development | 13,974 | (10 | ) | 13,964 | 26,550 | (42) | 26,508 | ||||||||||||
General and administrative | 6,511 | 66 | 6,577 | 10,867 | 102 | 10,969 | |||||||||||||
Depreciation and amortization | 3,583 | - | 3,583 | 7,266 | - | 7,266 | |||||||||||||
Restructuring charge | - | - | - | - | - | - | |||||||||||||
Total costs and expenses | 99,069 | (8 | ) | 99,061 | 191,226 | (262) | 190,964 | ||||||||||||
Loss from operations | (3,204) | 8 | (3,196) | (10,926) | 262 | (10,664) | |||||||||||||
Interest income, net | 719 | (6 | ) | 713 | 1,280 | (13) | 1,267 | ||||||||||||
Loss before income taxes | (2,485) | 2 | (2,483) | (9,646) | 249 | (9,397) | |||||||||||||
Provision for income taxes | - | - | - | - | - | - | |||||||||||||
Net loss | $ | (2,485) | $ | 2 | $ | (2,483) | $ | (9,646) | $ | 249 | $ | (9,397) | |||||||
Net loss per share: | |||||||||||||||||||
Basic net loss per common share | $ | (0.05) | $ | (0.05) | $ | (0.20) | $ | (0.20) | |||||||||||
Diluted net loss per common share | $ | (0.05) | $ | (0.05) | $ | (0.20) | $ | (0.20) | |||||||||||
Basic weighted average common shares outstanding | 47,629 | 47,629 | 47,444 | 47,444 | |||||||||||||||
Diluted weighted average common shares outstanding | 47,629 | 47,629 | 47,444 | 47,444 | |||||||||||||||
10
Condensed Consolidated Statement of Operations (Unaudited) | ||||||||||
(in thousands, except per share data) | ||||||||||
Three Months Ended March 31, 2005 | ||||||||||
As previously reported | Adjustments | As restated | ||||||||
Revenues: | ||||||||||
Systems and services | $ | 83,128 | $ | - | $ | 83,128 | ||||
Hardware | 1,307 | - | 1,307 | |||||||
Total revenues | 84,435 | - | 84,435 | |||||||
Cost and expenses: | ||||||||||
Cost of systems and services | 52,712 | (92 | ) | 52,620 | ||||||
Cost of hardware | 1,101 | - | 1,101 | |||||||
Sales and marketing | 17,729 | (166 | ) | 17,563 | ||||||
Research and development | 12,576 | (32 | ) | 12,544 | ||||||
General and administrative | 4,356 | 36 | 4,392 | |||||||
Depreciation and amortization | 3,683 | - | 3,683 | |||||||
Restructuring charge | - | - | - | |||||||
Total costs and expenses | 92,157 | (254 | ) | 91,903 | ||||||
Loss from operations | (7,722 | ) | 254 | (7,468 | ) | |||||
Interest income, net | 561 | (6 | ) | 555 | ||||||
Loss before income taxes | (7,161 | ) | 248 | (6,913 | ) | |||||
Provision for income taxes | - | - | - | |||||||
Net loss | $ | (7,161 | ) | $ | 248 | $ | (6,913 | ) | ||
Net loss per share: | ||||||||||
Basic net loss per common share | $ | (0.15 | ) | $ | (0.15 | ) | ||||
Diluted net loss per common share | $ | (0.15 | ) | $ | (0.15 | ) | ||||
Basic weighted average common shares outstanding | 47,323 | 47,323 | ||||||||
Diluted weighted average common shares outstanding | 47,323 | 47,323 | ||||||||
11
Revisions to Previously Reported Quarterly Management’s Discussion and Analysis
As a result of the restatements described above, certain information reported in Item 2 Management’s Discussion and Analysis to the previously filed 2006 and 2005 Quarterly Reports on Form 10-Q has been revised. Certain revisions to the information are considered material to the three and nine months ended September 30, 2006 and the three and six months ended June 30, 2006, and as such, the revised Management’s Discussion and Analysis have been included for those periods:
Three and nine months ended September 30, 2006, compared to three and nine months ended September 30, 2005
Consolidated Statements of Operations | |||||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||||||||||
As restated | As restated | Change | As restated | As restated | Change | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Systems and services | $ | 104,266 | $ | 94,806 | $ | 9,460 | 10.0 | % | $ | 298,417 | $ | 269,491 | $ | 28,926 | 10.7 | % | |||||||||
Hardware | 4,300 | 3,046 | 1,254 | 41.2 | % | 13,437 | 8,660 | 4,777 | 55.2 | % | |||||||||||||||
Total revenues | 108,566 | 97,852 | 10,714 | 10.9 | % | 311,854 | 278,151 | 33,703 | 12.1 | % | |||||||||||||||
Cost and expenses: | |||||||||||||||||||||||||
Cost of systems and services | 60,938 | 56,885 | 4,053 | 7.1 | % | 175,829 | 165,607 | 10,222 | 6.2 | % | |||||||||||||||
Cost of hardware | 3,489 | 2,575 | 914 | 35.5 | % | 10,991 | 7,233 | 3,758 | 52.0 | % | |||||||||||||||
Sales and marketing | 16,208 | 14,225 | 1,983 | 13.9 | % | 47,074 | 47,066 | 8 | 0.0 | % | |||||||||||||||
Research and development | 13,094 | 12,745 | 349 | 2.7 | % | 44,281 | 39,253 | 5,028 | 12.8 | % | |||||||||||||||
General and administrative | 6,753 | 3,946 | 2,807 | 71.1 | % | 17,966 | 14,915 | 3,051 | 20.5 | % | |||||||||||||||
Depreciation and amortization | 3,885 | 3,625 | 260 | 7.2 | % | 11,581 | 10,891 | 690 | 6.3 | % | |||||||||||||||
Restructuring charge | - | - | - | - | 8,547 | - | 8,547 | - | |||||||||||||||||
Total costs and expenses | 104,367 | 94,001 | 10,366 | 11.0 | % | 316,269 | 284,965 | 31,304 | 11.0 | % | |||||||||||||||
Loss from operations | 4,199 | 3,851 | 348 | 9.0 | % | (4,415 | ) | (6,814 | ) | 2,399 | 35.2 | % | |||||||||||||
Interest income, net | 1,378 | 859 | 519 | 60.4 | % | 3,840 | 2,127 | 1,713 | 80.5 | % | |||||||||||||||
Income (loss) before income taxes | 5,577 | 4,710 | 867 | 18.4 | % | (575 | ) | (4,687 | ) | 4,112 | 87.7 | % | |||||||||||||
Provision for income taxes | - | - | - | - | - | - | - | - | |||||||||||||||||
Net income (loss) | $ | 5,577 | $ | 4,710 | $ | 867 | 18.4 | % | $ | (575 | ) | $ | (4,687 | ) | $ | 4,112 | 87.7 | % | |||||||
Net income (loss) per share: | |||||||||||||||||||||||||
Basic net income (loss) per common share | $ | 0.11 | $ | 0.10 | $ | 0.01 | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.09 | |||||||||||
Diluted net income (loss) per common share | $ | 0.11 | $ | 0.09 | $ | 0.02 | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.09 | |||||||||||
The adoption of SFAS No. 123(R) on January 1, 2006, which resulted in the expensing of stock based compensation, impacted costs and expenses as indicated in the table below (in thousands):
Three Months Ended | ||
September 30, 2006 | ||
As restated | ||
Cost of systems and services | $ 714 | |
Sales and marketing | 860 | |
Research and development | 498 | |
General and administrative | 649 | |
Total stock-based compensation expense | $ 2,721 | |
Cost of systems and services increased $4.0 million, or 7.1%, to $60.9 million, for the quarter ended September 30, 2006, compared to $56.9 million for the third quarter of 2005. The increase in cost of systems and services was a result of higher volumes of outsourcing, remote hosting and the hiring of professional service employees to increase our capacity and improve our support services. The impact of adopting SFAS No. 123(R), and an increase in amortization of capitalized software development costs, also contributed to the increase in the cost of systems and services. We expect the cost of third party software licensing fees and networking services to continue to fluctuate.
12
Sales and marketing expenses increased $2.0 million, or 13.9%, to $16.2 million for the quarter ended September 30, 2006, compared to $14.2 million for the third quarter of 2005. The increase in sales and marketing expenses was driven by significantly higher sales bookings in the quarter which resulted in higher commissions, as well as, the impact of adopting SFAS No. 123(R). Bookings produce little if any revenue in the quarter in which the contract is signed, so sales commissions on these contracts may tend to increase sales and marketing expense as a percentage of revenue in that quarter.
The adoption of SFAS No. 123(R) on January 1, 2006, which resulted in the expensing of stock based compensation, impacted costs and expenses as indicated in the table below (in thousands):
Nine Months Ended | ||
September 30, 2006 | ||
As restated | ||
Cost of systems and services | $ 2,383 | |
Sales and marketing | 2,548 | |
Research and development | 1,349 | |
General and administrative | 1,948 | |
Restructuring | 1,162 | |
Total stock-based compensation expense | $ 9,390 | |
Cost of systems and services increased $10.2 million, or 6.2%, to $175.8 million, for the nine months ended September 30, 2006, compared to $165.6 million for the same period in 2005. The increase in cost of systems and services was a result of higher volumes of outsourcing, remote hosting and professional services, the impact of adopting SFAS No. 123(R), as well as the hiring of professional service employees during the first nine months of 2006, to increase our capacity and improve our support services.
Sales and marketing expenses remained at $47.1 million for the nine months ended September 30, 2006, compared to the same period in 2005. The sales and marketing expenses in 2006 were impacted by the adoption of SFAS 123R and higher commissions as a result of higher sales bookings, offset by lower expenditures on trade shows and other marketing events.
Research and development expenses increased $5.0 million, or 12.8%, to $44.3 million, for the nine months ended September 30, 2006, compared to $39.3 million for the same period in 2005. The increase in research and development expense was primarily related to a decrease in capitalized software development costs of $4.4 million from $13.9 million in the nine months ended September 30, 2005, to $9.5 million for the nine months ended September 30, 2006. The decrease in capitalized software was due to a lower level of capitalization associated with coding and development as a result of the release of SunriseXA 4.5 in January 2006. Amortization of capitalized software development costs, which is included as a component of cost of systems and services, increased by approximately $2.4 million, to $13.3 million for the nine months ended September 30, 2006, compared to $10.9 million for the same period in 2005, due to prior period increases in capitalized software development costs.
13
Three and six months ended June 30, 2006 compared to three and six months ended June 20, 2005
Consolidated Statements of Operations | |||||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||||||||||
As restated | As restated | Change | As restated | As restated | Change | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Systems and services | $ | 97,821 | $ | 91,557 | $ | 6,264 | 6.8 | % | $ | 194,151 | $ | 174,685 | $ | 19,466 | 11.1 | % | |||||||||
Hardware | 4,576 | 4,308 | 268 | 6.2 | % | 9,137 | 5,615 | 3,522 | 62.7 | % | |||||||||||||||
Total revenues | 102,397 | 95,865 | 6,532 | 6.8 | % | 203,288 | 180,300 | 22,988 | 12.7 | % | |||||||||||||||
Cost and expenses: | - | - | - | ||||||||||||||||||||||
Cost of systems and services | 58,418 | 55,237 | 3,181 | 5.8 | % | 114,892 | 107,409 | 7,483 | 7.0 | % | |||||||||||||||
Cost of hardware | 3,851 | 3,557 | 294 | 8.3 | % | 7,502 | 4,658 | 2,844 | 61.1 | % | |||||||||||||||
Sales and marketing | 14,655 | 16,143 | (1,488 | ) | -9.2 | % | 30,865 | 34,154 | (3,289 | ) | -9.6 | % | |||||||||||||
Research and development | 14,225 | 13,964 | 261 | 1.9 | % | 31,187 | 26,508 | 4,679 | 17.7 | % | |||||||||||||||
General and administrative | 5,557 | 6,577 | (1,020 | ) | -15.5 | % | 11,213 | 10,969 | 244 | 2.2 | % | ||||||||||||||
Depreciation and amortization | 3,894 | 3,583 | 311 | 8.7 | % | 7,696 | 7,266 | 430 | 5.9 | % | |||||||||||||||
Restructuring charge | 1,349 | - | 1,349 | - | 8,547 | - | 8,547 | - | |||||||||||||||||
Total costs and expenses | 101,949 | 99,061 | 2,888 | 2.9 | % | 211,902 | 190,964 | 20,938 | 11.0 | % | |||||||||||||||
Loss from operations | 448 | (3,196 | ) | 3,644 | 114.0 | % | (8,614 | ) | (10,664 | ) | 2,050 | 19.2 | % | ||||||||||||
Interest income, net | 1,313 | 713 | 600 | 84.2 | % | 2,462 | 1,267 | 1,195 | 94.3 | % | |||||||||||||||
Income (loss) before income taxes | 1,761 | (2,483 | ) | 4,244 | 170.9 | % | (6,152 | ) | (9,397 | ) | 3,245 | 34.5 | % | ||||||||||||
Provision for income taxes | - | - | - | - | - | - | - | ||||||||||||||||||
Net income (loss) | $ | 1,761 | $ | (2,483 | ) | $ | 4,244 | 170.9 | % | $ | (6,152 | ) | $ | (9,397 | ) | $ | 3,245 | 34.5 | % | ||||||
Net income (loss) per share: | |||||||||||||||||||||||||
Basic net income (loss) per common share | $ | 0.03 | $ | (0.05 | ) | $ | 0.08 | $ | (0.12 | ) | $ | (0.20 | ) | $ | 0.08 | ||||||||||
Diluted net income (loss) per common share | $ | 0.03 | $ | (0.05 | ) | $ | 0.08 | $ | (0.12 | ) | $ | (0.20 | ) | $ | 0.08 | ||||||||||
The adoption of SFAS No. 123(R) on January 1, 2006, which resulted in the expensing of stock based compensation, impacted costs and expenses as indicated in the table below (in thousands):
Three Months Ended | ||
June 30, 2006 | ||
As restated | ||
Cost of systems and services | $ 744 | |
Sales and marketing | 890 | |
Research and development | 494 | |
General and administrative | 579 | |
Restructuring charge | 267 | |
Total stock-based compensation expense | $ 2,974 | |
Cost of systems and services increased $3.2 million, or 5.8%, to $58.4 million, for the quarter ended June 30, 2006, compared to $55.2 million for the second quarter of 2005. The increase in cost of systems and services was a result of higher volumes of outsourcing, remote hosting and the hiring of professional service employees to increase our capacity and improve our support services. They are expected to be deployed on customer implementations in the second half of the year. The impact of adopting SFAS No. 123(R), as well as, an increase in amortization of capitalized software development costs, also resulted in an increase in the cost of systems and services.
14
Sales and marketing expenses decreased $1.4 million, or 8.8%, to $14.7 million for the quarter ended June 30, 2006, compared to $16.1 million for the second quarter of 2005. The decrease in sales and marketing expenses was primarily related to lower expenditures in the quarter related to trade shows and other marketing events. The 2006 restructuring also reduced expenditures during the current quarter as a result of lower headcount.
The adoption of SFAS No. 123(R) on January 1, 2006, which resulted in the expensing of stock based compensation, impacted costs and expenses as indicated in the table below (in thousands):
Six Months Ended | ||
June 30, 2006 | ||
As restated | ||
Cost of systems and services | $ 1,669 | |
Sales and marketing | 1,688 | |
Research and development | 851 | |
General and administrative | 1,299 | |
Restructuring charge | 1,162 | |
Total stock-based compensation expense | $ 6,669 | |
Cost of systems and services increased $7.5 million, or 7.0%, to $114.9 million, for the six months ended June 30, 2006, compared to $107.4 million for the same period in 2005. The increase in cost of systems and services was a result of the increase in higher volumes of outsourcing, remote hosting and the delivery of professional services, the impact of adopting SFAS No. 123(R), as well as the hiring of approximately 70 professional service employees to increase our capacity and improve our support services. They are expected to be deployed on customer implementations in the second half of the year.
Sales and marketing expenses decreased $3.3 million, or 9.6%, to $30.9 million for the six months ended June 30, 2006, compared to $34.2 million for the same period in 2005. The decrease in sales and marketing expenses was primarily related to lower expenditures in the period related to trade shows and other marketing events. The 2006 restructuring also reduced expenditures during the current period as a result of lower headcount.
15