Note 14 - Restatement | 6 Months Ended |
Jun. 30, 2013 |
Accounting Changes and Error Corrections [Abstract] | ' |
Accounting Changes and Error Corrections [Text Block] | ' |
14. Restatement |
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Quarterly financial statements as of and for the three and six months ended June 30, 2013 |
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Subsequent to the initial filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, we have restated herein our unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2013 to reflect certain corrections in the manner in which we recognize revenue related to certain sales transactions. The errors identified by the Company in its revenue recognition practices are described below: |
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| ● | For certain sales transactions, the Company entered into an extended maintenance and warranty arrangement that included a fixed fee to cover products owned by the customer at the date of execution of the arrangement as well as extended maintenance and warranty coverage on any additional products purchased by the customers over the multi-year term of the applicable arrangement. The Company did not properly defer revenues on the additional product purchases to correctly account for the fixed fee, multi-year extended maintenance and warranty arrangement. As a result, the Company improperly recognized product revenues when the additional products were shipped rather than deferring a portion of the consideration and recognizing the related revenues over the remaining term of the applicable fixed fee, multi-year extended maintenance and warranty arrangement. | | | | | | | | | | |
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| ● | For certain other sales transactions, the Company (i) recognized product revenues prematurely in advance of delivering certain product functionality or other deliverables that were committed to be provided to the customers or (ii) recognized product revenues prematurely based on an incorrect assessment of certain multiple-element arrangement sales transactions that included professional services that were provided based on a purchase order that was separate from the product purchase order but that was negotiated concurrently with the customer. | | | | | | | | | | |
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| ● | The Company entered into a sales arrangement that included extended payment terms beyond the Company’s customary terms. Revenue for this transaction should have been, but was not, recognized when the payments became due, as opposed to when the products were shipped. | | | | | | | | | | |
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These corrections in our revenue recognition resulted in the movement of revenue between accounting periods, and do not have any impact on the total revenue to be recognized over the life of the applicable arrangements. |
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Certain of the Company’s performance-based equity awards include a forfeiture provision that provides for the forfeiture of the unvested portion of such equity awards in the event that the Company concludes that it is required to restate its previously issued financial statements to reflect a less favorable financial condition and/or less favorable results of operations. On April 2, 2013, the Company concluded to restate certain previously issued unaudited condensed consolidated financial statements,and, due to such forfeiture provisions, we have for accounting purposes deemed such equity awards to have been automatically forfeited and subsequently re-granted as a result of the restatement. The Company did not reflect any such forfeiture or subsequent re-grant of these equity awards in its previously issued unaudited condensed consolidated financial statements. The correction of this error resulted in a net reduction in our stock-based compensation expenses with a pre-tax impact of $1.2 million for the three and six months ended June 30, 2013. |
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The previously filed interim condensed consolidated financial statements as of and for the three months and six months ended June 30, 2013 have been restated to reflect the correction of these errors, which impact revenue from products, revenue from services, research and development expenses, sales and marketing expenses, general and administrative expenses, and deferred revenue (current and non-current). All other adjustments relate to the applicable income tax effects of these errors as well as the correction of certain other income tax errors which existed as of June 30, 2013 as shown in the following table: |
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Restated condensed consolidated balance sheet amounts |
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| | As of June 30, 2013 | |
| | As Previously | | | Restatement | | | | | |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands) | |
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Prepaid expenses and other current assets | | $ | 46,657 | | | $ | 4,514 | | | $ | 51,171 | |
Total current assets | | | 408,148 | | | | 4,514 | | | | 412,662 | |
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Other assets | | | 10,221 | | | | 3,731 | | | | 13,952 | |
Total assets | | | 848,775 | | | | 8,245 | | | | 857,020 | |
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Deferred revenues - current | | | 67,195 | | | | 4,474 | | | | 71,669 | |
Total current liabilities | | | 122,020 | | | | 4,474 | | | | 126,494 | |
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Deferred revenues - non-current | | | 10,295 | | | | 741 | | | | 11,036 | |
Other liabilities | | | 32,353 | | | | 5,260 | | | | 37,613 | |
Total liabilities | | | 364,668 | | | | 10,475 | | | | 375,143 | |
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Additional paid-in capital | | | 182,434 | | | | (1,199 | ) | | | 181,235 | |
Retained earnings | | | 129,164 | | | | (1,031 | ) | | | 128,133 | |
Total shareholders’ equity | | | 484,107 | | | | (2,230 | ) | | | 481,877 | |
Total liabilities and shareholders’ equity | | $ | 848,775 | | | $ | 8,245 | | | $ | 857,020 | |
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Restated condensed consolidated statements of operations amounts |
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| | For the Three Months Ended June 30, 2013 | |
| | As Previously | | | Restatement | | | | | |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands, except per share data) | |
Revenues: | | | | | | | | | | | | |
Products | | $ | 87,818 | | | $ | (4,024 | ) | | $ | 83,794 | |
Services | | | 28,077 | | | | 133 | | | | 28,210 | |
Total revenues | | | 115,895 | | | | (3,891 | ) | | | 112,004 | |
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Costs and operating expenses: | | | | | | | | | | | | |
Research and development | | | 29,539 | | | | (471 | ) | | | 29,068 | |
Sales and marketing | | | 33,191 | | | | (208 | ) | | | 32,983 | |
General and administrative | | | 12,027 | | | | (520 | ) | | | 11,507 | |
Total costs and operating expenses | | | 110,304 | | | | (1,199 | ) | | | 109,105 | |
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Income from operations | | | 5,591 | | | | (2,692 | ) | | | 2,899 | |
Income before income taxes | | | 7,079 | | | | (2,692 | ) | | | 4,387 | |
Income tax expense | | | 3,316 | | | | (1,946 | ) | | | 1,370 | |
Net income | | | 3,763 | | | | (746 | ) | | | 3,017 | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 0.05 | | | $ | (0.01 | ) | | $ | 0.04 | |
Diluted | | $ | 0.05 | | | $ | (0.01 | ) | | $ | 0.04 | |
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Stock-based compensation included in: | | | | | | | | | | | | |
Research and development | | $ | 2,049 | | | $ | (471 | ) | | $ | 1,578 | |
Sales and marketing | | | 1,836 | | | | (208 | ) | | | 1,628 | |
General and administrative | | | 1,679 | | | | (520 | ) | | | 1,159 | |
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| | For the Six Months Ended June 30, 2013 | |
| | As Previously | | | Restatement | | | | | |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands, except per share data) | |
Revenues: | | | | | | | | | | | | |
Products | | $ | 184,454 | | | $ | (5,149 | ) | | $ | 179,305 | |
Services | | | 54,224 | | | | (66 | ) | | | 54,158 | |
Total revenues | | | 238,678 | | | | (5,215 | ) | | | 233,463 | |
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Costs and operating expenses: | | | | | | | | | | | | |
Research and development | | | 59,251 | | | | (471 | ) | | | 58,780 | |
Sales and marketing | | | 68,232 | | | | (208 | ) | | | 68,024 | |
General and administrative | | | 24,085 | | | | (520 | ) | | | 23,565 | |
Total costs and operating expenses | | | 222,995 | | | | (1,199 | ) | | | 221,796 | |
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Income from operations | | | 15,683 | | | | (4,016 | ) | | | 11,667 | |
Income before income taxes | | | 15,435 | | | | (4,016 | ) | | | 11,419 | |
Income tax expense | | | 3,567 | | | | (2,985 | ) | | | 582 | |
Net income | | | 11,868 | | | | (1,031 | ) | | | 10,837 | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 0.16 | | | $ | (0.02 | ) | | $ | 0.14 | |
Diluted | | $ | 0.15 | | | $ | (0.01 | ) | | $ | 0.14 | |
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Stock-based compensation included in: | | | | | | | | | | | | |
Research and development | | $ | 4,497 | | | $ | (471 | ) | | $ | 4,026 | |
Sales and marketing | | | 3,851 | | | | (208 | ) | | | 3,643 | |
General and administrative | | | 3,884 | | | | (520 | ) | | | 3,364 | |
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Restated condensed consolidated statements of comprehensive income amounts |
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| | For the Three Months Ended June 30, 2013 | |
| | As Previously | | | Restatement | | | | | |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands) | |
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Net Income | | $ | 3,763 | | | $ | (746 | ) | | $ | 3,017 | |
Comprehensive Income | | $ | 1,869 | | | $ | (746 | ) | | $ | 1,123 | |
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| | For the Six Months Ended June 30, 2013 | |
| | As Previously | | | Restatement | | | | | |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands) | |
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Net Income | | $ | 11,868 | | | $ | (1,031 | ) | | $ | 10,837 | |
Comprehensive Income | | $ | 9,795 | | | $ | (1,031 | ) | | $ | 8,764 | |
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Restated condensed consolidated statements of cash flows amounts |
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The correction of the errors described above did not impact our total cash flows from operating activities, investing activities or financing activities within our consolidated statement of cash flows, but did result in corrections of the following line items within cash flows from operating activities: |
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| | For the Six Months Ended June 30, 2013 | |
| | As Previously | | | Restatement | | | | | |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands) | |
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Net Income | | $ | 11,868 | | | $ | (1,031 | ) | | $ | 10,837 | |
Stock-based compensation | | | 12,621 | | | | (1,200 | ) | | | 11,421 | |
Deferred Income Taxes | | | (1,649 | ) | | | 863 | | | | (786 | ) |
Prepaid Expenses and Other current Assets | | | (4,172 | ) | | | (4,513 | ) | | | (8,685 | ) |
Other Assets | | | (282 | ) | | | 1,691 | | | | 1,409 | |
Deferred Revenues | | | 2,699 | | | | 5,215 | | | | 7,914 | |
Other Liabilities | | | 4,708 | | | | (1,025 | ) | | | 3,683 | |
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Quarterly financial statements as of and for the three and six months ended June 30, 2012 |
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In our 2012 Form 10-K, we restated, among other previously issued financial statements, our unaudited consolidated financial statements for the three and six months ended June 30, 2012 to reflect certain corrections in the manner in which we recognized revenue related to our warranty and software maintenance contracts, including a previous implied warranty and software maintenance arrangement with one of our customers. Specifically, we made the following two corrections to our revenue recognition practices to properly report revenue in prior periods: |
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| ● | Accounting Practice Error - We now recognize revenue related to our warranty and software maintenance contracts on the effective date of each such contract rather than in the first calendar month following the effective date of the contract as though the warranty and maintenance period commenced on the first day of such month. We also now recognize revenue related to back maintenance fees when evidence of an arrangement exists rather than commencing in the first calendar month following the effective date of the contract as though the warranty and maintenance period commenced on the first day of such month. | | | | | | | | | | |
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| ● | Implied Arrangement Error - We now cease to defer revenue for any implied warranty and software maintenance arrangement upon the receipt from the applicable customer of the first substantive contract for extended warranty and software maintenance services, and we will recognize the applicable previously deferred revenue related to the implied arrangement, provided all other revenue recognition criteria have been met. The Company’s historical practice was to continue to defer revenue for implied warranty and software maintenance arrangements (despite the receipt of an initial substantive extended warranty and software maintenance contract) until we could establish a pattern that we were able to enforce our warranty and software maintenance contracts as evidenced by, among other items, (i) the consistent receipt of extended renewal orders from the specific customer for warranty and software maintenance services and (ii) senior management’s assertion that warranty and software maintenance services would not be provided to the customer if existing contracts were canceled or were not renewed. | | | | | | | | | | |
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The 2012 changes in our revenue recognition practices resulted in movements of revenue between accounting periods, and do not have any impact on the total revenue to be recognized over the life of a warranty and software maintenance contract or arrangement, although the timing of the recognition of such revenue commences earlier and ends earlier than would be the case under the Company’s previously used accounting treatment. |
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This Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2013 (this “Form 10-Q/A”) reflects the impact of the prior restatement on the applicable unaudited quarterly financial information for the three and six months ended June 30, 2012. Our previously filed Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 has not been and will not be amended. |
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Certain line items included in this Form 10-Q/A have been restated to reflect the corrections of the above errors, which impact revenues from products, revenues from services and deferred revenues (current and non-current). All other adjustments related to the applicable income tax effects of these errors. The following tables reconcile the amounts as originally reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 to the corresponding amounts as restated and included in Note 15, Restatement, in our 2012 Form 10-K and as reported herein. |
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Restated consolidated statement of operations amounts |
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| | For the Three Months Ended | |
30-Jun-12 |
| | As | | | Restatement | | | | | |
Previously |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands, except per share data) | |
Revenues: | | | | | | | | | | | | |
Products | | | | | | | | | | | | |
Implied arrangement error | | $ | — | | | $ | (2,650 | ) | | $ | — | |
| | | 75,938 | | | | (2,650 | ) | | | 73,288 | |
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Services | | | | | | | | | | | | |
Accounting practice error | | | — | | | | 340 | | | | — | |
Implied arrangement error | | | — | | | | 669 | | | | — | |
| | | 16,405 | | | | 1,009 | | | | 17,414 | |
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Total revenues | | | 92,343 | | | | (1,641 | ) | | | 90,702 | |
Income from operations | | | 8,104 | | | | (1,641 | ) | | | 6,463 | |
Income before income taxes | | | 6,906 | | | | (1,641 | ) | | | 5,265 | |
Income tax benefit | | | (19,944 | ) | | | (487 | ) | | | (20,431 | ) |
Net income | | | 26,850 | | | | (1,154 | ) | | | 25,696 | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 0.38 | | | $ | (0.02 | ) | | $ | 0.36 | |
Diluted | | $ | 0.33 | | | $ | (0.01 | ) | | $ | 0.32 | |
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| | For the Six Months Ended | |
30-Jun-12 |
| | As | | | Restatement | | | | | |
Previously |
| | Reported | | | Adjustments | | | Restated | |
| | (in thousands, except per share data) | |
Revenues: | | | | | | | | | | | | |
Products | | | | | | | | | | | | |
Implied arrangement error | | $ | — | | | $ | (2,086 | ) | | $ | — | |
| | | 144,981 | | | | (2,086 | ) | | | 142,895 | |
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Services | | | | | | | | | | | | |
Accounting practice error | | | — | | | | 1,028 | | | | — | |
Implied arrangement error | | | — | | | | 432 | | | | — | |
| | | 33,005 | | | | 1,460 | | | | 34,465 | |
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Total revenues | | | 177,986 | | | | (626 | ) | | | 177,360 | |
Income from operations | | | 15,391 | | | | (626 | ) | | | 14,765 | |
Income before income taxes | | | 12,503 | | | | (626 | ) | | | 11,877 | |
Income tax benefit | | | (18,729 | ) | | | (257 | ) | | | (18,986 | ) |
Net income | | | 31,232 | | | | (369 | ) | | | 30,863 | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 0.44 | | | $ | (0.01 | ) | | $ | 0.43 | |
Diluted | | $ | 0.4 | | | $ | — | | | $ | 0.4 | |
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Restated consolidated statements of comprehensive income amounts |
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| | For the Three Months Ended | |
30-Jun-12 |
| | As | | | Restatement | | | Restated | |
Previously | Adjustments |
Reported | |
| | (in thousands) | |
| | | | | | | | | | | | |
Net income | | $ | 26,850 | | | $ | (1,154 | ) | | $ | 25,696 | |
Comprehensive income | | $ | 26,357 | | | $ | (1,154 | ) | | $ | 25,203 | |
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| | For the Six Months Ended | |
30-Jun-12 |
| | As | | | Restatement | | | Restated | |
Previously | Adjustments |
Reported | |
| | (in thousands) | |
| | | | | | | | | | | | |
Net income | | $ | 31,232 | | | $ | (369 | ) | | $ | 30,863 | |
Comprehensive income | | $ | 31,526 | | | $ | (369 | ) | | $ | 31,157 | |
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Restated consolidated statements of cash flows amounts |
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The correction of the errors described above did not impact our total cash flows from operating activities, investing activities or financing activities within our consolidated statements of cash flows but did result in corrections of the following line items within cash flow from operating activities: |
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| | For the Six Months Ended | |
30-Jun-12 |
| | As | | | Restatement | | | Restated | |
Previously | Adjustments |
Reported | |
| | (in thousands) | |
| | | | | | | | | | | | |
Net income | | $ | 31,232 | | | $ | (369 | ) | | $ | 30,863 | |
Accrued expenses and other | | | 1,382 | | | | (257 | ) | | | 1,125 | |
Deferred revenues | | | 4,471 | | | | 626 | | | | 5,097 | |
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Remediation Efforts to Address Newly Identified Material Weaknesses |